Consolidated Annual Accounts
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INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORT T
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(Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
INDEPENDENT
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KPMG Auditores, S.L.
Paseo de la Castellana, 259C
28046 Madrid
Independent Auditor's Report on the Consolidated Annual
Accounts
(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.)
2
Key Audit Matters ________________________________________________________
Key audit matters are those matters that, in our professional judgement, were of most significance
in the audit of the consolidated annual accounts of the current period. These matters were
addressed in the context of our audit of the consolidated annual accounts as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Additions to property, plant and equipment (Euros 401,968 thousand)
See note 6 to the consolidated annual accounts
To the Shareholders of Red Eléctrica Corporación, S.A.:
Key audit matter
How the matter was addressed in our audit
REPORT ON THE CONSOLIDATED ANNUAL ACCOUNTS
Opinion __________________________________________________________________
We have audited the consolidated annual accounts of Red Eléctrica Corporación, S.A. (the “Parent”)
and subsidiaries (together the “Group”) which comprise the consolidated statement of financial
position at 31 December 2018, and the consolidated income statement, consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of
cash flows for the year then ended, and consolidated notes.
In our opinion, the accompanying consolidated annual accounts give a true and fair view, in all
material respects, of the consolidated equity and consolidated financial position of the Group at 31
December 2018 and of its consolidated financial performance and its consolidated cash flows for the
year then ended in accordance with International Financial Reporting Standards as adopted by the
European Union (IFRS-EU) and other provisions of the financial reporting framework applicable in
Spain.
Basis for Opinion _________________________________________________________
We conducted our audit in accordance with prevailing legislation regulating the audit of accounts in
Spain. Our responsibilities under those standards are further described in the Auditor's
Responsibilities for the Audit of the Consolidated Annual Accounts section of our report.
We are independent of the Group in accordance with the ethical requirements, including those
regarding independence, that are relevant to our audit of the consolidated annual accounts in Spain
pursuant to the legislation regulating the audit of accounts. We have not provided any non-audit
services, nor have any situations or circumstances arisen which, under the aforementioned
regulations, have affected the required independence such that this has been compromised.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
KPMG Auditores S.L., sociedad española de responsabilidad limitada y firma
miembro de la red KPMG de firmas independientes afiliadas a KPMG International
Cooperative (“KPMG International”), sociedad suiza.
Paseo de la Castellana, 259C – Torre de Cristal – 28046 Madrid
Inscrita en el Registro Oficial de Auditores de Cuentas con el nº.S0702, y en el
Registro de Sociedades del Instituto de Censores Jurados de Cuentas con el nº.10.
Reg. Mer Madrid, T. 11.961, F. 90, Sec. 8, H. M -188.007, Inscrip. 9
N.I.F. B-78510153
Most of the Group's property, plant and equipment
pertain to Red Eléctrica de España, S.A.U., the
regulated activity of which mainly consists of
managing the transmission network of the Spanish
electricity system. Each year, Red Eléctrica de
España, S.A.U. makes substantial investments in
property, plant and equipment in accordance with
the Electricity Transmission Network Development
Plan for 2015 – 2020 approved by agreement of the
Council of Ministers on 16 October 2015. In 2018
additions to property, plant and equipment totalled
Euros 401,968 thousand, of which Euros 380,679
thousand pertains to Red Eléctrica de España,
S.A.U.
Considering the nature of the business carried out
by Red Eléctrica de España, S.A.U., remuneration is
set by the Ministry for the Ecological Transition. The
calculation method is stipulated in legislation and
takes into account the costs necessary to construct,
operate and maintain the technical electricity
facilities, in accordance with Electricity Industry Law
24/2013 of 26 December 2013. As part of the
Group's revenues are directly related to the
electricity transmission facilities recognised each
year, and bearing in mind the significance of these
facilities in the consolidated annual accounts, we
have considered the additions to property, plant and
equipment to be a key audit matter.
Our audit procedures included evaluating the relevant
controls associated with processes involving “fixed
assets and acquisitions”, as well as performing
substantive procedures on property, plant and
equipment. We also assessed the consistency of the
Group's accounting policies on “fixed assets and
acquisitions” with the applicable accounting
framework.
Our procedures for evaluating and analysing the
control environment were focused on:
-
Testing the design, implementation and
operating effectiveness of key manual and
automated controls related to the cycles of
“additions and disposals of fixed assets” and
“acquisition of assets and services, progress
billings for construction”.
Our substantive procedures on property, plant and
equipment mainly consisted of:
-
-
Analysing additions during the year and
assessing the accuracy of their accounting
recognition.
Analysing documentation supporting the cost
allocation for a sample of projects in progress.
We also assessed whether the disclosures in the
consolidated annual accounts meet the requirements
of the financial reporting framework applicable to the
Company.
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4
Hedging instruments (assets: Euros 11,020 thousand; liabilities: Euros 39,944
thousand; valuation adjustments: hedging transactions: Euros 62,237
thousand)
See notes 12, 16, 17 and 18 to the consolidated annual accounts
Key audit matter
How the matter was addressed in our audit
Loans and borrowings and bonds and other
marketable securities total Euros 5,543,085
thousand, of which Euros 685,750 thousand is in
foreign currency. The Group arranges financial
instruments, including foreign currency and interest
rate derivatives, to hedge exposures to exchange
rate and interest rate fluctuations of part of this
debt and of highly probable forecast future
transactions.
Our audit procedures included evaluating the relevant
controls associated with the classification and
measurement of hedging instruments, and performing
substantive procedures thereon. We also assessed
the compliance of the Group's accounting policies on
financial instruments with the applicable accounting
framework.
Our procedures for evaluating the control environment
were focused on:
Derivatives designated as accounting hedges must
meet strict criteria with respect to documentation
and the effectiveness of the hedge on inception.
-
Furthermore, the fair value of derivative financial
instruments is determined using valuation
techniques that may take into consideration, among
other factors, unobservable market data or complex
pricing models that require a high degree of
judgement.
Given the complexity of complying with the
financial reporting framework in force governing the
identification and measurement of hedging
instruments and the correct measurement of their
effectiveness, we have considered this to be a key
audit matter.
Testing the design, implementation and operating
effectiveness of key controls related to the cycles
of “derivative financial instruments” and
“recognition of financial transactions”.
Our substantive procedures on hedging derivatives
mainly consisted of:
-
-
-
Performing substantive tests to evaluate whether
derivative financial instruments have been
correctly measured. Our specialists in financial
instruments were involved in these procedures.
Assessing compliance with hedge accounting
criteria under International Financial Reporting
Standard (IFRS) 9 as regards identifying hedging
instruments and positions to be hedged. Our
specialists in financial instruments were involved
in these procedures.
Evaluating the reasonableness of the
measurement of the effectiveness of the Group's
accounting hedges. Our specialists in financial
instruments were involved in these procedures.
We also assessed whether the disclosures in the
consolidated annual accounts meet the requirements
of the financial reporting framework applicable to the
Company.
Other Information: Consolidated Directors’ Report __________________________
Other information solely comprises the 2018 consolidated directors' report, the preparation of which
is the responsibility of the Parent's Directors and which does not form an integral part of the
consolidated annual accounts.
Our audit opinion on the consolidated annual accounts does not encompass the consolidated
directors’ report. Our responsibility as regards the content of the consolidated directors' report is
defined in the legislation regulating the audit of accounts, which establishes two different levels:
a) A specific level applicable to the consolidated non-financial information statement and to certain
information included in the Annual Corporate Governance Report, as defined in article 35.2. b)
of Audit Law 22/2015, which consists solely of verifying that the aforementioned information
has been provided in the consolidated directors' report, or where applicable, that the
consolidated directors' report makes reference to the separate report on non-financial
information, as provided for in legislation, and if not, to report on this matter.
b) A general level applicable to the rest of the information included in the consolidated directors'
report, which consists of assessing and reporting on the consistency of this information with
the consolidated annual accounts, based on knowledge of the Group obtained during the audit
of the aforementioned accounts and without including any information other than that obtained
as evidence during the audit. Also, assessing and reporting on whether the content and
presentation of this part of the consolidated directors' report are in accordance with applicable
legislation. If, based on the work we have performed, we conclude that there are material
misstatements, we are required to report them.
Based on the work carried out, as described above, we have verified that the information referred to
in a) above has been provided in the consolidated directors' report and the rest of the information
contained in the consolidated directors' report is consistent with that disclosed in the consolidated
annual accounts for 2018, and that the content and presentation of the report are in accordance with
applicable legislation.
In accordance with the requirements set forth in article 540 of the Revised Spanish Companies Act
and Spanish National Securities Market Commission (CNMV) Circular 5/2013 of 12 June 2013,
subsequently amended by CNMV Circular 7/2015 of 22 December 2015 and by CNMV Circular
2/2018 of 12 June 2018 and which provides the models for the Annual Corporate Governance
Report for listed corporations, and for the purposes of the description of the System of Internal
Control over Financial Reporting in Annual Corporate Governance Reports, and as mentioned in
section F.7.1 of the Annual Corporate Governance Report, which forms part of the accompanying
consolidated directors' report for 2018, on 20 February 2019, at the Company's request, we issued
our Independent Reasonable Assurance Report on the System of Internal Control over Financial
Reporting (ICOFR) of the Red Eléctrica Group for 2018, based on our examination, which was
performed in accordance with ISAE 3000 (Revised) (International Standard on Assurance
Engagements 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial
Information) issued by the International Auditing and Assurance Standards Board (IAASB) of the
International Federation of Accountants (IFAC) for the issue of reasonable assurance reports.
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Directors' and Audit Committee's Responsibility for the Consolidated Annual
Accounts _________________________________________________________________
The Parent's Directors are responsible for the preparation of the accompanying consolidated annual
accounts in such a way that they give a true and fair view of the consolidated equity, consolidated
financial position and consolidated financial performance of the Group in accordance with IFRS-EU
and other provisions of the financial reporting framework applicable to the Group in Spain, and for
such internal control as they determine is necessary to enable the preparation of consolidated annual
accounts that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated annual accounts, the Parent's Directors are responsible for assessing
the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the Directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative but to do so.
The Parent's audit committee is responsible for overseeing the preparation and presentation of the
consolidated annual accounts.
Auditor's Responsibilities for the Audit of the Consolidated Annual Accounts
Our objectives are to obtain reasonable assurance about whether the consolidated annual accounts
as a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with prevailing legislation regulating the audit of accounts in Spain will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence economic decisions of users taken on the basis of these consolidated annual accounts.
As part of an audit in accordance with prevailing legislation regulating the audit of accounts in Spain,
we exercise professional judgement and maintain professional scepticism throughout the audit. We
also:
– Identify and assess the risks of material misstatement of the consolidated annual accounts,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
– Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group's internal control.
– Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Parent's Directors.
– Conclude on the appropriateness of the Parent's Directors' use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group's ability to continue as
a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the consolidated annual accounts or, if
such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor's report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
– Evaluate the overall presentation, structure and content of the consolidated annual accounts,
including the disclosures, and whether the consolidated annual accounts represent the underlying
transactions and events in a manner that achieves a true and fair view.
– Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated annual accounts.
We are responsible for the direction, supervision and performance of the Group audit. We remain
solely responsible for our audit opinion.
We communicate with the audit committee of the Parent regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide the Parent's audit committee with a statement that we have complied with the
applicable ethical requirements, including those regarding independence, and to communicate with
them all matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated to the audit committee of the Parent, we determine those that
were of most significance in the audit of the consolidated annual accounts of the current period and
which are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter.
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REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Additional Report to the Audit Committee of the Parent ____________________
The opinion expressed in this report is consistent with our additional report to the Parent's audit
committee dated 20 February 2019.
Contract Period __________________________________________________________
We were appointed as auditor of the Group by the shareholders at the ordinary general meeting on
15 April 2016 for a period of three years, from the year commenced 1 January 2016.
Previously, we were appointed for a period of three years, by consensus of the shareholders at their
general meeting, and have been auditing the annual accounts since the year ended 31 December
2013.
KPMG Auditores, S.L.
On the Spanish Official Register of
Auditors (“ROAC”) with No. S0702
(Signed on original in Spanish)
Eduardo González Fernández
On the Spanish Official Register of Auditors (“ROAC”) with No. 20,435
20 February 2019
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INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITION Consolidated Statements of Financial Position
Thousands of Euros
AT 3 1 D E C E M B E R 2 0 1 8 A N D 3 1 D E C E M B E R 2 0 1 7
Asset s
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Equity-accounted investees
Non-current financial assets
Non-current derivatives
Deferred tax assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Trade receivables
Other receivables
Current tax assets
Other current financial assets
Cash and cash equivalents
Total current assets
Total assets
8
Note
31/12/2018
31/12/2017
5
6
7
9
17
21
10
11
21
17
242,559
8,711,332
1,654
198,377
109,911
11,020
27,984
677
154,939
8,747,376
2,385
172,727
95,265
12,970
27,824
752
9,303,514
9,214,238
34,641
1,102,560
10,826
1,089,675
2,059
54,213
767,152
1,958,566
11,262,080
39,753
1,013,355
14,940
994,627
3,788
80,668
569,869
1,703,645
10,917,883
The Group applied IFRS 15 and IFRS 9 on 1 January 2018. Given the transition method selected, the comparative information has not been restated.
Notes 1 to 33 and Appendix I form an integral part of these consolidated annual accounts.
Continued on next page
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Consolidated Statements of Financial Position
Thousands of Euros
AT 3 1 D E C E M B E R 2 0 1 8 A N D 3 1 D E C E M B E R 2 0 1 7
Equity a nd lia bilities
Equity
Capital and reserves
Capital
Reserves
Own shares and equity holdings (-)
Profit for the year attributable to the Parent
Interim dividend (-)
Valuation adjustments
Financial assets at fair value through other comprehensive income
Hedging transactions
Translation differences
Equity attributable to the Parent
Non-controlling interests
Total equity
Non-current liabilities
Grants and other
Non-current provisions
Non-current financial liabilities
Loans and borrowings, bonds and other marketable securities
Other non-current financial liabilities
Deferred tax liabilities
Non-current derivatives
Other non-current liabilities
Total non-current liabilities
Current liabilities
Current financial liabilities
Loans and borrowings, bonds and other marketable securities
Other current financial liabilities
Trade and other payables
Suppliers
Other payables
Current tax liabilities
Total current liabilities
Total equity and liabilities
The Group applied IFRS 15 and IFRS 9 on 1 January 2018. Given the transition method selected, the comparative information has not been restated.
Notes 1 to 33 and Appendix I form an integral part of these consolidated annual accounts.
9
Note
31/12/2018
31/12/2017
3,404,605
270,540
2,598,060
(21,303)
704,558
(147,250)
(44,071)
15,063
(62,237)
3,103
3,360,534
832
3,361,366
631,410
127,541
4,981,234
4,980,757
477
473,125
39,944
83,068
6,336,322
1,196,870
562,328
634,542
367,522
313,759
50,278
3,485
1,564,392
11,262,080
3,157,494
270,540
2,384,396
(29,769)
669,836
(137,509)
(64,104)
15,435
(77,241)
(2,298)
3,093,390
59
3,093,449
597,122
100,982
4,630,915
4,630,691
224
472,475
61,437
87,019
5,949,950
1,471,957
824,497
647,460
402,527
343,694
47,974
10,859
1,874,484
10,917,883
12
13
14
17
21
15
17
19
21
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Red Eléctrica Group. Consolidated Income Statements
Thousands of Euros
2 0 1 8 A N D 2 0 1 7
Revenue
Self-constructed assets
Share of profit/(loss) of equity-accounted investees (with a similar activity to that of the Group)
Supplies
Other operating income
Personnel expenses
Other operating expenses
Amortisation and depreciation
Non-financial and other capital grants
Impairment and gains/(losses) on disposal of fixed assets
Results from operating activities
Finance income
Finance costs
Exchange differences
Impairment and gains/(losses) on disposal of financial instruments
Net finance cost
Share in profit/(loss) of equity-accounted investees
Profit before tax
Income tax
Consolidated profit for the year
A) Consolidated profit for the year attributable to the Parent
B) Consolidated loss for the year attributable to non-controlling interests
Earnings per share in Euros
Basic earnings per share in Euros
Diluted earnings per share in Euros
Notes 1 to 33 and Appendix I form an integral part of these consolidated annual accounts.
10
Note
22.a
5 and 6
9
22.c
22.b
22.d
22.c
5, 6 and 7
13
6
22.e
22.e
9
21
31
31
31/12/2018
1,948,540
62,027
6,966
(37,725)
12,696
(151,848)
(300,987)
(480,753)
23,445
(12,568)
1,069,793
10,670
(144,063)
(148)
-
(133,541)
-
936,252
(231,763)
704,489
704,558
(69)
1.31
1.31
31/12/2017
1,941,165
66,757
-
(61,110)
29,450
(148,693)
(308,071)
(515,151)
23,441
3,627
1,031,415
9,236
(151,738)
(88)
18
(142,572)
1,397
890,240
(220,421)
669,819
669,836
(17)
1.24
1.24
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Red Eléctrica Group. Consolidated Statements of Comprehensive Income
Thousands of Euros
2 0 1 8 A N D 2 0 1 7
A) Consolidated profit for the year
B) Other comprehensive income– Items that will not be reclassified to profit or loss:
1. Revaluation/(reversal) of PPE and intangible assets
2. Actuarial gains and losses
3. Share in other comprehensive income from investments in joint ventures and associates
4. Equity instruments through other comprehensive income
5. Other income and expense that will not be reclassified to profit or loss
6. Tax effect
C) Other comprehensive income– Items that could subsequently be reclassified to profit or loss:
1. Cash flow hedges:
a) Revaluation gains/(losses)
b) Amounts transferred to the income statement
c) Amounts transferred to initial value of hedged items
d) Other reclassifications
2. Translation differences:
a) Revaluation gains/(losses)
b) Amounts transferred to the income statement
c) Other reclassifications
3. Share in other comprehensive income from investments in joint ventures and associate:
a) Revaluation gains/(losses)
b) Amounts transferred to the income statement
c) Other reclassifications
4. Debt instruments at fair value through other comprehensive income
a) Revaluation gains/(losses)
b) Amounts transferred to the income statement
c) Other reclassifications
5. Other income and expense that could subsequently be reclassified to profit or loss:
a) Revaluation gains/(losses)
b) Amounts transferred to the income statement
c) Other reclassifications
6. Tax effect
Total comprehensive income for the year (A + B + C)
a) Attributable to the Parent
b) Attributable to non-controlling interests
Notes 1 to 33 and Appendix I form an integral part of these consolidated annual accounts.
11
31/12/2018
704,489
31/12/2017
669,819
2,089
-
3,280
-
(1,501)
310
20,428
6,932
2,415
4,517
-
-
7,235
7,235
-
-
9,803
9,803
-
-
-
-
-
-
-
-
-
-
(3,542)
727,006
727,051
(45)
(2,991)
-
(3,989)
-
-
-
998
(1,948)
14,626
13,253
1,373
-
-
(10,451)
(10,451)
-
-
(4,389)
(4,389)
-
-
-
-
-
-
(1,833)
(1,833)
-
-
99
664,880
664,897
(17)
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Red Eléctrica Group. Consolidated Statements of Changes in Equity
Thousands of Euros
F O R T H E Y E A R S E N D E D 3 1 D E C E M B E R 2 0 1 8 A N D 2 0 1 7
Equity
Balances at 31 December 2017
Adjustments due to first application
of IFRS 9, net of tax
Note
Subscribed
capital
Reserves
Interim
dividend
Own
shares
Profit/(loss)
attributable
to the
Parent
Valuation
adjustments
Equity
attributable
to the Parent
Non-controlling
interests
Total
equity
270,540
2,384,396
(137,509)
(29,769)
669,836
(64,104)
3,093,390
59 3,093,449
2.f
-
34,551
-
-
-
-
34,551
-
34,551
Balances at 1 January 2018
270,540
2,418,947
(137,509)
(29,769)
I. Comprehensive income for the year
II. Transactions with
shareholders or owners
Distribution of dividends
Transactions with own shares
III. Other changes in equity
Transfers between equity
line items
Other changes
12
12
-
-
-
-
-
-
-
2,460
-
-
(357,272)
(359,223)
1,951
533,925
532,327
1,598
(9,741)
(9,741)
-
-
-
-
8,466
-
8,466
-
-
-
669,836
704,558
(137,509)
(137,509)
-
(532,327)
(532,327)
-
(64,104)
20,033
-
-
-
-
-
-
3,127,941
727,051
(496,056)
(506,473)
10,417
1,598
-
1,598
59
3,128,000
(45)
727,006
-
-
-
818
-
818
(496,056)
(506,473)
10,417
2,416
-
2,416
Balances at 31 December 2018
270,540
2,598,060
(147,250)
(21,303)
704,558
(44,071)
3,360,534
832 3,361,366
Balances at 1 January 2017
270,540
2,222,906
(128,417)
(36,739)
I. Comprehensive income for the year
II. Transactions with
shareholders or owners
Distribution of dividends
Transactions with own shares
III. Other changes in equity
Transfers between equity
line items
Other changes
12
12
2.g
-
-
-
-
-
-
-
(2,991)
-
-
(335,265)
(335,740)
475
499,746
508,503
(8,757)
(9,092)
(9,092)
-
-
-
-
6,970
-
6,970
-
-
-
636,920
669,836
(128,417)
(128,417)
-
(508,503)
(508,503)
-
(62,156)
(1,948)
-
-
-
-
-
-
2,903,054
664,897
(465,804)
(473,249)
7,445
(8,757)
17,495
2,920,549
(17)
664,880
-
-
-
(465,804)
(473,249)
7,445
(17,419)
(26,176)
-
(8,757)
-
-
(17,419)
(26,176)
Balances at 31 December 2017
270,540
2,384,396
(137,509)
(29,769)
669,836
(64,104)
3,093,390
59 3,093,449
Notes 1 to 33 and Appendix I form an integral part of these consolidated annual accounts.
www.ree.es/enConsolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITION
Red Eléctrica Group. Consolidated Statements of Cash Flows
Thousands of Euros
2 0 1 8 A N D 2 0 1 7
Cash flows from operating activities
Profit before tax
Adjustments to profit
Amortisation and depreciation
Other adjustments
Equity-accounted investees
(Gains)/losses on disposal/impairment of non-current assets and financial instruments
Accrued finance income
Accrued finance costs
Charge to/surplus provisions for liabilities and charges
Capital and other grants taken to income
Changes in operating assets and liabilities
Changes in inventories, receivables, prepayments for current assets and other current assets
Changes in trade payables, current contract liabilities and other current liabilities
Other cash flows used in operating activities:
Interest paid
Dividends received
Interest received
Income tax received/(paid)
Other proceeds from and payments for operating activities
13
Note
31/12/2018
1,100,025
31/12/2017
1,153,255
5, 6 and 7
22.d
22.d
14
13
22.d
936,252
624,907
480,753
144,154
(6,966)
12,568
(10,670)
144,063
25,048
(19,889)
(112,540)
(74,518)
(38,022)
(348,594)
(150,426)
4,848
4,435
(205,570)
(1,881)
890,240
641,492
515,151
126,341
(1,397)
(3,645)
(9,254)
151,738
8,637
(19,738)
(30,319)
(71,478)
41,159
(348,158)
(156,091)
3,881
4,944
(196,419)
(4,473)
Notes 1 to 33 and Appendix I form an integral part of these consolidated annual accounts.
Continued on next page
www.ree.es/enConsolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITION
Red Eléctrica Group. Consolidated Statements of Cash Flows
Thousands of Euros
2 0 1 8 A N D 2 0 1 7
Cash flows used in investing activities
Payments for investments
Property, plant and equipment, intangible assets and investment property
Group companies, associates and business units
Other financial assets
Proceeds from sale of investments
Property, plant and equipment, intangible assets and investment property
Other financial assets
Other cash flows from investing activities
Other proceeds from investing activities
Cash flows used in financing activities
Proceeds from and payments for equity instruments
Acquisition
Disposal
Proceeds from and payments for financial liability instruments
Issue and drawdowns
Redemption and repayment
Dividends and interest on other equity instruments paid
Other cash flows used in financing activities
Effect of exchange rate fluctuations on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at year end
Notes 1 to 33 and Appendix I form an integral part of these consolidated annual accounts.
14
Note
5, 6 and 7
9
17
5, 6 and 7
17
13
12
17
12
31/12/2018
(525,898)
(557,384)
(456,219)
(101,165)
-
4,067
240
3,827
27,419
27,419
(377,582)
10,417
(44,675)
55,092
113,211
1,398,826
(1,285,615)
(495,138)
(6,072)
738
197,283
569,869
767,152
31/12/2017
(536,410)
(545,588)
(472,654)
(27,184)
(45,750)
882
24
858
8,296
8,296
(294,597)
7,445
(32,387)
39,832
176,381
537,559
(361,178)
(463,189)
(15,234)
(3,800)
318,448
251,421
569,869
www.ree.es/enConsolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITION
15
C O N S O L
I
D A
T
E D
A N N U A
L
A C C O U N T
S
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTS 16
C O N T
E N T S
/ O F
C O N S O L
I D A T
E D
A N N U A L
/
A C C O U N T S
1 Activities of the Group Companies / p 17
18
Derivative Financial Instruments / p 89
2
Basis of Preparation of the Consolidated
Annual Accounts / p 17
3 Sector Regulation / p 32
4 Significant Accounting Policies / p 39
5
Intangible Assets / p 56
6 Property, Plant and Equipment / p 58
7
Investment Property / p 61
8
Business Combinations / p 62
9 Equity-accounted Investees / p 63
10
Inventories / p 65
11 Trade and Other Receivables / p 66
12 Equity / p 67
13
Grants and Other Non-current Revenue Received
in Advance / p 73
14 Non-current Provisions / p 74
15 Other Non-current Liabilities / p 76
16 Financial Risk Management Policy / p 77
17 Financial Assets and Financial Liabilities / p 81
19
Trade and Other Payables / p 93
20
Average Supplier Payment Period. “Reporting
Requirement”, Third Additional Provision of Law 15/2010
of 5 July 2010 / p 93
21 Taxation / p 94
22
Income and Expenses / p 99
23
Transactions with Equity-accounted Investees
and Related Parties / p 103
24 Remuneration of the Board of Directors / p 105
25 Remuneration of Senior Management / p 110
26 Segment Reporting / p 111
27
Interests in Joint Arrangements / p 111
28
Guarantees and Other Commitments with Third Parties
and Other Contingent Assets and Liabilities / p 112
29 Environmental Information / p 113
30 Other Information / p 113
31 Earnings per Share / p 114
32 Share-based Payments / p 115
33 Events after 31 December 2018 / p 115
-
Appendix I: Details of equity investments at 31 December
2018 and 2017 / p 116
In order to facilitate comprehension of the information provided in this document, certain alternative performance measures have been included. The definition of these measures can be found at www.ree.es.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 17
1
Activities of the
Group Companies
Red Eléctrica Corporación, S.A. (hereinafter the
Parent or the Company) is the Parent of a Group
formed by subsidiaries. The Group is also involved
in joint operations along with other operators. The
Parent and its subsidiaries form the Red Eléctrica
Group (hereinafter the Group or Red Eléctrica
Group). The Company's registered office is located
in Alcobendas (Madrid) and its shares are traded
on the Spanish automated quotation system as
part of the selective IBEX-35 index.
The Group's principal activity is electricity
transmission, system operation and management
of the transmission network for the Spanish
electricity system. These regulated activities are
carried out through Red Eléctrica de España, S.A.U.
(hereinafter REE).
The Group also conducts electricity transmission
activities outside Spain through Red Eléctrica
Internacional, S.A.U. (hereinafter REI) and its
investees, and renders telecommunications
services to third parties in Spain through Red
Eléctrica Infraestructuras de Telecomunicación,
S.A.U. (hereinafter REINTEL), essentially through
dark fibre backbone network rental for both
electricity transmission infrastructure and railway
infrastructure.
In addition, the Group carries out activities through
its subsidiaries aimed at financing its operations and
covering risks by reinsuring its assets and activities.
It also develops and builds electricity infrastructure
and facilities through its subsidiaries and/or
investees, Red Eléctrica Infraestructuras en Canarias,
S.A.U. (REINCAN) and Interconexión Eléctrica Francia-
España, S.A.S. (INELFE).
Appendix I provides details of the activities and
registered offices of the Parent and its subsidiaries,
as well as the direct and indirect investments held
by the Parent in the subsidiaries.
2
Basis of Preparation of the
Consolidated Annual Accounts
A) GENERAL INFORMATION
The accompanying consolidated annual accounts
have been prepared by the directors of the Parent
to give a true and fair view of the consolidated
equity and consolidated financial position of the
Company and its subsidiaries at 31 December 2018,
as well as the consolidated results of operations and
consolidated cash flows and changes in consolidated
equity for the year then ended.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 18
The accompanying consolidated annual accounts,
authorised for issue by the Company's directors
at their board meeting held on 19 February 2019,
have been prepared on the basis of the individual
accounting records of the Company and the other
Group companies, which together form the Red
Eléctrica Group (see Appendix I). Each company
prepares its annual accounts applying the
accounting principles and criteria in force in its
country of operations. Accordingly, the adjustments
and reclassifications necessary to harmonise these
principles and criteria with International Financial
Reporting Standards as adopted by the European
Union (IFRS-EU) have been made on consolidation.
The accounting policies of the consolidated
companies are changed when necessary
to ensure their consistency with the principles
adopted by the Company.
The consolidated annual accounts for 2017 were
approved by the shareholders at their general
meeting held on 22 March 2018. The consolidated
annual accounts for 2018 are currently pending
approval by the shareholders. However, the directors
of the Company consider that these consolidated
annual accounts will be approved with no changes.
These consolidated annual accounts have been
prepared on the historical cost basis, except in
the case of financial assets measured at fair value
through other comprehensive income, financial
assets at fair value through profit or loss, financial
instruments at fair value through profit or loss and
business combinations.
The figures disclosed in the consolidated annual
accounts are expressed in thousands of Euros,
the Parent’s functional and presentation currency,
rounded off to the nearest thousand. The
consolidated annual accounts have been prepared
in accordance with IFRS-EU, and other applicable
provisions in the financial reporting framework.
The Group has not omitted any mandatory accounting
principle with a significant effect on the consolidated
annual accounts.
B) NEW IFRS-EU AND IFRIC
The consolidated annual accounts have been prepared
in accordance with IFRS-EU.
The following amendments have been applied for the
first time in 2018:
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 19
NE W R EQ UIRE MEN TS O R AMENDMENTS
E f f e c t i v e s i n c e : 1 J a n u a r y 2 0 1 8
IFRS 9 Financial Instruments.
IFRS 15 Revenue from Contracts with Customers:
Classification and Measurement of Share-based Payment
Transactions - Amendments to IFRS 2
As regards the new standards issued, IFRS 9 Financial
Instruments and IFRS 15 Revenues from Contracts
with Customers, which have entered into force for the
annual period beginning on 1 January 2018, the Group
has recognised the impacts derived from adoption
of these standards and incorporated them in these
financial statements at 31 December 2018.
Given the transition methods selected by the Group,
the comparative information included in these
financial statements has not been restated to reflect
the requirements of the new standards with an
impact on the financial statements.
IFRS 9 Financial Instruments
IFRS 9 sets out the requirements for recognising
and measuring financial assets and financial
liabilities. This standard replaces IAS 39 Financial
Instruments: Recognition and Measurement.
The main impacts of first-time application of this new
standard mainly relate to the treatment of financial
liability restructuring transactions under IFRS 9. In
the opening figures of the statement of financial
position, at 1 January 2018, first-time application of
IFRS 9 has entailed a decrease of Euros 47.1 million
in loans and borrowings, bonds and other marketable
securities, an increase of Euros 35.4 million in equity
and the recognition of the corresponding deferred
tax liabilities for an amount of Euros 11.7 million.
Furthermore, as a result of the introduction of the
expected loss model to calculate impairment set
out in IFRS 9, at 1 January 2018 impairment losses
on receivables were recognised for an amount of
Euros 1.1 million, which has resulted in a Euros 0.8
million reduction in equity and the recognition of the
corresponding deferred tax assets amounting
to Euros 0.3 million.
The impact of first-time application of IFRS 9 at 1
January 2018, net of tax, is as follows:
Consolidated statement of financial position
Thousands of Euros
Non-current assets
Current assets
Total assets
Equity
Non-current liabilities
Current liabilities
Total equity and liabilities
31/12/2017
9,214,238
1,703,645
01/01/2018
9,214,507
1,702,569
10,917,883
10,917,076
3,093,449
5,949,950
1,874,484
3,128,000
5,914,592
1,874,484
10,917,883
10,917,076
Change
269
(1,076)
(807)
34,551
(35,358)
-
(807)
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
20
Classification of financial assets
and financial liabilities:
IFRS 9 includes three main categories for the
classification of financial assets: measured
at amortised cost, at fair value through other
comprehensive income and at fair value through
profit or loss. Classification of financial assets under
IFRS 9 is generally on the basis of the business
model for managing the financial assets and their
contractual cash flow characteristics. IFRS 9
eliminates the categories of held to maturity, loans
and receivables and available for sale that previously
existed under IAS 39.
In accordance with IFRS 9, at 1 January 2018 the
Group classified financial assets as financial assets
at fair value through profit and loss, financial assets
measured at amortised cost or financial assets at fair
value through other comprehensive income, based
on the asset's contractual cash flow characteristics
and the business model applied by the Group.
Debt investments held as part of a business
model whose objective is to collect contractual
cash flows that are solely payments of principal
and interest are generally measured at amortised
cost. When these debt instruments are held as part
of a business model whose objective is achieved by
both collecting contractual cash flows of the principal
and interest and selling financial assets, they are
generally measured at fair value through other
comprehensive income. All other debt and equity
investments are in general measured at fair value
through profit or loss. However, entities may make
an irrevocable election to present changes in the fair
value of certain investments in equity instruments
in other comprehensive income, in which case only
the dividends are subsequently recognised in
profit or loss.
At 31 December 2017, the Group held equity
investments classified as available-for-sale financial
assets with a fair value of Euros 83.2 million, mostly
reflecting the Group's 5 % interest in the investee
Redes Energéticas Nacionais, SGPS (hereinafter REN).
At the date of first application, the Group classified
these investments as financial assets at fair value
through other comprehensive income.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 21
Details of the reconciliation of the classification and
measurement of financial assets under IAS 39 and
IFRS 9 at the date of first application are as follows:
Thousands of Euros
Type of instrument (*)
Equity instruments
Other financial assets
Other financial assets
Classification at
31/12/2017
(IAS 39)
Available
for sale
Loans
and receivables
Available
for sale
Classification at
1/1/2018
(IFRS 9)
Fair value through
other comprehensive
income
Amortised
cost
Fair value
through
profit or loss
Amount
under IAS 39
83,184
Amount
under IFRS 9
83,184
90,327
90,327
2,422
2,422
(*) Excluding trade and other receivables and cash and cash and cash equivalents.
Equity instruments reflect investments that the
Group intends to hold in the long term for strategic
purposes. As permitted by IFRS 9, the Group has
designated these investments as at fair value through
other comprehensive income at the date of initial
application. Unlike under IAS 39, the reserve arising
from the cumulative change in the fair value of these
investments will never be reclassified to profit or loss.
The application of IFRS 9 has had no impact on
the classification of financial liabilities. However,
application of IFRS 9 has had the initial impact
described above on financial liability restructuring
transactions.
An increase of Euros 5,808 thousand in finance costs
has been recognised in the consolidated income
statement for 2018 as a result of the higher effective
interest rate under the new accounting criteria for
financial liabilities that have not been substantially
modified, with respect to that applied in 2017.
The other financial assets designated as at fair value
through profit or loss reflect the Group's investment
in certain economic interest groups (EIGs). These
EIGs engage in the lease of assets operated by an
unrelated party, which retains most of the risks and
rewards of the activity, while the Group only avails
of the tax benefits pursuant to Spanish legislation.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
22
Impairment
IFRS 9 introduces a new impairment model based
on expected loss, which differs from the incurred
loss model under IAS 39. The impairment model
has a dual measurement approach in which the
impairment provision will be based either on
12-month expected credit losses or on lifetime
expected credit losses. Credit losses under IFRS 9
are recognised before they are under IAS 39. Given
the high credit quality of the Group's financial assets,
the impact has been limited, with impairment losses
amounting to Euros 1.1 million at 1 January 2018
under IFRS 9 (see note 11) and a net effect of less
than Euros 0.8 million on reserves.
Hedge accounting
The Group has opted to adopt the new hedge
accounting model under IFRS 9. This requires the
Group to ensure that the hedging relationships are
aligned with the objectives and risk management
strategy, and to apply a more qualitative and
forward-looking approach to assess the effectiveness
of hedges. IFRS 9 has demanded greater alignment
with the Group's risk management and a more
qualitative-based approach than under IAS 39,
although it has not had a relevant impact on the
Company's financial statements.
IFRS 15 Revenue from Contracts
with Customers
IFRS 15 sets out a comprehensive conceptual
framework to determine whether revenue should
be recognised and the timing and amount thereof.
This standard replaces IAS 11 Construction
Contracts, IAS 18 Revenue, IFRIC 13 Customer
Loyalty Programmes, IFRIC 15 Agreements for the
Construction of Real Estate, IFRIC 18 Transfers of
Assets from Customers and SIC 31 Revenue - Barter
Transactions Involving Advertising Services.
Under IFRS 15, revenue is recognised when the
customer obtains control of the goods or services.
Determining the transfer of control, at a point in
time or over time, requires judgement. The new
standard provides a comprehensive framework
for the recognition of revenue from contracts with
customers, establishing the presentation principles
for information that is helpful to users of financial
statements as regards the nature, amount, timing
and uncertainty of revenue and cash flows arising
from a company's contracts with its customers.
The standard sets out a five-step application model:
identify the contract(s) with the customer; identify
the performance obligations in the contract;
determine the transaction price; allocate the
transaction price to the different performance
obligations; and recognise revenue when
a performance obligation is satisfied.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 23
The Group has adopted IFRS 15 using the
cumulative effect method, by recognising the effect
of initially applying this standard at the date of
initial application, i.e. 1 January 2018. As a result,
the information presented for 2017 has not been
restated.
The Group has assessed the impact derived from
application of this standard and concluded that
adopting IFRS 15 has not entailed significant
modifications to revenue recognition.
The most significant types of revenues and
associated contracts analysed were as follows:
> Regulated revenue from transmission and
system operation activities in Spain, making up
93 % of the Group's revenue: the Group subsidiary
Red Eléctrica de España, S.A.U. is the company
designated by the Spanish electricity sector
regulator (currently the Ministry for the Ecological
Transition, or MITECO) to carry out the electricity
transmission and system operation activities on
an exclusive basis. Both of these activities are
regulated by Electricity Industry Law 24/2013. This
legislation, which was subsequently enacted by
Royal Decree 1047/2013, provides that the amount
of remuneration receivable is to be set annually by
MITECO, at the proposal of the Spanish National
Markets and Competition Commission (CNMC), and
should cover the services the Company renders to
consumers and other electricity sector agents on
an uninterrupted basis throughout the year. The
obligations to construct, operate and maintain
electricity transmission facilities set out in the
law are considered to be a single performance
obligation. Similarly, the legal obligations included
within the obligation of the electricity system
operator are understood to comprise a single
performance obligation, identified as “providing
the electricity system operation service”. As a
result, revenue from the performance obligations
of transmission and system operation services
is recognised over time, on a straight-line basis,
based on the remuneration set for each year. The
entry into force of IFRS 15 has not had an impact
on the recognition of this revenue.
> Revenue associated with the telecommunications
business, representing 4 % of the Group's revenue.
This revenue mainly derives from the contracts
for the concession of the rights to use the fibre
optic backbone network and cables to different
customers in the telecommunications sector,
as well as services rendered thereto, which are
considered to be a single performance obligation.
Based on an analysis of these contracts under IFRS
15, the Group has concluded that revenue should
be recognised over time, as the service is rendered
to the customer. Revenue is recognised on a
straight-line basis over the year, as it was previously
recognised, and no changes are therefore expected
to the recognition of revenue associated with the
telecommunications business as a result of the
entry into force of the new IFRS 15.
> Revenue of international subsidiaries under
concessions, representing 1 % of the Group's
revenue. Based on the analysis, the entry into force
of the new IFRS 15 has not had an impact on the
recognition of revenue of international subsidiaries
under concessions.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 24
The new standards approved by the European Union
for which application is not mandatory in 2018
but which will enter into force for annual periods
beginning on or after 1 January 2019 are as follows:
NE W R EQ UIRE MEN TS O R AMENDMENTS
E f f e c t i v e s i n c e : 1 J a n u a r y 2 0 1 9
IFRS 16 Leases
IFRIC 23 Uncertainty over Income Tax Treatments
Prepayment Features with Negative Compensation
(Amendments to IFRS 9)
Long-term Interests in Associates and Joint Ventures
(Amendments to IAS 28)
Plan Amendment, Curtailment or Settlement
(Amendments to IAS 19)
Annual Improvements to IFRS Standards 2015–2017 Cycle - various
standards
E f f e c t i v e s i n c e : 1 J a n u a r y 2 0 2 0
Amendments to References to the Conceptual Framework
in IFRS Standards
E f f e c t i v e s i n c e : 1 J a n u a r y 2 0 2 1
IFRS 17 Insurance Contracts
IFRS 16 Leases
IFRS 16 introduces a single accounting model
for the recognition of leases by lessees. The lessee
recognises an asset for the right of use of the
underlying asset and a liability for the lease due
to the obligation to make the lease payments. There
are recognition exceptions for short-term leases
and the leasing of articles of little value. The lessor
accounting method remains similar to that under
the current standard; i.e. lessors continue to classify
leases as finance leases or operating leases.
This standard replaces IAS 17 Leases, IFRIC 4
Determining whether an Arrangement contains
a Lease, SIC-15 Operating Leases — Incentives and
SIC-27 Evaluating the Substance of Transactions
Involving the Legal Form of a Lease.
The standard is effective for annual periods beginning
on or after 1 January 2019.
The Group has assessed the estimated impact that
initial application of this standard will have on its
consolidated financial statements, details of which
are provided below.
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Leases in which the Group is the lessee
The Group will recognise new assets and liabilities in
respect of its operating leases, mainly for its offices
and premises and fleet of vehicles. The nature of the
expenses related to these leases will now change,
because the Group will recognise a depreciation
charge for the right-of-use assets and an expense
for interest on the lease liabilities. Previously, the
Group recognised the operating lease expense
on a straight-line basis over the lease term, and
recognised assets and liabilities only to the extent
that there was a difference in timing between the
actual lease payments and the expense recognised.
No significant impact is expected for the Group's
finance leases.
Based on the information currently available, the
Group expects that it will recognise lease assets and
lease liabilities amounting to approximately Euros 12
million at 1 January 2019. However, the actual impact
of adopting the standard at 1 January 2019 may
change as:
> The Group has not completed implementation
of the information systems that will provide support
to the new operations.
> The new accounting policies are subject to
change until the Group presents its first financial
statements that include the date of initial
application.
Transition
The Group intends to initially apply IFRS 16 at
1 January 2019, retrospectively recognising the
cumulative effect of initial application at the date
of initial application, without restating comparative
information.
IFRIC 23 Uncertainty over Income
Tax Treatments
This interpretation clarifies how to apply the
recognition and measurement requirements in
IAS 12 when there is uncertainty over income tax
treatments. In such a circumstance, an entity shall
recognise and measure its current or deferred tax
asset or liability applying the requirements in IAS
12 based on taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits and tax rates
determined applying this Interpretation.
This interpretation is effective for annual periods
beginning on or after 1 January 2019. Earlier
application is permitted.
The Group has assessed the impact of this
interpretation and no significant impacts are
expected as a result of its application.
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> Estimated useful lives of property, plant and
equipment (see note 4.b).
> The assumptions used in the actuarial calculations
of liabilities and obligations to employees (see
note 14).
> The assumptions used to calculate the fair value
of derivatives (see note 18).
> The assumptions used to calculate the fair value
of assets and liabilities acquired in a business
combination (see note 8).
> Liabilities are generally recognised when it
is probable that an obligation will give rise to
an indemnity or a payment. The Group assesses
and estimates amounts to be settled in the
future, including additional amounts for income
tax, contractual obligations, pending lawsuit
settlements and other liabilities. These estimates
are subject to the interpretation of existing facts
and circumstances, projected future events and
the estimated financial effect of those events
(see note 14).
C) ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated annual
accounts in accordance with IFRS-EU requires Group
management to make judgements, estimates and
assumptions that affect the application of accounting
standards and the amounts of assets, liabilities,
income and expenses. Estimates and judgements
are assessed continually and are based on past
experience and other factors, including expectations
of future events that are considered reasonable given
the circumstances. Actual results could differ from
these estimates.
The consolidated annual accounts for 2018
occasionally include estimates calculated by
management of the Group and of the consolidated
companies, and subsequently endorsed by their
directors, to quantify certain assets, liabilities,
income, expenses and commitments disclosed
therein.
These estimates are essentially as follows:
> Estimated asset recovery, calculated by determining
the recoverable amount thereof. The recoverable
amount is the higher of fair value less costs to sell
and value in use. Asset impairment is generally
calculated using discounted cash flows based on
financial projections used by the Group. The discount
rate applied is the weighted average cost of capital,
taking into account the country risk premium
(see note 6).
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In the absence of International Financial Reporting
Standards (IFRSs) that give guidance on the
accounting treatment for a particular situation,
in accordance with IAS 8, management uses its
best judgement based on the economic substance
of the transaction and considering the most recent
pronouncements of other standard-setting bodies
that use the same conceptual framework as IFRS.
Accordingly, as tax credits for investments are
not within the scope of IAS 12 and IAS 20, after
analysing the related facts and circumstances,
Group management has considered that credits for
investments granted to the Group by public entities
are similar to capital grants. Therefore, in these
cases management has taken into account IAS 20
on government grants (see note 4j).
To facilitate comprehension of the consolidated
annual accounts, details of the different estimates
and assumptions are provided in each separate note.
The Company has taken out insurance policies
to cover the risk of possible claims that might
be lodged by third parties in relation to its activities.
Although estimates are based on the best
information available at 31 December 2018, future
events may require increases or decreases in these
estimates in subsequent years, which would be
accounted for prospectively in the corresponding
consolidated income statement as a change in
accounting estimates, as required by IFRS.
D) CONSOLIDATION PRINCIPLES
The types of companies included in the consolidated
Group and the consolidation method used in each
case are as follows:
Subsidiaries
Subsidiaries are entities, including structured
entities, over which the Company, either directly
or indirectly through subsidiaries, exercises control.
The Company controls a subsidiary when it is
exposed, or has rights, to variable returns from its
involvement with the subsidiary and has the ability
to affect those returns through its power over the
subsidiary. The Company has power over a subsidiary
when it has existing substantive rights that give it the
ability to direct the relevant activities. The Company
is exposed, or has rights, to variable returns from its
involvement with the subsidiary when its returns from
its involvement have the potential to vary as a result
of the subsidiary’s performance.
A structured entity is an entity that has been
designed so that voting or similar rights are not
the dominant factor in deciding who controls the
entity, such as when any voting rights relate to
administrative tasks only and the relevant activities
are directed by means of contractual arrangements.
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The income, expenses and cash flows of subsidiaries
are included in the consolidated annual accounts
from the date of acquisition, which is when the Group
takes control, until the date that control ceases.
Transactions and balances with Group companies
and unrealised gains or losses have been eliminated
on consolidation. Nevertheless, unrealised losses
have been considered as an indicator of impairment
of the assets transferred.
Joint arrangements
Joint arrangements are those in which there is
a contractual agreement to share the control over
an economic activity, in such a way that decisions
about the relevant activities require the unanimous
consent of the Group and the remaining venturers or
operators. The existence of joint control is assessed
considering the definition of control over subsidiaries.
The Group assesses all the facts and circumstances
relating to each joint arrangement for the purpose of
its classification as a joint venture or joint operation,
including whether the arrangement contains rights
over the assets and obligations for liabilities.
In joint operations there is a joint arrangement
whereby the parties that have joint control have
rights to the assets, and obligations for the liabilities,
relating to the arrangement. For joint operations,
the Group recognises the assets, including its share
of any assets held jointly, the liabilities, including its
share of any liabilities incurred jointly with the other
operators, the revenue from the sale of its share
of the output arising from the joint operation, and
the expenses, including its share of any expenses
incurred jointly, in the consolidated annual accounts.
Joint ventures are those in which there is a
contractual agreement with a third party to share
control over an activity and the strategic financial and
operating decisions relating to the activity require the
unanimous consent of all the venturers that share
control. The Group's interests in jointly controlled
entities are accounted for using the equity method
in accordance with IFRS 11.
The Group's acquisition of an initial and subsequent
share in a joint operation that is a business, is
recognised following the same criteria used for
business combinations, at the percentage of
ownership of each individual asset and liability.
However, in subsequent acquisitions of additional
shares in a joint operation, the previous share in
each asset and liability is not subject to revaluation.
In sales or contributions by the Group to the joint
operation, it recognises the resulting gains and
losses only to the extent of the other parties’
interests in the joint operation. When such
transactions provide evidence of a reduction in net
realisable value or an impairment loss of the assets
transferred, such losses are recognised in full.
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In purchases by the Group from a joint operation,
it only recognises the resulting gains and losses
when it resells the acquired assets to a third party.
However, when such transactions provide evidence
of a reduction in net realisable value or an impairment
loss of the assets, the Group recognises its entire
share of such losses.
Associates
Associates are entities over which the Company,
either directly or indirectly through subsidiaries,
exercises significant influence. Significant influence
is the power to participate in the financial and
operating policy decisions of the investee but is
not control or joint control over those policies.
The existence of potential voting rights that are
exercisable or convertible at the end of each
reporting period, including potential voting rights
held by the Group or other entities, are considered
when assessing whether an entity has significant
influence.
Investments in associates are accounted for using
the equity method from the date that significant
influence commences until the date that significant
influence ceases. However, if on the acquisition date
all or part of the investment qualifies for recognition
as non-current assets or disposal groups held
for sale, it is recognised at fair value less costs
of disposal.
Investments in associates are initially recognised
at cost of acquisition, including any cost directly
attributable to the acquisition and any consideration
receivable or payable contingent on future events or
on compliance with certain conditions. Any excess
of the cost of the investment over the Group’s share
of the net fair value of the associate’s identifiable
net assets at the acquisition date is recognised as
goodwill under equity-accounted investees in the
consolidated statement of financial position.
Any excess of the Group’s share of the net fair value
of the associate’s identifiable net assets over the
cost of the investment at the acquisition date
(bargain purchase) is recognised as income in
the period in which the investment is acquired.
Appendix I provides details of the Company's
subsidiaries, joint arrangements, joint ventures
and associates, as well as the consolidation
or measurement method used in preparing the
accompanying consolidated annual accounts
and other relevant information.
The financial statements of the subsidiaries,
joint arrangements, joint ventures and associates
used in the consolidation process have the same
reporting date and refer to the same period as those
of the Parent.
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The operations of the Company and its subsidiaries
have been consolidated applying the following basic
principles:
> All balances and transactions between fully
consolidated companies have been eliminated
on consolidation.
> The accounting principles and criteria used by the
> Margins on invoices between Group companies
Group companies have been harmonised with those
applied by the Parent.
for capitalisable goods or services were eliminated
at the transaction date.
> Translation of foreign operations:
∂ Balances in the financial statements of foreign
companies have been translated using the closing
exchange rate for assets and liabilities, the
average exchange rate for income and expenses
and the historical exchange rate for capital and
reserves.
∂ All resulting exchange differences are recognised
as translation differences in other comprehensive
income.
∂ These criteria are also applicable to the translation
of the financial statements of equity-accounted
investees, with translation differences attributable
to the Group recognised in other comprehensive
income.
E) NON-CONTROLLING INTERESTS
Non-controlling interests in subsidiaries are
recognised at the acquisition date at the proportional
part of the fair value of the identifiable net
assets. Non-controlling interests are disclosed
in consolidated equity separately from equity
attributable to shareholders of the Company.
Non-controlling interests’ share in consolidated
profit or loss for the year and in consolidated
comprehensive income for the year is disclosed
separately.
Transactions with non-controlling interests are
recognised as transactions with equity holders
of the Group. As such, the difference between
the consideration paid in the acquisition of a non-
controlling interest and the corresponding proportion
of the carrying amount of the subsidiary's net assets
is recognised in equity. Similarly, the gains or losses
on disposal of non-controlling interests are also
recognised in the Group's equity.
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F) COMPARATIVE INFORMATION
Group management has included comparative
information for 2017 in the accompanying
consolidated annual accounts. As required by
IFRS-EU, these consolidated annual accounts for
2018 include comparative figures for the prior year.
The consolidated financial statements for 2018 are
not comparable with those for the 2017 period as
a result of the application of IFRS 9 from 1 January
2018 onwards (see note 2b).
Moreover, in 2018 the Group has classified the
profit/loss for the period of the equity-accounted
investee Transmisora Eléctrica del Norte S.A.
(hereinafter TEN), following the start of its activities,
under results from operating activities, in accordance
with Decision EECS/0114-06 “Change of Presentation
of the Share in the Profit or Loss of Associates
and Joint Ventures Accounted for Using the Equity
Method” issued by the European Securities and
Markets Authority (ESMA). This change has not been
applied retroactively to the consolidated financial
statements for the prior period as the amount
is not significant.
G) CHANGES IN THE CONSOLIDATED
GROUP
The changes in the consolidated Group in 2018
were as follows:
> Transmisora Eléctrica del Sur 4, S.A. (TESUR
4) was incorporated on 3 January 2018 and
is wholly owned by the Red Eléctrica Group
company REDESUR. The statutory activity of the
new company is the construction, operation and
maintenance of the Tintaya-Azángaro (Peru)
transmission line under concession. This company
is fully consolidated.
> Red Eléctrica Sistemas de Telecomunicaciones
S.A.U. (RESTEL) was incorporated on 27 February
2018 and is wholly owned by Red Eléctrica
Corporación S.A. Its statutory activity includes
the acquisition, holding, management and
administration of securities. This company
is fully consolidated.
> The Chilean company Red Eléctrica del Norte Dos
S.A. (REDENOR 2) was incorporated on 3 July 2018
and is wholly owned by Red Eléctrica Chile. Its
statutory activity is its involvement in electricity
transmission and transportation activities.
This company is fully consolidated.
> The acquisition of 100 % of the Chilean company
Centinela Transmisión S.A. (which changed its name
to Katari Transmisión S.A. (KATARI)) for US Dollars
117.2 million was executed on 12 September 2018.
This company’s statutory and principal activity is
electricity transmission and transportation. The
company operates a 265 km circuit made up of
three 220 kV lines in Chile’s northern Antofagasta
Region. This company was absorbed by REDENOR 2
on 31 October 2018 (see note 8).
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The changes in the consolidated Group in 2017
were as follows:
3
> On 19 January 2017 REI acquired 45 % of the shares
in REDESUR, which were held by the infrastructure
investment fund AC Capitales. The Group thereby
increased its ownership of this Peruvian company
and the subsidiaries thereof to 100 %.
> On 1 June 2017 REI transferred its interest in
TESUR 2 and TESUR 3 to REDESUR. As a result,
the latter is now the sole owner of both of these
companies. This transaction has no accounting
impact on the consolidated financial statements,
as the Group already held a 100 % interest in both
of these companies.
> On 5 July 2017 Red Eléctrica Chile SpA. and
Cobra Instalaciones y Servicios S.A. incorporated
Red Eléctrica del Norte S.A. (REDENOR) in Chile.
This company is fully consolidated in the Group.
The company is 69.9 % owned by the Group, with
the remainder held by non-controlling interests,
and its activity comprises the design, financing,
construction, operation and maintenance of several
transmission facilities in the Far North Electricity
System (SING).
Sector Regulation
SPANISH ELECTRICITY SECTOR
The electricity sector regulatory reform that had
been carried out in past years was completed in
2013 with the publication of Electricity Industry Law
24/2013 of 26 December 2013, which repeals Law
54/1997, with the exception of certain additional
provisions, and its regulatory developments.
Electricity Industry Law 24/2013 has a two-fold
objective. On the one hand, it aims to compile into
a single piece of legislation all of the statutory
provisions introduced by the different regulations
published to reflect the fundamental changes
occurring in the electricity sector since Law 54/1997
came into force. On the other, it intends to provide
measures to guarantee the long-term financial
sustainability of the electricity sector, with a view to
ensuring the structural balance between the system's
revenues and costs.
Law 24/2013 also reviews the set of provisions that
made up Law 54/1997, in particular, those concerning
the remit of the General State Administration, the
regulation of access and connection to the networks,
the penalty system, and the nomenclature used for
the tariffs applied to vulnerable consumers and those
still availing of the regulated tariff.
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With respect to regulation of the activities conducted
by the Company, the new Law 24/2013 maintains the
Company's appointment as the sole transmission
agent and system operator, as well as assigning
it the role of transmission network manager.
Furthermore, Law 24/2013 upholds the current
corporate structure for these activities since it does
not repeal the twenty-third additional provision of
Law 54/1997, which made specific reference to the
Group’s Parent, Red Eléctrica Corporación, S.A., and
assigned to the subsidiary Red Eléctrica de España,
S.A.U. the functions of sole transmission agent,
system operator and transmission network manager,
the latter two activities being conducted through
a specific organisational unit that is sufficiently
segregated from the transmission activity for
accounting and functional purposes.
Other relevant aspects of the regulation pursuant
to Law 24/2013 of the activities performed by the
Company are as follows:
> This Law acknowledges the natural monopoly in
the electricity transmission activity, arising from
the economic efficiency afforded by a sole grid.
Transmission is liberalised by granting widespread
third-party access to the network, which is made
available to the different electricity system agents
and consumers in exchange for payment of an
access charge.
Remuneration for this activity has been set by the
government on the basis of the general principles
laid down in the law, as developed in Royal Decree
1047/2013 of 27 December 2013, which set out
the new remuneration system for the transmission
activity, and by Royal Decree 1073/2015 of 27
November 2015, which amends certain provisions
in Royal Decree 1047/2013.
The remuneration model for the transmission activity
is completed with Ministry of Industry, Energy and
Tourism Order IET/2659/2015 of 11 December 2015,
approving the standard facilities and benchmark unit
values for investment, operation and maintenance
by asset that are to be used in calculating the
remuneration allocable to companies that own
electricity transmission facilities, and with the
publication in 2016 of various resolutions required
for effective implementation of the Order. Accordingly,
the recognised cost of the transmission activity has
been calculated every year since 2016 based on the
new remuneration model defined by Royal Decree
1047/2013.
In recent years, the regulator has questioned
the use of certain remuneration parameters included
in the new remuneration model for transmission
activities that has been in force since 2016.
The Group understands that these concepts should
not be reviewed and has therefore filed the pertinent
appeals.
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> As electricity system operator and transmission
network manager, the Company's main function
is to guarantee the continuity and security of the
electricity supply, as well as to ensure the correct
coordination of the production and transmission
system, exercising its duties in cooperation with
the operators and agents of the Spanish electricity
market (Mercado Ibérico de la Energía Eléctrica)
while observing the principles of transparency,
objectivity and independence.
In this regard, in 2015 the certification process
for Red Eléctrica as transmission network manager
for the Spanish electricity system, as provided
in article 31,1 of Law 24/2013, was completed
following publication in the Official Journal of
the European Union of 12 February 2015 of the
Notification of the Spanish Government pursuant
to article 10(2) of Directive 2009/72/EC of the
European Parliament and of the Council ('Electricity
Directive') concerning common rules for the internal
market in electricity regarding the designation of
Red Eléctrica de España, S.A.U. as transmission
system operator in Spain.
The Company has also been entrusted with
developing and expanding the high-voltage
transmission network so as to guarantee the
maintenance and improvement of a grid based
on standardised and consistent criteria, managing
the transit of electricity between external systems
that use the Spanish electricity system networks,
and refusing access to the transmission network
in the event of insufficient capacity.
The Company is also responsible for the functions
of settlement, notification of payments and
receipts, and management of guarantees relating
to security of supply and the effective diversion
of units generated and consumed, as well as for
short-term energy exchanges aimed at maintaining
the quality and security of supply.
Furthermore, the Company manages the technical
and economic dispatch for electricity supply
from non-mainland electricity systems (Balearic
Islands, Canary Islands, Ceuta and Melilla), and
is responsible for the settlements of payments
and receipts arising from the economic dispatch
of electricity generated by these systems.
Regarding the Company's remit in the non-mainland
electricity systems, in 2015 the Soria-Chira 200 MW
hydroelectric pumping power plant project in Gran
Canaria was transferred to the system operator, as
stipulated in Order IET/728/2014 of 28 April 2014.
Once Red Eléctrica had assumed ownership of
the project in 2016, and pursuant to Law 17/2013,
for the purposes of implementing a new energy
model in Gran Canaria to improve security of supply,
system security and the integration of renewable
energies, a revised project was submitted in 2016,
which included technical and environmental
improvements. The revised project was declared
to be of strategic interest by the Regional
Government of the Canary Islands in 2016 and is
undergoing the corresponding environmental and
administrative processing. As such, it is estimated
that construction may begin soon.
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INTERNATIONAL ELECTRICITY SECTOR
The Red Eléctrica Group has built and acquired
electricity transmission facilities through REI.
At international level, it now operates and maintains
these facilities in Peru and Chile. Various electricity
transmission facilities were also under construction
by subsidiaries of REI both in Peru and in Chile
at the end of 2018.
Electricity sector in Peru
Peru has liberalised its electricity industry and
applies a regulation model based on regulated
tariffs for the electricity transmission activity.
Regulation of the electricity industry in Peru is
mostly set out in the Electricity Concessions Law,
Decree Law No. 25844 enacted in 1992, and the
related regulations, Supreme Decree No. 009-93-EM
enacted in 1993, and the various amendments and/or
extensions thereto, including Law No. 28832, “Law for
the Efficient Development of Electricity Generation”,
enacted in 2016, and Supreme Decree No. 027-2007-
EM “Transmission Regulation”.
Under the Electricity Concessions Law, the National
Interconnected System (SEIN) is divided into three
major segments: generation, transmission and
distribution. Pursuant to this law and the Law for
the Efficient Development of Electricity Generation,
the operations of generation power plants and
transmission systems are subject to the provisions
of the Economic Operation Committee of the
National Interconnected System (COES-SINAC),
which coordinates operations at minimum cost,
so as to ensure the security of electricity supply and
enhance the use of energy resources, as well as plan
development of the National Interconnected System
(SEIN) and administrate the short-term market.
The concession arrangements signed in Peru
by Red Eléctrica del Sur S.A., Transmisora Eléctrica
del Sur S.A.C, Transmisora Eléctrica del Sur 2 S.A.C
and Transmisora Eléctrica del Sur 3 S.A.C comply
with Supreme Decree No. 059-96-PCM (Public
Works Concessions Law) and the related regulations,
Supreme Decree No. 060-96-PCM; whilst the
concession agreement of Transmisora Eléctrica
del Sur 4 S.A.C complies with Supreme Decree
No. 254-2017-EF, which approved the Single
Ordered Text of Legislative Decree No. 1224,
Legislative Decree of the Framework for the
Promotion of Private Investment through Public-
Private Partnerships and Projects in Assets and the
related regulations, approved by Supreme Decree
No. 410-2015-EF. However, these legal regimes
have been repealed and replaced by a similar legal
regime, comprising Legislative Decree No. 1362,
Legislative Decree governing the Promotion of Private
Investment through Public-Private Partnerships
and Projects in Assets and the related regulation,
approved by Supreme Decree No. 240-2018-EF.
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This legislation, together with Law No. 28832,
comprise the overall legal framework that enables
the State to provide special guarantees to concession
holders and guarantee that the rates set during the
term of the respective arrangements reflect the
amounts of the economic bids presented during
the process to promote private investment through
which the projects were awarded.
Under these conditions, the values for investment
and operation and maintenance stipulated in the
Group's concession arrangements are adjusted each
year or when appropriate (according to the tariff
regime) in line with the variation in the Finished
Goods Less Food and Energy index (Series ID:
WPSSOP3500) published by the Bureau of Labor
Statistics of the United States Government.
The “Procedures for Setting Regulated Prices” were
approved through OSINERGMIN (Peruvian Supervisory
Body for Energy and Mining Investment) Resolution
No. 080-2012-OS/CD and amendments thereto.
These rules contain information relating to the
bodies involved in setting regulated prices, their
competences and obligations, the price-setting
deadlines, the administrative appeals that may be
filed, the terms for filing and resolving such appeals,
as well as the body responsible for their resolution.
The rules on “Tariffs and Remuneration for Secondary
Transmission Systems (STS) and Complementary
Transmission Systems (CTS)” were approved through
OSINERGMIN Resolution No. 050-2011-OS/CD and
amendments. These rules set forth the criteria
and methodology for determining the tolls and
remuneration for the STS and/or CTS services.
Lastly, the “Annual Revenue Settlement Procedures
for the Electricity Transmission Service” for the (i)
"Primary Transmission System (PTS) and Secondary
Transmission System (STS) under the BOOT
Arrangement Model”, (ii) “Guaranteed Transmission
System (GTS)” and (iii) “Complementary Transmission
System (CTS)” were approved through OSINERGMIN
Resolutions Nos. 335-2004-OS/CD, 200-2010-OS/
CD and 004-2015-OS/CD, respectively. These rules
provide for annual updates to remuneration, mainly
in respect of the differences arising between the
amounts stipulated in the concession arrangements
(in US Dollars) and the tariff regime in Peru
established in local currency (in Sols).
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Electricity sector in Chile
The legal framework governing the electricity
transmission business in Chile is contained
in Decree with Force of Law No. 4 of 2006 (DFL
No. 4/2006), which sets out the revised, coordinated
and systematised text of Decree with Force of Law
No. 1 of 1982, the General Electricity Services Law
(DFL No. 1/1982) and subsequent amendments
thereto, including Law 20,257 on non-conventional
renewable energy, Law 20,701 on the procedure for
awarding electricity concessions, Law 20,698 which
fosters expansion of the energy matrix through
non-conventional renewable energy sources,
Law 20,726 which promotes the interconnection
of independent electricity systems, Law 20,805
devised to improve the electricity supply tender
process for customers subject to price regulation,
and Law 20,936 which provides for a new electricity
transmission system and creates an independent
coordinator for the national electricity system,
published on 20 July 2016, and redefines the
transmission systems, classifying them into five
segments: National Transmission System (previously
backbone), Zonal Transmission Systems (previously
sub-transmission), Dedicated Systems (previously
additional transmission), Systems for Development
Hubs and International Interconnection Systems.
Law 20.936 covers the planning of transmission
over a long-term horizon and regulates the tariffs
of the national system, zonal system and system
for development hubs, as well as payment for use
of the dedicated transmission facilities by users
subject to the price regulation. The prices associated
with payment for use of the national and zonal
transmission systems are determined by the Chilean
National Energy Commission (CNE) every four years
through processes that involve the participation
of companies in the sector, users, the institutions
concerned and, were discrepancies to exist, the
panel of experts.
The pricing policy takes into account the efficient
acquisition and installation costs at market prices,
which are annualised based on a useful life calculated
every three tariff periods (12 years) and a variable
discount rate calculated by the CNE every four years.
Owners of regulated transmission facilities should
receive the Annual Transmission Value by Segment,
based on the sum of actual tariff revenues and a
single charge for use associated with each segment
and directly applied to end users.
Law 20.936 envisages that the new regime for
payment for use of national facilities will enter into
force on 1 January 2019, whereupon a transition
period up to 31 December 2034 will begin.
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On 3 February 2016 the Chilean Ministry of Energy
published Decree 23T identifying the backbone
transmission facilities (presently national) and the
new Investment Values, the Annual Investment
Value and the Cost of Operation, Maintenance and
Administration, plus the Annual Transmission Value
by Segment of the backbone facilities, for the period
from 1 January 2016 up to 31 December 2019,
as well as the indexation formulas applicable
in this period.
Under transitional article 12 of Law 20.936, during
the period in which Decree No. 14 remains in force,
the process to set the new zonal transmission tariffs,
which will be effective from 1 January 2018 to 31
December 2019, will be ongoing and ultimately
concluded. On 28 March 2017 the Chilean National
Energy Commission published Exempt Resolution
No. 149 which approves the final technical report
on the calculation of the annual value for the zonal
transmission and dedicated transmission systems
for the two-year period 2018-2019.
On 27 July 2017, Energy Ministry Exempt Resolution
No. 380 was published, setting out the periods,
requirements and conditions applicable to the
valuation process of transmission facilities for the
2020-2023 period, and Exempt Resolution No. 385
was published, setting out the periods, requirements
and conditions applicable to the collection, payment
and remuneration of transmission systems.
Telecommunications
The telecommunications sector in Spain is regulated
by General Telecommunications Law 9/2014 of 9 May
2014 (GTL), which mainly seeks to foster competition
in the market and guarantee access to the networks,
and by Royal Decree 330/2016 of 9 September 2016,
on measures to reduce the actual cost of deploying
high-speed electronic communications networks.
The aforementioned Law 9/2014 is developed
by Royal Decree 123/2017 of 24 February 2017,
which approves the regulation on the use of public
domain radio.
The European regulatory framework comprises
Directive (EU) 2018/1972 of the European Parliament
and of the Council of 11 December 2018 establishing
the European Electronic Communications Code
(Recast), Directive 2009/136/EC of the European
Parliament and of the Council of 25 November 2009
(regarding users' rights) and Directive 2009/140/EC
of the European Parliament and of the Council of 25
November 2009 (regulatory improvements). Based
on this legislation, the General Telecommunications
Law introduces measures aimed at creating
an appropriate framework for investing in the
deployment of new generation networks, thereby
enabling operators to offer innovative services that
are more technologically adapted to people's needs.
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In line with the foregoing, special note should also
be taken of Directive 2014/61/EU of the European
Parliament and of the Council of 15 May 2014 on
measures to reduce the cost of deploying high-speed
electronic communications networks, which mainly
seeks to expedite implementation of the "Digital
Agenda" of the European Union (EU) (published in
May 2010). This directive was transposed by Royal
Decree 330/2016 of 9 September 2016, on measures
to reduce the cost of deploying high-speed electronic
communications networks.
As regards competition, in accordance with the
European Commission Recommendation of 9 October
2014 (on relevant product and service markets within
the electronic communications sector susceptible
to regulation in accordance with Directive (EU)
2018/1972), the Spanish National Markets and
Competition Commission (CNMC) periodically defines
the various telecommunications markets and
assesses the existence of operators with sufficient
market power. These tasks, which are considered
in the GTL, may lead to the implementation of
specific regulations for that market.
To this end, and in order to authorise the
acquisition by the Group of the rights to use and
manage the operation of the fibre optic cables of
Administrador de Infraestructuras Ferroviarias (Adif),
the CNMC analysed the dark fibre backbone network
lease activity, concluding that the environment
was sufficiently competitive and this activity may
therefore be conducted on a free competition basis.
The regulation also stipulates that access to
infrastructure that may be used to host public
communications networks must be guaranteed.
Under Spanish and European law, REINTEL is obliged
to meet all access requests under fair and reasonable
terms and conditions. This obligation is fulfilled
in view of the nature of the dark fibre business.
4
Significant Accounting Policies
The accounting principles used in preparing the
accompanying consolidated annual accounts have
been applied consistently to the reported periods
presented and are as follows:
A) BUSINESS COMBINATIONS
The Group accounts for business combinations
by applying the acquisition method when control
is transferred to the Group. The acquisition date
is the date on which the Group obtains control
of the acquiree. The consideration transferred in a
business combination is calculated as the sum of the
acquisition-date fair values of the assets transferred,
the liabilities incurred or assumed, the equity
instruments issued and any consideration contingent
on future events or compliance with certain
conditions in exchange for control of the acquiree.
The consideration transferred excludes any payment
that does not form part of the exchange for the
acquired business. Acquisition costs are recognised
as an expense when incurred.
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At the acquisition date the Group recognises the
assets acquired and liabilities assumed and any
non-controlling interest at fair value. Non-controlling
interests in the acquiree are recognised at the
proportionate interest in the fair value of the net
assets acquired. These criteria are only applicable
for non-controlling interests which grant entry into
economic benefits and entitlement to the proportional
part of net assets of the acquiree in the event of
liquidation. Otherwise, non-controlling interests are
measured at fair value or value based on market
conditions. Liabilities assumed include any contingent
liabilities that represent present obligations arising
from past events for which the fair value can be reliably
measured. The Group also recognises indemnification
assets transferred by the seller at the same time
and following the same measurement criteria as
the item that is subject to indemnification from the
acquiree, taking into consideration, where applicable,
the insolvency risk and any contractual limit on the
indemnity amount.
If the business combination can only be determined
provisionally the identifiable net assets are initially
recognised at their provisional values and adjustments
made during the measurement period are recognised
as if they had been known at the acquisition date.
Comparative figures for the previous year are restated
where applicable. In any event, adjustments to
provisional amounts only reflect information obtained
about facts and circumstances that existed at the
acquisition date and, if known, would have affected the
measurement of the amounts recognised at that date.
After a period of one year, the initial measurement
is only adjusted when correcting errors.
B) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment primarily comprise
technical electricity facilities and are measured
at cost of production or acquisition, as appropriate,
less accumulated depreciation and impairment.
Property, plant and equipment acquired in a business
combination are initially recognised at fair value.
This cost includes the following items, where
applicable:
> Borrowing costs directly attributable to property,
plant and equipment under construction accrued
on external financing solely during the construction
period. Nevertheless, capitalisation of borrowing
costs is suspended when active development
is interrupted for extended periods, except where
a temporary delay is a necessary part of the process
of getting an asset ready for its intended use.
> Operating costs directly related with property,
plant and equipment under construction for
projects executed under the supervision and
management of Group companies.
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The Group companies transfer work in progress
to property, plant and equipment in use once these
items come into service and provided that the assets
are in working condition and able to generate income.
Subsequent to initial recognition of the asset, only
those costs incurred which will generate probable
future profits and for which the amount may reliably
be measured are capitalised. Repair and maintenance
costs are recognised in consolidated profit or loss
as incurred.
Property, plant and equipment are depreciated
by allocating the depreciable amount of the asset
on a straight-line basis over its useful life, which
is the period during which the companies expect
to use the asset and generate income.
Property, plant and equipment are depreciated
applying the following rates:
ANNUAL DEPRE CIATION RATE
Buildings
Technical telecommunications facilities
Technical electricity facilities
Other installations, machinery, equipment,
furniture and other items
2 % - 10 %
5 %
2.5 % - 8.5 %
4 % - 25 %
The Group reviews the residual values and useful
lives of assets and adjusts them, if necessary,
at the end of each reporting period. The Group
performs complementary analyses of these
indicators, as a result of the entry into force of the
new remuneration regime applicable to electricity
transmission assets in Spain, once all the parameters
of the new regime have been definitively established
and are effectively applied (see note 3).
During 2018 the Group completed its study of the
useful life of certain transmission assets acquired
from electricity distributors as a result of the new
remuneration model. This study was based on internal
and external sources and demonstrated that, if certain
operating conditions and appropriate operating
and maintenance programmes were upheld, these
facilities may have a longer useful life than that initially
determined, in line with that set in the aforementioned
remuneration model, ensuring security of operations
in accordance with legal requirements. Consequently,
amortisation and depreciation in the consolidated
income statement for 2018 include the impact of this
change in estimate from 1 January 2018 onwards,
which has entailed a reduction of approximately
Euros 45 million in the depreciation charge, which
will decrease as the assets included in the study
reach the end of their useful lives.
Property, plant and equipment primarily comprise
technical electricity facilities. Most undepreciated
property, plant and equipment is depreciated
at a rate of 2.5 %.
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The Group measures and determines impairment
to be recognised or reversed in respect of the value of
its cash generating units (CGUs) based on the criteria
in section h) of this note.
C) INTANGIBLE ASSETS
Intangible assets are recognised at acquisition cost,
which is periodically reviewed and adjusted in the
event of a decline in value. Intangible assets include
the following:
Administrative concessions
The Group operates various assets, located mainly
in Peru, under service concession contracts
awarded by different public entities. Based on the
characteristics of the contracts, the Group analyses
whether they fall within the scope of IFRIC 12 Service
Concession Arrangements.
For concession arrangements subject to IFRIC
12, construction and other services rendered are
recognised using the criteria applicable to income
and expenses.
The consideration received by the Group is
recognised at the fair value of the service rendered,
as a financial asset or intangible asset, based on
the contract clauses. The Group recognises the
consideration received for construction contracts
as an intangible asset to the extent that it is entitled
to pass on to users the cost of access to or use of the
public service, or it has no unconditional contractual
right to receive cash or another financial asset.
Upon initial recognition, an intangible asset received
as consideration for construction or upgrade services
rendered is recognised at fair value. The intangible
asset is subsequently recognised at cost, including
capitalised borrowing costs, less accumulated
amortisation and accumulated impairment.
The contractual obligations assumed by the Group
to maintain the infrastructure during the operating
period, or to carry out renovation work prior to
returning the infrastructure to the transferor upon
expiry of the concession arrangement, are recognised
using the accounting policy described for provisions,
to the extent that such activity does not generate
revenue.
Concession arrangements not subject to IFRIC 12
are recognised using general criteria.
Administrative concessions have a finite useful
life and the associated cost is recognised as an
intangible asset. Details of the useful and residual
lives of these concessions are provided in note 5.
Computer software
Computer software licences are capitalised at cost
of acquisition or cost of preparation for use.
Computer software maintenance costs are charged
as expenses when incurred. Computer software
is amortised on a straight-line basis over a period
of three to five years from the date on which each
program comes into use.
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Rights to regulated tariffs
This item includes the intangible asset arising on
the business combination in the acquisition of KATARI
(see note 2g). In light of the rights to receive perpetual
income from the transmission line acquired as part
of the Chilean National Transmission System, this
asset, which was initially measured at fair value, has
an indefinite useful life and is tested for impairment
on an annual basis.
Development expenses
Development expenses directly attributable to the
design and execution of tests for new or improved
computer programs that are identifiable, unique and
likely to be controlled by the Group are recognised
as intangible assets when it is probable that the
project will be successful, based on its economic
and commercial feasibility, and the associated
costs can be estimated reliably. Costs that do not
meet these criteria are charged as expenses when
incurred. Development expenses are capitalised
and amortised, from the date the associated asset
comes into service, on a straight-line basis over a
period of no more than five years. Computer software
maintenance costs are charged as expenses when
incurred.
Intangible assets under development
Administrative concessions at the construction
stage are recognised as intangible assets under
development and measured in line with the amount
to be disbursed until completion of the works,
in accordance with IFRIC 12.
D) INVESTMENT PROPERTY
The Group companies measure their investment
property at cost of acquisition. The market value
of the Group's investment property is disclosed
in note 7 to the consolidated annual accounts.
Investment property, except land, is depreciated
on a straight-line basis over the estimated useful
life, which is the period during which the companies
expect to use the assets. Investment property
is depreciated at a rate of 2 %.
E) LEASES
The Group classifies leases on the basis of whether
substantially all the risks and rewards incidental
to ownership of the leased asset are transferred.
Leases under which the lessor maintains a significant
part of the risks and rewards of ownership are
classified as operating leases.
Leases under which the significant risks and rewards
of ownership of the goods are transferred to the
Group are classified as finance leases. Assets
recognised as finance leases are presented in the
consolidated statement of financial position based
on the nature of the leased asset.
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F) FINANCIAL ASSETS
AND FINANCIAL LIABILITIES
Initial recognition and measurement
Financial instruments are classified on initial
recognition as a financial asset, a financial liability
or an equity instrument in accordance with the
economic substance of the contractual arrangement
and the definitions of a financial asset, a financial
liability and an equity instrument in IAS 32 “Financial
Instruments: Presentation”.
The Group recognises financial instruments when
it becomes party to the contract or legal transaction,
in accordance with the terms set out therein.
A financial asset or financial liability is initially
measured at its fair value plus, in the case of an
item not measured at fair value through profit or
loss, transaction costs that are directly attributable
to the acquisition or issue of the financial asset
or financial liability. Trade receivables that do not
contain a significant financing component are
initially measured at their transaction price.
Classification and subsequent measurement
Financial assets:
Upon initial recognition, a financial asset is classified
as measured at amortised cost, at fair value through
other comprehensive income or at fair value through
profit or loss. Assets are classified on the basis of the
business model and contractual terms of the assets.
A financial asset shall be measured at amortised cost
if both of the following conditions are met and it is
not measured at fair value through profit or loss:
> The financial asset is held within a business model
whose objective is to hold financial assets in order
to collect contractual cash flows; and
> The contractual terms of the financial asset give
rise on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
A financial asset shall be measured at fair value
through other comprehensive income if both of the
following conditions are met and it is not measured
at fair value through profit or loss:
> The financial asset is held within a business
model whose objective is achieved by both
collecting contractual cash flows and selling
financial assets; and
> The contractual terms of the financial asset give
rise on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
Upon initial recognition of an investment in an
equity instrument that is not held for trading, the
Group may make an irrevocable election to present
in other comprehensive income changes in the fair
value. This election is made on an instrument-by-
instrument basis.
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All financial assets not classified as measured
at amortised cost or at fair value through other
comprehensive income as described above are
measured at fair value through profit or loss.
Financial assets shall not be reclassified after initial
recognition, unless the Group changes its business
model for managing financial assets.
The Group classifies financial assets, excluding
equity-accounted investments, into the following
categories:
> At amortised cost: Financial assets classified
under this category are subsequently measured at
amortised cost using the effective interest method.
Amortised cost is reduced for impairment losses.
Interest income, exchange gains and losses and
impairment are recognised in profit or loss. Any
gains or losses on derecognition are recognised
in the consolidated income statement.
> At fair value through other comprehensive income:
These assets are subsequently measured at fair
value. The resulting net gain or loss is recognised
in other comprehensive income. Cumulative gains
or losses in other comprehensive income are
reclassified to profit or loss upon derecognition.
In the case of equity instruments classified in this
category, gains or losses arising from changes
in fair value at the reporting date are recognised
directly in other comprehensive income and are
never reclassified to profit or loss.
Dividends from equity investments classified as
at fair value through other comprehensive income
are recognised in the consolidated income
statement when the Company's right to receive
payment is established.
> At fair value through profit or loss: These assets
are subsequently measured at fair value. Net gains
or losses, including any interest or dividend income,
are recognised in profit or loss.
Financial liabilities
Financial liabilities, which include loans, payment
obligations and similar commitments, are initially
recognised at fair value less any transaction costs
incurred. Such debt is subsequently measured at
amortised cost, using the effective interest method,
except in the case of transactions for which hedges
have been arranged (see section n).
Financial debt is classified under current liabilities
unless the debt falls due more than 12 months
after the reporting date, in which case it is classified
as non-current.
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Derecognition
Financial assets
The Group derecognises a financial asset when
the contractual rights to receive cash flows from
the asset expire or are transferred in a transaction
in which it transfers substantially all the risks and
rewards of ownership of the financial asset or it
neither transfers nor retains substantially all the
risks and rewards of ownership and it does not
retain control of the transferred assets.
Financial liabilities
The Group derecognises a financial liability when
the obligation in the contract is discharged or
cancelled or expires. The Group also derecognises
a financial liability when the terms are modified
and the cash flows of the modified liability are
substantially different. In this case, a new financial
liability is recognised at fair value, based on the new
terms. Upon derecognition of a financial liability,
the difference between the carrying amount of
a financial liability extinguished and the consideration
paid, including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss.
G) INVENTORIES
Inventories of materials and spare parts are
measured at cost of acquisition, which is calculated
as the lower of weighted average price and net
realisable value. The Group companies assess the
net realisable value of inventories at the end of each
reporting period, recognising impairment in the
consolidated income statement when cost exceeds
market value or when it is uncertain whether the
inventories will be used. When the circumstances
that previously caused inventories to be written
down no longer exist or when there is clear evidence
of an increase in net realisable value because of
changed economic circumstances, the previously
recognised impairment is reversed and recognised
as income.
H) IMPAIRMENT
Financial assets
The new impairment model under IFRS 9 is based
on expected loss, which differs from the incurred
loss model under IAS 39. This model is applicable
to all financial assets that are debt instruments
not measured at fair value through profit or loss.
The Group has adopted IFRS 9 retrospectively from
1 January 2018, the date of first-time application.
Impairment is calculated by using the general
approach when calculating expected credit losses
for its financial assets; except trade receivables,
for which the simplified approach set out in IFRS 9
will be used, whereby impairment is measured
at an amount equal to the full lifetime expected
credit losses of the asset.
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In order to determine whether there has been a
significant increase in credit risk of a financial asset
since its initial recognition, or to estimate the full
lifetime expected credit losses of the asset, the
Group considers all reasonable and supportable
information that is relevant and available without
undue cost and effort. This includes quantitative
and qualitative information based on the experience
of the Group or of other entities of historical credit
losses, and observable market information about
the credit risk of the specific financial instrument
or similar financial instruments. The Group assumes
that the credit risk of a financial asset has increased
significantly if it is more than 30 days past-due.
The Group also considers that a financial asset is in
default when it is more than 90 days past-due, unless
there is reasonable and supported information that
demonstrates its recoverability.
The Group considers that a debt instrument presents
a low level of risk when its credit rating is at least
“investment grade” at one of the more prestigious
rating agencies. The maximum period over which
expected credit losses are measured is the maximum
contractual period over which the Group is exposed
to credit risk.
IFRS 9 defines expected credit losses as the weighted
average of credit losses with the respective risks of
a default occurring as the weights. Credit losses are
measured as the difference between all contractual
cash flows that are due to an entity in accordance
with the contract and all the cash flows that the
entity expects to receive (i.e. all cash shortfalls),
discounted at the original effective interest rate.
In broad terms, expected loss is calculated as follows:
EAD (Exposure at Default) x PD (Probability of default)
x LGD (Loss Given Default) x DF (Discount factor).
Where EAD is the exposure to the risk. It is measured
based on the accounting balances (outstanding
balances receivable in the form of a cash flow or
other financial asset) less any prepayments and any
bank or other guarantees provided by the customer.
PD is the probability of default. LGD is the loss that
would be incurred in the event of debtor default and
is calculated as (1 – recovery rate). The recovery rate
depends on the specific guarantees of the receivable
or loan. DF is the time value of money.
Following a hierarchy in accordance with IFRS 13,
i.e. from most observable inputs to less observable
inputs, the following methods are used:
> If the debtor has quoted credit default swaps
(CDS), the probability of default is generally
obtained from the CDS, as this is the most objective
market credit measure of the probability of default
of a company at a specific point in time.
> If the debtor does not have a quoted CDS, the
company’s rating from each credit rating agency
that has issued a report is selected and used
to calculate the probability of default.
> If the debtor does not have a rating, a theoretical
rating can be calculated by comparing the debtor's
ratios with those of other companies that do have
a rating.
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Provisions for impairment of financial assets
measured at amortised cost are deducted from
the gross carrying amount of these assets.
Impairment related to trade and other receivables
including, where appropriate, contract assets under
IFRS 15 is presented in the consolidated income
statement.
Non-financial assets
The Group companies analyse the recoverability
of their assets at each reporting date and whenever
events or changes in circumstances indicate that
the carrying amount might not be recoverable.
Impairment is deemed to exist when the carrying
amount of an asset exceeds its recoverable amount.
Impairment losses are recognised in the consolidated
income statement. An impairment loss is the
difference between the carrying amount of an
asset and its recoverable amount. The recoverable
amount of the assets is the higher of their fair value
less costs of disposal and their value in use. Value
in use is calculated on the basis of expected
future cash flows. Impairment is calculated for
individual assets. Where the recoverable amount
of an individual asset cannot be determined, the
recoverable amount of the cash-generating unit
(CGU) to which that asset belongs is calculated. Any
reversals are recognised in the consolidated income
statement. Impairment losses on goodwill are not
reversed in subsequent years.
I) SHARE CAPITAL,
OWN SHARES AND DIVIDENDS
The share capital of the Company is represented
by ordinary shares. The cost of issuing new shares,
net of taxes, is deducted from equity.
Own shares are measured at cost of acquisition
and recognised as a reduction in equity in the
consolidated statement of financial position.
Any gains or losses on the purchase, sale, issue
or redemption of own shares are recognised
directly in equity.
Interim dividends are recognised as a reduction in
equity for the year in which the dividend is declared,
based on the consensus of the board of directors.
Supplementary dividends are not deducted from
equity until approved by the shareholders at their
general meeting.
J) GRANTS
Non-repayable government capital grants awarded
by different official bodies to finance the Group's
fixed assets are recognised once the corresponding
investments have been made.
The Group recognises these grants under non-
financial and other capital grants each year during
the period in which depreciation is charged on the
assets for which the grants were received.
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Government assistance provided in the form
of income tax deductions and considered as
government capital grants is recognised applying
the general criteria described in the preceding
sections.
K) CONTRACT LIABILITIES
Non-current contract liabilities, generally arising
from long-term contracts or commitments, are
recognised under revenue or other operating income,
as appropriate, over the term of the contract or
commitment.
L) PROVISIONS
Employee benefits
> Pension obligations
The Group has defined contribution plans,
whereby the benefit receivable by an employee
upon retirement – usually based on one or
more factors such as age, fund returns, years of
service or remuneration – is determined by the
contributions made. A defined contribution plan is
a pension plan under which the Group pays fixed
contributions into a separate entity, and will have
no legal or constructive obligation to pay further
contributions if the fund does not hold sufficient
assets to pay all employee benefits relating to
employee service in the current and prior periods.
The contributions are recognised under employee
benefits when accrued.
> Other long-term employee benefits
Other long-term employee benefits include
defined benefit plans for benefits other than
pensions (such as medical insurance) for certain
serving and retired personnel of the Group. The
expected costs of these benefits are recognised
under provisions over the working life of the
employees. These obligations are measured each
year by independent qualified actuaries. Changes in
actuarial assumptions are recognised, net of taxes,
in reserves under equity in the year in which they
arise, while the past service cost is recorded in
the consolidated income statement.
This item also includes deferred remuneration
schemes and the Structural Management Plan,
which are measured each year. In 2015 the Group's
Appointments and Remuneration Committee
approved the implementation of a Structural
Management Plan (hereinafter the “Plan”) for
certain members of the management team, with
the aim of processing, in an orderly and efficient
manner, the replacement and administration
of the management positions covered in the Plan.
Upon reaching the age stipulated in the Plan, the
executives included in the Plan will be entitled to
receive an amount equal to a maximum of 3.5 times
their annual salary, depending on their category
and annual fixed and variable remuneration at the
date of leaving the Group. Participation in the Plan
is subject to meeting certain conditions, and the
Plan may be modified or withdrawn by the Group
under certain circumstances, including a prolonged
decline in the Group's results (see note 14).
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Fixed income securities and balances receivable
and payable in currencies other than the Euro at
31 December each year are translated at the closing
exchange rate. Any exchange differences arising
are recognised under exchange gains/losses
in consolidated profit or loss.
Transactions conducted in foreign currencies
for which the Group has chosen to mitigate currency
risk by arranging financial derivatives or other
hedging instruments are recorded using the criteria
for derivative financial instruments and hedging
transactions.
Foreign operations
The assets and liabilities of foreign operations
are translated to Euros using the exchange rates
at the reporting date. The income and expenses
of foreign operations are translated to Euros using
the exchange rates at the transaction dates.
Translation differences are recognised in other
comprehensive income and presented within equity.
Other provisions
The Group makes provision for present obligations
(legal or constructive) arising as a result of a past
event whenever it is probable that an outflow of
resources will be required to settle that obligation
and a reliable estimate can be made of the amount
of the obligation.
Provisions are measured at the present value
of the estimated expenditure required to settle
the obligation using a pre-tax risk-free discount rate
that reflects assessments of the time value of money.
The increase in the provision due to the passage
of time is recognised as an interest expense in the
consolidated income statement.
M) TRANSACTIONS IN CURRENCY
OTHER THAN THE EURO
Foreign currency transactions
Foreign currency transactions are translated to
the respective functional currency of the Group
companies at the transaction date. Monetary assets
and liabilities denominated in foreign currencies at
the reporting date are translated to the functional
currency using the closing exchange rate. Exchange
gains and losses arising during the year due to
balances being translated at the exchange rate
at the transaction date rather than the exchange
rate prevailing on the date of collection or payment
are recognised as income or expenses in the
consolidated income statement.
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N) DERIVATIVE FINANCIAL INSTRUMENTS
AND HEDGING TRANSACTIONS
The Group holds derivative financial instruments
to cover its exposure to currency risk and interest
rate risk. The Group designates certain derivatives
as hedging instruments for covering variability in the
cash flows associated with highly probable forecast
transactions as a result of fluctuations in interest
rates and exchange rates.
At the inception of the hedge the Group formally
designates and documents the hedging relationships
and the objective and strategy for undertaking the
hedges.
Hedge accounting is only applicable when the hedge
is expected to be highly effective at the inception
of the hedge and in subsequent years in achieving
offsetting changes in fair value or cash flows
attributable to the hedged risk, throughout the
period for which the hedge was designated.
Derivative financial instruments are initially
recognised in the consolidated statement of
financial position at their fair value on the date the
arrangement is executed (acquisition cost) and this
fair value is subsequently adjusted as necessary.
The criterion used to recognise the resulting gain or
loss depends on whether the derivative is designated
as a hedging instrument and, if so, the nature
of the hedged item.
The total fair value of derivative financial instruments
is recognised under non-current assets or liabilities
if the residual maturity of the hedged item is
more than 12 months, and under current assets
or liabilities if the residual maturity is less than
12 months.
When a hedging instrument expires or is sold,
or when it no longer qualifies for hedge accounting,
any cumulative gain or loss recorded in equity at
that time remains in equity, and is immediately
reclassified to the consolidated income statement
as and when changes in cash flows of the hedged
item occur. Any cumulative gain or loss is also
reclassified from equity to the consolidated income
statement if the forecast transaction is no longer
expected to occur.
The Group recognises the portion of the gain
or loss on the measurement at fair value of
a hedging instrument that is determined to be an
effective hedge in other comprehensive income.
The ineffective portion and the specific component
of the gain or loss or cash flows on the hedging
instrument, excluding the measurement of the hedge
effectiveness, are recognised with a debit or credit
to finance costs or finance income.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
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The separate component of other comprehensive
income associated with the hedged item is adjusted
to the lesser of the cumulative gain or loss on the
hedging instrument from inception of the hedge and
the cumulative change in fair value or present value
of the expected future cash flows on the hedged item
from inception of the hedge. However, if the Group
expects that all or a portion of a loss recognised in
other comprehensive income will not be recovered in
one or more future periods, it reclassifies into finance
income or finance costs the amount that is not
expected to be recovered.
Details of the fair value of the hedging derivatives
used are disclosed in note 18. Details of changes
in equity are provided in note 12.
O) FAIR VALUE MEASUREMENT
Fair value is the price that would be received
to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at
the measurement date, whether that price is directly
observable or estimated using another valuation
technique.
The fair value measurements of financial assets
and financial liabilities are classified on the basis of
a hierarchy that reflects the relevance of the inputs
used in measuring the fair value. The hierarchy
comprises three levels:
> Level 1: measurement is based on quoted prices
for identical instruments in active markets.
> Level 2: measurement is based on inputs that
are observable for the asset or liability.
> Level 3: measurement is based on inputs derived
from unobservable market data.
If there is no quoted price in an active market,
the Group uses valuation techniques that maximise
the use of relevant observable inputs and minimise
the use of unobservable inputs. Specifically, the
Group calculates the fair value of derivative financial
instruments that are not traded on organised
markets using valuation techniques, including recent
arm’s length transactions between knowledgeable,
willing parties, reference to other instruments
that are substantially the same, discounted cash
flow analyses using the market interest rates
and exchange rates in force at the reporting date,
and option pricing models enhanced to reflect the
particular circumstances of the issuer.
P) TRADE PAYABLES
Trade payables are initially recognised at fair value
and subsequently measured at amortised cost using
the effective interest method. Trade payables falling
due in less than one year that have no contractual
interest rate and are expected to be settled in the
short term are measured at their nominal amount.
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Q) INCOME AND EXPENSES
The Group has initially applied IFRS 15 at 1 January
2018. Information on the Group's accounting policies
for contracts with customers and the related effect
on initial application is provided in note 2 b).
Revenue is measured at the fair value of the
consideration received or receivable. Revenue is
recognised according to the pattern of transfer of
goods and services to the customer at an amount
that reflects the consideration to which the entity
expects to be entitled in exchange for transferring
these goods or services. The majority of the Group's
revenues are regulated revenues from transmission
and system operation activities in Spain, for which
the performance obligations are considered to be
satisfied over time. Details of the implementing
legislation governing the calculation of these
revenues are provided in note 3 to the accompanying
consolidated annual accounts.
Interest income is recognised using the effective
interest method.
Dividends are recognised when the right to receive
payment is established.
R) TAXATION
The income tax expense or tax income for the year
comprises current tax and deferred tax. Current
and deferred taxes are recognised as income or
an expense and included in profit or loss for the
year, except to the extent that the tax arises from
a transaction or event that is recognised in the same
year, directly in equity, or from a business combination.
Current tax is the estimated tax payable for the year
using the enacted tax rates applicable to the current
year and to any adjustment to tax payable in respect
of previous years.
Tax credits and deductions arising from economic
events occurring in the year are deducted from the
income tax expense, unless there are doubts as
to whether they can be realised.
Deferred taxes and the income tax expense are
calculated and recognised using the liability method,
based on temporary differences arising between the
balances recognised in the financial information and
those used for tax purposes. This method entails
calculating deferred tax assets and liabilities on the
basis of the differences between the carrying amount
of the assets and liabilities and their tax base, applying
the tax rates that are objectively expected to apply
to the years when the assets are realised and the
liabilities settled.
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Deferred tax assets are recognised provided that
it is probable that sufficient taxable profits will be
available against which the deductible temporary
differences can be utilised.
Deferred tax assets and liabilities are recognised
in respect of the temporary differences that arise
from investments in subsidiaries and associates,
except where the Group is able to control the timing
of the reversal of the temporary differences and it
is probable that they will reverse in the foreseeable
future.
Red Eléctrica Corporación, S.A., Red Eléctrica de
España, S.A.U., Red Eléctrica Financiaciones, S.A.U.,
Red Eléctrica Internacional, S.A.U., Red Eléctrica de
Infraestructuras de Telecomunicación, S.A.U., Red
Eléctrica Sistemas de Telecomunicación, S.A.U.
and Red Eléctrica de Infraestructuras en Canarias,
S.A.U. compose the Red Eléctrica tax group and
file consolidated tax returns in Spain.
In addition to the factors to be considered for
individual taxation, set out previously, the following
factors are taken into account when determining
the accrued income tax expense for the companies
forming the consolidated tax group:
> Temporary and permanent differences arising from
the elimination of profits and losses on transactions
between Group companies, derived from the
process of determining consolidated taxable
income.
> Deductions and credits corresponding to each
company forming the consolidated tax group.
For these purposes, deductions and credits are
allocated to the company that carried out the
activity or generated the profit necessary to obtain
the right to the deduction or tax credit.
> Temporary differences arising from the elimination
of profits and losses on transactions between tax
group companies are recognised by the company
that generates the profit or loss, using the
applicable tax rate.
> The Parent of the Group records the total
consolidated income tax payable (recoverable)
with a debit (credit) to receivables (payables) from/
to Group companies and associates.
> The amount of the debt (credit) relating to the
subsidiaries is recognised with a credit (debit)
to payables (receivables) to/from Group companies
and associates.
S) EARNINGS PER SHARE
Basic earnings per share are calculated by dividing
the net profit for the year attributable to the Parent
by the weighted average number of ordinary shares
outstanding during the year, excluding own shares.
According to the consolidated annual accounts of the
Red Eléctrica Group at 31 December 2018 and 2017,
basic earnings per share are the same as diluted
earnings per share, as no transactions that could have
resulted in a change in those figures were conducted
during those years.
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T) INSURANCE
The Red Eléctrica Group companies have taken
out various insurance policies to cover the risks
to which the companies are exposed through their
activities. These risks mainly comprise damage that
could be caused to the Group companies' facilities
and possible claims that might be lodged by third
parties due to the companies’ activities. Insurance
premium expenses and income are recognised
in the consolidated income statement on an accruals
basis. Payouts from insurance companies in respect
of claims are recognised in the consolidated
income statement when they are receivable.
U) ENVIRONMENTAL ISSUES
Costs derived from business activities intended
to protect and improve the environment are charged
as expenses in the year in which they are incurred.
Property, plant and equipment acquired to minimise
environmental impact and to protect and improve
the environment are recognised as an increase
in property, plant and equipment.
V) SHARE-BASED PAYMENTS
The Group has implemented share purchase
schemes whereby employees can opt to receive part
of their annual remuneration in the form of shares
in the Group. This remuneration is measured based
on the closing quotation of these Group shares at the
delivery date. The costs incurred on such schemes
are recognised under personnel expenses in the
consolidated income statement. All shares
delivered as payment are taken from the own
shares held by the Parent.
W) CONTINGENT ASSETS AND LIABILITIES
Contingent assets are not recognised in financial
statements since this could result in the recognition
of income that may never be realised. Contingent
assets are assessed continually to ensure that
developments are appropriately reflected in the
financial statements. If it has become virtually
certain that an inflow of economic benefits will
arise, the asset and the related income are
recognised in the financial statements of the
period in which the change occurs.
Contingent liabilities are not recognised in
the financial statements, except in business
combinations to the extent that they represent
present obligations arising from past events for
which the fair value can be reliably measured.
Contingent liabilities are assessed continually
and if it becomes probable that an outflow of
future economic benefits will be required for an
item previously dealt with as a contingent liability,
a provision is recognised in the financial statements
of the period in which the change in probability
occurs.
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Additions
Transfers
-
16,613
26,848
-
51,028
(2,082)
(51,057)
-
31
December
2018
171,367
43,860
27,229
48,486
43,461
(2,111)
290,942
(5,991)
-
(27,762)
(2,607)
(8,598)
-
(208)
(208)
-
(20,621)
(48,383)
-
-
-
-
48,486
48,486
-
-
-
5
Intangible Assets
Movement in intangible assets and details
of accumulated amortisation during 2018 and
2017 are as follows:
Thousands of Euros
31
December
2016
Exchange
rate
fluctuations
Additions
Transfers
31
December
2017
Exchange
rate
fluctuations
Changes in the
consolidated
Group
Administrative concessions
Development expenses and computer software
Intangible assets under development
Other intangible assets
Total intangible assets
130,571
(15,818)
17,671
21,415
-
(5)
(2,594)
-
171
11,278
30,260
-
(34)
383
34
-
114,890
29,327
49,115
-
169,657
(18,417)
41,709
383
193,332
5,449
2
2,323
-
7,774
Accumulated amortisation of administrative
concessions
Accumulated amortisation of development
expenses and computer software
Total accumulated amortisation
Impairment
Carrying amount
(17,560)
2,413
(5,448)
(17,525)
(35,085)
2
(275)
2,415
(5,723)
-
-
-
-
-
-
-
(20,595)
(1,176)
(17,798)
(38,393)
(8)
(1,184)
-
134,572
(16,002)
35,986
383
154,939
6,590
48,486
34,863
(2,319)
242,559
Operating expenses of Euros 27,016 thousand
incurred directly in connection with intangible assets
were capitalised in 2018 (Euros 32,750 thousand
in 2017).
During 2018 the Group capitalised borrowing costs
of Euros 787 thousand as an increase in intangible
assets (Euros 406 thousand in 2017).
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At 31 December 2018 the Group has fully amortised
intangible assets amounting to Euros 18,550
thousand (Euros 18,550 thousand in 2017), most
of which comprise development expenses and
computer software.
Administrative concessions reflect the technical
electricity facilities constructed and operated
by the Group under concession in Peru.
Intangible assets under development in 2018 are
mainly related to the construction work carried out
by the Peruvian companies TESUR 3 and TESUR 4
for the concession facilities of these two companies.
Other intangible assets amounting to Euros
48,486 thousand reflect the perpetual right to
regulated tariffs arising from the acquisition of
KATARI (see note 8). This item is not amortised as
it has an indefinite useful life, and is tested for
impairment annually.
At 31 December 2018 the carrying amount of
intangible assets located outside of Spain is Euros
219,432 thousand (Euros 143,434 thousand in 2017).
Details of service concession contracts awarded by
different public entities and under operation and/or
construction at 31 December 2018 are as follows:
Thousands of Euros
Grantor
Activity
Country
Concession period from start-up
of commercial operations
Redesur
Tesur
Tesur 2
Peruvian State
Peruvian State
Peruvian State
Electricity
transmission
Electricity
transmission
Electricity
transmission
Peru
30 years
Peru
30 years
Peru
30 years
Tesur 3
Peruvian State
Electricity
transmission
Peru
30 years
Tesur 4
Peruvian State
Electricity
transmission
Peru
30 years
Remaining useful life
13 years
26 years
30 years
6 months
construction
+ 30 years operation
30 months
construction
+ 30 years operation
Tariff review frequency
Carrying amount at 31/12/2018
Carrying amount at 31/12/2017
Revenue in 2018
Revenue in 2017
Profit/(loss) for 2018
Profit/(loss) for 2017
Renewal options
Annual
40,036
38,516
17,512
15,882
3,647
3,354
Annual
56,792
56,213
5,907
6,699
11
764
Annual
50,057
45,693
4,105
-
150
10
Annual
22,427
2,988
-
-
(42)
10
Annual
1,549
-
-
-
96
-
Not stipulated
in contract
Not stipulated
in contract
Not stipulated
in contract
Not stipulated
in contract
Not stipulated
in contract
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
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At the 2018 and 2017 reporting dates, the Group
has tested intangible assets for impairment by
calculating the value in use of the CGUs associated
with the assets, which exceeds their carrying amount.
6
Property, Plant and Equipment
Movement in property, plant and equipment and
details of accumulated depreciation and impairment
during 2018 and 2017 are as follows:
Red Eléctrica Group. Movement in property, plant and equipment
Thousands of Euros
2 0 1 8 A N D 2 0 1 7
31
December
2016
Additions
and other
Exchange
rate
Fluctuations
Exits,
disposals,
reductions and
write-downs
Transfers
31
December
2017
Exchange
rate
Fluctuations
Changes
in the
consolidated
Group
Exits,
disposals,
reductions and
write-downs
Additions
and other
31
December
2018
Transfers
Cost
Land and buildings
Technical telecommunications
facilities
79,596
435,735
1,468
-
Technical electricity facilities
13,370,261
51,896
(47)
-
-
(598)
-
2,224
2,632
82,643
438,367
(6,061)
248,920 13,665,016
Other installations, machinery,
equipment, furniture and other items
Technical electricity facilities
under construction
214,855
232
(177)
(353)
5,942
220,499
513,888
384,357
-
420
(222,987)
675,678
27
-
49
-
-
-
42,732
-
-
-
(37)
42
82,675
-
4,014
442,381
(4,232)
330,333
14,033,849
-
207
(334)
3,096
223,517
-
370,062
-
(327,980)
717,760
Advances and PPE under construction
40,472
42,737
Total cost
14,654,807
480,690
(7)
(231)
-
(37,114)
46,088
1,108
31,699
(9)
(7,394)
71,492
(6,592)
(383)
15,128,291
76
43,840
401,968
(4,612)
2,111
15,571,674
Accumulated depreciation
Buildings
Technical telecommunications
facilities
(21,611)
(1,380)
(45,683)
(21,845)
Technical electricity facilities
(5,563,769)
(468,572)
Other installations, machinery,
equipment, furniture and other items
(163,408)
(17,587)
Total accumulated depreciation
(5,794,471)
(509,384)
(83,625)
-
Impairment
Carrying amount
-
-
-
-
-
-
7
-
-
-
-
(22,984)
(67,528)
6,061
(6,026,280)
161
336
(180,498)
168
-
6,397
(6,297,290)
-
(83,625)
(4)
-
(7)
(16)
(27)
-
49
-
-
-
-
-
-
(1,435)
(22,424)
(432,872)
(15,380)
(472,111)
(11,919)
11
-
(36)
-
(24,448)
(89,952)
4,094
317
-
(6,455,065)
244
(195,333)
4,422
208
(6,764,798)
-
-
(95,544)
43,840
(82,062)
(190)
2,319
8,711,332
8,776,711
(28,694)
(231)
(6,424)
6,014
8,747,376
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
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Technical electricity facilities are assets that are
subject to regulated remuneration (see note 3).
The main additions to technical electricity facilities
in 2018 and 2017 are investments in electricity
transmission facilities in Spain.
Technical telecommunications facilities essentially
consist of the concession of the rights to use and
manage the operation of the fibre optic cable
network and other related items, pursuant to the
20-year agreement entered into with Adif in 2014.
The agreement has been classified as a finance
lease, given that substantially all the risks and
rewards incidental to ownership of the assets
were transferred.
Property, plant and equipment are measured at cost
of acquisition, less any accumulated depreciation and
impairment (except for assets acquired in business
combinations, which are initially recognised at fair
value). Cost of acquisition includes the price paid for
the asset, personnel expenses, operating expenses
and any borrowing costs directly attributable to the
construction or manufacture of the asset.
At 31 December 2018 the amount presented in
additions and other mainly reflects the investments
made during the year as well as the technical
facilities received under agreements with third
parties.
At 31 December 2018, the amount shown under
exits, disposals, reductions and write-downs mainly
reflects the disposal of certain fully-depreciated
assets.
During 2018, the Group companies capitalised
construction-related borrowing costs of Euros
5,386 thousand as an increase in property, plant
and equipment (Euros 5,096 thousand in 2017).
The weighted average rate used to capitalise
borrowing costs was 1.5 % in 2018 (1.5 % in 2017).
Operating expenses of Euros 35,011 thousand
incurred directly in connection with property, plant
and equipment under construction were capitalised
in 2018 (Euros 34,007 thousand in 2017). The
Group's capitalised expenses directly related
to the construction of facilities include all operating
expenses incurred to provide support to the units
directly involved in the activity.
The Group has cash-generating units (CGUs) that
encompass property, plant and equipment. CGUs
are the smallest identifiable group of assets that
generate cash inflows that are largely independent
of the cash inflows from other assets or groups
of assets. The CGUs identified in property, plant and
equipment are related to electricity transmission and
telecommunications in Spain, electricity transmission
in Chile and certain individual assets. The CGUs
identified are the same in 2018 and 2017.
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The Group tests for impairment when it observes
indications, such as amendments to sector
regulations or changes in investment plans. In order
to calculate impairment, the Group verifies that the
recoverable amount or value in use of each cash-
generating unit with which the assets or individual
assets are associated exceeds its carrying amount.
Otherwise, an impairment loss is recognised in the
consolidated income statement for the difference
between the two, with a charge to impairment and
gains/losses on disposal of fixed assets, up to the
limit of the higher of: (i) its fair value less costs
to sell and (ii) its value in use.
Impairment losses recognised for an asset
in prior years are reversed when a change arises
in the estimate of its recoverable amount, increasing
the value of the asset with a credit to results up to
the limit of the carrying amount that the asset would
have had if no impairment loss had been recognised.
The recoverable amount is the higher of fair
value less costs to sell and value in use, which is
understood to be the present value of estimated
future cash flows. The Group considers the value
in use of an asset to be its recoverable amount.
Value in use is calculated using the methodology
described below.
To estimate value in use, the Group prepares
forecasts of future cash flows after tax based on
the best available estimates. These budgets include
the best available estimates of income, expenses
and investments, using past experience and future
expectations in accordance with the prevailing
regulatory framework.
Impairment of Euros 11,919 thousand was
recognised in 2018 as a result of indications
of impairment on certain facilities that are included
in technical electricity facilities under construction,
as the regulator has yet to define the allocation
of the related remuneration.
At 31 December 2018 the carrying amount
of property, plant and equipment located outside
of Spain is Euros 57,445 thousand (Euros 3,754
thousand at 31 December 2017).
At 31 December 2018 the Group has fully depreciated
property, plant and equipment amounting to Euros
1,577,123 thousand, of which Euros 1,420,317
thousand comprises technical electricity facilities
(Euros 1,509,105 thousand in 2017, of which Euros
1,377,264 thousand comprised technical electricity
facilities).
Details of capital grants and other non-current
revenue received in advance in relation to property,
plant and equipment are provided in note 13.
The Group has taken out insurance policies
to cover the risk of damage to its property, plant
and equipment. These policies provide adequate
protection against the risks covered.
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The Group has no firm commitments to purchase
significant amounts of property, plant and equipment
relative to its present volume of assets, and to the
investments it makes and plans to make. The Group
periodically places orders to cover needs related to
its investment plans. The various amounts in the
aforementioned orders will normally materialise in
the form of delivery orders as and when the different
projects included in the plans are capitalised.
Therefore, they do not constitute firm purchase
commitments at the time of issue.
7
Investment Property
Movement in the Group’s investment property in 2018
and 2017 is as follows:
Red Eléctrica Group. Movement in investment property
Thousands of Euros
2 0 1 8 A N D 2 0 1 7
Cost
Investment property
Total cost
Accumulated depreciation
Investment property
Total accumulated depreciation
Impairment
Carrying amount
31
December
2016
Additions
31
December
2017
Additions
Disposals
2,910
2,910
(481)
(481)
-
2,429
-
-
(44)
(44)
-
(44)
2,910
2,910
(525)
(525)
-
2,385
-
-
(44)
(44)
(615)
(659)
(72)
(72)
-
-
-
(72)
31
December
2018
2,838
2,838
(569)
(569)
(615)
1,654
The fair value of investment property has been
determined by independent experts. In certain cases,
the carrying amount of the investment property
exceeds the fair value provided by these experts
and impairment of Euros 615 thousand has been
recognised in the consolidated income statement.
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8
Business Combinations
Thousands of US Dollars
On 12 September 2018, the Group, through REDENOR
2, acquired 100 % of the Chilean company Centinela
Transmisión S.A. (which then adopted the name Katari
Transmisión S.A. (KATARI)), for a provisional amount
of US Dollars 117.8 million (Euros 101.2 million). The
acquiree's statutory and principal activity is electricity
transmission and transportation. KATARI operates
a 265 km circuit made up of three 220 kV lines in
Chile’s northern Antofagasta Region. This company
was absorbed by REDENOR 2 on 31 October 2018.
From the date that control was taken until
31 December 2018, KATARI contributed revenues
of Euros 1,739 thousand and a net profit of Euros
996 thousand. Had the acquisition taken place
on 1 January 2018, the revenue and net profit
contributed by KATARI would have amounted to
Euros 5,660 thousand and Euros 2,650 thousand,
respectively.
A summary of the amounts recognised for the assets
acquired and liabilities assumed at the acquisition
date, the amounts resulting from their fair value
measurements, and exchange rate is as follows:
Intangible assets
Property, plant and equipment
Other non-current assets
Other current assets
Cash and cash equivalents
Non-current liabilities
Current liabilities
Total assets and liabilities
Initial balance
Adjustments
Fair value
Fair value in
thousands of Euros (*)
-
33,864
296
3,643
13,194
(3,344)
(7,516)
40,137
55,516
16,570
-
(746)
-
-
6,405
77,745
55,516
50,434
296
2,897
13,194
(3,344)
(1,111)
117,882
48,486
43,840
259
2,530
11,523
(2,921)
(970)
102,747
(*) US Dollar / Euro exchange rate at December 2018.
Intangible assets reflect a right to a regulated tariff
with an indefinite useful life, as the transmission lines
acquired have been classified as part of the Chilean
National Transmission System and will therefore
generate perpetual revenues. The fair value of these
assets has been estimated by an independent expert
using the income approach, based on the present
value of the income attributable to owning the asset.
Specifically, the Multi-period Excess Earnings Method
(MEEM) was used, whereby the value of the regulated
tariff right was estimated on the basis of the residual
earnings after deducting the returns on all other
assets used from post-tax operating income. This
intangible asset has been classified as having an
indefinite useful life and will therefore be tested
for impairment annually.
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9
Equity-accounted
Investees
This item includes the Group's 50 % interest in
Transmisora Eléctrica del Norte, S.A. (TEN) held
through Red Eléctrica Chile SpA. As a joint venture,
this company is incorporated into the financial
statements of the Group using the equity method
(see note 2 d).
TEN was incorporated on 1 March 2007 and
undertook the project for the construction of
a transmission line spanning approximately 580 km
and the corresponding substations. This project has
connected the Far North Interconnection System
to the Central Interconnected System in Chile since
2018. TEN currently operates and maintains the
facilities constructed.
Property, plant and equipment mainly reflect those
related to the transmission lines. The fair value of
these facilities was obtained through an appraisal by
an independent expert. The fair value was calculated
using Level 2 data as per the fair value hierarchy,
based on the replacement cost, using the market
values of the new asset and duly considering
the effects of physical, function and economic
depreciation. The remaining useful lives of the
fixed assets were assigned by the aforementioned
independent expert, based on its experience in the
industry in accordance with the expected use
of the assets.
The Group does not expect changes to be made
to the amounts recognised for the fair values
of the assets and liabilities acquired in 2019.
After assigning the price of the business combination
to the assets identified and liabilities assumed, there
was no residual value to be assigned and therefore
no goodwill was identified on the acquisition.
The Group incurred acquisition costs of Euros
0.2 million in respect of external legal fees and due
diligence costs, which have been recognised under
other operating expenses in the consolidated income
statement.
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The acquisition cost was US Dollars 217,560
thousand (Euros 199,816 thousand) and movements
recognised in 2017 and 2018 are as follows:
Thousands of Euros
Company
Transmisora Eléctrica
del Norte S.A. (TEN)
Total
31
December
2016
200,757
200,757
Share of
profit
1,397
1,397
Exchange
rate
fluctuations
(25,017)
(25,017)
Valuation
adjustments
31
December
2017
(4,410)
(4,410)
172,727
172,727
Share
of profit
6,966
6,966
Exchange
rate
fluctuations
Valuation
adjustments
31
December
2018
8,881
8,881
9,803
9,803
198,377
198,377
The key indicators at 31 December 2018 and 2017
are as follows:
Transmisora Eléctrica del Norte S.A. (TEN)
Thousands of Euros
Non-current assets
Current assets
Cash and cash equivalents
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Revenue
Gross operating profit
Net operating profit
Profit after tax
Comprehensive income
Dividends received by the Group
31 December 2018
31 December 2017
665,015
95,535
65,948
826,499
620,616
77,998
698,614
127,885
74,812
54,252
51,429
13,748
30,039
-
661,456
109,285
15,874
786,615
734,453
5,826
740,279
28,721
6,567
5,077
4,629
2,794
(4,412)
-
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At 31 December 2018 and 2017 the balance of the
loan extended by the Group to TEN is Euros 41,724
thousand and Euros 54,828 thousand, respectively
(see note 17).
The Group performs an impairment test each
year to verify the recoverability of its investment.
When testing for impairment, the Group considers
projections of future cash flows. As a result of this
test, value in use exceeds the carrying amount and,
consequently, no impairment has been recorded
on this investment.
The most representative assumptions included
in the projections used, based on business forecasts
and own past experience, are as follows:
> Regulated remuneration: estimated based on the
remuneration approved in legislation for the years
available, whilst the same update mechanisms
as those set out in prevailing legislation have
been used for subsequent years.
> Investment: the best information available
on the asset investment and maintenance plans
for the infrastructure throughout the estimated
time period has been used.
> Operating and maintenance costs: projected
in line with the growth expected to derive from
the investment plan.
> Other costs: projected based on the knowledge
of the sector and past experience and in line
with the growth expected to derive from the
investment plan.
In order to calculate present value, the projected
cash flows are discounted using a rate, after tax,
that considers the weighted average cost of capital
(WACC) of the business and the geographical area
in which it is carried out.
10
Inventories
Details of inventories at 31 December 2018
and 2017 are as follows:
Thousands of Euros
Inventories
Impairment
Total
2018
67,535
(32,894)
34,641
2017
68,074
(28,321)
39,753
Inventories mainly reflect materials and spare parts
related to the technical electricity facilities.
The Group companies regularly test inventories
for impairment based on the following assumptions:
> Impairment of old inventories, using inventory
turnover ratios.
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> Impairment for excess inventories, on the basis
of estimated use in future years.
As a result, the Group recorded impairment losses
of Euros 4,573 thousand in the consolidated income
statement for 2018 (Euros 2,243 thousand in 2017).
11
Trade and Other Receivables
Details of trade and other receivables at 31 December
2018 and 2017 are as follows:
Thousands of Euros
Trade receivables
Other receivables
Current tax assets (note 20)
2018
10,826
1,089,675
2,059
2017
14,940
994,627
3,788
Total
1,102,560
1,013,355
Other receivables at 31 December 2018 and 2017
mainly reflect the trend in settlements made by the
CNMC in those years for regulated activities in Spain
as a result of changes in collections and payments.
At 31 December 2018 and 2017 the balances mostly
comprise amounts pending invoicing and/or collection
for regulated transmission and system operation
activities. Under the settlement system set up by
the Spanish regulator, some of these receivables
are settled and collected in the following year.
These amounts also include the revenue receivable
derived from applying the methodology set forth in
the remuneration model in force for transmission
activities in Spain, which stipulates that facilities
entering into service in year ‘n’ are to be remunerated
from year ‘n+2’ onwards.
There are no significant differences between the
fair value and the carrying amount at 31 December
2018 and 2017. At 31 December 2018 and 2017 there
are no significant amounts over 12 months past-due
(see note 16).
On 1 January 2018 the Group began to calculate
impairment of financial assets based on expected loss,
as detailed in 2.b, using the principles described in
note 4.f). This has led to the recognition of impairment
totalling Euros 590 thousand in 2018 and a Euros 807
thousand reduction in equity due to the first-time
application of IFRS 9 at 1 January 2018.
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12
Equity
CAPITAL RISK MANAGEMENT
The Group’s management of its companies’ capital
is aimed at safeguarding their capacity to continue
operating as a going concern, so as to provide
shareholder remuneration while maintaining an
optimum capital structure to reduce the cost
of capital.
To maintain and adjust the capital structure, the
Group can adjust the amount of dividends payable
to shareholders, reimburse capital or issue shares.
The Group controls its capital structure on a gearing
ratio basis, in line with sector practice. This ratio is
calculated as net financial debt divided by the sum
of the Group's equity and net financial debt.
Net financial debt is calculated as follows:
Thousands of Euros
Non-current payables
Current payables
Foreign currency derivatives
Cash and cash equivalents
Net financial debt
Equity
Gearing ratio
2018
2017
4,980,757
4,630,691
490,460
(21,345)
(767,152)
4,682,720
3,361,366
58.2 %
735,317
(4,341)
(569,869)
4,791,798
3,093,449
60.8 %
At 31 December 2018, the financial covenants
stipulated in the contracts entered into have
been met.
On 5 June 2018 the rating agency Standard & Poor’s
issued a new report on the Company maintaining its
rating and outlook. Following this announcement,
the Company and its subsidiary, Red Eléctrica de
España, S.A.U., maintain long-term ratings of ‘A-’
and short-term ratings of ‘A-2’ with a stable outlook.
On 18 September 2018 the rating agency Fitch
Ratings confirmed the Company's long-term
rating of ‘A’, with a stable outlook. Following this
announcement, the Company and its subsidiary
Red Eléctrica de España, S.A.U. maintain long-term
ratings of ‘A’ and short-term ratings of ‘F1’, with
a stable outlook.
EQUITY ATTRIBUTABLE TO THE PARENT
Capital and reserves
> Share capital
At 31 December 2018 and 2017 the Company's
share capital is divided into 541,080,000 shares
of Euros 0,50 par value each represented by
book entries, all subscribed and fully paid-in,
and carrying the same voting and profit-sharing
rights (notwithstanding the limits stipulated in the
following paragraph). The shares are quoted on the
four Spanish stock exchanges and traded through
the SIBE (Spanish Stock Exchange Interlinking
System).
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The Company is subject to the shareholder
limitations stipulated in the twenty-third additional
provision of Law 54/1997 of 27 November 1997 and
article 30 of Electricity Industry Law 24/2013
of 26 December 2013.
Pursuant to this legislation, any individual or entity
may hold investments in the Company, provided
that the sum of their direct or indirect interests
in its share capital does not exceed 5 % and their
voting rights do not surpass 3 %. These shares may
not be syndicated for any purpose. Voting rights at
the Parent are limited to 1 % in the case of entities
that carry out activities in the electricity sector,
and individuals and entities that hold direct or
indirect interests exceeding 5 % of the share
capital of such companies, without prejudice to the
limitations for generators and suppliers set forth
in article 30 of Electricity Industry Law 24/2013
of 26 December 2013. The shareholder limitations
with regard to the Parent's share capital are not
applicable to Sociedad Estatal de Participaciones
Industriales (SEPI), which in any event will continue
to hold an interest of no less than 10 %. At 31
December 2018 and 2017 SEPI holds a 20 %
interest in the Company's share capital.
> Reserves
This item comprises the following:
∂ Legal reserve
Spanish companies are obliged to transfer
10 % of the profits for the year to a legal reserve
until such reserve reaches an amount equal
to 20 % of the share capital. Until this reserve
exceeds this limit, it is not distributable to
shareholders and may only be used to offset
losses, provided no other reserves are available.
Under certain circumstances, it may also be used
to increase share capital. At 31 December 2018
and 2017 the legal reserve amounts to 20 %
of the Parent's share capital (Euros 54,199
thousand).
∂ Other reserves
This heading includes voluntary reserves of the
Parent, reserves in consolidated companies and
first-time application reserves. At 31 December
2018 they amount to Euros 2,223,486 thousand
(Euros 2,021,135 thousand in 2017).
In addition, this item includes statutory reserves
amounting to Euros 320,374 thousand (Euros
309,062 thousand in 2017), particularly the following:
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∂ The property, plant and equipment revaluation
reserve amounting to Euros 247,022 thousand
created by the Parent in 1996 (this reserve may
be used, free of taxation, to offset accounting
losses and increase share capital or, ten years
after its creation, it may be transferred to freely
distributable reserves, in accordance with Royal
Decree-Law 2607/1996). Nonetheless, this
balance may only be distributed, indirectly or
directly, when the revalued assets have been
fully depreciated, transferred or derecognised.
∂ As provided for by article 25 of Law 27/2014
of 27 November 2014, the tax group headed
by the Company has appropriated a capitalisation
reserve of Euros 55,828 thousand, which is held
by REE and REC, as permitted by article 62.1 d)
of the aforementioned Law, corresponding to 2015
(Euros 29,110 thousand), 2016 (Euros 15,406
thousand) and 2017 (Euros 11,312 thousand). This
reserve will be restricted for a period of five years.
The proposed appropriation to the capitalisation
reserve for the year ended 31 December 2018,
prepared by the directors and pending approval by
the shareholders at the general meeting, is Euros
16,707 thousand, and each company forming the
tax group has adjusted income tax for 2018 in this
regard (see note 21).
> Own shares and equity holdings
At 31 December 2018 the Parent held 1,198,049
own shares representing 0.22 % of its share capital,
with a par value of Euros 0,50 per share and a total
par value of Euros 599 thousand, and an average
acquisition price of Euros 17,78 per share (at 31
December 2017 the Parent held 1,613,693 own
shares representing 0.30 % of its share capital,
with a par value Euros 0,50 per share and a total
par value of Euros 807 thousand, and an average
acquisition price of Euros 18,45 per share).
These shares have been recognised as a reduction
in equity for an amount of Euros 21,302 thousand
at 31 December 2018 (Euros 29,769 thousand
in 2017).
The Parent has complied with the requirements
of article 509 of the Spanish Companies Act,
which provides, except in the case of freely acquired
own shares, that in listed companies the par value
of own shares acquired directly or indirectly by the
Company, plus the par value of the shares already
held by the Parent and its subsidiaries, must
not exceed 10 % of subscribed share capital.
The subsidiaries do not hold own shares or
shares in the Parent.
> Profit attributable to the Parent
Profit for 2018 totals Euros 704,558 thousand
(Euros 669,836 thousand at 31 December 2017).
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> Interim dividends and proposed distribution
of dividends by the Parent
The interim dividend authorised by the board
of directors in 2018 has been recognised as a Euros
147,250 thousand reduction in consolidated equity
at 31 December 2018 (Euros 137,509 thousand
at 31 December 2017) (see note 17).
On 30 October 2018 the Company's board
of directors agreed to pay an interim dividend
of Euros 0,2727 (gross) per share with a charge
to 2018 profit, which was paid on 8 January 2019
(Euros 0,2549 (gross) per share in 2017).
Details of the dividends paid during 2018 and
2017 are as follows:
Valuation adjustments
> Financial assets at fair value through other
comprehensive income
At 31 December 2018 and 2017 this item reflects
valuation adjustments to equity instruments
classified as financial assets measured at fair
value through other comprehensive income due
to fluctuations in the share price of the Group's
5 % investment in the listed company Redes
Energéticas Nacionais, S.G.P.S., S.A. (hereinafter
REN), the benchmark index for which is the
Portuguese PSI 20. At 31 December 2018 this
item totals Euros 15,063 thousand (Euros
15,435 thousand in 2017).
Thousands of Euros
Ordinary shares
Total dividends paid
Dividends charged to profit
% of par
value
183.76 %
183.76 %
183.76 %
Euros per
share
0.9188
0.9188
0.9188
2018
Amount
495,138
495,138
495,138
% of par
value
171.74 %
171.74 %
171.74 %
Euros per
share
0.8587
0.8587
0.8587
2017
Amount
463,189
463,189
463,189
The Parent's board of directors also proposed to the
shareholders at their general meeting the distribution
of a supplementary dividend of Euros 0.7104 per
share, which would result in a total dividend for 2018
of Euros 0.9831 per share (Euros 0.9188 in 2017).
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> Hedging transactions
This line item reflects changes in the value
of derivative financial instruments.
At 31 December 2018 this item totals a negative
amount of Euros 62,237 thousand (a negative
amount of Euros 77,241 thousand in 2017).
> Translation differences
This line item mainly comprises the exchange gains
and losses arising from translation of the financial
statements of foreign businesses, specifically
the Peruvian companies TESUR, TESUR 2,
TESUR 3, TESUR 4, REA and REDESUR and the
Chilean companies RECH, REDENOR, REDENOR 2
and TEN. At 31 December 2018 they amount to Euros
3,103 thousand (a negative amount of Euros 2,298
thousand in 2017). This increase is primarily due
to the performance of the US Dollar against the
Euro in 2018.
NON-CONTROLLING INTERESTS
Non-controlling interests under equity in the
consolidated statement of financial position shown
below reflect the non-controlling interests in the
Chilean company REDENOR at 31 December 2018
and 2017. In 2018 this balance amounts to Euros
832 thousand (Euros 59 thousand in 2017).
Movement in 2018 and 2017 is as follows:
Thousands of Euros
Non-controlling interests
31
December
2016
17,494
Loss
for the year
(17)
Net
translation
differences
Changes in the
consolidated
Group and other
31
December
2017
Loss
for the year
Net
translation
differences
Changes in the
consolidated
Group and other
31
December
2018
1
(17,420)
59
(69)
25
817
832
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Regarding the main non-controlling interests referred
to above, a summary of the financial information
on assets, liabilities and profit/loss at 31 December
2018 and 2017 of the investee is as follows:
Thousands of Euros
Non-current assets
Current assets
Assets
Non-current liabilities
Current liabilities
Liabilities
Equity
Income
Expenses
Gross operating loss
Loss after tax
Loss attributable to non-controlling interests
31/12/2018
REDENOR
10,700
2,276
12,976
8,334
1,878
10,212
2,763
607
866
(260)
(231)
(69)
31/12/2017
REDENOR
807
193
1,000
-
802
802
198
829
906
(77)
(55)
(17)
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13
Grants and Other Non-current
Revenue Received in Advance
Movement in grants and other non-current
revenue received in advance in 2018 and 2017
is as follows:
Thousands of Euros
Capital grants
Other grants and revenue received in advance
Total
31
December
2016
193,776
354,165
547,941
Additions
Derecognitions
Applications
Transfers
1,250
72,352
73,602
-
(980)
(980)
(8,063)
(15,378)
(23,441)
(397)
397
-
31
December
2017
186,566
410,556
597,122
Additions
Derecognitions
Applications
1,639
56,094
57,733
-
-
-
(7,888)
(15,557)
(23,445)
31
December
2018
180,317
451,093
631,410
Capital grants mainly include the amounts
received by REE for the construction of electricity
facilities. Applications reflect the amounts taken to
consolidated profit or loss on the basis of the useful
life of the corresponding facilities and recognised
under non-financial and other capital grants in the
consolidated income statement.
Other grants and other revenue received in advance
mainly comprise amounts or technical facilities
received as a result of agreements with third parties
as well as income tax deductions for investments
in the Canary Islands, which by their nature are
similar to capital grants (see note 2 c). Applications
mainly reflect the amounts taken each year to
consolidated profit or loss on the basis of the useful
life of the assets linked to the deductions, recognised
under non-financial and other capital grants in the
consolidated income statement.
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14
Non-current Provisions
Movement in 2018 and 2017 is as follows:
Thousands of Euros
31/12/2016
Additions
Applications
Actuarial
31/12/2017
Additions
Applications
Transfers
Actuarial
31/12/2018
Provisions for employee benefits
Other provisions
Total
55,598
39,053
94,651
4,029
2,788
6,817
(1,136)
(3,339)
(4,475)
3,989
-
62,480
38,502
3,989
100,982
4,133
26,730
30,863
(1,023)
(858)
(1,881)
-
857
857
(3,280)
-
(3,280)
62,310
65,231
127,541
Provisions for employee benefits comprise defined
benefit plans, which essentially include the future
commitments – specifically medical insurance –
undertaken by the Group vis-à-vis its personnel
from the date of their retirement, calculated using
actuarial studies carried out by an independent
expert. In 2018 and 2017 additions derive mainly
from the annual accrual of these commitments, as
well as changes in the actuarial assumptions used.
These additions have been recognised as personnel
expenses or finance costs, depending on their
nature, and under reserves when they derive from
changes in the actuarial assumptions (mainly in the
case of obligations related to medical insurance)
or in consolidated profit or loss (in the case of past
service obligations). The personnel expenses and
finance costs recognised in this connection in the
consolidated income statement for 2018 amount
to Euros 1,479 thousand and Euros 1,194 thousand,
respectively (Euros 1,461 thousand and Euros 1,107
thousand, respectively, in 2017), whilst the reserves
recognised in 2018 totalled a negative amount
of Euros 3,280 thousand, net of tax (Euros 3,989
thousand in 2017).
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
The assumptions made with regard to 2018 and 2017
were as follows:
Thousands of Euros
75
ACTUARIAL AS SUMPTIONS
Discount rate
Cost increase
Mortality table
2018
2.04 %
3.0 %
2017
1.80 %
3.0 %
PERM/F 2000
new production
PERM/F 2000
new production
Details of the effect of an increase/decrease of one
percentage point in the cost of medical insurance
are as follows:
Current service cost
Interest cost of net post-employment medical costs
Accumulated post-employment benefit obligation
for medical insurance
+1 %
439
9
13,294
2018
-1 %
(321)
(6)
(9,988)
Conversely, the effect of a decrease of half
a percentage point in the discount rate used in 2018
for medical insurance costs from 2.04 % to 1.54 %,
in thousands of Euros, is as follows:
Thousands of Euros
Current service cost
Interest cost of net post-employment medical costs
Accumulated post-employment benefit obligation
for medical insurance
Discount rate
1.54 %
1,567
802
2.04 %
1,366
1,059
49,730
55,840
Sensitivity
201
(257)
6,110
Provisions for employee benefits also include
deferred remuneration schemes (see note 4 l). At 31
December 2018 personnel expenses recognised in
the consolidated income statement in this regard
amount to Euros 1,458 thousand (Euros 1,461
thousand in 2017).
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Other provisions basically include the amounts
recorded by the Group every year to cover
the potential unfavourable rulings relating
to administrative proceedings, administrative
disciplinary proceedings, judicial reviews, primarily
of expropriation proceedings, and out-of-court
claims, among others. The provisions recognised to
cover these events are measured on the basis of the
potential economic content of the ongoing appeals,
litigation, claims and general legal or out-of-court
proceedings to which the Company is party. This
item also includes the provisions made to cover
potential unfavourable rulings in relation to
the application of the remuneration model for
transmission activities in Spain (see note 3).
The Group has assessed the risks and does
not expect any events to arise that would amount
to liabilities not considered in its financial statements
or that would have a significant impact on its profits.
15
Other Non-current Liabilities
Other non-current liabilities basically include
contract liabilities for the revenues received
in advance from agreements with various
telecommunications operators for the use of the
telecommunications network capacity, recognised
in the consolidated income statement based on
the duration of the agreements, with expiry dates
up to 2035, and amounting to Euros 30,802
thousand at 31 December 2018 (Euros 34,690
thousand at 31 December 2017).
This item also includes the non-current liabilities
arising from the compensation paid by Électricité
de France (hereinafter EDF) under the agreement
signed in 1997 for the adaptation of electricity supply
contracts, which amounted to Euros 23,625 thousand
at 31 December 2018 (Euros 23,625 thousand
at 31 December 2017). These are multi-year
commitments and are therefore subject to the
construction of facilities that were not completed
at 31 December 2018.
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16
Financial Risk
Management Policy
The Group’s financial risk management policy
establishes principles and guidelines to ensure
that any significant risks that could affect the
objectives and activities of the Red Eléctrica Group
are identified, analysed, assessed, managed and
controlled, and that these processes are carried
out systematically and adhering to uniform criteria.
A summary of the main guidelines that comprise
this policy is as follows:
> Risk management should be fundamentally
proactive and directed towards the medium and
long term, taking into account possible scenarios
in an increasingly global environment.
> Risk should generally be managed in accordance
with consistent criteria, distinguishing between
the importance of the risk (probability/impact)
and the investment and resources required
to reduce it.
> Financial risk management should be focused
on avoiding undesirable variations in the Group’s
core value, rather than generating extraordinary
profits.
The Group’s finance management is responsible
for managing financial risk, ensuring consistency
with the Group’s strategy and coordinating risk
management across the various Group companies,
by identifying the main financial risks and defining
the initiatives to be taken, based on different financial
scenarios.
The methodology for identifying, measuring,
monitoring and controlling risk, as well as the
management indicators and measurement and
control tools specific to each risk, are documented
in the financial risk manual.
The financial risks to which the Group is exposed
are as follows:
MARKET RISK
Market risk reflects variations in the financial
markets in terms of prices, interest and exchange
rates, credit conditions and other variables that could
affect short-, medium- and long-term finance costs.
Market risk is managed on the borrowings to be
arranged (the currency, maturity and interest rates),
and through the use of hedging instruments that
allow the financial structure to be modified. Market
risk specifically includes:
> Interest rate risk
Interest rate fluctuations change the fair value
of assets and liabilities that accrue interest at fixed
rates and the future cash flows from assets and
liabilities indexed to floating interest rates. The
financial debt structure, according to the original
terms, at 31 December 2018 and 2017 is as follows:
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Thousands of Euros
Non-current issues
Non-current bank borrowings
Current issues
Current bank borrowings
Total financial debt
Percentage
Fixed rate
3,279,141
1,157,598
287,995
173,305
4,898,040
90 %
2018
Variable rate
14,926
478,258
-
58,648
551,832
10 %
Fixed rate
3,003,117
1,127,933
602,998
60,449
4,794,497
89 %
2017
Variable rate
14,919
480,381
-
71,870
567,170
11 %
The financial debt structure is low risk with moderate
exposure to fluctuations in interest rates, as a result
of the debt policy implemented, which aims to bring
the cost of debt into line with the financial rate of
return applied to the Group's regulated assets, among
other objectives.
The interest rate risk to which the Group is exposed
at 31 December 2018 and 2017 derives from changes
in the fair value of derivative financial instruments
and mostly affects equity, but not consolidated profit
for the year. A sensitivity analysis of this risk is as
follows (in thousands of Euros):
Effect on consolidated equity of market interest
rate fluctuations
Thousands of Euros
Interest rate hedges:
- Cash flow hedges. Interest rate swap
Interest rate and exchange rate hedges:
- Cash flow hedges. Cross currency swap
2018
2017
+0.10 %
-0.10 %
+0.10 %
-0.10 %
3,841
(3,872)
4,416
(4,454)
249
(253)
278
(283)
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This rise or decline of 0.10 % in interest rates would
have decreased or increased consolidated profit
by Euros 1,144 thousand in 2018 and by Euros 962
thousand in 2017.
The fair value sensitivity has been estimated
using a valuation technique based on discounting
future cash flows at prevailing market rates
at 31 December 2018 and 2017.
investments in the functional currency. The Group
has also arranged hedges of net investments in US
Dollars using cross-currency swaps up to January
2021 (see note 18). Consequently, had the US Dollar
strengthened or weakened by 10 % against the
Euro at year end, the Parent's equity would have
increased or decreased by approximately Euros
7 million at 31 December 2018 (Euros 6 million
at 31 December 2017).
> Currency risk
> Credit risk
Currency risk management considers transaction
risk, arising on cash inflows and outflows in
currencies other than the Euro, and translation
risk, i.e. a company's exposure when consolidating
its subsidiaries and/or assets located in countries
whose functional currency is not the Euro.
With a view to reducing the currency risk on
issues in the US private placements (USPP)
market, the Group has arranged cash flow hedges
through US Dollar/Euro cross-currency swaps on
the principal and interest, which cover the amount
and total term of the issue up to October 2035
(see note 18).
In order to mitigate the translation risk on assets
located in countries whose functional currency is
not the Euro, the Group finances a portion of its
In light of the nature of revenues from electricity
transmission and electricity system operation,
and the solvency of the electricity system agents,
the Red Eléctrica Group’s principal activities are
not significantly exposed to credit risk. For the
Group’s other activities, credit risk is mainly
managed through instruments to reduce or
limit such risk.
In any event, credit risk is managed through
policies that contain certain requirements regarding
counterparty credit quality, and further guarantees
are requested when necessary.
At year end the Group's exposure to credit risk
in connection with the fair value of its derivatives
is insignificant, having entered into collateral
assignment agreements entailing collateral swaps
with various counterparties since 2015 in order
to mitigate this risk.
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At 31 December 2018, less than 1 % of balances
are past-due (1 % in 2017), although the companies
do not consider there to be any risk as regards
recoverability. The credit quality of the receivables
is considered to be high.
LIQUIDITY RISK
Liquidity risk arises due to differences between
the amounts or dates of collection and payment
of the Group companies' assets and liabilities.
Liquidity risk is mostly managed by controlling
the timing of financial debt and maintaining a
considerable volume of available capital during the
year, setting maximum limits of amounts falling
due for each period defined. This process is carried
out at Group company level, in accordance with the
practices and limits set by the Group. The limits
established vary according to the geographical area,
so as to ensure that the liquidity of the market in
which the companies operate is taken into account.
Furthermore, the liquidity risk management policy
entails preparing cash flow projections in the main
currencies in which the Group operates, taking
into consideration the level of liquid assets and
funds available according to these projections,
and monitoring the liquidity indicators as per the
consolidated statement of financial position and
comparing these with market requirements.
The Group's financial debt at 31 December 2018
has an average maturity of 5.3 years (5.3 years at
31 December 2017). Details of the maturities of bond
issues and bank borrowings are provided in note 17.
The Group's liquidity position for 2018 was
based on its robust capacity to generate cash
flows, supported by undrawn credit facilities.
At 31 December 2018 these credit facilities amount
to Euros 1,826 million (non-current balance of
Euros 1,291 million and current balance of Euros
535 million).
PRICE RISK
The Group is exposed to price risk relating
to equity instruments classified as financial
assets at fair value through other comprehensive
income in the consolidated statement of financial
position. Equity investments on quoted markets
basically comprise the 5 % interest held by the
Group in REN. At 31 December 2018 had the listed
share price of the Portuguese company REN been
10 % higher or lower, equity would have increased
or decreased by approximately Euros 6 million,
respectively (Euros 6 million in 2017).
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 17
Financial Assets
and Financial Liabilities
FINANCIAL ASSETS
Details of the Red Eléctrica Group's current and non-current
financial assets at 31 December 2018 and 2017 are as follows:
31/12/2018
Thousands of Euros
Equity instruments
Derivatives
Other financial assets
Non-current
Other financial assets
Current
Total
At fair
value through
other comprehensive
income
At fair
value
through
profit or loss
At
amortised
cost
Hedging
derivatives
-
11,020
-
81,666
-
-
81,666
-
-
-
-
6,734
6,734
-
-
81,666
6,734
-
-
21,511
21,511
54,213
54,213
75,724
31/12/2017
Thousands of Euros
Total
81,666
11,020
28,245
Equity instruments
Derivatives
Other financial assets
11,020
120,931
Non-current
-
-
54,213
54,213
Other financial assets
Current
11,020
175,144
Total
(1) Excluding trade receivables.
81
Total
85,606
12,970
9,659
Available-for-sale
financial
assets
Loans and
receivables (1)
Hedging
derivatives
85,606
-
-
85,606
-
-
85,606
-
-
9,659
9,659
80,668
80,668
90,327
12,970
-
12,970
108,235
-
-
80,668
80,668
12,970
188,903
> Equity instruments
Equity instruments essentially comprise the
5 % interest held by the Group in REN, a holding
company that encompasses the operation and
use of electricity transmission assets and various
gas infrastructure in Portugal. This interest was
acquired in 2007 for Euros 98,822 thousand. In
December 2017 the Group subscribed 6,659,563
new shares in the share capital increase carried
out by REN for an amount of Euros 12,500
thousand, thereby maintaining its 5 % interest
in this company, and sold subscription rights
for this increase, generating a gain of Euros
18 thousand.
At 31 December 2017 REN's consolidated equity
totals Euros 1,429,189 thousand and the profit after
tax amounts to Euros 125,925 thousand.
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At the date of first application of IFRS 9, the Group
classified these investments as financial assets
at fair value through other comprehensive income
(see note 2 b). The value of this investment is
subject to the listed share price. In 2018 the fair
value of this equity instrument decreased and the
corresponding valuation adjustment was recognised
directly under equity.
At 31 December 2018 the Group has calculated
the decrease in value of this investment at Euros
1,501 thousand (a Euros 1,833 thousand decrease
in 2017).
> Derivatives
Details of derivative financial instruments are
provided in note 18.
> Other financial assets
The balance at 31 December 2018 mainly
comprises the loan of Euros 41,724 thousand
extended to TEN (Euros 54,828 thousand at
31 December 2017), which earns interest at a
Libor-pegged rate plus 270 b.p., and guarantees
and loans extended by REE to its personnel, which
fall due in the long term. There are no significant
differences between the fair value and the carrying
amount at 31 December 2018 and 2017.
This item also comprises the investment in
economic interest groups (EIGs), measured at Euros
6,734 thousand (Euros 2,422 thousand in 2017).
These EIGs engage in the lease of assets operated
by an unrelated party, which retains most of the
risks and rewards of the activity, while the Group
only avails of the tax benefits pursuant to Spanish
legislation. The Group recognises the tax losses
incurred by these EIGs against the investments,
together with the corresponding finance income
(see note 22 e) reflecting the difference compared
to income tax payable to the taxation authorities.
> Fair value hierarchy levels
Details of the Group's financial assets measured
at fair value using the inputs defined for this
calculation at 31 December 2018 and 2017
are as follows:
31/12/2018
Thousands of Euros
Equity instruments
Derivatives
Other financial assets
31/12/2017
Thousands of Euros
Equity instruments
Derivatives
Other financial assets
Level 1
81,197
Level 1
82,698
-
-
Level 2
Level 3
Total balance
11,020
6,734
Level 2
-
12,970
-
468
-
81,666
11,020
6,734
Level 3
Total balance
2,908
-
-
85,606
12,970
-
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Level 1 equity instruments reflect the 5 % interest
held by the Group in the listed company REN.
FINANCIAL LIABILITIES
Details of the Red Eléctrica Group's current and
non-current financial liabilities at 31 December
2018 and 2017 are as follows:
31/12/2018
Thousands of Euros
31/12/2017
Thousands of Euros
Loans and borrowings
Bonds and other marketable securities
Derivatives
Other financial liabilities (2)
Non-current
Loans and borrowings
Bonds and other marketable securities
Derivatives
Other financial liabilities
Current
Total
Financial
liabilities
1,665,345
3,315,412
-
477
4,981,234
215,306
347,022
-
634,542
1,196,870
6,178,104
Hedging
derivatives
-
-
39,944
-
Total
1,665,345
Loans and borrowings
3,315,412
Bonds and other marketable securities
39,944
Derivatives
477
Other financial liabilities (2)
39,944
5,021,178
Non-current
-
-
-
-
-
215,306
347,022
Loans and borrowings
Bonds and other marketable securities
-
Derivatives
634,542
Other financial liabilities
1,196,870
Current
39,944
6,218,049
Total
Debts and
payables (1)
1,608,314
3,022,377
-
-
4,630,691
143,814
680,683
-
647,460
1,471,957
6,102,648
Hedging
derivatives
and other
-
-
61,437
224
61,661
-
-
-
-
-
61,661
Total
1,608,314
3,022,377
61,437
224
4,692,352
143,814
680,683
-
647,460
1,471,957
6,164,309
(1) Excluding trade payables.
(2) Reflects long-term security and other deposits received.
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> Loans and borrowings, bonds and other
marketable securities
The carrying amount and fair value of loans
and borrowings and issues of bonds and other
marketable securities at 31 December 2018 and
2017, excluding interest payable, are as follows:
Thousands of Euros
Issues in Euros
Issues in US Dollars
Bank borrowings in Euros
Bank borrowings in foreign currency
Total
2018
3,144,659
458,748
1,640,808
227,002
5,471,217
Carrying amount
2017
3,183,842
441,533
1,638,130
102,503
5,366,008
2018
3,336,928
511,956
1,639,750
226,529
5,715,163
Fair value
2017
3,404,668
524,465
1,665,141
102,280
5,696,554
The fair value of all bank borrowings and issues has
been estimated using valuation techniques based
on discounting future cash flows at the market
rates in force at each date (level 2 of the hierarchy).
At 31 December 2018 the accrued interest payable
amounts to Euros 71,868 thousand (Euros 89,180
thousand in 2017).
Issues in Euros at 31 December 2018 include:
∂ Eurobonds issued by Red Eléctrica Financiaciones,
S.A.U. (hereinafter REF), totalling Euros 3,144,659
thousand (Euros 3,183,842 thousand in 2017).
One bond issue amounting to Euros 600
million was carried out in 2018 (one bond issue
amounting to Euros 200 million in 2017).
∂ Promissory notes issued on the Euromarket
by REF as part of the “Euro Commercial Paper
Programme” (ECP Programme), falling due in the
short term and amounting to Euros 530 million,
were issued and repaid in 2018.
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Issues in US Dollars at 31 December 2018 amount
to Euros 458,748 thousand (Euros 441,533 thousand
in 2017), comprising a US Dollars 500 million issue
on the US private placement (USPP) market, of which
US Dollars 430 million is payable, as well as two US
Dollar bond issues made in 2015 in Peru for a total
of US Dollars 110 million, of which US Dollars 95.4
million is payable at 31 December 2018 (see note 16
for an analysis of currency risk).
Bank borrowings in Euros at 31 December 2018
include non-current loans and credit facilities
totalling Euros 1,529,088 thousand (Euros 1,508,178
thousand in 2017) and a syndicated credit facility
amounting to Euros 111,720 thousand (Euros
129,952 thousand in 2017).
Bank borrowings in foreign currency at 31 December
2018 include non-current loans and credit facilities
in US Dollars amounting to Euros 227,002 thousand
(Euros 102,503 thousand in 2017).
Details of the maturities of bond issues and bank
borrowings at 31 December 2018 are as follows:
Thousands of Euros
Issues in Euros
Issues in US Dollars
Bank borrowings in Euros
Bank borrowings in US Dollars
Total
2019
284,100
3,987
196,419
-
484,506
2020
550,000
161,399
104,793
51,038
867,230
2021
-
4,412
153,420
19,184
177,016
2023
Thereafter
Adjustments
to amortised
cost and other
Total
300,000
1,690,000
(79,441)
3,144,659
4,882
88,184
38,428
279,825
587,913
(398)
458,748
(3,105)
1,640,808
-
(423)
227,002
2022
400,000
4,641
513,184
118,775
1,036,600
431,494
2,557,738
(83,367)
5,471,217
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The average interest rate of loans and borrowings
and bond issues was 2.42 % in 2018 (2.78 % in 2017).
Euros 535 million in the short term (Euros 541 million
at 31 December 2017).
At 31 December 2018 Group companies have
undrawn credit facilities amounting to Euros 1,826
million, of which Euros 1,291 million expire in the long
term (Euros 1,117 million at 31 December 2017) and
Details of bonds and other marketable securities
at 31 December 2018 and 2017 are as follows:
31/12/2018
Thousands of Euros
Debt securities requiring a prospectus to be filed
Debt securities not requiring a prospectus to be filed
Other debt securities issued outside EU member states
Total
31/12/2017
Thousands of Euros
Debt securities requiring a prospectus to be filed
Debt securities not requiring a prospectus to be filed
Other debt securities issued outside EU member states
Total
Opening
outstanding balance
at 31/12/2017
3,183,842
-
441,533
3,625,375
(+) Issues
1,125,008
-
-
(-) Repurchases
or repayments
(1,129,400)
-
1,125,008
(1,129,400)
(+/-) Exchange rate and
other adjustments
Closing
outstanding balance
at 31/12/2018
(34,791)
-
17,215
(17,576)
3,144,659
-
458,748
3,603,407
Opening
outstanding balance
at 31/12/2016
3,180,848
-
506,232
3,687,080
(+) Issues
200,000
-
-
200,000
(-) Repurchases
or repayments
(+/-) Exchange rate and
other adjustments
(200,070)
-
(3,723)
(203,793)
3,064
-
(60,976)
(57,912)
Closing
outstanding balance
at 31/12/2017
3,183,842
-
441,533
3,625,375
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The outstanding balance at 31 December 2018
and 2017 of debt securities requiring a prospectus
to be filed relates to issues registered in Dublin
and Luxembourg.
At 31 December 2018 exchange rate and other
adjustments include a negative amount of Euros
40.1 million derived from the application of IFRS 9
to financial liabilities that have not been substantially
modified in respect of debt securities that required
a prospectus to be filed.
Details of changes in liabilities related to financing
instruments during 2018, distinguishing between
those that entailed cash flows and those that did
not, are as follows:
Thousands of Euros
Issues in Euros
Issues in US Dollars
Bank borrowings in Euros
Bank borrowings in foreign currency
Total debt
31/12/2017
3,183,842
441,533
1,638,130
102,503
5,366,008
Cash flows
(4,392)
(3,635)
3,177
118,061
113,211
Exchange rate
fluctuations
20,824
-
6,438
27,262
No cash flows
Other
changes
(34,791)
26
(499)
(35,264)
31/12/2018
3,144,659
458,748
1,640,808
227,002
5,471,217
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
88
31/12/2018
Thousands of Euros
Derivatives
Other financial liabilities
31/12/2017
Thousands of Euros
Derivatives
Other financial liabilities
Level 1
-
-
Level 2
39,944
-
Level 3
Total balance
-
8,181
39,944
8,181
Level 1
-
-
Level 2
61,437
-
Level 3
Total balance
-
6,776
61,437
6,776
Level 2 comprises foreign currency and interest
rate derivatives. Level 3 comprises security deposits
extended. There are no significant differences
between the fair value and the carrying amount at
31 December 2018 and 2017. Liabilities at amortised
cost are not disclosed by fair value hierarchy level.
> Derivatives
Details of derivative financial instruments are
provided in note 18.
> Other current financial liabilities
Details of other current financial liabilities at 31
December 2018 and 2017 are as follows:
Thousands of Euros
Dividend payable
Suppliers of fixed assets
and other payables
Other payables
Total
Note
12
2018
2017
147,250
137,509
331,550
155,742
309,848
200,103
634,542
647,460
Suppliers of fixed assets essentially reflect balances
incurred on the construction of electricity facilities.
Other payables basically comprise items pending
settlement with respect to the Spanish electricity
system and security deposits received.
> Fair value hierarchy levels
Details of Group financial liabilities not included
under the headings of loans and borrowings or
bonds and other marketable securities measured
at fair value using the inputs defined for this
calculation at 31 December 2018 and 2017
are as follows:
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
89
18
Derivative Financial Instruments
In line with its financial risk management policy,
the Red Eléctrica Group has arranged three types
of derivative financial instruments: Interest rate
swaps, forward interest rate swaps and cross-
currency swaps. Interest rate swaps consist of
exchanging debt at variable interest rates for debt
at fixed rates, in a swap where the future cash flows
to be hedged are the interest payments. Forward
interest rate swaps cover the finance cost of highly
probable forecast future transactions. Similarly,
cross-currency swaps allow fixed- or variable-rate
debt in US Dollars to be exchanged for fixed- or
variable-rate debt in Euros, thereby hedging future
interest and capital flows in US Dollars.
As regards the measurement of derivative financial
instruments and hedging transactions disclosed in
these notes, the application of IFRS 13 (see note 4 n)
entails an adjustment to the valuation techniques
used to calculate the fair value of derivative financial
instruments. The Group has incorporated a credit
risk adjustment to reflect own and counterparty
risk in the fair value of derivatives using generally
accepted measurement models.
To eliminate the credit risk from the cross-currency
swaps arranged to hedge the exchange rate for
USPP issuance, collateral assignment agreements
entailing collateral swaps were entered into with
the counterparties in 2015.
When determining the credit risk adjustment
for other derivatives, the Group applied a technique
based on calculating total expected exposure (which
considers current and potential exposure) through
the use of simulations, adjusted for the probability
of default over time and for loss given default
allocable to the Group and to each counterparty.
The total expected exposure of derivative financial
instruments is determined using observable market
inputs, such as interest rate curves, exchange rates
and volatilities based on market conditions at the
measurement date.
The inputs used to determine own and counterparty
credit risk (probability of default) are mostly based
on own credit spreads and those of comparable
companies currently traded on the market (credit
default swap (CDS) curves, IRR of debt issues, etc.).
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en Furthermore, adjustments of fair value for credit risk
take into account credit enhancements for guarantees
and collateral when determining the loss given default
to be used for each position. Loss given default is
considered to be constant over time. A minimum
recovery rate of 40 % has been used in cases where
there is no credit enhancement for guarantees
or collateral.
Based on the fair value hierarchy levels detailed in
note 4, the Group has considered that the majority
of the inputs used to determine the fair value
of derivative financial instruments are categorised
within Level 2, including the data used to calculate
the own and counterparty credit risk adjustment.
The Group has observed that the impact of using
Level 3 inputs for the overall measurement of
derivative financial instruments is not significant.
Consequently, the Group has determined that the
entire derivative financial instrument portfolio
can be categorised within Level 2 of the fair
value hierarchy.
90
As regards observable inputs, the Group uses
mid-market prices obtained from reputable external
information sources in the financial markets.
Details of hedges at 31 December 2018 and 2017
in thousands of Euros are as follows:
Thousands of Euros
Interest rate hedges:
- Cash flow hedges:
Interest rate swap
Interest rate swap
- Forward cash flow hedges:
Forward interest rate swap
beginning in 2019
Forward interest rate swap
beginning in 2020
Forward interest rate swap
beginning in 2021
Forward interest rate swap
beginning in 2022
Exchange rate hedge:
- Hedges of a net investment:
Principal
Expiry
Assets
2018
Non-current
Liabilities
Euros 280,000 thousand
Euros 57,120 thousand
Up to 2022
Up to 2021
Euros 140,000 thousand
Up to 2026
Euros 200,000 thousand
Up to 2026
Euros 50,000 thousand
Up to 2026
Euros 100,000 thousand
Up to 2028
-
-
-
-
-
-
(16,633)
(990)
(6,493)
(6,983)
(623)
(722)
Cross currency swap
US Dollars 150,000 thousand
Up to 2021
6,482
-
Interest rate and exchange rate hedges
- Cash flow hedges (Cross currency swap):
Interest rate hedge
Exchange rate hedge
Total
US Dollars 430,000 thousand
Up to 2035
(4,397)
8,935
11,020
(19,910)
12,410
(39,944)
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
91
Thousands of Euros
Interest rate hedges:
- Cash flow hedges:
Interest rate swap
Interest rate swap
- Forward cash flow hedges:
Forward interest rate swap
beginning in 2018
Forward interest rate swap
beginning in 2019
Forward interest rate swap
beginning in 2020
Exchange rate hedge:
- Hedges of a net investment:
Cross currency swap
Principal
Expiry
Assets
Euros 280,000 thousand
Euros 65,940 thousand
Up to 2020
Up to 2021
Euros 240,000 thousand
Up to 2026
Euros 140,000 thousand
Up to 2026
Euros 200,000 thousand
Up to 2026
-
-
19
230
2017
Non-current
Liabilities
(24,587)
(1,080)
(8,387)
(3,184)
(2,764)
US Dollars 150,000 thousand
Up to 2021
12,721
-
Interest rate and exchange rate hedges
- Cash flow hedges (Cross currency swap):
Interest rate hedge
Exchange rate hedge
Total
US Dollars 430,000 thousand
Up to 2035
-
-
12,970
(25,776)
4,341
(61,437)
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
Details of the expected cash flows from derivatives,
which are similar to the expected impact on profit
or loss, by year of occurrence, are as follows:
92
Thousands of Euros
Interest rate hedges:
- Cash flow hedges:
Interest rate swap
Interest rate swap
- Forward cash flow hedges:
Forward interest rate
swap beginning in 2019
Forward interest rate
swap beginning in 2020
Forward interest rate
swap beginning in 2021
Forward interest rate
swap beginning in 2022
Exchange rate hedge:
- Hedges of a net investment:
Principal
Expiry
2019
2020
2021
2022
2023
2024 and
thereafter
Total
Euros 280,000 thousand
Euros 57,120 thousand
Up to 2022
Up to 2021
Euros 140,000 thousand
Up to 2026
Euros 200,000 thousand
Up to 2026
Euros 50,000 thousand
Up to 2026
Euros 100,000 thousand
Up to 2028
-
-
-
-
-
-
-
-
-
-
(14,952)
-
(1,681)
-
-
-
-
-
-
(4,397)
8,935
(10,414)
(990)
-
-
-
-
6,482
-
-
-
-
-
-
-
-
-
-
5,492
(1,681)
-
-
-
-
-
-
-
-
-
-
-
-
(16,633)
(990)
(6,493)
(6,493)
(6,983)
(6,983)
(623)
(722)
(623)
(722)
-
6,482
(19,910)
12,410
(22,321)
(24,307)
21,345
(28,924)
Cross currency swap
US Dollars 150,000 thousand
Up to 2021
Interest rate and exchange rate hedges
- Cash flow hedges: (Cross currency swap)
Interest rate hedge
Exchange rate hedge
Total
US Dollars 430,000 thousand
Up to 2035
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
93
19
Trade and
Other Payables
Details of trade and other payables at 31 December
2018 and 2017 are as follows:
Thousands of Euros
Note
2018
2017
Suppliers
Other payables
Current tax liabilities
21
Total
313,759
343,694
50,278
3,485
47,974
10,859
367,522
402,527
Suppliers essentially reflect payables arising from
repairs and maintenance work and modifications
to electricity facilities, as well as balances pending
settlement vis-à-vis Spanish electricity system agents.
Other payables mainly reflect VAT payable to the
taxation authorities and salaries payables.
20
Average Supplier Payment Period.
“Reporting Requirement”,
Third Additional Provision of
Law 15/2010 of 5 July 2010
The Spanish Accounting and Auditing Institute
(ICAC) resolution of 29 January 2016, concerning
the information that must be disclosed in the notes
to the annual accounts in relation to the average
supplier payment period in commercial transactions,
clarifies and systematises the information that trading
companies must include in the notes to individual and
consolidated annual accounts, in compliance with the
reporting requirement of the third additional provision
of Law 15/2010 of 5 July 2010, which amends Law
3/2004 of 29 December 2004, establishing measures
to combat late payments in commercial transactions.
The scope of this resolution also extends to trading
companies that prepare consolidated annual
accounts, although only with respect to fully
consolidated subsidiaries or equity-accounted
investees registered in Spain, irrespective of the
financial reporting framework under which the
accounts are prepared.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
94
The information on the average supplier payment
period for 2018 and 2017 is as follows:
In days
Average supplier payment period
Transactions paid ratio
Transactions payable ratio
2018
48.0
48.8
15.2
2017
47.2
48.7
12.7
Thousands of Euros
Total payments made
Total payments outstanding
2018
2017
379,209
375,210
10,056
16,762
21
Taxation
The tax group headed by Red Eléctrica Corporación,
S.A. has filed consolidated tax returns in Spain since
2002. At 31 December 2018, the tax group includes
the Parent, REE, REI, REF, REINTEL, REINCAN and
RESTEL.
Companies that do not form part of the tax group are
subject to the legislation applicable in their respective
countries.
A reconciliation of the prevailing tax rate in Spain with the
tax rate applicable to the Group is as follows:
Thousands of Euros
Consolidated accounting profit for the year before tax
Permanent differences and consolidation adjustments
Consolidated taxable accounting income
Tax rate
Profit multiplied by tax rate
Effect of applying different tax rates
Tax calculated at the tax rate of each country
Deductions
Other adjustments
Income tax
Current income tax
Deferred income tax
Effective tax rate
The effective rate of income tax is primarily influenced by
permanent differences and by deductions in tax payable.
The effective tax rate in 2018 is 24.75% (24.76% in 2017).
2018
936,252
(21,843)
914,410
25 %
228,602
1,418
230,020
(1,111)
2,855
231,763
246,674
(14,911)
24.75 %
2017
890,240
(17,554)
872,686
25 %
218,172
1,302
219,474
(906)
1,853
220,421
232,340
(11,919)
24.76 %
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
95
Note
2018
11
19
19
12,548
2,059
1,193
28,981
3,485
4,620
2017
8,005
3,788
493
29,470
10,859
4,553
Thousands of Euros
Current receivables
Recoverable VAT
Recoverable income tax
Other recoverable taxes
Current payables
VAT payable
Income tax payable
Other taxes payable
In 2018 and 2017, adjustments were made to taxable
income to reflect recognition of the EIGs in which
the Group has interests, amounting to Euros 67,045
thousand and Euros 73,227 thousand, respectively.
Permanent differences in 2018 and 2017 primarily
arise from the capitalisation reserve adjustment
resulting from the increase in equity in accordance
with article 25 of Income Tax Law 27/2014 of 27
November 2014. As permitted by article 62,1 d) of Law
27/2014, the capitalisation reserve for 2018 will be
held in REC, as head of the tax group (see note 12).
Deductions mainly comprise those for research,
development and technological innovation expenditure,
as well as international double taxation relief.
Given the financial nature of the deduction for
investments in fixed assets in the Canary Islands, it is
treated as a grant, and its impact on the consolidated
income statement is deferred over several years
based on the useful lives of the assets for which it was
awarded (see note 4 j).
Deductions recognised as grants in 2018 amount to
Euros 3,556 thousand (Euros 3,701 thousand in 2017)
and the amount still to be recognised at 31 December
2018 is Euros 99,330 thousand (Euros 72,587
thousand in 2017).
Current receivables from and payables to public
entities at 31 December 2018 and 2017 are as follows:
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
96
Temporary differences in the recognition of income
and expenses for accounting and tax purposes in the
Red Eléctrica Group at 31 December 2018 and 2017,
and the corresponding cumulative tax effect (assets
and liabilities) are as follows:
Thousands of Euros
2018
2017
Income and
expense
recognised
directly
equity
Variation
29,466
(2,789)
26,677
16,379
440
16,819
Business
combinations and
first application
of IFRS 9
Variation
Total
-
112,785
269
269
(7,751)
105,034
-
557,436
12,441
(7,261)
12,441
550,175
Income
statement
Variation
83,319
(5,231)
78,088
541,057
(20,142)
520,915
Income
statement
Variation
92,101
(8,782)
83,319
561,758
(20,701)
541,057
Income and
expense
recognised
directly
equity
Variation
32,123
(2,657)
29,466
20,133
(3,754)
16,379
Total
237,009
(19,191)
217,819
1,139,327
(31,716)
1,107,611
Deferred tax assets:
Originating in prior years
Movements in the year
Total deferred tax assets
Deferred tax liabilities:
Originating in prior years
Movements in the year
Total deferred tax liabilities
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
97
Deferred tax assets and liabilities at 31 December
2018 and 2017 are as follows:
Thousands of Euros
Commitments with personnel
Grants
Financial derivatives
Tax loss carryforwards
Balance revaluations, Law 16/2012
Limit on deductible amortisation / depreciation, Law 16/2012
Other
Total deferred tax assets
Accelerated depreciation
Non-deductible assets
Adjustments for application of IFRS 9
Other
Total deferred tax liabilities
2018
19,246
684
20,789
5,490
22,234
27,477
9,113
105,034
507,738
13,462
10,334
18,641
550,175
2017
18,710
735
22,523
2,868
24,833
34,188
8,928
112,785
523,305
15,816
0
18,315
557,436
In the consolidated statement of financial position
the Group has offset deferred tax assets and deferred
tax liabilities arising from the Spanish tax group in an
amount of Euros 77,050 thousand, as permitted by
IAS 12 (Euros 84,961 thousand in 2017).
The deferred tax assets and liabilities are expected
to be recovered and settled as follows:
31.12.2018
Deferred tax assets
Deferred tax liabilities
Total
105,034
550,175
More than 1 year
Less than 1 year
97,455
525,561
7,579
24,613
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
98
The recovery/settlement of the Group's deferred tax
assets/liabilities is dependent on certain assumptions,
which could change.
Deferred tax assets include reversals of tax prepaid
in 2013 and 2014 as a result of applying the
limitation on the tax deductibility of depreciation and
amortisation charges stipulated in article 7 of Law
16/2012 of 27 December 2012, which introduced
several fiscal measures to consolidate public finances
and boost economic activity, and as a result of
the commencement, in 2015, of depreciation and
amortisation for tax purposes of the net increase in
value resulting from the revaluations applied to the
balance sheet at 31 December 2012, pursuant to
article 9 of the same Law. This item also comprises
amounts relating to changes in value of cash flow
hedges and long-term employee benefits.
Deferred tax liabilities essentially relate to the
accelerated depreciation for tax purposes of certain
fixed assets and the inclusion of the assets and
liabilities of REDALTA and INALTA, the companies
absorbed by REC in 2006. In 2018, deferred tax
liabilities due to accelerated depreciation as provided
for in the 11th additional provision of Royal Legislative
Decree 4/2004, and the 34th transitional provision of
Income Tax Law 27/2014, amounted to Euros 451,724
thousand (Euros 464,469 thousand in 2017).
The notes to REC's annual accounts for 2006 contain
disclosures on the merger by absorption of REDALTA
and INALTA, as required by article 86 of Law 27/2014.
The notes to the 2008 annual accounts include
disclosures on REC's contribution to REE of the
branch of activities encompassing the duties of the
system operator, transmission network manager and
transmission agent of the Spanish electricity system.
The notes to the annual accounts of REC and
REINTEL for 2015 also include the disclosures
stipulated in article 86 of Law 27/2014 regarding
the spin-off of the telecommunications services
business from REI to REINTEL, while the notes to the
annual accounts of REC and REI for 2015 contain the
disclosures regarding the non-monetary contribution
of shares in REN.
In accordance with current legislation, taxes cannot be
considered definitive until they have been inspected
and agreed by the taxation authorities or before the
inspection period has elapsed.
Therefore, in general, Group companies in Spain have
open to inspection by the taxation authorities all main
applicable taxes since 2015, except income tax, which
is open to inspection since 2014. However, this period
may be different for Group companies that are subject
to other tax legislation.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 99
In Spain the limited administrative proceedings
undertaken have been completed, giving rise to the
initiation of certain tax proceedings affecting 2011
to 2016. The Group considers its conduct to have
been lawful based on reasonable interpretations of
the applicable legislation, and has therefore lodged
the pertinent appeals. No penalties were imposed
as a result of the proceedings and no significant tax
liabilities arose for the Group.
On an international level, at the 2018 reporting date
the tax proceedings entailing the review of income
tax in Peru for 2009 to 2011 are underway. The Group
considers it reasonably probable that these appeals
will be successful.
Due to the different possible interpretations of
tax legislation, additional tax liabilities could arise
as a result of ongoing and future inspections,
which cannot be objectively quantified at present.
Nevertheless, any additional liabilities that could
eventually arise in the event of inspection are not
expected to significantly affect the Company’s
future results.
22
Income and Expenses
A) REVENUE
Details of this item in 2018 and 2017, by geographical
area, are as follows:
Thousands of Euros
Domestic market
International market
a) European Union
a.1) Eurozone
b) Other countries
Total
2018
2017
1,900,684
1,898,229
47,856
20,174
20,174
27,682
42,936
20,407
20,407
22,529
1,948,540
1,941,165
Domestic market essentially includes the regulated
revenue from transmission and electricity system
operation services in Spain, which is set by the
Ministry for the Ecological Transition (MITECO) at
Euros 1,753,783 thousand (Euros 1,736,100 thousand
in 2017), as well as revenue from facilities that
have entered into service and are not considered in
the foregoing amount. This item also includes the
revenue from telecommunications services rendered
in Spain amounting to Euros 87,438 thousand (Euros
86,530 thousand at 31 December 2017).
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
100
International market in 2018 and 2017 primarily
includes revenue from reinsurance services,
presented under European Union; and revenue in the
Peruvian and Chilean companies from the rendering
of transmission services, presented under other
countries.
B) OTHER OPERATING INCOME
At 31 December 2018 and 2017 other operating
income mostly includes insurance payouts for
accidents and breakdowns covered by the policies
arranged and other non-trading income of the Group.
C) SUPPLIES AND OTHER OPERATING EXPENSES
Details of these items in 2018 and 2017 are as follows:
Supplies and other operating expenses mainly
comprise repair and maintenance costs incurred at
technical electricity facilities as well as IT, advisory,
lease and other service costs.
D) PERSONNEL EXPENSES
Details of this item in 2018 and 2017 are as follows:
Thousands of Euros
Salaries, wages and other remuneration
Social Security
Contributions to pension funds and
similar obligations
Other items and employee benefits
2018
114,912
25,081
2,082
9,774
2017
111,445
24,504
2,015
10,729
Total
151,848
148,693
Thousands of Euros
Supplies
Other operating expenses
Total
2018
37,725
300,987
338,712
2017
61,110
308,071
369,181
Salaries, wages and other remuneration include
employee remuneration, termination benefits and
the accrual of deferred remuneration. This item also
includes the remuneration of the Company’s board
of directors.
The Group companies have capitalised personnel
expenses (see notes 5 and 6) totalling Euros 30,533
thousand at 31 December 2018 (Euros 31,046
thousand at 31 December 2017).
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
101
> Employees
The average headcount of the Group in 2018 and
2017, distributed by professional category, is as
follows:
Management
Senior technicians and middle management
Technicians
Specialist and administrative staff
2018
127
569
581
528
2017
132
556
582
531
Total
1,805
1,801
The distribution of the Group's employees at 31
December, by gender and category, is as follows:
Management
Senior technicians and middle management
Technicians
Specialist and administrative staff
Total
Male
92
375
506
394
1,367
Female
36
192
92
112
432
2018
Total
128
567
598
506
1,799
Male
99
364
494
418
1,375
Female
31
201
97
111
440
2017
Total
130
565
591
529
1,815
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
102
The average number of employees with a disability
rating of 33% or higher in 2018 and 2017, distributed
by gender and category, is as follows:
Male
Female
Management
Senior technicians and middle management
Technicians
Specialist and administrative staff
Total
-
3
8
1
12
-
2
-
1
3
2018
Total
-
5
8
2
15
Male
Female
-
3
6
2
11
-
2
-
1
3
2017
Total
-
5
6
3
14
At 31 December 2018 the board of directors, which is
not included in the employees of the Group, comprises
12 members (12 members in 2017), of which 7 are
men and 5 are women (8 men and 4 women in 2017).
E) FINANCE INCOME AND COSTS
Finance income mainly comprises the dividends
received on the Group's 5 % interest in REN,
amounting to Euros 5,704 thousand (Euros 4,566
thousand in 2017).
This item also includes Euros 2,214 thousand
of finance income (Euros 2,708 thousand in 2017)
on the investments in EIGs (see notes 17 and 21) and
Euros 2,550 thousand of finance income (Euros
1,724 thousand in 2017) on the loans extended
to TEN (see note 23).
Finance costs basically reflect those incurred
on loans and borrowings, net of any amounts
capitalised, as well as bonds and other marketable
securities for an amount of Euros 150,236 thousand
(see note 17). In 2018 this balance includes costs
of Euros 5,808 thousand arising from first-time
application of IFRS 9, in connection with financial
restructuring transactions, for which the balancing
entry was initially an increase in reserves at 1
January 2018 (see note 4 f).
Capitalised borrowing costs (see notes 5 and 6)
totalled Euros 6,173 thousand in 2018 (Euros 5,502
thousand in 2017).
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
103
23
Transactions with
Equity-accounted Investees
and Related Parties
A) BALANCES AND TRANSACTIONS
WITH EQUITY-ACCOUNTED INVESTEES
These balances and transactions reflect the joint
venture TEN. All transactions have been carried out
at market prices. The main transactions carried out
by Group companies with TEN in 2018 and 2017 were
as follows:
Thousands of Euros
Transmisora Eléctrica del Norte S.A. (TEN)
Total
Receivable
42,263
42,263
Balances
Payable
47
47
Expenses
(495)
(495)
2018
Transactions
Income
2,550
2,550
Receivable
54,828
54,828
Balances
Payable
Expenses
82
82
85
85
2017
Transactions
Income
1,724
1,724
B) TRANSACTIONS WITH RELATED PARTIES
Related party transactions are carried out under
normal market conditions. Details are as follows:
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
Thousands of Euros
Expenses and income:
Leases
Other expenses
Expenses
Finance income
Income
Other transactions:
Financing agreements, loans and capital contributions (lender)
Other transactions
Thousands of Euros
Expenses and income:
Leases
Services received
Other expenses
Expenses
Finance income
Income
Other transactions:
Financing agreements, loans and capital contributions (lender)
Other transactions
Significant
shareholders
Directors and
management
Group employees,
companies or entities
Other related
parties
-
-
-
-
-
-
-
-
-
-
148
148
-
-
-
-
-
-
-
47
448
495
2,550
2,550
42,263
42,263
Significant
shareholders
Directors and
management
Group employees,
companies or entities
Other related
parties
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
85
100
15,342
15,527
1,867
1,867
54,828
54,828
104
2018
Total
47
448
47
2,550
2,550
42,411
42,411
2017
Total
85
100
15,342
15,527
1,867
1,867
54,828
54,828
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
105
Transactions with other related parties comprise
those with TEN described in section a) of this note.
The balance under financing agreements, loans and
capital contributions (lender) at 31 December 2018
and 2017 (see note 17) reflects the amount receivable
in respect of the credit facility extended to TEN. The
maximum amount drawn down on this facility during
the year was Euros 41,724 thousand (maximum
drawdown of Euros 54,726 thousand in 2017).
24
Remuneration of
the Board of Directors
At their meeting on 16 February 2018, the Company's
directors approved the remuneration of the board
of directors for 2018, as required by the articles
of association and the regulations of the board of
directors, based on a proposal from the Appointments
and Remuneration Committee. Both the proposed
remuneration for the board of directors for 2018 and
the annual remuneration report were subsequently
submitted for the approval of the shareholders
at their general meeting on 22 March 2018. The
approved remuneration of the board of directors
for 2018, including that of the chairman and the
managing director, did not change vis-à-vis 2017.
At its meeting held on 31 July 2018, the board of
directors adopted, among others, the following
agreements:
> To accept Mr José Folgado Blanco’s resignation from
the position of director and non-executive chairman
of the board of directors of the Company.
> To appoint Mr Jordi Sevilla Segura as a director
of the Company, in the category of “other external
directors”, until the next general shareholders’
meeting, and to also appoint him non-executive
chairman of the board of directors of the Company.
After Mr José Folgado Blanco ceased to perform
executive duties in 2016, the labour contract
approved in 2012 was deemed to have been
terminated. At that point, the chairman had
accrued an indemnity corresponding to one year's
remuneration as executive chairman, as stipulated
in the contract. This indemnity, amounting to Euros
718 thousand, was settled when he ceased to be
a director of the Company.
In line with his duties as non-executive chairman,
the chairman receives fixed annual remuneration,
in addition to remuneration for being a member
of the board of directors. The remuneration scheme
for this position consists solely of fixed amounts, with
no annual or multi-year variable remuneration and
no termination benefit. In 2018 both remuneration
components are under the same terms as in 2017.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 106
The remuneration allocated to the managing director
includes the fixed and variable annual and multi-year
components corresponding to executive duties and
the fixed remuneration for being a member of the
board of directors. Employee benefits continue
to form part of the remuneration for this position.
A portion of the annual variable remuneration is
paid through the delivery of Company shares.
Moreover, the managing director has been included
in a defined contribution benefit scheme. This
scheme covers the retirement, death and permanent
disability contingencies. Red Eléctrica's obligation is
limited to an annual contribution equal to 20 % of the
managing director's fixed annual remuneration.
The annual variable remuneration of the
managing director is set by the Appointments and
Remuneration Committee of the Parent at the start
of each year, using predetermined quantifiable and
objective criteria. The targets are in line with the
strategies and actions established in the Company's
strategic plan and the degree of compliance is
assessed by the Committee.
Pursuant to the remunerations policy and in line with
standard market practices, the managing director’s
contract provides for a termination benefit equal
to one year's salary in the event that labour relations
are terminated due to dismissal or changes
of control. In addition, as is customary in such
cases, as a result of this appointment as managing
director, the existing employment contract has been
suspended. Should the employment contract be
terminated, he would accrue the remuneration due
at the date of suspension as an indemnity. For this
purpose, his tenure at the Company on the date he
was appointed managing director (14 years) would
be taken into consideration, in accordance with
employment legislation in force.
In 2018 the managing director's remuneration is
under the same terms as in 2017.
The remuneration of the board of directors includes
fixed annual remuneration, allowances for attending
board meetings, remuneration for work on the
board of directors' committees and specific annual
remuneration both for the chairs of the committees
and the coordinating independent director. The
components and amounts of this remuneration
have not changed in 2018.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 107
The total amounts accrued by the members of the
Parent's board of directors in 2018 and 2017 are as
follows:
Thousands of Euros
Total remuneration of
the board of directors
Directors' remuneration in
respect of executive duties (1)
Total
2018
2017
2,485
2,448
838
3,323
838
3,286
The rise in total remuneration of the board of
directors compared with the prior year is essentially
because in 2018 the board of directors comprised 12
members for the entire year, which was not the case
in 2017, and also because in 2018 the coordinating
independent director received the remuneration
allocated to this position.
A breakdown of this remuneration by type of director
at 31 December 2018 and 2017 is as follows:
(1) This includes fixed and variable remuneration accrued during the year.
Thousands of Euros
Type of director:
Executive directors
External proprietary directors
External independent directors
Other external directors
Total remuneration
2018
2017
986
519
1,272
546
3,323
986
519
1,235
546
3,286
The remuneration accrued by individual members of
the Company's board of directors in 2018 and 2017,
by components and director, is as follows:
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
108
Thousands of Euros
Mr Jordi Sevilla Segura (1)
Mr José Folgado Blanco (2)
Mr Juan Lasala Bernad
Ms Carmen Gómez de Barreda Tous de Monsalve (3)
Ms María José García Beato
Ms Socorro Fernández Larrea
Mr Antonio Gómez Ciria
Mr José Luis Feito Higueruela
Mr Arsenio Fernández de Mesa Díaz del Río
Mr Alberto Carbajo Josa
Ms Mercedes Real Rodrigálvarez (4)
Ms María Teresa Costa Campi (5)
Mr Antonio Gómez Expósito (5)
Mr Fernando Fernández Méndez de Andés (6)
Mr Santiago Lanzuela Marina (6)
Other board members (7)
Total remuneration accrued
Fixed
remuneration
Variable
remuneration
Allowances
for attending
board meetings
Committee
work
Chairperson of
committee
or board and
coordinating
independent
director
Other
remuneration (8)
Total 2018
Total 2017
221
308
530
131
131
131
131
131
131
131
131
35
35
96
96
-
-
-
300
-
-
-
-
-
-
-
-
-
-
-
-
-
7
10
16
16
16
16
16
16
16
16
16
5
5
12
12
-
-
-
-
28
28
28
28
28
28
28
28
3
3
21
21
-
-
-
-
17
-
-
15
15
-
-
-
-
-
-
-
-
-
-
140
-
-
-
-
-
-
-
-
-
-
-
-
-
228
318
986
192
175
175
190
190
175
175
175
43
43
129
129
-
-
546
986
190
175
175
177
189
156
129
32
-
-
175
175
181
2,369
300
195
272
47
140
3,323
3,286
(1) New director since the board meeting held on 31 July 2018.
(2) Stepped down from the board of directors at the board meeting held on 31 July 2018.
(3) Appointed chairwoman of the Sustainability Committee on 27 November 2018.
(4) Amounts received by Sociedad Estatal de Participaciones Industriales (SEPI).
(5) New director since the board meeting held on 25 September 2018.
(6) Stepped down from the board of directors at the board meeting held on 25 September 2018.
(7) Board members in 2017 who have stepped down from the board.
(8) Includes the employee benefits that form part of the managing director's remuneration.
Furthermore, as mentioned above, the indemnity
accrued to Mr José Folgado Blanco in 2016,
amounting to Euros 718 thousand, was settled in full
in 2018, once he had ceased to be a director of the
Company.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
109
As a result of the work of the Parent's Appointments
and Remuneration Committee on various long-term
incentive plans to be used as a management tool and
mechanism for compliance with the new Strategic
Plan, in 2015 the Committee approved a directors'
remuneration scheme for 2014-2019, which at the
2018 reporting date only applies to the managing
director.
Fulfilment of this remuneration scheme, which
forms part of the remuneration policy, will be based
on achieving the targets set out in the Group's
Strategic Plan for this period and on meeting certain
conditions. A minimum limit of 70 % and maximum
limit of 110 % is established for evaluation of this
scheme. Depending on the targets met, the total
amount for the six-year period with 100 % compliance
would be 1.8 times the annual fixed remuneration.
As in the case of annual targets, this scheme
takes into account predetermined quantifiable and
objective criteria, in line with the medium- and long-
term outlook of the Group's strategic plan. These
targets are set and assessed by the Appointments
and Remuneration Committee. The consolidated
statement of financial position includes a provision
for accrual of this plan for 2018.
At 31 December 2018 and 2017 no loans or advances
have been granted to the members of the board of
directors, nor have any guarantees been extended
on their behalf. The Company has no pension or
life insurance obligations with the members of the
board of directors at those dates, other than those
previously mentioned, nor have any loans or advances
been extended to board members.
At 31 December 2018 and 2017 the Group has taken
out public liability insurance to cover claims from
third parties in respect of possible damage and loss
caused by actions or omissions in performing duties
as Group directors. These policies cover the Group's
directors and senior management and the premiums
amount to Euros 142 thousand, inclusive of tax, in
2018 (Euros 146 thousand at 31 December 2017).
These premiums are calculated based on the nature
of the Group's activity and its financial indicators,
thus they cannot be broken down individually or
allocated to directors and senior management
separately.
In 2018 and 2017 the members of the board of
directors did not engage in transactions with the
Company or Group companies, either directly
or through intermediaries, other than ordinary
operations under market conditions.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 110
25
Remuneration of Senior
Management
In 2018 total remuneration accrued by senior
management personnel amounted to Euros 657
thousand (Euros 649 thousand in 2017) and is
recognised as personnel expenses in the consolidated
income statement. These amounts include the
variable annual remuneration accrued on a straight-
line basis, on the assumption that the objectives
set each year will be met. After the fulfilment of
these objectives has been assessed, the variable
remuneration, adjusted to the actual fulfilment rate,
is paid in the opening months of the following year.
The senior management personnel who have rendered
services for the Group during 2018 and 2017 are as
follows:
Name
Position
Eva Pagán Díaz
General Manager of Transmission
Miguel Duvisón García
General Manager of Operations
Euros 14 thousand of the total remuneration accrued
by these senior managers consisted of contributions
to life insurance and pension plans (Euros 14
thousand in 2017).
At 31 December 2018 loans have been granted to
these senior managers that have an outstanding
balance of Euros 148 thousand. They fall due in 2024
and have the same conditions as those applied to
loans granted to personnel under the collective
bargaining agreement. The equivalent interest rate
applicable to these loans is 0.76 %. No advances
have been extended to these senior managers
at 31 December 2018 and 2017.
As a result of the work of the Parent's Appointments
and Remuneration Committee on various long-term
incentive plans to be used as a management tool and
mechanism for compliance with the new Strategic
Plan, in 2015 the Committee approved a directors'
remuneration scheme for 2014-2019, which includes
the senior management personnel.
Fulfilment of this remuneration scheme will be
based on achieving the targets set out in the Group's
Strategic Plan for this period and on meeting certain
conditions. A minimum limit of 70 % and maximum
limit of 110 % is established for evaluation of this
scheme. Depending on the targets met, the total
amount for the six-year period with 100 % compliance
would be 1.8 times the annual fixed remuneration.
As in the case of annual targets, this scheme
takes into account predetermined quantifiable and
objective criteria, in line with the medium- and long-
term outlook of the Group's strategic plan. These
targets are set and assessed by the Appointments
and Remuneration Committee. The consolidated
statement of financial position includes a provision
for accrual of this plan for 2018.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 111
The contracts in place with serving senior
management personnel do not include guarantee
or golden parachute clauses, in the event of
dismissal. In the event the employment relationship
were terminated, the indemnity to which senior
management personnel would be entitled would be
calculated in accordance with applicable legislation.
The contracts for these executives have been
approved by the Appointments and Remuneration
Committee and the board of directors has received
notice thereof.
Senior management personnel who rendered services
in the Group as at 31 December 2018 are included in
the Structural Management Plan implemented by the
Company in 2015.
At 31 December 2018 and 2017 the Group has taken
out public liability insurance to cover claims from
third parties in respect of possible damage and
loss caused by actions or omissions in performing
duties as senior management of the Group. These
policies cover all the Group's directors and senior
management and the annual premiums amount
to Euros 142 thousand, inclusive of tax, in 2018
(Euros 146 thousand in 2017). These premiums are
calculated based on the nature of the Group's activity
and its financial indicators, thus they cannot be
broken down individually or allocated to directors and
senior management separately.
26
Segment Reporting
The principal activity of the Red Eléctrica Group
is electricity transmission and operation of the
electricity system in Spain, through REE. This
represents 93 % of consolidated revenue and
85 % of the Group's total assets (93 % and 88 %,
respectively, in 2017). Other activities account for
the remaining 7 % of revenue and 15 % of total assets
(7 % and 12 %, respectively, in 2017). Consequently,
the Group did not consider it necessary to provide
information by activity or geographical segment.
27
Interests in Joint Arrangements
The Group (through REE) and Réseau de Transport
d’Électricité (RTE), the French transmission system
operator, each hold a 50 % investment in the INELFE
joint arrangement, which has its registered office in
Paris. Its statutory activity is the study and execution
of interconnections between Spain and France
that will increase the electricity exchange capacity
between the two countries. Decisions are taken with
the unanimous consent of the parties. RTE and REE
both have rights to the assets and obligations for
the liabilities of INELFE. The joint arrangement has
therefore been classified as a joint operation. The
Group recognises the assets, including its interest
in the jointly controlled assets, and the liabilities,
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 112
including its share of the liabilities that have been
incurred jointly in INELFE, in its consolidated annual
accounts (see note 2 d).
The Group has an interest in a further joint
arrangement through Red Eléctrica Chile S.P.A.,
which holds a 50 % stake in the Chilean company
TEN, alongside E.C.L. S.A. The Group has classified this
joint arrangement as a joint venture, inasmuch as the
parties have rights to the net assets (see note 9).
Due to the existence of contractual arrangements
under which decisions on relevant activities
require the unanimous consent of both parties,
the Group has joint control of several “UTEs” (Unión
Temporal de Empresas – a form of temporary
business association). The Group has classified the
investments as joint operations because the parties
have rights to the assets and obligations for the
liabilities. The UTE has been formed to provide a dark
fibre services, with an availability guarantee, between
the Balearic Islands and the Mediterranean Coast
of the Spanish mainland.
28
Guarantees and Other
Commitments with Third Parties
and Other Contingent Assets
and Liabilities
At 31 December 2018 and 2017 the Company,
together with REE, has jointly and severally
guaranteed the private issue in the United States
of bonds totalling US Dollars 430 million, and the
Eurobonds programme of REF for an amount
of up to Euros 4,500 million.
Furthermore, at 31 December 2018 and 2017
the Company and REE have jointly and severally
guaranteed the promissory notes issued under
the Euro Commercial Paper Programme (ECP
Programme) by REF for an amount of up to Euros
1,000 million.
On 19 February 2015, REDESUR, TESUR and Scotia
Sociedad Titulizadora S.A. created a securitisation
trust to hold the REDESUR-TESUR trust assets,
in order to back the obligations arising from the
US Dollar 110 million bond issue.
At 31 December 2018 the Group has extended bank
guarantees to third parties in relation to its normal
business operations, amounting to Euros 194,985
thousand (Euros 116,157 thousand in 2017).
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en 113
On 14 December 2018, REI entered into a share
sale-purchase agreement with Cajamarca Invest,
S.L. and Bow Power, S.L., as the vendors, to acquire
100 % of the capital of Concesionaria Línea de
Transmisión CCNMC S.A.C., the concession holder
of the 220kV Carhuaquero – Cajamarca Norte –
Moyobamba – Cáclic transmission line and the
associated substations, in Peru. The transaction
entailed the acquisition of 366 km of a 220 kV circuit,
6 km of a 138 kV circuit and 4 substations. Since
the end of 2017, these assets have been operated
under a 30-year concession awarded by the Peruvian
government. The transaction is expected to be
completed in the first quarter of 2019, subject to
various conditions precedent being met, mainly as
regards certificates, approval and authorisations
being obtained and there being no existing instances
of non-compliance. The price initially agreed is US
Dollars 34.5 million, though this may be adjusted.
29
Environmental Information
In 2018 Group companies incurred ordinary expenses
of Euros 23,958 thousand in protecting and
improving the environment (Euros 21,621 thousand
in 2017), essentially due to the implementation
of environmental initiatives aimed at protecting
biodiversity, fire prevention, slowing climate change,
minimising pollution and safeguarding the countryside.
In 2018 environmental impact and monitoring studies
were also carried out in relation to newly-constructed
electricity facilities. The costs incurred in these
studies amounted to Euros 1,426 thousand (Euros
3,387 thousand in 2017).
The Group companies are not involved in any litigation
relating to environmental protection or improvement
that could give rise to significant contingencies.
The Group companies received no significant
environment-related grants in 2018 or 2017.
30
Other Information
KPMG is the main auditor of the annual accounts of the
Group companies, except INELFE, which is audited by
PricewaterhouseCoopers (PwC).
The total fees accrued for the audit services rendered
to the Group companies in 2018 were Euros 336.5
thousand (Euros 272.5 thousand in 2017).
Details of the contractual fees for services provided
to the Red Eléctrica Group by the audit firm KPMG
Auditores S.L. in the years ended 31 December 2018
and 2017 are as follows:
Thousands of Euros
Audit services
Other audit-related services
Total
2018
189.0
75.0
264.0
2017
181.3
72.2
253.5
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
114
The amounts detailed in the above table include the
total fees for services rendered in 2018 and 2017,
irrespective of the date of invoice.
In 2018 other audit-related services essentially
include assurance services relating to the issuance
of comfort letters, the reasonable assurance audit
report on the effectiveness of the Group’s ICOFR
under ISAE 3000, and the agreed-upon procedures
performed on behalf of the Group company REINTEL.
Thousands of Euros
Audit services
Total
2018
4.8
4.8
2017
3.7
3.7
Furthermore, the equity-accounted investee TEN was
audited by Deloitte in 2018 and 2017.
Other affiliates of KPMG International invoiced
the Group the following fees and expenses for
professional services during the years ended 31
December 2018 and 2017:
31
Earnings per Share
Thousands of Euros
Audit services
Other services
Total
2018
142.7
65.0
207.7
2017
87.5
55.0
142.5
Furthermore, during the years ended 31 December
2018 and 2017 PwC invoiced the Group fees and
expenses for professional services as follows:
Details of earnings per share in 2018 and 2017 are
as follows:
2018
2017
Net profit (thousands of Euros)
704,558
669,836
Number of shares
541,080,000
541,080,000
Average number of own shares
2,189,151
1,824,488
Basic earnings per share (Euros)
Diluted earnings per share (Euros)
1.31
1.31
1.24
1.24
At 31 December 2018 and 2017 the Group has not
conducted any operations that would result in any
difference between basic earnings per share and
diluted earnings per share.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
115
32
Share-based Payments
Details of share-based payments for management
and employees at 31 December 2018 and 2017 are
as follows:
Number of shares
Average price (Euros)
Amount in thousands of Euros
Number of shares
Average price (Euros)
Amount in thousands of Euros
2018
2017
Management
Employees
Total
1,238
191,317
192,555
19.37
19.37
19.37
24
3,706
3,730
1,332
166,831
168,163
18.00
18.00
18.00
24
3,003
3,027
These shares have been valued at the listed price on
the delivery date. All shares delivered were approved
by the Parent's shareholders at the general meeting,
and the related costs incurred have been recognised
under personnel expenses in the consolidated
income statement.
33
Events after 31 December 2018
On 12 February 2019, Abertis Infraestructuras, S.A.
and Red Eléctrica Corporación, S.A. entered into an
agreement for the latter to purchase Abertis’ 89.68 %
stake in Hispasat, S.A. for Euros 949 million.
In accordance with applicable legislation, the
parties must seek the pertinent authorisation for the
transaction. This condition precedent, among others,
must be fulfilled in order for the agreement signed
by the two parties to come into effect. Once the
conditions have been met, payment will be made
for the transaction, and the acquiree is expected to
be integrated into the financial statements of the Red
Eléctrica Group effective 1 January 2019 for financial
purposes.
Hispasat is the leading satellite infrastructure
operator in Spain and Portugal by volume of business,
and also ranks as the fourth operator in Latin America
and the eighth operator worldwide.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
Appendix I
Grupo Red Eléctrica. Details of equity investments at 31 December 2018 and 2017
Thousands of Euros
AT 3 1 D E C E M B E R 2 0 1 8 A N D 2 0 1 7
- Company
- Registered office
- Principal activity
Red Eléctrica Corporación S.A., Parent, incorporated in 1985.
- Paseo Conde de los Gaitanes, 177. Alcobendas. Madrid. (Spain).
- Management of the business Group; rendering of assistance or support services to investees
and operation of the property owned by the Company.
A) Fully consolidated companies
Red Eléctrica de España, S.A.U. (REE)
- Paseo Conde de los Gaitanes, 177. Alcobendas. Madrid. (Spain).
- Transmission, operation of the Spanish electricity system and management of the transmission network.
Red Eléctrica Internacional, S.A.U. (REI)
- Paseo Conde de los Gaitanes, 177. Alcobendas. Madrid. (Spain).
- International investments. Rendering of advisory, engineering and construction services.
- Performance of electricity activities outside the Spanish electricity system.
Red Eléctrica Infraestructuras de Telecomunicación, S.A.U.(REINTEL)
- Paseo Conde de los Gaitanes, 177. Alcobendas. Madrid. (Spain).
- Rendering of advisory, engineering, construction and telecommunications services.
Red Eléctrica Infraestructuras en Canarias, S.A.U (REINCAN)
- Calle Juan de Quesada, 9. Las Palmas de Gran Canaria. (Spain).
- Construction of energy storage facilities in non-mainland and isolated systems.
Red Eléctrica de España Finance, B.V. (RBV)
- Hoogoorddreef 15. Amsterdam (Netherlands).
- Financing activities.
- Incorporated in 2003 in the Netherlands to issue debt to finance the Red Eléctrica Group.
Red Eléctrica Financiaciones, S.A.U. (REF)
- Paseo Conde de los Gaitanes, 177. Alcobendas. Madrid. (Spain).
- Financing activities.
116
2017
Percentage ownership (1) Percentage ownership (1)
Indirect
Direct
Indirect
Direct
2018
100%
100%
100%
100%
100%
100%
-
-
-
-
-
-
100%
100%
100%
100%
100%
100%
-
-
-
-
-
-
Continued on the next page
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
Appendix I
Grupo Red Eléctrica. Details of equity investments at 31 December 2018 and 2017
Thousands of Euros
AT 3 1 D E C E M B E R 2 0 1 8 A N D 2 0 1 7
- Company
- Registered office
- Principal activity
Red Eléctrica Sistemas de Telecomunicaciones, S.A.U. (RESTEL)
- Paseo Conde de los Gaitanes, 177. Alcobendas. Madrid. (Spain).
- Acquisition, holding, management and administration of equity securities of entities located in
Spain and abroad.
Redcor Reaseguros, S.A (REDCOR)
- 26, Rue Louvigny. (Luxembourg).
- Reinsurance activities.
- Incorporated in 2010 in Luxembourg in order to reinsure the risks of the Group companies,
thereby guaranteeing better access to international reinsurance markets.
Red Eléctrica Andina, S.A. (REA)
- Av. Javier Prado Este Of. 1001 Urb. Jardín San Isidro. Lima (Peru)
- Rendering of line and substation maintenance services.
Red Eléctrica del Sur, S.A. (REDESUR)
-Av. Javier Prado Este Of. 1001 Urb. Jardín San Isidro. Lima (Peru)
- Electricity transmission and operation and maintenance of electricity transmission networks.
Transmisora Eléctrica del Sur , S.A. (TESUR)
- Av. Javier Prado Este Of. 1001 Urb. Jardín San Isidro. Lima (Peru)
- Electricity transmission and operation and maintenance of electricity transmission networks.
Transmisora Eléctrica del Sur 2 , S.A. (TESUR 2)
- Av. Javier Prado Este Of. 1001 Urb. Jardín San Isidro. Lima (Peru)
- Electricity transmission and operation and maintenance of electricity transmission networks.
Transmisora Eléctrica del Sur 3 , S.A. (TESUR 3)
- Av. Javier Prado Este Of. 1001 Urb. Jardín San Isidro. Lima (Peru)
- Electricity transmission and operation and maintenance of electricity transmission networks.
Transmisora Eléctrica del Sur 4 , S.A. (TESUR 4)
- Av. Javier Prado Este Of. 1001 Urb. Jardín San Isidro. Lima (Peru)
- Electricity transmission and operation and maintenance of electricity transmission networks.
117
2017
Percentage ownership (1) Percentage ownership (1)
Indirect
Direct
Indirect
Direct
2018
100%
100%
-
-
-
-
-
-
-
-
100% (a)
100% (a)
100% (c)
100% (c)
100% (c)
100% (c)
-
100%
-
-
-
-
-
-
-
-
100% (a)
100% (a)
100% (c)
100% (c)
-
-
Continued on the next page
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
118
2017
Percentage ownership (1) Percentage ownership (1)
Indirect
Direct
Indirect
Direct
2018
-
-
100% (a)
69,9% (d)
100% (d)
-
-
-
100% (a)
69,9% (d)
-
-
50% (d)
-
50% (d)
Appendix I
Grupo Red Eléctrica. Details of equity investments at 31 December 2018 and 2017
Thousands of Euros
AT 3 1 D E C E M B E R 2 0 1 8 A N D 2 0 1 7
- Company
- Registered office
- Principal activity
Red Eléctrica Chile SpA (RECH)
- Avenida El Golf nº 40, piso 20. Comuna de Las Condes, Santiago (Chile)
- Acquisition, holding, management and administration of securities.
Red Eléctrica del Norte S.A. (REDENOR)
- Avenida El Golf nº 40, piso 20. Comuna de Las Condes, Santiago (Chile)
- Electricity transmission and operation and maintenance of electricity transmission networks.
Red Eléctrica del Norte 2 S.A. (REDENOR 2)
- Avenida El Golf nº 40, piso 20. Comuna de Las Condes, Santiago (Chile)
- Electricity transmission and operation and maintenance of electricity transmission networks.
B) Proportionately consolidated companies
Interconexión Eléctrica Francia-España, S.A.S. (INELFE)
- Tour Initiale, 1 Terrasse Bellini – 92919 Paris La Défense Cedex. París (France).
- Study and execution of Spain-France interconnections.
C) Equity-accounted investees
Transmisora Eléctrica del Norte S.A. (TEN)
- Avenida Apoquindo N°3721, piso 6, Las Condes, Santiago (Chile)
- Electricity transmission and operation and maintenance of electricity transmission networks.
(1) Equivalent to voting rights.
(a) Investment through Red Eléctrica Internacional, S.A.U.
(b) Investment through Red Eléctrica de España, S.A.U.
(c) Investment through Red Eléctrica del Sur, S.A.
(d) Investment through Red Eléctrica Chile SpA.
Consolidated Annual Accounts 2018 INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDANNUAL ACCOUNTSwww.ree.es/en
119
CONSOLIDATED
DIRECTORS'
REPORT
C
O
N
D
S
I
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R E
I
C
D
T
A
T
RO
E
S '
D
R E
P O R T
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120
/ O F
D
/ R E P O R T
C O N
E N T S
C O N T
D
S
I
E
D I R E C T O R S
O
A
T
L
11 Statement of non-financial information in compliance
with Law 11/2018 of 28 December / p 148
11.1 Description of the Group’s business model
and sustainability priorities / p 148
11.2 Information regarding environmental issues / p 150
11.3 Information about social and personnel
related issues / p 154
11.4 Human rights information / p 165
11.5 Information about the fight against corruption
and bribery / p 165
11.6 Information on relations with society / p 167
11.7 Index of content required by Law 11/2018
of 28 December on disclosure of non-financial
and diversity information / p 178
12 Annual Corporate Governance Report / p 181
1 Company position / p 122
1.1 Organisational structure / p 122
1.2 Activities and business performance / p 129
2 Business performance / p 135
2.1 Key financial indicators / p 135
3 Liquidity and capital / p 137
4 Risk management / p 139
5
Information on the average payment period to suppliers.
Third additional disposition, “Duty of disclosure”, of
Law 15/2010 of 5 July / p 139
6 Significant events occurring after
the reporting period / p 140
7 Outlook / p 140
8
Innovation / p 141
9 Own shares / p 144
10 Other relevant information / p 145
10.1 Stock market performance and shareholder returns / p 145
10.2 Dividend policy / p 146
10.3 Credit rating / p 147
10.4 Excellence / p 147
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en
121
To facilitate the understanding of the information
provided in this document, some alternative
performance measures have been included.
The definitions of these measures may be found
at www.ree.es
The various sections of this consolidated director’s
report contain certain prospective information
that reflects projections and estimates based on
underlying assumptions, statements referring to
plans, objectives and expectations associated with
future transactions, investments, synergies, products
and services, as well as statements concerning
results or future dividends, or estimates calculated
by the directors and based on assumptions that the
directors consider reasonable.
While the Group considers the expectations reflected
in those statements to be reasonable, investors
and holders of shares in the Parent are advised that
the information and statements containing future
projections are subject to risks and uncertainties,
many of which are difficult to foresee and generally
beyond the Group’s control. As a result of such
risks, actual results and developments could
differ substantially from those expressed, implied
or forecast in the information and statements
containing future projections.
The affirmations and statements containing
future projections do not provide any guarantee
as to future results and have not been reviewed by
auditors outside the Group or by other independent
third parties. It is recommended that no decisions
be made on the basis of the affirmations and
statements containing future projections that refer
exclusively to the information available at the date
of this report. All of the affirmations and statements
containing future projections that are reflected in
this report are expressly subject to the warnings
given. The affirmations and statements containing
future projections included in this document are
based on the information available at the date of this
directors’ report. Except as required by applicable
legislation, the Group is not obligated to publicly
update its statements or review the information
containing future projections, even where new data
is published or new events arise.
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en 122
1
Company position
1.1. ORGANISATIONAL STRUCTURE
Corporate bodies
The board of directors and the shareholders are
responsible for governing and managing the
Red Eléctrica Group and its Parent, Red Eléctrica
Corporación, S.A. (hereinafter REC).
The shareholders’ general meeting is governed by
the articles of association and the general meeting
regulations, in accordance with the Spanish
Companies Act.
The ownership structure at the date of the 2018
shareholders’ ordinary general meeting was as follows:
Ownership structure
Figures from the 2018 general shareholders meeting
%
Since November 2018 the Company has three board
committees, as a result of the creation of the new
Sustainability Committee through a restructuring
of the other two board committees, the Audit
Committee and the Appointments and Remuneration
Committee. The three committees created by the
board of directors to support it in its duties are
eminently specialised and are designed for efficiency
and transparency.
Foreign in sti tut ion a l
66
Sp an i sh in st itu tio nal
4
20
SEP I
Mi n or ity intere sts
10
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en 123
At its meeting on 31 July 2018, the board of directors
co-opted Mr Jordi Sevilla Segura as a director
of Red Eléctrica Corporación, S.A., in the “other
non-executive” category, and appointed him non-
executive chairman of the board of directors and
of the Company until the next general shareholders
meeting to fill the vacancy arising on the board from
the resignation of José Folgado Blanco as a director
and thus also as non-executive chairman of the
board of directors and of the Company, which the
board accepted in that same session.
At its meeting on 25 September 2018, the board
of directors co-opted María Teresa Costa Campi and
Antonio Gómez Expósito as proprietary directors of
Red Eléctrica Corporación, S.A., representing SEPI,
until the next general shareholders meeting, to fill
the vacancies arising on the board as a result of
the board’s acceptance, in the same session, of the
resignations of the proprietary directors representing
SEPI, Santiago Lanzuela Marina and Fernando
Fernández Méndez de Andés, whom they replaced.
The structure, composition, roles and responsibilities
of the committees are specified in articles 22 to 24
of the articles of association and are implemented in
articles 14 to 18 of the board of directors regulations.
Both these corporate regulations are fully adapted
to the latest reforms of the Capital Companies
Act (LSC), the Code of Good Governance of Listed
Companies (CBGSC) and the most up-to-date
international practices and recommendations on
committee composition and committee member
independence and qualifications. At the end of 2018,
a review of the board of directors regulations was
started that will update the functions of the three
board committees.
At 31 December 2018, REC’s board of directors
comprised 12 members.
The general shareholders meeting of 22 March
2018 approved the re-election of Socorro Fernández
Larrea and Antonio Gómez Ciria as independent
directors and the ratification and appointment of
Mercedes Real Rodrigálvarez as a proprietary director
representing Sociedad Estatal de Participaciones
Industriales (SEPI), all of them for the four-year term
specified in the articles of association.
At its meeting on 29 May 2018, the board of directors
re-elected Fernando Fernández Méndez de Andés
as a member of the Audit Committee and Carmen
Gómez de Barreda Tous de Monsalve as a member
of the Appointments and Remuneration Committee,
both of them for a three-year term.
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en 124
At its meeting on 27 November 2018, at the chairman’s
proposal and after considering a favourable report
from the Appointments and Remuneration Committee,
the board of directors agreed to create a Sustainability
Committee and restructure the other two board
committees (Audit Committee and Appointments and
Remuneration Committee) and approved the following
composition of the committees:
> Sustainability Committee:
∂ Carmen Gómez de Barreda Tous de Monsalve
(lead independent director and chairman)
> Audit Committee:
∂ Antonio Gómez Ciria (independent director and
chairman)
∂ Mercedes Real Rodrigálvarez (proprietary director)
∂ Arsenio Fernández de Mesa y Díaz del Río
(independent director)
∂ María José García Beato (independent director)
> Appointments and Remuneration Committee:
∂ José Luis Feito Higueruela (independent director
∂ María Teresa Costa Campi (proprietary director)
and chairman)
∂ Alberto Carbajo Josa (independent director)
∂ Antonio Gómez Expósito (proprietary director)
∂ Socorro Fernández Larrea (independent director)
The composition and powers of the board of directors
and the board committees are as follows:
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en
125
B O A R D / O F
/ D I R E C T O R S
41 .66 %
w o m e n
(45.45% non-executive female
directors)
Audit
Committee
CHAI RMA N
In de pen de nt dire ctor
Appointments and
Remuneration
Committee
CHAI RMAN
In de pen den t direc tor
Sustainability
Committee
PR ESI DEN CIA
I ndependent directo r
58. 33 %
i n d e p e n d e n t
The positions of chairman of the board
of directors and managing director are
separate
Lead independent director
75%
66.7%
66.7%
25 %
33.3%
33.3%
INDEPENDENT
INDEPEN DEN T
INDEPENDENT
PROPRIETARY
50%
PROP RIETARY
33.3%
PROP RIETARY
66.7%
WOMEN
WOMEN
WOMEN
Main responsibilities:
Responsibilities in respect of:
Responsibilities in respect of:
Responsibilities in respect of:
Approval of the general policies and
strategies of the Company and the Group.
-
Control of the risks of the Company and
the Group.
-
Preparation of the annual accounts and
presentation of the accounts to the
General Meeting.
-
Annual assessment of the quality and
efficiency of the board and the functioning
of its committees.
Preparation of the Company’s economic
and financial information.
-
Effectiveness of the internal control
and risk management systems.
-
Independence of the external auditor.
-
Compliance with laws and internal
regulations on matters within the scope
of its authority.
-
The Company’s shareholders.
Appointment and removal of directors
and some senior managers.
-
Directors’ remuneration policy.
-
Compliance with directors’ duties.
-
Leading the assessment of the board
and its committees.
-
Gender diversity report.
Basic responsibilities in matters
of sustainability, previously assigned
to the Appointments and Remuneration
Committee, together with other corporate
governance functions.
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en 126
In response to the undertaking given by the company
chairman at the general shareholders meeting held
in April 2012 and considering international best
practice in the field of corporate governance, at
the extraordinary general meeting held on 17 July
2015, called specifically for that purpose, the board
of directors of Red Eléctrica asked shareholders
to approve a proposal to separate the positions of
chairman of the board of directors and managing
director of the company and to appoint Juan Lasala
Bernad as an executive director. Both proposals were
approved by 99 % of the shareholders, with a quorum
of 58 %. At its meeting on 28 July 2015, the board of
directors appointed the new executive director as
managing director of the company.
A transitional period was established for the
separation of powers, ending at the 2016 ordinary
general shareholders’ meeting, when the roles of
chairman of the board of directors and managing
director were fully separated. Since that meeting,
the chairman of the board of directors has had
exclusively the responsibilities of chairman.
Until the 2016 ordinary general shareholders
meeting, the chairman retained his executive powers
and focused his efforts on managing, supporting and
steering the transfer of executive powers to the new
managing director, with a view to ensuring a rational
and orderly transition.
The lead independent director role, created in
2013, has been maintained because, given the
responsibilities it entails, it is an efficient corporate
governance practice, as shareholders and proxy
advisors alike have acknowledged.
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en 127
Detailed information on the composition and
functioning of the Parent’s governing bodies
is provided in the Annual Corporate Governance
Report, which is attached to this directors’ report.
Composition of the Red Eléctrica Group
The Red Eléctrica Group’s principal activity is
electricity transmission and system operation in Spain
via Red Eléctrica de Espana, S.A.U. (hereinafter, REE),
which generates 93 % of consolidated revenues and
Red Eléctrica Corporación (REC)
93%
Red El éctrica
de Es pa ña (REE)
(Consol idat ed revenue)
7%
Other
Activities
(Consol i dated revenue)
represents 85 % of the Group’s total assets (93 % and
92 %, respectively, in 2017). Other activities together
account for the remaining 7 % of revenue and 15 % of
total assets (7 % and 12 %, respectively, in 2017). The
Group is present in six countries: Spain, Peru, Chile,
the Netherlands, Luxembourg and France.
BV y REF
Financing activities.
REDCOR
Reassurance of the risks
of the various Group
companies.
Red Eléctrica
Internacional (REI)
Electricity businesses outside
the Spanish system: in Peru
through REDESUR, REA,
TESUR, TESUR 2, TESUR 3 and
TESUR 4 and in Chile through
RECH, TEN, REDENOR and
REDENOR 2.
REINTEL
Telecommunications
businesses in Spain.
REINCAN
Construction of energy
storage facilities in island and
isolated systems.
RESTEL
Acquisition, holding,
administration, oversight and
management of Spanish and
foreign securities representing
the capital of corporations.
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en 128
In 2018, there were changes in the consolidated
Group, as described in note 2g to the consolidated
annual financial statements. At 31 December 2018,
the composition of the Group was as follows (for more
information on the activity of each company, see
Appendix 1 of the consolidated annual accounts):
R E D E L É C T R I C A C O R P O R A C I Ó N S . A . ( R E C )
100 %
RED
ELÉCTRICA
DE ESPAÑA,
S.A.U. (REE)
100 %
RED ELÉCTRICA
DE INFRAESTRUCTURAS
EN CANARIAS,
S.A.U. (REINCAN)
100 %
RED ELÉCTRICA
INFRAESTRUCTU-
RAS DE TELECO-
MUNICACIÓN,
S.A.U. (REINTEL)
100 %
RED ELÉCTRICA
INTERNACIONAL,
S.A.U. (REI)
100 %
RED ELÉCTRICA
DE ESPAÑA
FINANCE, B.V. (RBV)
100 %
RED ELÉCTRICA
FINANCIACIONES,
S.A.U. (REF)
100 %
REDCOR
REASEGUROS,
S.A. (REDCOR)
100 %
RED ELÉCTRICA
SISTEMAS DE
TELECOMUNICACIONES, S.A.U.
(RESTEL)
5 0 %
INTERCONEXIÓN
FRANCIA-ESPAÑA,
S.A.S. (INELFE)
100 %
RED
ELÉCTRICA
CHILE, SpA.
(RECH)
100 %
RED
ELÉCTRICA
ANDINA, S.A.
(REA)
100 %
RED
ELÉCTRICA
DEL SUR, S.A.
(REDESUR)
5 0 %
TRANSMISORA
ELÉCTRICA
DEL NORTE S.A.
(TEN)
6 9, 9 %
RED ELÉCTRICA
DEL NORTE, S.A.
(REDENOR)
100 %
RED ELÉCTRICA
DEL NORTE 2, S.A.
(REDENOR 2)
100 %
TRANSMISORA
ELÉCTRICA
DEL SUR, S.A.
(TESUR)
100 %
TRANSMISORA
ELÉCTRICA
DEL SUR 2, S.A.
(TESUR 2)
100 %
TRANSMISORA
ELÉCTRICA
DEL SUR 3, S.A.
(TESUR 3)
100 %
TRANSMISORA
ELÉCTRICA
DEL SUR 4, S.A.
(TESUR 4)
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1.2. ACTIVITIES AND BUSINESS PERFORMANCE
The Group carries out the aforementioned activities
in Spain and abroad, most notably electricity
transmission in Spain, Peru and Chile and the
provision of telecommunications services to third
parties.
Role of transmission agent and system operator
for the Spanish electricity system
The mission of REE, as carrier and operator of the
Spanish electricity system, is to guarantee at all
times the safety and continuity of the electricity
supply and manage the transmission of high voltage
energy. To this end, it oversees and coordinates the
generation and transmission system and manages
the development of the transmission network. The
Company seeks to fulfil its mission while adhering
to the principles of neutrality, transparency,
independence and economic efficiency, so as to offer
a secure, efficient and high-quality electricity service
to society as a whole.
Approval of the 2015-2020 Plan injected the
necessary certainty so as to execute the Investment
Plan which the Company is implementing and will
continue to execute in the next few years.
2018 was the third year in which the remuneration
for the transmission activity was set in accordance
with the new remuneration model approved in 2013.
Investments in transmission network facilities in
2018 totalled EUR 378 million and basically served
to resolve technical restrictions, extend the network
mesh, execute specific projects for international
interconnections and interisland underwater
connections, and ensure supply security.
During the year, 277 kilometres of transmission
network were brought into service, bringing REE’s
total transmission network at year-end to 44,069
kilometres. Meanwhile, transformation capacity was
increased by 2,592 MVA, bringing the nationwide
total up to 88,846 MVA.
The most significant actions brought about in the
development of the transmission network have
been, for large-scale actions and interconnections,
the following:
> Son Moix interconnection: this interconnection
is primarily intended to resolve the existing weak
evacuation from the 220 kV Valldurgent substation
to the city of Palma de Mallorca, improving control
of voltages to the west of Palma de Mallorca and
supporting the 220/66 kV Valldurgent transformer.
The 220 kV - 66 kV Son Moix substation and the
220 kV input and output are expected to be in
service in 2019.
> Santa Elvira interconnection: this interconnection
is intended for the construction of a line and a 220
kV substation for the mesh of the transmission
network and support for distribution in the city
of Seville. The SE Santa Elvira 220 kV and the
L/ Alcores - Santa Elvira 220 kV line are expected
to be in service in 2019.
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> San Miguel de Salinas-Torrevieja interconnection:
has as an objective the mesh of the transmission
network of the coast of Levante interconnection
and support for distribution in order to supply a
desalination plant in the area of Torrevieja (Alicante),
facilities were placed into service in July 2018.
> Actions in the island of Tenerife:
> Gerona North Power Interconnection: has as an
objective the safety of supply and support for
distribution in Catalonia, as well as improving the
interchange through the International Interconnection
with France. The 400 kV - 220 kV La Farga substation
and the 220 V input and output were placed into
service in 2018.
∂ Abona interconnection: has as an objective to bring
> Arenal - Llucmajor interconnection: intended for the
about the actions of the transmission network
required to contribute to the mesh of the island
and evacuation from the special regimen (régimen
especial). The Abona substation has as an objective
the evacuation of wind energy. The 220 kV - 66 kV
Abona substation and the input and output were
placed into service in 2018.
∂ El Poris interconnection: has as an objective
to bring about the actions of the transmission
network needed to contribute to the mesh of the
island and evacuation from the special regimen
(régimen especial). El Pois substation has as an
objective the evacuation of wind energy. In 2018,
L/ Arico 2 - El Poris 66 kV, 220 kV - 66 kV
substation and the El Poris 220 kV input and
output were placed into service.
> Arinaga interconnection: the objective of this
interconnection is to bring about the actions of the
transmission network in the island of Gran Canaria
needed to contribute to the mesh of the island
and evacuation from the special regimen (régimen
especial). The Arinaga substation has as an objective
the evacuation of wind energy. In 2018, the L/
Arinaga-Barranco de Tirajana 66 kV and associated
substations were placed into service.
construction of two 132 kV lines to connect at the Cala
Blava substation, all for the mesh of the transmission
network and support for distribution in Mallorca. The
Arenal-Cala Blava 132 kV and Cala Blava - Llucmajor
132 kV lines were placed into service in 2018.
> Lanzarote-Fuerteventura interconnection: this
interconnection is intended to bring about the actions
required to construct the mesh of the network on
both islands, allowing the evacuation of power and
reinforcing the connection between the two islands.
The L/ Gran Tarajal - Matas Blancas 132 kV and 66 kV
Matas Blancas substation were placed into service
in 2018. The remaining facilities are expected to be
placed into service in the next few years.
> West interconnection with France: motivated by
the need to continue increasing interconnection
capacity with France, and for the achievement
of the European energy objectives that allow
access to sustainable, competitive and safe energy.
In 2018, the technical studies and the prior work for
preparation of the tender of the main components
of the project were continued. Additionally, a grant
by the European Commission of 578 million euros
through the Connecting Europe Facility (CEF) has
been confirmed.
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> Input/output at Moncayo of the Trevago-Magallon-
Lanzas 220 kV line has led to an improvement
in the mesh of the transmission network in the area
of Moncayo, supporting the distribution network
in the area and allowing the reinforcement of the
supply to Moncayo.
> The Cañuelo - Pinar del Rey 220 kV line, dual circuit
allows support of the demand of 220 kV from
Cañuelo from the transmission network through
a new mesh that prevents antenna power and non-
compliance with Operational Procedures, ensuring
the supply of the demand of Cañuelo when the
current circuit that connects with Pinar del Rey
is unavailable.
Additionally, in fiscal year 2018, the most notable facts
in the operation of the electrical system, were:
> The demand for electrical energy from the peninsula
ended the year at 253,495 GWh, 0.4 % higher than
that of 2017. Factoring in the effects of work and
temperature, the demand which is attributable
primarily to economic activity places the growth
rate at 0.3 %, which contrasts with respect to what
happened last year when it stood at 1.6 %.
> The peninsular installed power decreased compared
to the previous year, at the end of 2018 at 98,593
MW, 276 MW less than at the end of 2017 (which
implies a variation of -0.3 %). The greatest variation
was recorded for combined-cycle technology that
reduced power at 386 MW as a result of the closure
of the Tarragona plant. The rest of the technologies
did not have power variations or the power variations
have not been very significant.
> During 2018, bidding was successfully completed
for the provision of Interruptibility Service for 1 June
2018 through 31 December 2018, and for 1 January
2019 through 30 June 2019. Specifically, the
electro-intensive industry of the country competed
for the allocation of interruptible resources in a few
bids that have resulted in the award of 2,600 MW
of interruptible resource in each of the periods.
> Regarding hydropower, at the end of December
2018 it was at 37,386 GWh, 28.2 % higher than the
historical average value and 134.1 % higher than
in 2017. The hydroelectric reserves in the grouping
of reservoirs ended 2018 with a fill level of 44.1 %
of their total capacity, compared with 26.3 % the
previous year.
> The maximum instantaneous power was recorded
> In generation coverage in 2018, nuclear technology
on Thursday, 8 February at 20:24 with 40,947
MW, which is a variation of -1.0 % with respect to
the maximum of the previous year and of -9.9 %
compared to the record of 45,450 MW reached on
17 December 2007. The maximum demand time
also occurred on 8 February (between 20:00 and
21:00) with 40,611 MWh, 9.5 % below the historic
maximum reached in 2007.
accounted for 21.6% (22.4% in 2017), wind for 19.8%
(19.1% in 2017), coal for 14.1% (17.1% in 2017),
13.8% hydropower (7.4% in 2017), cogeneration for
11.8% (11.3 % in 2017) and combined cycle for 10.7%
(13.6% in 2017). Below a share of 10% are solar
technologies, other renewables, waste and turbine
pump, which together cover 8.2%.
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> Renewable energy sources have increased their
> The balance of international interchange of
role in global production of energy in the electricity
system covering 40.1 % of total production (33.7 %
in 2017).
electrical energy has resulted in importation for
the third consecutive year, reaching in 2018 a value
of 11,102 GWh.
In absolute terms, renewable generation varied
18.5% from the previous year, due mainly to the
increase of 84.8% of hydroelectric production.
Exports amounted to 12,916 GWh (14,594 GWh
in 2017) and imports to 24,018 GWh (23,763 GWh
in 2017).
> CO₂ emissions from the peninsular power sector, the
decline in generation with fossil fuel technologies,
and in contrast, the sharp increase in hydroelectric
generation, has established the level of emissions
in 2018 at 54.2 million tons, assuming a variation
of -15.0 % compared to 63.8 million tons in 2017.
In accordance with Law 17/2013, REE has been
entrusted with the development of pumped-storage
hydroelectric plants in the Canary Islands, whose
purpose is the guarantee of supply, system safety
and the integration of non-manageable renewable
energy sources.
> The interchange of electrical energy through the
Peninsula-Balearic Islands link has resulted in an
export balance to the Balearic Islands of 1,233 GWh
(variation of 4.6% compared to 2017), which has
made it possible to cover 20.4% of the demand of
the Balearic Islands' electricity system.
> The annual demand for electrical energy in the
whole of the non-peninsular systems ended 2018
with a variation of -0.3% compared to the previous
year. By system, the Balearic Islands increased by
0.6%, 2.2 % in Ceuta and 1.2% in Melilla, whereas
the Canary Islands fell by 1.0 %.
> For power installed in the non-peninsular systems,
the most notable is wind technology which doubled
its power with respect to 2017. The rest of the
technologies did not have power variations or the
power variations have not been very significant.
In June, the expansion of the geotechnical campaign
ended, which began in November 2017 with a budget
of 1.5 million euros, in which exploration probes,
sampling, geophysics and tests were performed,
in order to learn in detail the geological and
geotechnical characteristics of the rocky massif.
Due to this work, the best possible information was
obtained on materials with which the underground
hydroelectric power plant will be constructed.
In August, the design and engineering of the
construction project was awarded, as well as
technical assistance and project management, for
UTE Soria-Chira Engineering, a consortium formed
by AIN Active, SLU and Amberg Engineering AG,
amounting to approximately 20 million euros. The
contract covers design to preparation of technical
specifications for procurement of all tender
packages, as well as technical assistance and project
management until it is placed into service. This is
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133
one of the largest engineering services contracts
signed in the Canary Islands, which consolidates
a committed investment of 39.4 million euros
in the project, demonstrating strong commitment.
With regard to transmission, the process is in
the final phase of environmental assessment.
Throughout this process, improvements have
been identified, the result of the above-mentioned
geological-geotechnical studies and agreements
with authorities, which have been implemented in
the project. After these changes, and subsequent
to mandatory public information, we can begin to
obtain relevant authorizations to begin construction.
With regard to the possible project of implementing
a pumped-storage hydroelectric plant in Tenerife,
during 2018 the core projects have been developed
with the best options identified. Work is underway
to clarify aspects related to the implementation
that will allow for final proposal.
Telecommunications business
The Group's telecommunications business has
primarily been developed in Spain, through the
subsidiary, Red Eléctrica Infraestructuras de
Telecomunicación, S.A.U. (hereinafter REINTEL).
REINTEL is the company in the group that has as its
objective the development of operation of networks
and provision of telecommunications services for
third parties.
REINTEL is positioning itself as a neutral provider
of telecommunications infrastructure, its main
activity being the rental of dark fiber and the
infrastructure associated with that network.
REINTEL operates a fibre-optic network of more
than 33,000 km of cables deployed on the electricity
transmission network and the railway network,
ensuring transparent access and equal conditions
to customers and agents of the telecommunications
sector.
REINTEL is the successful tenderer for a period of
20 years for right of use and operation of the fibre
optic network, not dedicated to the railway business
and other associated elements, owned by Adif - High
Speed.
International business
The international business of the Group has
developed through its subsidiary, Red Eléctrica
Internacional, S.A.U (hereinafter REI), which has a
direct share of 100% in the capital of the Peruvian
companies, REA and REDESUR. In turn, REDESUR
owns 100% of TESUR, TESUR 2, TESUR 3 and
TESUR 4.
Additionally, REI has shareholdings in Chilean
companies, RECH (100%) and through this owns
69.9% of REDENOR, 100% of REDENOR 2 and
50% of TEN.
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Activity in Peru
During 2018, excellence in the management
of REDESUR and TESUR (companies that manage
the infrastructure of electricity transmission in
Peru) has made it possible to offer services for the
transmission of energy with maximum availability
and support of the development of their area
of activity.
For REDESUR, the consolidation of the Integrated
Management System (SIG), has made it possible
to continue providing excellent standards of
quality in the operation, achieving a rate of network
availability in 2018 of 99.88 %, which exceeds the
average value for the last 5 years (99.83 %).
TESUR is positioned in the first years of operation
of the license of its facilities, after startup of
commercial operation in mid 2014. The rate of
network availability of TESUR in 2018 was 99.87 %
(99.85 % in 2017).
TESUR 2, the subsidiary company for the 220
kV transmission line, Azangaro-Juliaca-Puno in
southern Peru, has successfully completed the
project and the period of experimental operation,
having initiated the commercial operation phase on
8 June 2018 for a period of 30 years. In the first six
months of operation, the rate of availability of their
facilities was 99.92 %.
REA performs maintenance services for the
subsidiaries in operation, REDESUR, TESUR and
TESUR 2. Also, in 2018, REA has performed all tasks
for the development and implementation of special
projects undertaken by REDESUR and has executed
work for TESUR, TESUR 2, TESUR 3 and TESUR 4.
Additionally, REA performs maintenance of facilities
and work supervision for other clients, which
establishes it, in southern Peru, as one of the
companies of reference in the provision of these
services.
The new projects, awarded at the end of 2015
and 2017, corresponding to TESUR 3 and TESUR 4,
are in the construction period, in various phases
of execution. The projects comprise an expected
amount of investment of 95 million United States
dollars. They will be finalised and will come into
operation in the next few years.
On 14 December 2018, REI signed a contract for the
sale of shares, with Cajamarca Invest, S.L. and Bow
Power, S.L. in their capacity as sellers, to acquire
100 % of the capital of Concesionaria Linea de
Transmision CCNMC S.A.C, subsidiary company of the
220kV transmission line Carhuaquero - Cajamarca
North- Moyobamba- Caclic and associated
substations, in Peru. The operation includes the
acquisition of 366 km of 220 kV circuit, 6 km of
138 kV circuit and 4 substations. These assets
have been operating since the end of 2017, on the
basis of a license for 30 years with the Peruvian
State. The closing of the transaction, scheduled
for the first quarter of 2019, is conditioned on the
compliance with the various suspensive conditions
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related mostly to obtaining certificates, consent
and authorizations as well as that there are not any
non-compliances in effect. The initial price agreed
upon was 34.5 million United States dollars, subject
to adjustments.
With the acquisition of these assets, REI will manage
a network of 1,686 km of circuit in Peru that adds
to the 1,729 km that it manages in Chile and that
makes up the facilities that Red Eléctrica manages
in the area, positioning itself preferentially for future
interconnections between Chile - Peru and Peru -
Ecuador.
Activity in Chile
The RECH company, constituted by REI in
November 2015, has as its main activity the
acquisition, possession, administration, direction
and management of the shares that the Group will
maintain in Chile. REI has 100% of the share capital
of the company. RECH, in turn, has 50% share in TEN,
the other being 50% of the Chilean company, Engie
Energia Chile, a subsidiary of Grupo ENGIE. It also
has 70% of REDENOR and 100% of REDENOR 2.
At the end of 2017, commercial operation of the 500
kV power line, 600 kilometres long, was placed into
service, which connects the Central Interconnected
System (SIC) with the Great Northern Interconnected
System (SING), which Grupo TEN has developed,
having operated, without incident, throughout 2018,
the first year of service.
In 2018, REDENOR began the construction work of
the project that was awarded in 2017. This project
includes the construction and subsequent operation
of 258 kilometres of 220 kV lines and a substation
in northern Chile.
In September 2018, REDENOR 2 acquired the assets
of the company, Centinela Transmision, owner of
Minera Centinela for a total of $117.2 million dollars,
including operating assets and projects under
construction in the Antofagasta Region, northern
Chile. It consists of three 220 kV lines with a total
of 265 km circuit. The purchase also includes the
expansion work of these facilities that are contained
in the Expansion Plan of the Transmission System,
for 2016-2017, which are in execution.
2
Business performance
2.1. KEY FINANCIAL INDICATORS
Revenue for 2018 amounted to EUR 1,948.5 million,
compared to EUR 1,941.2 million the previous
year, an increase of 0.4 %. This figure includes the
remuneration of the transmission business in
Spain. It also includes the revenue associated with
the external telecommunications business, which
amounted to EUR 88.7 million, regulated revenues
relating to system operation, which amounted to
EUR 65.8 million, and the revenues arising from the
foreign transmission business, which amounted
to EUR 22.9 million.
The profits of the Chilean company TEN, which
in 2018 amounted to EUR 7.0 million, are included
in gross operating profit as “Results of investees”.
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Gross operating profit (EBITDA) amounts to EUR
1,539.7 million, up 1.3% year-on-year.
The trend in operating expenses is as follows:
Net finance costs were EUR -133.5 million, compared
with EUR -142.6 million the previous year. The main
reason for this improvement is reduced interest
expense, thanks to the decline in borrowing costs.
> Supplies and other operating expenses are down
8.3 % compared to the previous year, reflecting
the efforts Red Eléctrica has put into improving
efficiency, especially in maintenance expense, and
a lower accident rate (in the last quarter of 2017
there were numerous cases of weather-related
damage, whereas 2018 had fewer incidents).
Expenses are also down due to the completion
of TESUR 2.
> The end-of-year headcount is 1,799, while the
average headcount is 1,805.
Personnel expenses are up 2.1 % compared to the
previous year. This increase is partly explained by
the 2.1 % increase in average wage costs and a 0.2 %
increase in the Group’s average workforce compared
to the same period of last year.
Net operating profit (EBIT) is EUR 1,069.8 million, up
3.7 % on the previous year. This increase reflects the
decline in depreciation and amortisation expense,
mainly due to adjustments to the estimated useful
life of some transmission assets.
Lastly, Profit for the year came to EUR 704.6 million,
5.2 % more than the previous year. The effective tax
rate is 24.8 %, in line with the 25 % defined in Law
27/2014 of 27 November on Corporate Income Tax.
The Investments made by the Group during 2018
reached EUR 546.6 million, compared to 510.2 the
previous year. Of this total, EUR 378.2 million were
used to develop the Spanish transmission network.
The investment in the international business
includes EUR 101.2 million for the acquisition of
Centinela Transmisión, which has been renamed Red
Eléctrica del Norte 2 S.A. (REDENOR 2).
Dividends paid out of the previous year’s profit
totalled EUR 495.1 million, an increase of 6.9% on the
previous year, as envisaged in the 2014-19 Strategic
Plan.
At the end of 2018, 100 % of the Group’s interest-
bearing debt is non-current; 90 % is at a fixed rate
of interest and the remaining 10 % at a floating rate.
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Financial indicators
(figures in millions of euros)
Revenue
Gross operating profit (EBITDA)
Operating profit (EBIT)
Net profit
ROE (After-tax earnings / Equity)
Cash flows from operating activities
Dividends paid
Equity
Gearing (Net interest-bearing debt / Net interest-bearing debt + Equity)
Investments
Total assets
Debt service coverage ratio (Net debt / EBITDA)
2017
1,941.2
1,519.5
1,031.4
669.8
21.7%
1,153.3
463.2
3,093.4
60.8 %
510.2
10,917.9
3.2
2018
1,948.5
1,539.7
1,069.8
704.5
21.0 %
1,100.0
495.1
3,361.4
58.2 %
546.6
11,262.1
3.0
%
0.4 %
1.3 %
3.7 %
5.2 %
-3.2 %
-4.6 %
7.0 %
8.7 %
-4.2 %
7.1 %
3.2 %
-3.4 %
The average cost of the Group’s interest-bearing
debt in 2018 was 2.42 %, compared to 2.78 % the
previous year. The average balance of Gross debt
was EUR 5,499 million, compared with EUR 5,123
million the previous year.
Lastly, the Red Eléctrica Group’s Equity amounted
to EUR 3,361.4 million, which is 8.7 % more than at the
end of 2017. This growth is attributable mainly to the
profit for the period less the dividends paid.
3
Liquidity and capital
The Red Eléctrica Group’s liquidity policy has been
designed to ensure payment obligations are met by
diversifying the coverage of financing requirements
and the timing of debt maturities.
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138
The Group’s liquidity position is based essentially
on robust cash flow generation, primarily through
regulated activities. This, coupled with appropriate
management of collection and payment periods
and the existing financial capacity, thanks to the
availability of short- and long-term credit facilities,
allows prudent liquidity risk management.
The undrawn balance on credit facilities at 31
December 2018 is EUR 1,826 million.
The average maturity of the debt drawn down
at the end of the year is 5.3 years.
The Group’s financial strategy has aimed to reflect
the nature of its businesses, at all times adhering
to legislation in force. The Group’s activities are very
capital-intensive and its investments mature over
long periods. Moreover, the return on these assets is
earned over long periods, which is why the interest-
bearing debt is primarily long-term and fixed-rate.
The Group’s strategic commitment to long-term,
enterprise-wide sustainability is also present in the
form of responsible, transparent management that
promotes sustainable funding sources.
With regard to capital structure, the Group follows a
policy of optimising the cost of capital while ensuring
a sound financial position, balancing value creation
for shareholders with competitive financing costs.
Capital is monitored periodically through the gearing
ratio, which in 2017 stood at 60.8 %, compared
to 58.2 % in 2018. This ratio is calculated as net
interest-bearing debt divided by equity plus net
interest-bearing debt.
Structure of interest-bearing debt:
Fixed vs. Floating
%
10
90
90 FL OATING RATE
10
FIXED RATE
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To maintain and adjust the capital structure, the
Company can adjust the amount of dividends paid to
shareholders, return capital to shareholders or issue
new shares.
4
Risk management
The Group has implemented an Integrated Risk
Management System, aimed at ensuring that any
risks which might affect the Group’s strategies and
objectives are systematically identified, analysed,
assessed, managed and controlled, according to
uniform criteria and within the established risk levels,
so that the Group’s strategies and objectives can
be accomplished. The Integrated Risk Management
Policy was approved by the board of directors. The
Integrated Risk Management System, the Policy
and the General Procedure are based on the COSO II
(Committee of Sponsoring Organizations of the
Treadway Commission) Enterprise Risk Management
Integrated Framework).
The main risks to which the Group is exposed and
which might affect the achievement of its objectives
are regulatory risks, including tax risks (inasmuch
as the Group’s main businesses are regulated),
operating risks (mainly from the activities for the
electric grid system service), financial risks and
environmental risks.
The Integrated Risk Management Policy also includes
financial risk management, details of which are
provided in note 16 to the consolidated annual
financial statements. Detailed information on the
Group’s current and possible future risks is provided
in the company’s Sustainability Report.
5
Information on the average
payment period to suppliers.
Third additional disposition,
“Duty of disclosure”,
of Law 15/2010 of 5 July
Based on the parameters set in the Spanish
Accounting and Auditing Institute (ICAC) resolution
of 29 January 2016 regarding the information that
must be disclosed in the notes to annual accounts
on the average payment periods to suppliers in
commercial transactions, the average supplier
payment period in the case of Spanish Group
companies was 48 days at the 2018 year-end.
The disclosures required by this Resolution are
outlined in note 20 to the Group’s consolidated
financial statements for 2018.
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6
Significant events occurring
after the reporting period
On 12 February 2019, Abertis Infraestructuras, S.A.
and Red Eléctrica Corporación, S.A. agreed on the
acquisition by the latter of 89.68 % of the shares held
by Abertis in Hispasat, S.A. for EUR 949 million.
In accordance with applicable law, the parties will
apply for the necessary authorisations, success in
obtaining these authorisations being a condition
precedent for the effectiveness of the contract
they have entered into. Once these conditions are
met, payment will be made and the integration of
the acquiree in the Group’s financial statements is
expected to be effective from 1 January 2019.
Hispasat is the largest satellite infrastructure
operator in Spain and Portugal in terms of business
volume, the fourth largest in Latin America and the
eighth largest in the world.
7
Outlook
emphasis on widening its business base as an
alternative means of growth.
Implementation of the strategy, based on
excellence, innovation and personal development,
will allow the Group to maintain its current
leadership in terms of the reliability and security of
the electricity systems it operates and the excellent
standards in other activities.
The Group will uphold its commitment to maximise
value for its shareholders, offering an attractive
return in the form of dividends and generating value
through efficient management of its activities,
analysing alternatives for expanding its business
base, maintaining a robust capital structure and
working to guarantee supply with a maximum level
of quality.
The Group will therefore continue to seek the
generation of long-term value, creating lasting,
competitive advantages and improving our corporate
reputation, whilst focusing on providing optimum
service to society - the differentiating feature of the
Group’s management.
Outlook for regulated activities in Spain
The progress of the regulated activities is driven
mainly by the following lines of action:
The Group will keep working towards achieving
the objectives set out in the Strategic Plan. To
that end, it will continue in its role of Spanish TSO,
while also reinforcing its efficiency criteria so as
to adapt to the new, more stringent regulatory and
remuneration environment, and placing greater
> Propelling the energy transition, market integration
and the sustainability of the electricity system,
which will require large investments in the
transmission network over the next few years, with
a major technological component. The investment
plan will be focused on transmission, the
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integration of renewable energy sources and the
development of interconnections, both with France
and Portugal and with the island systems.
continue developing its business plan and operating
the investments at the request of customers, which
will generate new revenue for the company.
> The search for efficiency, enabling the Group
to maintain its position as an international
benchmark. Accordingly, the Company has
reviewed its main operating processes, promoting
a streamlined and flexible organisation that
optimises the Company’s returns and the
efficiency of the mainland and non-mainland
electricity systems.
> Implementation of new regulated activities,
such as storage of energy in the island systems
as a tool to guarantee the security of the isolated
non-mainland electricity systems.
The Group will apply a financial policy adapted to
the new remuneration model for the transmission
activity, ensuring that interest-bearing debt is
diversified and its liquidity position can comfortably
cover upcoming maturities, aiming for the most
flexible financial structure possible.
Foreseeable development
of telecommunication activities
The telecommunications activity developed through
REINTEL, as a supplier of telecommunication
infrastructure, will focus on the market for
fibre backbone networks, which assumes the
provision of services for renting dark fibre for
infrastructure associated with the agents of the
telecommunications sector. To do this, REINTEL will
Additionally, REINTEL will continue to move forward
in the interconnection of electrical fibre and railway
networks in order to offer new solutions to its
customers such as new redundancies and new
access points. All this will be accomplished while
maintaining a high level of quality of service offered
to its customers.
Outlook for the international business
The Group will continue to focus on strengthening
its performance in the countries where it operates,
specifically in Peru and Chile.
Furthermore, as a means of broadening the business
base, the Company will seek to execute projects or
acquisitions which, fulfilling a series of geographic,
strategic and financial criteria, boost the Company’s
international presence.
8
Innovation
During 2018, the implementation of the Innovation
Strategy of the Red Eléctrica Group has deepened,
unfolding through the vectors of digitisation, people,
sustainability and social and technology innovation,
and whose purpose is to promote innovation as a
lever for growth, cultural change and sustainability
of the Group.
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The third innovation contest was held, the aim of
which was to detect ideas of possible interest and
promote a culture of innovation. At this edition,
50 proposals have been submitted, compared
to 28 last year. The winners have been:
Additionally, two new challenges for 2019 have been
launched: “Improving knowledge of the physical state
of transmission infrastructure of electrical energy”
and “Technologies and digital services for energy
transition.”
• ALBOS - submarine pump storage.
• Predictive analytics in transport projects.
• Implementation of polymeric singular supports.
Throughout 2018, there has been development, with
the collaboration of InnoEnergy, of the Grid2030
Program, with the objective of detecting disruptive
ideas of possible future interest for the Group and
financing their transition to solutions that are close
to commercial use. In this first call, the following
projects have been chosen:
> FST (Flexible Smart Transformer): design,
development and testing of an innovative and
disruptive power electronic device based on
semiconductors made of silicon carbide, with
multiple possible applications such as transformers
and converters for alternating and direct current,
which provide greater control and new features.
> RITSE (Reduced Inertia Transient Stability
Enhancement): improves the flexibility of the
electrical system using two complementary and
coordinated tools to improve transient stability
against disturbances. One acts at the global
level to eliminate oscillations, using international
connections in direct current; and another at the
local level, using batteries that keep the frequency
and voltage emulating a synchronous generator.
At the international level, continued dedication to the
Committee on Research, Development and Innovation
of ENTSO-E (European Network of TSOs) and its
working groups. Additionally, continued collaboration
with the European Technology & Innovation Platforms
(ETIP) in electricity networks within the SET Plan
of the EU, in which Red Eléctrica is a member of the
Governing Council as part of the representation of the
European TSOs.
With regard to the projects financed by European
programs, in 2018 BEST PATHS (BEyond the State-
of-the-art technologies for re-Powering Ac corridors
& multi-Terminal HVDC Systems) was completed,
coordinated by REE and involving 39 partners
including universities, technological centres,
industry, electric utilities and TSOs. The project's
main objective was to overcome technical barriers
that the current electricity network could encounter
upon integrating massive amounts of energy from
renewable sources. Additionally, continuing work on
the MIGRATE project, REE participates as a partner
leading a work package, which the objective is to
improve the understanding of the behaviour of the
electrical system with high penetration of devices
based on power electronics (generators, loads,
HVDC links, FACTS...). Another ongoing project with
the outstanding participation of Red Eléctrica is
OSMOSE, where flexibility mechanisms (mainly based
on storage) will be studied for improvement of the
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operation of the electrical system and the integration
of renewable energies. Finally, the Coordinet project
has begun, a European project for H2020 coordinated
by Endesa Distribucion in the area of coordination
between TSOs and DSOs, and in which REE will lead
a demonstration on a large scale.
With regard to national projects, AMCOS-Stability
FACTS has ended, for the design of a prototype
to improve stability of the frequency and voltage
in small isolated systems.
Throughout 2018, work has continued on our own
R+D+i projects, among which the CECOVEL project
and the ALMACENA Project are notable.
The CECOVEL (Control Center for the Electric Vehicle)
project is an initiative of REE to support electric
mobility in the current scenario of energy transition.
Operational since January 2017, CECOVEL is a
collaborative project with the participation of the
main operators in mobility and allows for tracking
of the energy demand for recharging electric
vehicles, creating awareness for new consumers
of electrical energy.
The ALMACENA Project has allowed for deepening
in future applications of new storage technologies
in the field of integration of renewables and the
improvement of operational services of the system
due to electrochemical storage equipment installed
in Carmona (Seville). During 2018, development of
the models and studies was completed in addition
to continuing with the operation and maintenance,
which is expected to continue until 2020. In
addition, there has been a conference for feedback
of experiences of the project that has allowed for
internal transfer and communication of the results
obtained.
During 2018, a total of 10 projects were completed,
in the field of operation of the electrical system and
in construction and maintenance of installations as
well as environmental projects.
Specifically, projects dedicated to the environment,
such as bio-transport, have been completed. The
bio-transport project has analyzed and identified the
effectiveness of the base of the power transmission
lines as stepping-stones for the fauna of the
various natural and protected spaces in the Iberian
Peninsula, and the Balearic and Canary Islands. And
in a future second phase for 2019, performance will
be addressed, implementing appropriate measures
to check on a large scale the effect of the electrical
supports. In this way, with this new mission of
the electricity infrastructure, we will contribute
to performing ecosystem services, adding value
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9
Own shares
In order to provide investors with adequate levels
of liquidity, in 2018 the Company acquired 2,582,384
shares with a total par value of EUR 1.3 million and
a cash value of EUR 44.6 million. A total of 2,998,028
shares were sold, with an overall par value of EUR 1.5
million and a cash value of EUR 55.1 million.
At 31 December 2018, the Company held 1,198,049
own shares, representing 0.22% of its share capital.
These shares had a par value of EUR 0.50 each,
and an overall par value of EUR 0.6 million and an
acquisition price of EUR 17.78 (see note 12 to the
annual financial statements) and their market value
totalled EUR 23.4 million.
The Parent has complied with the requirements
of article 509 of the Spanish Companies Act, which
provides that the par value of acquired shares listed
on official secondary markets, together with those
already held by the Parent and its subsidiaries,
must not exceed 10% of the share capital. The Group
subsidiaries do not hold own shares or shares in the
Parent.
to natural capital and resulting in improvement
for society as a whole. This “green” focus on the
use of infrastructure, represents a radical shift in
thinking in industrial exploitation separated from
nature, integrating biodiversity in the everyday life
of the world's population, and it fits perfectly with
the policies of the European Union in relation to the
protection of the environment.
In summary, during 2018, 86 actions of innovation
were worked on, having dedicated a total of 10.2
million euros.
RDI expenditure
and number of projects
14.2
62
50
7.6
76
85
86
10.2
9.3
8.6
66
9.6
66
8.3
2012
2013
2014
2015
2016
2017
2018
RDI expenditure (EURm)
No. of projects
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145
10
Other relevant information
10.1. STOCK MARKET PERFORMANCE AND
SHAREHOLDER RETURNS
All of the shares in REC, the Group’s listed company,
are quoted on the four Spanish stock exchanges and
are traded through the Spanish automated quotation
system.
REC also forms part of the IBEX 35 index, of which
it represented 2.37 % at the end of 2018.
At 31 December 2018, the share capital of REC
amounted to EUR 270.5 million and was represented
by 541,080,000 shares with a par value of EUR 0.50
each, subscribed and fully paid.
During the year REC’s free float was 80 %.
At the date of the last shareholders’ meeting (22
March 2018), the free float comprised 432,864,000
shares, of which an estimated 12 % is held by non-
controlling shareholders, 6 % by Spanish institutional
investors and 82 % by foreign institutional investors,
primarily in the United Kingdom and the United
States.
Shareholding structure
%
20
80
20 S TRATEGIC INVESTORS
80 FREE-FLOAT
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Distribution of the free float
%
6
12
82
82 F OREIGN INSTITUTIONAL
06 SPANISH INSTITUTIONAL
12 MINORITY INTERESTS
2018 marked a turning point in share price
performance, as the upward trend seen in previous
years was reversed. The main stock indices showed
significant falls, in the region of -6 % in the United
States and -15 % in Europe and Asia, most notably
the -25 % drop in the Shanghai Composite.
These figures reflect the worst equity market
performance since the financial crisis. Trade tensions,
growing doubts about economic growth, institutional
challenges (especially in Europe) and the difficulties
facing the emerging economies, all these against the
background of the withdrawal of monetary stimulus,
have weighed heavily on the markets.
REC’s shares gained 4.2 % over the course of 2018,
outperforming most regulated European energy
companies. The expectation of a major investment
plan in the second regulatory period to facilitate the
energy transition, the progress made in setting the
regulatory parameters for the next regulatory period
and the company’s shareholder remuneration policy
drew positive market reactions.
The company’s market capitalisation at the end
of 2018 was EUR 10,548 million.
In 2018 as a whole, a total of 493.6 million shares
were traded in regulated secondary markets, which
is 0.9 times the company’s shares. Cash trading
amounted to 8,735.3 million euros.
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10.4. EXCELLENCE
In 1999, the Company adopted the EFQM (European
Foundation for Quality Management) model as a
tool for continuous improvement of its management
and results. Since 2001, external assessments
have been carried out every two years to identify
areas for improvement, which are articulated
through excellence plans, and to measure progress
in management excellence. In 2018, following
the external assessment carried out in 2017, the
Company renewed its Recognised for Excellence
500+ certification, with a score of more than 700
points. The assessment resulted in the launch of the
2018-2019 Excellence Plan, which includes a total
of 49 improvement actions.
In 2018 the Company’s improvement efforts were
recognised by the Excellence in Management Club,
which represents the EFQM in Spain, with the award
of the title of European Excellence Ambassador.
Since 2000, Red Eléctrica has also had a certified
quality system, covering all the organisation’s
processes, based on the international UNE-EN-
ISO9001 standard. In 2018 this system was certified
through an external audit, which has been carried
out comprehensively on all the certified corporate
management systems since 2012.
10.2. DIVIDEND POLICY
The dividends paid in 2018 amounted to EUR 495.1
million, 7 % more than in 2017.
The dividend for 2018 proposed by the board
of directors and awaiting approval by the General
Shareholders’ Meeting is EUR 0.9831 per share,
an increase of 7 % compared to the previous year.
This confirms the dividend growth target contained
in the Group’s 2014-2019 Strategic Plan, which
anticipated growth of around 7 %, comparing the
average annual rate over the period with the total
dividend approved for 2014.
The dividend will be paid in two instalments: an
interim dividend in January and a supplementary
dividend halfway through the year, following approval
of the annual accounts by the shareholders at their
general meeting.
10.3. CREDIT RATING
On 5 June 2018, the rating agency Standard & Poor’s
issued a new report on Red Eléctrica, maintaining its
rating and outlook. Following this announcement, the
Company and its subsidiary REE maintain long-term
ratings of A- and short-term ratings of A-2, with
a stable outlook.
On 18 September 2018, the rating agency
Fitch Ratings granted the Company a long-term
rating of ‘A’, with a stable outlook. Following this
announcement, REC and REE maintain long-term
ratings of ‘A’ and short-term ratings of ‘F1’, with
a stable outlook.
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11
Statement of non-financial
information in compliance with
Law 11/2018 of 28 December
11.1. DESCRIPTION OF THE GROUP’S
BUSINESS MODEL AND SUSTAINABILITY
PRIORITIES
The Red Eléctrica Group has made a strategic
commitment to long-term, enterprise-wide
sustainability. In 2017, the board of directors
approved the Red Eléctrica Group’s 2030
Sustainability Commitment. With this commitment,
the Group aims to achieve long-term continuity
through a business model that is capable of
responding to the challenges of the future and
putting the principles set out in the Corporate
Responsibility Policy into practice.
The commitment defines four sustainability
priorities, identified as the drivers for responding to
the challenges facing the Group and for materialising
existing opportunities.
> Decarbonisation of the economy. The Group
undertakes to be a proactive agent in the energy
transition towards an emissions-free model, based
on the electrification of the economy and the
efficient integration of renewable energies through
a robust and better-connected network and the
development and operation of energy storage
systems.
> Responsible value chain. The Group undertakes
to extend its responsibility commitment to all the
links of the value chain, from its employees to its
suppliers and customers, by forging alliances and
underpinned by the model of good governance and
integrity.
> Contribution to the development of the surrounding
community. The Group undertakes to contribute
to economic, environmental and social progress
in the surrounding area, by providing an essential
service in a secure and efficient way, fostering
environmental conservation, enhancing people’s
quality of life and social welfare and involving
communities in the development of our activities
so as to generate mutual rewards that are tangible
to that community.
> Anticipation and action for change. The Group
undertakes to foster a corporate culture of
innovation and flexibility that enables it to identify
growth opportunities and tackle future challenges,
by staying ahead of—and adapting to—global
trends and to the regulatory environment emerging
from the new energy model.
Red Eléctrica belongs to the most reputable
sustainability indices, in recognition of its excellent
track record in this connection and its firm
commitment to transparency in its reporting to
third parties. The company is a component of the
benchmark indices: Dow Jones Sustainability Index
(DJSI), FTSE4Good, CDP, Euronext Vigeo Eiris, Ethibel
and MSCI.
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In 2018, to fulfil its responsibilities and
acknowledging the strategic importance of
sustainability for the Red Eléctrica Group, the board
of directors created the Sustainability Committee.
This committee’s task is to supervise and drive
actions relating to the environment and the fight
against climate change; ethical behaviour and
the values associated with the development of
a corporate culture that will sustain the Group’s
success and business model; and the social impact
on the communities affected by Red Eléctrica’s
activity.
Creating this committee is a voluntary step, not
a legal requirement, and is consistent with the
strategic significance of sustainability for the Red
Eléctrica Group and the demands of the Group’s
stakeholders.
Materiality analysis
The Red Eléctrica Group’s 2030 Sustainability
Commitment was designed based on the results
of the materiality analysis carried out in 2016.
In accordance with the Global Reporting Initiative
(GRI) standards for the preparation of sustainability
reports, this report is centred on the issues identified
as material in that analysis.
> 1. Issue identification. A total of 24 material issues
were identified in the analysis of the sustainability
context. They include: trend analysis, industry
benchmarking, strategic interviews with the senior
management team and external stakeholders,
and analysis of internal information.
M A T
E R I
I
A L
P R I O R I
/
S S U E
T
I
S A T
1
2
4
9
10
3
5
6
14
17
11
e
c
n
a
t
r
o
p
m
i
l
a
n
r
e
t
x
E
7
8
12
19
20
21
22
13
15
18
16
24
26
25
27
23
28
I n t e r n a l i m p o r t a n c e
149
I O N / M A T R I
X
Prioritisation of issues
by importance
CRITICAL
1
2
3
4
5
6
7
8
Innovation
Regulatory environment
Service quality and safety
Alliances with stakeholders
Financial strength
Internationalisation and diversification
Energy transition: Integration of renewables
Energy transition: Interconnection capacity
ALTA
9
Integrated risk management
10 Social contribution to the region
11 People’s flexibility and adaptation to change
12 Climate change: Carbon footprint and
adaptation
13 Energy transition: Demand management
14 Safety, health and well-being
15 Corporate governance
16 Overall safety of plant and equipment
17 Energy transition: Energy storage
18 Digital transformation
19 Biodiversity and natural capital
20 Transparency
21
Integration of plant and equipment in the
environment
22 Energy transition: integration of electric
vehicles
Integrity
23
MEDIA
Anticipation
and action
for change
Decarbonisation
of the
economy
Responsible
value chain
Contribution to
the development
of the surrounding
community
24 Social identity
25 Responsibility in the supply chain
26 Customer orientation
27 Employer brand
28 Human rights
Note: The Energy transition issue contains five sub-issues,
which means that the chart includes a total of 28 items.
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150
> 2. Issue prioritisation. Internal and external
assessment of the criticality of the identified
issues for the achievement of long-term objectives
and thus for long-term continuity. The prioritisation
matrix provides a double analysis of the issues,
revealing both their internal importance, assigned
by the top-level managers who took part in the
analysis of the sustainability context, and their
external importance, based on the value assigned
by the external stakeholders who were consulted.
> 3. Issue evaluation and validation. Cross-
organisational analysis of the results of the issue
identification and issue prioritisation phases. A
total of 30 different areas of the Group took part
in this phase. They evaluated the results of the
previous phases and identified the opportunities
associated with each material issue, as well as its
impact on the 2014-2019 Strategic Plan and any
links with the Sustainable Development Goals.
In 2019, the materiality analysis will be reviewed
to ensure that the 2030 Sustainability Commitment
and the multi-year deployment plan are aligned
with stakeholders’ current expectations, so as to
focus the Group’s efforts on responding to the main
sustainability challenges and trends.
11.2. INFORMATION REGARDING
ENVIRONMENTAL ISSUES
The commitment to the environment of the
Group comes from management and is based
on environmental policy, which includes explicit
commitment to prevention of pollution and
precautionary principles. To bring about continuous
improvement of environmental performance,
Red Eléctrica has implemented an Environmental
Management System, certified according to ISO
14001 and EMAS standards. The involvement of all
organisational units and the commitment of all the
people who work in the Group are critical for the
development of this system.
It should be noted that in fiscal year 2018 for
Red Eléctrica de España, the amount of recurring
costs for the protection and improvement of the
environment amounted to 23.5 million euros, of
which 1.4 million was dedicated to the prevention
of pollution. The amount allocated to environmental
aspects associated with investment projects was
1.16 million euros.
The environmental commitment is articulated in
three main vectors: Environmental management
and integration of installations into the environment,
biodiversity and climate change.
a) Environmental management and integration
of facilities into the environment
The main route to make facilities compatible with
the environment is the selection of routes and
sites so that the environmental impact is as low as
possible. Additionally, the application of preventive
and corrective measures and follow-up of strict
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environmental criteria in all phases, make it possible
for potential effects on the environment to be
reduced significantly. The best tool to ensure this
process is an Environmental Impact Assessment,
which is required for most Red Eléctrica projects.
Among the measures applied, those related to
the prevention of pollution are most notable. In
this sense, the main activities are those designed
to minimise the risk of soil and groundwater
contamination from leaks and spills of hydrocarbons.
Also noteworthy are measures aimed at the
mitigation of noise generated in electrical
substations and to reducing light pollution (in this
latter aspect it should be mentioned that in the past
two years, we have worked on the implementation
of measures for the night shutdown of installations
limiting light pollution as much as possible; these
measures are implemented already in 72 % of the
substations).
Also, activities and projects aimed at the integration
of the landscape of the facilities and the protection
of the socio-economic environment are very
relevant, mainly those related to conservation
of archaeological heritage.
Finally, it is necessary to highlight the importance
for Red Eléctrica, the work and significant progress in
the sustainable use of resources and for this reason,
in 2018, we have adhered to the Pact for a Circular
Economy led by the Ministry for Ecological Transition.
In addition, there are various projects underway
with the objective of minimising the quantity and
hazardousness of waste generated as a result of
our activities, among which the "Residue 0” project
stands out whose main objective is that no waste
from Red Eléctrica enters the landfill as its final
destination. In 2019, and to provide a response to
the commitment made in the pact, we are going
to design a roadmap that will mark the guidelines
to becoming a group of companies that is 100 %
circular by 2030. It will address issues related to the
use and source of raw materials, useful life extension
of materials and equipment, waste management and
minimisation of water use.
b) Climate change
The Red Eléctrica Group, as a central actor in the
electricity system, is a key agent in the change in
the energy model, whose main elements must be:
the electrification of the economy, the maximum
integration of renewables in the energy mix and
efficiency, always ensuring the safety of the supply.
Conscious of our relevant role, in 2011 we decided
to formalise a voluntary commitment in the fight
against climate change, which materialised into
a Climate Change Action Plan, which the last
version was approved in 2015.
This plan includes the main objectives for the
Horizons 2020 and 2030, as well as the main
actions for achievement.
In 2018, with the purpose of increasing climate
ambition, an update was performed of the emission
reduction objectives. As a general objective, Red
Eléctrica is committed to reducing emissions of
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152
Scope 1 and 2 per MWh transported by 40% in 2030,
with respect to 2015. This objective was approved
by the Science Based Targets (SBTi) initiative and is
equivalent to a net reduction of emissions of Scope 1
and 2 of 30 % in 2030.
∂ Progress in the incorporation of the criteria
of efficiency and saving of materials in the design
of facilities.
∂ Emissions compensation, mainly through the Red
Eléctrica forest project.
The plan covers the following lines of action:
> Positioning and disclosure: dissemination of
> Contribution to an energy model low in emissions,
deploying the necessary actions to achieve European
objectives for 2020 and 2030:
∂ Development of a robust and interconnected
transmission network.
∂ Maximum integration of renewables by optimising
the operation of the electricity system and the
momentum of storage systems.
∂ Progress in the efficient management of the
network by applying new demand management
measures, incorporating new elements such as
electric vehicles and momentum of technological
innovation.
> Reduction of greenhouse gas emissions arising
from the activities. The main measures are
developed in the following areas of action:
∂ Reduction of emissions of SF₆.
∂ Reducing the consumption of electrical energy
(efficiency measures) and associated emissions
(acquisition of 100% renewable energy).
∂ Sustainable mobility: reduction of emissions
associated with the vehicles of the Group, business
travel and the movement of employees.
∂ Involvement of the supply chain in the
commitments of the Group.
knowledge of the electricity system and demand
management measures as well as the promotion
of other energy efficiency measures.
> Adaptation: Red Eléctrica identifies and evaluates
on a regular basis the risks and opportunities
arising from climate change and applies various
measures defined in the framework of this analysis.
In 2018, work began on the implementation of the
recommendations of the Task Force on Climate-
related Financial Disclosures, which implies a
thorough review of the assessment incorporating
the consideration of different scenarios and
intensifying the economic quantification of risks
and opportunities identified.
c) Protection of biodiversity
The protection and conservation of biodiversity
has always been a priority in environmental
management of the Red Eléctrica Group. The Group
has a specific commitment for management of
biodiversity (revised in 2017) and a multi-year Action
Plan (2017-2021), which lists the main actions to be
developed in this period.
Biodiversity management is brought about by taking
into account the hierarchy of impact mitigation.
Avoiding protected areas or areas rich in biodiversity
is a primary criterion in defining the location of
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only 15 % of the lines and 5.9 % of the substations
are located in protected areas). In addition, the
application of preventive and corrective measures,
including the restoration of affected lands, makes
it possible to minimise the possible effects on
habitats and species. Finally, different actions and
projects for environmental improvement have been
accomplished, pursuing compensation for impacts.
Notable actions related to the following areas:
> Protection of avifauna, the main objective being
to minimise the risk of collision of birds with the
ground wires from power lines. In this regard,
a plan for signalling with bird-saving devices has
been established on sections with greater potential
for impact on avifauna (more than 700 kilometres
of lines), which will conclude in 2023. In 2018, the
proportion of critical priority areas with signalling
was 51.2 %.
> Prevention of forest fires, through proper design
and maintenance of the safety corridors and
working together with authorities in this matter.
As well, there are currently 13 fire prevention
agreements in force. These agreements have
153
an associated budget of more than 1.04 million
euros every 4 years which is intended for cleaning
forest land, purchase of extinguishing media and
protection, training and awareness.
> Development of conservation projects in
collaboration with the administration, non-
governmental organizations and other agencies,
among which are those related to the conservation
of avifauna and those aimed at the recovery of
degraded spaces. Among these are the “REE
Maritime Forest” projects for the recovery of
Posidonia oceanica meadows and the “Red
Eléctrica Forest”, with more than 842 hectares
restored (2009 to 2018) and an investment
of 2.1 million euros.
Environmental indicators of a non-financial nature
Direct greenhouse gas emissions
(scope 1) (tCO₂ eq.) ) (1)
Indirect greenhouse gas emissions
(scope 2) (tCO₂ eq.) (1)
Power consumption (MWh) (1)
Water consumption (m3) (2)
Number of environmental accidents (3)
Lines marked with bird-saving devices
in critical priority areas (accumulated
kilometres at the end of each year)
2017
2018
%
28,994
39,272
35.45
1,163,812
1,117,407
15,177
27,627
7
14,584
22,566
4
276.1
(37.6 % of the
total to signal)
375.7
(51.2 % of the
total to signal)
-3.99
-3.91
-18.32
-42.86
36
(1) In the data for 2018, the emissions and consumption associated with the activities of REINTEL are included.
(2) The data has a coverage of 83 % in terms of personnel. The water consumed comes from the municipal supply network
(72.5 %), wells (24.5 %), cistern (2.92 %). In some centres there are reservoirs for accumulation of rainwater for sanitary use,
fire prevention and irrigation. The reservoirs do not have mechanisms to record the stored water so it is not possible to calculate
the % utilisation of rainwater.
(3) Relevant accidents according to internal classification (does not include collisions).
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11.3. INFORMATION ABOUT SOCIAL AND
PERSONNEL RELATED ISSUES
HUMAN TEAM
In 2018, the Group reviewed and updated the Human
Resources Master Plan, linked to the company’s
Strategic Plan. The Impúlsate project, which was
launched in 2018 and is due to finish in 2020, will
help to transform the people management function
in order to add value to the Group, as a strategic
vector for change and to help achieve its objectives.
Various key actions were implemented in 2018,
such as the organisational transformation; the
definition and development of a new people
management model; the design and implementation
of new, efficient and simple processes; and the
actions required to manage the cultural and digital
transformation changes.
This transformation is a process to change our
business models and working methods in order to
add more value, facilitated by the rapid development
of new digital technologies.
One of the objectives of the Group’s digital
transformation strategy is to adapt its human capital
so that it works more effectively in a digital company.
“Imagina” is the project to transform the Group’s
working methods. It is implemented through cultural,
technological, process and spatial initiatives, which
are promoted through “Imagineers” backed by the
support and organisation of a project team and a
series of working groups.
a) Employment
At the end of 2018, the Group’s workforce consisted
of 1,799 professionals. Its commitment to stable
employment is reflected in the high levels of
permanent employment contracts (nearly 100 %),
prioritising employability and functional mobility
as levers for growth and professional development
(8.9 % functional mobility).
Structure of the workforce by country where the Group is present
Women
Men
Under 30
30 to 50
Over 50
Under 30
30 to 50
Over 50
Total
Spain
Management team
Specialists / Technical Experts
Administrative personnel
Total
Peru
Management team
Specialists / Technical Experts
Administrative personnel
Total
Chile
Management team
Specialists / Technical Experts
Administrative personnel
Total
0
20
0
20
0
1
0
1
0
1
0
1
24
213
26
263
0
8
3
11
0
0
1
1
12
57
63
132
0
1
1
2
0
0
0
0
0
35
0
35
0
9
0
9
0
0
0
0
36
755
2
793
3
40
0
43
0
5
0
5
53
398
27
478
125
1,478
118
1,721
0
4
0
4
0
0
0
0
3
63
4
70
0
6
1
7
The Group also has one employee in Luxembourg,
a female technician who is aged between 30 and 50.
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Men
Over 50
53
401
27
481
0
1
0
1
Total
128
1,526
121
1,775
0
22
2
24
Workforce by contract type
Total permanent contracts
Management team
Specialists / Technical Experts
Administrative personnel
Total
Total temporary contracts
Management team
Specialists / Technical Experts
Administrative personnel
Total
Under 30
30 to 50
0
15
0
15
0
7
0
7
24
221
28
273
0
1
2
3
Women
Over 50
12
58
64
134
0
0
0
0
The Group did not employ any personnel on part-
time contracts.
Dismissals for the year
Dismissals (1)
Management team
Specialists / Technical Experts
Administrative personnel
Total
Under 30
30 to 50
0
0
0
0
0
1
0
1
(1) Figures from REE+REC+REINCAN+REI+REINTEL.
Women
Over 50
0
0
2
2
Under 30
30 to 50
0
0
0
0
0
4
0
4
Under 30
30 to 50
0
37
0
37
0
7
0
7
39
794
2
835
0
6
0
6
Men
Over 50
2
1
0
3
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The Group, therefore, continues to make progress with
the “total remuneration” model defined in 2017 that
consists of different elements (economic, financial,
intangible and emotional), which enables and
supports new ways of working and the organisational
and cultural transformation of the Group. This
approach includes recognition programs linked to
the development of innovative and efficient ideas as
well as revenue generation in order to encourage the
participation of all of the Group’s professionals.
In 2019 the Group will carry out a study to quantify
and analyse the salary gap in order to identify and
quantify it by gender and to establish action plans
to correct this where necessary.
Women
Over 50
157,195
62,225
42,984
61,631
Under 30
0
40,704
0
40,704
30 to 50
124,630
51,303
35,314
54,580
Men
Over 50
154,929
64,360
43,198
73,121
Total average
women
men
129,732
141,695
55,316
40,919
58,684
55,183
41,567
60,652
Remuneration in the Red Eléctrica Group
The Red Eléctrica Group is working to consolidate
a remuneration model across every company in
the Group, which reflects the following common
principles:
• Internal fairness and external competitiveness.
• Consistency with the organisational and
development model.
• Opportunity for salary progression.
• Differentiating recognition of superior performance.
• Salary equality between men and women.
Details of the average remuneration of the workforce
are as follows (euros):
Total average salary Red Eléctrica Group in Spain (1)
Management team
Specialists / Technical Experts
Administrative personnel
Total
Under 30
0
39,182
0
39,182
30 to 50
117,648
54,964
37,055
58,604
(1) Datos de REE + REC + REINCAN + REI + REINTEL.
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By professional category, the ratio of the base salary
for men compared to women (men / women), is as
follows:
Spain (1)
Management team
Specialists / Technical Experts
Administrative personnel
Total
(1) Figures from REE+REC.
2017
1.05
0.98
1.06
1.02
2018
1.06
0.95
1
0.99
The average remuneration of members of the Board
of Directors, including variable remuneration and
allowances, according to the details included in Note
24 of the consolidated report of the Red Eléctrica
Group, is as follows:
Thousands of Euros
Average remuneration Men (1)
Average remuneration Women
Amount
256.3
152.0
(1) This includes the Chairman of the Board and the CEO. Excluding these roles,
the average remuneration for men would be 147.3 thousand euros.
Additionally, according to the report, in 2018 the
outgoing Chairman was paid compensation accrued
in 2016 totalling 718 thousand euros.
With regards to senior management, according to
Note 25 of the consolidated report of the Red Eléctrica
Group, remuneration for 2018 totalled 657 thousand
euros. The difference in the average salary between
men and women in this category is less than 1 %.
Lastly, it should be noted that the total amount of
contributions by the sponsor of the Group’s pension
plan in 2018 was as follows:
Thousands of Euros
Men
Women
Total contribution
Amount
1,606
427
2,033
Implementation of workplace disconnection policies
Article 88, the Right to Digital Disconnection from
the Working Environment, of Organic Law 3/2018
of 5 December on personal data protection and
digital rights, includes an obligation for the Group
to meet with employees’ representatives and draft
an internal policy for employees (including those in
management positions) that defines how this right
to disconnect can be exercised and the actions taken
to train employees and raise awareness about the
reasonable use of technology tools to prevent the
risk of IT fatigue.
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Furthermore, according to this law, the right to digital
disconnection must also be upheld in cases of partial
or total remote working, as well as in employees’
homes with regards to the use of technology tools
for work purposes.
The Group is currently working to comply with the
requirements of this law.
b) Organisation of work
Organisation of working hours
The real and effective working day, calculated
on an annual basis, will apply to all employees.
Consequently, every employed person, regardless
of the working day and schedule that they work
according to the nature of their role, shall work the
same real and effective working day, which will be
1,690 hours per annum.
Absenteeism hours
Spain (1)
Days lost due to accidents (2)
Absenteeism rate due to common illnesses (a)
Absenteeism rate due to occupational illnesses (b)
Men
139
1.53
1.64
Women
0
3.24
3.26
2017
Total
139
1.94
2.03
Men
333
1.95
2.06
Women
19
3.72
3.79
2018
Total
352
2.38
2.48
(1) REE+REC+REI+REINTEL+REINCAN.
(2) The calculation is based on 6,000 working days per fatal accident and 4,500 days for total permanent disability.
Serious accident: Those classified as serious by the physician that issues the medical certificate.
Frequency rate: Number of work-related accidents resulting in leave per million hours worked.
Severity index: number of working days lost for work-related accidents + Incapacity Scale, per thousand hours worked.
Incidence rate: Number of accidents with leave x 1,000/average headcount
Absenteeism rate:
(a) Days absent due to common temporary incapacity > 3 days + days absent for temporary incapacity < 3 days /average headcount * 365 * 100
(b) Days absent due to common temporary incapacity > 3 days + days absent for temporary incapacity < 3 days + days absent for work-related accidents + work-related
illness /average headcount * 365 * 100
Note 1. Accidents are recorded based on Spanish legislation and according to the Red Eléctrica management system certified under OHSAS 18001.
Work-life balance
The 3rd Integral Work-Life Balance Plan was approved
in 2018 for the 2018-2021 period. It establishes
the objectives and actions that will be developed in
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this area, including the mechanisms for monitoring,
measuring and evaluating the degree of progress.
The Group has implemented more than 60 work-life
balance measures, actions and initiatives, which
apply equally to the whole workforce regardless of
the type of contract and are one of the fundamental
lines of it’s the management model.
The guide to work-life balance, published on the
intranet, features more than 60 measures organised
into seven blocks:
∂ 1. Flexible working hours
∂ 2. Holidays, permissions and authorisations
∂ 3. Maternity and paternity leave
∂ 4. Disability and dependent family members
∂ 5. Employee benefits and remuneration in kind
∂ 6. Services
∂ 7. Events and activities
The Red Eléctrica Group has joined the Observatory
for the Development of Work-Life Balance and
Co-responsibility, led by ICADE-ICAI University. The
aim is to offer companies and institutions relevant
information and reliable data, checked against
international standards, which helps them to shape
their active work-life balance policies based on
applied, interdisciplinary and high quality research.
c) Health and Safety
The Group has a strategy and a specific action
plan that promotes best practices in relation to
occupational risk during activities and work carried
out at its facilities. The objective is to go beyond
mere legal compliance, and to train, inform
and raise awareness about the obligations and
responsibilities that exist and to commit the whole
Group to this goal.
To minimise the risks associated with construction
and maintenance tasks at electrical installations,
the Group places special emphasis on training,
awareness, consultation and participation (through
the Health & Safety Committee, internal audits
and working groups), improving safe conduct and
the safety measures employed while work is being
carried out by internal and external (contractors)
personnel.
With regards to risk prevention, the Group monitors
higher risk tasks and activities on an ongoing basis
by means of safety inspection programs, which
are essential to achieving the high levels of safety
required by the Group. Accordingly, in 2018 nearly
11,000 safety inspections were carried out on works
at facilities, which resulted in 2,400 corrective
actions, of which 92 % have been completed.
Furthermore, this year we have also implemented
internal safety audits for works carried out on site.
In order to raise awareness about occupational risk
prevention among its team, in 2018 a new skills-
based training management model was developed,
depending on the activity being carried out, which
encourages cross-functional training in this area
and ensures that people will improve their health
and safety skills regardless of the role they are
associated with.
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In 2018, some 5,612 hours of health and safety
training were given to 907 people.
stroke prevention and active ageing, as a
fundamental aspect of promoting good health.
In 2018, the key accident rates were 3.08 (frequency
rate) and 0.12 (severity index).
In 2018, a wide range of awareness and training
initiatives were carried out totalling 700 hours
to improve employees’ knowledge about nutrition,
Workplace accidents and occupational illnesses
The Group monitors the health of its employees
on an ongoing basis thanks to its in-house
medical service, which is responsible for checking
employees’ health through medical examinations
and consultations. No incidents or risks of
specific illnesses associated with the professional
activities carried out or related to the workplace
were identified thanks to the preventive measures
applied.
Spain (1)
Accidents requiring leave
Fatal accidents
Days lost due to accidents (2)
Frequency rate for accidents
Severity index for accidents
Incidence rate
Men
Women
5
0
139
2.25
0.06
3.81
0
0
0
0
0
0
2017
Total
5
0
139
1.71
0.05
2.89
Men
Women
8
0
333
3.62
0.15
6.11
1
0
19
1.42
0.03
2.39
2018
Total
9
0
352
3.08
0.12
5.21
(1) REE+REC+REI+REINTEL+REINCAN.
(2) The calculation is based on 6,000 working days per fatal accident and 4,500 days for total permanent disability.
Serious accident: Those classified as serious by the physician that issues the medical certificate.
Frequency rate: Number of work-related accidents resulting in leave per million hours worked.
Severity index: number of working days lost for work-related accidents + Incapacity Scale, per thousand hours worked.
Incidence rate: Number of accidents with leave x 1,000/average headcount.
Absenteeism rate:
(a) Days absent due to common temporary incapacity > 3 days + days absent for temporary incapacity < 3 days /average headcount x 365 x 100
(b) Days absent due to common temporary incapacity > 3 days + days absent for temporary incapacity < 3 days + days absent for work-related accidents + work-related
illness /average headcount x 365 x 100
Note 1. Accidents are recorded based on Spanish legislation and according to the Red Eléctrica management system certified under OHSAS 18001.
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d) People matters
A series of global actions were designed and
implemented in 2018 based on the results of the
working environment survey carried out in 2017.
The Group is carrying out actions to improve
communication, leadership and recognition across
every area of the Red Eléctrica Group. At the same
time, each organisational unit has designed its
own action plans to develop those areas with
improvement opportunities.
A new working environment survey will be carried
out in 2019 to see how much progress has been
made in each of the categories analysed.
Red Eléctrica guarantees its employees the right
to union affiliation, association and collective
bargaining within the framework of existing labour
laws and the applicable collective bargaining
agreement.
In 2018, negotiations began on the 11th Red
Eléctrica de España Collective Bargaining
Agreement, since the 10th Agreement expired
on 31 December 2017.
Consequently, relations with employees’
representatives were defined by the negotiations
of a new agreement text through the Negotiating
Committee created for this purpose. An agreement
has not yet been reached, but the negotiating
platforms of each party are putting forward their
cases and analysing the situation to find common
ground. Negotiations are ongoing and will continue
into 2019.
Independently of the negotiation of the new
collective bargaining agreement, two collaborative
spaces have been set up on the intranet to help
the company manage its relations with employee
representatives, as an additional measure for
communicating with this representation.
Employees covered by a collective
bargaining agreement
Employees included in the collective
bargaining agreement (%)
Employees excluded from the collective
bargaining agreement (%) (1)
2017
98.6
1.4
2018
98.6
1.4
(1) Employees that voluntarily and reversibly accept the management’s
proposal to be excluded from the agreement. The management team is not
taken into account in the overall calculation and represents 7.26% of the total
workforce in Spain.
Summary of the collective bargaining agreements
in the field of health and safety
Red Eléctrica has an occupational health and safety
committee whose composition and functions are
set out in Chapter 7 of the 10th Collective Bargaining
Agreement.
This committee is a collegiate body with equal
representation intended to provide regular and
periodic consultation regarding the company’s
occupational health and safety actions. The
committee consists of six representatives nominated
by the company and six health and safety delegates
chosen from among the employees’ representatives,
who represent 100 % of the employees. Specialists
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from the company’ health and safety service also
attend the committee’s meetings.
The committee meets every quarter (in accordance
with Law 31/95 on Occupational Health & Safety)
although it may also meet whenever either party
requests it. In 2018, the committee met four times
in accordance with its objectives.
These meetings monitor all health and safety
activities; any applicable new legislation; they
review processes and internal regulations; analyse
and track the results and the occupational health
& safety programs; and monitor safety equipment
and materials. The minutes of these meetings are
available to all employees under a dedicated section
of the miRED corporate intranet. This committee
also receives the results of the internal and external
audits that are carried out and any improvement
actions that are implemented.
e) Training
In 2018 the Leadership and Strategy Institute
consolidated its role in the Red Eléctrica Group
Campus, which seeks to drive the cultural
transformation of the company with a new approach
to leadership. “Transformative leadership” will be
fundamental to responding to the Group’s strategic
needs.
and experiences, to encourage discussions and
the exchange of ideas, and to create a network
of contacts that generates new shared knowledge
between the experts in each area of the Red
Eléctrica Group.
In 2018, work was carried out to design and
optimise the training model, aligning the contents
with the three levers of the “Red Eléctrica Group
Campus” corporate university, namely knowledge
of the business and technical training; strategy
and leadership; and cultural transformation and
innovation.
More than 130,000 hours of training have been
given, equivalent to 72 hours per employee and
an investment of EUR 3,822 per person.
Training hours by professional category and gender
Spain (1)
Management team
Specialists / Technical Experts
Administrative personnel
Total
Men
112
108
15
109
Women
95
115
50
105
(1) Figures from REE+REC+REI+REINTEL+REINCAN.
2017
Total
104
111
33
108
Men
Women
49
76
24
71
61
90
40
76
2018
Total
52
79
36
72
The roll-out of the knowledge management model
has also been consolidated and shared with all
employees.
The REEAvanza initiative has been designed under
this model to disseminate and share knowledge
All employees are continuously assessed and the new
appraisal model was launched in 2018, effectively
separating the evaluation of contribution in order
to increase objectivity, and to help align employees
with the Group’s strategy and encourage a culture of
development and recognition.
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In 2018, a pilot project was launched to begin
implementing a challenge-based management model,
intended to give each professional clearer guidance
about his/her work, with greater autonomy and
flexibility, allowing employees to work when, where,
how and with whom they require.
The voluntary and proactive internal mobility plan has
become well established, together with the use of the
LinkRED tool that can be accessed by all employees
to share their experiences and interests in relation
to development and mobility.
f) Integration and universal accessibility
for people with disabilities
Red Eléctrica has continued to develop the action
plan associated with its disability management
model, integrated in the Integral Diversity Plan. Red
Eléctrica collaborates with the Adecco Foundation to
implement this plan and has important agreements
for purchasing goods and services from Special
Employment Centres.
In 2018, a figure of 2.63 % employment equivalent
was achieved for people with disabilities. Of this
percentage, 0.9 % related to direct employment and
the rest was through agreements under the General
Law on the Rights of People with Disabilities (LGD).
By purchasing goods and services through special
centres, Red Eléctrica contributed an amount
equivalent to hiring 30 people with disabilities.
The work done by company volunteers to promote
the inclusion of people with disabilities marks
the start of a new line supporting diversity, which
will be strengthened in the multi-year corporate
volunteering plan 2018-2020.
The percentage of Group employees with disabilities
is as follows:
People with disabilities (%)
2017
0.8
2018
0.9
With regards to accessibility to the corporate
website, the Group firmly believes that everyone,
regardless of disability, should be able to access
the services of the Group’s public website under
equal conditions. The Group has therefore worked
continuously since 2007 to create an accessible
website that all users can access without difficulties.
A new, more interactive and multi-device corporate
website was launched at the end of 2013, developed
with web accessibility criteria. Work is currently
underway on the best techniques needed to
achieve Double-A conformance certification for the
website according to the Web Content Accessibility
Guidelines 2.0 of the Web Accessibility Initiative (WAI)
of the World Wide Web Consortium.
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g) Equality and diversity
The Red Eléctrica Group realises its commitment to
diversity, inclusion and non-discrimination through
its diversity management model, approved in 2017,
which is aligned with the Group’s Strategic Plan
and Sustainability Commitment 2030. This model
incorporates the previous systems that dealt with the
different areas of diversity (equality, disability and
age) under the same umbrella.
The model is implemented through an Integral
Diversity Plan approved in 2018. This seeks to inspire
and become a benchmark for the Group itself, and in
the wider social, labour and personal environment,
through the Group’s commitment to talent diversity,
social inclusion, employment and non-discrimination,
breaking down stereotypes and cultural barriers.
The goals of the Integral Diversity Plan are:
> Create a corporate culture that encourages diversity
among employees and other stakeholders.
> Integrate diversity into all of the Group’s processes,
especially people management.
> Involve, raise awareness and promote the
Group’s mission and approach to diversity among
collaborators and suppliers.
> Participate with official organisations, academic
institutions and other social agents in campaigns
and projects that enable the Group to become a
leading social agent that will contribute to building
a more diverse society.
Gender equality is one of the vectors included in the
new Integral Diversity Plan and refers to the principles
of equal employment opportunities, the promotion
of women in positions of responsibility, salary
equivalence between men and women, the promotion
of familial co-responsibility, the prevention of
harassment on moral, sexual and gender grounds, and
the prevention of gender violence. These aspects are
monitored through indicators that enable the Group to
measure the progress of the defined objectives.
The percentage of women in the Red Eléctrica
workforce in 2018 was 24.1 % (24.4 % in 2017). The
number of women in management positions has
once again increased significantly, totalling 28.8 %
in 2018 (24.8 % in 2017). These results exceed the
objectives set, primarily due to equal opportunities
in training and development processes, and in
promotions, which led to 67 % of all new managerial
appointments being women.
The target for the indicator that measures equal
promotion opportunities (men/women) for 2018 of
1.20 was exceeded, with a ratio of 1.39.
The difficulty of finding candidates in some
recruitment processes has led Red Eléctrica to sign
a collaboration agreement with the Royal Academy
of Engineering to promote female talent in STEM
subjects. Among other activities, the company
actively participates in a program to mentor
university students studying technical subjects as
part of the “Women and Engineering” project. It
also carried out the TECHMI competition in schools
in the Madrid Region to attract talented girls into
technology subjects.
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11.4. HUMAN RIGHTS INFORMATION
Respect for human rights
The Group has an explicit and public commitment
to respect and promote human rights in every
country in which it operates, with special emphasis
on the freedoms and rights of vulnerable groups
such as indigenous people, women, children and
ethnic minorities, among others. This commitment
is included in the rules of conduct and guidelines
established in the Code of Ethics and the Corporate
Responsibility Policy and applies to the whole supply
chain through the Code of Conduct for Group Suppliers.
Lastly, as a member of the Spanish network of the
United Nations Global Compact, Red Eléctrica has
strengthened its commitment to human rights by
signing up to the ten principles of the Global Compact.
In order to continue making progress in
human rights management and to strengthen its
commitment to upholding them, in 2017 the Group
formalised a human rights management model,
approved by the Sustainability Steering Committee,
which applies to all of the Group’s activities and is
based on the United Nations’ Guiding Principles
on Business and Human Rights.
The Group takes an approach based on control and
continuous improvement, implementing actions that
help to prevent potential human rights violations,
while searching for solutions and redressing them in
the event that they arise. The Group’s conduct in this
area is subject to internal and external audits and it
carries out corporate audits among its suppliers to
ensure the effectiveness of the management model.
The scope of the human rights due diligence
carried out applies to all the Group’s activities.
The results demonstrate a low level of risk in all
analysed areas and shows that the Group applies
the appropriate controls.
The Group has set up a whistleblower channel
available to all stakeholders as a formal mechanism
for addressing any human rights-related enquiries or
complaints. The Group also has the Dígame Service
and ASA (the Procurement Support Service) in which
stakeholders can express their concerns about
any grievances in this area. In 2018, the Dígame
Service received a total of four human rights-related
complaints, of which 50 % have been resolved.
11.5. INFORMATION ABOUT THE FIGHT AGAINST
CORRUPTION AND BRIBERY
Ethics and Compliance in the Red Eléctrica Group
Ethics and Compliance are fundamental pillars of the
proper course of business at the Group. This means
acting with the utmost integrity in discharging
the Group’s obligations and commitments, and
in relations and cooperation with its stakeholders.
The Group has a series of corporate rules of conduct
establishing the values and standards of behaviour
that must be adhered to by all persons in the Group
in the performance of their professional activities.
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Ethics Code
The Group’s Code of Ethics applies to the Group’s
directors and employees and establishes the values
and commitments that must govern their behaviour.
The latest edition of the Group’s Code of Ethics was
approved by the board of directors on 28 May 2013.
Ethics Channel
The Group has an Ethics Channel, available through
its corporate website, to convey queries, complaints
or suggestions relating to the Code of Ethics. The
Group has an Ethics Officer for fielding queries
and compiling, analysing and resolving complaints
relating to the Code of Ethics. This figure, in direct
contact with the Chairman and the board of
directors, acts independently and undertakes to
maintain the utmost confidentiality in performing
his duties.
In 2018, 21 queries were filed with the Ethics Officer
and the maximum resolution time was 10 days.
The queries related to the following patterns of
behaviour:
> Integrity, responsibility and transparency.
> Responsible monitoring of supplier management.
> Restriction on the acceptance of gifts, loans and
invitations.
> Proper treatment of confidential information.
In 2018, 7 complaints were received in connection
with compliance with the Code of Ethics, 4 of these
were resolved during the year and 3 are in the
resolution phase.
Compliance system
The Group’s Compliance System is fully aligned with
the best practices in this sphere, so as to support
the organisation in fulfilling its obligations and
commitments.
The main goals of the compliance system are:
> To nurture a corporate culture based on ethics and
compliance.
> To achieve a comprehensive overview of compliance
at the organisation.
> To have a transversal and homogeneous approach
to compliance.
> To strengthen the preventive aspects of compliance.
In accordance with the Group’s commitment to
responsible and sustainable management and with
best management practices, the organisation has a
Compliance Area within the Risk Control, Compliance
and Quality Department (part of Internal Audit and
Risk Control), which combines compliance functions
with risk control and quality management functions,
based on the synergies between these functions.
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Prevention of criminal risks
The Group has a Criminal Risk Prevention
Programme whose purpose is to identify the rules,
procedures and tools in place in the Group to
prevent non-compliance with the criminal legislation
applicable to the organisation and its staff and to
adapt them to the current regulatory framework.
The management and prevention of criminal risks
that could affect the Group, based on its activities
and business sectors, in accordance with the
Criminal Code, are thus incorporated in the Group's
control processes.
Creating the programme, which was approved by the
board of directors, entailed creating the Criminal Risk
Prevention Programme Control and Supervision Body,
whose functions include: monitoring, supervising and
updating the programme; and reporting periodically
to the Audit Committee on action taken, proposed
improvements, updates implemented, measures
agreed and any other matter it considers relevant
in the performance of its duties.
In 2018, the Control and Supervisory Body did not
receive any complaints regarding non-compliances
in connection with the Criminal Risk Prevention
Programme and none of the Group’s companies
were investigated or found guilty of non-compliances
linked to the organisation’s criminal risks. Likewise,
no complaints were filed in connection with
potential cases of corruption and no Group company
was investigated or found guilty by any court in
connection with non-compliances linked
to corruption cases.
11.6. INFORMATION ON RELATIONS
WITH SOCIETY
The Group focuses its socio-environmental
commitment towards unlocking shared value
with society by pursuing actions and investments
that are aligned with its business goals and, while
generating value for the Group, also have a positive
impact on society, the country or region and its
inhabitants. It also contributes to the attainment
of various challenges, such as the UN’s Sustainable
Development Goals or those envisaged as part of the
European 2020 energy strategy.
Shared value is created by the Group both in the
way it develops and builds infrastructure and in the
way it operates and delivers services to the effective
systems it operates in and to its customers. This
activity generates opportunities to unlock shared
value throughout the infrastructure life cycle.
In addition, the Group accompanies its projects on
the ground with collaboration projects to nurture
institutional and social relationships, transparently
seeking partnership agreements, disseminating
information about the electricity network and
fostering involvement in projects and initiatives
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that boost socio-economic development and the
conservation, protection and enhancement of natural
heritage in the countries and regions in which it
operates.
In 2018, the Company signed 99 agreements with
public and social entities, mainly to cooperate in
socio-economic, environmental, educational and
cultural development projects.
In 2018, the Group contributed seven million euros
(amount calculated using the London Benchmarking
Group methodology) to social initiatives.
Action areas
%
3
5
1
28
25
38
38 SOCIO- ECONOMIC DEVELOPMENT
25
EDUCATION
28 ENVIRONMENT
5
3
1
SOCIAL WELFARE
ART AND CULTURE
OTHER
Of the 437 social initiatives undertaken, 226 were
focused on the socio-economic development of
the local area, including, among others, municipal
infrastructure construction or improvement projects,
efforts to nurture the area’s cultural wealth and
restoration of emblematic and socially significant
buildings with an impact on tourism.
With regard to the dissemination of knowledge, the
Group takes an active role in disseminating and
raising awareness about the electricity network as
a whole, since a better informed society has greater
capacity to develop and maintain a sustainable
energy model.
In this connection, in 2018, more than 2,180 people
visited Red Eléctrica facilities and control centres,
more than 76,067 visitors attended the itinerant
exhibition ’A Highway behind the Wall Socket’
[’Una autopista detras del enchufe’] explaining
the electricity supply process from generation to
consumption, and more than 7,200 school children
took part in activities under the framework of the
educational game ’entreREDes’, aimed at teaching
kids to be efficient and environmentally-friendly
consumers in the future.
20 cooperation agreements were also signed with
universities and training centres.
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In Spain, the training programme for the State Police
and Security Forces continued. During the year, 16
forest fire prevention training days were organised
in 10 provinces in six autonomous communities, in
which 957 people took part in person and 700 people
via streaming.
Corporate volunteering
The Red Eléctrica Group’s Healthy Company model
fosters well-being through actions aimed at
promoting the well-being of the immediate work
environment while also extending the commitment
to the wider community.
Thus, the Red Eléctrica Group’s Corporate
Volunteering model, approved in 2017, extends the
company’s social action by driving and reinforcing
collaboration in solidarity activities that respond
to the social needs, problems and interests defined
in its action guidelines.
The corporate volunteering model has a strategic
and transformational focus, aimed at promoting
volunteering actions which, on the one hand,
channel internal talent into corporate volunteering
and, on the other, provide innovative solutions to
social and environmental problems. The actions
carried out in 2018 were targeted primarily at
improving the quality of life for groups at risk
of social exclusion, fostering employability and
meeting specific, real needs of society.
Main corporate volunteering
actions in 2018
Mentoring programme
Collaboration in the CAMPVS mentoring programme run by
Fundación A LA PAR, in which the company’s volunteers act as
mentors to students with intellectual disabilities to help them
achieve inclusion in the world of work.
Employment school
Participation in this programme run by Fundación Adecco, aimed
at improving the employability and access to employment of high
potential people with disabilities.
Action Against Hunger
Participation in the 2018 Action Against Hunger Challenge to
combat infant malnutrition and eradicate hunger.
Día Solidario de las Empresas
(DSE, “Company Solidarity Day”)
Participation in this corporate volunteering day organised by
Cooperación Internacional, in which the company’s volunteers,
in six different cities in Spain, accompanied various vulnerable
groups, such as homeless, disabled or elderly people, and took
part in leisure activities with children at risk of social exclusion.
A Smile for Christmas
Collaboration in Cooperación Internacional’s toy donation campaign,
aimed at delivering Christmas presents to children in situations
of poverty and vulnerability.
Project “Coach”
Participation in this Fundación Exit project aimed at introducing
children at risk of school failure to the world of business through
coaching.
SEO Libera
Clean-up of natural environments spoiled by litter, led by SEO
Birdlife.
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Satisfaction index of
corporate volunteering actions
(where an assessment was made)
Rate of satisfaction with corporate
volunteering actions
(score out of 5)
4.70
4.70
4.36
3.93
3.78
The Group’s investments stimulate production,
which leads to an increase in wealth (as measured
by GDP), in jobs and in tax revenue, which can be
used to improve the general well-being of society.
All this is the result not only of the Group's direct
investments but also of the increase in activity
driven by the circulars flows of the economy.
Since 2017, Red Eléctrica has used a methodology
based on multipliers computed using Input-Output
Tables. These multipliers can be used to estimate
the overall increase in activity generated by an initial
investment. The calculations take the direct, indirect
and induced effect into account.
Employment
school
SEO Libera
Challenge
Coach
DSE
The company’s commitments
to sustainable development
The investments the Group makes enable it to
maintain the continuity and security of electricity
supply to a high standard of quality. The investments
also have a beneficial effect on society by stimulating
economic activity.
Effects of the investments
Direct effect
Estimate and valuation of the production activity and job and income creation generated in the economic system
by an initial investment.
Indirect effect
Income and jobs created when the beneficiaries of the initial investments acquire other goods and services
(intermediate consumption) from other production systems, which in turn acquire goods and services from their
own suppliers.
Induced effect
Impact arising from all the income generated in the previous stages. This effect thus incorporates the effect of the
final consumption arising from the wage income generated and the tax revenue obtained by governments when
taxing the different economic activities and the income they generate.
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In 2018, the Group’s total investment in the
transmission network in Spain amounted to EUR
378 million, of which an estimated EUR 103 million
were spent on imports of the products needed
to carry out the activity. The rest, totalling some
EUR 276 million, consisted of direct investment in
Spain, the effect of which, after applying the chosen
methodology, are broken down in the following table:
Total effects of the investment in
the transmission network
Production (€m)
Income-GDP (€m)
Direct
Indirect
Induced
276
110
262
110
26
9
Total
564
228
Employment (No. of jobs)
1,892
1,982
272
4,146
Tax revenue (€m)
43
42
4
8
Note: The discrepancy in one of the cases between the total and the sum
of the partial figures is due to rounding of decimals.
The investment made in Spain generated an
estimated EUR 564 million of output in the business
sectors concerned, more than double the total
investment made in Spain (EUR 276 million). This
effectively represents a contribution of EUR 228
million to Spanish GDP and the equivalent of 4,146
jobs. All this together would have produced tax
revenue of EUR 89 million.
The Group is in the process of applying this same
measurement methodology to other specific
investment projects to estimate the socio-
economic contribution to the region and country
in terms of wealth (measured by GDP), output, jobs
and tax revenue.
This methodology was expanded during 2018
to calculate the socio-economic contribution of
the Red Eléctrica Group’s investment in the other
countries in which it operates.
Participation in international bodies
The Red Eléctrica Group is a member of and is
active in various international organisations and
associations, particularly within the European
Union, with a view to explaining its positioning on
fundamental aspects of its activity, building strong
alliances and contributing to the achievement of
common objectives.
ENTSO-E
(European Network of Transmission System Operators for Electricity)
Red Eléctrica is a member of this association along with all the other European transmission network
managers. ENTSO-E is the fundamental tool for collaboration among TSOs in building the Internal
Energy Market. The main areas in which the company cooperates in ENTSO-E are the development of
the Internal Energy Market, the development of the European electricity infrastructure network and
the coordination of the European electricity system. It also works with ENTSO-E on innovation and
technological development. Combining the experience and technological capacity of its members,
ENTSO-E has been assigned the task of developing the current network codes and is the main technical
advisor to the European institutions on electricity matters. Its involvement is essential to meet
the challenges of the new energy transition scenario, marked by emissions reduction, large-scale
integration of renewables, flexibility and new technologies.
Continued on the next page
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CIGRE
(International Council on Large Electric Systems)
CIGRE is the world’s largest body for the development and exchange
of technical knowledge in the energy sector, bringing together
electricity companies, capital goods manufacturers, engineering
companies, research centres and universities. Red Eléctrica holds
a prominent position on the National Committee as Chair and
Secretary and many of its employees are participants.
RGI
(Renewable Grid Initiative)
Through the joint participation of the TSOs and NGOs in RGI,
Red Eléctrica addresses the environmental concerns of all its
stakeholders, directing its action towards the development
of efficient, sustainable, clean and socially accepted electricity
infrastructure networks that are capable of integrating
decentralised renewable resources on a large scale.
Med-TSO
(Mediterranean Transmission System Operators)
This association facilitates cooperation between the countries
of the north and the south of the Mediterranean Basin through
coordination of the region’s infrastructure development plans and
aspects of network operation. An important element is the transfer
of the regulatory knowledge and operating and electricity market
practices developed in the European Union to the countries of the
south Mediterranean basin.
EASE
(European Association for the Storage of Energy)
In view of the new challenges of the energy transition, storage is
considered an essential tool in the future scenario. Through its
participation in this association, Red Eléctrica aims to be involved
in and have first-hand knowledge of the development of storage
solutions that will optimise electricity system management.
IESOE
(Interconnexion de l’électricité du Sud-ouest de l’Europe)
This regional organisation aims to share information and carry out
initiatives around the operation of neighbouring power grids, based
on cooperation between the countries of North Africa, represented by
the Comité Maghrebien d’Électricité (Morocco, Algeria and Tunisia),
and the countries of southeast Europe (Spain, Portugal and France).
ICGN
(International Corporate Governance Network)
For Red Eléctrica, being a member of this network means being at
the forefront of the development of effective standards of corporate
governance and investor relations, so as to create efficient markets
and sustainable economies throughout the world, taking ICGN’s Global
Governance Principles and Global Stewardship Principles as a guide.
GO 15
(Reliable and Sustainable Power Grids)
Red Eléctrica is present in this forum, in which the world’s 18 largest
power grid operators share experiences and knowledge, debating
the future challenges of the electricity industry at the highest level.
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Participation in Spanish bodies
The Red Eléctrica Group is a member of various
Spanish organisations and associations pursuing
various goals:
Sharing and spreading best practices
in business
AEC
(Asociación Española para la Calidad)
An association aimed at defending and promoting quality as a driver
of competitiveness in business and improvement in society.
ASCOM
(Asociación Española de Compliance)
The first association created to professionalise the compliance function
and facilitate the exchange of ideas and best practices.
AENOR
(Asociación Española de Normalización y Certificación)
An association that contributes to improving the quality and
competitiveness of companies by developing technical standards
and certifications.
Emisores Españoles
An association that fosters measures to reinforce legal certainty in the
issue of listed securities and contributes to the development of high
standards of corporate governance.
Promoting knowledge
of the work of
the company and
the electricity
industry
ENERCLUB
(Club Español de la Energía)
An association that contributes
to a better understanding of
various industry-related issues
among the social partners.
Fundación de la Energía
de la Comunidad de Madrid
The foundation drives
initiatives and research
programmes for the
development and application
of energy technologies.
CME
(Clúster Marítimo Español)
A group that promotes
the development and
competitiveness of Spanish
maritime companies and
industries.
Promoting the Red Eléctrica Group’s
commitment to sustainability
Club de Excelencia en Sostenibilidad
A business association aimed at driving sustainability by sharing
and building awareness of good practices.
Forética
An association of companies and sustainability professionals promoting
the integration of environmental, social and governance issues in
companies’ strategy and management.
Club Excelencia en Gestión e Innovación
A business association aimed at strengthening the global
competitiveness of organisations and professionals through the values
of excellence.
Foro de Integridad de Transparency International España
A think tank for improving compliance and ethical management
in companies.
Fundación Voluntare
A global corporate volunteering network that helps to connect
companies with third sector organisations.
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Subcontracting and suppliers
The globalisation of markets has extended the
limits of companies’ responsibilities and triggered
a change in the role of suppliers, which have
become a pivotal element. The Group extends its
responsibility over the supply chain and adheres
to a responsible management model, based on the
principles of non-discrimination, mutual recognition,
proportionality, equal treatment and transparency,
as well as a framework of legislation and internal
Group codes, policies and rules.
In 2018, contracts worth a total of EUR 580 million
were awarded to 1,049 suppliers. Of that amount,
82 % relates to services and structures, while the
remaining 18 % relates to materials and equipment.
96 % of the total amount was awarded to suppliers
based in Spain and 99 % to suppliers in EU
countries, which means the Group acts as a driver
of growth, fostering business, industrial and social
development by creating employment throughout
the supply chain.
Besides the abovementioned 1,049 suppliers, an
additional 1,007 companies (subcontractors) also
did work for the Group, so that the total number
of companies that worked within the framework
of the Group’s contracts was 2,056. In this context,
it should be pointed out that the turnaround time
for subcontracting requests was 1.5 days, a figure
that has decreased in recent years, improving on
the commitment to resolve subcontracting requests
within two days.
Social audits were conducted at 68 suppliers during
2018 to verify compliance with the Code of Conduct
among the Group’s suppliers.
As a result of the audits, improvements or action
plans have been agreed with 47 suppliers, so
that supplier development can be monitored and
improvements recorded. The results of these audits
and their findings are shared internally, placing
special emphasis on the detection of major non-
compliances.
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In the Dígame service, external stakeholders receive
a professional response to their requests through
several channels of communication.
Requests handled through
the Dígame service in 2018
By typology
Installation impact
Quality and continuity of supply
Environmental aspects
Total
By interest group complainant
Social environment
Business sector/Professional associations
Others
Total
26
5
1
32
26
4
2
32
Consumers
Since 2008 the Dígame service has provided
a professional response to requests from external
stakeholders, who have several channels of
communication at their disposal (telephone,
email and online form). The service is manned by
employees of Fundación Juan XXIII Roncalli, an
institution that facilitates the integration of people
with disabilities in the workplace.
Dígame Service
(3,675 requests handled)
14.4
0.2
26.4
41.5
Note: Proper claim is understood as that which corresponds to the
functions and responsibilities of the Group. Of the 32 claims from 2018,
31 were considered (accepted by considering certain and reasonable
arguments underpinning their acceptance, complete or partial). These
claims included environmental issues. 84 % of the accepted claims are
closed, while the rest are in progress. Of the seven claims that remained
open at the end of fiscal year 2017, in 2018 there remains only one
pending closure.
4.4
11.1
1.9
0.1
41.5
1.9
INVESTORS AND SHAREHOLDERS
4.4 SUPPLIERS
REGULATORY BODIES
26.4 SOCIAL ENVIRONMENT
11.1 CUSTOMERS
0.1 EMPLOYEES
0.2
INFLUENCERS
14.4 BUSINESS SECTORS
It should be noted that due to the criteria applied
in the design of the installations, the levels of the
electric and magnetic fields (CEMs) remain below
that recommended by the Council of the European
Union (Official Journal of the European Union
1999/519/EC: Exposure limit values for the general
public at sites where it can remain for a long time,
5 kV/m for the electric field and 100 µt for the
magnetic field). The main criteria are:
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> Construction of double circuits and translocation
of phases in lines.
> Increasing the height of supports, thereby increasing
the safety distances.
> Minimum distances from the lines to population
centres and isolated houses.
To verify compliance with recommendations,
Red Eléctrica has a tool that, from certain
parameters of the lines, allows accurate calculation
of the maximum levels of CEM that the installations
can generate.
Tax information
The Red Eléctrica Group is committed to compliance
with tax law and fulfilment of its tax obligations,
seeks a cooperative relationship with the tax
authorities and considers it important that it should
contribute to economic and social development by
paying taxes in all the countries in which it operates.
The Red Eléctrica Group’s Tax strategy was approved
by the board of directors on 30 June 2015 and is
intended to define a consistent approach to tax
matters in line with the Group’s strategy. It embodies
the Group’s vision and objectives in tax matters and
is based on three core values: transparency, good
governance and responsibility.
On 29 September 2015, the board of directors
approved the Red Eléctrica Group’s Tax Risk Control
and Management Policy and its inclusion in the
Integrated Risk Management Policy. The tax risk
control and management systems are described
in section E of this report.
The Red Eléctrica Group’s Tax Strategy and
Integrated Risk Management Policy may be
consulted on the corporate website.
Both the Code of Ethics and the Tax Strategy state
the Red Eléctrica Group’s commitment not to create
companies in countries considered tax havens in
order to evade tax.
The Red Eléctrica Group has no presence and carries
out no activity in countries considered tax havens
under applicable laws and regulations
(1).
Profits obtained, broken down by country
Million euros
Item
Spain
Peru
Chile
Other EU (2)
Profit before corporate
income tax (1)
921
6
-6
-
(1) Comprises the pre-tax income and expenses of each company, excluding
dividends received from Group entities, aggregated at country level.
(2) France, Netherlands and Luxembourg.
(1) Royal Decree 1080/91 of 5 July, subsequently amended by Royal Decree 116/2003 of 31 January; EU list of non-cooperative
jurisdictions in taxation matters, approved by ECOFIN at its meeting on 5 December 2017; List of uncooperative tax havens drawn
up by the OECD.
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Corporate income tax paid
With a view to following best practices in corporate
social responsibility and voluntarily providing
greater transparency in tax matters for its various
stakeholders, since 2014 the Red Eléctrica
Group has calculated and published its total tax
contribution, highlighting the significant economic
and social importance of its tax contribution.
The Group’s total 2018 tax contribution in all the
countries in which it operates amounted to EUR 743
million, consisting of EUR 250 million paid and EUR
493 million collected.
The tax on profit paid in each country in 2018,
understood as the amount of corporate income tax
paid, is as follows:
Million euros
Item
Spain
Peru
Chile
Other EU (1)
Tax on profit paid
202
3
1
-
Total
206
(1) France, Netherlands and Luxembourg.
Corporate income tax accounts for 82 % of the taxes
paid by the Red Eléctrica Group to governments,
mainly the Spanish government.
Government grants received
In 2018, EUR 3 million were received from official
bodies for the construction of power facilities and
other RDI projects. The grants received, broken down
by country, are as follows:
Million euros
Item
Spain
Rest of countries
Total
Grants received
3
-
3
The grants received in 2018 in relation to power
facilities, totalling EUR 2 million, were for the
Spain–France electricity interconnection via the Bay
of Biscay and for the construction of facilities in
Extremadura (with ERDF funds).
Additional grants totalling EUR 1 million were
received for the following RDI projects: BEST PATHS,
OSMOSE and MIGRATE. The scope of these projects
is set out in section 8, “Innovation”, of this
Directors’ Report.
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en 178
11.7. INDEX OF CONTENT REQUIRED BY LAW 11/2018 OF 28 DECEMBER
ON DISCLOSURE OF NON-FINANCIAL AND DIVERSITY INFORMATION
CONTENTS
Business model. Policies applied. Result of these policies.
Main related risks.
Materiality analysis.
I. Information on environmental matters
Current and foreseeable impact of the company’s activities on the environment, health and safety.
Environmental assessment or certification procedures.
Resources devoted to environmental risk prevention.
Provisions and guarantees for environmental risks.
Pollution
Measures to prevent and reduce carbon emissions
Circular economy and waste prevention and management
Measures for the prevention, recycling, reuse and other recovery and disposal of waste.
Actions to combat food waste
Sustainable use of resources
Water consumption and supply.
Consumption of raw materials and measures to improve efficiency.
Direct and indirect energy consumption.
Measures to improve energy efficiency and use of renewable energy.
Climate change
Greenhouse gas emissions.
Measures taken to adapt to the consequences of climate change.
Voluntary medium and long-term emission reduction targets set and steps taken.
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148
149
150
150
150
150
151
151
RE PO RT ING F RAM E WORK
(2)
(2)
(1) 102-43 / 102-44 / 102-46
/ 102-47 / 102-49
(2)
(1) 102-11
(2)
(2)
(2)
(2)
Not applicable
151
151
152
152
152
152
152
(1) 303-1
(2)
(1) 302-1 / 302-2
(2)
(1) 305-1 / 305-2 / 305-3
/ 305-4
(1) 305-5
(2)
Continued on the next page
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179
CONTENTS
Protection of biodiversity
Measures taken to preserve or restore biodiversity.
Impacts caused by activities or operations in protected areas.
II. Information on employment and employee-related issues
Employment
Total number and distribution of employees by gender, age, country and professional qualifications.
Total number and distribution of employment contract types by gender, age and job category.
Dismissals by gender, age and job category.
Average pay by gender, age and job category.
Pay gap.
Remuneration of like positions or average remuneration in the company.
Average remuneration of directors and senior managers.
Contribution to long-term pension and savings insurance schemes by gender.
Implementation of disconnection policies.
Employees with disabilities.
Organisation of work
Organisation of working hours.
Absentee rate.
Work-family measures.
Health and safety
Occupational health and safety conditions.
Industrial accidents: frequency and seriousness.
Industrial diseases.
Social relationships
Organisation of social dialogue.
Procedures for informing, consulting and negotiating with employees.
Employees covered by collective agreement, by country.
Outcome of collective agreements in the field of health and safety.
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153
154
155
155
156
157
157
157
157
157
163
158
158
159
159
160
160
161
161
161
161
(1) 304-1 / 304-3
(1) 304-2
(1) 102-8
(1) 102-8
(2)
(2)
(1) 405-2
(1) 405-2
(2)
(1) 201-3
(2)
(2)
(2)
(1) 403-2
(1) 401-2
(1) 403-3 / 404-1 / 404-2
(1) 403-2
(1) 403-2
(1) 402-1
(1) 402-1
(1) 102-41
(1) 403-1 / 403-4
Continued on the next page
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CONTENTS
Training
Policies implemented.
Training hours by job category.
Universal accessibility for people with disability
Universal accessibility for people with disability.
Equality
Measures taken to promote equal treatment and equal opportunities for women and men.
Equality plans.
Measures taken to promote employment.
Protocols against sexual harassment and harassment on the grounds of sex.
Integration and universal accessibility for people with disability.
Policy against any kind of discrimination.
Diversity management.
III. Information about respect for human rights
Application of human rights procedures.
Prevention of human rights infringements and measures to remedy infringements.
Reporting of human rights infringements.
Promotion and compliance with the provisions of the fundamental conventions of the ILO.
IV. Information about the fight against corruption and bribery
Measures to prevent corruption and bribery.
Measures to fight against money laundering.
Contributions to foundations and not-for-profit organisations.
V. Information about the company
The company’s commitments to sustainable development
Impact of the company’s activity on employment and local development.
Impact of the company’s activity on local populations and the local area.
Relations with local community actors and types of dialogue.
Association and sponsorship actions.
PAGE
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162
163
164
164
164
164
164
164
164
165
165
165
165
165
166
166
168
168
168
171
(1) 404-2
(1) 404-1
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(1) 407-1 / 408-1 / 409-1
(1) 411-1 / 412-1 / 412-3
(1) 102-17
(2)
(1) 102-16 / 102-17 / 406-1
(1) 102-16 / 102-17 / 406-1
(2)
(1) 413-1
(1) 413-1
(1) 413-1
(1) 102-13
Continued on the next page
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en
181
CONTENTS
Subcontracting and suppliers
Inclusion of social, gender equality and environmental issues in the purchasing policy.
Attention given to social and environmental responsibility in relations with
suppliers and subcontractors.
Supervision systems and audits and results.
Consumers
Measures to protect consumer health and safety.
Complaints systems; complaints received and how they were resolved.
Tax information
Profit obtained, broken down by country.
Corporate income tax paid.
Government grants received.
PAGE
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174
174
175
175
176
177
177
(1) 414-1
(1) 414-1
(1) 308-1 / 308-2
(1) 416-1
(1) 102-43 / 102-44
(2)
(2)
(2)
(1) This table shows the equivalence between the requirements of Law 11/2018 and the GRI indicators. Red Eléctrica has published non-financial information since 2003
in accordance with successive versions of the Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI).
(2) For this information the Group has used a specific reporting framework, which is explained on the relevant page of the report.
12
Annual Corporate
Governance Report
The Annual Corporate Governance Report forms
an integral part of the Directors’ Report and can
be viewed at the following address:
http://www.cnmv.es/Portal/consultas/EE/
InformacionGob-Corp.aspx?nif=A-78003662
INDEPENDENTAUDITORS'REPORTCONSOLIDATEDSTATEMENT OF FINANCIAL POSITIONCONSOLIDATEDANNUAL ACCOUNTSCONSOLIDATEDDIRECTORS'REPORTCONSOLIDATEDDIRECTORS'REPORTConsolidated Annual Accounts 2018www.ree.es/en Published by
RED ELÉCTRICA
Paseo del Conde de los Gaitanes, 177
28109 Alcobendas (Madrid)
www.ree.es/en
Graphic design and layout
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