Societatea Energetica Electrica S.A Annual Report 2015

Plain-text annual report

ANNUAL REPORT 2015 SUMMARY 002 KEY FIGURES ELECTRICA GROUP 163 2015 DIRECTOR’S REPORT (INDIVIDUAL) 007 MESSAGE FROM CRISTIAN BUŞU, CHAIRMAN OF THE BOARD OF DIRECTORS ELECTRICA SA 201 SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 009 MESSAGE FROM IULIANA ANDRONACHE, CEO ELECTRICA SA 011 2014 DIRECTOR’S REPORT (CONSOLIDATED) 099 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 159 INDEPENDENT AUDITORS’ REPORT FOR CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 240 INDEPENDENT AUDITORS’ REPORT FOR INDIVIDUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 243 ”COMPLY OR EXPLAIN” STATEMENT PROVIDED BY THE CORPORATE GOVERNANCE CODE OF BUCHAREST STOCK EXCHANGE FEBRUARY 29TH 2016 252 DECLARATION OF THE MANAGEMENT 1 ANNUAL REPORT 2015 ELECTRICA SAKEY NUMBERS KEY FIGURES ELECTRICA GROUP Operational results Distributed energy (Twh) Number of users (mil.) Supplied energy on retail (Twh) Number of customers (mil.) 2013 2014 2015 16.1 3.57 9.7 3.57 16.3 3.62 9.2 3.59 17.1 3.65 10.1 3.61 Number of employees at period end 12,780 11,740 10,539 Financial results Revenues (mil. RON) EBITDA (mil. RON) EBIT (mil. RON) 5,383 5,044 5,503 624 869 922 298 511 569 Profit for the year attributable to the owners of the company (mil. RON) 213 297 363 Profit for the year attributable to the owners of the company excluding transferred minority shareholdings (mil. RON) 150 297 363 Net cash from operating activities (mil. RON) Capital expenditures (mil. RON) EPS (RON) 501 981 743 367 465 551 1.03 1.07 1.07 ELECTRICA SIGNIFICANT SUBSIDIARIES AND KEY FIGURES 22% 78% Electrica Furnizare (EF) l 3.61 mil consumers l Market share 21% l Revenues: RON 4,488 mil l EBITDA: RON 165 mil l Supplied volume on retail market: 10.1 TWh Electrica Distributie Transilvania Nord (EDTN) Electrica Distributie Transilvania Sud (EDTS) Electrica Distributie Muntenia Nord (EDMN) l 1.23 mil users l Market share 11.6% l Revenues: RON 858 mil l EBITDA: RON 276 mil l Distributed volume: 4.9 TWh l 1.11 mil users l Market share 13.2% l Revenues: RON 840 mil l EBITDA: RON 276 mil l Distributed Volume: 5.6 TWh l 1.3 mil users l Market share 15% l Revenues: RON 872 mil l EBITDA: RON 263 mil l Distributed Volume: 6.5 TWh 100% Electrica Serv (E.S.) l Revenues: RON 396 mil l EBITDA: RON (5.5) mil EDTN EDTS EDMN SUPPLY DISTRIBUTION 2 ANNUAL REPORT 2015 ELECTRICA SAKEY NUMBERS SUMMARY CONSOLIDATED FINANCIALS Consolidated Revenues (RON mil) 5,383 414 5,044 273 5,503 347 4,969 4,771 5,156 Adjusted EBITDA (RON mil) and Adjusted EBITDA Margin (%) 17% 17% 11% 602 884 925 2013 2014 2015 2013 2014 2015 Revenues from Green Certificates Revenues (ex-Green Certificates) Net Profit (RON mil) Capital Structure: Net Debt / (Net Cash) Position (RON mil) 8% 9% 2013 2014 2015 (298) 413 482 4% 63 213 2013 2014 2015 NP Related to Equity Accounted Investments NP Group NP Margin (2,551) (2,534) Earnings and gross dividends per share (RON) 1.0300 1.0700 1.0700 0.72 0.86 0.11 2013 2014 2015 Earnings per share Gross Dividend per share 3 ANNUAL REPORT 2015 ELECTRICA SADISTRIBUTION Distributed Volumes (TWh) 16.07 3.08 16.31 3.09 5.61 5.85 17.07 3.24 6.17 7.38 7.37 7.66 Capital expenditures 2013 – 2015 (RON mil) 551 465 367 2013 2014 2015 2013 2014 2015 Low Voltage High Voltage Medium Voltage The structure of Electrica Group’s investments in 2015 3% Studies 11% Independent Equipment 5% Other 5% Electricity Quality 35% Continuity of supply 30% Energy Efficiency (OTC Reduction) 11% Operating Efficiency KEY NUMBERS 4 ANNUAL REPORT 2015 ELECTRICA SAKEY NUMBERS SUPPLY Volumes of electricity supplied on retail market (TWh) 10.4 2.9 7.5 9.7 2.8 6.9 9.2 3.4 5.8 10.1 4.7 5.4 2012 2013 2014 2015 Regulated Competitive SUPPLY MARKET SHARE (21.4% OVERALL) – SEPTEMBER 2015 Regulated market Competitive market 12% E.ON Energie Romania 20% Enel Energie Muntenia 8% Enel Energie 18% Enel Energie 46% Others 12% CEZ Vanzare 38% Electrica Furnizare 6% E.ON Energie Romania 5% CEZ 5% Arelco Power 14% Electrica Furnizare 11% Tinmar Ind 5% Repower Furnizare Romania 5 ANNUAL REPORT 2015 ELECTRICA SA6 ANNUAL REPORT 2015 ELECTRICA SA2015was a year of major changes for Electrica. Besides the remarkable financial and operational results, this year we intended and succeeded to make a quantum leap in the company’s reorganization. The journey was not easy because the process of re-structuring and modernization is a profound one. The important thing is that we are on the right path. In 2015, the financial result of Electrica SA has significantly improved compared to the previous year, mainly influenced by the distribution segment performance, but also by a resettlement of the activity in the sector of energy services. The three distribution companies of Electrica Group serviced about 3.65 million customers and distributed about 40% of the total electric power distributed nationwide. As regards the supply activity, Electrica Supply remained the leader in the regulated market as well as in the competitive one, with a market share of about 38% and over 14%, respectively, according to the latest data published by ANRE. These figures are important and speak a lot about people’s achievements in this company, but our ambitions do not stop there. We intend to expand our leading position in the sectors of electricity supply and distribution, both nationally and regionally. Of course, in all our major decisions we are guided by our main goals: to offer long- term value to the company shareholders while providing excellent service to our customers. Results of implemented or under implementation started to be visible. We have a new organizational structure and we work every day to building a new Electrica culture, centered on ethics and integrity, because we want to focus on people’s development and involvement. At the same time, practical measures to increase service quality, operational efficiency, and also to adopt reforms CRISTIAN BUȘU Chairman of the Board the best practices of corporate governance are undeniable. Moreover, we are building a solid foundation allowing us to be able to successfully face the current market environment and future challenges, whether they are related to the often sudden changes of the regulatory framework, to the technology developments or, simply, to the change in customer needs. Projections state that in the coming period, energy consumption will increase, so we also take into account, naturally to a moderate extent, an increase in volumes consumed. We are a company with enviable investment availability, so we intend to drive our investments in three major directions: in our networks, we analyze acquisition opportunities and, not least, we invest in people and the communities where we operate. 2015 was a tumultuous year for the energy sec- tor, culminating in its last days with the changing of methodology for setting distribution tariffs and implicitly with new rates effective as of January 1st 2016. I only want to say that, besides any interest, we need an attractive legislative and economic framework to stimulate investment and sustain- able development of the business environment. Predic tability requires continuity and a vision to adhere to if we are to achieve our goals and build a sustainable company and business. 2015 was also the first full year of activity on the stock market for Electrica that, obviously, has brought us more visibility and, at the same time, transparency. It should be noted that for this whole period, Electrica shares have had a performance above the market average, which makes us proud. I am sure that, based on Electrica listing model, this is an exercise which will be followed by other companies in which the state still holds a majority stake. 2015 was the first full year of activity on the stock market for Electrica that, obviously, has brought us more visibility and, at the same time, transparency. 7 ANNUAL REPORT 2015 ELECTRICA SA8 ANNUAL REPORT 2015 ELECTRICA SAIULIANA ANDRONACHE CEO of Electrica SA 2015 was the year when Electrica started a true marathon, a marathon of major changes for the company. Of course, the listing in July 2014 meant, symbolically speaking, a historical milestone, but what happened last year represents the start of a test of strength, tenacity and courage. The market and the world we live in, in general, are constantly changing and we must quickly adapt in order to meet daily challenges. The steps Electrica has taken since the listing and up until now are outstanding and it is worth mentioning that they follow the right path. But the reform of the company has not been completed yet. The specific measures to improve productivity and service quality, especially the joint effort of people from Electrica, made 2015 a year of financial and operational results considerably better than those obtained in the past. We continued to invest in our networks, in technology, and the results are seen in improved performance indicators. We managed to achieve an important progress not only in providing better services to our customers or long-term plus value for shareholders, but also a conducive, safe and secure work environment for the Group’s employees. The pace of change around us also changes the field in which we operate, a very technical one until not very long ago, that is slowly turning into an almost IT sector, and at the same time, more open to people and the needs of others around us: customers, investors and employees. We anticipated that and we continued to invest not only in top networks and technology, but especially in people and community. We have assumed and will continue to assume the social responsibility to support important projects for the Romanians, like we did in 2015 as partners of the largest cultural event taking place in Romania, George Enescu International Festival. In 2015 we also tried to implement the best corporate governance practices and we managed to lay the foundation for developing a modern organizational culture centered on ethics and integrity. We have a new code of ethics, plus a whistleblowing platform to very high standards. So far, we have come through the normal stages of this process to transform Electrica Group for the better. There are more to come… We are a large company, a leader in the distribu- tion and supply of electricity in Romania and ex- pectations for our part are accordingly high. We have a clear vision, we have important strategies and plans for the future. We are trying to broaden our horizons in view of possible investments in the region, but not only that. We also consider an expansion of our business portfolio by developing certain value- added services. We want to evolve year after year. And so far we have succeeded. 2015 was a good year. We intend to make 2016 even better. The steps Electrica has taken since the listing until now are obvious and, important to say, such steps are made the right way. 9 ANNUAL REPORT 2015 ELECTRICA SA10 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 11 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015SUMMARY Identification details of the issuer 1 Results of Electrica Group in 2015 1.1 Key financial data 1.2 Key events in 2015 1.3 Key data by business 2 Electrica Group overview 2.1 General overview 2.2 Mission, vision, values 2.3 Key elements of the 2015 – 2018 Strategic Plan 2.4 Outlook 3 Operating activity 3.1 Operating segments 3.2 Acquisitions 3.3 Sales activity 3.4 Reorganization and disposal of assets 3.5 Personnel 3.6 Environmental considerations 3.7 Research and development activities 3.8 Risk management 4 Fixed assets 5 Capital market 16 17 17 19 21 25 25 27 27 28 31 31 34 35 37 38 41 41 42 47 51 6 Management of the Group 55 6.1 The Board of Directors of Electrica S.A. 55 6.2 The activity of the Board of Directors of Electrica S.A. and of its Consultative Committees 58 62 6.3 Boards of Directors of Electrica subsidiaries 62 6.4 Executive management of Electrica S.A. 63 6.5 Executive management of Electrica S.A. subsidiaries 64 6.6 Number of shares owned by the managers of the Electrica Group 7 Corporate governance 7.1 General Meeting of Shareholders 7.2 Corporate Governance Code 7.3 Implementing action plans undertaken by signing the framework agreement with EBRD 7.4 The corporate governance action plan 7.5 The environmental and social responsibility plan 8 Financial overview 8.1 Consolidated statement of the financial position 8.2 Consolidated statement of profit and loss 8.3 Consolidated cash flow statement 9 Post balance sheet event Appendix 1 – Litigations Appendix 2 – Details of main investments in 2015 by the Electrica Group Appendix 3 – Internal audit report for 2015 65 65 66 66 67 69 71 71 77 83 85 86 96 98 12 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015GLOSSARY ACER ANRE BPS BoD BRP BSE CAPEX CCM CEE CGC CIRED CISO CMUS CNTEE COO OTC DSO EBIT EBITDA EDB EDD EDM EDMN EDTN EDTS ELSA EGMS EU EUR FDEE GC GDP GDR GMS GWh G.D. HV IAS IFRIC IFRS IMS IPO IR KPI kV LSH LV MV MWh NAFA NCI NEN NRC OGMS Agency for the Cooperation of Energy Regulators Romanian Energy Regulatory Authority Basis points Board of Directors Balancing Responsible Party Bucharest Stock Exchange Capital Expenditure Component of the Competitive Market Central-Eastern Europe Corporate Governance Code International Conference on Electricity Distribution Chief Information Security Officer Centralised Market for Universal Service The National Transmission System Operator Chief Operating Officer Own Technological Consumption Distribution System Operator Earnings before interest and tax Earnings before interest, tax, depreciation and amortization Enel Distributie Banat Enel Distributie Dobrogea Enel Distributie Muntenia Electrica Distributie Muntenia Nord Electrica Distributie Transilvania Nord Electrica Distributie Transilvania Sud Electrica S.A. Extraordinary General Meeting of Shareholders European Union European monetary unit The distribution subsidiaries in the Electrica Group Green Certificates Gross Domestic Product Global Depositary Receipts General Meeting of Shareholders Giga Watt hour Government Decision High Voltage International Accounting Standards International Financial Reporting Interpretations Committee International Financial Reporting Standards Integrated Management System Initial Public Offering Investor Relations Key Performance Indicators KiloVolt Labour safety and health Low Voltage Medium Voltage MegaWatt hour National Agency for Fiscal Administration Non-controlling Interests National Electricity Network Nomination and Remuneration Committee Ordinary General Meeting of Shareholders 13 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015GLOSSARY OPCOM OTC PCB RAB REMIT ROA RON RRR SCADA SDFEE SSC TESA TWh UM USD VAT Romanian Gas and Electricity market operator Own Technological Consumption Polychlorinated Biphenylsor Regulated Asset Base Regulation on Wholesale Energy Market Integrity and Transparency Return on Assets Romanian monetary unit Regulated Return Rate Supervisory Control And Data Acquisition Societatea de Distributie si Furnizare a Energiei Electrice Shared Service Center Tehnical, Economic and Socio-Administrative TeraWatt hour Unit of Measurement United States Dollar Value Added Tax 14 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Figure 1 Consolidated income of Electrica Group (RON mil.) Figure 2 Adjusted EBITDA (RON mil.) and adjusted EBITDA margin (%) Figure 3 Net profit (RON mil.) Figure 4 Net debt/(Cash) (RON mil.) Figure 5 Romanian electricity distribution map Figure 6 Evolution in number of customers (thousands) Figure 7 Quantity distributed (TWh) Figure 8 Revenues from distribution (RON mil.) Figure 9 EBITDA – distribution segment (RON mil.) Figure 10 Net profit – distribution segment (RON mil.) Figure 11 Net debt/(Cash) – distribution segment (RON mil.) Figure 12 Supply revenues (RON mil.) Figure 13 EBITDA – supply segment (RON mil.) Figure 14 Net profit – supply segment (RON mil.) Figure 15 Net debt / (Cash) – supply segment (RON mil.) Figure 16 Group entities as of December 31st, 2015 Figure 17 Electrica Group Corporate Values Figure 18 The geographical coverage of the companies in the Electrica Group Figure 19 Market share of distribution segment in 2014 Figure 20 Regulated Market, 2015 Figure 21 Competitive Market, 2015 Figure 22 Volume of electricity supplied on retail market (TWh) Figure 23 Evolution in number of consumers (thousand) Figure 24 Consumers by volume of electricity supplied, 2015 Figure 25 Consumers by revenues, 2015 Figure 26 Number of BRP Electrica members Figure 27 BRP Electrica share with regards to electricity consumption in 2015 Figure 28 The structure of Electrica Group’s investments in 2015 Figure 29 Share price history on BSE, together with the most important events occurred between the first day of trading and March 4th, 2016 (RON) Figure 30 Global depositary receipts’ price history on LSE, together with the most important events occurred between the first day of trading and March 4th, 2016 (USD) Figure 31 Comparative performance of Electrica’s share price and BSE indices BET, BETNG and BETFI (%, as compared with the first day of trading, July 4th, 2014) Figure 32 Monthly trading volume and average monthly closing price of shares on BSE (in RON) and GDRs on LSE (in USD) Figure 33 Shareholders’ structure at 3 March 3rd, 2016 Figure 34 Distribution segment revenues (RON mil.) Figure 35 Distribution segment EBITDA (RON mil.) Figure 36 Distribution segment net income (RON mil.) Figure 37 Distribution segment net debt/ (cash) (RON mil.) Figure 38 Revenues for the supply segment (RON mil.) Figure 39 EBITDA for the supply segment (RON mil.) Figure 40 Net profit of the supply segment (RON mil.) Figure 41 Net debt/ (Cash) for the supply segment (RON mil.) 17 17 18 18 22 22 22 23 23 23 23 24 24 24 24 25 27 31 35 35 35 36 36 36 36 37 37 50 51 51 53 53 65 79 79 80 80 81 81 81 81x 15 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015IDENTIFICATION DETAILS OF THE ISSUER Report date: March 11th, 2016 Name of the Issuer: Societatea de Distributie si Furnizare a Energiei Electrice Electrica S.A. Headquarter: 9, Grigore Alexandrescu Street, 1st District, Bucharest, Romania Telephone/fax number: +4021.208.5999; +4021.208.5998 Fiscal code: RO13267221 Trade Registry No: J40/7425/2000 Share capital: 3,459,399,290 RON subscribed and paid Main characteristics of issued shares: 345,939,929 ordinary shares of 10 RON nominal value, issued in dematerialized form and freely transferable, nominative, tradable and fully paid. Regulated market where the issues securities are traded: As at December 31st, 2015 the Company shares are listed on the Bucharest Stock Exchange and Global Depositary Receipts are listed on the London Stock Exchange. Ordinary Shares GDR ISIN ROELECACNOR5 US83367Y2072 Bloomberg Symbol Currency 0QVZ RON Nominal Value 10 RON ELSA:LI USD 40 RON Stock Market Bursa de Valori Bucuresti REGS London Stock Exchange MAINMARKET Ticker EL ELSA Free translation, the Romanian version of the document will prevail in the event of discrepancies with the English version 16 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20151 RESULTS OF ELECTRICA GROUP IN 2015 1.1 KEY FINANCIAL DATA In 2015, the financial results of Electrica improved significantly as compared to the previous year, being mainly influenced by a positive result of the supply business and by a higher profitability of the distribution business. The Group’s income in 2015 and 2014 amounted to RON 5,503 million and, respectively, RON 5,044 mil- lion. The increase in income by RON 459 million or 9% in 2015 as compared to 2014 is based on higher income for both supply and distribution businesses: (mil. RON) Income Other income Operational costs Adjusted EBITDA3 EBIT Profit before taxes Net profit 2015 5,503 211 (5,145) 925 569 589 482 20141 5,044 177 (4,710) 884 511 524 413 20132 5,383 128 (5,213) 602 298 349 276 As presented in the charts below, the EBITDA margin was relatively constant in 2015 compared to 2014, and the net profit margin increased from 8% to 9%. On December 31st, 2015, the Company’s equity structure presented a Net debt/(Cash)4 position of minus RON 2,534 million, mainly influenced by the funds obtained from the Company’s IPO on July 4th, 2014. FIGURE 1 Consolidated income of Electrica Group (RON mil.) FIGURE 2 Adjusted EBITDA (RON mil.) and adjusted EBITDA margin (%) 5,393 414 5,044 273 5,503 347 4,969 4,771 5,156 17% 17% 11% 602 884 925 2013 2014 2015 2013 2014 2015 Revenues from Green Certificates Revenues (ex-Green Certificates) EBITDA EBITDA margin Source: Electrica Source: Electrica 1 Retreated due to the application of IFRIC 21 starting with January 1st 2015 2 Retreated due to the application of IFRIC 12 and the new standards, with initial application date January 1st 2014 as per IFRS-EU; Retreated due to the application of IFRIC 21 starting with January 1st 2015 3 The Company defines Group adjusted EBITDA as Group EBITDA adjusted for non-recurring events (i) consolidated impairment / reversal of impairment of trade and other receivables, net and (ii) consolidated write down / reversal of write down of inventories, net. 17 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015FIGURE 3 Net profit (RON mil.) FIGURE 4 Net debt/(Cash) (RON mil.)1 8% 9% 2013 2014 2015 (298) 413 482 4% 63 213 2013 2014 2015 NI Related to Equity Accounted Investments NI Group NI Margin (2,551) (2,534) Net debt/(Cash) Source: Electrica Source: Electrica Liquidity Cash and cash equivalents include cash balanc- es, demand deposits and deposits with maturity up to three months from the acquisition date, that have an insignificant exposure to the risk of change in fair value and are used by the Group for the management of short-term commitments. (RON mil.) Bank current accounts Call deposits Cash in hand Treasury bills and government bonds with original maturity less than 3 months Total cash and cash equivalents in the consolidated statement of financial position Overdrafts used for cash management purposes Total cash and cash equivalents in the consolidated statement of cash flows Deposits, treasury bills and government bonds Source: Electrica December 31st, 2015 December 31st, 2014 123 679 0.3 91 893 (66) 828 1,988 77 1,352 0.3 199 1,629 (48) 1,581 1,221 Cash and cash equivalents include treasury bills and government bonds denominated in RON for the amount of RON 90,865 thousand, with initial maturity of three months or less and average in- terest rate (average return) of 0.56% per year. The treasury bills and government bonds include treasury bills and government bonds amounting to RON 1,756,339 thousand, denominated in RON, with original maturity of more than three months and average interest rate of 0.93%, as well as deposits with a maturity of more than three months, amounting to RON 231,542 thou- sand. Deposit, treasury bills and government bonds have been presented as investments held until maturity. The Company strategy was to place IPO proceeds in risk-free securities and short-term deposits. 1 Net debt/ (Cash) is defined as bank borrowings+ bank overdrafts + financial leases + funding for concession agreements less cash and cash equivalents, bank deposits and treasury bills and government bonds. 18 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20151.2 KEY EVENTS IN 2015 Main events of 2015:  Corporate governance related  Executive management related • Starting July 4th, 2014 the Company’s shares are listed on Bucharest Stock Exchange, and the GDRs are listed on London Stock Ex- change. Following the admission to trading on the regulated markets in Bucharest and London, Electrica has made major steps to- wards aligning to the best practices of pub- licly listed companies by putting in place a corporate governance action plan, defining clear lines of responsibility and accountabil- ity, implementing a code of ethics and pro- fessional conduct, evaluating management through an external party and implementing a whistleblowing policy. • The most important 2015 resolutions of the General Meeting of Shareholders (December 14th, November 10th, September 9th, July 9th and April 27th) refer to: - Election of a Board of Directors with seven non-executive members. Details about its composition may be found in Chapter 6. - Approval of new Articles of Association in November 2015. The main changes refer to the modification of the number of directors and of the selection method for the candi- dates. - Mandating the Board for starting negotia- tions with Fondul Proprietatea for acquiring the minority shareholdings in its DSOs and supply subsidiaries. - Approval of the CAPEX plan consolidated at group level and income and expenses budgets for Electrica S.A. and its subsidiaries (Note: the 2015 CAPEX plan consolidated at group level was initially rejected on April 27th, 2015, then approved on July 9th, 2015). - Approval of the 2014 financial statements and of the profit distribution for Electrica and its subsidiaries. - Rejection of the new framework - manage- ment agreement for directors and of the new proposed remuneration of the mem- bers of the Board of Directors. - Approval of the general limits of remuner- ation for the managers having a mandate agreement. • On November 17th, 2015 Mr. Victor Vlad Grigorescu was appointed Minister of Ener- gy in the Ciolos Government and resigned from his position of director. On November 19th, 2015, the Board of Directors appointed a temporary director, until December 14th, 2015. • In July and October, the Board appointed four executive managers with mandates; at the date of the current report, two executive managers positions are not occupied: COO and CISO. • The new organisational structure and the corresponding processes were approved by the Board of Directors in April 2015. The im- plementation is done in steps, out of which the first step is a transitional one, during which the structures and the processes are refined and consolidated. The project will be finalized and subsequently started for the subsidiaries (during 2016).  Distribution activity related • Preparation of the updated investment plans for the three distribution service oper- ators in accordance with the Offering Pro- spectus and with the methodology and the requirements of the regulation authority. The total value of the investment plans accept- ed by ANRE for the entire regulatory period (2014–2018) is 3.2 billion RON (in nominal terms, adjustable by inflation). • The decisions for establishing the distri- bution tariffs applicable starting January 1st, 2016 were published on December 14th, 2015, while the detailed supporting doc- umentation containing the tariff elements were made available by ANRE in January 2015; • ANRE approved, as a matter of urgency, the modification of the Methodology through Order no. 165 on December 7th, 2015. • Electrica, its distribution and supply sub- sidiaries registered in 2015 in the National registry for the participants to the wholesale energy market, in accordance with the Reg- ulation on wholesale Energy Market Integrity and Transparency (“REMIT”) and obtained the unique ACER code. Agreements with OP- COM were concluded (under the Registered reporting mechanism) for reporting transac- tions data to ACER. For 2015, the reporting was done free of charge, as per the ANRE provisions from letter no. 67619/21.09.2015. • Electrica and its subsidiaries have filed in 2016, as claimants, several legal actions having as object the annulment and suspension of certain orders issued by the ANRE president: action for the annulment, respectively for the suspension of the ANRE Order No. 165/2015 for modification of the Methodology for es- 19 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015tablishing the tariffs for electric energy distri- bution service, approved by ANRE’s president Order No. 72/2013 (Order 165/2015); actions for the partial annulment, respectively for the partial suspension (regarding the specific tar- iffs) of the ANRE Order No. 171/2015 for the approval of specific tariffs for the electric en- ergy distribution service and of the price for reactive electric energy for EDTS; actions for the partial annulment, respectively for the par- tial suspension (regarding the specific tariffs) of the ANRE Order No. 172/2015 for the ap- proval of specific tariffs for the electric energy distribution service and of the price for reac- tive electric energy for EDMN. • In January 2015, Electrica and its subsidi- aries have filed, as claimants, actions for the annulment of the ANRE president Order No. 146/2014 and for repealing Article 122 of the Methodology for establishing the tariffs for electric energy distribution services. Electrica has also requested, through the same action, as a direct consequence of the annulment of Order no. 146/2014, the annulment of the orders for establishing the tariffs for the dis- tribution operators. The Group has also initi- ated actions for the annulment of the ANRE orders for establishing the tariffs starting with January 1st, 2015. • In November 2015, the court annulled the ANRE order for establishing the 2015 distri- bution tariff for EDTN. The decision may be challenged by ANRE.  Supply activity • Coming into force of the first exception agreements of energo-intensive clients based on G.D. no. 495/2014, some of them being large companies, clients of Electrica Furniza- re, on the competitive market. • The price liberalization calendar continued. ANRE approved the Methodology for estab- lishing last resort suppliers’ tariffs to final cli- ents (Order no. 92/2015). Through this meth- odology, starting with the second half of 2015, the phases and calculation principles for these tariffs were decided upon. • On March 1st, 2015 came into force ANRE Order no. 115/2014 regarding the approval of the Rules regarding monthly settlement of payment obligations in the balancing market and the imbalances between the parties in charge with the balancing. • Starting with the second half of 2015, ac- quisition of electricity to cover electric power consumption at CCM tariff has been done by simultaneous tenders with decreasing price on the Centralized Market for Universal Ser- 20 legislation in primary vice, managed by OPCOM. • On December 17th, 2014, European Com- mission adopted the Regulation (EU) no. 1348/2014 regarding data reporting for the enforcement of article 8, paragraphs (2) and (6) of the Regulation (EU) no. 1227/2011 of the European Parliament and Council regard- ing the integrity and transparency of energy wholesale market. The regulation implies additional obligations for the market players, among which the obligation to report the details on wholesale energy products sold on regulated markets, including standard contracts and trading orders, correlated and uncorrelated by the Agency for Cooperation of Regulatory Authorities in Energy (ACER). The obligation to report the trading data admitted on specialized platforms of regu- lated markets came into force starting Oc- tober 7th, 2015, while the obligation to report non-standardized contracts on wholesale energy market will come into force starting with April 7th, 2016. • Changes (adjust- ments to Law no. 220/2008 through Law no. 122/2015) and in secondary legislation (ANRE Order no. 101/2015) regarding the promo- tion of electricity production from renewable energy sources and the state aid scheme re- garding the exemption of some categories of final consumers from the application of Law no. 220/2008. • Retail sales of Electrica Furnizare increased in 2015 by 9.3% compared to 2014. • The market share of Electrica Furnizare on retail market for January-September 2015 period was 21.4%, compared to 20.8% during the same period of 2014. • Electricity price liberalisation continued throughout 2015, the percentages of elec- tric energy acquisition from the competitive market for home clients who did not use their eligibility right were the following: 40% since January 1st, 2015 and 50% since July 1st, 2015. • The launch of the Centralized Market for Universal Service (“CMUS”): starting with April 1st, 2015, the electricity volumes necessary for final clients eligible for universal service were acquired based on the contracts con- cluded following simultaneous auctions with decreasing bid on the Centralized Market for Universal Service. Regarding distressed subsidiaries, the process of reducing their activity was continued: • SE Moldova – during 2015 went through a voluntary liquidation procedure; tenders ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015have been organised by the liquidator to capitalize the assets; entered bankruptcy in January 2016. • SE Dobrogea – entered bankruptcy in Jan- uary 2015; tenders have been organised by the liquidator to capitalize the assets. • SE Banat entered bankruptcy in August 2014; the company has not yet been dereg- istered. • SE Oltenia – insolvency with reorganization since May 2014. The reorganization plan was approved by the Creditors’ Meeting in May 2015, and confirmed by the court in June 2015; SE Oltenia had 224 employees as at end of 2015; • SE Muntenia – insolvency with reorgani- zation since November 2014. The reorgan- ization plan was approved by the Creditors’ Meeting in November 2015, and confirmed by the court in November 2015; SE Muntenia had 285 employees as at end of 2015. 1.3 KEY DATA BY BUSINESS DISTRIBUTION BUSINESS Essential information • Electricity distribution in Romania is controlled currently by eight authorized electricity distri- bution system operators (“DSOs”). • Each company is responsible for the exclusive distribution of electricity in the region for whi- ch it is authorized, under a concession agree- ment with the Romanian state through the Mi- nistry of Energy. • Electrica and Enel each own three distribution companies, while CEZ and E.ON own the re- maining two. • The Regulated Assets Base (RAB) in 2015 was RON 4,423 million. • 194,666 km of electric lines - 7,577 km for High Voltage (“HV”), 44,782 km for Medium Voltage (“MV”) and 142,307 km for Low Voltage (“LV”). • Total area covered: 97,196 km2, 40.7% of Ro- mania’s territory. • 3.65 million users in 2015 for the distribution activity. • 17.1 TWh of electricity distributed in 2015, an increase of 5% as compared to 2014. • Electrica is a key player in the electricity distri- bution sector, both in terms of areas covered and number of users served. • 39.8% market share for the distribution of elec- tricity to final users in 2014 (based on distributed quantities according to ANRE annual report 2014). 21 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015FIGURE 5 Romanian electricity distribution map EDTN EMD EDB EDTS CEZ EDMN EDM EDD Source: Electrica The three electricity distribution companies, part of Electrica Group, delivered electricity in 2015 to about 3.65 million customers (or a volume of more than 17 TWh). Electrica’s DSOs distributed about 39.8% of the total electricity distributed on a national level in 2014, maintaining an average market share of 39% during 2012-2014, market share which is expected to remain constant in the following period. FIGURE 6 Evolution in number of customers (thousands) FIGURE 7 Quantity distributed (TWh) 8,969 9,051 9,135 5,450 5,486 5,515 41 25 41.1 40.5 25 24.2 3,519 3,565 3,620 16 16,1 16.3 2012 Electrica 2013 Others 2014 2012 Electrica 2013 Others 2014 Source: Electrica Source: Electrica 22 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Key financial indicators Revenues from the distribution business in- creased by RON 138 million, or 5.6%, to RON 2,613 million in 2015, compared to RON 2,475 million in 2014. This was a direct consequence of increases in the volumes of electricity distributed. Electrica Serv presented a slight improvement in terms of external revenues (services to compa- nies outside the distribution segment) from RON 22 million in 2014 to RON 33 million in 2015. The increase in revenues, the reduction of costs of energy acquired to cover network losses, as well as improving employee costs and other op- erational expenses, have all led to a growth of RON 107 million or 15.3% of EBITDA for the distri- bution business. The EBITDA margin increased by 261 bps in 2015, from 28.36% in 2014 to 30.97% in 2015, mainly owing to the performance of EDTS (637 bps im- provement from last year). FIGURE 8 : Revenues from distribution (RON mil.) FIGURE 9 EBITDA – distribution segment (RON mil.) 2,613 2,475 556 702 809 2,282 2013 2014 2015 2013 2014 2015 Source: Electrica Source: Electrica FIGURE 10 Net profit – distribution segment (RON mil.) FIGURE 11 Net debt/(Cash) – distribution segment (RON mil.) 2013 2014 (28) 2015 (8) 317 377 (139) 186 2013 2014 2015 Source: Electrica Source: Electrica SUPPLY BUSINESS Essential market data (ANRE Report - Septem- ber 2015) • The supply market is composed of the regulat- ed market and the competitive market. • There are five last resort suppliers on the regu- lated market. • The competitive market includes 94 suppliers (including the last resort suppliers active on the competitive segment of the retail market) of which 86 are relatively small (<4% market share). Electrica Furnizare is the market leader in both the regulated and competitive market, with a market share of 37.98% and, respectively, 14.13% in 2015 (ANRE report, September 2015). As a compari- son, in 2014, Electrica Furnizare had a regulated market share of 38.28% and competitive market share of 11.7% (ANRE report in December 2014). In 2015, the total electricity supplied by Electri- ca increased by approximately 7.6% compared to 2014. The company experienced a 38% increase in the quantity of electricity sold on the competi- tive market, as an aggregate effect of attracting new customers through advantageous price of- fers and in line with market conditions regarding customers switching from the regulated to the competitive market. The net revenues (excluding revenues from Green Certificates) from the supply activity in- creased by RON 281 million or 7.3% to 4,142 million RON in 2015, from RON 3,861 million in 23 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20152014. This was caused by an increase of 7.6% in the quantity supplied, which cancelled the effect of a 4.7% decrease in the average supply tariff. From a financial point of view, Electrica present- ed an EBITA decrease and a reduction in cash in 2015 compared to 2014, the latter representing a highly profitable year owing to a non-recurring circumstance, more specifically the reduced ac- quisition price of electricity over the year. The increase in electricity purchases by RON 376 million in 2015 compared to 2014 resulted in decreasing EBITDA by RON 68 million or 29%, which, along with an increase in revenue, result- ed in a decrease by 196 bps in the EBITDA margin from 5.63% in 2014 to 3.67% in 2015. The supply segment has a strong financial posi- tion, namely a cash position of RON 338 million, influenced by strong financial results in 2015. FIGURE 12 Supply revenues (RON mil.) FIGURE 13 EBITDA – supply segment (RON mil.) 4,780 414 4,366 4,133 272 4,488 347 3,861 4,142 5.6% 233 3.7% 165 2.4% 117 2013 2014 2015 2013 2014 2015 Revenues from Green Certificates Revenues (ex-Green Certificates) EBITDA EBITDA margin Source: Electrica Source: Electrica FIGURE 14 Net profit – supply segment (RON mil.) FIGURE 15 Net debt / (Cash) – supply segment (RON mil.) 1.9% 90 2013 4.3% 3.0% 2013 (50) 2014 2015 (403) (338) 180 136 2014 2015 Net profit Net profit margin Net debt / (Cash) Source: Electrica Source: Electrica 24 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20152 ELECTRICA GROUP OVERVIEW 2.1 GENERAL OVERVIEW Electrica S.A. (the “Company”) is the majority share- holder in Electrica Distributie Transilvania Nord S.A. (“EDTN”), Electrica Distributie Transilvania Sud S.A. (“EDTS”), Electrica Distributie Muntenia Nord S.A. (“EDMN”), Electrica Furnizare S.A. (“Electrica Fur- nizare”), Electrica Serv S.A. (“Electrica Serv”), Servicii Energetice Moldova S.A. (“SE Moldova”), Servicii Energetice Oltenia S.A. (“SE Oltenia”), Servicii En- ergetice Muntenia S.A. (“SE Muntenia”), together representing “the Group” or “Electrica Group”. On December 31st, 2015, the Company held all the shares in Servicii Energetice Banat (“SE Banat”) and Servicii Energetice Dobrogea (“SE Dobrogea”). However, starting with November 2014 it has lost control over SE Banat, and starting January 2015 over SE Dobrogea, as a result of the two com- panies entering bankruptcy proceedings. Conse- quently, the two companies were not consolidat- ed in the financial statements. The registered office of the Company is 9, Grig- ore Alexandrescu Street, District 1, Bucharest, Ro- mania. The Company has the unique registration number 13267221 and the Trade Register registra- tion number J40/7425/2000. According to De- cision no. 627/2000, the Romanian Government approved the setting up of Societatea Comercia- la de Distributie si Furnizare a Energiei Electrice „Electrica” S.A. As at December 31st, 2015 the biggest shareholder of Electrica S.A. is the Romanian State, represented by the Ministry of Energy (48.78%), after its owner- ship was diluted following the initial public offer in 2014. The second shareholder based on the share of ownership is EBRD with 8.66%. FIGURE 16 Group entities as of December 31st, 2015 22% 78% 100% 100% ELECTRICA FURNIZARE (EF) Electrica Distributie Transilvania Nord (EDTN) Electrica Distributie Transilvania Sud (EDTS) Electrica Distributie Muntenia Nord (EDMN) Electrica Serv (E.S.) SE Muntenia SE Oltenia SE Moldova EDTN EDTS EDMN SUPPLY ACTIVITY DISTRIBUTION ACTIVITY ENERGY SERVICES ACTIVITY 25 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015The Group’s subsidiaries are presented below: Subsidiary Electrica Distributie Muntenia Nord S.A. Electrica Distributie Transilvania Nord S.A. Electrica Distributie Transilvania Sud S.A. Activity Registration code Headquarters % stake as of December 31st, 2015 Electricity distribution in North Muntenia geographical area Electricity distribution in Northern Transylvania geographical area Electricity distribution in Southern Transylvania geographical area 14506181 Ploiesti 78.0000021% 14476722 Cluj-Napoca 77.999999% 14493260 Brasov 78.0000019% Electrica Furnizare S.A. Electricity supply 28909028 Bucharest 77.9999700% Electrica Serv S.A. Servicii Energetice Muntenia S.A. Servicii Energetice Moldova S.A. Servicii Energetice Oltenia S.A. Servicii Energetice Dobrogea S.A.* (in bankruptcy) Servicii Energetice Banat SA* (in bankruptcy) Services in the energy sector (maintenance, repair, construction) Services in the energy sector (maintenance, repair, construction) Services in the energy sector (maintenance, repair, construction) Services in the energy sector (maintenance, repair, construction) Services in the energy sector (maintenance, repair, construction) Services in the energy sector (maintenance, repair, construction) 17329505 Bucharest 29384120 Bucharest 29386768 Bacau 29389861 Craiova 29388378 Constanta 29388211 Timisoara 100% 100% 100% 100% 100% 100% *) Electrica S.A. has lost control over Servicii Energetice Banat S.A. in November 2014 and over Servicii Energetice Dobrogea S.A. in January 2015. Starting January 2016 SE Moldova has initiated the simplified insolvency procedure estimated to be finalized at the end of 2016. Source: Electrica The main activities of the Group include operation and development of electricity distribution net- works and activities related to electricity supply to final consumers. The Group is the electricity distri- bution operator and the main electricity supplier in North Muntenia (Prahova, Buzau, Dambovita, Braila, Galati and Vrancea counties), North Transyl- vania (Cluj, Maramures, Satu Mare, Salaj, Bihor and Bistrita-Nasaud counties) and South Transylvania (Brasov, Alba, Sibiu, Mures, Harghita and Covasna counties), operating with transformation stations and power lines ranging from 0.4kV to 110 kV. The Company’s distribution subsidiaries (EDTN, EDTS and EDMN) invoice the electricity distri- bution service to electricity suppliers (mainly to Electrica Furnizare subsidiary, the main electrici- ty supplier in North Muntenia, North Transylvania and South Transylvania), which further invoice the electricity consumption to final consumers. Electrica Furnizare is the supplier of last resort (defined as supplier designated by the regulatory authority to deliver the universal service of elec- tricity supply under specific regulated conditions) in North Muntenia, North Transylvania and South Transylvania areas. According to the regulations issued by ANRE, suppliers of last resort have the obligation to ensure the electricity supply to the final customers which have not exercised their el- igibility right (the right to choose their electricity supplier). The electricity supply for universal service and last resort customers is done based on regulated contracts, with ANRE regulated prices, based on regulated tariff for the last resort customers and a “component of the competitive market” (CCM) substantiated by the last resort suppliers and en- dorsed by ANRE. 26 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20152.2 MISSION, VISION, VALUES To continue succeeding over the long-term hori- zon, the Group has set its Vision, Mission and Valu- es, which represent the foundation for formulating and implementing its corporate goals, objectives and business strategy. VISION The Group’s vision is to expand its leading positi- on in the electricity distribution and supply market segments, both nationally and regionally. MISSION The mission of the Group is to deliver long term value to our shareholders by distributing and supplying electricity and providing exceptional FIGURE 17 Electrica Group Corporate Values services to our customers, in a safe, reliable, affor- dable and sustainable manner. VALUES The values exercised across all structures of the Group are presented in the figure below. Electrica established these values as guiding lines in achi- eving its strategic objectives and communicating them to both internal and external interested parties. They reflect the Group’s commitment to create an internal environment where integrity and ethics represent the corporate culture’s fun- damentals and are based on an open and transpa- rent communication approach. Commitment and focus towards customers Commitment towards labour safety Corporate values Professional approach Transparency and integrity Dynamism and flexibility Team spirit Sursa: Electrica Robust growth while demonstrating environmental and corporate social responsibility 2.3 KEY ELEMENTS OF THE 2015 – 2018 STRATEGIC PLAN On July 9th, 2015 Electrica’s Board of Directors presented to the Extraordinary General Meeting of Shareholders (EGMS) a document containing the main elements of the 2015 – 2018 Strategic Plan. The document reflects the Board’s vision on di- recting the business in the interest of its stake- holders in a mid to long term period. The Stra- tegic Plan details the goals and objectives of Electrica S.A. itself and with respect to its subsidi- aries (together referred to as “the Group” or “Elec- trica Group”), its corporate strategic directions and the action plan (“the Action Plan”) that the Board intends to follow in order to achieve them. The Strategic Plan has been formulated follow- ing an investigation of the following areas: • The macroeconomic environment, to deter- mine the main external factors affecting the energy sector and the key drivers that can shape the future of the electricity market; • Industry analysis, in order to identify future trends on the energy market, assessing the market attractiveness and determining the crit- ical success factors for competing and surviv- ing on this market; • Internal analysis of the Group to assess its past and current performance (relative to other market players). Based on the above-mentioned analyses, the 27 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Board has formulated the corporate and busi- ness strategies of Electrica with respect to the Group and has set out the strategic objectives and the Action Plan with measures that the Board intends to undertake. Electrica’s corporate strategic directions with re- spect to the Group are presented below. With respect to the Group, Electrica S.A. aims to: • Preserve and enlarge the distribution and sup- ply segments in Romania. • Explore potential opportunities to expand the distribution and supply segments in the region. • Enlarge the business portfolio by developing “value-added services” related to distribution and supply activities. • Divest the unprofitable business segments and activities. Electrica Group’s business strategy addresses three major strategic themes: operational ex- cellence for efficiency and quality, ensuring a committed and qualified workforce as well as the highest standards in corporate governance. The corporate strategic directions and the stra- tegic goals of Electrica with respect to the Group have been cascaded into strategic objectives. For each strategic objective, an Action Plan has been framed, alongside with Key Performance Indicators (KPI). Electrica envisages the following strategic ob- jectives with respect to the Group: 1. To enhance the overall financial performance of the Group. 4. To increase the quality of the provided ser- vices. 5. To improve employees’ productivity and sup- port their development. 6. Implementation by the subsidiaries of the dis- tribution segment investment programme. 7. Corporate Governance progress and en- hancement of the sustainability profile. Some of the measures are presented below, while the detailed Action Plan can be found on Electrica’s website. Under the Action Plan, Elec- trica aims to: • Divest unprofitable business segments and ac- tivities and ensure implementation by the sub- sidiaries of the restructuring programme for all its operating segments. • Create a Shared Service Centre (“SSC”) to cen- tralise and optimise common support activi- ties of the Group companies, within the legal framework. • Ensure implementation by the subsidiaries of the distribution investment plan. • Integrate various services and capabilities in the Group’s operations to create new “val- ue-added” services. • Increase transparency and communication with all stakeholders. • Implement an Information Security Policy at Group level. • Identify and implement measures aimed at reducing headcount to achieve peers’ perfor- mance. 2. To achieve excellence in financial processes • Train the personnel and capitalise on their po- management. 3. To enhance the overall operational perfor- mance of the Group. tential to increase labour productivity. • Continue the implementation of the Corporate Governance Action Plan agreed with EBRD. 2.4 OUTLOOK The energy regulatory framework has experi- enced major changes in the past decade, in- cluding market liberalization, unbundling, and support scheme for renewable energy. Other legislative changes that have recently occurred in Romania refer to the remuneration of the Ro- manian DSOs - according to the ANRE Order no. 146/2014, starting with 2015 the distribution operators’ RRR was reduced to 7.7% from 8.52%. Also, ANRE Order no. 165/2015 has modified art. 105 para. 1 from the Methodology of establish- ing the electricity distribution tariffs, eliminating the cap regarding the maximum percentages by which the distribution tariffs could be lowered, keeping however the limits concerning the maxi- mum percentage increase in these tariffs. ANRE’s changes of the distribution tariff setting methodology, including the change in remuner- ation (i.e., the RRR) all these during the regula- tory period, indicate a lack of predictability and stability of regulatory environment and a negative impact on the Groups’ distribution operators’ op- erational and financial performance. Other significant Romanian legislation changes, relevant for the supply activity, refer to: • Organising a centralized market for the uni- versal service – according to ANRE Order no. 65/2014, which, beginning with the second half of 2015 aimed to implement a transparent and competitive mechanism for electricity acquisi- tion by the suppliers of last resort for covering the consumption invoiced using the CPC tariff in the case of the universal service beneficiaries. • Approval of the methodology for establishing 28 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015the tariffs applied by the last resort suppliers to final customers – ANRE Order no. 92/2015, which, starting with the second semester of 2015, set out the calculation stages and princi- ples of these tariffs. Although these changes had the overall aim of converging the Romanian legislation towards EU legislation, the process has not been complet- ed, and major changes are expected to occur in the following years in all EU countries in order to progress towards completing the Internal En- ergy Market. Amongst these changes, we could mention: the implementation of a harmonized set of rules across member countries, increase in regional cooperation and a more active role for consumers. The Framework Strategy for a European Energy Union, adopted on February 25th, 2015 will highly influence the energy markets in all countries. The Energy Union is based on the three long-estab- lished objectives of EU energy policy and focuses on five mutually supportive dimensions: energy security, solidarity and trust; a fully integrated in- ternal energy market; energy efficiency as a con- tribution to the moderation of energy demand; decarburization of the economy; research, inno- vation and competitiveness. Considering the EU energy policies which have been developed, the following trends are expected to characterize the Romanian electricity market: • Through the completion of the liberalisation timetable, competition will increase at nation- al level amongst electricity suppliers. Regulat- ed electricity tariffs will continue to be relevant for households until January 2018 in Romania when they will be eliminated completely and the Universal Service will be available for vulner- able consumers. • A trend in electricity distribution activity is re- muneration of the operator which also takes into consideration the quality of their service, together with the operational costs and effi- ciencies. • To sustain the green energy production and the objectives due to be met after 2020, further in- vestments for upgrading the networks are nec- essary (transmission and distribution networks) for integrating the green energy production. • Future development of technologies will sup- port energy efficiency policies such as: - Development of transmission and distribution networks, including smart grid and smart me- tering. - End-use energy efficiency (thermal integrity of buildings, lighting, electric appliances, motor drives, heat pumps, etc.). • Full electric vehicles, light commercial vehicles and electrification of railways are expected to increase the consumption of electricity in the transport sector. • Development of the transmission and distribu- tion infrastructure and long-distance intercon- nection will become a necessity. The Electricity Market Target Model, which implies the devel- opment of Europe’s internal electricity market, will continue to evolve and be in line with future trends and challenges in the energy industry. • Distributed generation technologies will force the distribution operators to adapt their practic- es and to offer solutions to independent pro- ducers, considering the new prosumers, which are active participants in the energy market. • Future development of smart meters will ex- pose consumers to time-of-use pricing, which will lead to greater flexibility and reduce peak demand. Therefore, citizens will be more in- formed and engaged in the decision-making process as active participants. 29 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015The following table presents key drivers of changes in the electricity market: Key driver Description Impact on GDP evolution and industry structure Economic growth is a key determinant of electricity demand. Although there is not a one- to-one relationship between GDP growth rates and electricity demand growth rates, there is a positive correlation, mainly between the industrial demand for electricity and economic growth. In the future, household and industrial electricity demand will also be influenced by energy efficiency policies. Electricity consumption Changes in regulations The regulatory framework has experienced major changes aiming to align Romanian legislation that of the EU. Although important steps have been taken, other major changes are expected to occur in the next decade, particularly following the new Framework Strategy for a European Energy Union which highlights the need for integration and cooperation amongst member states. Also, changes of the methodology during the regulatory period, indicate a lack of predictability and stability of regulatory environment, with a negative impact on the distribution operators’ operational and financial performance. Electricity prices Technological development Smart grids and smart meters will create benefits for end consumers, distributors and suppliers in terms of energy efficiency and smarter use of energy, through more efficient use of information. Electricity prices and consumption Increase in environmental awareness Romania has adopted the EU 20-20-20 targets, aiming to reduce greenhouse gas emissions, improve energy efficiency and raise the share of renewable energy. Moreover, the 2030 Framework increases these targets and therefore more efforts are needed from governments and market players to achieve them. Electricity prices and consumption, regulatory framework Source: Electrica For elaborating its Strategic Plan for 2015 – 2018, Electrica considered the above mentioned fac- tors when formulating its corporate goals, objec- tives and strategy. The most important assump- tions which Electrica considered are as follows: • Romanian GDP will have a positive trend in the future and consequently the electricity con- sumption will increase at a moderate pace. • The legal framework will not change signifi- cantly and the liberalization timetable will conti- nue to be implemented in its current form. • Romania will maintain its commitment towar- ds achieving the 20-20-20 strategy for climate change and implement the new Framework for the period 2020-2030. • The remuneration mechanism for distribution companies will not change significantly. Howe- ver, the tariff type and regulated rate of return could be subject to changes. • There will be no major geopolitical turbulen- ces which will significantly affect the Romanian electricity market. • Financial markets will remain stable and the availability of finance sources will support com- panies’ investment programs. Please note that other factors not presented abo- ve and not considered by the Group may occur and may have a significant impact on the imple- mentation and evolution of the Group’s strategy. If these assumptions change, Electrica S.A. may update its strategy to reflect these changes. 30 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20153 OPERATING ACTIVITY 3.1 OPERATING SEGMENTS The operations of each reportable segment are summarized below. Segments Electricity supply Electricity distribution External electricity network services Headquarters Source: Electrica Operations Purchasing electricity and supplying electricity to final consumers (includes Electrica Furnizare and the trading and representation activity on the Balancing Market as Balance Responsible Party – BRP Electrica) Electricity distribution service (includes EDTN, EDTS, EDMN, Electrica Serv and the investments in the distribution activity done by Electrica) Repairs, maintenance and other services for electricity networks owned by other distributors (include SE Moldova, SE Oltenia and SE Muntenia) Includes corporate services at parent level The figure below shows the areas covered by the Group subsidiaries and the number of clients they serve. FIGURE 18 : The geographical coverage of the companies in the Electrica Group Electrica Distributie Transilvania Nord (EDTN) 1.2 mil. users EDTN EDTS EDMN Note: The diagram relates to the number of company’s clients on December 31st, 2015. Source: Electrica Electrica Distributie Transilvania Sud (EDTS) 1.1 mil. users Electrica Distributie Muntenia Nord (EDMN) 1.3 mil. users ELECTRICA FURNIZARE (EF) 3.6 mil. users 31 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015DISTRIBUTION SEGMENT Electrica’s distribution segment operates through its subsidiaries EDMN, EDTN, EDTS and Electrica Serv, the latter aimed at maintenance and repair of distribution networks. The distribution segment is limited geographically and by the services pro- vided. Thus, Electrica is the operator of electric- ity distribution in North Muntenia region (Praho- va, Buzau, Dambovita, Braila, Galati and Vrancea counties), Northern Transylvania (Cluj, Maramures, Satu Mare, Salaj, Bihor, Bistrita-Nasaud counties) and Southern Transylvania (Brasov, Alba Sibiu, Mures, Harghita and Covasna counties), operating transformer stations and transmission lines with voltages of 0.4 kV and 110 kV. The Group has exclusive distribution licenses for these regions valid for the next 12 years with ex- tension clause. Within its distribution business, Electrica provides equipment maintenance ser- vices, repair and other services for its network and to a smaller extent for third parties. Distribution segment contributes with the highest share to the operational profitability of Electrica. Electricity distribution is a regulated activity in Ro- mania and specific tariffs applicable to distribu- tion services must be approved by ANRE as a “tar- iff basket ceiling’’ mechanism as established by Order no. 31/2004 (applicable in the first regula- tory period 2005-2007), no. 39/2007 (applicable in the second regulatory period 2008-2012), no. 51/2012 (applicable in the transition year 2013) and no. 72/2013 (applicable in the third regulato- ry period 2014-2018), amended and completed by ANRE Order no. 146/2014, Order no.112/2014 and Order no.165/2015. The methodology “tariff basket ceiling” plans to reduce income fluctuations and avoid significant fluctuations in the electricity prices charged to consumers. The tariff model is based on the prin- ciple of remuneration through tariffs of control- lable costs recorded by the distribution operator, the Distributor’s main source of profit being the rate of return on capital invested in the distribu- tion activity. The tariffs are annually adjusted considering the operating performance reached, including the volumes of distributed electricity, amounts and acquisition price of electricity to cover the own technological cost (“OTC”), uncontrollable costs, change of revenues from reactive energy com- pared to the forecasted ones, depreciation and forecasted capital expenses, change of forecast- ed gross profit from other activities, as well as the difference between the assets return values de- termined by RRR cut down from 8.52% to 7.7%. ANRE Order no.165/2015 modified Art.105 para.1 of the Methodology of tariffs setting up for elec- tricity distribution service, in the sense of elimi- nating the maximum percentages by which the distribution tariffs could have been reduced, while keeping the percentage limits in case of distribution tariffs increase. The current regulatory period (“the third regula- tory period”) within which the Group is operating has started on January 1st, 2014 and will end on December 31st, 2018. Both the current regulatory framework, and the rules related to RAB determi- nation and to distribution tariffs are expected to remain unchanged, at least until the end of 2018. ANRE sets up the annual level of distribution tar- iffs in RON per MWh for each distribution compa- ny and for each voltage level (high, medium and low). The tariffs invoiced to clients are cumulated depending on their related voltage level (i.e. the tariff for medium voltage also includes the tariff for high voltage, and the tariff for low voltage also includes the tariff for high and medium voltages). ANRE sets up the annual regulated income levels required for each year during the regulatory pe- riod, based on projections submitted by the dis- tribution operators, in line with the methodology requirements. Starting January 1st, 2016, electricity distribution tariffs approved by ANRE are as follows (RON/ MWh): Tariff (RON/MWh) ANRE Order no. High voltage Medium voltage Low voltage EDTN EDTS EDMN Source: ANRE 173/December 14th, 2015 171/December 14th, 2015 172/December 14th, 2015 19.93 21.22 15.93 44.27 42.36 36.67 103.54 108.44 118.78 32 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015SUPPLY SEGMENT The electricity supply segment operates through Electrica Furnizare subsidiary, both on the regu- lated electricity market (in geographical regions where the Group distribution segment is operat- ing), and on the competitive market. The Group has two supply licenses covering the whole of Romania’s territory valid until 2021 and 2022, re- spectively, and extendable afterwards. The electricity market is divided in regulated mar- ket and competitive market. On both markets, electricity can be sold or purchased wholesale or retail. Regulated market The liberalization of the electricity market in Ro- mania started on January 1st, 2007, after the im- plementation of the Second Energy Package of EU. The tariffs of electricity supply to non-house- holds consumers have been fully liberalized and only the tariffs of electricity supply to households are still partially regulated by ANRE. The house- holds are free to change their electricity supplier, still having access to regulated tariffs of electricity supply until this market will be fully liberalized in 2018. Starting January 1st, 2014, the tariffs of elec- tricity supply to non-households consumers are determined by the market and freely negotiated. It is possible that increasing competition on this market segment which is no longer under regu- lated tariffs will determine consumers to switch their electricity suppliers and may result in an increased consumer’s migration to the Group’s competitors. The electricity supply market in Romania could also record migration within the segment of household consumers, as the liberalization process is progressing. However, considering the insignificant savings that could be obtained by household consumers from changing their electricity supplier, the Management expects a relatively small liberalization effect over the household segment. When the households seg- ment will be completely liberalized, Electrica should be able to offer packages of tariffs and competitive and innovating services to house- hold consumers. Currently, Electrica Furnizare is “supplier of last resort” for approximately 3.52 million consumers. A supplier of last resort is, under Energy Law, a supplier designated by the regulatory authority to provide the universal service of electricity supply under specific regulated conditions. Until 2018, when the liberalization of the house- hold segment is planned to be completed, tariffs for households must be approved each year by ANRE based on relative cost categories as well as on regulated profit margin. Tariffs are calculated in order to cover the cost of electricity (includ- ing transport costs, network services, distribution costs and a regulated profit margin). ANRE’s pre- vious methodology (ANRE Order no. 82/2013) provided for a maximum profit per unit of elec- tricity sold to consumers at regulated and CPC tariffs of RON 4/MWh and operating cost supply of RON 4.5 /client/month. Electrica Furnizare re- cords supply costs including costs of contracts closing, billing, bill collection, database manage- ment and costs of IT and telecommunications infrastructure. The new methodology (ANRE Order no. 92/2015) provides for a percentage of the profit from sup- ply worth 1.5% of the total cost (which includes acquisition, transport, distribution, system ser- vices, and market operation and supply costs) and an operation supply cost of RON 4.5 /client/ month in 2015 and of RON 4.7/client/month in 2016. According to the new methodology, ANRE can increase the supply activity cost by the quo- ta of the occasional costs recorded by Electrica Furnizare as a result of special circumstances (such as re-contracting based on ANRE Order no. 88/2015, adjustment of IT. systems to comply with the latest regulations, losses from receiva- bles, etc.). In 2015, the households were billed, according to the calendar of regulated tariffs elimination, at a tariff that consists of a mix of regulated tariff component and a “component of the competi- tive market” (CCM). Non-household clients, ben- eficiaries of the Universal Service, were invoiced at CCM tariffs, while those which did not benefit from the Universal Service were invoiced at tar- iffs of last resort for 100% of their achieved con- sumption. The electric energy supplied at regulated tariffs is acquired by means of regulated contracts, with amounts and prices set up by ANRE. The electric energy supplied at CCM tariffs is ac- quired by means of bilateral contracts concluded as a result of tenders conducted on CMUS (cen- tralized market for universal services), respective- ly, by means of bilateral contracts concluded on the competitive market for electricity supply at last resort tariffs. Any difference between the achieved revenues and the costs plus profit from the supply at reg- ulated/CCM/LR tariffs for the periods before the regulated tariffs elimination will be corrected during the next period of tariffs substantiation ap- plied to the clients on regulated market. The cost categories of the supplier of last resort, which contribute to the tariffs applied to the final clients up to the level regarded as admissible by 33 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015ANRE, are: • Acquisition costs of electricity. • Costs associated to electricity transport service. • Costs related to the system technological and functional services. • Costs related to services provided by the opera- tor of the centralized electricity market. • Costs related to electricity distribution services. • Costs related to electricity supply to final con- sumers who have not used their eligibility right. • Occasional costs incurred by force majeure (if applicable). Competitive market Trading on competitive wholesale market is trans- parent, public, centralized and non-discriminato- ry. Prices may be freely negotiated by the parties on the competitive retail market. Participants on the wholesale market can trade electricity using bilateral agreements concluded on the dedicat- ed centralized market. Since July 19th, 2012, the Energy Law no longer allows the conclusion of selling-buying contracts on the wholesale elec- tricity market outside centralized markets, except for the import/export energy contracts. BRP Electrica – Balancing Responsible Party Electrica S.A. has been a Balance Responsible Par- ty (BRP Electrica) on the Balancing Market since 2005, based on the License for electricity supply no. 1091/2012. This activity complies with the mar- ket mechanisms detailed in the Commercial Code of Energy Wholesale market of Romania. Within the Electrica Group, Electrica S.A. is the only entity conducting activity as BRP, and con- 3.2 ACQUISITIONS sidering its contribution to the National Electricity Network, it ensures the balancing of over 29% of total consumption in Romania. Participation on the Balancing Market, a compo- nent of the wholesale market, is mandatory and each license owner is bound to delegate the bal- ancing responsibility to a BRP. Responsibility delegation to a BRP has the advan- tage of aggregating imbalances, in the sense of cutting down the costs on the Balancing Market compared to the case in which the producer/ supplier/distributor would act on its own behalf as a Balance Responsible Party. The Subsidiaries – EDTS, EDTN, EDMN and Elec- trica Furnizare delegated their responsibility to BRP Electrica, establishing in this way strategic partnerships within the Group. By establishing relations with over 140 license owners from all parts of the wholesale market, BRP Electrica is the Group binder, contributing to the development of profitable partnerships and to the promotion of the Electrica brand on the electricity market. ENERGY SERVICES SEGMENT The Group’s portfolio also includes the energy services segment (equipment maintenance, re- pair and other additional services related to the network), performed almost entirely to the distri- bution subsidiaries outside the Group. In 2015, the energy services segment consists of SE Moldova, SE Oltenia, SE Muntenia, and until the end of January it also included SE Dobrogea which faced bankruptcy. Electrica S.A. will continue its process of centrali- zing acquisitions within the Group, a process whi- ch will delegate the centralized acquisition to Elec- trica S.A. The objective is to reduce costs, optimize acquisition and ensure a uniform policy within the Group. This process of centralizing acquisitions will enable standardization of assets acquisition and, equally, will increase the integrity level. 34 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20153.3 SALES ACTIVITY The main factors influencing Electrica’s revenues are represented by the distribution and supply seg- ments. In 2015, the contribution, on the one hand, of EDMN, EDTS, EDTN and Electrica Serv, and, on the other hand, of Electrica Furnizare to Electrica’s total revenues were 40% and 55%, respectively. In com- parison, in 2014, the contribution of the electricity distribution segment and electricity supply segment in total revenues were 41% and 55%, respectively. The Group’s distribution operators are natural mo- nopolies in their respective markets and as such, they hold a dominant position. Also, the Group’s distribution operators have a legal monopoly in their relevant regions and hence, other entities cannot set up a competing electricity distribution business. The following figure shows the national market share (based on the amounts of distributed electric- ity) held by the Group’s subsidiaries in the electricity distribution segment, according to the most recent ANRE report available. FIGURE 19 Market share of distribution segment in 2014 60% Others Sursa: ANRE 40% Electrica Although it holds a dominant position on the elec- tricity supply market, Electrica Furnizare is facing growing competition on the market in operates on. The supply market consists of the regulated and competitive segments: • The regulated segment comprises five supply companies, which are part of a group comprising also the corresponding distribution operators. • The competitive segment comprises 95 suppli- ers (including the last resort ones operating on the competitive segment of retail market), of which 88 are relatively small (<4% market share). The figure below shows the market shares of Elec- trica’s supply business on September 30th, 2015 (based on the supplied quantities): FIGURE 20 Regulated Market, 2015 12% E.ON Energie Romania 18% Enel Energie 20% Enel Energie Muntenia 12% CEZ Vanzare FIGURE 21 Competitive Market, 2015 14% Electrica Furnizare 46% Others 11% Tinmar Ind. 8% Enel Energie 38% Electrica Furnizare Source: Electrica Source: Electrica 5% Arelco Power 6% E.ON Energie Romania 5% CEZ Vanzare 5% Repower Furnizare Romania 35 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015The total number of consumers supplied of Electrica Furnizare was 3.61 million in 2015 with 149 sale points. FIGURE 22 Volume of electricity supplied on retail market (TWh) FIGURE 23 Evolution in number of consumers (thousand) 10.4 2.9 9.7 2.8 7.5 6.9 9,2 3.4 5.8 10.1 4.7 5.4 3,549 3,566 3,591 3,610 17 34 74 90 3,532 3,532 3,517 3,520 2012 2013 2014 2015 2012 2013 2014 2015 Regulated Competitive Regulated Competitive Source: Electrica Source: Electrica FIGURE 24 Consumers by volume of electricity supplied, 2015 FIGURE 25 Consumers by revenues, 2015 45% Regulated, household 47% Competitive eligible 52% Regulated household 38% Competitive eligible 9% Regulated non-household Source: Electrica Source: Electrica 10% Regulated non-household Major client exposure Electrica Furnizare does not have a significant ex- posure to a certain client or group of clients that could drastically influence its activity. However, under Romanian legislation, certain electricity consumers, such as hospitals, ambu- lance stations, schools, nursing homes, air or naval traffic services are deemed of special im- portance, and cannot be disconnected by the electricity supplier. Moreover, the clients subject to the insolvency law, can benefit from protec- tion against the creditors and, perhaps, against their energy suppliers. Thus, the electrical energy must be supplied by Electrica Furnizare, even if they are in payment default. 36 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015BRP Electrica - Balancing Responsible Party In 2015, 108 Balance Responsible Parties were set up in Transelectrica S.A., with a total of 960 licensed participants. At the end of 2015, 145 licensed participants (21 suppliers, 119 producers and five distributors) de- legated their responsibility to BRP Electrica, as compared to 2014, when 120 licensed partici- pants were registered with BRP Electrica. FIGURE 26 Number of BRP Electrica members 113 113 116 119 121 122 126 129 132 148 148 145 160 140 120 100 80 60 40 20 0 Jan Feb Mar Apr Source: BRP Electrica May 2014 Jun Jul Aug Sep Oct Nov Dec 2015 The members’ number increased as a result of promoting BRP Electrica high quality services, aimed at attracting new clients (producers and distributors), and clients from the portfolios of competing BRPs (suppliers and producers). FIGURE 27 : BRP Electrica share with regards to electricity consumption in 2015 29% 71% Competing BRPs Electrica BRP Source: Electrica 3.4 REORGANIZATION AND DISPOSAL OF ASSETS In 2013, the Company approved the liquidation pro- cedure for three subsidiaries: SE Banat, SE Dobrogea and SE Moldova. In January 2014, the Board of Directors of SE Oltenia and, in October 2014, the Board of Directors of SE Muntenia, have decided to start the insolvency pro- ceedings in view of reorganization. In November 2014, SE Banat started bankruptcy pro- ceedings, being followed by SE Dobrogea in January 2015, and consequently, the Company has derecog- nized these subsidiaries, given that it no longer had control over them. SE Oltenia has been placed under insolvency with reorganization from May 2014. The Assembly of Creditors approved the Reorganization Plan in May 2015, which was confirmed by the court in June 2015. SE Muntenia has been placed under insolvency with reorganization from November 2014. The Assembly of Creditors, and, subsequently, the court, approved the Reorganization Plan in November 2015. SE Moldova is under simplified insolvency proceed- ings (bankruptcy) from January 2016, a procedure estimated to last until the end of 2016. 37 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20153.5 PERSONEL On December 31st, 2015, the Group counted 10,539 employees. The table below provides an overview of employment in the Group, by business segments, on the specified dates. Electricity distribution EDMN EDTN EDTS Electrica Serv Supply segment Electrica Furnizare Services related to other DSOs SE Headquarters Electrica Total Source: Electrica 2013 9,347 2,092 2,007 1,874 3,374 1,225 1,225 2,059 2,059 149 149 2014 9,386 2,156 2,011 1,874 3,345 1,217 1,217 988 988 149 149 2015 8,767 1,949 1,880 1,795 3,143 1,110 1,110 526 526 136 136 12,780 11,740 10,539 The reduction in the number of Group employees during 2015 was due to the voluntary retirement program, plus retirements at age limit (including due to reduction of age limit retirement), disabi- lity and termination of individual labour agree- ments due to other causes (resignation, parties’ agreement), as well as reduction in the number of employees of subsidiaries in financial distress. On December 31st, 2015 about 56% of the Group’s employees were directly productive personnel and 44% were indirectly productive personnel, including technical, economic, social and admi- nistrative personnel. The table below presents the Group’s employ- ment, by age as follows: Below 18 years old 18-30 31-40 41-50 51-60 over 60 years old Total Source: Electrica December 31st, 2014 December 31st, 2015 0% 6.16% 20.37% 38.90% 29.90% 4.67% 100% 0% 5.96% 19.47% 40.98% 29.49% 4.10% 100% On December 31st, 2015, about 98% of the Group’s employees were members of Trade Unions and their employment conditions were governed by a collective labour agreement, renegotiated at least every two years and filed with the relevant labour authorities in Romania. The Electrica Group has never confronted with strikes or other forms of labour conflict that would interfere with the company’s business. In November 2015, the program of voluntary retirements with compensatory package was initiated at Group level. This program was main- 38 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015ly addressed to employees having at most five years until the standard retirement age, as well as to those with medical problems. As for the development of a policy regarding re- organization/restructuring actions conducted at Group level, it will be developed and negotiated with the social partners in accordance with the provisions of the Vollective Labour Agreement. In parallel with this policy, Electrica also under- took the drafting and implementation of a Na- tional Training Program at Group level. This pro- gram aims at using professional reconversion to avoid, as much as possible, staff lay-offs. A procedure was drafted for the management of Group regarding restructuring efforts, including reporting deadlines and information of stake- holders. The Company and its subsidiaries have in place internal regulations related to: general employ- ment provisions, non-discrimination, labour safety and health, rights and obligations of the employer and of the employees, employee complaint procedures, rules on labour disci- pline, disciplinary sanctions and disciplinary in- fringements, rules regarding disciplinary proce- dure, the criteria and procedure for employees’ professional appraisal and final provisions. Electrica’s training programmes aim at upgrad- ing the skills of the Group’s employees so they can adapt to more complex tasks for the bet- ter use of the existing resources. The Compa- ny’s management believes that their emphasis on training and development helps employees meet business challenges effectively. LABOUR SAFETY AND HEALTH Achieving safety and health at work at Electrica level represents an integrated part of organizing and conducting work processes and includes all the measures and actions resulting in the preven- tion of accidents and professional diseases and the improvement of work environment. In 2015, the supervision audit was conducted on the integrated management system of qua- lity, environment, occupational health and safe- ty, with labour health and safety activity perfor- med in compliance with the standard OHSAS 18001/2009. Electrica is focused on training the employees on danger awareness, in compliance with the legis- lation, with the aim of eliminating the accidents and professional diseases, which are identified by assessing the risk level in all of the workplaces. The Labour Health and Security Committee co- ordinated at Group level meets periodically to analyse and solve the problems identified at all levels of the hierarchy. In 2015, labour health and security activity for 2014 was analysed, as well as the individual protection equipment for em- ployees - mainly the electricians, planned for a centralized acquisition. Implementation of the action plan In order to ensure labour health and safety in 2015, the prevention and protection plan drafted at subsidiary/branch level has set up measures requiring funds allocation. In view of implemen- ting the action plan, Electrica approved a budget of RON 15,532 thousand, mainly representing production funds. Status of work accidents in Electrica Group In 2015, the Group registered nine work acci- dents of which: three lethal work accidents and six accidents resulting in temporary work incapa- city. As compared to the previous year, the acci- dents seriousness increased in terms of both the number of deaths and the longer recovery peri- ods following the accidents (amounting to 615 days of work incapacity). Preventive actions of labour safety and health In this context, besides guidance and control ac- tions for the compliance with legal requirements of labour safety and health, a large scale moni- toring action was conducted on the working teams executing works and/or manoeuvres in electrical equipment, regarding their knowledge of and conformity with labour safety and health (“LSH”) norms. The action was conducted during June-September 2015, based on an approved schedule and with the direct involvement on site of the management of subsidiaries, bran- ches and agencies. Deficiencies were identified which required application of sanctions on 10 employees, implementation of immediate mea- sures, as well as the development of long term programs. Some deficiencies can be rapidly removed when control actions are carried out, while the others require preventive/corrective measures with set deadlines. The measures are followed up and re- ported on the deadline by the unit worker appo- inted by the prevention and protection office in the subsidiary and are centralized and submitted for analysis to Electrica S.A. Labour Safety and Health Committee, respectively. The total number of inspections and controls on labour safety and health, fire control and civil pro- tection performed by certified personnel in 2015 was 4,769. 39 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015The analysis of accidents occurred in 2015 reve- aled the need of an audit on occupational safe- ty and health: by an independent consultant, at Electrica group level to define the risks mitigation actions aimed at improving the LSH manage- ment system in 2016, a project which has already started. Special committees to analyse the favouring factors and causes of each accident were estab- lished specifically for this purpose and the inves- tigation files were endorsed by the Territorial La- bour Inspectorate. Worth mentioning is the fact that the risk of electric shock was a main cause of three work accidents, two of which were lethal. Statistical analysis indicated no requirement for imposing general measures, but specific measu- res for each case separately. Most accidents were recorded in the age group over 50 years old (six out of the nine accidents) and having over 25 years of work experience in their occupation. As in previous years, the work accidents stem from complementary causes of human nature (inadvertence, lack of technologi- cal discipline, lack of control/supervision). Preventive action in fire control A single dangerous incident was recorded in 2015: the fire at a joint SDEE-AISE Cluj warehou- se, in the storage area of disposed wood pillars. Fire brigades participated to extinguish the fire and no other material damages were registered. At the same time, a total of 12 minor incidents were reported (fire onsets extinguished by inter- nal personnel): 10 at EDTS and two at EDMN. The prevention program in fire control and civil protection for 2015 included: specific half-yearly training of the technical, economic and socio-ad- ministrative (“TESA”) staff and monthly training of operating staff, according to the annual training programs and topics approved by the Company. a total of 313 evacuation drills and alarms at the Group level; check-up and assurance that all fire extinguishers are working in each location, re- formed by authorized companies; alerts and fire extinguish performed by authorized companies. Status of Electrica employees’ health in 2015 Electrica did not register any occupational disea- ses or diseases related to occupation. Observa- tion of the employees’ health is conducted by doctors employed by Electrica Serv, based on a services agreement and also outsourcing con- tracts. The health control of all Electrica’s em- ployees and diagnosis of occupational diseases, respectively the work related diseases, are con- ducted by the labour medicine specialized doc- tor, by interpreting a series of statistical indices in- cluded in the framework operational procedure, received from each subsidiary. The main health indicators are given by the degree of impacting the ability to work, respectively me- dical/psychological chronic diseases that limit the ability to work, physical effort, work at height, work under voltage, and the total number of days of tem- porary incapacity to work (medical leaves caused by chronic and/or acute medical conditions). Thus, in 2015, the conditional aptitude indicator is estimated at 12.5% out of the total number of employees, of which one third is represented by cardiovascular issues, the rest of the issues be- ing of ophthalmological/psychological nature. The days of medical leave for common illness represented less than 2.7% of the actual working time in 2015 and less than six days of absence per employee (compared to the statistical average of seven days). The main causes of temporary work incapacity in 2015 resulting in medical leaves are related to traumatisms outside the work place (sprains, dislocation, fractures, contusions), cardiovascular affections (high blood pressure, coronary heart disease, chronical ostial disease), malignant tu- mours, osteomuscular affections (back pains, arthroses), respiratory disorders, pregnancy and nursing, digestive affections, psychic disorders. Prevention is achieved through: medical exami- nations by occupational doctors, other than the mandatory ones; medical laboratory analyses; anti-influenza vaccination; occupational medicine and first aid training; hygiene conditions control. 40 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20153.6 ENVIRONMENTAL CONSIDERATIONS While conducting its activities and implementing its business strategy, the Group promotes envi- ronmentally friendly policies and procedures. These include, for instance, the implementation of smart grid networks and the expected reduc- tion in network losses, in order to improve energy efficiency and a reduction in CO2 emissions. The Group’s Management systems in relation to environmental and health and operational safe- ty matters are implemented and operated on a standalone basis by each of the Group’s subsid- iaries. The annual capital investment budgets of each of the Group’s subsidiaries include expend- iture for environmental matters. The Group’s activities impact the environment, principally as a result of the noise generated by equipment and transformer posts from the trans- formers’ stations, and secondly, because the Group uses equipment containing insulating oil with polychlorinated biphenols ‘‘PCBs’’, sulphu- ric acid and other polluting substances, whose operation is subject to regulation by specific environmental laws and regulations, including the provisions of the EGO no. 195/2005 related to environmental protection (the ‘‘Environmen- tal Protection Law’’). The Group is functioning based on environmental authorisations, and en- vironmental authorities monitor the compliance with granted authorisations and endorsements, which may be suspended in case of compliance failures. In addition to the compliance with the Environmental Protection Law, the Group is also subject to the following regulations: • EGO no. 68/2007 on the environmental liability with respect to the prevention and remedying of environmental damage to land, water and air in the case of pollution event. • Law no. 104/2011 regarding air quality published in the Official Gazette of June 28th, 2011, which relates to restrictions on atmospheric pollutants and the elaboration of air quality plans. • Law no. 211/2011 on waste management, pub- lished in the Official Gazette on 25 November 2011, which relates to ensuring a high level of environmental protection and the safety of the public’s health through management of waste and prevention or reduction of the adverse im- pact of waste generation. • Other specific restrictions related to package and packaging waste, disposal of waste oils, batteries, tyres, PCBs and other materials used in the distribution segment’s business. • The privatisation legislation regarding the no- tification of the National Agency for Environ- mental Protection and obtaining the confirma- tion that is not necessary to set environmental obligations in the privatisation process, except for EDMN with respect to the compliance with the regulation of the special regime on man- agement and control of PCBs and AISE Buzau, AISE Galati, AISE Ploiesti, AISE Targoviste, AISE Focsani, AISE Brasov, AISE Miercurea Ciuc, AISE Sibiu, AISE Bistrita, AISE Baia Mare, AISE Satu Mare, AISE Cluj, AISE Braila. At the date of this report, the Group held all im- portant permits required for it to conduct its busi- ness, and the Group’s business was conducted in compliance with all specific environmental reg- ulations. Integrated Quality, Environment, Occu- pational Health and Safety management systems certified in accordance with ISO 9001:2008, ISO 14001:2014 and EN OHSAS 18001:2007 have been implemented in each of the Group’s sub- sidiaries. 3.7 RESEARCH AND DEVELOPMENT ACTIVITIES With regards to Electrica’s concern to promote technological innovation by participating in re- search and development projects co-financed by European funds, namely to test new tech- nologies, simulating and managing behaviours which can be integrated in the distribution elec- tricity networks, we emphasise the involvement in accessing such funds by filing projects within the calls on FP7 and Horizon 2020. Projects pro- posed with Electrica participation that are worth mentioning are: • Electrica participated as a member in various consortia for the elaboration of project propos- als on the calls opened for research-develop- ment-innovation within EU and the Ministry of Education and Scientific Research. Worth men- tioning of these projects are: - The research-development project (which is in progress), co-financed on FP7,” SINGULAR”, has the purpose to test software designed to forecast loads in network nodes and the pro- duction generated by a wind power mill and photovoltaic plant, using measures from re- motely read counters. Managing the forecast- ed consumption/production in an island net- work area might ensure allocation of electricity losses and an improved monitoring aimed at mitigating losses. Moreover, testing software 41 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015applications on a real network to optimize power flows followed by demos constitutes a way to develop methodologies for determining electricity losses in networks that integrated re- newable sources, in order to improve energy and operational efficiencies for networks with an increased degree of penetration of renew- able sources. The main objective of the project is to generate efficient data and solutions to maximize the in- tegration of islander energy resources which are variable and unpredictable, while minimizing the related negative technical and economic conse- quences. The Company participated in drafting other pro- jects, presented below: • H2020-DRS-12-2015 SUCCESS – project de- clared eligible, for which Electrica obtained full EU financing. • H2020-SCC-2015 SmaSH • H2020-LCE-2015-3 InToReGRID • H2020-EE-2015-2-RIA DRIBLE • H2020-LCE-2016-2017 PROVISION The Group’s current strategy includes the achieve- ment of the objectives of the Pilot innovation project “Green Highway”, which are aimed at supporting infrastructure development for elec- tric vehicles. Although initially proposed only for the Oradea – Bucharest route (for two possible routes), in case of success, the Group will extend the project to another two routes in Romania. This project is based on the survey “Development of an implementation strategy of a business in electric vehicle charging at Electrica level - Busi- ness Plan Drafting” in compliance with the Plan of Actions included in EU Framework Strategy, which stipulates, among others, the need to ac- celerate the energy streamlining and decarboni- sation process in the transport segment, progres- sive shift to alternate fuels, and integration of the energy and transport systems. Another important endeavour of Electrica in pro- moting engineering innovation is the dissem- ination of modernization solutions of electric network using smart grids concept during the international conferences/symposia organized by Electrica every year in November, when topics like smart grids and smart metering solutions are included. In this sense, we mention the organiza- tion under the patronage of Electrica S.A., of the international symposium “Smart Metering”. Moreover, we can emphasise the participation in the International Conference on Electricity Distri- bution (“CIRED”), which is focused on technolog- ical innovation and promotion of new technolo- gies which improve operational efficiency. Thus, in June 2015, the company participated with the paper “Impact of distributed generation on distri- bution networks”. In May 2015, Electrica participated as co-organis- er in the following symposia: “Smart networks – Networks of the Future” Symposium and “Integra- tion of renewable energy sources in the electrical grid” Symposium. 3.8 RISK MANAGEMENT To implement the risk management system as well as an internal control/management system at group level, the following provisions were consid- ered: • Order of the Ministry of Public Finance no. 946/2005 regarding the development of an in- ternal control/management system, with subse- quent amendments and completions. • Government Order no. 119/1999 regarding inter- nal control and preventive financial control, with subsequent amendments and completions. • Internal procedures adopted with this purpose. • Best practices and methodologies applied in listed and non-listed companies. • International Standards on Risk Management Sys- tems. In 2015, all the initially identified risks were re-as- sessed and the risks register was updated. The risks re-assessment was performed depending on their occurrence probability and on their possible impact on the achievement of the Company’s objectives. Thus, after calculating risk exposure level, the risks were grouped according to four levels of tolerance (tolerable/ high tolerance/ low tolerance/ intolera- ble) and adequate control measures were adopt- ed, according to the emergency level and the time span required to implement new processes/proce- dures, aimed at avoiding or mitigating such risks in the future. A major concern for the management is building awareness of employees regarding the importance of managing risks inside the organization and the necessity of direct involvement in the risk manage- ment process, as well as of alignment to the best practices at national and international level by fol- lowing legislation in place, standards and the relat- ed norms. For 2016, the Company considers the develop- ment of risk management system according to the provisions of the international standard SR ISO 42 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 201531000:2010 “Risk Management – Principles and Guidelines”. The risks related to the activity and sector of Electri- ca operates in can be presented as follows, for the year 2015: • Group’s supply segment may be exposed to in- creasing competition due to the market liberali- zation. • Group’s financial performance may be negative- ly influenced by changing tariffs on the regulated market. ties owned by members of the Group may be deemed uncertain. • The Company may face additional claims from tax authorities for budgetary debts due for previ- ous periods. • The Romanian taxation system is subject to change and may issue inconsistent interpretations of tax legislation. • After the Offering, the State will continue to have significant influence over the Company. • After the Offering, the State will continue to have • Group’s supply segment might lose its status of significant influence over the Company. supplier of last resort. • Components of the Group’s distribution network • Group’s financial performance may be negatively are subject to deterioration over time. influenced by changing prices for energy. • Romania’s electricity demand is linked to various factors beyond control of the Group, such as eco- nomic, political and climate-changing factors. • The Group has to comply with regulatory require- ments and has to keep in place regulated approv- als, being exposed to significant liabilities in case of non-compliance. • Components of the Group’s distribution network are subject to deterioration over time. • The Group’s assets and/or business could be dam- aged by natural and man-made acts or disasters. • The Group’s IT systems are outdated and are not integrated. • The migration of the Group to a new integrated ERP system may encounter difficulties and delays. • The Group may face risks associated with restitu- tion claims with regard to certain real estate prop- erties. • Electrica Furnizare may be prohibited from sus- pending or interrupting the supply of electricity to certain of the Group’s customers, even if such customers are in payment default. • Failure to observe public procurement legislation by members of the Group may lead to fines and voided contracts. • The Group’s position in electricity distribution and supply markets may expose it to claims relating to abuse of dominant position. • A strike or other labour disruption could adversely affect the Group’s business. • Failure to execute management’s business strate- gy may lead to cost savings and revenue forecasts being lower than predicted for the Group. • The Group’s reputation, future prospects or results of operations may be materially adversely affected by claims or litigation. • Not conforming to legislation regarding public purchases by members of the Group could lead to fines and annulment of contracts. • Ownership title over certain real estate proper- • The distribution subsidiaries’ activity may be nega- tive impacted by natural disasters or unauthorized human interventions. • The existence of companies involved in the elec- tricity distribution and network construction in the area where the Group’s distribution subsidiaries performed their activity. • Regulation risk generated by frequently changes and without appropriate consulting sessions with the electricity distribution operators negatively in- fluence the budget planning capabilities. FINANCIAL RISK MANAGEMENT The Group is exposed to the following risks result- ing from the use of financial instruments: • Credit risk • Liquidity risk • Market risk Credit risk The credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from the Group’s receivables from customers, cash and cash equivalents, bank deposits and treasury bills and government bonds. Cash, bank deposits, treasury bills and government bonds are placed with financial institutions, which are regarded as having a high creditworthiness. The accounting value of financial assets represents the maximum exposure to the credit risk. Trade receivables The Group’s credit risk related to receivables is con- centrated on the state-controlled companies. The Group registers a depreciation allowance which is the best estimation of losses recorded as related to trade receivables. The ageing statement of trade receivables was as follows: 43 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015RON thousand Not past due Past due 1-90 days Past due 90-180 days Past due 180-360 days Past due 1-2 years Past due 2-3 years December 31st, 2015 December 31st, 2014 Gross value Bad debt allowance Gross value Bad debt allowance 654,679 189,243 12,525 9,864 33,561 19,388 - (15,916) (3,605) (9,008) (33,561) (19,388) 501,052 240,421 23,542 29,463 52,801 105,710 975,487 - - - (13,657) (52,801) (105,710) (975,487) Past due more than 3 years 1,043,639 (1,043,639) Total 1,962,899 (1,125,117) 1,928,476 (1,147,655) Source: Electrica RON thousand Not past due Past due 1-90 days Past due 90-180 days Past due 180-360 days Total Source: Electrica Net trade receivables December 31st,2015 December 31st,2014 654,679 173,327 8,920 856 837,782 501,052 240,421 23,542 15,806 780,821 Liquidity risk Liquidity risk is the risk that the Group will encoun- ter difficulties in meeting the obligations associat- ed with its financial liabilities settled by transferring cash or another financial asset. The Group’s ap- proach to liquidity management is to ensure, as far as possible, sufficient liquidity to meet its liabilities when they are due, both under normal and stressed conditions, without incurring unacceptable losses. The Group aims at maintaining its cash and cash equivalents at a level exceeding the forecasted cash outflows for the payment of financial liabilities. The Group also monitors the forecasted cash inflows from trade receivables collection together with forecasted cash outflows on trade and other pay- ables. In addition, the Group maintains overdrafts. Exposure to liquidity risk The following table shows the remaining contrac- tual maturities of financial liabilities on the reporting date. The gross amounts are undiscounted, and in- clude estimated interest costs. (RON thousand) Financial liabilities December 31st, 2015 Book value Total less than 1 year 1-2 years 2-5 years more than 5 years Contractual cash flows Bank overdrafts 65,963 65,963 65,963 - - Financing for network construction related to concession agreements 221,641 228,332 100,248 97,002 31,082 Finance lease Trade payables Total 44 59,821 59,821 59,821 656,410 656,410 656,410 - - - - 1,003,835 1,010,526 882,442 97,002 31,082 - - - - - ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015(RON thousand) Contractual cash flows Financial liabilities Book value Total less than 1 year 1-2 years 2-5 years more than 5 years December 31st, 2014 Bank overdrafts 48,132 48,132 48,132 - - Financing for network construction related to concession agreements 250,550 262,231 101,633 87,114 73,484 Finance lease Trade payables Total Source: Electrica 294 294 294 555,256 555,256 555,256 - - - 854,232 865,913 705,315 87,114 73,484 - - - - - Market risk Market risk is the risk that changes in market prices – such as foreign exchange rates, inter- est rates – will affect the Group’s revenue or the value of its financial instruments. The objective of market risk management is to manage and control market risk exposures within accept- able parameters, while optimising the return. Currency risk The Group is exposed to currency risk to the extent there is a mismatch between the cur- rencies in which sales and purchases are de- nominated and the functional currency of the Group. The functional currency of the Group is the Romanian Leu (RON). The currencies in which these transactions are primarily denominated are RON and EUR. Cer- tain liabilities are denominated in foreign cur- rency (EUR). The Group also has deposits and bank accounts denominated in foreign cur- rency (EUR). The Group’s policy is to use the local currency in its transactions as much as possible. The Group does not use derivative or hedging instruments. Exposure to currency risk The summary of quantitative data about the Group’s exposure to currency risk is as follows: December 31st, 2015 December 31st, 2014 In thousand RON Cash and cash equivalents EUR 10,241 Deposits (deposits, treasury bills and government bonds) 139,581 Financing for network construction related to concession agreements Finance lease Net exposure of financial position statement (221,641) - (71,819) Source: Electrica EUR 10,138 136,704 (250,550) (294) (104,002) The following significant exchange rates have been applied during the year: Average rate Year-end spot rate 2015 4.4450 2014 4.4446 2015 4.5245 2014 4.4821 RON 1 EUR Source: Electrica 45 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Sensitivity analysis A reasonably possible appreciation (depreciation) of the EUR against RON at December 31st would have affected the assessment of financial instru- ments denominated in foreign currency and prof- it before tax by the amounts shown below. The analysis assumes that all other variables, in par- ticular interest rates, remain constant and ignores any impact of forecast sales and purchases. Thousand RON Effect December 31st, 2015 EUR (change by 5%) December 31st, 2014 EUR (change by 5%) Source: Electrica Profit before tax Appreciation Depreciation (3,591) (5,200) 3,591 5,200 Interest rate risk The Group’s policy is to use mainly supplier’s cre- dit to finance its investments. The Group does not have significant long-term bank loans. Exposure to interest rate risk The interest rate profile of the Group’s inte- rest-bearing financial instruments is as follows: Thousand RON Fixed-rate instruments Financial assets Bank accounts (cash and cash equivalent) Treasury bills and government bonds (cash and cash equivalent) Deposits, treasury bills and government bonds Financial liabilities Financing for network construction related to concession agreements Finance lease Total Variable-rate instruments Financial liabilities (thousand RON) Short-term borrowings Overdrafts Total Source: Electrica December 31st, 2015 December 31st, 2014 678,612 90,865 1,987,881 (221,641) - 2,535,717 (59,821) (65,963) (125,784) 1,352,487 199,500 1,220,521 (250,550) (294) 2,521,664 - (48,132) (48,132) Fair value sensitivity analysis for fixed-rate instru- ments The Group does not account for any fixed-rate financial assets or financial liabilities at fair value through profit or loss. Therefore, a change in in- terest rates at the reporting date would not affect profit or loss. Cash flow sensitivity analysis for variable-rate in- struments A reasonably possible change of 50 basis points in interest rates at the reporting date would have increased (decreased) profit before tax by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency ex- change rates, remain constant. Thousand RON December 31st, 2015 Variable-rate instruments December 31st, 2014 Variable-rate instruments Source: Electrica Profit before tax 50 bps increase 50 bps decrease (629) (240) 629 240 46 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 4 FIXED ASSETS The number of users and volume of installations at December 31st, 2015 at the level of the three distri- bution subsidiaries (EDTN, EDTS and EDMN) and at Electrica’s overall level are quantified as follows: Geographical coverage Number of users, of which: 110 kV medium voltage (MV) low voltage (LV) Overhead power lines length, of which: 110 kV medium voltage (MV) low voltage (LV) whereof connections Underground power lines length, of which: 110 kV medium voltage (MV) low voltage (LV) whereof connections UM km² - - - - km km km km km km km km km km TN MN TS Total 34,162 28,962 34,072 97,196 1,232,610 1,304,991 1,113,577 3,651,178 35 39 65 139 3,989 3,451 2,789 10,229 1,228,586 1,301,501 1,110,723 3,640,810 52,215 58,562 45,474 156,251 2,179 2,148 3,166 7,493 11,723 12,517 10,383 34,622 38,313 43,897 31,925 114,136 17,944 23,848 17,206 58,998 15,400 11,719 11,297 38,415 27 15 3,536 3,321 11,837 8,382 6,769 2,119 41 3,303 7,953 2,430 83 10,160 28,172 11,317 Cumulative power of transformers/power AT MVA 6,091 8,488 6,699 21,278 in power stations (110 kV/MT + MT/MT) in power stations 110 kV/MT in power stations MT/MT Switching stations/Transformer stations No. of substations, of which: power stations 110 kV/MT power stations MT/MT Number of switching stations and transformer stations Source: Electrica MVA MVA MVA - - - - - 3,757 3,715 43 5,466 5,111 355 4,139 4,129 10 2,334 3,022 2,560 121 92 29 216 124 92 106 101 5 13,362 12,955 407 7,915 443 317 126 8,576 10,125 8,719 27,420 The vast majority of the distribution equipment currently in the patrimony of electricity distribu- tion subsidiaries within Electrica were built in the last 60 years, following the successive develop- ment phases of the National Electricity System. This led to a great variety of equipment currently in use. A relatively small group, accounting for approx. 20% of total equipment, is represented by new installations, put into force after 1990 and which are made at Western standards. The vast majority of installations were produced by the Romanian industry during 1960-1990, in which case a high rate of wear and tear is noticed. 47 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Depending on voltage level, categories of in- stallations, year of commissioning and specific operating conditions, wear of installations can be assessed as follows: UM High voltage power lines (110 kV) Underground power lines Overhead power lines Medium voltage power lines Underground power lines Low voltage power lines Underground power lines Overhead power lines Substations Transformers Source: Electrica Overhead power lines Pole - Amount Concrete enclosure Pad-Mount Underground TN 45% 80% 80% 75% 75% 75% 75% 70% 75% 85% 95% MN 25% 75% 48% 60% 52% 58% 75% 45% 51% 69% 16% TS 50% 75% 65% 60% 75% 70% 60% 65% 75% 15% 85% Investments Electrica intends to modernize and develop the distribution network managed into a concept of smart grid by installing smart meters and infra- structure systems, such as SCADA, SAD systems etc., in order to improve operational efficiency and restore the existing network infrastructure to reduce losses in the network, improve network flexibility, quality, stability and reliability of the network in the distribution segment. Investments at Group level considered the wear of assets of distribution companies, in order to increase the efficiency of distribution networks. Within the implementation of the investment program, Electrica ensures the compliance with the following criteria: • Group’s Strategy. • Inclusion in RAB of regulated investments. • Non-regulated investments of the Group should provide an IRR higher than weighted average cost of capital. • The investment program will follow the Group financial strategy to maintain a solid capital structure. Based on the above criteria and in the context of Electrica Group’s commitment to improve the operational performance and quality of the elec- tricity distribution service, as stated in the Pro- spectus, the IPO proceeds obtained by Electrica Group will be used to improve the existing grid infrastructure, to develop the network for con- necting new users and for investments in smart grid and smart metering. According to the strategy of investment in Electri- ca’s power grids, it is aimed to promote those cat- egories of capital expenditure contributing to the development of a distribution activity as profita- ble as possible and to the creation of conditions of access to more energy consumers or produc- ers to the electricity distribution network, in line with market requirements, especially based on: • Automation of distribution by integrating the in- stallation in SCADA, SAD etc. • Expansion of modern systems for metering electricity consumption, transmitting data on consumption parameters and monitoring of consumers. • Modernization of the equipment in transformer stations and the medium voltage network. • Introduction of equipment with reduced own losses, with higher operating efficiencies, envi- ronmentally-friendly. • Modernization of the connections. At the same time, the group plans important in- vestments in the improvement and moderniza- tion of the IT infrastructure, IT systems, as well as investments in cyber-security and business con- tinuity. They are all based on findings of the IT audit and aim at improving data protection and implicitly the quality of services provided. 48 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 The following table presents the investment program approved by ANRE on distribution subsidiaries within Electrica Group: Commissioning program approved by ANRE for the period 2014 - 2018 (RON mil.) 2014 117.00 126.00 113.81 2015 180.00 184.00 171.33 2016 219.60 223.20 205.04 2017 250.00 259.20 252.41 2018 287.50 288.00 287.09 Total 1,054.10 1,080.40 1,029.68 EDTS EDTN EDMN Source: ANRE Based on IPO proceeds, Electrica Group has decided to increase the volume of investments in the distribution network in the third regulato- ry period compared to the volume approved by ANRE at the end of 2013. The investment programs approved by ANRE for the third regulatory period (2014-2018) can be supplemented with investments which, although not remunerated in RAB in the current regulatory period, they will generate cost savings and addi- tional efficiency, the benefit being equal or higher than RRR. The investment plan consolidated at group lev- el for 2015 had been initially rejected on April 27th, 2015 and subsequently approved, with an increase by 30% compared to the initial proposal, on July 9th, 2015. In 2015, the companies within Electrica Group made the following investments (both financed from own sources and supplier’s credits, and cap- italized repairs) compared to those approved by the General Meeting of Shareholders in July 2015: Subsidiary Electrica Group (RON mil.) Initially planned Planned in July 2015 Achieved EDTN EDTS EDMN Electrica Furnizare Electrica Serv Electrica S.A. Total Source: Electrica 210 195 190 20 15 52 682 273 253 247 20 15 52 860 213.3 149.5 140.5 19.1 1.7 27 551 From the previous table it can be seen that at Group level the plan was achieved at a rate of 64%, with the mention that for distribution sub- sidiaries a rate of 65% was recorded, reported at the increased plan and 85%, reported to the initially planned. This level of achievement is the result of approval of the consolidated investment plan increased by 30% during July 2015, which generated major delays in the work schedule. The synthetic structure of the investments plan- ned by distribution subsidiaries in 2015 is presen- ted in the table below (for details of the main in- vestments made see Appendix 2). Category of works (RON mil.) Efficiency Energy efficiency/OTC Operational efficiency Quality of service Continuity of supply Quality of energy Other categories Independent equipment Studies and projects for the coming years Total Source: Electrica Total 312 228 84 310 269 41 36 88 27 773 49 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 The main investments of Electrica Group in 2015 focused on increasing the quality and efficiency of the distribution service. FIGURE 28 The structure of Electrica Group’s investments in 2015 3% Studies 11% Independent Equipment 5% Other 5% Electricity Quality 35% Continuity of supply Source: Electrica 30% Energy Efficiency (OTC Reduction) 11% Operating Efficiency The commissioning plan (both financed from own sources and supplier’s credits and capitalized re- pairs) for 2015, approved by ANRE, was achieved at a rate of 93.1%. Subsidiary Electrica Group (RON mil. nominal terms) Planned Achieved % EDTN EDTS EDMN Total Source: Electrica 193.7 194.6 100.4 189 180 184 145 562.7 523.6 97.4 80.6 93.1 As a result of investments made during 2011-2015, the structure of the Regulatory Assets Base of the three distribution operators in the portfolio of Elec- trica Group is presented in the table below: RAB (RON mil.) EDTN EDTS EDMN Source: Electrica 2011 1,166 1,213 1,312 2012 1,261 1,321 1,408 2013 1,292 1,332 1,434 2014 1,335 1,343 1,490 2015 1,437 1,425 1,561 During 2011 – 2015 RAB evolution has been in- creasing for all the three distribution companies in the Group’s portfolio, which is reflected in in- creased profitability across the Group. 50 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20155 CAPITAL MARKET Starting on July 4th, 2014 the Company’s shares are listed on Bucharest Stock Exchange (BSE) under the ticker symbol EL, while the GDRs (Global Deposi- tary Receipts) are listed on London Stock Exchange (LSE) under the ticker symbol ELSA. FIGURE 29 Share price history on BSE, together with the most important events occurred between the first day of trading and March 4th, 2016 (RON) 13.5 13 12.5 12 11.5 11 10,5 04 Jul 2014 04 Sep 2014 04 Nov 2014 04 Jan 2015 04 Mar 2015 04 Mai 2015 04 Jul 2015 04 Sep 2015 04 Noi 2015 04 Jan 2016 04 Mar 2016 Source: BSE, Electrica FIGURE 30 Global depositary receipts’ price history on LSE, together with the most important events occurred between the first day of trading and March 4th, 2016 (USD) 15.5 15 14.5 14 13.5 13 12.5 12 11.5 11 10.5 04 Jul 2014 04 Sep 2014 04 Nov 2014 04 Jan 2015 04 Mar 2015 04 Mai 2015 04 Jul 2015 04 Sep 2015 04 Noi 2015 04 Jan 2016 04 Mar 2016 Source: BSE, Electrica 51 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015No. Date Event description 1 2 3 4 5 6 7 8 9 10 11 4-Jul-14 First day of trading on BSE and LSE 14-Aug-14 Publication of H1 2014 results (followed by results presentation webcast on August 22nd, 2014) 15-Sep-14 Escalation of tension in Ukraine (from September 14th) 22-Sep-14 GMS elected a new BoD consisting of 5 non-executive members 14-Nov-14 Publication of Q3 2014 results (followed by results presentation webcast on November 18th, 2014) 12-Dec-14 ANRE modified RRR (regulated rate of return) from 8.52% to 7.7% 16-Feb-15 Publication of preliminary standalone 2014 results 27-Mar-15 Publication of 2014 results (followed by results presentation webcast on April 30th, 2015) 2-Apr-15 Suspended the discussions with FP on the acquisition of their shareholdings in Electrica's subsidiaries 27-Apr-15 OGMS rejected the 2015 consolidated CAPEX and the proposal for the BoD’s remuneration 15-May-15 Publication of Q1 2015 results (followed by results presentation webcast on May 21st, 2015) 12 9-Jul-15 GMS approved the 2015 consolidated CAPEX plan, approved the limits of remuneration for the executive managers, rejected the proposal for the BoD’s remuneration; the BoD presented to the GMS the elements of Electrica's Strategy for 2015-2018 13 14 30-Jul-15 Appointment of 3 executive managers by the BoD, namely of Human Resources Director, Sales Director and the Strategy and Corporate Governance Director 14-Aug-15 Publication of H1 2015 results (followed by results presentation webcast on August 20th, 2015) 15 8-Sep-15 News relating to potential SAPE claims; publication of a BoD letter for the shareholders. GMS rejected the Administration Plan, the BoD Remuneration Plan and the KPIs (7 - 10 Sep) 16 27-Oct-15 Appointment of the CFO by the BoD 17 10-Nov-15 EGMS mandated the BoD to negotiate a transaction with FP; EGMS modified the Articles of Association; main changes: increasing the no. of BoD members from 5 to 7; the method of selection for BoD candidates was changed 18 19 13-Nov-15 Publication of Q3 2015 results (followed by results presentation webcast on November 19th, 2015) 14-Dec-15 GMS elected a new BoD consisting of 7 non-executive members, out of whom 4 independent 20 4-Jan-16 External storm erased 11.8% from BET cap in 2016, while Electrica’s shares fell by 5.7% 21 22 23 24 25 13-Jan-16 Chairman of Board of Directors appointment and consultative committees establishment 18-Jan-16 10-Feb-16 Legal actions for annulment/suspension of certain ANRE orders Tariffs for 2016 approved through ANRE orders for the distribution operators in Electrica Group Decision of Mr Michael A M Boersma to resign, starting with May 1st, 2016 from his position of member of the Board of Directors of Electrica SA 15-Feb-16 Publication of preliminary standalone 2015 results 26-Feb-16 Mutual agreement on Mr Ioan Roșca’s mandate termination as CEO of Electrica SA (until June 2016) Source: Electrica 52 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015FIGURE 31 Comparative performance of Electrica’s share price and BSE indices: BET, BETNG and BETFI (%, as compared with the first day of trading, July 4th, 2014) 120 115 110 105 100 95 90 85 80 75 70 04 Jul 2014 04 Sep 2014 04 Nov 2014 04 Jan 2015 04 Mar 2015 04 Mai 2015 04 Jul 2015 04 Sep 2015 04 Noi 2015 04 Jan 2016 04 Mar 2016 EL shares performance BETFI performance BET performance BETNG performance Source: BSE, Electrica FIGURE 32 Monthly trading volume and average monthly closing price of shares on BSE (in RON) and GDRs on LSE (in USD) 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 16 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Noi 15 Dec 15 Jan 16 Feb 16 BSE - Shares - Monthly volume LSE - GDRs - Monthly volume BSE - Shares - Average monthly closing price LSE - GDRs - Average monthly closing price Sursa: BSE, LSE, Electrica 15.0 14.5 14 13.5 13 12.5 12 11.5 11 10.5 10 53 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Dividend distribution Romanian companies may distribute dividends from statutory earnings only, as per separate fi- nancial statements prepared in accordance with Romanian accounting regulations. The dividends distributed by the Company in 2012–2015 (from the statutory profits of preceding years) were as follows: (RON mil.) Dividends distributed Dividends/share (RON) Source: Electrica 2012 6.0 0.029 2013 13.2 0.064 2014 22.5 0.108 2015 245 0.722 Dividend policy Dividends, if and when declared, are distributed to shareholders on a pro-rata basis proportion- ately to their participation in the paid-up share capital of the Company. Each fully paid Share gives its owner the right to receive dividends. The Company will pay any dividends in RON. The Company will distribute dividends on the basis its annual financial statements which start- ing with 2014 are prepared in accordance with IFRS-EU. Management’s intention is to distribute dividends, based on a guidance of approximately 85% of consolidated profit attributable to share- holders of Electrica S.A. Repurchase of treasury shares In July 2014 the Company bought back for price stabilization purposes, 5,206,593 ordinary shares and 421,000 Global Depositary Receipts, equiv- alent of 1,684,000 shares. The total amount paid for acquiring the shares and Global Depositary Receipts was RON 75,372 thousand. There were no changes in the value of the treasury shares in 2015. 54 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20156 MANAGEMENT OF THE GROUP 6.1 THE BOARD OF DIRECTORS OF ELECTRICA S.A. During 2015, the Board of Directors has under- gone several changes. At the beginning of the year, the Board of Directors consisted of five non-executive members, appointed by the Or- dinary General Meeting of Shareholders on Sep- tember 22nd, 2014. One of the directors was elected following his proposal by the Romanian state, represented at that time by the Ministry for Energy, three were elected at the proposal of pri- vate shareholders and one was elected at both the proposal of the Romanian state and of private shareholders. Four of the five directors fulfilled the independence criteria provided by the Arti- cles of Association. The Board of Directors is responsible for taking all the necessary measures to carry out the activity of the Company as well as to supervise its activity. Its structure, organization, duties and responsibil- ities are established under the Articles of Associa- tion and the Regulation of the Board of Directors. During September 22nd, 2014 – November 17th, 2015, the Board of Directors had the following members: • Mr. Victor Cionga – non-executive independent director, elected as Chairman of the Board of Directors until January 2016 • Ms. Arielle Malard de Rothschild - non-executive independent director • Mr. Michael Boersma – non-executive inde- pendent director • Mr. Cristian Bușu - non-executive independent director • Mr. Victor Grigorescu - non-executive director. We present below the most relevant aspects re- garding the professional experience of the mem- bers of the Board of Directors at the time of their appointment: Name Mandate Professional experience Victor Cionga 4 years Arielle Malard de Rothschild 4 years Michael Boersma 4 years • Has held non-executive positions, including in energy companies (Member of the Supervisory Board of Hidroelectrica, Chairman of the Board of Directors of Arctic Gaesti, Member of the Board of Directors of Sidex). • Has experience in listing processes (involved in the initial public offering of Transelectrica, Siderurgica Hunedoara, Sidex and Petrotub), in bond issue projects (he has prepared one of the largest issues of municipal bonds on the Romanian market, issued by the Local Council of Timisoara Municipality) and in M&A (Continental Hotels, NetCity). • Has comprehensive corporate governance knowledge: he was manager of BSE and created a partnership with OPSPI in order to start a program through which the Institute of Corporate Governance offered free training programs to state-owned companies, thus helping them in preparing for the listing process. • Has an extensive experience in investment banking, spending over 25 years in companies such as Lazard Frères & Cie and Rothschild. She is the founder of the Emerging Markets Division at the Rothschild & Cie investment bank, part of the Rothschild group. • Before joining Rothschild & CIE in 1999, she spent 10 years as an investment banker at Lazard Frères & Cie, as part of the Sovereign Advisory team. • Her experience includes major privatization projects in Romania, Poland, Russia, Hungary and Morocco, coordinating the privatization of companies such as MOL, Nafta Polska, ZIL, BCR or Dacia. • Has experience in M&A projects, working in over 40 such projects in Eastern Europe and Africa. • Member of the Board of Directors of Imerys S.A. (SBF120) and of Rothschild & Co, both listed on the Paris Stock Exchange and of Groupe Lucien Barrière. • Professor of corporate governance at the TIAS School for Business and Society, University of Tilburg in the Netherlands • Senior adviser for First State European Diversified Infrastructure Fund, London, UK. • Non-executive independent director of Nynas AB, Stockholm, Sweden, a company owned by PDVE and Neste Oil Oyj, specializing in the production and trade of oils and bitumen. • Chairman of the Board of Directors of Prometheus Energy, based in Houston (Texas, U.S.A.). • Chairman of the Supervisory Board of TMG, a Dutch listed company, Amsterdam. • Member of the Supervisory Board of PostNl, a Dutch listed company, The Hague, the Netherlands. • Chairman of the Supervisory Board of the VieCuri Medical Center for Noord-Limburg in Venlo, the Netherlands. • Chairman/member of foundations/institutions/advisory bodies (e.g. Energy Fund Limburg, Jheronimus Bosch 500, Protective preference shares FUGRO). • From 2003 until the end of 2009 - CEO and Chairman of the Executive Board of Directors of Essent, the largest Dutch utility. 55 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Name Mandate Professional experience Cristian Bușu 4 years Victor Grigorescu 4 years Source: Electrica • Member of the Board of Directors and of the Audit Committee at SIF OLTENIA. • Manager at the Central branch of Marfin Bank in Bucharest. • Between 2009 and 2013, he served as Financial Manager of Fondul Proprietatea and was a member of the Representatives Committee. • Economic Adviser for the Economic Department of the Romanian Government. • Lecturer at the Bucharest Academy of Economic Studies, in which capacity he conducted various teaching and research activities. • Expert at the Department for Energy. • Manager of AG Industrial Consult, company specializing in consulting in the field of public policies. • During 2007-2011 - Second Secretary at the Permanent Mission of Romania to the EU, the commercial division, with responsibilities concerning the EU’s common commercial policy. • Since 2004 - EU expert at the Ministry of Economy and Trade, Foreign Trade Department. • Since 2006 - Romania’s representative in the 133 Committee (Steel), as guest, in the pre-accession period, and then as a full member, after January 1st, 2007. • Before working in public administration, he was development manager for a firm trading textile and other industrial products. On November 17th, 2015, following his nomina- tion as Government member, Minister of Energy, Mr. Victor Grigorescu resigned from the position as member of the Board of Directors of Electrica S.A. Given that on November 10th, 2015 the General Meeting of Shareholders decided to amend the Articles of Association and increase the number of members of the Board of Directors from five to seven, and in order to ensure the fulfillment of statutory requirements for adopting decisions, on November 19th, 2015 the Board of Directors appointed Ms. Ioana Dragan as interim member of the Board of Directors, until the next General Meeting of Shareholders of the Company (i.e. December 14th, 2015). Also, in November, Mr. Cristian Bușu was ap- pointed Secretary of State in the Ministry of En- ergy, thus changing his status as independent candidate. Thus, during November 19th, 2015 – December 14th, 2015, the Board of Directors had the fol- lowing members: • Mr. Victor Cionga - non-executive director, Chairman of the Board of Directors • Ms. Arielle Malard de Rothschild - non-execu- tive director • Mr. Michael Boersma – non-executive director • Mr. Cristian Bușu – non-executive director • Ms. Ioana Dragan - interim non-executive di- rector. On December 14th, 2015, the General Meeting of Shareholders elected, by the cumulative vot- ing method, a Board of Directors consisting of seven non-executive members. Their term of office, registered based on the decision of the General Meeting of Shareholders, is four years. Four of the seven directors fulfill the independ- ence criteria provided by the Articles of Associa- tion, according to statements presented on the occasion of nomination. At the date of this report, the members of the Board of Directors are as follows: No. Name Term of office (starting with December 14th, 2015) Status Date of first election 1. 2. 3. 4. 5. 6. 7. Cristian Bușu 4 years non-executive director September 22nd, 2014 Arielle Malard de Rothschild 4 years non-executive, independent director September 22nd, 2014 Ioana Dragan 4 years non-executive director December 14th, 2015 Corina Popescu 4 years non-executive director December 14th, 2015 Bogdan Iliescu Michael Boersma* 4 years 4 years Pedro Mielgo Alvarez 4 years non-executive, independent director non-executive, independent director non-executive, independent director December 14th, 2015 September 22nd, 2014 December 14th, 2015 Source: Electrica; *Note: Mr. Michael Boersma announced that he would resign from the position of Board member as of May 1st, 2016. 56 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015More details on the Board members’ biographies can be found on the company’s website. Mr. Cristian Bușu was elected Chairman of the Board of Directors during the new Board’s first meeting, which took place on January 13th, 2016, for a term of one year.  During 2015, until December 14th, the consul- tative committees had the following composition: a) The Nomination and Remuneration Com- mittee • Ms. Arielle Malard de Rothschild - Chair of the committee • Mr. Michael Boersma • Mr. Cristian Bușu b) The Audit Committee • Mr. Cristian Bușu - Chair of the committee (until November 27th, 2015, when the chair- manship of the Committee was taken over by Ms. Arielle Malard de Rothschild) • Mr. Victor Grigorescu (until November 17th, 2015; as of November 27th, 2015 he was re- placed by Mr. Victor Cionga) • Ms. Arielle Malard de Rothschild c) The Strategy, Restructuring and Corporate Governance Committee • Mr. Michael Boersma - Chair of the commit- tee • Mr. Victor Grigorescu; (until November 17th,2015; as of November 27th, 2015 he was replaced by Ms. Ioana Dragan) • Mr. Victor Cionga.  In the first meeting of the new Board of Directors on January 13th, 2016, it was decided to change the composition of committees, as follows: a) The Nomination and Remuneration Com- mittee • Mr. Bogdan Iliescu - Chair of the committee • Ms. Arielle Malard de Rothschild • Ms. Corina Popescu b) The Audit Committee • Mr. Pedro Mielgo Alvarez- Chair of the com- mittee • Ms. Arielle Malard de Rothschild • Mr. Bogdan Iliescu c) The Strategy, Restructuring and Corporate Governance Committee • Mr. Michael Boersma - Chair of the commit- tee • Ms. Ioana Dragan • Mr. Cristian Bușu. Consultative committees’ members are elected for a period of one year. The organization, duties and responsibilities of each committee are set under the Articles of Association of Electrica S.A., respec- tively in the committee charters - an integral part of the Corporate Governance Code of the Company. According to the information held, there is no agreement, understanding or family relation be- tween the directors of the Company and another person who may have contributed to their appoint- ment as directors. The following table presents the number of Electri- ca S.A. shares held by all members of the Board of Directors in March 2016: Name Victor Cionga Victor Grigorescu Cristian Bușu Arielle Malard de Rothschild Ioana Dragan Corina Popescu Michael Boersma Bogdan Iliescu Pedro Mielgo Alvarez Source: Electrica Number of shares Stake held (% of the share capital) 5,000 0.00144534% - - - - - - - - - - - - - - - - According to the available information, the Board members were not involved in litigations or ad- ministrative proceedings regarding their activity within the Company in the last five years or re- garding their capacity to fulfill their duties within the Company. In 2015, the Company established a special struc- ture, the General Secretariat, functionally report- ing to the Board of Directors and which has as duties, among others, to provide the entire sup- port necessary for the development of the Board meetings. The coordinator of the General Secre- tariat has the position of secretary of the meeting within the Board meetings. Starting with Septem- ber 26th, 2015, Ms. Mirela Dimbean-Creta has ful- filled this position. 57 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20156.2 THE ACTIVITY OF THE BOARD OF DIRECTORS OF ELECTRICA S.A. AND OF ITS CONSULTATIVE COMMITTEES In 2015, the Board of Directors met 35 times. Of the 35 meetings that took place in 2015, 12 were organized at Electrica’s headquarters and 23 were held electronically, in accordance with the provisions of art. 17 paragraph 22 of the Articles of Association of the Company. We present below the situation of Board mem- bers’ presence (in person) in the meetings of the Board of Directors and its committees in 2015: The Board of Directors (no. of meetings - 35) The Audit Committee (no. of meetings - 9) The Nomination and Remuneration Committee (no. of meetings - 14) The Strategy, Restructuring and Corporate Governance Committee (no. of meetings - 11) 34* 31 35 35 4 35 1 8 9 9 - - - - 14 14 - 14 11 9 - - 1 11 Name Victor Cionga Victor Grigorescu Cristian Bușu Arielle Malard de Rothschild Ioana Dragan Michael Boersma *Note: in a meeting of the Board of Directors, Mr. Victor Cionga as represented by Mr. Victor Grigorescu, on the basis of mandate. Source: Electrica The main decisions adopted by the Board of Direc- tors in 2015 refer to: • Implementation of the charter of the Board of Di- rectors and the charters of the committees set up by the board. • Approval of the Corporate Governance Code. • Approval of the Code of Ethics and Professional Conduct, of the procedure for reporting ethical misconduct, irregularities or any violations of the law by professional alert devices (integrity notice). • Approval of the Internal Audit Charter and of the Code of Ethics for the internal auditor. • Approval of the audit plan for 2015 and 2016. • Approval of the internal audit operational proce- dure. • Implementation in Electrica SA subsidiaries of a similar corporate governance model as used by the Company, namely replacing the executive directors with non-executive ones starting March 2015. • Endorsement of Electrica SA’s financial state- ments at individual and consolidated levels for the financial year of 2014. • Endorsement of financial statements of Compa- ny’s subsidiaries for the financial year of 2014. • Endorsement of Electrica SA’s income and ex- penses budgets at standalone and consolidated levels for the financial year of 2015; analysis of the budgetary projection for 2016. • Endorsement of income and expenses budgets of company’s subsidiaries for the financial year of 2015; analysis of the budgetary projection for 2016. • Endorsement of the consolidated investment plan for the financial year of 2015. • Approval of the transition organizational structure and the Regulation of organization and function- ing of the Company. • Approval of a profile for the competences of the members of the Board of Directors of the Com- pany. Also, the Board of Directors discussed during sever- al meetings and analysed the materials and propos- als regarding Electrica’s Strategy and Business Plan, the Management Plan of the Board of Directors, the Policy of remuneration and the framework - man- agement agreement for the Board of Directors, and initiated projects regarding the restructuring of sub- sidiaries and review of the Articles of Association of the Company and of its subsidiaries. Another area characterizing the activity of the Board of Directors in this period is represented by the concern for setting up a new team at the level of executive management and of key-positions. In this context, an extensive process of evaluation of internal competences was carried out, in order to confirm and, respectively, select and recruit execu- tive managers for the positions of director of strate- gy, sales, human resources and CFO. In the first two months of 2016, the Board of Direc- 58 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015tors met five times (of which two meetings were held electronically) and adopted important deci- sions for both its organization and the development and operational orientation of the Company. The main decisions adopted by the Board of Direc- tors during meetings held in the period of Decem- ber 14th, 2015 - February 29th, 2016 refer to: • Election of the Chairman of the Board of Direc- tors. • Establishment of the consultative committees and election of their chairpersons. • Analysis and endorsement of individual budgets of Electrica S.A., of budgets of its subsidiaries and of the consolidated budget at group level for 2016. • Endorsement of the consolidated investment plan at group level for 2016. Board of Directors evaluation The Board of Directors whose term ended on De- cember 14, 2015 has initiated and carried out an evaluation of its activity. For this purpose, it has contracted the services of a well-established inter- national company, with comprehensive experience in corporate governance. The evaluation covered the period November-December 2015 and the main objectives established considered the follow- ing aspects: • Strengthening the effectiveness of the Board by identifying the possible improvements in its struc- ture, functioning, ability to work as a team, and its capacity to constructively challenge manage- ment. • Development of shared views among Board members on how the Board could better contrib- ute to Electrica’s performance. • Strengthen confidence in Electrica’s approach to governance among key shareholders and other stakeholders. • Encourage Electrica to be a leader in Romanian corporate governance by meeting best practice requirements and expectations of the BSE Code of Corporate Governance;; • Enhance comfort among Board members regard- ing the fulfilment of collective responsibilities. The conclusions drawn from the evaluation process were discussed by the Board of Directors – both by the structure valid until December 14th, 2015 and by the new structure. Analysis of recommendations formulated revealed that the action plan should fo- cus on the following main elements: 1. The Board of Directors should focus more on viewing the activity from a group level and should receive more information on the activity of sub- sidiaries, in order to define and apply appropriate governance policies at group level; 2. Improvement of the nomination process regard- ing the candidates for a position within the Board of Directors, in order to ensure the necessary re- sources and competencies of the Board, while also strengthening the role of the Nomination and Remuneration Committee in managing this process; 3. The Board of Directors will have an approach from a strategic point of view rather than oper- ational, one of the areas requiring more focus being the creation and development of a prop- er framework for risk management and internal control; 4. Improving communication with the executive management and creating a relevant tool for the periodic reporting of Electrica and group activity; setting the annual calendar of meetings and key documents and reports to be presented by the executive management. A first step in implementing the measures presented is the initiation of a project to review and align the Articles of Association of Electrica and its subsidiar- ies, considering more clearly the scope of activity and the responsibilities by level of management, controlled delegation of abilities and implementa- tion of a new corporate governance at group level. The Nomination and Remuneration Committee The Nomination and Remuneration Committee consists of three non-executive Board of Directors members, the majority of them being independent members, while the chairman of the committee is an independent director. The role of the Committee is to propose candidates for the Board of Directors, to develop and propose to the Board the selection procedure of candidates for the positions of managers and other manage- ment positions, to recommend to the Board candi- dates for the positions listed, to formulate proposals on the remuneration of directors and other man- agement positions. Additional to the provisions of the Articles of Association the Committee has the following duties in the field of remuneration: • Elaborates and proposes to the Board policy for selection and evaluation of candidates and eval- uates the balance of skills, experience, independ- ence, knowledge and diversity of candidates. • Proposes to the Board procedures for the period- ical evaluation of performance of the Board and its members. • Periodically evaluates the size and structure of the Board and of the advisory committees and, if nec- essary, recommends any changes to the Board. • Makes recommendations to the Board regarding the Company’s policies on remuneration, incen- tives and severance payments. • Makes recommendations to the Board regarding the Company’s policies on staff recruitment and retention and termination of employment. 59 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015• Makes recommendations to the Board regarding the remuneration of the CEO and other executive managers, including the main components of re- muneration, performance objectives and evalua- tion methodology. • Makes recommendations to the Board regarding the structure of the remuneration of non-execu- tive directors. The Nomination and Remuneration Committee met 17 times during January 1st, 2015 - February 29th, 2016. During these meetings, the following topics were discussed and referred to the Board of Directors for approval: • Recommendations on the remuneration of Board members and their framework – management agreement. • Recommendations on the structure and remu- neration of the subsidiaries Board members. • Recommendations on the appointment of execu- tive directors and performance criteria. • Recommendations on the organizational struc- ture of the Company. • The profile of the Board of Directors and its eval- uation policy - developed according to principles undertaken by Electrica SA under the Corporate Governance Code and taking into account the principles and provisions of the new Corporate Governance Code adopted by the Bucharest Stock Exchange, applicable as of 4 January 2016. The criteria envisaged for Board members covers the following areas: general management, tech- nology and regulation, financial and economic, social and economic, international experience and information technology, areas that reflect the Company’s activity and its anticipated challenges in the coming years. Furthermore, the Nomination and Remuneration Committee was involved in preparing the Gen- eral Meeting of Shareholders held on December 14, 2015, which had on its agenda the election of members of the Board of Directors via the cumula- tive voting procedure, at the request of the Romani- an state as a shareholder. For this purpose, accord- ing to the provisions of the Articles of Association in force at the time of convening the General Meeting of Shareholders, The Nomination and Remunera- tion Committee decided to hire an independent re- cruitment agency, with international experience, for identifying and providing a shortlist of potential in- dependent candidates, from which the sharehold- ers could choose one or several candidates. Also, in terms of nominations of independent candidates, The Nomination and Remuneration Committee verified the existence of supporting documents proving that they fulfilled the conditions mentioned in the Articles of Association of Electrica S.A. The Audit Committee The Committee is made up of three members, most of them independent directors, the chairman is a non-executive independent director. This struc- ture provided the necessary expertise in finance and risk management, according to legal requirements. The main role of the Committee is to support the Board in fulfilling its duties of verifying the efficiency of Company’s financial reporting, internal control and risk management. While fulfilling this role, the Committee advises the Board regarding the assess- ment of the Annual Report and Annual Financial Statements, whether the documents are accurate, balanced and comprehensive and provide all the necessary information for the shareholders’ evalua- tion of the financial performance. At the same time, the Committee has the following duties: • Reviews and monitors the independence of the external auditor, the objectiveness and effective- ness of the audit process. • Monitors the auditor compliance with the relevant professional and ethical guidelines regarding the audit partner rotation, the level of fees paid by the Company compared to the overall income fees of the company, audit office and partner, and oth- er related requirements. • Ensures the compliance of the activities with the internal audit role. • Monitors and reviews the adequacy and effective- ness of the internal audit role and internal financial controls in the context of the entire risk manage- ment system of the Company. • Reviews the policies and systems of the Company for detecting fraud and preventing taking/giving of bribes. • Assesses the financing requirements of the Com- pany and the financing plans proposed and makes recommendations to the Board regarding the permits, notifications and applications necessary and appropriate to enable the Company’s man- agement to execute such plans. The Audit Committee met 12 times during January 1, 2015 - February 29, 2016. During these meetings, the following were discussed and referred to the Board of Directors for debate and, when applicable, approval/endorsement: • The Regulation of organization and operation of the Audit Committee. • The audit plan for 2016. • The operational internal audit procedure. • The financial statements of Electrica S.A. at stan- dalone and consolidated levels for the financial year of 2014 and the financial statements of Com- pany’s subsidiaries for the financial year of 2014. • The income and expenses of Electrica S.A. at stan- dalone and consolidated levels for the financial years of 2015 and 2016 and the revenue and ex- 60 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015penditure budgets of Company’s subsidiaries for the financial years of 2015 and 2016. • Various reports submitted by the internal auditor on missions carried out within Electrica SA and its subsidiaries. The internal audit activity is carried out by a separate division from a structural point of view (the Internal Audit Service), within the Company. In order to en- sure the fulfilment of its main functions, it reports to the Board of Directors through the Audit Commit- tee and administratively - to the CEO. Given the recommendation resulting from the pro- cess of evaluation of the activity of the Board of Directors in its whole, regarding the creation and development of an adequate risk management framework, the Audit Committee decided to pay more attention and provide more support to the Company, from this perspective. A first step was the implementation of the decision, to rename it as the Audit and Risk Committee in the meeting of December 8th, 2015, and during the first meet- ings of the new Committee was also planned the presentation of a report on risk management pro- cess in the year 2015 and based on its analysis the establishment of a calendar for the presentation of specific and periodical reports. The Strategy, Restructuring and Corporate Gov- ernance Committee The Committee was made up of three non-execu- tive directors, the chairman being a non-executive independent director. The Committee has the following duties in terms of strategy: • Supervises and monitors the strategy of the Com- pany and makes recommendations to the Board in relation to this. • Makes sure that an effective strategic planning process is being set by the Board, including the development of a medium-term strategic plan with measurable targets and deadlines. • Evaluates the performance of the Company and makes sure that the Company is aware of trends in the industry and the local market, with the evo- lution of competition and technological develop- ments. • Assesses whether acquisitions, disposals, joint ventures, cooperation projects fit into the strategy of the Company. Regarding the tasks of the Committee on restruc- turing, they mainly relate to: • Making recommendations to the Board on the most appropriate ways for the Company to restruc- ture and/or develop its activities and supervises the implementation by Company management of the decisions adopted by the Board on restructuring and/or development of the Company. • Reviewing the structure, objectives and policies of the Company and making recommendations to the Board. • Reviewing and making recommendations to the Board on the development and implementation of all restructuring plans and objectives of the Com- pany, including any matters relating to the estab- lishment and streamlining of core businesses. At the same time, the Committee has duties in terms of corporate governance: • Supervises and monitors compliance by the Com- pany with its legal and contractual obligations and with the principles of corporate governance appli- cable and makes recommendations to the Board in connection to this. • Develops and recommends to the Board cor- porate governance guidelines and proposes any amendments on corporate governance policy and documentation of the Company. • Reviews potential conflicts of interest that involve the directors and discusses with the Board if such director or directors may vote on any matter in relation to which there could be a conflict. The Strategy, Restructuring and Corporate Govern- ance Committee met 13 times during January 1, 2015 - February 29, 2016. During these meetings, the following were discussed and referred to the Board of Directors for approval/endorsement: • The Regulation of organization and operation of the Board of Directors and of the Strategy, Re- structuring and Corporate Governance Commit- tee. • Recommendations acquisitions/invest- on ments opportunities, respectively the strategy of smart-metering implementation at the level of Electrica Group, unification of the Dispatcher, GIS etc. • The Corporate Governance Code. • The consolidated investment plan for 2015 and 2016. • The strategy for the development of Electrica S.A. Group’s activity. • Health and safety at Group level. • The procedure for reporting ethical misconduct, irregularities or any violations of the law by profes- sional alert devices (integrity notice). • Proposals to amend the Articles of Association of Electrica S.A. and its subsidiaries, in its capacity as promoter of the project for review and alignment thereof. For 2016, the Committee has proposed as main objectives the completion and implementation of new Articles of Association of Electrica S.A. and its subsidiaries and greater involvement and coordina- tion of the process of defining and implementing the policy of corporate governance at Group level and the restructuring strategy thereof. 61 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20156.3 BOARDS OF DIRECTORS OF ELECTRICA SUBSIDIARIES The Boards of Directors of Electrica subsidiaries are composed of non-executive members. Start- ing on March 2015, the general managers, mem- bers of the Board of Directors up to that point, were replaced by non-executive directors. Structure of the Board of Directors of Electrica’s Subsidiaries as of December 31st, 2015 EDTS Marian Geanta -Chairman Alexandra Borislavschi, since February 2015, replacing Mr. Coman Claudiu, who resigned Mihai Lazar, since March 2015 Simona Fatu Carmen Mihaela Pirnea EDTN Ioan Dumbrava - Chairman Ciprian Gheorghe Diaconu Vlad Costica Oana Valentina Truta Ioan Roșca EDMN Ioan Roșca - chairman Oana Valentina Truta Costin - Mihai Paun Aurel Gubandru Alexandra Borislavschi, since February 2015 EF Ioan Roșca - Chairman Oana Valentina Truta Valentin Ionescu Victoria Lupu Ramiro Robert Eduard Angelescu, since March 2015 ES Marin Adrian Gheorghe - Chairman Gabriel Razvan Badan Catalin Leonte Gabriela Sandu Gabriela Marin, appointed for a temporary mandate in December 2015, replacing Mr. Cristian Bușu; Mr. Cristian Bușu’s mandate was from March to December 2015. 6.4 EXECUTIVE MANAGEMENT OF ELECTRICA S.A. According to art. 18, let. A, para. (c) and (k) from the Company’s Articles of Association, the Board of Di- rectors has the authority to appoint and revokes the General Manager, as well as the other managers with mandate. The General Manager conducts its activity according to the mandate contract signed with the Company. Throughout Decision no. 24 from July 5th, 2013 the Board of Directors appointed Mr. Ioan Roșca as General Manager with a four-year mandate and delegated to him responsibilities concerning the internal administration as well as the company representation. On February 26th, 2016 the Board of Directors and Mr. Ioan Roșca announced they have reached a mutual agreement to terminate his mandate as CEO of Electrica S.A. no later than June 2016. According to the best practices in place for listed companies on international markets regarding the implementation of a succession plan for key po- sitions, the Nomination and Remuneration Com- mittee is leading the selection process of several appropriate candidates for the positions of CEO of Electrica. The Nomination and Remuneration Committee is supported in this approach by an in- ternational consulting firm specialised in recruiting top management, in order to complete the selec- tion process in the next two months. During the July 29th, 2015 meeting, the Board of Directors appointed the following executive man- agers of the Company having a four-year mandate, starting on August 4th, 2015: • Ms. Alexandra Romana Augusta Popescu Bo- rislavschi –Manager of the Strategy and Corporate Governance Department • Mr. Ramiro-Robert-Eduard Angelescu – Sales Co- ordination Manager • Ms. Gabriela Marin - Human Resources Manager 62 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015During the October 26th, 2015 meeting the Board of Directors appointed Ms. Iuliana Andronache as Chief Financial Officer for a four-year mandate, starting on October 27th, 2015. 6.5 EXECUTIVE MANAGEMENT OF ELECTRICA S.A. According to our information, there is no agree- ment, understanding or family relationship between the Company’s managers and another person that contributed to their appointment as managers. SUBSIDIARIES The table below shows the company’s managers who have delegated powers from the Board of Directors: Name Darius Dumitru Mesca Ion Dobre Emil Merdan Mircea Patrascoiu Eugen Davidoiu Source: Electrica Position General Manager General Manager General Manager General Manager General Manager Subsidiary EDMN EDTS EDTN Electrica Furnizare Electrica Serv The table below shows the company’s managers who do not have delegated powers from the Board of Directors: Name EDMN Gabriela Blagoi Constantin Coman Valentin Branescu Gabriel Gheorghe Ion Preda EDTS Monica Radulescu Radu Holom Ioan Toma Nicu Constandache Catalin Grama Ioan Dumbrava EDTN Dora Fataceanu Vasile Filip Constantin Buda Ladislau Reider Electrica Furnizare Cristina Pana Mihai Beu Oana Pirvulete Petre Marin Roxana Gheorghe Electrica Serv Ana Iuliana Dinu Cristian Andruhovici Alexandru Ivan Monica Felicia Dumitrascu Viorel Vasiu Gheorghe Batir Viorel Beleuzu Source: Electrica Position Manager Manager Manager Manager Manager Manager Manager Deputy Manager Manager Manager Deputy Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Deputy Manager Manager Division Finance Distribution Technical 110 kV Development Control, Regulation and Communication Finance Distribution Distribution Technical 110 kV Development Development Finance Distribution Technical 110 kV Development Finance Commercial Legal Development Commercial Operations Finance Human Resources Procurement and International Relations Procurement and International Relations Production Production Legal and Assets 63 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20156.6 NUMBER OF SHARES OWNED BY THE MANAGERS OF THE ELECTRICA GROUP The table below shows the number of shares held by the Company’s managers as of March 3rd, 2016: Item no. Name Number of shares Share in the share capital (%) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Ioan Roșca Ramiro Robert Eduard Angelescu Alexandra Borislavschi Gabriela Marin Iuliana Andronache Marian Geanta Ion Dobre Emil Merdan Mircea Patrascoiu Eugen Davidoiu Monica Radulescu Radu Holom Dora Fataceanu Vasile Filip Oana Pirvulete 25,000 1,000 - - - 1,000 1,660 7,277 - 2,478 - 1,000 1,000 8,745 1,208 0.0072% 0.0003% - - - 0.0003% 0.0005% 0.0021% - 0.0007% - 0.0003% 0.0003% 0.0025% 0.0003% Source: Electrica According to information at hand the persons mentioned in section 6.3 - 6.5 have not been involved in any litigations or administrative proceedings related to their activity within the Company in the last five years and their capacity to fulfil their work-related. 64 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20157 CORPORATE GOVERNANCE 7.1 GENERAL MEETING OF SHAREHOLDERS The General Meeting of Shareholders (“GMS”) is the main corporate governance body of Electrica, deciding on the items as outlined in the Articles of Association. The convening, functioning, voting as well as other provisions regarding the GMS are detailed in Electrica’s Articles of Association. Until July 2014, the Romanian State, acting through the Ministry of Energy, Small and Medi- um Enterprises and Business Environment, was the sole shareholder of Electrica. Starting July 4th, 2014 the Company’s shares are listed on Bucha- rest Stock Exchange, and the GDRs are listed on London Stock Exchange. The latest available in- formation regarding the shareholder structure has been provided by Central Depository on March 3rd, 2016 and is presented in the table below: Shareholder Shares Percent of share capital Ministry of Energy, Bucharest, Romania European Bank for Reconstruction And Development, London, UK BNY MELLON DRS, New York, USA Legal persons Individual persons TOTAL Source: Central Depository, Electrica 168,751,185 29,944,090 18,086,928 112,002,040 17,155,686 345,939,929 48.78% 8.66% 5.23% 32.38% 4.96% 100% FIGURE 33 Shareholders’ structure at 3 March 3rd, 2016 4.96% 345,939,929 total shares Romanian State EBRD 48.78% BNY Mellon DRS - LSE Legal persons shareholders Individual persons shareholders 32.38% 5.23% 8.66% Source: Central Depository, Electrica Following the stabilization process after the June 2014 IPO, Electrica S.A. owns 6,890,593 of its trea- sury shares, representing 1.99% of the total share capital. These shares entitle Electrica neither to voting rights nor to dividends. 65 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20157.2 CORPORATE GOVERNANCE CODE Electrica adhered to and has been willfully applying the provisions of the Corporate Go- vernance Code issued by the BSE since the fis- cal year 2014. Electrica had officially adopted the Corporate Governance Code (“CGC ELSA”) in February 2015 and made it available on the Company’s website for all interested parties’ benefit. This Corporate Governance Code embeds Elec- trica’s general principles and conduct rules whi- ch set forth and regulate the corporate values, the responsibilities, obligations and business conduct of the company. The ELSA CGC comprises also ELSA’s Articles of Association, the charters of the Board of Direc- tors and those of its committees, and all these documents together contain the terms of refe- rence and responsibilities of the administrative and executive management of the company. Electrica S.A. has continuously developed and updated its corporate governance practices in order to meet requirements as well as to deve- lop opportunities and increase competitiveness. In September 2015 the BSE issued a new Corpo- rate Governance Code (“the BSE Code”), which entered into force as of January 4th, 2016. The provisions of the new Code are being carefully examined and Company’s compliance the- rewith is being thoroughly assessed. The “Comply or Explain” Statement presents the compliance level of the Company with the new provisions of BSE’s CGC code at December 31st, 2015. Electrica S.A. has been in full compliance with most of these requirements. The main re- ason why Electrica is noncompliant with some of the Code’s provisions arises from the current situation of the Company. Further considera- tion will be applied with regards to these pro- visions and any subsequent progress made by the Company in achieving compliance will be reported to the capital market. The CGC is also a guide for the management and the employees of Electrica S.A. and other stakeholders on the business conduct and go- vernance matters and provides information about aspects of the Company’s principles and policies. It also incorporates the Code of Ethics and Professional Conduct (Schedule 7 of the CGC). In compliance with Company’s policies and with the Code of Ethics and professional conduct, the Audit Committee ensures that the Com- pany`s activity is carried on with honesty and integrity, including the approval of the whistle- blower policy. The main purpose of the whistle- blower policy is to protect the Company from ethical deviations, frauds and any other aspects of non-compliance that would otherwise harm Electrica’s image or even involve legal sanctions, thus damaging the prestige and profitability of the Company. This procedure can be found on Electrica’s website. 7.3 IMPLEMENTING ACTION PLANS UNDERTAKEN BY SIGNING THE FRAMEWORK AGREEMENT WITH EBRD Electrica’s privatization process based on (the) In- itial Primary Public Offer of Electrica implied sign- ing a Framework Agreement with the European Bank for Reconstruction and Development. The agreement provides extensive action plans for adopting new values, essential for the good gov- ernance. According to this bilateral agreement, there are three main directions of action for im- plementing the organizational change required considering the context and the company’s new status: developing a corporate culture of integ- rity at Group level, adopting the best practices with regards to corporate governance and imple- menting social and environmental responsibility policies. Measures in preventing fraud and corruption The first measure taken in this regard was to in- tegrate the codes of ethics of all subsidiaries and the EBRD guidelines into a unique Code of Ethics applicable for Electrica as a Group. This impor- tant strategic measure was taken in consideration of the signed agreement, but mainly to ensure the integrity standards required to increase in- vestors’ and stakeholders’ confidence capital the company is benefiting from. The measures taken led to the adoption of a new Code of Ethics and Professional Conduct by the Boards of Directors of all Electrica subsidiaries during the period Feb- ruary- April in 2015. After the adoption of the new Code of Ethics and Professional Conduct, Electrica initiated its im- plementation program, structured on three main areas: • definition of structures, mechanisms and in- struments necessary for ethics and compliance 66 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015management, following the analysis of the insti- tutional framework, • dissemination of information on the Code val- ues and principles, • awareness and commitment regarding the Code values and principles on a Group level. The actual implementation of the new Code of Ethics and Professional Conduct started with a stakeholder’s dedicated launching event. The event, organized on April 23rd 2015, gathered over 160 representatives of the partners (regula- tors and public authorities, analysts and investors, competitors, non-governmental organizations, important suppliers/contractors, mass-media), enjoying attention from the national press and having as speakers decision-makers within the company (General Manager, members of the Board of Directors), representatives of its main shareholders (the Romanian State and EBRD) and of the consultant Transparency International Ro- mania. During March-June 2015, an analysis on the in- stitutional framework and the best practices was conducted for identifying the options regarding ethics, sustainability and compliance manage- ment and for integrating the recommendations made by the consultant Transparency Interna- tional on forming, structuring and positioning the organizational entity required into the “Improve- ment of business processes in Electrica S.A.” pro- ject. The next step within the code implementation program was to organise a sequence of five workshops at Electrica’s subsidiaries level, for in- creasing the strategic and operational manage- ment’s awareness on ethics and integrity aspects, the adopted values and principles. Organized during June-September 2015, these workshops gathered the non-executive administrators and the executive management of each subsidiary and its branches. Simultaneously, a set of policies regarding cor- ruption, fraud and money laundering preven- tion; avoidance and control of conflicts of inter- ests; gifts and protocol expenses; transparency and stakeholders’ engagement was developed, aligned to the provisions of the Code of Ethics and Professional Conduct. For the fine-tuning with the specific aspects and features of the Group subsidiaries and of the de- partments within Electrica S.A., the elaborated policies were submitted to the management’s analysis between October 20th and November 5th 2015. The observations and recommendation made by subsidiaries management and Electri- ca’s departments were integrated to a great ex- tent in the final version of the policies. Once the necessary instruments for ethics man- agement and compliance monitoring (policies, methodologies, forms) were developed, all com- panies within the Group set up dedicated organ- izational structures or delegated the specific as- signments to an ethics adviser. Immediately the training program for personnel with assignments in ethics, sustainability and compliance fields was started. The dedicated departments or ethics advisers launched both awareness programs to dissem- inate information about the code values and principles and increase company’s personnel commitment, as well as compliance monitoring programs starting from November 2015, subse- quent to the appointment of the respective po- sitions. 7.4 THE CORPORATE GOVERNANCE ACTION PLAN 1. Independent directors’ selection EBRD guidelines were included in Electrica’s Articles of Association, enforced from July 4th, 2014 until the Extraordinary General Meeting of Shareholders on November 10th, 2015, subse- quent to which the number of members of the company’s Board of Directors changed from five to seven directors, of which four independ- ent. To elect the members of the Board of Direc- tors, Electrica convened the Ordinary General Meeting of Shareholders on December 14th, 2015. To identify the potential candidates for the po- sition of independent non-executive director, according to the requirements of the Articles of Association, in force at the calling moment of the Ordinary General Meeting of Shareholders, Electrica contracted the services of an inter- nationally renowned agency, specialized in re- cruitment for strategic management positions. The agency provided on November 18th, 2015 an initial list of potential candidates, which was revised by the Nomination and Remuneration Committee and published on the company’s website. The company’s shareholders pro- posed several independent candidates, both from and outside of the previously mentioned list. After the analysis of these proposals and of the candidates’ declarations of independence, the final list of candidates was drawn up and submitted to the vote of the General Meeting 67 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015of Shareholders. In case of the rightfully listed candidates, respectively the acting members of the Board of Directors, there was no need to re- new the declaration of independence, as their declaration from their first election on Septem- ber 22nd, 2014 was still valid. On December 14th, 2015, the Ordinary General Meeting of Share- holders elected seven new non-executive di- rectors of the Company by a cumulative vote, of which four independent ones. 2. Nomination and remuneration policy Electrica developed the Remuneration Policy for the Board of Directors and the executive management with assistance from a HR con- sultant of international reputation. The Poli- cy received the endorsement of the Board of Directors and on July 9th, 2015 the General Meeting of Shareholders approved the gener- al remuneration limits for the managers with a mandate agreement, the remuneration policy for directors remaining the subject of further analysis and discussion. For 2016, the current Board of Directors intends to redesign the re- muneration principles, to submit them again to the shareholders’ approval and then to develop an integrated approach at Group level. 3. Consultative committees of the Board of Directors Three consultative committees were formed within Electrica’s Board of Directors: the Audit Committee, the Nomination and Remunera- tion Committee and the Strategy, Restructuring and Corporate Governance Committee. Their organizational and operational charts were adopted by the decision of the Board of Direc- tors of February 2nd, 2015, and are part of the Corporate Governance Code. The new Board of Directors elected on December 14th, 2015 decided to reinstate these consultative com- mittees with a new composition. 4. Audit and internal control The internal audit procedure, as well as its as- sociated documents were approved in their re- vised version by the Board of Directors at the beginning of 2015. The internal audit plan for 2015, drafted by the specialized department, was approved by the Board of Directors on February 2nd, 2015, changed in September 2015 and implemented in its updated version. In De- cember 2015, the Board of Directors approved the Internal Audit Plan for 2016. According to the conclusions drawn during the assessment process of the activity of the Board of Directors, one of the actions considered for 2016 is establishing and developing an ade- quate management framework of risk and in- ternal control and a unitary approach at Group level, the revision of the company’s Articles of Association and of its subsidiaries representing the first step of this program. 5. The company’s Articles of Association EBRD guidelines were included in Electrica’s Articles of Association which came into force on July 4th, 2014 and was amended by the Res- olution of the Extraordinary General Meeting of Shareholders of November 10th, 2015. The main changes were related to the increase in the number of the Board of Directors mem- bers from five to seven, of the number of in- dependent members and to the revision of the decision approval mechanism and of the nomi- nation procedures for independent candidates. For a better correlation with the provisions of the Framework Agreement signed with EBRD, the project of amendment to the Articles of As- sociation includes changes to the minimal stat- utory conditions for the meetings of the Board of Directors, more specifically an increase in the number of independent members present at meetings. 6. Responsibility and accountability guidelines In order to design a new organizational struc- ture and establish responsibilities, compe- tences and clearly define the reporting system within the company, Electrica contracted the services of an international consultant special- ized in human resources. The new organiza- tional structure and the associated processes were approved by the Board of Directors in April 2015. Their implementation takes place in several phases, starting with a transition phase, during which the structures and processes are refined and consolidated. The project is envi- sioned to be finalized and launched in Electri- ca’s subsidiaries during 2016. 7. Code of Conduct EBRD requirements are covered in the Cor- porate Governance Code which includes the Code of Ethics and Professional Conduct. The department in charge of managing inves- tors’ relations, in collaboration with the com- pany’s external legal consultant, developed the Corporate Governance Code and the whistle- blowing policy incorporated, while the Code of Ethics and Professional Conduct was drafted simultaneously with the support of Transparen- cy International. The two codes were aligned 68 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015during January 2015, approved on February 2nd, 2015 and published on Electrica’s website. 8. Compliance with the BSE Corporate Governance Code The new Corporate Governance Code of the Bucharest Stock Exchange came into force on January 4th, 2016 and Electrica published the first “Apply or explain” report, revealing the main compliance areas, but also the actions needed for a better implementation of the new code. According to the first evaluation conducted in the beginning of 2016 and published on the company’s website, as well as in line with a second evaluation conducted for the present report (Appendix 4), Electrica is in compliance with a majority of the code’s provisions. With regards to the company’s subsidiaries, the Board of Directors of Electrica S.A. planned the revision of their Articles of Association, as well as the governance principles on a Group level. 7.5 THE ENVIRONMENTAL AND SOCIAL RESPONSIBILITY PLAN At the end of 2014, the company initiated the pro- ject “Improvement of business processes in Elec- trica S.A.”, developed in partnership with A.T. Kear- ney, while envisaging a unitary approach of IMS (“Integrated Management System”) at Group level. By implementing the policies elaborated by Elec- trica together with the specialized consultant as part of this project, a unitary approach is pursued for the quality-environment-occupational health and safety IMS existing in subsidiaries. Moreover, through this project, the company pursues the development of a joint procedural framework for certain activity fields, by drafting the framework operational procedures, preserving SRAC (IQNet) certifications according to ISO 9001, ISO 14001 and OHSAS 18001. At the same time, the Compa- ny took important steps in changing the statutory documents of its subsidiaries. The operational framework procedure regarding the assessment of the impact on the environment of the group’s investment projects was elaborat- ed at the beginning of 2015, so as to ensure the availability on the group’s companies websites of the nontechnical summaries for the projects with a significant impact on the environment, in view of public consultation. At the same time, the op- erational framework procedure for the endorse- ment of investment projects was updated. The operational framework procedure regarding the requirements imposed on contracts and related to environmental aspects is finalized and will be implemented in subsidiaries. During 2015, the “Study on the identification of the impact areas of the aerial electricity networks upon birds and solutions for their protection” was drawn-up by an independent company, with na- tional and international expertise in ornithology, study in which the following are presented: a map of Romania’s protected areas (avifaunal and Natura 2000 sites); maps that highlight the prior- ity areas for reducing bird electrocution events; measures and technical solutions that must be taken in order to protect birds from the impact with aerial electricity networks. The study was re- leased to distribution operators within the Group. As for Corporate Social Responsibility, Electrica established organizational structures with respon- sibilities in the field, as well as a policy regarding stakeholders’ engagement. In 2015, Electrica was mainly involved in cultural and educational pro- jects. At the same time, social responsibility in- itiatives involving the Group’s employees were initiated. Overall, the company’s approached was to select sustainable projects, which make a long term impact. Worth mentioning are: • The “George Enescu International Festival” – the most important cultural event hosted by Roma- nia, which became in recent years a genuine brand for the country. • Initiatives in education: - EUREL Energy Field Trip – an event conduct- ed by the youth organization of the Society of Power Engineers of Romania for students from energy profile universities from Romania and from abroad; - The school dropout reduction program, main- ly for underprivileged children, supported in partnership with the organization “Salvati Copiii Romania”. At the same time, Electrica has managed to take important steps in the development of an or- ganizational culture based on ethics and integ- rity, but also on an increased involvement of the Group’s employees in activities dedicated to sup- porting colleagues or the community. As such, the Company made donations of EUR 15,000 each to support the victims of the fire in the club “Colectiv” and their families, and, respectively, to support the medical treatment for an employee of Electrica S.A. At the same time, by means of Crucea Rosie Romania, the employees of Elec- trica Group made donations in their own name 69 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015and participated in blood donation programs and other initiatives. During the 4th quarter of 2015, meetings and consultations were initiated to contract an in- dependent third party for the identification and assessment of risks at the Company’s level. The identification and assessment of environment and social risks is an integrated part of this project. As for the development of a policy regarding the reorganization/restructuring activities conduct- ed at Group level, the Collective Labour Agree- ment signed with the social partner provides for the elaboration and negotiation of such a policy. At the same time, Electrica also undertook the elaboration and implementation of a National Training Program at Group level. This program proposes the use professional reconversion to avoid, as much as possible, personnel dismiss- als. A procedure regarding the management of restructuring efforts at Group level was drafted, including reporting deadlines and stakeholders’ information. In November 2015, Electrica drafted a framework procedure for waste management, in view of im- plementing a unitary system at Group level. The companies within the Group are selectively col- lecting and temporarily storing the waste prior to their sale or disposal, according to legal require- ments, and fulfilling reporting requirements to authorities. In 2015, the accidental leaks of electrical insulating oil from the transformers in substations of distribu- tion subsidiaries within the Electrica Group were monitored and registered in malfunction registers. All were retreated by rapid intervention measures. As they had no significant environmental impact, no decontamination measures were required for the soil and underground waters. For a series of locations (repair workshops, warehouses) in Elec- trica Serv agencies, soil and water analyses were performed according to the requirements im- posed by environment authorizations. Provisions regarding the mitigation of sound pollution in residential areas and the associat- ed health risks are frequently included in works or services contracts. Electrica also initiated the elaboration of a framework procedure, applica- ble to all companies within the Group, regarding the need to impose contractual clauses dedicat- ed to environmental protection and occupation- al health, which will also explicitly address sound pollution. 70 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20158 FINANCIAL OVERVIEW The financial overview of the company is based on the consolidated financial statements that have been prepared in accordance with the In- ternational Financial Reporting Standards (“IFRS”) adopted by the European Union (“IFRS-EU”). These Consolidated financial statements are pre- sented in RON, which is the functional currency of all companies within the Group. 8.1 CONSOLIDATED STATEMENT OF THE FINANCIAL POSITION The following table presents the consolidated statement of the financial position: RON mil. ASSETS Non-current assets Intangible assets related to concession agreements Other intangible assets Tangible assets Deferred tax assets Other non-current assets December 31st, 2015 December 31st, 2014 Restated* January 1st, 2014 Restated* Variation 2015/2014 3,700 3,501 3,340 5.68% 14 779 51 4 9 805 60 8 5 876 85 1 62.22% -3.18% -15.14% -52.30% Total non-current assets 4,548 4,382 4,307 3.78% Current assets Trade receivables Other receivables Cash and cash equivalents 838 37 893 Deposits, treasury bills and gov. bonds 1,988 Inventories Prepayments Green Certificates Income tax receivables Assets held for redistribution Total current assets Total assets Sursa: Electrica 781 25 1,630 1,221 24 9 54 23 - 23 9 31 23 - 3,843 8,391 3,765 8,148 1,088 7.30% 57 651 - 34 6 - 37 2,243 4,116 49.54% -45.17% 62.87% -4.31% 9.44% -41.71% 0.00% - 2.07% 8,423 2.99% 71 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015RON mil. EQUITY AND LIABILITIES Equity Share capital Share premium Treasury share reserves Pre-paid capital contributions in kind from shareholders Revaluation reserve Other reserves Retained earnings Total equity attributable to shareholders of the Company Non-controlling interests Total equity Liabilities Non-current liabilities Financing for network construction related to concession agreements Finance lease Deferred tax liabilities Employee benefits Other payables Total non-current liabilities Current liabilities Financing for network construction related to concession agreements Short-term bank borrowings Bank overdrafts Finance lease Trade payables Other payables Deferred revenue Employee benefits Provisions Current income tax liability Total current liabilities Total liabilities December 31st, 2015 December 31st, 2014 Restated* January 1st, 2014 Restated* Variation 2015/2014 3,814 3,814 2,509 103 (75) 3 140 274 1,355 5,614 829 6,443 122 - 181 194 43 540 100 60 66 - 656 249 4 135 128 11 103 (75) 3 156 237 1,247 5,484 804 6,289 151 - 184 220 53 609 99 - 48 294 555 311 3 147 73 14 - - 48 573 615 1,905 5,650 755 6,406 130 290 194 213 66 603 143 - 80 498 582 355 3 152 85 15 1,408 1,949 1,250 1,859 1,414 2,017 0.00% 0.00% 0.00% -12.56% -10.04% 15.77% 8.66% 2.36% 3.07% 2.45% -19.42% - -1.36% -12.01% -19.02% -11.25% 0.52% - 37.05% -100.00% 18.22% -19.79% 41.78% -8.24% 75.69% -24.00% 12.66% 4.83% Total equity and liabilities 8,391 8,148 8,423 2.99% Source: Electrica 72 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Non-current assets The application model of IFRIC 12, being to a large extent correlated to the recognition and depreciation of the asset components of RAB, re- flects the principle of generating revenues. Non-currents assets increased by 3.8% in 2015 compared to 2014, from RON 4,382 mil. to RON 4,548 mil., primarily as a result of an increase in the assets related to concession agreements (in- vestments made in the network, for the most im- portant ones please refer to Appendix 2). Current assets Current assets went up by 2% in 2015 as com- pared to 2014, from RON 3,765 mil. to RON 3,843 mil., mainly driven by an increase in the value of receivables as well as by an increase in cash and cash equivalents, due to accumulated net inter- est gained on the IPO proceeds. Trade receivables Trade receivables increased by 7% (i.e RON 57 mil), from RON 781 mil. in 2014 to RON 838 mil. in 2015. This variation was mainly caused by the increase in amounts receivable by Electrica Fur- nizare in line with revenue growth. Cash and cash equivalents Cash and cash equivalents decreased by 45% in 2015 compared to 2014, from RON 1,630 mil.to RON 893 mil., as a result of placing funds result- ing from IPO proceeds in treasury bills and gov- ernment bonds with maturity greater than three months, which are presented as investments held until maturity. Deposits, treasury bills and government bonds Deposits, treasury bills and government bonds in- creased by RON 767 mil. compared to 2014, as a result of placing funds from IPO proceeds mainly in this type of investments with maturities greater than three months. Share capital and share premium The subscribed share capital in nominal terms consists of 345,939,929 ordinary shares on De- cember 31st, 2015 (345,939,929 ordinary shares on December 31st, 2014) with a face value of RON 10 per share. All shares rank equally with re- gard to the Company’s residual assets. Holders of ordinary shares are entitled to dividends and have the right to one vote per share in the gen- eral meetings of shareholders of the Company. Number of ordinary shares 2015 2014 Number of shares at January 1st 345,939,929 207,839,904 Shares issued during the year Decrease of the number of shares by spin-off - - 181,223,805 (43,123,780) Number of shares at December 31st 345,939,929 345,939,929 Source: Electrica The company recognizes the changes in its share capital only after their approval in the General Meeting of Shareholders and their registration with the Trade Register. Contributions made by the shareholder which are not registered yet with the Trade Register at the end of the year are rec- ognized as “Pre-paid capital contributions in kind from shareholders”. In 2014 there were several changes to the share capital: a share capital increase of 188,264 or- dinary shares in February and an increase of 3,846,797 ordinary shares in May, the shares be- ing issued in respect of land contributed by the shareholder in the previous periods; the partial division of Electrica S.A. by separation of a part of the patrimony (investments held by Electrica S.A. in other entities) and its transfer to the newly established company - Societatea de Administra- re a Participatiilor in Energie S.A.) which lead to a share capital decrease of 43,123,780 ordinary shares; the share capital increase on July 2nd, 2014 of 177,188,744 ordinary shares, as a result of organizing an IPO, which referred to an offering of 142,007,744 shares and 8,795,250 GDRs, each GDR representing the equivalent of four shares. The underwritings amounted to RON 1,556,095 thousand and USD 120,143,115. Consequently, the Group recognized an increase of share cap- ital amounting to RON 1,771,887 thousand and a share premium of RON 171,128 thousand. The transaction costs of RON 68,079 thousand were deducted from the share premium. In 2015 there were no changes to the share cap- ital. Until December 31st, 2003, the statutory share capital in nominal terms was restated according 73 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015to IAS 29 “Financial Reporting in Hyperinflationary Economies”, with the corresponding adjustments being reflected in the retained earnings. Treasury shares In July 2014 the Company bought-back 5,206,593 shares and 421,000 GDRs, represent- ing the equivalent of 1,684,000 shares. The to- tal amount paid for these shares and GDRs was RON 75,372 thousand. RON mil. Balance at January 1st Dividends Dividends for 2014, worth RON 245 mil., were de- clared on the basis of individual annual statutory financial statements prepared in accordance with the Romanian accounting regulations. Dividends for 2014 were approved by the Ordinary General Meeting of Shareholders no. 1 of April 27th, 2015 and were paid first on July 15th, 2015. Revaluation reserves The reconciliation between opening and closing revaluation reserve is as follows: 2015 2014 Restated Revaluation of tangible assets attributable to shareholders of the Company Release of revaluation reserve to retained earnings due to depreciation and disposals of tangible assets Spin-off effect Loss of control over subsidiaries Balance at December 31st Source: Electrica 156 - -14 - -2 140 573 -1 -15 -388 -13 156 Other reserves Other reserves include: • Legal reserves – established as 5% of the profit before tax according to the individual statutory financial statements of companies within the Group, until the total legal reserves reach 20% of the paid-up nominal share capital of each company, according to legal provisions. These reserves are deductible for income tax purposes and are not distributable. • Other reserves established in compliance with the legislation in force. RON mil. Balance on January 1st 2014 Set-up of legal reserves Effect of division Balance on December 31st, 2014 Set-up of legal reserves Balance on December 31st, 2015 Source: Electrica Legal reserves Other reserves Total other reserves 246 30 -39 237 37 274 369 - -369 - - - 615 30 -408 237 37 274 74 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Intra-group adjustments Total 2 829 Non-controlling interests (“NCI”) The following tables summarise the information related to each of the Group’s subsidiaries that has material non-controlling interest, before any intra-group elimination. December 31st, 2015 (RON mil.) EDMN EDTN EDTS NCI percentage 22% 22% 22% Non-current assets Current assets Non-current liabilities Current liabilities Net assets Carrying amount of NCI Revenues Profit Other comprehensive income Total comprehensive income Profit allocated to NCI Other comprehensive income allocated to NCI Cash flows from operating activities Cash flows from investment activities Cash flows from financing activities** Net increase/(decrease) in cash and cash equivalents* Dividends paid to NCI during the year 1,288 1,217 1,195 400 -164 -191 1,333 293 872 140 3 143 31 0.6 180 -15 -135 29 25 161 -80 -247 1,052 231 858 143 3 146 31 0.7 242 -160 -55 27 17 263 -136 -291 1,031 227 840 137 2 140 30 0.5 270 -78 -138 54 18 EF 22% 134 1,005 -67 -726 346 76 4,160 123 3 126 27 0.6 125 -16 -174 -66 38 *The amounts presented represent the cash flows of subsidiaries **Cash flows from financing activities include dividends paid to NCI. Source: Electrica S.A. Non-current liabilities Non-current liabilities decreased by 11.25% in 2015 compared to 2014, from RON 609 mil. to RON 540 mil. Current liabilities Current liabilities increased by 12.7% in 2015 com- pared to 2014, from RON 1,250 mil. to RON 1,408 mil., as a result of changes in the following cate- gories (representing 83% of total current liabilities): Trade payables Trade payables increased by 18.2% in 2015 com- pared to 2014, from RON 555 mil. to RON 656 mil. The main categories included in trade paya- bles are: payables to electricity suppliers, CAPEX suppliers and other suppliers (suppliers of servi- ces, materials and consumables etc.). 119 2 97 75 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 Provisions RON mil. Balance on January 1st 2015 Provisions recognized Provisions used Provisions reversed Balance on December 31st, 2015 Source: Electrica Provisions 73 87 (4) (28) 128 As of December 31st, 2015, provisions refer mainly to: • RON 80 mil. representing potential fiscal ob- ligations of the Group (including interests and penalties). • RON 29 mil. representing restructuring provision potential fiscal risks of the Group and obligations resulted from the restructuring plan approved by the Board of Directors of Electrica Serv in Decem- ber 2015 to be implemented during 2016-2018, representing the layoff of 500 employees. in respect of Electrica Serv. • RON 2.4 mil. representing claims of individuals in respect of land of the Group. Provisions recognized in 2015 mainly represent Short-term employee benefits Short-term employee benefits have decreased by 8.2% in 2015 as compared to 2014. RON mil. Personnel payables Current portion of defined benefit liability and other long-term employee benefits Social security charges Tax on salaries Termination benefits Total Source: Electrica December 31st, 2015 December 31st,2014 32 12 52 15 22 135 39 13 64 16 16 147 In Romania, all employers and employees, as well as other persons, are contributors to the state so- cial security system. The social insurance system covers pensions, allocations for children, tempo- rary inability to work, risks of works and occupa- tional diseases and other social assistance ser- vices, unemployment benefits and incentives for employers creating new jobs. The Group has overdue social security and other salary taxes amounting to RON 42.9 mil. At De- cember 31st, 2015 (2014: RON 39.5 mil.), which relate to the three subsidiaries under financial dis- tress (SE Moldova, SE Muntenia and SE Oltenia). Other current liabilities Other payables decreased by 19.8% in 2015 compared to 2014. RON mil. VAT payable Late payment penalties to the State budget Other liabilities to the State Liabilities related to radio and TV tax Liabilities related to Green Certificates Other liabilities Total Source: Electrica December 31st, 2015 December 31st, 2014 119 1 90 13 - 25 249 137 18 86 12 42 15 311 76 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Penalties for late payment to the State are re- scheduled for payment based on a plan issued by NAFA for Electrica Serv for a period of 48 months starting with August 2012. Based on the plan, in 2015, Electrica Serv made payments amounting to RON 28.8 mil. In relation to this, NAFA instituted a pledge on certain tangible as- sets of Electrica Serv. Part of Other liabilities to the State refers to service subsidiaries, including those in financial distress previously presented. In accordance with Law 533/2003, which amended Law no. 41/1994 on the organization and functioning of the Romanian Radio Broad- casting Company and of the Romanian Tele- vision Company, radio and TV taxes are col- lected by Electrica Furnizare on behalf of these companies. The payable of the Group to the above mentioned institutions is represented by the radio and TV tax collected and not paid by year end. Other liabilities refer mainly to guarantees and various creditors. Other non-current liabilities refer to guarantees from customers related to electricity supply. 8.2 CONSOLIDATED STATEMENT OF PROFIT AND LOSS The following table presents the Consolidated Income Statement of Electrica Group, for years 2015 and 2014. RON mil. Revenues Other operating income Electricity purchased Green Certificates Construction costs related to concession agreements Employee benefits Repair, maintenance and equipment Depreciation and amortisation Impairment of property, plant and equipment, net Impairment of trade and other receivables, net Other operating expenses Change in provisions, net Operating profit Financial income Financial costs Net finance (income)/cost Profit before tax Income tax expense Profit for the year Source: Electrica 2015 5,503 211 2014 Restated* Variation 2015/2014 5,044 9.10% 177 19.63% (2,719) (2,349) 15.73% (347) (490) (663) (59) (351) (2) (4) (272) (440) (739) (85) (326) (33) (5) (455) (461) (55) 569 38 (17) 20 589 (107) 482 (0) 511 36 (23) 13 524 (111) 413 27.36% 11.28% -10.24% -30.46% 7.71% -92.78% -5.01% -1.18% - 11.36% 3.97% -24.97% 54.53% 12.45% -3.62% 16.77% 77 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015THE CONSOLIDATED FINANCIAL STATEMENT Electrica’s revenues in 2015 and 2014 amounted to RON 5,503 mil. and RON 5,044 mil, respec- tively. The increase in revenues by RON 459 mil., or 9 % as compared to 2014, resulted from the increase in both supply and distribution revenues. employees of companies in the service segment associated to external distribution networks. As percentage in revenues, the expense for sala- ries and employee benefits accounted for 12% in 2015 compared to 14.6% in 2014. Electricity purchased The expense for electricity purchased by the Group increased by 15.7%, or RON 370 mil., reaching RON 2,719 mil. in 2015, from RON 2,349 mil. in 2014. This is mainly a consequence of an increase in quantities supplied. As percentage of the revenue, the cost of elec- tricity purchased was the main cost element of the Group, accounting for 49.4% in 2015 and 46.6% in 2014. Green certificates Electricity suppliers have a legal obligation to purchase/supply a certain share of the electricity produced from renewable sources, through the acquisition of green certificates, based on annual targets or quotas set by law, regarding the share of gross production from renewable sources. The cost with the acquisition of Green Certifi- cates is a pass through cost. As a percentage of revenues, the cost with the acquisition of Green Certificates represented, at Group level, 6.3% in 2015 compared to 5.4% in 2014. Construction costs In 2015, the costs related to the construction of power grids increased by RON 50 mil. or 11.3%, from RON 440 mil. in 2014 to RON 490 mil in 2015. This increase is mainly due to RAB increase in 2015, resulting from undertaken investments. Employee benefits Expenses for salaries and employee benefits decreased by RON 76 mil. or 10.2%, from RON 739 mil. in 2014 to RON 663 mil. in 2015. This decrease was attributable to lower benefits for Repair, maintenance and equipment Repair, maintenance and equipment expenses decreased by RON 26 mil. or 30.5%, from RON 85 mil. in 2014 to RON 59 mil. in 2015. This was mainly attributable to a decrease in the activity of the energy services companies within the Group, as well as to a decrease in expenses with net- work maintenance and repair of the distribution companies. Expenses with repairs, maintenance and equipment accounted for 1.1% of revenues recorded in 2015, respectively 1.7% of revenues recorded in 2014. Other operating expenses Following the application of IFRIC 21 as of Janu- ary 1st, 2015, the Group has reassessed the timing of when to accrue tax on special constructions imposed by legislation. According to the fiscal law, the tax on special con- structions is due based on the existence and on the value of the special constructions in the ac- counts of the tax payer at December 31st. The tax is payable in the subsequent year and the amount of the tax is not adjusted in the following year if the constructions are held for less than one year. The Group has previously accrued for tax on special constructions over the current tax year. In accordance with IFRIC 21, the Group has de- termined that the liability to pay the tax on special constructions should be fully recognized on De- cember 31st of the previous year, when the trig- gering event, as stated in the legislation, occurs. IFRIC 21 was retrospectively applied. The summary of the estimated effects following the application of IFRIC 21 at the level of consol- idated financial statements is presented below: December 31st, 2014 Impact of changing the accounting policy RON mil. Other operating expenses Change in provisions, net Income tax expense Other Net profit Total comprehensive income Source: Electrica Previously reported Adjustment IFRIC 21 Change in presentation Restated (475) - (109) 985 401 398 14 - (2) - 12 12 0.4 (0.4) - - - - (461) (0.4) (111) 985 413 410 78 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Other operating expenses remained relatively constant in 2015, as compared to 2014, decreas- ing by 1.2%, from RON 461 mil. in 2014 to RON 455 mil. in 2015. Other operating expenses ac- counted for 8.3% of revenues in 2015, respective- ly 9.1% of revenues in 2014. Net finance income/cost The Group recorded a positive financial result in 2015, increasing by RON 7 mil. or 54.5%, as com- pared to 2014, from RON 13 mil. in 2014 to RON 20 mil. in 2015, due to received interest related to IPO proceeds. Change in provisions, net In 2015, this category registered a variation of RON 55 mil. as compared to 2014, caused by the restructuring provision of Electrica Serv and liti- gations of Electrica S.A with NAFA related to late payment penalties for fiscal obligations to NAFA. Operating profit As a result of the cumulative impact of the above mentioned factors, the operating profit increased by RON 58 mil, or 11.4%, from RON 511 mil. in 2014 to RON 569 mil. in 2015, driven by improved profitability of the distribution segment and re- duced losses in the energy services segment. Profit before tax The profit before tax increased by RON 65 mil, or 12.5%, from RON 524 mil. in 2014 to RON 589 mil. in 2015. Income tax expense The income tax decreased by RON 4 mil, or 3.6%, from RON 111 mil. in 2014 to RON 107 mil. in 2015. Net profit for the period Overall, the net profit for 2015 increased by RON 69 mil, or 16.8%, from RON 413 mil. in 2014 to RON 482 mil. in 2015. SEGMENT REPORTING - DISTRIBUTION Key indicators - The distribution segment FIGURE 34 Distribution segment revenues (RON mil.) FIGURE 35 Distribution segment EBITDA (RON mil.) 2,657 2,838 396 805 714 742 395 876 751 816 2013 2014 2,965 395 872 858 840 2015 702 20 236 229 216 2014 556 20 190 169 177 2013 809 263 276 276 2015 EDTS EDTN EDMN Electrica Serv EDTS EDTN EDMN Electrica Serv Source: Electrica Source: Electrica 79 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015FIGURE 36 Distribution segment net income (RON mil.) FIGURE 37 Distribution segment net debt/ (cash) (RON mil.) 317 5 131 108 74 186 12 92 42 40 2013 2014 EDTS EDTN EDMN 377 135 137 132 26 2015 Electrica Serv (139) 23 93 (246) (9) 2013 (28) 52 105 (168) (17) 2014 EDTS EDTN EDMN (8) 64 50 (121) (2) 2015 Electrica Serv Source: Electrica Source: Electrica The following table presents the Income Statement of the Group’s distribution segment, for the pe- riod 2014 –2015. RON mil. External revenues Inter-segment revenue Segment revenue Segment profit (loss) before tax Net finance (cost)/ income Depreciation, amortization and impairment, net EBITDA Net profit / (loss) of the segment Source: Electrica December 31st, 2015 December 31st, 2014 1,103 1,509 2,613 464 (10) (335) 809 377 955 1,519 2,475 383 (7) (311) 702 317 Revenues Revenues from the distribution segment in- creased by RON 138 mil., or 5.6%, to RON 2,613 mil. in 2015, compared to RON 2,475 mil. in 2014. This was mainly attributable to an increase in the amount of distributed electricity. Electrica Serv presented a slight improvement in terms of external revenues (services provided to companies outside the Group), from RON 22 mil. in 2014 to RON 33 mil. in 2015. Electricity purchased The cost of electricity purchased to cover the network losses decreased by RON 4 mil., or 0.8%, from RON 495 mil. in 2014 to RON 491 mil. in 2015. The decrease was mainly caused by the downward trend in the volumes of electricity needed to cover network losses, following the implementation of the CAPEX plan. Employee benefits Employee benefits decreased by RON 10 mil, or 1.8%, from RON 545 mil. in 2014 to RON 535 mil. in 2015, driven mainly by the undertaken reorgan- ization and efficiency improvement measures, with Electrica Serv recording the most significant decrease in employee benefits. Repair, maintenance and equipment Repairs, maintenance and equipment expenses decreased by RON 41 mil., or 11.2%, from RON 344 mil. in 2014 to RON 303 mil. in 2015. This de- crease was caused especially by the diminished level of expenses with network maintenance, part of which were capitalized as of 2014. EBITDA The increase in revenues together with the de- crease in costs concerning the purchased electric- 80 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015Net profit of the segment The net profit followed a similar trend with EBIT- DA, increasing by RON 60 mil., or 18.9%, support- ed by improved margins amid growing volumes. The net profit margin improved, reaching 14.43% in 2015 from 12.82% in 2014. ity to cover network losses, as well as the improve- ment in employee costs and other operational expenses led to an increase of RON 107 mil., or 15.3%, in EBITDA of the distribution segment. The EBITDA margin increased by 261 bps in 2015, from 28.36% in 2014 to 30.97% in 2015, mainly owing to the performance of EDTS (637 bps im- provement compared to the previous year). SEGMENT REPORTING – SUPPLY Key indicators - the supply segment FIGURE 38 Revenues for the supply segment (RON mil.) FIGURE 39 EBITDA for the supply segment (RON mil.) 4,780 414 4,366 4,133 272 4,488 347 3,861 4,141 2013 2014 2015 Revenues from Green Certificates Revenues (ex-Green Certificates) 5.6% 233 3.7% 165 2014 2015 EBITDA EBITDA Margin 2.5% 117 2013 Source: Electrica Source: Electrica FIGURE 40 Net profit of the supply segment (RON mil.) FIGURE 41 Net debt / (Cash) for the supply segment (RON mil.) 4.3% 3.0% 2013 (50) 2014 2015 1.9% 90 2013 180 136 2014 2015 (403) (338) Net profit Net profit margin Net debt / (Cash) Source: Electrica Source: Electrica 81 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015The following table presents the Income Statement of the Group’s supply segment for 2014 and 2015. RON mil. External revenues Inter-segment revenues Segment revenue Segment profit (loss) before tax Net finance (cost)/income Depreciation, amortization and impairment, net EBITDA Net Profit (loss) of the segment Source: Electrica December 31st, 2015 December 31st, 2014 4,375 114 4,488 160 3 (7) 165 136 4,030 103 4,133 230 4 (7) 233 180 Revenues Net revenues (excluding revenues from Green Certificates) from the supply segment increased by RON 281 mil. or 7.3%, from RON 3,861 mil. in 2014 to RON 4,142 mil. in 2015. This increase can be explained by an increase of 7.6% in the amount supplied which cancels the effect of a 4.7% decrease in the average supply price. The cost with acquisition of Green Certificates increased by RON 75 mil., or 27%, from RON 272 mil. in 2014 to RON 347 mil. in 2015. This was mainly due to an increase in the regulated qu- ota of Green Certificates imposed to electricity suppliers by ANRE, from 0.218 Green Certificates for 1 MWh supplied in 2014 to 0.278 Green Certi- ficates for 1 MWh supplied in 2015. Electricity purchased The expense with electricity purchased increased by RON 376 mil., or 10.9%, from RON 3,464 mil. in 2014 to RON 3,840 mil. in 2015. This increase was mainly attributable to the incre- ase of 7.6% of the purchased electricity volumes and of 2% of average electricity acquisition price. Green certificates The 23.58% increase in the value of Green Certi- ficates included in the invoice to final consumers from RON 29.47/MWh in 2014 to RON 36.42/ MWh in 2015, in accordance with ANRE regulati- ons, generated an increase in revenues from gre- en certificates, without affecting the profitability, taking into account that Green Certificates are re-invoiced to consumers at their cost. Salaries and employee benefits In 2015, salaries and employee benefits remain- ed constant as compared to 2014, amounting to RON 83 mil. EBITDA Increased expense with energy acquisition by RON 376 mil. in 2015 as compared to 2014 re- sulted in a decrease in EBITDA by RON 68 mil., or 29%, which, correlated with an increase in re- venues, led to a decrease of 196 bps in EBITDA margin, from 5.63% 2014 to 3.67% in 2015. Segment net profit The net profit decreased by RON 44 mil., or 24.4%, as a result of an increase in expenses with electricity purchases at a higher rate than the revenue growth. 82 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 20158.3 CONSOLIDATED CASH FLOW STATEMENT RON mil. Cash flows from the operating activities Profit Adjustments for: Depreciation Amortisation Impairment of tangible assets, net Loss on disposal of tangible assets Impairment loss on trade and other receivables, net Change in provisions, net Net finance cost Gain on loss of control over subsidiaries in financial distress Income tax expense Changes in: Trade receivables Other receivables Deposits, treasury bills and government bonds Prepayments Green Certificates Inventories Trade payables Other payables Employee benefits Cash generated from operating activities Interest paid Income tax paid 2015 2014 Restated* Variation 2015/2014 482 413 16.77% 44 307 2 5 4 55 (20.5) (38.5) 107 947 33 292 33 5 5 - (13.3) (32.3) 111 846 (126.4) 228.9 (5.9) (2.6) (0.8) 22.4 1.0 81.8 (45.2) (2.3) 869 (8.0) (118.2) 26.6 (2.8) (2.3) (53.7) 9.5 49.1 (53.6) 20.2 1,068 (11.3) (75.7) 32.45% 4.90% -92.78% 2.95% -5.01% - 54.53% 19.02% -3.62% 11.93% - - -5.75% -63.99% - -88.98% 66.58% -15.67% - -18.61% -28.88% 56.07% Net cash from operating activities 743 981 -24.26% 83 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 RON mil. Cash flows from the investment activity Payments for purchases of tangible assets Payments for network construction related to concession agreements Payments for purchases of other intangible assets Proceeds from the sale of tangible assets Proceeds from sale of investments in other entities 2015 2014 Restated* Variation 2015/2014 (31.8) (353.3) (8.8) 14.8 - (39.2) (318.2) (7.7) - -18.88% 11.02% 14.4% - 140.9 -100.00% Payments for purchases of treasury bills and government bonds (4,094.0) (1,194.3) 242.81% Proceeds from maturity of treasury bills and government bonds Increase in deposits with maturity of 3 months or longer Proceeds from deposits with maturity of 3 months or longer Interest received Effect on loss on control over subsidiaries on cash 3,240.5 (350.2) 439.0 41.3 (2.9) 295.6 (319.1) - 35.5 (0.3) 996.25% 9.75% - 16.29% 817.63% Net cash used in investing activities (1,105.4) (1,406.5) -21.41% Cash flows from financing activities Proceeds from issue of shares, net of transaction costs Re-purchase of treasury shares Proceeds from long term bank loans Proceeds from short term bank loans Repayment of long term bank loans Repayment of short-term bank loans Dividends paid Repayment of financing for network construction related to concession agreements Payment of finance lease liabilities Cash transferred through spin-off - - 18.0 51.8 (8.1) (1.9) (341.3) (109.9) (0.3) - Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at January 1st Cash and cash equivalents at December 31st Source: Electrica (753.8) 1.581,4 827,5 84 Net cash from/(used in) financing activities (391.7) 1,435.4 1,874.9 (75.4) -100.00% -100.00% - - - - (89.7) (142.7) (1.9) (129.9) 1,010.2 571,2 - - - - 280.38% -22.99% -84.44% -100.00% - - 176.88% 1.581,4 -47.67% ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 Cash flow In 2015, net cash from operating activities amounted to RON 743 mil. The profit before tax for the period was RON 568 mil. The main adjustments were: (i) adding the depreciation and amortization amounting to RON 351 mil., a change in impairment and loss on disposal of tangible assets worth RON 7 mil., a net change in trade and other receivables of RON 4.4 million (mainly as a result of a decrease in trade receivables collected in 2015 compared to 2014), deducting a net finance cost of RON 20 mil., a loss from losing control over subsidiaries of RON 38.5 mil., adjusting employee benefits and provisions worth RON 52 mil., (ii) a variation of trade receivables and other receivables worth RON 132 mil., of trade payables and other ac- counts payable worth RON 36 mil., of inventories worth RON 1 mil. and a variation regarding Green Certificates of RON 22 mil. The income tax and interest paid totaled RON 126 mil. in 2015. In 2014, net cash from operating activities amount- ed to RON 981 million. The profit before tax for the period was RON 524 mil. The main adjustments were: (i) adding the depreciation and amortization amounting to RON 326 mil., a change in impair- ment and loss on disposal of tangible assets worth RON 37 mil., a net change in trade receivables and other receivables of RON 4.6 million (mainly due to a decrease in the trade receivables collected in 2014 compared to 2013), deducting a net finance cost of RON 13 mil., a loss of losing control over subsidiaries of RON 32 mil., adjusting employee benefits and provisions worth RON 21 mil., (ii) de- ducting a net change in trade receivables and other receivables worth RON 255 mil., of trade payables and other accounts payable worth RON 4.4 mil., a cost with Green Certificates of RON 54 mil. and a change in inventories worth RON 10 mil. The income tax and interest paid totaled RON 87 mil. 9 POST BALANCE SHEET EVENT During the period between the 2015 financial year closing and the date of the present report, the following relevant events took place: • On January 13th, 2016, the newly elected Board of Directors appointed the chairman of the Board, the consultative committees in their new composition and their chairmen. Detailed information is provided under chapter 6.1 of the present report. to renounce, starting with May 1st, 2016, to his position of member of the Board of Directors of the Company. Mr. Cristian Bușu, chairman of the Board of Directors of Electrica S.A., has requested the Nomination and Remuneration Committee to start the proceedings in order to identify candidates who could take over the re- sponsibilities of member of the Board of Direc- tors of Electrica S.A. • On January 19th, 2016, the Company informed that Electrica S.A., as a plaintiff, introduced writs of summons for annulment and suspension of the orders issued by the ANRE President (details are presented in Chapter 1.2 Key events). • On February 26th, 2016, the Company informed on the fact that the Board of Directors and Mr. Ioan Roșca have reached a mutual agreement to terminate his mandate as CEO of Electrica S.A. no later than June 2016. • The Board of Directors of Electrica acknowl- edged, in its meeting held on February 10, 2016, that Mr. Michael Boersma has decided The Company has sent current reports to the market, to inform the investors and all the other stakeholders on the events presented above. 85 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015d e l l e c n a c y l t r a p d n a n o i t a t s e t n o c e h t d e t t i m d a y l t r a p t r u o c e h t 5 1 0 2 3 0 6 0 n O . . x a t y r a l l i c n a t n e s e r p e r h c h w i , , 0 7 0 3 8 3 2 N O R , f o t n u o m a e h t r o f t n a d n e f e d e h t y b d e u s s i , . 2 1 0 2 0 1 . 0 3 / 4 1 2 . o n d n a 3 1 0 2 5 0 2 2 / 7 4 1 . . . o n s n o i s c e D e h t i . l a n fi s i n o i s i c e d e h T . d e t p e c c a s a w l a e p p a ’ s a c i r t c e E l l a c s fi - e v i t a r t s i n m d a d e g n e i l l a h c e h t d e n a t n a m i i t r u o c e h T . s n o i t a g i l b o t n e m y a p o t y a p o t F A N A d e n o m m u s t r u o c e h T . , 2 2 9 4 N O R f o t n u o m a e h t r o f s d e e d . s e e f t r u o c s a 5 3 . 1 6 9 0 3 N O R , f o t n u o m a e h t a c i r t c e E l p u t e s i t o n d d t r u o c e h t , . 6 1 0 2 3 0 2 0 . f o e t a d e h t l i t n U . l a e p p a n a d e fi l F A N A . m r e t g n i r a e h e h t t c i r t s i D f o t r u o C t s e r a h c u B , 5 f o t i r w e h t g n d r a g e r i t n e m e c r o f n e i t s n a g a l a e p p A 3 1 0 2 . 1 1 . 4 0 / 5 3 3 . o n n o i t u c e x e . 3 1 0 2 5 0 2 2 / 7 4 1 . . o n n o i s i c e D f o n o i t a t s e t n o C . A S . a c i r t c e E : l ff i t n a P l i 3 1 0 2 / 2 0 3 / 2 0 4 4 2 . o N F A N A : t n a d n e f e D 1 t r u o C t s e r a h c u B l a e p p A f o e t a t s t n e r r u c e h t f o t n e m y a p d e y a e d e h t l r o f s n o i t a g i l b o e h t r o f 2 1 0 2 / 4 1 2 . o n n o i s i c e D y b , s n o i t a g i l b o t e g d u b . ) , 2 9 9 7 8 3 2 N O R , f o t n u o m a n o i t u c e x e f o y a t s d n a t n e m e c r o f n e t s n a g a i l a e p p A t n e m y a p y r a l l i c n a d e h s i l i b a t s e h c h w s e r u t n e b e d 3 1 0 2 / 2 / 4 1 6 7 . o N e r u d e c o r p e h t n h t i i w F A N A y b d e u s s i , . 3 1 0 2 5 0 2 2 / 7 4 1 . . o n n o i s i c e D i t s n a g a t n e m u n n a l r o f n o i t c a ( , 2 9 9 7 8 3 2 N O R , f o e u a v l e h t r o F e h t i t s n a g a s n o i t a t s e t n o c i e v i t a r t s i n m d a g n v o s l i r o f . A S . a c i r t c e E : l ff i t n a P l i F A N A : t n a d n e f e D 2 s u t a t s e s a C t r u o C t c e b O j . o N e s a C / s e i t r a P . o N : s e n o l a i r e t a m t s o m e h t o t g n n a t r e p s l i i i a t e d l a n o i t i d d a t n e s e r p e w h c h w i f o t u o , s n o i t a g i t i l f o s e i r e s a f o t r a p e r a i s e i r a d s b u s i s n o i t a g i t i l l a c s i F . 1 s t i d n a . A S . a c i r t c e E l 86 n a e fi l l l i w A S a c i r t c e E l . n o i t a t s e t n o c e h t d e t c e e r j e c n a t s n i t s r fi f o t r u o c e h T 1 t c i r t s i D f o t r u o C , 0 5 9 5 1 9 6 1 N O R , f o t n u o m a e h t r o f . 5 1 0 2 6 0 5 2 / 8 2 . . l a e p p a t s e r a h c u B . l o n e fi n o i t u c e x E 8 0 0 2 / 3 . o n n o i s i c e D n i n e t t i r w . 9 5 9 7 1 / 5 1 0 2 / 0 9 / 1 6 / 1 2 2 7 6 2 3 1 . t fi o r p n o x a t , 1 5 6 0 5 2 , 1 3 N O R f o t n u o m a e h t r o f . o n n o i t u c e x e f o t i r w e h t f o n o i t a t s e t n o C : i l l A S a c i r t c e E ff i t n a p y b d e fi n o i t c a e h t d e t t i l m d a y l t r a p e c n a t s n i t s r fi f o t r u o c e h T ; C S G D - F A N A y b d e u s s i , 3 1 0 2 / 4 2 . o n n o i s i c e D e h t d e l l u n n a - . l n o i s u c n o c n o i s n e p s u s i t s n a g a F A N A y b d e fi l l a e p p a e h t g n v o s l i f o e s r u o c n I t s e r a h c u B l a n u b i r T F A N A y b d e u s s i s n o i t a g i l b o t n e m y a p y r a l l i c n a n o s n o i s i c e d e h t d e l l u n n a y l t r a p - t e s i t o n d d t r u o c e h t , . 6 1 0 2 3 0 2 0 . l i t n U . n o i s i c e d e h t i t s n a g a l a e p p a n a d e fi F A N A l . e t a d l a i r t e h t p u l . s e s n e p x e t r u o c s a A S a c i r t c e E o t 0 0 5 0 2 N O R y a p o t F A N A d e g , i l b O . o n F A N A y b d e u s s i s n o i s i c e d n o i t a x a t e h t s a l l e w s a , , ) 1 3 3 7 4 7 3 N O R , f o t n u o m a e h t r o f ( 2 1 0 2 / 1 7 2 1 . o n d n a ) 5 1 1 , 5 0 7 5 N O R , f o t n u o m a e h t r o f ( 2 1 0 2 / 0 7 2 1 . o n e h t r o f ( 2 1 0 2 / 1 1 . 1 0 5 3 4 1 2 , 2 1 0 2 / 7 . 1 0 5 3 4 1 2 , 2 1 0 2 / 6 . 1 0 5 3 4 1 2 , 2 1 0 2 / 5 . 1 0 5 3 4 1 2 . ) , 3 7 8 2 5 3 N O R f o t n u o m a f o t r u o C h g H i d n a n o i t a s s a C e c i t s u J . n o i t c a e h t f o t s e r e h t d e t c e e R j 5 i t c i r t s i D y b d e d c e d n o i t u c e x e d e c r o f e h t f o n o i s n e p s u S . 5 1 0 2 6 0 5 2 / 8 2 . . o n n o i t u c e x e f o t i r w e h t g n d r a g e r i t r u o C n o i s i c e D n i n e t t i r , w 0 5 9 5 1 9 6 1 N O R , f o t n u o m a e h t r o f . 8 0 0 2 / 3 . o n , t n e m u c o d e v i t a r t s i n m d a i l a c s fi f o n o i t a t s e t n o C y r a l l i c n a , 3 1 0 2 . 1 0 . 1 3 / 4 2 . o n n o i s i c e D f o t n e m u n n a l s n o i t a g i l b o t n e m y a p , 9 1 3 5 0 8 9 N O R , f o e u a V l 5 7 8 3 1 / 0 1 0 2 / 1 / 0 9 / 1 6 . o n r e t t e l i g n n n u d e h t f o t n e m u n n a l - ; t fi o r p n o x a t , 1 5 6 0 5 2 , 1 3 N O R f o t n u o m a e h t r o f s i n o i s i c e d e h T . t n e m e c r o f n e i t s n a g a l a e p p a e h t d e t c e e r j t r u o c e h T . l e b a c o v e r r i t s e r a h c u B l a n u b i r T 0 1 0 2 . 1 1 . 9 0 / 6 6 1 3 . o N n o i t u c e x e f o t i r w e h t f o t n e m u n n a l - ; 1 2 2 7 6 2 3 1 . o n e s a c l a c s fi e h t n i d e t a i t i n i n o i t u c e x e d e c r o f e h t f o t n e m n r u o d a j - 0 1 0 2 . 1 1 . 9 0 / 6 6 1 3 . o n n o i t u c e x e f o t i r w e h t g n d r a g e r i . A S . a c i r t c e E : l ff i t n a P l i 0 1 0 2 / 9 9 2 / 6 6 1 5 5 . o N F A N A : t n a d n e f e D 3 . A S . a c i r t c e E : l ff i t n a P l i 5 1 0 2 / 9 9 2 / 4 1 6 3 0 1 F A N A : t n a d n e f e D 4 . A S . a c i r t c e E : l ff i t n a P l i 1 a / 5 1 0 2 / 2 0 3 / 9 2 6 2 1 F A N A : t n a d n e f e D 5 . A S . a c i r t c e E : l ff i t n a P l i 3 1 0 2 / 2 / 3 3 4 5 F A N A : t n a d n e f e D 6 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 n o i t c a e h t d e t c e e r j l a e p p A f o t r u o C i l i t s e o P 6 1 0 2 2 0 0 1 / 2 3 . . . o n n o i s i c e D y B l a c i r t c e E E E D F , n o i s s i m s n a r t d n a g n i t i d e n o i s i c e d e h t r e t f A . d e d n u o f t o n s a . l a e p p a n a e fi l l l i i w d r o N a n e t n u M e i t u b i r t s i D . n o i t c a e h t d e t t i m d a y l t r a p e c n a t s n i t s r fi f o t r u o c e h T n i s i i h c h w , l a e p p a n a d e fi l I I T S E O L P E C N A N I F L A C O L F O E C I F F O C I L B U P . i g n v o s l f o e s r u o c f o t r u o C i t s e o P l i y b i l , i t s e o P E E D S f o n o i t a g i l b o t n e m y a p a i s a d e d c e d s a w r o f s d n a t s d n a 4 1 0 2 . 1 1 . 8 2 / 4 1 8 4 2 1 . o n n o i s i c e D n o i t a x a t l a c s fi n o t r o p e r e h t m o r f d e t l u s e r s e c n e r e ff d i l a n o i t i d d a l a e p p A n o x a t l , a n o i t i d d a 6 9 8 8 2 5 8 N O R h c h w , i f o , n o i t c e p s n i 4 1 0 2 r e b m e t p e S – 9 0 0 2 y r a u n a J d o i r e p e h t r o f s g n d i l i u b o t p u d e t a u c a c l l s e s n e p x e y r a l l i , c n a 5 8 0 9 3 4 3 N O R d n a , i l i t s e o P e c n a n F i l a c o L f o l a c i r t c e E E E D F : ff i t n a P l i i d r o N a n e t n u M e i t u b i r t s i D e c ffi O c i l b u P : t n a d n e f e D 7 5 1 0 2 / 2 4 / 9 0 3 l a e p p A f o t r u o C i t s e r u c u B t n e m u c o d e v i t a r t s i n m d a i t n e m u n n A l ) 4 3 0 , 1 5 3 2 N O R , ( F O E C I F F O C I L B U P E C N A N I F L A C O L 4 1 0 2 / 2 / 8 5 3 6 I I T S E O L P v r e S a c i r t c e E l : t n a d n e f e D 8 s t n u o c c A f o t r u o C e h t i t s n a g a s n o i t a g i t i L . 2 4 1 0 2 . 1 1 . 0 1 : ff i t n a P l i s u t a t s e s a C t r u o C t c e b O j . o N e s a C / s e i t r a P . o N d n a , 5 5 9 3 6 9 , 1 1 N O R h t r o w s i n o i t a g i t i l n i t n u o m a e h T s u t a t s e s a C t r u o C t c e b O j . o N e s a C / s e i t r a P . o N l a v o m e r d e t s e u q e r A S a c i r t c e E d n a l e s a c e h t n i d e c u d o r t n i s a w , p u t i l p s . A S . d n a n o i t a s s a C . e s a c e h t m o r f e c i t s u J l a c i r t c e E y b d e h s i l b a t s e y g r e n E n i s n o i t a p c i t r a P f i o y n a p m o C t n e m e g a n a M f o t r u o C h g H i l a c s fi d n a e v i t a r t s i n m d a i l t n e m u n n a d n a n o i s n e p s u S . t n e m u c o d i e r a r t s i n m d A e d a e t a t e c o S i . . A S a c i r t c e E l i e g r e n E n i r o i l i i t a p c i t r a P a . 2 9 9 1 / 4 9 . o n w a L s t n u o c c A f o t r u o C s n o i t a g i t i L : t n a d n e f e D - t n e d n o p s e R f o s t n u o c c A f o t r u o C p u t e s i t o n d d t r u o C e h t , . 6 1 0 2 3 0 2 0 . l i t n U . l a e p p a n a d e fi l i e r a z n r u F a c i r t c e E l . e t a d l a i r t e h t f o t r u o C h g H i d n a n o i t a s s a C e c i t s u J ) 2 9 9 1 / 4 9 . o n w a L ( s t n u o c c A f o t r u o C s n o i t a g i t i L . 3 1 0 2 8 0 . 1 0 / 2 8 . o n n o i s u c n o c l i a n a m o R f o s t n u o c c A f o t r u o C : t n a d n e f e D 3 1 0 2 / 2 / 5 5 7 5 . o N v r e S a c i r t c e E : l ff i t n a P l i f o t r u o C h g H i . . . 6 1 0 2 3 0 8 0 n o e t a d l a i r t t x e N . i g n v o s l e c i t s u J f o e s r u o c n I d n a n o i t a s s a C . 2 9 9 1 / 4 9 . o n w a L s t n u o c c A f o t r u o C s n o i t a g i t i L v r e S a c i r t c e E : l ff i t n a P l i f o t r u o C : t n a d n e f e D 2 1 0 2 / 2 / 5 3 3 8 . o N i a n a m o R . i a n a m o R f o s t n u o c c A 4 1 0 2 / 2 / 8 6 3 . o N 1 2 3 87 : ff i t n a P - l i t n a l l e p p A ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 . s e g a m a d l a r o m n o i l l i m 1 R U E r o f t s e u q e r e h t d e t c e e r j , l a t r o p e h t n o n o i t u o s l l a n u b i r T e h t o t g n d r o c c a i , d e t t i m s n a r t t o n n o i s i c e d , e c n a t s n i t s r fi e h t n i d e v o S l s e r u m a r a M l a r o m n o i l l i m 1 R U E g n i t n a r g , s t h g i r l y r a a s d n a t n e m e e r g a ) s e g a m a d l i a u d v d n i i o t m u d n e d d a f o t n e m u n n a l , s r o t c e r i D f o r u o b a l l i a u d v d n i i n o i t a n m r e t i , t n e m e e r g a r u o b a l d r a o B e h t f o n o i s i c e D e h t f o t n e m u n n a ( l n o i t a g i t i l r u o b a L e i t u b i r t s i D a c i r t c e E E E D F l n a o s a r B e s e L u r o D : t n a d n e f e D : ff i t n a P l i d r o N a n a v i l i s n a r T . d e t c e e r j l y b a c o v e r r i n o i t c A l a e p p A f o t r u o C i t s e o P l i e m a r f i s e c v r e s e h t f o d n a 1 1 0 2 / 8 3 1 . o n t c a r t n o C s e c v r e S i * 2 1 0 2 / 3 / 4 0 3 7 4 . ) 1 1 0 2 / 2 3 1 . o n t n e m e e r g a a m o T : i ff i t n a P - t n a l l l e p p A i m a c l e t a t s e l a e R : t n a d n e f e D - t n e d n o p s e R i i t l a i s a t s a v e S i d r o N a n e t n u M a c i r t c e E l 1 1 0 2 / 1 8 2 / 7 1 6 1 3 s r e h t o d n a . A S . 3 4 6 0 0 2 / 5 8 . o n w a L y c n e v o s n l I f o 6 3 . t r A n o d e s a b d e d n e p s u S t s e r a h c u B l a n u b i r T , 0 5 . 1 2 2 7 7 1 , 1 R U E : s i m a C l N F I I G N S A E L L A N O T A N I 9 0 0 2 / 3 / 2 4 5 9 3 v r e S a c i r t c e E l : t n a d n e f e D 5 5 1 0 2 / 0 0 1 / 7 8 2 : ff i t n a P l i : ff i t n a P l i i g n v o s l i g n v o s l f o e s r u o c n I t s e r a h c u B l a n u b i r T f o e s r u o c n I t s e r a h c u B l a n u b i r T e r u d e c o r p y c n e v o s n l I . , 6 5 0 1 8 8 3 9 3 N O R , E R A R E P U C E R T S E B L R S E T N A E R C 1 1 0 2 / 3 / 3 5 2 2 v r e S a c i r t c e E l : t n a d n e f e D 6 e r u d e c o r p y c n e v o s n l I , 8 0 . 1 0 2 3 2 0 3 5 N O R , N F I I G N S A E L L A N O T A N I 0 1 0 2 / 3 / 1 1 7 8 1 v r e S a c i r t c e E l : t n a d n e f e D 7 : ff i t n a P l i . A S l a c i r t c e e o m r e T y b d e fi l l a e p p a e h t d e d n e p s u s t r u o C e h T l a e p p A f o t r u o C t s e r a h c u B . d e t c e e r j l y b a c o v e r r i n o i t c A l a e p p A f o t r u o C t s e r a h c u B d o i r e p e h t g n i r u d s l l i b y g r e n e n o s e i t l a n e p y a e d r o l f i . g n d n a t s 3 3 5 3 7 4 0 5 2 N O R , , f o t n u o m a e h t : s i m a C l N O R h t r o w s i m a c n l i n o i t c a d n a n o i t c a y r o t a r a c e D l . . 8 0 0 2 3 0 . 1 3 - 7 0 0 2 4 0 . 1 0 . t s r fi e h t n i ( 4 1 0 2 / 2 / 1 5 6 5 r e b m u n e l fi e h t e c n a t s n i ) 0 1 0 2 / 3 / 0 5 3 5 1 s a w : t n a d n e f e D - t n e d n o p s e R A S l a c i r t c e e o m r e T C S A S a c i r t c e E l 1 : i ff i t n a P - t n a l l l e p p A ; s e s n e p x e d e r e t s i g e r 2 2 2 4 0 , 1 7 9 N O R - . t n e u q e s b u s e h t f o n o i t a n m r e t i e h t o t t n e u q e s n o c t fi o r p d e v e h c a n u r o i f . s d n a t s 3 9 7 0 8 7 3 0 6 1 N O R - , , a c i r t c e E C S . . l L R S i a d e M : t n a d n e f e D 2 . A S . : f o e d a m s i t n u o m a e h T . 5 1 . 0 5 8 8 0 0 7 1 , , e g n a r O C S : ff i t n a P l i s u t a t s e s a C t r u o C t c e b O j . o N e s a C / s e i t r a P . o N ) 0 0 5 R U E s d n a s u o h t r e v o s i e u l a v e s o h w ( s n o i t a g i t i l t n a c fi n g i s i r e h t O . 3 88 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 6 0 0 2 / 5 8 . o n w a L y c n e v o s n l I f o 6 3 . t r A n o d e s a b d e d n e p s u S t s e r a h c u B l a n u b i r T i g n v o s l i g n v o s l i g n v o s l f o e s r u o c n I l a n u b i r T s i m T i f o e s r u o c n I l a n u b i r T j l o D f o e s r u o c n I t s e r a h c u B l a n u b i r T e r u d e c o r p y c n e v o s n l I . , 0 3 9 9 2 3 5 4 3 7 N O R , I E C T E G R E N E I I I C V R E S 3 1 0 2 / 0 3 / 6 7 7 8 T A N A B v r e S a c i r t c e E l : t n a d n e f e D : ff i t n a P l i e r u d e c o r p y c n e v o s n l I . 0 9 3 3 1 , 8 4 4 6 2 N O R , e r u d e c o r p y c n e v o s n l I . , 8 6 2 4 9 3 4 3 5 1 N O R , i e c n a n d r o t n e m y a P . , 6 5 0 1 8 8 3 9 3 N O R , I E C T E G R E N E I I I C V R E S 4 1 0 2 / 3 6 / 0 7 5 2 I A N E T L O v r e S a c i r t c e E l : t n a d n e f e D : ff i t n a P l i I E C T E G R E N E I I I C V R E S 4 1 0 2 / 3 / 1 8 0 0 4 I A N E T N U M v r e S a c i r t c e E l : t n a d n e f e D : ff i t n a P l i E R A R E P U C E R T S E B L R S E T N A E R C 1 1 0 2 / 3 / 0 6 0 4 5 v r e S a c i r t c e E l : t n a d n e f e D : ff i t n a P l i : ff i t n a P l i i g n v o s l f o e s r u o c n I a t n a t s n o C l a n u b i r T e r u d e c o r p y c n e v o s n l I , N O R 3 7 2 4 8 8 6 1 . 8 1 . I E C T E G R E N E I I I C V R E S 4 1 0 2 / 8 1 1 / 5 8 7 8 A E G O R B O D v r e S a c i r t c e E l : t n a d n e f e D 8 9 0 1 1 1 2 1 s u t a t s e s a C t r u o C t c e b O j . o N e s a C / s e i t r a P . o N i g n v o s l f o e s r u o c n I t s e r a h c u B l a n u b i r T s t s e r e t n i l , s u p 2 5 6 4 8 3 , 1 N O R : s i m a C l : ff i t n a P l i v r e S a c i r t c e E l : t n a d n e f e D I I R A R U G S A E D A S A C A E T A T A N A S E D 3 1 I I I U L U P C N U M I 5 1 0 2 / 3 / 2 0 6 3 4 I T S E R U C U B 89 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 n i x a t p m a t s , 1 8 2 4 2 N O R f o t n u o m a e h t y a p y l t n o i j o t s t n e d n o p s e r e h t s e g i l b O x a t p m a t s , 1 6 3 8 4 N O R f o t n u o m a e h t y a p y l t n o i j o t s t n a d n e f e d e h t s e g i l b O . . , , 5 5 8 6 0 5 2 4 4 N O R t n u o m a e m a s e h t n i i s g n w o r r o b N O R f o t n u o m a e h t s a l l e w s a e c n a t s n i t s r fi e h t n i d n a e c y c l l a i r t t s r fi e h t n i . s e s a h p d e n o i t n e m e v o b a e h t n i e e f s ’ r e y w a l 9 5 4 3 3 , f o t r u o C h g H i d n a n o i t a s s a C e c i t s u J . l a e p p a n i e e f s ’ r e y w a l , 5 0 6 9 N O R f o d n a l a e p p a . e t a d l a i r t t s r fi e h t p u t e s i t o n d d t r u o C e h T . l l a e p p a n a d e fi A S a c i r t c e E l n o i t c a l y r o t a r a c e d e h t g n v o s l i l i t n u d e d n e p s u s e s a C f o t r u o C a v o a r C i ) 4 1 0 2 / 3 / 6 6 8 5 3 ( l a e p p A . . i g n v o s l i g n v o s l f o e s r u o c n I t s e r a h c u B l a n u b i r T f o e s r u o c n I l a n u b i r T a l i a r B y a p o t t n a d n e f e d e h t d e g i l b O . 3 4 1 , 3 7 1 , 1 1 N O R f o t n u o m a e h t ff i t n a p e h t l i y a p o t t n a d n e f e d e h t d e g i l b O . t r u o c o t n o m m u s e h t d e t t i m d a e c n a t s n i t s r fi e h T n a d e fi l S A A A . s e s n e p x e t r u o c s a , . , 3 4 7 4 8 5 0 1 N O R f o t n u o m a e h t ff i t n a p e h t l i . e t a d l a i r t e h t p u t e s i t o n d d t r u o c e h T . l a e p p a f o t r u o C h g H i . . L R P S . . a t n e v o s n l I t s e v n I t n o C s i r o t a d u q i i l l i i a c d u J f o t n u o m a e h t r o f s r i a ff a f o t n e m e t a t s e h t n o p u g n i t s i L . . , 8 7 4 3 0 6 2 8 3 N O R , . A S . a c i r t c e E C S . . l : ff i t n a P l i : t n a d n e f e D - t n e d n o p s e R u r t n e p a e t a t i r o t u A . A S . a l i a r B T E C : r o t b e D 3 1 0 2 / 3 1 1 / 2 1 7 2 : r o t i d e r C . A S . 7 1 8 1 d n a n o i t a s s a C e c i t s u J . 3 4 1 , 3 7 1 , 1 1 N O R f o t n u o m a e h t r o f s i m a c n l i n o i t c A l r o e v i t c A a e r a r t s i n m d A i r e m r o f S A A A ( i l u u t a t S 3 1 0 2 / 3 / 0 6 2 8 ) S A V A e m a s e h t n i l a c i r t c e e o m r e T o t a c i r t c e E f l o , . 5 5 8 6 0 5 2 4 4 , , e t a t s r o f d n u f k s i R e h t o t l a c i r t c e e o m r e T f o d n a t n u o m a e m a s e h t n i i s g n w o r r o b l a n r e t x e d n a l a n r e t n i d e r u c e s . , , ) 5 5 8 6 0 5 2 4 4 N O R t n u o m a N O R f o t n u o m a n i l a c i r t c e E o t A S e i t u b i r t s i D z e C e t a t S n a n a m o R i ; e c n a n F i 4 1 0 2 / 3 / 6 6 8 5 3 c i l b u P f o y r t s i n M i ; . A S . : i l ff i t n a P – t n e d n o p s e R . A S . e i t u b i r t s i D z e C . 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C S . l a n r e t x e d n a l a n r e t n i d e r u c e s e t a t s r o f d n u f k s i R e h t o t l a c i r t c e e o m r e T f o s n o i t a g i l b o f o h s i u g n i t x e l u f t h g i r ( n o i t c a y r o t a r a c e D l l h t r o w a c i r t c e E o t e i t u b i r t s i D z e C f o s n o i t a g i l b o e h t d e h s i u g n i t x e y l l u f t h g i r s a . C S . : i ff i t n a P - t n a l l l e p p A d n a t n u o m a e m a s e h t n i l a c i r t c e e o m r e T o t a c i r t c e E f l o , . , 5 5 8 6 0 5 2 4 4 N O R , . A S . a c i r t c e E l s e c i t o n d n a t s e u q e r e h t g n i t t i m d a f o e s n e s e h t n i n o i s i c e d e h t s e g n a h c y l l u F s u t a t s e s a C t r u o C t c e b O j . o N e s a C / s e i t r a P . o N 90 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 d e c r o f e h t s d n e p s u S . n o i t u c e x e d e c r o f e h t d n e p s u s o t t s e u q e r e h t s t i m d A l i t n u i i a h M u c s e r p O J E B f o 5 1 0 2 / 8 . o n e s a c n o i t u c e x e e h t n i n o i t u c e x e . c o r p . v c i . 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A S . a c i r t c e E l ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 . l a n fi s i n o i s i c e d e h T . n o i t c a e h t d e t t i m d a t r u o c e h T l a n u b i r T a v o h a r P . l a n fi s i n o i s i c e d e h T . n o i t c a e h t d e t t i m d a t r u o c e h T f o t r u o C v o s a r B l a e p p A e h t d e v o r p p a h c h w n o i t u o s e r l i S M G t n e m u n n A l I A C R T C E L E : t n a d n e f e D a e t a t e i r p o r P l u d n o F : ff i t n a P l i y g e t a r t s e c n a n r e v o g e t a r o p r o c I A N E T N U M E T U B R T S D I I I 4 1 0 2 / 5 0 1 / 7 3 5 3 D R O N 1 e h t d e v o r p p a h c h w n o i t u o s e r l i S M G t n e m u n n A l y g e t a r t s e c n a n r e v o g e t a r o p r o c d u S a n a v i l i s n a r T e i t u b i r t s i D l u d n o F : ff i t n a P l i l a c i r t c e E : t n a d n e f e D 2 a e t a t e i r p o r P l a n fi s i n o i s i c e d e h T . n o i t c a e h t d e t t i m d a t r u o c e h T l i a c r e m m o C e h t d e v o r p p a h c h w n o i t u o s e r l i S M G t n e m u n n A l j l u C l a n u b i r T y g e t a r t s e c n a n r e v o g e t a r o p r o c l a n fi s i n o i s i c e d e h T . n o i t c a e h t d e t t i m d a t r u o c e h T t s e r a h c u B l a n u b i r T e h t d e v o r p p a h c h w n o i t u o s e r l i S M G t n e m u n n A l y g e t a r t s e c n a n r e v o g e t a r o p r o c d r o N a n a v i l i s n a r T e i t u b i r t s i D 4 1 0 2 / 2 6 / 2 6 3 2 l u d n o F : ff i t n a P l i l a c i r t c e E : t n a d n e f e D 3 a e t a t e i r p o r P 4 1 0 2 / 5 8 2 1 / 2 3 5 l u d n o F : ff i t n a P l i l a c i r t c e E : t n a d n e f e D 4 a e t a t e i r p o r P 4 1 0 2 / 3 / 3 7 1 4 1 i e r a z n r u F E R N A h t i w s n o i t a g i t i L . 5 r a s o d u d a t S i a t n a t s n I t c e b O i r a s o D . r N / i t r a P t r c . r N i g n v o s l i g n v o s l i g n v o s l f o e s r u o c n I f o e s r u o c n I f o e s r u o c n I t r u o C t s e r a h c u B l a n o i t a N e h t f o t n e d i s e r P e h t f o r e d r O e h t f o t n e m u n n A l l a e p p A f o 4 1 0 2 / 6 4 1 . o n ) E R N A ( y g r e n E r o f y t i r o h t u A y r o t a u g e R l . A S . a c i r t c e E : l ff i t n a P l i y t i c i r t c e E : l ff i t n a P l i E R N A : t n a d n e f e D 1 5 1 0 2 / 2 / 2 9 1 t r u o C t s e r a h c u B l a n o i t a N e h t f o t n e d i s e r P e h t f o r e d r O e h t f o t n e m u n n A l l a e p p A f o 4 1 0 2 / 6 4 1 . o n ) E R N A ( y g r e n E r o f y t i r o h t u A y r o t a u g e R l ) N M D E ( i d r o N a n e t n u M i y r a d i s b u s n o i t u b i r t s i d e i t u b i r t s i D a c i r t c e E l E R N A : t n a d n e f e D 5 1 0 2 / 2 / 4 8 1 t r u o C t s e r a h c u B l a n o i t a N e h t f o t n e d i s e r P e h t f o r e d r O e h t f o t n e m u n n A l l a e p p A f o 4 1 0 2 / 6 4 1 . o n ) E R N A ( y g r e n E r o f y t i r o h t u A y r o t a u g e R l ) N T D E ( d r o N a n a v i l i s n a r T i y r a d i s b u s n o i t u b i r t s i d e i t u b i r t s i D a c i r t c e E l E R N A : t n a d n e f e D 5 1 0 2 / 2 / 3 1 2 y t i c i r t c e E : l ff i t n a P l i 2 3 r a s o d u d a t S i a t n a t s n I t c e b O i r a s o D . r N / i t r a P t r c . r N ” a e t a t e i r p o r P l u d n o F „ h t i w s n o i t a g i t i L . 4 92 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 t n e m u n n a l f o e s n e s e h t n i , n o i t c a e h t d e t t i m d a y l t r a p e c n a t s n i t s r fi e h T i g n v o s l i g n v o s l f o e s r u o c n I t r u o C t s e r a h c u B l a e p p A f o 4 1 0 2 / 4 5 1 . o n r e d r O f o e s r u o c n I t r u o C t s e r a h c u B l a e p p A f o 4 1 0 2 / 5 5 1 . o n r e d r O r o t a r e p o r o f ff i r a t n o i t u b i r t s i d f o p u g n i t t e s e h t g n d r a g e r i r e d r o E R N A f o . l a e p p a y b d e k c a t t a t o n s a w n o i s i c e d e h T . d r o N a n a v i l i s n a r T e i t u b i r t s i D a c i r t c e E l t r u o C t s e r a h c u B l a e p p A f o 4 1 0 2 / 5 5 1 . o n r e d r O s ’ t n e d i s e r P E R N A f o t n e m u n n A l s ’ t n e d i s e r P E R N A f o t n e m u n n A l i d r o N a n e t n u M e i t u b i r t s i D E R N A : t n a d n e f e D 5 1 0 2 / 2 / 8 1 3 ) N M D E ( i y r a d i s b u s n o i t u b i r t s i d l a c i r t c e E e c i r t c e E l y t i c i r t c e E : l ff i t n a P l i s ’ t n e d i s e r P E R N A f o t n e m u n n A l . A S . a c i r t c e E : l E R N A : ff i t n a P l i ff i t n a P l i i y r a d i s b u s n o i t u b i r t s i d l a c i r t c e E e c i r t c e E l i a n a v l i s n a r T e i t u b i r t s i D ) N T D E ( d r o N E R N A : t n a d n e f e D 5 1 0 2 / 2 / 3 5 3 y t i c i r t c e E : l ff i t n a P l i 5 1 0 2 / 2 / 1 6 3 6 7 8 r a s o d u d a t S i a t n a t s n I t c e b O i r a s o D . r N / i t r a P t r c . r N i g n v o s l i g n v o s l f o e s r u o c n I f o e s r u o c n I t r u o C t s e r a h c u B l a n o i t a N e h t f o t n e d i s e r P e h t f o r e d r O e h t f o t n e m u n n A l l a e p p A f o 4 1 0 2 / 6 4 1 . o n ) E R N A ( y g r e n E r o f y t i r o h t u A y r o t a u g e R l i y r a d i s b u s n o i t u b i r t s i d e i t u b i r t s i D a c i r t c e E l ) S T D E ( d u S i a n a v l i s n a r T E R N A : t n a d n e f e D 5 1 0 2 / 2 / 8 0 2 4 t r u o C t s e r a h c u B l a n o i t a N e h t f o t n e d i s e r P e h t f o r e d r O e h t f o t n e m u n n A l l a e p p A f o 4 1 0 2 / 4 5 1 . o n ) E R N A ( y g r e n E r o f y t i r o h t u A y r o t a u g e R l . A S . a c i r t c e E : l ff i t n a P l i E R N A : t n a d n e f e D 5 5 1 0 2 / 2 / 7 1 3 y t i c i r t c e E : l ff i t n a P l i i g n v o s l i g n v o s l f o e s r u o c n I t r u o C t s e r a h c u B l a e p p A f o 4 1 0 2 / 6 5 1 . o n r e d r O f o e s r u o c n I t r u o C t s e r a h c u B l a e p p A f o 4 1 0 2 / 6 5 1 . o n r e d r O s ’ t n e d i s e r P E R N A f o t n e m u n n A l s ’ t n e d i s e r P E R N A f o t n e m u n n A l . A S . a c i r t c e E : l ff i t n a P l i y t i c i r t c e E : l ff i t n a P l i i y r a d i s b u s n o i t u b i r t s i d e i t u b i r t s i D a c i r t c e E l ) S T D E ( d u S i a n a v l i s n a r T 0 1 E R N A : t n a d n e f e D 5 1 0 2 / 2 / 1 7 3 E R N A : t n a d n e f e D 9 5 1 0 2 / 2 / 0 6 3 i g n v o s l f o e s r u o c n I f o t r u o C v o s a r B – t n e m u c o d e v i t a r t s i n m d a i f o t n e m u n n a l e h t r o f n o i t c A d u S i a n a v l i s n a r T e i t u b i r t s i D E E D F : ff i t n a P l i l a e p p A E R N A f o 5 1 0 2 / 5 6 1 . o n r e d r O E R N A : t n a d n e f e D 1 1 6 1 0 2 / 4 6 / 8 1 93 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 r a s o d u d a t S i a t n a t s n I t c e b O i r a s o D . r N / i t r a P t r c . r N 94 i g n v o s l i g n v o s l i g n v o s l f o e s r u o c n I f o e s r u o c n I f o e s r u o c n I i g n v o s l f o e s r u o c n I f o t r u o C v o s a r B – t n e m u c o d e v i t a r t s i n m d a i f o n o i s n e p s u s e h t r o f n o i t c A d u S i a n a v l i s n a r T l a e p p A E R N A f o 5 1 0 2 / 5 6 1 . o n r e d r O E R N A : t n a d n e f e D 6 1 0 2 / 4 6 / 7 1 e i t u b i r t s i D E E D F : ff i t n a P l i f o t r u o C v o s a r B f o ) s ff i r a t i c fi c e p s g n d r a g e r ( i t n e m u n n a l y l t r a p r o f n o i t c A d u S i a n a v l i s n a r T e i t u b i r t s i D E E D F : ff i t n a P l i f o t r u o C v o s a r B f o ) s ff i r a t i c fi c e p s g n d r a g e r ( i n o i s n e p s u s y l t r a p r o f n o i t c A d u S i a n a v l i s n a r T e i t u b i r t s i D E E D F : ff i t n a P l i l a e p p A E R N A f o 5 1 0 2 / 1 7 1 . o n r e d r O – t n e m u c o d e v i t a r t s i n m d a i E R N A : t n a d n e f e D 6 1 0 2 / 4 6 / 0 4 l a e p p A E R N A f o 5 1 0 2 / 1 7 1 . o n r e d r O – t n e m u c o d e v i t a r t s i n m d a i E R N A : t n a d n e f e D 6 1 0 2 / 4 6 / 1 4 2 1 3 1 4 1 i g n v o s l f o e s r u o c n I f o t r u o C j l u C – t n e m u c o d e v i t a r t s i n m d a i f o n o i s n e p s u s e h t r o f n o i t c A l a e p p A E R N A f o 5 1 0 2 / 5 6 1 . o n r e d r O d r o N a n a v i l i s n a r T E R N A : t n a d n e f e D 6 1 6 1 0 2 / 3 3 / 7 1 i g n v o s l f o e s r u o c n I t r u o C t s e r a h c u B – t n e m u c o d e v i t a r t s i n m d a i f o t n e m u n n a l e h t r o f n o i t c A l a e p p A f o E R N A f o 5 1 0 2 / 5 6 1 . o n r e d r O i d r o N a n e t n u M e i t u b i r t s i D E R N A : t n a d n e f e D 6 1 0 2 / 2 / 4 6 1 ) N M D E ( 7 1 a c i r t c e E : l ff i t n a P l i a c i r t c e E : l ff i t n a P l i i g n v o s l f o e s r u o c n I f o t r u o C j l u C – t n e m u c o d e v i t a r t s i n m d a i f o n o i s n e p s u s e h t r o f n o i t c A l a e p p A E R N A f o 5 1 0 2 / 5 6 1 . o n r e d r O i d r o N a n e t n u M e i t u b i r t s i D E R N A : t n a d n e f e D 6 1 0 2 / 2 / 5 6 1 ) N M D E ( 8 1 i g n v o s l f o e s r u o c n I f o t r u o C i t s e o P l i f o ) s ff i r a t i c fi c e p s g n d r a g e r ( i t n e m u n n a l y l t r a p r o f n o i t c A l a e p p A E R N A f o 5 1 0 2 / 2 7 1 . o n r e d r O – t n e m u c o d e v i t a r t s i n m d a i i d r o N a n e t n u M e i t u b i r t s i D E R N A : t n a d n e f e D 6 1 0 2 / 2 4 / 1 4 ) N M D E ( 9 1 a c i r t c e E : l ff i t n a P l i f o t r u o C j l u C – t n e m u c o d e v i t a r t s i n m d a i f o t n e m u n n a l e h t r o f n o i t c A l a e p p A E R N A f o 5 1 0 2 / 5 6 1 . o n r e d r O e i t u b i r t s i D E E D F : ff i t n a P l i e i t u b i r t s i D E E D F : ff i t n a P l i d r o N a n a v i l i s n a r T E R N A : t n a d n e f e D 5 1 6 1 0 2 / 3 3 / 8 1 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 r a s o d u d a t S i a t n a t s n I t c e b O i r a s o D . r N / i t r a P t r c . r N i g n v o s l i g n v o s l f o e s r u o c n I f o e s r u o c n I f o t r u o C i t s e o P l i f o ) s ff i r a t i c fi c e p s g n d r a g e r ( i n o i s n e p s u s y l t r a p r o f n o i t c A t r u o C t s e r a h c u B – t n e m u c o d e v i t a r t s i n m d a i f o t n e m u n n a l e h t r o f n o i t c A l a e p p A f o E R N A f o 5 1 0 2 / 5 6 1 . o n r e d r O l a e p p A E R N A f o 5 1 0 2 / 2 7 1 . o n r e d r O – t n e m u c o d e v i t a r t s i n m d a i i g n v o s l f o e s r u o c n I t r u o C t s e r a h c u B – t n e m u c o d e v i t a r t s i n m d a i f o n o i s n e p s u s e h t r o f n o i t c A l a e p p A f o E R N A f o 5 1 0 2 / 5 6 1 . o n r e d r O i g n v o s l i g n v o s l i g n v o s l i g n v o s l f o e s r u o c n I f o e s r u o c n I f o e s r u o c n I f o e s r u o c n I t r u o C t s e r a h c u B f o ) s ff i r a t i c fi c e p s g n d r a g e r ( i t n e m u n n a l y l t r a p r o f n o i t c A l a e p p A f o E R N A f o 5 1 0 2 / 1 7 1 . o n r e d r O – t n e m u c o d e v i t a r t s i n m d a i t r u o C t s e r a h c u B f o ) s ff i r a t i c fi c e p s g n d r a g e r ( i n o i s n e p s u s y l t r a p r o f n o i t c A t r u o C t s e r a h c u B f o ) s ff i r a t i c fi c e p s g n d r a g e r ( i t n e m u n n a l y l t r a p r o f n o i t c A l a e p p A f o E R N A f o 5 1 0 2 / 2 7 1 . o n r e d r O – t n e m u c o d e v i t a r t s i n m d a i l a e p p A f o E R N A f o 5 1 0 2 / 1 7 1 . o n r e d r O – t n e m u c o d e v i t a r t s i n m d a i t r u o C t s e r a h c u B f o ) s ff i r a t i c fi c e p s g n d r a g e r ( i n o i s n e p s u s y l t r a p r o f n o i t c A l a e p p A f o E R N A f o 5 1 0 2 / 2 7 1 . o n r e d r O – t n e m u c o d e v i t a r t s i n m d a i i d r o N a n e t n u M e i t u b i r t s i D E R N A : t n a d n e f e D 6 1 0 2 / 2 4 / 2 4 ) N M D E ( 0 2 a c i r t c e E : l ff i t n a P l i . A S . a c i r t c e E : l ff i t n a P l i . A S . a c i r t c e E : l ff i t n a P l i . A S . a c i r t c e E : l ff i t n a P l i 6 1 0 2 / 2 / 0 4 3 E R N A : t n a d n e f e D 3 2 E R N A : t n a d n e f e D 2 2 6 1 0 2 / 2 / 4 3 1 E R N A : t n a d n e f e D 1 2 6 1 0 2 / 2 / 0 3 1 . A S . a c i r t c e E : l ff i t n a P l i E R N A : t n a d n e f e D 4 2 6 1 0 2 / 2 / 3 4 3 . A S . a c i r t c e E : l ff i t n a P l i . A S . a c i r t c e E : l ff i t n a P l i E R N A : t n a d n e f e D 5 2 6 1 0 2 / 2 / 2 4 3 E R N A : t n a d n e f e D 6 2 6 1 0 2 / 2 / 5 4 3 95 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 APPENDIX 2 – DETAILS OF MAIN INVESTMENTS IN 2015 BY THE ELECTRICA GROUP During 2015, the most important investment made by the Group were as follows: Description Value (RON mil.) Transformation station 110/20 kV Sebes - Industrial Zone, Alba County Integration of transformation stations of CEM 110 kV Brasov into SCADA DMS EDTS’s system Meters acquisition and mounting EDMN Modernisation measuring points SAD - all SD EDTS Implementation of SAD-R rural system throughout the EDMN’s branches, Step IV vol. 2 Modernisation meters basis at EDTS level Station 110/20 kV- 2X 25 MVA -Sanpaul, Mures County Implementation of Automatic Urban Distribution System Buzau Modernisation AMR with GPRS Ploiesti Nord zone Upgrade and extension AMR telemetering system in Sf. Gheorghe town, Covasna County Modernisation of branching and extension telemetering system Unirii Blv. Tgv. Micro VI SCADA stage III – preparation works for integration in SCADA of 15 stations Modernisation station 110/6 KV Satu Mare 1 Modernisation transformation station 110/20kV Tatarani Modernisation and amplification groups of neutral treatment with BSRC in Station 110/MT Doftana, Campina, Busteni, Sinaia, Ploiesti Sud, Urlati, Ploiesti Nord, Prahova County Modernisation station Baia Mare 5 Increase of electricity supply signal Valea lui Mihai zone Modernisations LEA 04 kV in localities: Camarzana, Barsaul de Sus, Dobra SCADA stage IV - preparation works for integration in SCADA of 14 stations SAD – Distribution automation system for SD Oradea Modernisation of substation 20/6 kv Sinaia, Prahova Solutions to increase energy efficiency by cutting down losses in RED (installation of low losses transformers) EDTS Modernisation transformation station 110/20 kV Marasesti Automatic telemetering system e.e. with consumers LEA 20 kV Scurtesti Stage II Modernisation transformation station 110/20/6 KV Crisu Modernisation station 35/20 kV Feldioara, Brasov County Modernisation station Negresti MCD and modernisation RED Rupea, Brasov County Regulation LEA 110 kV d.c. Ghimbav - Cristian and Bartolomeu - FS Rasnov, Brasov County Improvement tension level LEA j.t. Ghidfalau, PTa 1, PTa 2, zone Covasna County Modernisation FDCP-AMR with GSM Stage V Cartier Micro III Buzau Switch to 20 kV Iosia zone Oradea Total 21.2 17.0 16.8 15.9 10.2 9.9 9.9 9.2 7.2 5.7 5.7 5.5 4.9 4.8 4.7 4.6 4.5 4.3 4.2 4.2 4.0 4.0 3.7 3.7 3.6 3.3 3.3 2.9 2.8 2.8 2.8 2.7 2.6 212.4 96 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015During 2015, the largest transfers of fix assets in progress to fix assets were mainly represented by the commissioning of investment objectives, such as: Description Upgrade and extension AMR telemetering system in Sf.Gheorghe Municipality, Covasna County Transformation station 110 / 20 kV Sebes- Industrial Zone, Alba County Integration of transformation stations in the SCADA DMS system of the EDTS Modernisation measuring points 2015 EDTN Meters acquisition and mounting EDTN Modernisation meters basis at EDTS level Implementation of Automatic Rural Distribution System SAD-R stage IV, vol 2 in EDMN’s branches Modernisation Station 110/20kV Liesti, Galati County (structural funds) Implementation of Automatic Urban Distribution System Buzău Modernisation Station 110 kV Beius Regulation LEA 110 kV d.c. Ghimbav-Cristian and Bartolomeu-FS Rasnov, Brasov County Station 110/20 kV- 2X 25 MVA-Sanpaul, Mures County Modernisation AMR with GPRS Ploiesti Nord zone Modernisation of branching and extension telemetering system Unirii Blv. Tgv. Micro VI SAD - Distribution automation system for SD Oradea SMART METERING pilot project SD Zalau Modernisation station 35 / 20 kV Feldioara, Brasov County Improvement tension level LEA j.t. Ghidfalău, PTa 1, PTa 2 zone, Covasna County Modernisation substation 20/6 kv Sinaia, Prahova SMART METERING pilot project in SDEE Cluj Modernisation transformation station 110/20kV Tătărani Modernisation 110 kV separators in transformation stations - stage II vol.III (Stations 110kV: Vascău (20 pcs separators), Năsăud (14 pcs separators), Ferneziu (8 pcs separators), Nistru (4 pcs separators), Carpati (8 pcs separators), Jibou (5 pcs separators) Solutions to increase energy efficiency by cutting down losses in RED (installation of low losses transformers) EDTS Automatic telemetering system e.e. with consumers LEA 20 kV Scurtesti Stage II MCD and modernisation RED Rupea SMART METERING in SDEE Oradea Modernisation FDCP-AMR with GSM stage V Micro III District Buzău ICTAEE of consumers in localities Vădeni and Pietroiu, Brăila County Extension AMR monitoring system with GPRS Galati Municipality Extension SAD- Distribution automation system of SD Baia Mare, SD Satu Mare 11 positions- stage II, SD Cluj - stage II 2013 Value (RON mil.) 21.9 21.6 20.8 20.1 16.8 9.9 9.9 7.7 7.3 6.9 6.8 6.2 5.9 5.6 5.5 4.5 4.3 4.3 4.2 4.1 4.1 3.7 3.7 3.5 3.4 2.9 2.7 2.7 2.6 2.6 Total 226.5 97 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015APPENDIX 3 – INTERNAL AUDIT REPORT FOR 2015 The Annual Audit Plan for 2015, registered under no. 9900/25268/28.11.2014, endorsed by the Audit Committee and approved by the Board of Directors by the Decision no. 3/17.02.2015, provided for seven missions planned for 2015 in the following auditable areas: human resources, technical, international cooperation, legal and li- tigations, public relations, major project and pa- trimony. This plan was drawn up in view of iden- tifying the efficiency of internal controls within ELSA. On the date of audit missions planning, the Audit & Compliance Office team was made of two internal auditors. In 2015, upon the request of the Board of Direc- tors, several ad-hoc missions were conducted, which resulted in the amendment of the Annual Internal Audit Plan for 2015. By Decision no. 26 of 16.09.2015, the Board of Directors approved the amendment of the Audit Plan for the period January-June 2015. During the first half year 2015, 5 audit missions were conducted in the company, one Annual In- ternal Audit Plan and 4 ad-hoc missions in ELSA subsidiaries. The missions conducted in the first half year are: • Management of employees and salary po- licies based on the mission Order no. 9900/488/12.01.2015, mission planned in the Annual Audit Plan, • Achievement verification of services pro- curement procedure for: Rehabilitation of IT infrastructure of Electrica Serv – working and multifunctional stations and “Integrated IT system to streamline operational activity”, conducted based on the mission Order no. 9900/487/12.01.2015, • Assessment and check-up of the procedures achievement and of the procurement contracts for goods, services and works in the three elec- tricity distribution subsidiaries: EDTN, EDTS, EDMN conducted based on the mission Order no. 9900/4636/03.03.2015, • Assessment of employees, salary policies ma- nagement in EDTN, EDTS, EDMN, Electrica Fur- nizare and Electrica Serv conducted based on the mission Order no. 9900/9479/04.05.2015, • Analysis of contracts signed by Electrica S.A. and “Bostina & Asociatii” Limited Liability Pro- fessional Company during 2010–2014 pe- riod, according to the mission Order no. 9900/11707/29.05.2015. • In the second half of 2015 the following audit missions were conducted: • Assessment of legal and litigations activity in EDTN, EDTS, Electrica Serv during the period 01.01.2014 - 30.10.2015, conducted based on the mission Order no. 9900/20472/29.09.2015. • Verification of procurement procedures and of the project “Chirnogeni Wind Mills Park” in Elec- trica SA, conducted based on the mission Order no. 9900/19389/31.08.2015. These missions were performed by teams made of two internal auditors. The internal audit report concluded as a result of the missions were acknowledged by the mana- gement of audited entities, endorsed by the Au- dit Committee and the implementation of their recommendations is consistently monitored by their follow up sheets. As a result of the audit missions and the acceptance of their recom- mendations by the audited entities and persons, the audited structures make up their own plans of measure to meet the recommendations. The internal audit engagements have confirmed the positive impact of an internal audit on the activities carried out within the Company and its subsidiaries. Since its dual listing on the Bucharest Stock Ex- change and the London Stock Exchange and until the year end, the Operational Procedure of Internal Audit, Handbook of Internal Audit and Code of Ethics of the internal auditor were up- dated, in compliance with the national legislation and the International Standards for Internal Audi- tors’ Professional Practice. All of these procedu- res have been endorsed by the Audit Committee and approved by the Board of Director. 98 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31st 2015 99 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED DECEMBER 31ST 2015 Prepared in accordance with international financial reporting standards as endorsed by the European Union CONTENTS Consolidated statement of financial position Consolidated statement of profit or loss Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Basis of preparation 1. Reporting entity and general information 2. Basis of accounting 3. Functional and presentation currency 4. Use of judgments and estimates Accounting policies 5. Basis of measurement 6. Significant accounting policies 7. Changes in accounting policies and changes in classification and presentation 8. New standards and interpretations not yet adopted Performance for the year 9. Operating Segments 10. Revenue 11. Income and expenses 12. Net finance cost 13. Earnings per share Employee benefits 14. Short-term employee benefits 15. Post-employment and other long-term employee benefits 16. Employee benefit expenses Income taxes 17. Income taxes Assets 18. Trade receivables 19. Deposits, treasury bills and government bonds 20. Other receivables 21. Cash and cash equivalents 22. Property, plant and equipment 23. Intangible assets 24. Spin off Equity and liabilities 25. Capital and reserves 26. Non-controlling interests 27. Financing for network construction related to concession agreements 28. Trade payables 29. Other payables 30. Provisions Financial instruments 31. Financial instruments - Fair values and risk management Other information 32. Related parties 33. Subsidiaries in financial distress 34. Contingencies 35. Commitments 101 103 104 105 107 109 113 113 113 114 114 122 124 124 129 130 130 131 131 132 134 135 137 138 138 139 140 141 143 144 145 147 147 147 148 149 154 156 157 158 100 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) ASSETS Non-current assets Intangible assets related to concession arrangements Other intangible assets Property, plant and equipment Deferred tax assets Other non-current assets Total non-current assets Current assets Trade receivables Other receivables Cash and cash equivalents Deposits, treasury bills and government bonds Inventories Prepayments Green certificates Income tax receivable Assets held for distribution Total current assets Total assets EQUITY AND LIABILITIES Equity Share capital Share premium Treasury shares reserve Pre-paid capital contributions in kind from shareholders Revaluation reserve Other reserves Retained earnings Total equity attributable to the owners of the Company Non-controlling interests Total equity (continued on page 102) *See Note 7 Note December 31st 2015 December 31st 2014 restated* January 1st 2014 restated* 23 23 22 17 18 20 21 19 17 25 25 25 25 3,700,211 3,501,184 3,340,103 14,295 779,264 50,597 3,802 8,812 804,823 59,625 7,970 4,912 875,715 85,361 1,118 4,548,169 4,382,414 4,307,209 837,782 36,804 893,492 1,987,881 23,258 9,460 31,304 23,135 - 780,821 24,611 1,629,508 1,220,521 24,305 8,644 53,708 23,135 - 3,843,116 3,765,253 1,087,545 57,210 650,835 - 33,809 6,378 - 36,510 2,243,494 4,115,781 8,391,285 8,147,667 8,422,990 3,814,242 3,814,242 2,509,413 103,049 (75,372) 2,862 140,358 273,899 1,354,595 5,613,633 103,049 (75,372) 3,273 156,018 236,597 - - 47,657 572,825 614,906 1,246,635 1,905,402 5,484,442 5,650,203 26 828,957 804,266 755,485 6,442,590 6,288,708 6,405,688 101 ANNUAL REPORT 2015 ELECTRICA SA CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Liabilities Non-current liabilities Financing for network construction related to concession agreements Finance lease Deferred tax liabilities Employee benefits Other payables Total non-current liabilities Current liabilities Financing for network construction related to concession agreements Short term bank borrowings Bank overdrafts Finance lease Trade payables Other payables Deferred revenue Employee benefits Provisions Current income tax liability Total current liabilities Total liabilities Note December 31st 2015 December 31st 2014 restated* January 1st 2014 restated* 27 17 15 29 27 31 21 28 29 14,15 30 122,065 151,486 129,827 - 181,253 193,915 43,068 - 183,753 220,382 53,181 290 193,603 213,187 66,376 540,301 608,802 603,283 99,576 59,821 65,963 - 656,410 249,306 4,235 134,625 127,613 10,845 99,064 142,584 - 48,132 294 555,256 310,806 2,987 146,714 72,634 14,270 - 79,684 498 581,522 355,022 2,600 152,191 84,735 15,183 1,408,394 1,948,695 1,250,157 1,414,019 1,858,959 2,017,302 Total equity and liabilities 8,391,285 8,147,667 8,422,990 The accompanying notes are an integral part of these consolidated financial statements. *See Note 7 CEO Ioan Roșca CFO Iuliana Andronache 102 ANNUAL REPORT 2015 ELECTRICA SA CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, except per share data) Note 2015 2014 restated* Revenues Other income Electricity purchased Green certificates Construction costs related to concession agreements Employee benefits Repairs, maintenance and materials Depreciation and amortization Impairment of property, plant and equipment, net Impairment of trade and other receivables, net Other operating expenses Change in provisions, net Operating profit Finance income Finance costs Net finance income Profit before tax Income tax expense Profit for the year Profit for the year attributable to: - owners of the Company - non-controlling interests Profit for the year Earnings per share 10 11 23 16 22,23 22,23 18, 20 11 12 12 5,502,795 5,043,728 211,161 176,509 (2,718,682) (2,349,200) (346,754) (272,265) (490,023) (440,337) (662,963) (738,606) (59,015) (84,866) (350,813) (325,698) (2,368) (4,400) (32,814) (4,632) (455,319) (460,774) (54,979) 568,640 37,851 (17,368) 20,483 589,123 17 (106,963) 482,160 26 362,675 119,485 482,160 (413) 510,632 36,404 (23,149) 13,255 523,887 (110,982) 412,905 296,806 116,099 412,905 Basic and diluted earnings per share (RON) 13 1.07 1.07 The accompanying notes are an integral part of these consolidated financial statements. *See Note 7 CEO Ioan Roșca CFO Iuliana Andronache 103 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Profit for the year 482,160 412,905 Note 2015 2014 restated* Other comprehensive income Items that will never be reclassified to profit or loss Remeasurements of the defined benefit liability Tax related to remeasurements of the defined benefit liability Revaluation of property, plant and equipment 15 17 16,707 (2,674) - (3,922) 628 59 Other comprehensive income, net of tax 14,033 (3,235) Total comprehensive income 496,193 409,670 Total comprehensive income attributable to: - owners of the Company - non-controlling interests Total comprehensive income The accompanying notes are an integral part of these consolidated financial statements. *See Note 7 CEO Ioan Roșca CFO Iuliana Andronache 374,294 293,639 121,899 116,031 496,193 409,670 104 ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) , 8 0 7 8 8 2 6 , , 6 6 2 4 0 8 , 2 4 4 4 8 4 5 , , 5 3 6 6 4 2 , 1 , 7 9 5 6 3 2 8 1 0 6 5 1 , 3 7 2 3 , ) 2 7 3 5 7 ( , 9 4 0 3 0 1 , , 2 4 2 4 1 8 3 , 8 3 1 , 7 1 3 6 , 0 2 5 0 1 8 , l a t o T y t i u q e - n o N g n i l l o r t n o c s t s e r e t n i y n a p m o C e h t f o s r e n w o e h t o t e l b a t u b i r t t A l a t i p a c d i a p - e r P l a t o T i d e n a t e R i s g n n r a e r e h t O n o i t a u l a v e R s n o i t u b i r t n o c y r u s a e r T e r a h S s e v r e s e r e v r e s e r m o r f d n k n i i l s r e d o h e r a h s s e r a h s i m u m e r p e r a h S l a t i p a c e t o N , 8 1 6 6 0 5 5 , , 1 1 8 8 6 2 , 1 , 7 9 5 6 3 2 8 1 0 6 5 1 , 3 7 2 3 , ) 2 7 3 5 7 ( , 9 4 0 3 0 1 , , 2 4 2 4 1 8 3 , d e t r o p e r y l s u o i v e r p s a 5 1 0 2 t s 1 y r a u n a J t a e c n a l a B ) 0 3 4 8 2 , ( ) 4 5 2 6 , ( ) 6 7 1 , 2 2 ( ) 6 7 1 , 2 2 ( - - - - - - y c i l o p g n i t n u o c c a n i e g n a h c f o t c a p m I 3 3 0 4 1 , 4 1 4 2 , 9 1 6 , 1 1 9 1 6 , 1 1 0 6 1 , 2 8 4 5 8 4 9 1 1 , , 5 7 6 2 6 3 , 5 7 6 2 6 3 3 9 1 , 6 9 4 9 9 8 , 1 2 1 4 9 2 4 7 3 , 4 9 2 4 7 3 , ) 1 1 4 ( ) 2 9 6 4 4 2 , ( ) 3 0 1 , 5 4 2 ( - - - ) 1 1 4 ( - ) 2 9 6 4 4 2 , ( ) 2 9 6 4 4 2 , ( ) 3 0 1 , 5 4 2 ( , ) 2 9 6 4 4 2 ( - - - - - - - - - - - - - - - - - - ) 1 1 4 ( - ) 1 1 4 ( - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ) 8 0 2 7 9 , ( ) 8 0 2 7 9 , ( - - - , 0 9 5 2 4 4 6 , - - - , 7 5 9 8 2 8 - - - - - ) 2 0 3 7 3 , ( 2 0 3 7 3 , 7 1 2 4 1 , 3 4 4 , 1 - - ) 7 1 2 4 1 ( , ) 3 4 4 , 1 ( , 3 3 6 3 1 6 5 , , 5 9 5 4 5 3 , 1 9 9 8 3 7 2 , 8 5 3 0 4 1 , 2 6 8 2 , ) 2 7 3 5 7 ( , 9 4 0 3 0 1 , , 2 4 2 4 1 8 3 , 5 2 y n a p m o C e h t f o s r e n w o e h t o t s d n e d v D i i y n a p m o C e h t f o s r e n w o h t i w s n o i t c a s n a r t l a t o T y t i u q e n i s e g n a h c r e h t O 5 2 s t s e r e t n i g n i l l o r t n o c - n o n o t s d n e d v D i i i s g n n r a e d e n a t e r o t i e v r e s e r n o i t a u a v e r l f o r e f s n a r T s e v r e s e r l a g e l f o p u t e S i d e n a t b o e r e w s t h g i r p h s r e n w o h c h w i i r o f d n a L ) * d e t a t s e r ( 5 1 0 2 t s 1 y r a u n a J t a e c n a l a B e m o c n i e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T e m o c n i e v i s n e h e r p m o C r a e y e h t r o f t fi o r P y n a p m o C e h t f o s r e n w o h t i w s n o i t c a s n a r T s n o i t u b i r t s i d d n a s n o i t u b i r t n o C t n a p l , y t r e p o r p f o s l a s o p s i d d n a n o i t a c e r p e d o t i e u d 3 3 s s e r t s i d l i a c n a n fi n i i s e i r a d i s b u s r e v o l o r t n o c f o s s o L i t n e m p u q e d n a 5 1 0 2 t s 1 3 r e b m e c e D t a e c n a l a B ) 6 0 1 e g a p n o d e u n i t n o c ( 105 ANNUAL REPORT 2015 ELECTRICA SA CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) ) 5 3 2 3 , ( ) 8 6 ( ) 7 6 1 , 3 ( ) 2 3 3 2 , ( 5 0 9 2 1 4 , 9 9 0 6 1 1 , 6 0 8 6 9 2 , 6 0 8 6 9 2 , , 0 7 6 9 0 4 1 3 0 6 1 1 , 9 3 6 3 9 2 , , 4 7 4 4 9 2 ) 2 7 3 5 7 ( , ) 3 1 0 4 , ( ) 5 7 4 2 2 , ( , 6 3 9 4 7 8 , 1 ) , 6 7 4 2 3 2 2 , ) 0 0 4 9 5 4 , ( ( - - - - - - ) 2 7 3 5 7 ( , ) 3 1 0 4 , ( , 6 3 9 4 7 8 , 1 - - - ) 5 7 4 2 2 , ( ) 5 7 4 2 2 , ( ) , 6 7 4 2 3 2 2 , ( ) , 4 3 8 8 2 9 ( ) 5 9 1 , 8 0 4 ( ) , 8 1 0 8 8 3 ( - - ) 4 8 3 4 4 , ( - - - - - - - - - - ) 5 3 8 ( ) 5 3 8 ( - - - - - - - - - , 8 1 6 5 4 4 6 , 0 7 2 4 6 7 , 8 4 3 , 1 8 6 5 , , 7 4 5 6 3 9 , 1 6 0 9 4 1 6 , 5 2 8 2 7 5 , 7 5 6 7 4 , ) 0 3 9 9 3 , ( ) 5 8 7 8 , ( ) 5 4 1 , 1 3 ( ) 5 4 1 , 1 3 ( - - - , 8 8 6 5 0 4 6 , 5 8 4 5 5 7 , , 3 0 2 0 5 6 5 , , 2 0 4 5 0 9 , 1 6 0 9 4 1 6 , 5 2 8 2 7 5 , 7 5 6 7 4 , y n a p m o C e h t f o s r e n w o e h t o t e l b a t u b i r t t A l a t o T y t i u q e - n o N g n i l l o r t n o c s t s e r e t n i l a t o T i d e n a t e R i s g n n r a e r e h t O s e v r e s e r n o i t a u l a v e R e v r e s e r l a t i p a c d i a p - e r P s n o i t u b i r t n o c m o r f d n k n i i l s r e d o h e r a h s y r u s a e r T e r a h S s e r a h s i m u m e r p e r a h S l a t i p a c e t o N - - - - - - - ) 2 7 3 5 7 ( , - - - - - , 3 1 4 9 0 5 2 , - - - - , 3 1 4 9 0 5 2 , 7 7 9 4 0 3 0 1 , 7 8 8 , 1 7 7 , 1 5 2 - - - - - - 1 7 3 0 4 , ) , 9 2 4 7 0 5 ( 5 2 4 2 d e t r o p e r i y l s u o v e r p s a , 4 1 0 2 t s 1 y r a u n a J t a e c n a a B l 106 ) * d e t a t s e r ( 4 1 0 2 t s 1 y r a u n a J t a e c n a l a B e m o c n i e v i s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o C ) * d e t a t s e r ( t fi o r P ) * d e t a t s e r ( e m o c n i e v i s n e h e r p m o c l a t o T y n a p m o C e h t f o s r e n w o h t i w s n o i t c a s n a r T d n a l f o t c e p s e r n i s e r a h s y r a n d r o i f o e u s s I l s r e d o h e r a h s e h t y b d e t u b i r t n o c s n o i t u b i r t s i d d n a s n o i t u b i r t n o C O P I m o r f s g n i t i r w r e d n U d e r i u q c a s e r a h s y r u s a e r T y n a p m o C e h t f o s r e n w o e h t o t s d n e d v D i i t c e ff e ff o - n p S i y c i l o p g n i t n u o c c a n i e g n a h c f o t c a p m I ) 0 5 2 7 6 , ( ) 0 5 2 7 6 , ( - - - , 8 0 7 8 8 2 6 , - - - , 6 6 2 4 0 8 - - - - - - ) 6 8 8 9 2 , ( 6 8 8 9 2 , - - 2 0 2 5 1 , 2 5 7 2 1 , - - ) 2 0 2 5 1 ( , ) 2 5 7 2 1 ( , - - - - - - - - - - - - - - - - , 2 4 4 4 8 4 5 , , 5 3 6 6 4 2 , 1 , 7 9 5 6 3 2 8 1 0 6 5 1 , 3 7 2 3 , ) 2 7 3 5 7 ( , 9 4 0 3 0 1 , , 2 4 2 4 1 8 3 , 5 2 s t s e r e t n i g n i l l o r t n o c - n o n o t s d n e d v D i i i s g n n r a e d e n a t e r o t i e v r e s e r n o i t a u a v e r l f o r e f s n a r T s e v r e s e r l a g e l f o p u t e S , y t r e p o r p f o s l a s o p s i d d n a n o i t a c e r p e d o t i e u d i s e i r a d i s b u s r e v o s s o l l o r t n o c f o t c a p m I i t n e m p u q e d n a t n a p l ) * d e t a t s e r ( 4 1 0 2 t s 1 3 r e b m e c e D t a e c n a l a B . s t n e m e t a t s l a i c n a n fi d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T 7 e t o N e e S * ) 0 0 4 9 5 4 , ( ) 9 0 3 , 1 5 9 ( ) 5 9 1 , 8 0 4 ( , ) 8 1 0 8 8 3 ( ) 4 8 3 4 4 , ( ) 2 7 3 5 7 ( , 9 4 0 3 0 1 , , 9 2 8 4 0 3 , 1 y n a p m o C e h t f o s r e n w o h t i w s n o i t c a s n a r t l a t o T y t i u q e n i s e g n a h c r e h t O ANNUAL REPORT 2015 ELECTRICA SA CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Cash flows from operating activities Profit for the year Adjustments for: Depreciation Amortisation Impairment loss of property, plant and equipment, net Loss on disposal of property, plant and equipment Impairment of trade and other receivables, net Change in provisions, net Net finance income Gain on loss of control over subsidiaries in financial distress Income tax expense Changes in : Trade receivables Other receivables Deposits, treasury bills and government bonds Prepayments Green certificates Inventories Trade payables Other payables Employee benefits Note 2015 2014 restated* 482,160 412,905 22 23 22 18,20 12 11,33 17 44,084 306,729 2,368 4,676 4,400 54,979 (20,483) (38,501) 106,963 33,284 292,414 32,814 4,542 4,632 413 (13,255) (32,349) 110,982 947,375 846,382 (126,401) 228,893 (5,855) (2,605) (816) 22,404 1,047 81,784 (45,171) (2,309) 26,592 (2,764) (2,266) (53,708) 9,504 49,095 (53,562) 20,154 Cash generated from operating activities 869,453 1,068,320 Interest paid Income tax paid (8,030) (118,177) (11,290) (75,721) Net cash from operating activities 743,246 981,309 (Continued on page 108) *See Note 7 107 ANNUAL REPORT 2015 ELECTRICA SA CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Cash flows from investing activities Payments for purchases of property, plant and equipment (31,759) (39,152) Payments for network construction related to concession agreements (353,302) (318,237) Note 2015 2014 restated* Payments for purchase of other intangible assets Proceeds from sale of property, plant and equipment Proceeds from sale of other investments Payments for purchase of treasury bills and government bonds Proceeds from maturity of treasury bills and government bonds Increase in deposits with maturity of 3 months or longer Proceeds from deposits with maturity of 3 months or longer Interest received Effect on loss on control over subsidiaries on cash Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares, net of transaction costs Re-purchase of treasury shares Proceeds from long term bank loans Proceeds from short term bank loans Repayment of long term bank loans Repayment of short term bank loans Dividends paid Repayment of financing for network construction related to concession agreements Payment of finance lease liabilities Cash transferred through spin-off Net cash from/(used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at January 1st Cash and cash equivalents at December 31st The accompanying notes are an integral part of these consolidated financial statements. *See Note 7 CEO Ioan Roșca 108 CFO Iuliana Andronache (8,755) 14,771 (7,653) 237 - 140,920 (4,093,998) (1,194,251) 3,240,481 (350,228) 438,990 41,286 (2,863) 295,598 (319,104) - 35,502 (312) (1,105,377) (1,406,452) - - 18,000 51,753 (8,100) (1,907) 1,874,936 (75,372) - - (341,293) (89,725) (109,875) (142,680) (294) - (1,889) (129,902) (391,716) 1,435,368 (753,847) 1,010,225 1,581,376 571,151 827,529 1,581,376 24 19 19 25 25 25 27 24 21 21 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 1 Reporting entity and general information (a) General information about the Group These financial statements are the consolidated financial statements of Societatea de Distributie si Furnizare a Energiei Electrice Electrica S.A. (“the Company” or “Electrica SA”) and its subsidiaries (together “the Group”). The registered office of the Company is 9 Grigore Alexandrescu Street, District 1, Bucharest, Romania. The Company has unique registration number 13267221 and Trade Register registration number J40/7425/2000. As at December 31st 2015 the major shareholder of Electrica SA is the Romanian State, represented by the Ministry of Energy (48.78%), after the ownership dilution following an initial public offer. The second largest shareholder based on the share of ownership is EBRD with 8.66%. The Company’s subsidiaries are the following: Subsidiary Activity Tax code Head Office % shareholding as at 31 Dec 2015 % shareholding as at 31 Dec 2014 Electrica Distributie Muntenia Nord SA Electricity distribution in geographical area of Muntenia Nord Electrica Distributie Transilvania Nord SA Electricity distribution in geographical area of Transilvania Nord Electrica Distributie Transilvania Sud SA Electricity distribution in geographical area of Transilvania Sud 14506181 Ploiesti 78.0000021% 78.0000021% 14476722 Cluj-Napoca 77.99999% 77.99999% 14493260 Brasov 78.0000019% 78.0000019% Electrica Furnizare SA Electricity supply 28909028 Bucuresti 77.99997% 77.99997% Electrica Serv SA Services in the energy sector (maintenance, repairs, construction) 17329505 Bucuresti Servicii Energetice Muntenia SA Services in the energy sector (maintenance, repairs, construction) 29384120 Bucuresti Servicii Energetice Oltenia SA Services in the energy sector (maintenance, repairs, construction) 29389861 Craiova Servicii Energetice Moldova SA Services in the energy sector (maintenance, repairs, construction) 29386768 Bacau 100% 100% 100% 100% Servicii Energetice Dobrogea SA* Services in the energy sector (maintenance, repairs, construction) 29388378 Constanta 100% Servicii Energetice Banat SA* Services in the energy sector (maintenance, repairs, construction) 29388211 Timisoara 100% 100% 100% 100% 100% 100% 100% * Electrica SA lost the control of Servicii Energetice Banat starting with November 2014 and of Servicii Energetice Dobrogea starting with January 2015 when the bankruptcy proceedings of the subsidiaries began (see Note 33). Group’s main activities The main activities of the Group include opera- tion and construction of electricity distribution networks and activities related to electricity sup- ply to final consumers. The Group is the electric- ity distribution operator and the main electricity supplier in Muntenia Nord area (Prahova, Buzau, Dambovita, Braila, Galati and Vrancea counties), Transilvania Nord area (Cluj, Maramures, Satu Mare, Salaj, Bihor and Bistrita-Nasaud counties) and Transilvania Sud area (Brasov, Alba, Sibiu, Mures, Harghita and Covasna counties), operat- ing with transformation stations and 0.4 kV to 110 kV power lines. The Company’s subsidiaries (Electrica Distributie Muntenia Nord, Electri- ca Distributie Transilvania Nord and Electrica distribution Distributie Transilvania Sud) invoice the elec- tricity distribution service to electricity suppli- ers (mainly to Electrica Furnizare SA subsidiary, the main electricity supplier in Muntenia Nord, Transilvania Nord and Transilvania Sud areas), which further invoice the electricity consump- tion to final consumers. Electrica Furnizare SA is the supplier of last re- sort (defined as supplier designated by the regu- latory authority to deliver the universal service of electricity supply under specific regulated con- ditions) in Muntenia Nord, Transilvania Nord and Transilvania Sud areas. According to the regula- tions issued by the National Authority for Energy Regulation (“ANRE”), the suppliers of last resort have the obligation to ensure electricity supply to final customers which have not exercised their eligibility right – this is the right to choose 109 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) their electricity supplier (hereinafter named cap- tive consumers). The electricity supply to captive consumers is made based on regulated contracts, with prices that are regulated by ANRE. In 2013 the Company approved the liquidation of 3 subsidiaries: Servicii Energetice Banat, Ser- vicii Energetice Dobrogea and Servicii Energetice Moldova. In January 2014 the Board of Directors of Servicii Energetice Oltenia and in October 2014 the Board of Directors of Servicii Energetice Muntenia decided the commencement of the in- solvency process with a view to reorganization. For further information on the financial position of these subsidiaries refer to Note 33. Initial public offering The Government Decision no. 85/2013, amended and completed by Government De- cision no. 477/2014 approved the privatization strategy of Electrica SA by initial public offer (“IPO”). The privatization strategy included the offer for sale of a 51% stake by issuance of new shares representing 105% of the existing share capital as at the date of the IPO. The shares were offered to both individual and institution- al investors on the Romanian market, as well as to qualified investors on the US market and outside USA, and Global Depository Receipts (“GDRs”) on the UK market. The IPO was organised between 11 and 27 June 2014 and entailed to an offering by the Com- pany of 177,188,744 ordinary shares in the form of shares and in the form of GDRs, each GDR representing four shares. Following the IPO, the Company sold 142,007,744 shares and 8,795,250 GDRs, at the offer prices of RON 11 per share and 13.66 USD per GDR. The allocation of shares and GDRs and the offering prices were concluded on 27 June 2014. The transfer of ownership rights to new shares and the collection of cash by the Company took place on 2 July 2014. At the same date the increase in share capital was recorded in the Trade Register. Starting 4 July 2014 the Company’s shares are listed on the Bucharest Stock Exchange, and the GDRs are listed on the London Stock Exchange. (b) Regulations regarding the energy sector Regulatory environment The activity in the energy sector is regulated by National Authority for Energy Regulation (“ANRE”). Some of the main responsibilities of ANRE are to approve prices and tariffs and to prepare compu- tation methodologies used to establish regulated prices and tariffs. Electricity distribution Electricity distribution is a monopoly activi- ty. Distribution tariffs are established by a „tariff basket-price cap” mechanism. The tariff setting methodology is approved by ANRE Orders no. 72/2013, no. 112/2014, no. 146/2014 and no. 165/2015. The specific distribution tariffs appli- cable for the years 2015 and 2014 for the three voltage levels (high, medium and low) by regions were approved by ANRE orders as follows (RON/ MWh, presented cumulatively for medium and low voltage): Order 155, 156, 154/15.12.2014 January 1st-December 31st 2015 Order 104, 105, 98/18.12.2013 January 1st-December 31st 2014 High voltage Medium voltage Low voltage High voltage Medium voltage Low voltage Transilvania Nord Transilvania Sud Muntenia Nord 21.10 23.41 18.47 68.44 70.26 61.31 180.59 192.65 199.92 20.65 23.46 18.90 67.28 70.45 63.13 178.75 194.74 206.05 The following items are considered by ANRE when setting the target revenue for one year of one regulatory period: controllable and non-controllable operating and maintenance costs; costs of electricity purchased for own technological consumption (distribution ne- twork losses); regulated depreciation charge; the return on the regulated assets base (“RAB”); working capital requirements and revenues from reactive energy. The controllable operating and maintenance costs include, without limitation, the following: raw materials and consumables; utilities; main- tenance and repairs; rental; insurance; studies and research; other services; employee bene- fits (salaries, per diem, bonuses); damages paid by the main distribution operator to third par- ties for maintenance works agreed between parties. The uncontrollable operating and maintenan- ce costs include: costs resulting from payment of taxes, royalties, duties and similar payments; 110 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) regulated costs related to special expenditure; contributions to the health fund, special funds and other similar funds related to the salary fund; regulated distribution costs generated by the use of distribution networks of other ope- rators; extraordinary costs produced by force majeure; costs generated by the impossibility of shutting down the electricity supply for cer- tain consumers, according to the legislation; damages paid by the main distribution operator to third parties for maintenance works estab- lished in court. The regulated rate of return on the RAB was 8.52% for the years 2013 and 2014. Starting with 2015, the regulated rate of return on the RAB decreased to 7.7%, in accordance with the ANRE Order no. 146/2014. The distribution tariffs applicable for 2016 for the three voltage levels (high, medium and low) by regions were approved by ANRE orders as follows (RON/MWh), presented cumulatively for medium and low voltage: Order 171, 172, 173/14.12.2015 January 1st-December 31st 2016 High voltage Medium voltage Low voltage Transilvania Nord Transilvania Sud Muntenia Nord 19.93 21.22 15.93 64.2 63.58 52.6 167.74 172.02 171.38 Regulatory asset base (RAB) In accordance with ANRE Orders no. 72/2013, 112/2014, 146/2014 and 165/2015, the de- termination of the distribution tariffs is based on, inter alia, the regulated asset base (“RAB”). The RAB calculation is based on capital expenditure. The regulatory asset base at the beginning of the first regulatory period (January 1st 2005) (initial RAB) includes the net book value of the proper- ty, plant and equipment and intangible assets as approved by ANRE and used only for regulated electricity distribution. The RAB subsequently cal- culated includes the net value of the initial RAB and the net value of property, plant and equip- ment and intangible assets subsequently ac- quired through investments approved by ANRE. RAB does not include the property, plant and equipment financed through donations, or oth- er irredeemable funds, including the connection fee from the new users of the electricity distribu- tion network (property and equipment obtained through contributions of cash by customers to establish a connection to the network). According to the tariff setting legislation, the distribution operator may request the regula- tor to recognise in the tariff the revaluation of property, plant and equipment commissioned after January 1st 2005, based on the revaluations performed according to the legislation in force. However, the maximum amount of the revalu- ation that would be accepted by the regulator may not exceed the cumulative inflation applied to the value of the assets commissioned after January 1st 2005. Tariff adjustments Annually, ANRE makes revenue adjustments due to: change in the quantities of electricity distribut- ed compared to the forecast; change in quantities and acquisition price for the regulated own tech- nological consumption (electricity network loss- es) compared to the forecast; annual change in uncontrollable operating and maintenance costs compared to the forecast; changes in revenues from reactive energy compared to the forecast; under-/overruns of the approved investments programme; and revenues generated from other operations made by the distribution operator. In 2015 the revenue adjustments made by ANRE were negative as a result of change in the regu- lated rate of return on the RAB to 7.7%; increase in the quantities of electricity distributed in 2014 and 2015 compared to the forecast and decrease of acquisition price for the regulated own tech- nological consumption (electricity network loss- es) compared to the forecast. The differences in revenue arising in relation to the above mentioned stipulations are used to modify the regulated tariffs for the subsequent years. The annual corrections are adjusted by the inter- est rate on one year treasury bills, in real terms. The annual regulated revenue in nominal terms is obtained by applying the adjusted inflation rate for the year of revenue adjustments. In regulated activities, the regulator establishes through the tariff adjustment mechanism (as pre- sented above), the criteria to recognise over or under recoveries of one period in future periods. The Group does not recognise regulatory assets 111 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) and liabilities in respect of these under or over recoveries, as these differences are recovered or returned through the tariffs charged in sub- sequent periods. As at December 31st 2015 the Group is in an over-recovery position of approxi- mately RON 115 million (2014: RON 164 million), which will be deducted from the tariffs for the next regulatory period (2016-2018). Tariffs increase limitations Starting with the third regulatory period (2014-2018) the distribution tariffs shall not increase year on year by more than 7% for the weighted average tariff and 10% for each specific distribution tariff. According to ANRE Order no. 165/2015, starting 2015 the tariff variation limitation applies only to tariff increases, and not to tariff decreases. Where the increase in tariffs is limited and does not allow distribution operators to obtain the ap- proved regulated revenues in full, the difference shall be recovered in the following year(s) limited to the cap set for tariff increases. Such difference is adjusted with the interest rate on one year treasury bills, in nominal terms. Electricity supply Regulated market According to Electricity Law and the European Directive 54/2003 the electricity market is fully open starting from July 1st 2007 and all consum- ers were declared eligible. The eligible consum- ers are free to choose their electricity supplier from which they purchase electricity at negoti- ated prices. For the other consumers (including those that did not use their eligibility right), the tariffs are regulated by ANRE orders. Starting from September 1st 2012, the methodolo- gy for setting tariffs to consumers that do not use the eligibility right is established by ANRE Order no. 30/2012 and amended by Order no. 92/2015 that includes a proposed timetable for gradual elimination of the regulated tariffs between 2012 and 2017 (“the timetable”) that sets the share of electricity purchased on the competitive market, in three-month period stages, for sale to con- sumers that do not use the eligibility right (house- hold and non-household consumers). The categories of justified costs of the last re- sort supplier, recognized by ANRE in the tariffs applied to the consumers that did not use the eligibility right, according to the methodology, are: electricity acquisition costs, transmission and system services costs, costs related to tech- nical and operational services, services provided by the centralized electricity market operator to the participants in the centralized electricity markets, electricity distribution cost, electric- ity supply costs related to consumers that did not use the eligibility right (including cost for invoicing, call-centre, concluding contracts, mass-media, salaries and other personnel relat- ed costs, rental, taxes, borrowing costs, interest, loss on receivables, debt recovery, financing of cash flow deficits and investments, legal ex- penses, costs related to the implementation of legislative changes). Starting from 1 September 2012, in correlation with the proposed timetable for eliminating the regulated tariffs, the last resort suppliers apply a new electricity tariff called „the competitive mar- ket component” (“CPC”) in the invoice to custom- ers that did not use the eligibility right. The CPC is based on costs for the electricity acquisition on the competitive market estimated by the last resort suppliers, plus costs for transmission and system services, services rendered by the cen- tralized market operator, distribution and supply costs, profit margin, and adjustments for the dif- ference between estimated and actual costs for the previous stage of the timetable. The last re- sort suppliers submit the CPC pricing proposals to ANRE for approval and the related calculations for the 3 distinct voltage levels. Until 2018 when the market for the household consumers will be competitive, the tariffs appli- cable to the households consumers shall be an- nual approved by ANRE based on the reported costs and regulated profit margin. The tariffs are established in order to cover the costs of electric- ity (including transports costs, network services, distribution costs and the regulated profit mar- gin). The previous ANRE methodology (ANRE Or- der no. 82/2013) provides a maximum profit per unit of electricity sold to consumers tariff setting and CPC tariffs of 4 RON/MWh and operating cost supply of 4.5 RON/client/month, following that, until the application of competitive criteria for selecting suppliers of last resort, the value of profit per unit of electricity sold to consumers to be established by ANRE. Furthermore, Electrica records supply costs including closing costs of contracts, billing, bill collection, database man- agement and costs of IT and telecommunica- tions infrastructure. The current methodology (ANRE Order 92/2015) establish the regulated profit as a percentage of 1.5% of the total supply costs (that includes energy acquisition, transport and distribution costs, costs related to the system services and costs related market operations and supply) and the operating supply costs of 4.5 RON/cli- ent/month in 2015 and 4.7 RON/client/month in 2016. 112 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) The tariffs for electricity supplied under regulated regime in 2015 and 2014 are those established by ANRE Orders no. 157/2014, no. 57/2014 and no. 40/2013. The acquisition prices paid to producers for elec- tricity purchased based on regulated contracts for delivery under the regulated regime to captive consumers / consumers that did not use the el- igibility right, and the quantities acquired are es- tablished by ANRE. Competitive market Transactions on the competitive en-gross market are transparent, public, centralised and non-dis- criminatory. Participants on the en-gross market can trade electricity based on the bilateral contracts concluded on the related centralised market. 4 Use of judgements and estimates In preparing these consolidated financial state- ments, management has made judgements, es- timates and assumptions that affect the applica- tion of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are re- viewed on an ongoing basis. Revisions to esti- mates are recognised prospectively. (a) Judgements Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the consol- idated financial statements is included below. Green certificates Electricity suppliers have a legal obligation to pur- chase green certificates from producers of elec- tricity from renewable sources, based on annual targets or quotas set by law, which are applied to the quantity of electricity purchased and supplied to end consumers. Cost of green certificates is billed to end con- sumers separately from the tariffs for electricity. Starting March 2014 the electricity suppliers have the obligation to purchase green certificates be- fore they bill the related costs to end consumers. 2 Basis of accounting These consolidated financial statements have been prepared in accordance with International Reporting Standards (“IFRS”) as endorsed by the European Union (“IFRS-EU”). They were author- ized for issue by the Board of Directors on March 11th 2016. The financial statements will be sub- mitted for shareholders’ approval in the meeting scheduled on April 27th 2016. The Company also issues an original version of consolidated financial statements prepared in accordance with IFRS-EU in Romanian language that will be used for filing with Romanian author- ities. Details of the Group’s accounting policies are included in Note 6. The Group has consistently applied the accounting policies to all periods pre- sented in these consolidated financial statements, except for the changes described in Note 7. 3 Functional and presentation currency These consolidated financial statements are pre- sented in Lei (RON), which is the functional cur- rency of all group companies. All amounts have been rounded to the nearest thousand, unless otherwise indicated. Service Concession Arrangements IFRIC 12 deals with public-to-private service concession arrangements. Until July 4th 2014, the Group was controlled by the Romanian State, therefore the concession arrangements (see Note 23) were considered a form of pub- lic-to-public service arrangements and therefore not directly within the scope of IFRIC 12. The management determined that IAS 16 model of accounting for the assets that are subject to the service concessions was more appropriate in those circumstances. Following the IPO (see Note 1), the act of in- corporation of Electrica changed. Significant decisions in the General Shareholders Meeting are taken with a super majority of 55% of the total voting rights as a protective right of the mi- nority shareholders. The Board of Directors has 3 out of 5 members who are independent and non-executive, appointed by private sharehold- ers. The Board of Directors also has increased powers. Given these major changes in the circumstanc- es, the management reassessed the applicability of IFRIC 12. Since de facto control by the State, with its 48.78% shareholding, cannot be proved and giv- en that it is expected that the Group will be oper- ated as a “private” entity, the Group changed its accounting policy with respect to the account- ing for the service concession arrangements. Commissions Group assesses its revenue arrangements against specific criteria to determine if it is acting as prin- cipal or agent. The Group has concluded that it is acting as a principal in all of its revenue ar- rangements except for collection of radio and TV taxes. If the Group acts in the capacity of an 113 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) agent rather than as the principal in a transaction, then the income recognised is the net amount of commission earned by the Group. (b) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that may result in a material adjust- ment in the subsequent twelve month period is included in the following notes: • Note 6 k), l) – assumptions regarding the useful life of the intangible assets related to conces- sion arrangements and other intangible assets; • Notes 18 and 31 – assumptions and estimates about the recoverability of trade receivables; • Note 6 j) – estimates regarding the useful lives of property, plant and equipment; • Note 22 – assumptions regarding the revalued amount of property, plant and equipment; • Note 33 – assumptions and estimates regarding the measurement of assets of the subsidiaries under financial distress; • Note 17 – recognition of deferred tax assets: availability of future taxable profit against which tax losscarried forward can be used; • Notes 30 and 34 – recognition and measure- The Group recognises transfers between lev- els of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in the following notes: • Note 31 – financial instruments; • Note 22 – property, plant and equipment. 5 Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the land and buildings which are measured based on revaluation model. The assets and lia- bilities of the subsidiaries in financial distress are not recognised on a going concern basis but on an alternate basis, as disclosed in Note 33. 6 Significant accounting policies Except as disclosed in Note 7, the Group has consistently applied the following accounting policies to all periods presented in these consol- idated financial statements. ment of provisions and contingencies; (a) Basis of consolidation • Note 15 – measurement of defined benefit ob- ligations and other long-term employee bene- fits: key actuarial assumptions. Measurement of fair values A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial as- sets and liabilities. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices in- cluded in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); • Level 3: inputs for the asset or liability that are not based on observable market data (unob- servable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in differ- ent levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. (i) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its in- volvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial state- ments from the date that control commences until the date on which control ceases. (ii) Loss of control On the loss of control, the Group derecogniz- es the assets and liabilities of the subsidiary, any non-controlling interests and the other com- ponents of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently that retained inter- est is accounted for as an equity-accounted in- vestee or as an available-for-sale financial asset depending on the level of influence retained. (iii) Non-controlling interests The Group measures any non-controlling inter- ests in the subsidiary at their proportionate share of the subsidiary’s identifiable net assets. Changes in the Group’s interest in a subsidiary 114 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) that do not result in a loss of control are ac- counted for as equity transactions. Adjustments to non-controlling interests are based on a pro- portionate amount of the net assets of the sub- sidiary. (iv) Investments in equity-accounted investees Equity-accounted investees (or associates) are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 percent and 50 percent of the voting power of another entity. Investments in associates are accounted for under the equity method and are recognized initially at cost. The cost of the investment in- cludes transaction costs. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of equity-accounted in- vestees, from the date that significant influence commences until the date that significant influ- ence ceases. (v) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from in- tra-group transactions, are eliminated in prepar- ing the consolidated financial statements. Unrealized gains arising transactions with equity-accounted investees are eliminat- ed against the investment to the extent of the Group’s interest in the investee. Unrealized loss- es are eliminated in the same way as unrealized gains, but only to the extent that there is no evi- dence of impairment. from (b) Revenue Revenue is recognized when it is probable that the economic benefits associated with the trans- action will flow to the Group, and the amount of the revenue can be measured reliably. Revenue is recognized at the fair value of the services rendered or goods delivered, net of VAT, excises or other taxes related to the sale. Supply and distribution of electricity The revenue from supply and distribution of electricity to consumers is recognized when electricity is delivered to consumers, based on meter readings and based on estimates for elec- tricity delivered and for which no reading was performed yet. The invoicing of electricity sales is performed on a monthly basis. Monthly elec- tricity invoices are based on meter readings or on estimated consumptions based on the his- torical data of each consumer. Electricity sup- plied to consumers which is not yet billed as at the reporting date is accrued on the basis of recent average consumption or based on sub- sequent meter readings. Differences between estimated and actual amounts are recorded in subsequent periods. The revenues from supply and distribution of electricity also includes the cost of green certif- icates recharged by the Group to final consum- ers (see paragraph (h)). Rendering of services Revenues related to services rendered are rec- ognised in the period in which the services were rendered based on statements of work per- formed, regardless of when paid or received, in accordance with the accrual basis. Sales of goods Revenue from sale of goods is recognized when the goods are delivered and significant risks and rewards of ownership of the goods have passed to the buyer. Service concession arrangement Revenue related to construction or upgrade ser- vices under service concession arrangement is recognised based on the stage of completion of the work performed, consistent with the ac- counting policy on recognising revenue on con- struction contracts, as follows: Contract revenue includes the initial amount agreed plus any variation in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. If the outcome of a construction contract can be estimated reliably, then contract revenue is recognised in profit or loss in proportion to the stage of completion of the contract. The stage of completion is assessed with reference to surveys of work performed. Otherwise, con- tract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. Contract expenses are recognized as incurred unless they create an asset related to future contract activity. An expected loss on a contract is recognised immediately in profit or loss. its (c) Commissions Group assesses revenue arrangements against specific criteria to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its reve- nue arrangements except for collection of radio 115 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) and TV taxes. If the Group acts in the capacity of an agent rather than as the principal in a trans- action, then the income recognised is the net amount of commission earned by the Group. (d) Finance income and finance costs The Group’s finance income and finance costs include: • interest income; • interest expense; • the foreign currency gain or loss on financial assets and financial liabilities; • impairment losses recognised on financial as- sets (other than trade receivables). Interest income or expense is recognised using the effective interest method. (e) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the func- tional currency at the exchange rate at the re- porting date, as communicated by the National Bank of Romania. Non-monetary assets and lia- bilities that are measured at fair value in a foreign currency are translated to the functional cur- rency at the exchange rate when the fair value was determined. Foreign currency differences are recognised in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated. (f) Employee benefits (i) Short-term employee benefits Short-term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recog- nised for the amount expected to be paid if the Group has a present legal or constructive ob- ligation to pay this amount as a result of past service provided by the employee and the obli- gation can be estimated reliably. (ii) Defined contribution plans Obligations for contributions to defined contri- bution plans are expensed as the related service is provided. Prepaid contributions are recog- nised as an asset to the extent that a cash refund or a reduction in future payments is available. (iii) Defined benefit plans The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. Re-measurements of the net defined benefit lia- bility, which comprise actuarial gains and losses, are recognised immediately in other compre- hensive income. The Group determines the net interest expense (income) on the net defined benefit liability for the period by applying the dis- count rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability, taking into account any changes in the net defined benefit liability during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. (iv) Other long-term employee benefits The Group’s net obligation in respect of long- term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its pres- ent value. Re-measurements are recognised in profit or loss in the period in which they arise. (v) Termination benefits Termination benefits are expensed at the earli- er of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted. (g) Income tax Income tax expense comprises current and de- ferred tax. It is recognised in profit or loss except to the extent that it relates to a business combi- nation or items recognised directly in equity or in other comprehensive income. (i) Current tax Current tax comprises the expected tax paya- ble or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substan- 116 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) tively enacted at the reporting date. Current tax also includes any tax arising from dividends. (ii) Deferred tax Deferred tax is recognised in respect of tempo- rary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: • temporary differences on the initial recogni- tion of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • temporary differences related to investments in subsidiaries, associates and joint arrange- ments to the extent that the Group is able to control the timing of the reversal of the tem- porary differences and it is probable that they will not reverse in the foreseeable future; and • taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, unused tax credits and deducti- ble temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. De- ferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the re- porting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if certain criteria are met. Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that the future taxable profits will be available against which they can be used. (h) Green certificates The cost of green certificates is accrued in the profit or loss based on the quantitative quota determined by the regulator representing the amount of the green certificates that the Group has to purchase for the year and based on the price of green certificates acquired on the cen- tralized market. Staring 2014, the Group imple- mented a procedure in order to allocate the green certificates acquired either for future re- charges to customers (see note 1 for the changes in the regulations regarding green certificates) or to cover the annual green certificates acquisition obligation. The green certificates acquired for future recharges to customers are recognised in the statement of financial position until the mo- ment their cost is recharged to final consumer. The obligation for covering the annual acquisi- tion quota is accrued in profit or loss and other non-financial liabilities. (i) Inventories Inventories consist mainly of consumables, goods for resale and other inventories. Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weight- ed average cost method. The cost of invento- ries includes all the acquisition costs and other expenses related to bringing the inventories to their current place and condition. Consumables used for the repairs and mainte- nance of the electricity network are included in profit and loss when consumed and presented in “Repairs, maintenance and materials”. (j) Property, plant and equipment (i) Recognition and measurement Property, plant and equipment are stated initially at cost, which includes purchase price and oth- er costs directly attributable to acquisition and bringing the asset to the location and condition necessary for their intended use. After initial recognition, land and buildings are measured at revalued amounts less any accu- mulated depreciation and any accumulated impairment losses since the most recent val- uation. The other items of property, plant and equipment are measures at cost less any accu- mulated depreciation and any accumulated im- pairment losses. Until December 31st 2003 the Group has restat- ed the cost of property, plant and equipment according to IAS 29 “Financial Reporting in Hy- perinflationary Economies”, with its effect being recognized in retained earnings. Revaluations of land and buildings are made with sufficient regularity to ensure that the carry- ing amount does not differ materially from that which would be determined using the fair value at the end of the reporting period. When a building is revalued, the accumulated depreciation is eliminated against the gross car- rying amount of that item, and the net amount is restated to the revalued amount of the asset. If significant parts of an item of property, plant 117 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment. Spare parts, stand-by and servicing equipment are classified as property, plant and equipment if they are expected to be used during more than one period or can be used only in connection with an item of property, plant and equipment. Any gain or loss on disposal of an item of prop- erty, plant and equipment is recognised in profit or loss. (ii) Subsequent expenditure Subsequent expenditure is capitalised only if it is probable that the future economic benefits asso- ciated with the expenditure will flow to the Group. (iii) Depreciation Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably cer- tain that the Group will obtain ownership by the end of the lease term. Land and construction in progress are not depreciated. The estimated useful lives of property, plant and equipment are as follows: Category Buildings Equipment Motor vehicles Office equipment Useful lives 60-70 (average 67 years) 4-12 (average 7 years) 4-10 (average 7 years) 5-10 (average 7 years) Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (k) Intangible asset in a service concession arrangement (i) Recognition and measurement The Group recognises an intangible asset arising from a service concession arrangement when it has a right to charge for use of the conces- sion infrastructure. An intangible asset received as consideration for providing construction or upgrade services in a service concession ar- rangement is measured at fair value on initial recognition with reference to the fair value of the services provided. Subsequent to initial rec- ognition, the intangible asset is measured at cost, less accumulated amortisation and accu- mulated impairment losses. (ii) Amortisation The amortization method used is selected on the basis of the expected pattern of consumption of the expected future economic benefits embod- ied in the asset, and is applied consistently from period to period, unless there is a change in the expected pattern of consumption of those future economic benefits. The Group determined that the amortisation method that reflects appropri- ately the expected pattern of consumption of the expected future economic benefits is correlated with the amortisation of the regulated asset base “RAB” (refer to Note 1). The remaining useful life of the intangible assets related to the concession arrangements is 11 years at December 31st 2015 (useful life 25 years). (l) Other intangible assets (i) Recognition and measurement Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. (ii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits em- bodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is rec- ognised in profit or loss as incurred. (iii) Amortisation Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recog- nised in profit or loss. 118 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) The estimated useful lives of software and licenses are 3-5 years. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (m) Assets held for distribution Non-current assets, or disposal groups com- prising assets and liabilities, are classified as held-for-distribution if it is highly probable that they will be recovered primarily through distri- bution rather than through continuing use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs of distribution. Impairment losses on initial classification as held-for-distribution and subsequent gains and losses on re-measure- ment are recognised in profit or loss. Once classified as held-for-distribution, equity-ac- counted investee is no longer equity accounted. (n) Financial instruments The Group classifies non-derivative financial as- sets into the following categories: loans and re- ceivables and held to maturity investments. The Group classifies non-derivative financial lia- bilities into the other financial liabilities category. (i) Non-derivative financial assets and financial liabilities – recognition and derecognition The Group initially recognises loans and receiv- ables on the date when they are originated. Financial liabilities are initially recognised on the trade date, which is the date the Group be- comes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to re- ceive the contractual cash flows in a transac- tion in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecog- nised financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability si- multaneously. (ii) Non-derivative financial assets – measurement Loans and receivables These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are meas- ured at amortised cost using the effective inter- est method. Loans and receivables comprise trade receiva- bles, cash and cash equivalents and deposits, treasury bills and government bond. Trade receivables Trade receivables include mainly unsettled in- voices issued until reporting date for supply and distribution of electricity and services, late pay- ment penalties and accrued revenue for electric- ity delivered and services rendered until the end of the year, but invoiced after the end of the year. Cash and cash equivalents Cash and cash equivalents comprise cash bal- ances and call deposits and deposits with ma- turities of three months or less from the acquisi- tion date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Held-to-maturity investments Held-to-maturity financial assets are initially rec- ognized at fair value plus any directly attributa- ble transaction costs. Subsequent to initial rec- ognition, they are measured at amortized cost using the effective interest method. (iii) Non-derivative financial liabilities – measurement Non-derivative financial liabilities are initially rec- ognised at fair value less any directly attributable transaction costs. Subsequent to initial recogni- tion, these liabilities are measured at amortised cost using the effective interest method. Other financial liabilities include bank borrow- ings, bank overdrafts, Financing for network construction related to concession agreements and trade payables. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents in the statement of cash flows. 119 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) (iv) Share capital Ordinary shares Ordinary shares are classified as equity. Incre- mental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recog- nised as a deduction from equity. Repurchase and reissue of ordinary shares (treasury shares) When shares recognised as equity are repur- chased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treas- ury share reserve. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented within share premium. (o) Impairment (i) Non-derivative financial assets Financial assets are assessed at each reporting date to determine whether there is objective ev- idence of impairment. Objective evidence that financial assets are im- paired includes: • default or delinquency by a debtor; • restructuring of an amount due to the Group on terms that the Group would not consider otherwise; • indications that a debtor or issuer will enter bankruptcy; • adverse changes in the payment status of bor - rowers or issuers; • the disappearance of an active market for a se- curity; or • observable data indicating that there is meas- urable decrease in expected cash flows from a group of financial assets. Financial assets measured at amortised cost The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant as- sets are individually assessed for impairment. Those found not to be impaired are then col- lectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group uses historical information on the timing of re- coveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends. An impairment loss is calculated as the differ- ence between an asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and are reflected in an allowance account. For household customers the receivables are written off when the Group considers that there are no realistic prospects of recovery of the as- set. For customers other than households, the amounts are written off after the legal proceed- ings regarding the bankruptcy or liquidation of the customer are completed. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss. (ii) Non-financial assets At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For impairment testing, assets are grouped to- gether into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units (“CGUs”). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the as- set or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recover- able amount. Impairment losses are recognised in profit or loss, except for the property, plant and equip- ment measured at the revalued amount, in which case the impairment loss is recognised in other comprehensive income and decreases the revaluation reserve within equity to the ex- tent that it reverses a previous revaluation sur- plus related to the same asset. An impairment loss is reversed only to the ex- 120 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) tent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or am- ortisation, if no impairment loss had been rec- ognised. A reversal of an impairment loss other than on revalued assets is recognised in profit or loss. A reversal of an impairment loss on a revalued as- set is recognised in profit or loss to the extent that it reverses an impairment loss on the same asset that was previously recognised as an ex- pense in profit or loss. Any additional increase in the carrying amount of the asset is treated as a revaluation increase. (p) Revaluation reserve The difference between the revalued amount and the net carrying amount of property, plant and equipment is recognised as revaluation re- serve included in equity. If an asset’s carrying amount is increased as a result of a revaluation, the increase is recognised and accumulated in equity under the heading of revaluation reserve. However, the increase is recognised in profit and loss to the extent that it reverses a revaluation decrease of the same amount of the asset previously recognised in profit and loss. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recog- nised in profit or loss. However, the decrease is recognized in equity in revaluation reserves if there is any credit balance existing in the revalu- ation reserve in respect of that asset. The revaluation reserve is transferred to retained earnings in an amount corresponding to the use of the asset (as the asset is depreciated) and upon disposal of the asset. (q) Dividends Dividends are recognized as a deduction from equity in the period in which their distribution is approved and recognised as a liability to the ex- tent it is unpaid at the reporting date. Dividends are disclosed in the notes to financial statements when their distribution is proposed after the re- porting date and before the date of the issuance of the financial statements. (r) Pre-paid capital contributions in kind from shareholders These contributions from a shareholder (the Ro- manian State) represent pre-paid contributions of land for which the Company obtained title deeds in respect of future issuance of shares. The amounts recorded are based on the fair val- ue of the land. (s) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwind- ing of the discount is recognised as finance cost. A provision for restructuring is recognised when the Group has approved a detailed and formal re- structuring plan, and the restructuring either has commenced or has been announced publicly. Future operating losses are not provided for. (t) Leases (i) Determining whether an arrangement con- tains a lease At inception of an arrangement, the Group de- termines whether the arrangement is or con- tains a lease. At inception or on reassessment of an arrange- ment that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes that, for a finance lease, it is impracticable to separate the payments reliably, then an asset and a liabili- ty are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recog- nised using the Group’s incremental borrowing rate. (ii) Leased assets Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets and fi- nance lease liability are measured initial- ly at an amount equal to the lower of their fair value and the present value of the min- imum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy appli- cable to that asset. Assets held under other leases are classified as operating leases and are not recognised in the Group’s consolidated statement of financial position. 121 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) (iii) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incen- tives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance ex- pense and the reduction of the outstanding lia- bility. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remain- ing balance of the liability. (iv) Rental income Rental income from property other than invest- ment property is recognised as other income. Rental income is recognised on a straight-line basis over the term of the lease. (u) Segment reporting Segment results that are reported to the Com- pany’s Board of Directors (the chief operating decision maker) include items directly attribut- able to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly deferred taxes. (v) Subsequent events Events occurring after the reporting date De- cember 31st 2015, which provide additional in- formation about conditions prevailing at those reporting dates (adjusting events ) are reflected in the consolidated financial statements. Events occurring after the reporting date that provide information on events that occurred after the reporting dates (non-adjusting events), when material, are disclosed in the notes to the con- solidated financial statements. When the going concern assumption is no longer appropriate at or after the reporting period, the financial statements are not prepared on a going con- cern basis. 7 Changes in accounting policies and changes in classification and presentation Except for the change below, the Group has consistently applied the accounting policies set out in Note 6 to all periods presented in these consolidated financial statements: Application of IFRIC 21 Levies (effective for annual periods beginning on or after 17 June 2014 under IFRS-EU) The Group has adopted IFRIC 21 with the date of initial application of January 1st 2015. As a re- sult of the adoption of IFRIC 21, the Group has reassessed the timing of when to accrue tax on special constructions imposed by legislation. The interpretation clarifies that an entity recog- nizes a liability for a levy no earlier than when the activity that triggers payment, as identified by the relevant legislation, occurs. It also clari- fies that a levy liability is accrued progressively only if the activity that triggers payment occurs over a period of time, in accordance with the relevant legislation. For a levy that is triggered upon reaching a minimum threshold, no lia- bility is recognized before the specified mini- mum threshold is reached. The interpretation requires the same principles to be applied in interim financial information. According to the tax law, the tax on special constructions is due based on the existence and value of the special constructions in the accounts of the tax payer at December 31st. The tax is payable in the subsequent year and the amount of the tax is not adjusted in the following year if the constructions are held for less than one year. The Group previously accrued for tax on spe- cial constructions over the current tax year. In accordance with IFRIC 21, the Group has deter- mined that the liability to pay the tax on special constructions should be recognised in full on December 31st of the prior year, when the obli- gating event as stated in the legislation occurs. IFRIC 21 was applied retrospectively. 122 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Consolidated statement of financial position January 1st 2014 Other payables (current) Deferred tax liabilities Others Total liabilities Retained earnings Non-controlling interests Others Total equity December 31st 2014 Other payables (current) Deferred tax liabilities Others Total liabilities Retained earnings Non-controlling interests Others Total equity Impact of changes in accounting policy As previously reported Adjustment for IFRIC 21 As restated (307,487) (201,208) (1,468,677) (1,977,372) (1,936,547) (764,270) (3,744,801) (6,445,618) (47,535) 7,605 - (39,930) 31,145 8,785 - 39,930 (355,022) (193,603) (1,468,677) (2,017,302) (1,905,402) (755,485) (3,744,801) (6,405,688) Impact of changes in accounting policy As previously reported Adjustment for IFRIC 21 As restated (276,961) (189,168) (1,364,400) (1,830,529) (1,268,811) (810,520) (4,237,807) (6,317,138) (33,845) 5,415 - (28,430) 22,176 6,254 - 28,430 (310,806) (183,753) (1,364,400) (1,858,959) (1,246,635) (804,266) (4,237,807) (6,288,708) Consolidated statement of profit and loss and other comprehensive income For the year ended December 31st 2014 As previously reported Adjustment for IFRIC 21 Change in presentation As restated Impact of changes in accounting policy Other operating expenses Change in provisions, net Income tax expense Others Profit for the year Total comprehensive income (474,878) - (108,791) 985,074 401,405 398,170 13,691 - (2,191) - 11,500 11,500 413 (413) - - - - (460,774) (413) (110,982) 985,074 412,905 409,670 There is no material impact on the Group’s basic or diluted earnings per share for the year ended December 31st 2014. 123 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 8 New standards and interpretations not yet adopted A number of amendments to standards were adopted by the EU but are not yet mandatori- ly effective for the year ending December 31st 2015 and have not been applied in preparing these consolidated financial statements: • Amendments to IAS 1 (Disclosure Initiative); • Amendments to IAS 16 and IAS 38 (Clarifica- tion of Acceptable Methods of Depreciation and Amortisation); Cycle; Cycle. • Amendments to IAS 27 (Equity Method in Sep- arate Financial Statements); • Amendments to IFRS 11 (Accounting for Acqui- sitions of Interests in Joint Operations); • Annual improvements to IFRSs 2012 – 2014 • Annual improvements to IFRSs 2010 – 2012 • Amendments to IAS 16 and IAS 41 (Bearer plants); • Amendments to IAS 19 (Defined Benefit Plans, Employee Contributions); None of these amendments is expected to have a significant impact on the Group’s consolidated financial statements. 9 Operating segments (a) Basis for segmentation The following summary describes the operations of each reportable segment. Reportable segments Operations Electricity supply Buying and supplying electricity to final consumers (includes Electrica Furnizare SA and the supply activity of Electrica SA) Electricity distribution Electricity distribution service (includes Electrica Distributie Muntenia Nord SA, Electrica Distributie Transilvania Nord SA, Electrica Distributie Transilvania Sud SA, Electrica Serv SA and the investments in distribution activity done by Electrica SA) External electricity network maintenance Repairs, maintenance and other services for electricity networks owned by other distributors (includes Servicii Energetice Moldova SA, Servicii Energetice Oltenia SA and Servicii Energetice Muntenia SA). For the year ended December 31st 2014 the segment included also the operations of Servicii Energetice Banat and Servicii Energetice Dobrogea, which were deconsolidated starting with November 2014 and January 2015, as a result of loss of control. Headquarter Includes corporate services at parent level The Board of Directors of the Company reviews management reports of each segment. Seg- ment earnings before interest, tax, depreciation and amortisation (EBITDA) is used to measure performance because management believes that such information is the most relevant in evaluating the results of the segments. 124 ANNUAL REPORT 2015 ELECTRICA SA, 5 9 7 2 0 5 5 , - , 5 9 7 2 0 5 5 , - ) , 3 7 6 7 3 6 , 1 ( , 3 7 6 7 3 6 , 1 , 5 9 7 2 0 5 5 , , ) 3 7 6 7 3 6 , 1 ( , 8 6 4 0 4 1 , 7 - - - d e t a d i l o s n o C s n o i t a n m i i l e n o i t a d i l o s n o C l a t o t d n a s t n e m t s u d a j r o f l a t o T e l b a t r o p e r s t n e m g e s r e t r a u q d a e H y t i c i r t c e l e l a n r e t x E k r o w t e n e c n a n e t n i a m y t i c i r t c e l E n o i t u b i r t s i d y t i c i r t c e l E y l p p u s 5 1 9 4 2 , , 6 5 3 3 0 1 , 1 , 4 2 5 4 7 3 4 , 0 9 5 4 1 , 4 4 1 , 9 0 5 , 1 9 3 9 3 1 1 , e u n e v e r t n e m g e s - r e t n I 5 0 5 9 3 , , 0 0 5 2 1 6 2 , , 3 6 4 8 8 4 4 , e u n e v e r t n e m g e S s t n e m g e s e l b a t r o p e r t u o b a n o i t a m r o f n I ) b ( 5 1 0 2 t s 1 3 r e b m e c e D d e d n e r a e Y s e u n e v e r l a n r e t x E NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 3 2 1 , 9 8 5 ) 7 4 1 , 6 0 3 ( , 0 7 2 5 9 8 4 9 3 7 9 2 , ) 5 9 4 6 2 ( , , 2 0 2 4 6 4 9 6 1 , 0 6 1 x a t e r o f e b ) s s o l ( t fi o r p t n e m g e S 3 8 4 0 2 , ) 8 4 6 4 4 3 , ( 1 3 1 , 5 6 3 , 7 3 7 2 7 3 6 1 ) 1 8 3 0 1 ( , 9 5 7 2 , e m o c n i / ) t s o c ( e c n a n fi t e N ) 1 8 1 , 3 5 3 ( - ) 1 8 1 , 3 5 3 ( ) 5 7 4 4 , ( ) 5 9 6 6 , ( ) , 4 7 5 4 3 3 ( ) 7 3 4 7 ( , t e n , t n e m r i a p m i d n a n o i t a z i t r o m a , i n o i t a c e r p e D 1 2 8 , 1 2 9 1 0 5 8 3 , , 0 2 3 3 8 8 ) 8 6 8 0 7 ( , ) 6 1 8 9 1 ( , 7 5 1 , 9 0 8 7 4 8 4 6 1 , * * A D T I B E 0 6 1 , 2 8 4 ) 7 4 1 , 6 0 3 ( , 7 0 3 8 8 7 4 9 3 7 9 2 , ) 1 7 0 2 2 , ( 4 1 1 , 7 7 3 0 7 8 5 3 1 , ) s s o l ( t fi o r p t e n t n e m g e S , ) 3 6 9 2 6 6 ( - , ) 3 6 9 2 6 6 ( ) 7 3 6 6 1 ( , ) 4 8 9 7 2 , ( ) , 3 4 4 5 3 5 ( ) 9 9 8 2 8 , ( s t fi e n e b e e y o p m E l 5 8 2 , 1 9 3 8 , , ) 3 4 2 4 6 3 ( , 8 2 5 5 5 7 8 , , 2 1 3 4 4 2 2 , , 7 4 7 3 9 1 , 1 8 8 7 3 1 , 5 , 8 8 5 9 7 1 , 1 6 8 5 4 7 8 , ) 8 5 5 , 1 8 4 ( 4 4 1 , 6 5 3 , 1 - 4 8 0 5 2 , 1 3 5 , 1 1 6 9 2 5 9 1 7 , l s e b a v e c e r i s t e s s a t n e m g e S r e h t o d n a e d a r T 2 9 4 3 9 8 , , 1 8 8 7 8 9 , 1 - - 2 9 4 3 9 8 , 5 6 0 3 8 2 , 3 5 2 4 , , 2 6 2 8 6 2 2 1 9 7 3 3 , i l s t n e a v u q e h s a c d n a h s a C , 1 8 8 7 8 9 , 1 , 5 9 3 0 0 9 , 1 - 6 8 4 7 8 , - s d n o b t n e m n r e v o g d n a s l l i b y r u s a e r t , s t i s o p e D 2 1 2 , 1 7 0 , 1 ) , 2 1 3 3 6 4 ( , 4 2 5 4 3 5 , 1 2 9 6 9 , , 9 1 0 0 6 2 5 9 2 7 7 4 , 8 1 5 7 8 7 , s t fi e n e b e e y o p m e m r e t l t r o h s d n a l , s e b a y a p r e h t o d n a e d a r T 3 6 9 5 6 , 2 6 4 , 1 8 2 1 7 1 , 5 5 5 - - - 3 6 9 5 6 , 2 6 4 , 1 8 2 1 7 1 , 5 5 5 - - - - - - 3 6 9 5 6 , 2 6 4 , 1 8 2 - - 4 8 9 5 3 5 , 7 8 1 , 9 1 s t n e m e e r g a n o i s s e c n o c o t d e t a e r n o i t c u r t s n o c l s t f a r d r e v o k n a B k r o w t e n r o i f g n c n a n F i i s g n w o r r o b k n a b d n a e r u t i d n e p x e l a t i p a C 125 ANNUAL REPORT 2015 ELECTRICA SA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 4 4 1 , 9 0 5 , 1 ) 1 9 4 2 5 3 , ( , 1 6 6 2 6 3 , 1 0 3 0 9 4 , 6 7 7 5 7 4 7 9 8 2 3 5 , , 6 5 3 3 0 1 , 1 - 8 3 8 2 3 , , 1 4 9 9 4 3 3 1 8 , 1 8 3 , 4 6 7 8 3 3 l a t o T y t i c i r t c e l E n o i t u b i r t s i d s n o i t a n m i i l E y t i c i r t c e l E k r o w t e n e c n a n e t n a m i n o i t u b i r t s i D i a n a v l i s n a r T d u S n o i t u b i r t s i D a i n a v l i s n a r T d r o N n o i t u b i r t s i D d r o N a i n e t n u M , 0 0 5 2 1 6 2 , ) 1 9 4 2 5 3 ( , 9 9 4 5 9 3 , , 2 4 2 0 4 8 9 8 5 7 5 8 , 1 6 6 , 1 7 8 5 1 0 2 t s 1 3 r e b m e c e D d e d n e r a e Y e u n e v e r t n e m g e s - r e t n I e u n e v e r t n e m g e S s e u n e v e r l a n r e t x E , 2 0 2 4 6 4 ) 1 8 3 0 1 ( , ) , 4 7 5 4 3 3 ( 7 5 1 , 9 0 8 4 1 1 , 7 7 3 ) 3 4 4 5 3 5 ( , - - - - - - ) 0 8 1 , 3 2 ( 7 0 4 8 5 1 , 9 8 0 0 6 1 , 6 8 8 8 6 1 , x a t e r o f e b ) s s o l ( / t fi o r p t n e m g e S ) 7 2 5 2 , ( ) 8 8 3 2 , ( ) 8 5 5 3 , ( ) 8 0 9 , 1 ( e m o c n i / ) t s o c ( e c n a n fi t e N ) 4 9 1 , 5 1 ( ) , 2 8 4 5 1 1 ( ) 3 0 0 2 1 1 ( , ) 5 9 8 , 1 9 ( t e n , t n e m r i a p m i d n a n o i t a z i t r o m a , i n o i t a c e r p e D ) 9 5 4 5 ( , , 7 7 2 6 7 2 0 5 6 5 7 2 , 9 8 6 2 6 2 , ) 2 4 3 6 2 , ( 9 8 1 , 2 3 1 , 1 2 6 6 3 1 6 4 6 4 3 1 , * * A D T I B E t fi o r p t e N ) , 6 6 5 4 6 1 ( ) 0 0 7 7 1 1 ( , ) , 0 3 0 2 2 1 ( ) 7 4 1 , 1 3 1 ( s t fi e n e b e e y o p m E l , 1 8 8 7 3 1 , 5 ) 6 8 1 , 3 1 1 ( 6 4 1 , 7 3 5 , 7 8 8 6 2 5 , 1 , 2 9 5 0 4 4 , 1 , 2 4 4 6 4 7 , 1 1 3 5 , 1 1 6 ) 6 8 1 , 3 1 1 ( 0 4 3 7 4 2 , 3 9 5 3 5 1 , , 8 1 2 0 4 1 6 6 5 3 8 1 , l s e b a v e c e r i s t e s s a t n e m g e S r e h t o d n a e d a r T , 2 6 2 8 6 2 6 8 4 7 8 , - - 4 9 5 , 1 2 2 3 1 , 4 0 1 1 5 5 8 1 , 5 8 9 3 2 1 , i l s t n e a v u q e h s a c d n a h s a C - - - 6 8 4 7 8 , s d n o b t n e m n r e v o g d n a s l l i b y r u s a e r t , s t i s o p e D 5 9 2 7 7 4 , ) 6 8 1 , 3 1 1 ( 6 0 8 5 1 1 , 0 5 0 4 7 1 , 2 4 7 5 6 1 , 3 8 8 4 3 1 , s t fi e n e b e e y o p m e m r e t l t r o h s d n a l , s e b a y a p r e h t o d n a e d a r T 3 6 9 5 6 , 2 6 4 , 1 8 2 4 8 9 5 3 5 , - - - 0 0 0 0 1 , 7 2 1 , 3 4 6 3 8 2 1 , - s t f a r d r e v o k n a B 3 3 3 3 , 4 0 2 7 5 1 , 2 0 1 , 3 2 2 5 4 3 2 5 1 , 0 0 9 9 , 4 4 8 0 1 1 , 8 3 0 0 7 , 0 8 6 0 9 , d n a s t n e m e e r g a n o i s s e c n o c o t d e t a e r n o i t c u r t s n o c l k r o w t e n r o i f g n c n a n F i e r u t i d n e p x e l a t i p a C i s g n w o r r o b k n a b : s w o l l o f s a s i t n e m g e s l e b a t r o p e r n o i t u b i r t s d y t i c i r t c e E e h t l i f o n w o d k a e r b e h T 126 ANNUAL REPORT 2015 ELECTRICA SA d e t a d i l o s n o C s n o i t a n m i i l e n o i t a d i l o s n o C l a t o t d n a s t n e m t s u d a j r o f l a t o T e l b a t r o p e r s t n e m g e s r e t r a u q d a e H y t i c i r t c e l e l a n r e t x E k r o w t e n e c n a n e t n i a m y t i c i r t c e l E n o i t u b i r t s i d y t i c i r t c e l E y l p p u s 4 0 6 8 5 , , 0 7 4 5 5 9 , 4 5 6 9 2 0 4 , 4 1 0 2 t s 1 3 r e b m e c e D d e d n e r a e Y s e u n e v e r l a n r e t x E , 8 2 7 3 4 0 5 , - , 8 2 7 3 4 0 5 , - ) , 0 9 8 2 2 6 , 1 ( , 0 9 8 2 2 6 , 1 , 8 2 7 3 4 0 5 , ) , 0 9 8 2 2 6 , 1 ( , 8 1 6 6 6 6 6 , - - - - , 2 5 4 9 1 5 , 1 8 3 4 3 0 1 , e u n e v e r t n e m g e s - r e t n I 4 0 6 8 5 , , 2 2 9 4 7 4 2 , , 2 9 0 3 3 1 , 4 e u n e v e r t n e m g e S NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 7 8 8 3 2 5 , , ) 3 8 0 6 0 2 ( 0 7 9 9 2 7 , 5 9 1 , 1 5 2 ) 5 8 1 , 4 3 1 ( 9 2 4 3 8 3 , , 1 3 5 9 2 2 * d e t a t s e r – x a t e r o f e b ) s s o l ( t fi o r p t n e m g e S 5 5 2 3 1 , ) , 2 3 4 8 3 2 ( 7 8 6 , 1 5 2 6 9 0 5 5 2 , 9 3 ) 1 0 0 7 ( , 3 5 5 3 , e m o c n i / ) t s o c ( e c n a n fi t e N , ) 2 1 5 8 5 3 ( - , ) 2 1 5 8 5 3 ( ) 2 9 2 4 , ( ) 3 1 1 , 6 3 ( ) 1 0 4 , 1 1 3 ( ) 6 0 7 6 , ( t e n , t n e m r i a p m i d n a n o i t a z i t r o m a , i n o i t a c e r p e D 4 4 1 , 9 6 8 9 4 3 2 3 , , 5 9 7 6 3 8 1 9 3 ) 1 1 1 , 8 9 ( 1 3 8 , 1 0 7 4 8 6 2 3 2 , 5 0 9 2 1 4 , ) , 3 8 0 6 0 2 ( 8 8 9 8 1 6 , 5 9 1 , 1 5 2 , ) 1 1 2 9 2 1 ( 2 2 2 7 1 3 , 2 8 7 9 7 1 , ) 6 0 6 8 3 7 ( , - ) 6 0 6 8 3 7 ( , ) 9 7 7 7 1 ( , ) 2 7 4 2 9 , ( ) 2 7 1 , 5 4 5 ( ) 3 8 1 , 3 8 ( * d e t a t s e r - * * A D T I B E * d e t a t s e r - t fi o r p t e N s t fi e n e b e e y o p m E l , 7 6 6 7 4 1 , 8 ) 6 3 9 3 4 5 ( , 3 0 6 , 1 9 6 8 , , 3 9 5 2 0 2 2 , 0 0 1 , 2 2 2 , 8 8 3 0 8 9 4 , , 2 2 5 6 8 2 , 1 , 2 3 4 5 0 8 ) , 2 5 4 4 0 6 ( , 4 8 8 9 0 4 , 1 - 1 4 8 3 2 , 5 0 1 , 1 6 6 8 3 9 4 2 7 , l s e b a v e c e r i s t e s s a t n e m g e S r e h t o d n a e d a r T , 8 0 5 9 2 6 , 1 , 1 2 5 0 2 2 , 1 - - , 8 0 5 9 2 6 , 1 , 1 2 3 5 7 0 , 1 0 2 2 6 , , 1 8 4 4 4 1 , 6 8 4 3 0 4 i l s t n e a v u q e h s a c d n a h s a C , 1 2 5 0 2 2 , 1 , 1 2 4 8 3 0 , 1 - 0 0 1 , 2 8 1 - s d n o b t n e m n r e v o g d n a s l l i b y r u s a e r t , s t i s o p e D 7 6 1 , 3 5 0 , 1 ) , 4 1 0 5 9 4 ( 1 8 1 , 8 4 5 , 1 4 7 2 7 , , 1 7 7 9 0 3 , 6 9 9 4 0 4 0 4 1 , 6 2 8 * d e t a t s e r – s t fi e n e b e e y o p m e m r e t l t r o h s d n a l , s e b a y a p r e h t o d n a e d a r T 2 3 1 , 8 4 4 4 8 0 5 2 , - - 2 3 1 , 8 4 4 4 8 0 5 2 , 1 8 8 9 1 5 , ) 3 1 0 4 , ( 4 9 8 3 2 5 , - - - - - - 2 3 1 , 8 4 4 4 8 0 5 2 , - - , 1 2 8 8 0 5 3 7 0 5 1 , s t n e m e e r g a n o i s s e c n o c o t d e t a e r n o i t c u r t s n o c l s t f a r d r e v o k n a B k r o w t e n r o i f g n c n a n F i e s a e l e c n a n fi d n a e r u t i d n e p x e l a t i p a C ) 7 e t o N e e S * ( 127 ANNUAL REPORT 2015 ELECTRICA SA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) , 2 2 9 4 7 4 2 , ) 9 6 9 2 6 3 ( , , 7 1 9 4 9 3 3 2 8 5 1 8 , 9 6 6 0 5 7 , 2 8 4 6 7 8 , , 2 5 4 9 1 5 , 1 ) 9 6 9 2 6 3 , ( 9 2 9 2 7 3 , 0 9 0 , 1 9 4 0 8 4 9 6 4 , , 2 2 9 8 4 5 0 7 4 5 5 9 , - 8 8 9 , 1 2 , 3 3 7 4 2 3 9 8 1 , 1 8 2 0 6 5 7 2 3 , l a t o T y t i c i r t c e l E n o i t u b i r t s i d s n o i t a n m i i l E y t i c i r t c e l E k r o w t e n e c n a n e t n a m i n o i t u b i r t s i D i a n a v l i s n a r T d u S n o i t u b i r t s i D a i n a v l i s n a r T d r o N n o i t u b i r t s i D a i n e t n u M d r o N : s w o l l o f s a s i t n e m g e s l e b a t r o p e r n o i t u b i r t s d y t i c i r t c e E e h t l i f o n w o d k a e r b e h T 128 4 1 0 2 t s 1 3 r e b m e c e D d e d n e r a e Y e u n e v e r t n e m g e s - r e t n I e u n e v e r t n e m g e S s e u n e v e r l a n r e t x E 9 2 4 3 8 3 , ) 1 0 0 7 ( , ) 1 0 4 , 1 1 3 ( 1 3 8 , 1 0 7 2 2 2 7 1 3 , ) 2 7 1 , 5 4 5 ( - - - - - - 7 8 1 , 4 2 1 9 6 9 , 3 5 0 6 2 1 , , 7 7 2 6 5 1 * d e t a t s e r – x a t e r o f e b ) s s o l ( t fi o r p t n e m g e S ) 2 6 0 2 , ( ) 9 9 8 5 ( , ) 0 1 0 4 , ( 0 7 9 4 , e m o c n i / ) t s o c ( e c n a n fi t e N ) 8 4 6 3 1 ( , ) , 3 3 4 3 1 1 ( ) 9 1 3 9 9 , ( ) 1 0 0 5 8 , ( t e n , t n e m r i a p m i d n a n o i t a z i t r o m a , i n o i t a c e r p e D 7 9 8 9 1 , 4 4 2 6 1 2 , 2 8 3 9 2 2 , 8 0 3 6 3 2 , 9 5 5 4 , 2 5 1 , 4 7 7 1 8 7 0 1 , 4 9 6 0 3 1 , ) 7 8 8 3 7 1 ( , , ) 1 1 5 6 1 1 ( ) , 4 8 9 0 2 1 ( ) , 0 9 7 3 3 1 ( * d e t a t s e r - * * A D T I B E * d e t a t s e r – t fi o r p t e N s t fi e n e b e e y o p m E l 5 0 1 , 1 6 6 ) 4 0 6 2 9 , ( 9 2 2 5 8 2 , 5 8 7 9 5 1 , 6 2 5 7 3 1 , 9 6 1 , 1 7 1 , 8 8 3 0 8 9 4 , ) 4 0 6 2 9 ( , , 1 7 8 3 8 5 , 9 3 7 2 2 4 , 1 , 9 7 8 6 2 3 , 1 , 3 0 5 9 3 7 , 1 l s e b a v e c e r i s t e s s a t n e m g e S r e h t o d n a e d a r T 1 8 4 4 4 1 , 0 0 1 , 2 8 1 - - 8 2 8 6 1 , 4 4 7 5 1 , 0 7 3 7 1 , 9 3 5 4 9 , i l s t n e a v u q e h s a c d n a h s a C - - - 0 0 1 , 2 8 1 s d n o b t n e m n r e v o g d n a s l l i b y r u s a e r t , s t i s o p e D , 6 9 9 4 0 4 ) 4 3 7 2 9 , ( 5 3 2 4 1 1 , , 1 5 8 0 3 1 3 6 5 0 3 1 , 1 8 0 2 2 1 , * d e t a t s e r – s t fi e n e b e e y o p m e m r e t l t r o h s d n a l , s e b a y a p r e h t o d n a e d a r T 2 3 1 , 8 4 4 4 8 0 5 2 , , 1 2 8 8 0 5 - - - - 4 9 2 2 2 9 2 2 , 1 6 5 , 1 6 1 9 6 8 8 5 1 , 9 6 4 5 6 1 , 1 2 7 , 1 1 1 8 3 5 0 3 , , 1 9 2 8 0 1 d n a s t n e m e e r g a n o i s s e c n o c o t d e t a e r n o i t c u r t s n o c l 4 8 1 , 9 8 4 9 8 3 , - s t f a r d r e v o k n a B k r o w t e n r o i f g n c n a n F i e r u t i d n e p x e l a t i p a C e s a e l e c n a n fi ) 7 e t o N e e S * ( y l t n a c fi n g i s i i r e ff d y a m i s e n a p m o c l l I r e h t o y b A D T B E e t a u c a c o t d e s u d o h t e m e h T . d e n fi e d y m r o l f i n u t o n s i A D T B E I , r e v o e r o M . s e r u s a e m S R F I o t e v i t a n r e t l a n a s a d e t a e r t l e b t o n d u o h s d n a e r u s a e m S R F I n a t o n s i A D T B E I . ) s t n e m e t a t s e m o c n i e h t n i l d e s o c s i d s a ( t n e m g e s g n i t a r e p o e h t n i s e e t s e v n i d e t n u o c c a - y t i u q e f o ) s s o l ( t fi o r p f o e r a h s ) i i i , t n e m g e s g n i t a r e p o e h t n i e m o c n i i . s e n a p m o c r e h t o f I o A D T B E o t n o s i r a p m o c f o e s o p r u p e h t r o f n o p u d e i l e r e b , h c u s s a , t o n n a c e t o n s i h t n i d e t n e s e r p A D T B E e h t I , e c n e u q e s n o c a s A . p u o r G e h t y b d e s u t a h t m o r f t n e m g e s g n i t a r e p o n e v g a i f o x a t e r o f e b ) s s o l ( t fi o r p t n e m g e s l l s a d e t a u c a c d n a d e n fi e d s i s t n e m g e s g n i t a r e p o r o f ) n o i t a s i t r o m a d n a n o i t a c e r p e d i , x a t , t s e r e t n i e r o f e b s g n n r a E i ( I A D T B E * * / ) t s o c ( e c n a n fi t e n ) i i , t n e m g e s g n i t a r e p o e h t n i s t e s s a i l e b g n a t n i d n a i t n e m p u q e d n a t n a p l , y t r e p o r p f o t n e m r i a p m i f o l a s r e v e r / t n e m r i a p m i d n a n o i t a z i t r o m a , i n o i t a c e r p e d ) i r o f d e t s u d a j ANNUAL REPORT 2015 ELECTRICA SA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) (c) Reconciliation of information on reportable segments to IFRS measures December 31st 2015 December 31st 2014 restated* Total assets Total assets for reportable segments Elimination of inter-segment assets Unallocated amounts Consolidated total assets Trade and other receivables Trade and other receivables for reportable segments Elimination of inter-segment trade and other receivables Unallocated amounts Consolidated trade and other receivables Trade and other payables and short term employee benefits Trade and other payables and short term employee benefits for reportable segments Elimination of inter-segment trade and other payables and short term employee benefits Unallocated amounts Consolidated trade and other payables and short term employee benefits Profit before tax Total profit before tax for reportable segments Elimination of inter-segment profit Unallocated amounts (Gain on loss of control over subsidiaries) Consolidated profit before tax Net profit Total net profit for reportable segments Elimination of inter-segment profit Unallocated amounts (Gain on loss of control over subsidiaries) Consolidated net profit 10 Revenue Supply and distribution of electricity 8,755,528 (413,016) 48,773 8,391,285 1,356,144 (479,734) (1,824) 874,586 8,691,603 (601,805) 57,869 8,147,667 1,409,884 (602,696) (1,756) 805,432 1,534,524 1,548,181 (461,488) (493,258) (1,824) (1,756) 1,071,212 1,053,167 895,270 (344,648) 38,501 589,123 788,307 (344,648) 38,501 482,160 729,970 (238,432) 32,349 523,887 618,988 (238,432) 32,349 412,905 2015 4,915,539 2014 4,492,096 Construction revenue related to concession agreements (Note 23) 502,641 449,742 Repairs and maintenance and other services rendered Re-connection fees Sales of merchandise Total 61,082 9,083 14,450 68,138 8,961 24,791 5,502,795 5,043,728 129 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 11 Income and expenses (a) Other income Rent income Late payment penalties from customers Commissions for the collection of radio and TV taxes (Note 29) Gain on loss of control over subsidiaries (Note 33) Other Total (b) Other operating expenses Rent Meter readings Printing and distribution of invoices Cash collection services IT services Postage and telecommunication Utilities Security Call centre Penalties to the State for late payment of taxes Contractual penalties Other taxes and duties Legal and consultancy fees Cost of merchandise sold Bank commissions Other Total (*See Note 7) 12 Net finance income Interest income Other finance income Total finance income Interest expense Interest cost for employee benefits (Note 15) Foreign exchange losses Other finance costs Total finance costs Net finance income 130 2015 83,586 54,900 13,956 38,501 20,218 211,161 2014 77,802 38,681 13,889 32,349 13,788 176,509 2015 2014 restated* 60,866 37,172 31,407 25,951 44,181 18,280 28,541 8,767 7,512 3,177 - 91,774 8,093 10,830 3,309 75,459 59,429 38,123 32,777 24,282 49,988 27,527 29,242 7,613 7,405 8,162 368 74,816 5,161 23,980 9,979 61,922 455,319 460,774 2015 34,513 3,338 37,851 (8,166) (8,050) (857) (295) (17,368) 20,483 2014 32,806 3,598 36,404 (11,250) (9,576) (1,797) (526) (23,149) 13,255 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 13 Earnings per share The calculation of basic and diluted earnings per share has been based on the following profit attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding: Profit attributable to ordinary shareholders Profit for the year attributable to the owners of the Company Profit attributable to ordinary shareholders (*See Note 7) 2015 362,675 362,675 2014 restated* 296,806 296,806 Weighted-average number of ordinary shares (in number of shares) 2015 2014 Issued ordinary shares at January 1st (Note 25)* 339,049,336 207,839,904 Effect of shares issued in February Effect of spin-off in April Effect of shares issued in May Effect of underwritings from the IPO in June Effect of shares re-purchased in July - - - - - 172,575 (32,342,835) 2,564,531 103,360,101 (3,445,297) Weighted-average number of ordinary shares at December 31st 339,049,336 278,148,979 * The number of shares presented on the table above does not include the number of treasury shares. Earnings per share Basic and diluted earnings per share (RON) 1.07 1.07 14 Short-term employee benefits Personnel payables Current portion of defined benefit liability and other long-term employee benefits Social security charges Tax on salaries Termination benefits payable Total December 31st 2015 December 31st 2014 32,465 12,197 52,278 15,187 22,498 38,632 12,790 64,172 15,567 15,553 134,625 146,714 For details of the related employee benefit ex- penses, see Note 16. In Romania, all employers and employees, as well as other persons, are contributors to the state social security system. The social security system covers pensions, allocations for children, temporary inability to work, risks of works and professional diseases and other social assistance services, unemployment benefits and incentives for employers creating new workplaces. Termination benefits refer to: • compensation indemnities for the employees of Electrica SA, Electrica Distributie Transilva- nia Nord, Electrica Distributie Transilvania Sud, Electrica Distributie Muntenia Nord, Electrica Furnizare, Electrica Serv, based on the volun- tary redundancies made during 2015; • lay-off indemnities of RON 15,533 thousand for the employess of Servicii Energetice Moldova. The Group has overdue social security and oth- er salary taxes of RON 42,855 thousand at De- cember 31st 2015 (2014: RON 39,541 thousand) which relate mainly to the three subsidiaries with financial difficulties described in Note 33. 131 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 15 Post-employment and other long-term employee benefits In accordance with Government Decisions no. 1041/2003 and no. 1461/2003, the Group pro- vides benefits in kind in the form of free electric- ity to retired employees of the Group. The Group also provides cash benefits to em- ployees depending on seniority and years of service at retirement. In 2015 and 2014, employee benefit obliga- tions were computed by independent actuar- ies using the projected unit credit method with benefits calculated proportionally to period of service. Defined benefit liability Other long-term employee benefits Total - Current portion* - Non-current portion *included in Personnel payables in Note 14 December 31st 2015 December 31st 2014 126,322 79,790 206,112 12,197 193,915 141,988 91,184 233,172 12,790 220,382 (i) Movement in the defined benefit liability and other long-term employee benefits The following tables shows a reconciliation from the opening balances to the closing ba- lances for the defined benefit liability and other long-term employee benefits and its compo- nents. There are no plan assets. Defined benefit liability 2015 2014 Balance at January 1st Included in profit or loss Current service cost Interest (income) / cost Included in other comprehensive income Remeasurements loss (gain) - Actuarial loss /(gain) Other Benefits paid Balance at December 31st Other long-term employee benefits Balance at January 1st Included in profit or loss Current service cost Actuarial gain Interest cost Benefits paid Balance at December 31st 141,988 143,911 2,697 5,636 3,694 (1,946) (16,707) 3,922 (7,292) 126,322 2015 91,184 2,067 (12,037) 2,414 (3,838) 79,790 (7,593) 141,988 2014 80,708 3,242 (565) 11,522 (3,723) 91,184 132 ANNUAL REPORT 2015 ELECTRICA SA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) (ii) Actuarial assumptions The following were the principal actuarial assumptions at the respective reporting date: (a) Macroeconomic assumptions: • inflation. The actuaries used the Consumer Price Index (CPI) published by the Economist Intelligence Unit: Year 2015 2016 2017 2018 2019+ Valuation date December 31st 2015 Valuation date December 31st 2014 - 1.8% 2.5% 2.3% 2.2% 2.1% 3.2% 2.7% 2.5% - • the discount rate used was the yield for Roma- nian government bonds maturing in 10 years at the reporting date of 4.75% for the year 2015 (2014: 4.5%); • the mortality rate published by the National In- stitute of Statistics was adjusted to allow for an anticipated decrease in mortality rates; • taxes and social charges are those in force as at • the electricity price per KWh used is 0.4847 RON at December 31st 2015 (2014: 0.464 RON/ KWh); the reporting date. (b) Group specific assumptions: • salaries increase in line with the estimated infla- tion rates in the future periods; • employees’ turnover: turnover rates are based on statistical information regarding employees’ mobility during 2003–2015. Considering his- torical retirement data – it is assumed that the Jubilee bonus based on years of service personnel turnover rate decreases with the em- ployees’ age; • jubilee and retirement bonuses based on senior- ity according to the collective labour contract, as follows: Seniority 20 years 30 years 35 years 40 years 45 years No. of gross monthly base salaries December 31st 2015 December 31st 2014 0.8 1.6 2.4 3.2 4 0.8 1.6 2.4 3.2 4 Retirement bonus based on years of service in the Group Seniority No. of gross monthly base salaries December 31st 2015 December 31st 2014 Between 8 and 10 years Between 10 and 25 years More than 25 years 1 2 3 1 2 3 The Group also offers 1,200 kWh of free electricity per year to retired employees for certain years of seniority. 133 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Termination benefits a. Termination benefits for individual lay-off at the Group’s initiative In accordance with the Collective labour con- tract concluded between the Group and the Unions, when individual labour contract are terminated at the Group’s initiative, the Group will pay termination benefits to the employees depending on their period of service, as follows: Period of service 1 - 5 years 5 - 10 years 10 - 20 years More than 20 years No of gross monthly base salaries 4 6 7 10 b. Termination benefits for collective lay-off at the Group’s initiative For collective lay-offs, according to the Collec- tive labour contract, the Group will pay termi- nation benefits to the employees depending on their period of service, as follows: Period of service 1 - 3 years 3 - 5 years 5 - 10 years 10 - 20 years More than 20 years No of gross monthly base salaries 4 6 7 15 20 Collective lay-offs and termination benefits are only applicable subject to approval of a rectification of the budget, such that the approved salary fund for the year will not be affectedby such measures. The above mentioned stipulations do not apply to employees with individual labour contract concluded for a determined period. The above stipulations do not apply to employees that ob- tained other higher cumulative salary compensa- tion rights, provided by legal regulations regard- ing the Group’s reorganization and restructuring. Employees who are re-employed within the Group after lay-off are not entitled to the above mentioned benefits. c. Termination benefits for voluntary redundancies In accordance with the Agreementdated 13 August 2015 signed between the Group and the trade un- ions and the Addendums to Collective Labour Con- tract, in case the individual labour contracts are termi- nated as voluntary redundancy from the employee, the Group will pay termination benefits depending on their periodto reach the standard retirement age, their period of service in the Group and their senior- ity. The number of gross monthly base salaries paid as termination benefits vary between 4 and 18. 16 Employee benefit expenses Average number of employees Number of employees at December 31st Wages and salaries Social security contributions Meal tickets Termination benefits Total 2015 11,029 10,539 2015 498,286 115,711 20,878 28,088 662,963 2014 12,308 11,740 2014 548,336 150,505 24,212 15,553 738,606 134 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) The overall decrease of wages and salaries is due mainly to: • deconsolidation in November 2014 of Servicii Energetice Banat, and in January 2015 of Ser- vicii Energetice Dobrogea; • decrease of wages and salaries of Servicii Energetice Moldova, subsidiary under financial distress which had no operations during 2015; • decrease in the number of employess. In accordance with the changes in legislation, starting with October 2014 the social security contribution paid by the companies decreased by 5 percentage points from 20.8% to 15.8%. As a result the overall social charges paid by the Companies decreased from 27.8% to 22.8%. Termination benefits for the year 2015 refer to compensations for voluntary redundancies for the employees of Electrica SA, Electrica Dis- tributie Transilvania Nord, Electrica Distributie Transilvania Sud, Electrica Distributie Muntenia Nord, Electrica Furnizare, Electrica Serv (see Note 15 c). Termination benefits for the year 2014 represent lay-off indemnities for the em- ployees of Servicii Energetice. Management remuneration is disclosed in Note 32 b). 17 Income taxes In determining the amount of current and de- ferred tax, the Group takes into account the impact of uncertain tax positions and wheth- er additional taxes and interest may be due. This assessment relies on estimates and as- sumptions and may involve a series of judg- ments about future events. The Group con- siders that the accounting records for taxes due are adequate for all open tax years, based on assessment made by management taking into account various factors, including the interpretation of tax legislation and previous experience. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. (i) Amounts recognised in profit or loss Current tax expense Adjustments for prior years’ current tax Deferred tax expense Total income tax (*See Note 7) (ii) Amounts recognised in other comprehensive income 2015 95,726 7,239 3,998 106,963 2014 restated* 88,837 - 22,145 110,982 2015 Tax (expense) benefit Before tax Net of tax Before tax 2014 Tax (expense) benefit Net of tax Remeasurement of defined benefit liability 16,707 (2,674) 14,033 (3,922) Total 16,707 (2,674) 14,033 (3,922) 628 628 (3,294) (3,294) (iii) Reconciliation of effective tax rate Profit before tax 589,123 523,887 2015 2014 restated* Tax using Company’s domestic tax rate 16% 94,260 16% 83,822 Non-deductible expenses Non-taxable income Deduction of legal reserves 2% -1% -1% 12,044 (6,475) (4,481) 7% -2% -1% 37,991 (8,961) (4,782) 135 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Other tax effects Adjustment for prior years Current-year tax losses for which no deferred tax asset is recognised Change in recognised temporary differences Income tax (*See Note 7) 2015 2014 restated* -1% (8,337) 1% 1% 1% 7,239 8,230 4,483 -1% - 3% -1% (3,413) - 13,473 (7,148) 18% 106,963 21% 110,982 (iv) Movement in deferred tax balances Balance at December 31st 2015 2015 Property, plant and equipment and intangible assets Employee benefits Impairment of trade receivables Tax loss carried forward Other items Tax liabilities (assets) before set-off 124,128 Set off of tax Net tax liabilities (assets) 2014 restated* - 124,128 Net balance at January 1st 2014 Net balance at January 1st 2015 Recognised in profit or loss Recognised in other comprehensive income Effect of loss of control over subsidiary Net Deferred tax assets Deferred tax liabilities 217,872 (2,682) - (144) 215,046 - 215,046 (18,107) (55,906) (18,765) (966) 517 7,546 4,764 (6,147) 3,998 - 3,998 2,674 - - - - - - - (14,916) (14,916) (48,360) (48,360) (14,001) (14,001) (7,113) (7,113) - - - - 2,674 (144) 130,656 (84,390) 215,046 - - - 33,793 (33,793) 2,674 (144) 130,656 (50,597) 181,253 Recognised in profit or loss Recognised in other comprehensive income Effect of loss of control over subsidiary Balance at December 31st 2014 Net Deferred tax assets Deferred tax liabilities Property, plant and equipment and intangible assets 229,625 (6,122) - (5,631) 217,872 - 217,872 Employee benefits (17,490) 11 (628) Impairment of trade receivables (74,466) 18,560 Tax loss carried forward Other items (26,269) (3,158) 7,504 2,192 - - - - - - - (18,107) (18,107) (55,906) (55,906) (18,765) (18,765) (966) (966) - - - - Tax liabilities (assets) before set-off 108,242 22,145 (628) (5,631) 124,128 (93,744) 217,872 Set off of tax - - - - - 34,119 (34,119) Net tax liabilities (assets) 108,242 22,145 (628) (5,631) 124,128 (59,625) 183,753 (*See Note 7) 136 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) (v) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the certain tax losses generated by several Companies within the Group, because it is not probable that future taxable profit will be available against which the entity generating it can use the benefits therefrom. Tax losses 2015 345,411 2014 293,972 Tax losses for which no deferred tax assets were recognised expire as follows: Year when the tax loss was generated: 2015 (expiring in 2022) 2014 (expiring in 2021) 2013 (expiring in 2020) 2012 (expiring in 2019) 2011 (expiring in 2018) 2010 (expiring in 2016-2017) Total (vi) Income tax receivable Tax losses 2015 51,439 84,206 62,179 70,175 10,896 66,516 2014 - 84,206 62,179 70,175 10,896 66,516 345,411 293,972 As at December 31st 2015 and 2014, the income tax receivables include RON 16,916 thousand whi- ch are under litigation with Autoritatea Nationala de Adminitrare Fiscala (“ANAF”). The Group has not recorded any impairment allowance for this amount as it is expected a favourable outcome. 18 Trade receivables Trade receivables, gross Bad debt allowance December 31st 2015 December 31st 2014 1,962,899 1,928,476 (1,125,117) (1,147,655) Total trade receivables, net 837,782 780,821 Trade recevables from related parties are presented in Note 32. Trade receivables gross comprise: December 31st 2015 December 31st 2014 Electricity distribution and supply Late payment penalties receivable Electricity receivables from clients in litigation, insolvency and bankruptcy Late payment penalties from clients in litigation, insolvency and bankruptcy Repairs, maintenance and other services Other 786,609 142,681 854,940 90,542 24,249 63,878 737,960 120,026 865,223 113,794 20,774 70,699 Total trade receivables, gross 1,962,899 1,928,476 137 ANNUAL REPORT 2015 ELECTRICA SA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) The movement in the bad debt allowance for trade receivables is as follows: Bad debt allowance Balance as at January 1st Impairment recognized Impairment reversed Amounts written off Effect of loss of control over subsidiaries Balance as at December 31st 2015 1,147,655 16,880 (12,565) (22,320) (4,533) 1,125,117 2014 1,165,524 8,460 (9,449) (16,880) - 1,147,655 For the ageing of trade receivables refer to Note 31. A significant part of the bad debt allowances refers to clients in litigation, insolvency or bankruptcy procedures, many of them being older than three years. The Group will derecognize these receiva- bles together with the related allowances after the finalization of the bankruptcy process. 19 Deposits, treasury bills and government bonds December 31st 2015 December 31st 2014 Treasury bills and government bonds denominated in RON with original maturity of more than three months Deposits with maturity of more than three months 1,756,339 231,542 901,417 319,104 Total deposits, treasury bills and government bonds 1,987,881 1,220,521 Treasury bills and government bonds with ori- ginal maturity of more than three months have an average interest rate (yield) of 0.93% at the following banks: Citibank Europe PLC Dublin, Raiffeisen Bank, BRD, Marfin Bank, ING Bank. Treasury bills and government bonds were classified as held to maturity investments. 20 Other receivables Good performance guarantees VAT receivable Interest receivable Structural funds Other receivables Bad debt allowance Total other receivables, net December 31st 2015 December 31st 2014 7,454 5,095 443 1,509 58,165 (35,862) 36,804 8,553 3,850 4,212 7,234 37,889 (37,127) 24,611 2014 35,177 5,621 (3,671) - - 37,127 The movement in the bad debt allowance for other receivables is as follows: Bad debt allowance Balance as at January 1st Impairment recognized Amounts written off Impairment reversed Effect of loss of control over subsidiaries Balance as at December 31st 2015 37,127 1,051 - (966) (1,350) 35,862 138 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 21 Cash and cash equivalents Bank current accounts Call deposits Cash in hand Treasury bills and government bonds with original maturities of less than 3 months Total cash and cash equivalents in the consolidated statement of financial position Overdrafts used for cash management purposes Total cash and cash equivalents in the consolidated statement of cash flows December 31st 2015 December 31st 2014 123,713 678,612 302 90,865 893,492 (65,963) 827,529 77,225 1,352,487 296 199,500 1,629,508 (48,132) 1,581,376 Cash and cash equivalents include treasury bills and government bonds denominated in RON of RON 90,865 thousands with original matur- ities of 3 months or less at the following banks Citibank Europe PLC Dublin, Raiffeisen Bank, BRD-CSG, Marfin Bank, ING Bank. These bear an average interest rate (yield) of 0.56% p.a. (2014: 1.7% p.a). The Group has overdrafts from ING, BRD, BCR and OTP Bank, as follows: Bank ING Bank N.V. and BRD Groupe Societe Generale Contract date 8-Dec-14 OTP Bank Romania 7-Sep-15 ING Bank N.V. and BRD Groupe Societe Generale 9-Dec-15 Total Bank ING Bank N.V. and BRD Groupe Societe Generale Contract date 9-Dec-14 ING Bank N.V. and BRD Groupe Societe Generale 8-Dec-14 Total Facility type Maturity Annual interest Overdraft limit (th RON) Balance at December 31st 2015 working capital financing and issuance of potential commitments working capital financing working capital financing and issuance of potential commitments until February 2016 for overdraft, 2 years for potential commitments 1M ROBOR + 0.49% 1 year 1 year for overdraft, 2 years for potential commitments 3M ROBOR + 2.15% 1M ROBOR - 1.3% 70,000 12,836 20,000 10,000 60,000 43,127 150,000 65,963 Facility type Maturity Annual interest Overdraft limit (th RON) Balance at December 31st 2014 working capital financing and issuance of potential commitments working capital financing and issuance of potential commitments 1 year for overdraft, 2 years for potential commitments 1M ROBOR - 1.3% 1 year for overdraft, 2 years for potential commitments 1M ROBOR + 0.49% 40,000 9,171 70,000 38,961 110,000 48,132 The security for these overdrafts is presented in Note 35d). The following information is relevant in the con- text of the consolidated statement of cashflows: Non-cash activity includes: • purchases on suppliers’ credit related to prop- erty, plant and equipment and concessionsof RON 161 million in 2015 (2014: RON 96 mil- lion); • set-off between receivables and trade trade payables of RON 64 million in 2015 (2014: RON 73 million); • effect of loss of control over subsidiaries under financial distress (see Note 33). 139 ANNUAL REPORT 2015 ELECTRICA SA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 22 Property, plant and equipment The movements in property, plant and equipment in 2015 and 2014 were as follows: Gross carrying amount Balance at January 1st 2014 Additions Transfer from construction in progress Land and land improvements Buildings Equipment Vehicles, furniture and office equipment Construction in progress Total 397,973 286,304 153,933 116,636 119,091 1,073,937 6,224 - 5,664 2,681 2,474 1,077 3,679 1,235 44,275 (4,993) Disposals (7,167) (2,889) (3,481) (10,391) Revaluation recognized in other comprehensive income, net (7,847) 7,906 Revaluation recognized in profit or loss, net (36,655) (5,296) Gross book value netted off against the accumulated depreciation at revaluation Valuation of land contribution from the shareholders, net - (11,299) (10,315) - - - - - - - - - - - - - - Effect of loss of control over subsidiaries (27,669) (19,939) (1,575) (8,419) Balance at December 31st 2014 314,544 263,132 152,428 102,740 Additions Transfer from construction in progress 18 - 2,926 6,508 5,350 114,060 684 73 Disposals (14,498) (5,701) (1,074) (1,098) Effect of loss of control over subsidiaries (Note 33) (394) (5,170) (1,445) (4,076) (635) 157,738 34,797 (120,641) - - 62,316 - (23,928) 59 (41,951) (11,299) (10,315) (58,237) 990,582 43,775 - (22,371) (11,085) Balance at December 31st 2015 299,670 261,695 269,319 98,323 71,894 1,000,901 Accumulated depreciation and impairment losses Balance at January 1st 2014 Depreciation Disposals Impairment loss Reversal of impairment loss Accumulated depreciation netted off against gross book value at revaluation Effect of loss of control over subsidiaries Balance at December 31st 2014 Depreciation Disposals Impairment loss Reversal of impairment loss Effect of loss of control over subsidiaries (Note 33) - - - - - - - - - - 2,500 - - 31,334 11,557 (1,572) - 47,454 14,958 (2,338) - 90,353 6,769 (8,072) 20 (1,550) (4,930) (2,846) (11,299) (3,526) 24,944 13,845 (1,424) - - (2,857) - - (1,528) 53,616 23,558 (674) - (132) (717) (8,275) 77,949 6,681 (826) - - (4,076) 29,081 - - 169 - - - 29,250 - - - - - 198,222 33,284 (11,982) 189 (9,326) (11,299) (13,329) 185,759 44,084 (2,924) 2,500 (132) (7,650) Balance at December 31st 2015 2,500 34,508 75,651 79,728 29,250 221,637 Net carrying amounts At January 1st 2014 At December 31st 2014 At December 31st 2015 (*See Note 7) 140 397,973 254,970 106,479 314,544 238,188 98,812 297,170 227,187 193,668 26,283 24,791 18,595 90,010 128,488 42,644 875,715 804,823 779,264 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Property, plant and equipment includes mainly land and buildings and the automatic meter read- ing system (“AMR”). Electrica SA has concluded four contracts for the implementation and development of the AMR system related to the electricity measuring and dispatch activity of the entire Group. As at De- cember 31st 2015 the net book value of the AMR is RON 197,239 thousands (December 31st 2014: RON 192,222 thousands), out of which RON 21,524 thousands in progress (December 31st 2014: RON 110,149 thousand). The restrictions on property, plant and equip- ment are presented in Note 35 d). Measurement of fair value following The the valuation table shows techniques used in measuring fair values (Level 3) for the revaluation of land and buildings as of December 31st 2015, as well as the significant unobservable inputs used. Category Valuation technique Market approach Land Buildings The fair value is estimated based on selling price per square meter of land of similar characteristics (i.e. ownership, legal limitations, location, physical properties, and best use). The market price is mainly based on recent transactions. Market approach and discounted cash-flows (DCF) method The market approach is based on the selling price per square meter for buildings of similar characteristics, adjusted for liquidity, location, size etc. The valuation model based on the DCF method estimates the present value of net cash flows to be generated by a building taking into account occupancy rate and costs not paid by tenants. The discount rate estimation considers, inter alia, the quality of a building and its location. 23 Intangible assets Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement • Adjustment for liquidity, location, size The estimated fair value would increase (decrease) if: • Adjustment for liquidity, location, size was lower (higher) • Occupancy rates (70-90%) • Discount rates (10% on average) • Costs not paid by tenants (average 10%) • Annual rent per sqm • Rental growth • Adjustment for liquidity, The estimated fair value would increase (decrease) if: • Occupancy rates were higher (lower) • Discount rates were lower (higher) • Costs not paid were lower (higher) • Annual rent per sqm was higher (lower) • Rental growth was higher (lower) • Adjustment for liquidity, location, size was location, size lower (higher) Intangible assets include mainly intangible as- sets related to distribution service concession agreements recorded in accordance with IFRIC 12 “Service Concession Arrangements”, licenses and costs of implementation of SAP ERP, cus- tomer management and billing system, and au- tomation software, as follows: Gross book value Balance at January 1st 2014 Additions Transfers from intangibles in progress Disposals Balance at December 31st 2014 Additions Transfers from intangibles in progress Disposals Intangible assets related to concession agreements Software and licenses Intangible assets in progress Total 5,034,284 157,938 449,742 - - 6,832 833 (2,489) 5,484,026 163,114 502,641 - - 6,267 1,701 (1,305) 659 991 (833) - 817 2,488 (1,701) - 5,192,881 457,565 - (2,489) 5,647,957 511,396 - (1,305) 141 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Effect of loss of control on subsidiaries Balance at December 31st 2015 - (373) 5,986,667 169,404 - 1,604 (373) 6,157,675 Intangible assets related to concession agreements Software and licenses Intangible assets in progress Total Accumulated amortisation and impairment losses Balance at December 31st 2013 restated* Amortisation Disposals Balance at December 31st 2014 Amortisation Disposals Effect of loss of control on subsidiaries Balance at December 31st 2015 Carrying amounts At January 1st 2014 At December 31st 2014 At December 31st 2015 (*See Note 7) 1,694,181 153,685 288,661 - 3,753 (2,319) 1,982,842 155,119 303,614 - - 3,115 (1,148) (373) 2,286,456 156,713 - - - - - - - - 3,340,103 3,501,184 4,253 7,995 3,700,211 12,691 659 817 1,604 1,847,866 292,414 (2,319) 2,137,961 306,729 (1,148) (373) 2,443,169 3,345,015 3,509,996 3,714,506 The European Union adopted IFRIC 12 “Service Concession Arrangements” effective for finan- cial years starting on or after 1 April 2009. The distribution subsidiaries (as operators) conclud- ed concession contracts with the Ministry of Economy and Commerce (as grantor) in 2005, updated in 2009 by addenda. These contracts concern the operation of electricity distribution service in the established territory (Transilvania Nord, Transilvania Sud, Muntenia Nord), on the risk and responsibility of the operators and tak- ing into account the technical regulations appli- cable to the operation, modernization, rehabil- itation and development of energy distribution networks specified in the Electricity Law, the terms and conditions of the licenses for elec- tricity distribution and the regulations issued by ANRE. Before entering into these service con- cessions, the distribution infrastructure was held by the operators and accounted as property, plant and equipment. The concession contracts are concluded for a period of 49 years and may be extended for a period equal to no more than half of that period. As a price for the concession, the companies pay an annual royalty fee recognized in the dis- tribution tariff of 1/1000 of the revenues from electricity distribution. According to the conces- sion contracts, the companies use the assets representing the distribution network owned by them located in the above-mentioned terri- tory for electricity distribution. According to the concession contracts, the grantor will buy at the end of the term of concession contract the ownership right on the ”relevant assets”, that are mainly the electricity distribution networks, at a price equal to the value of the regulated assets base at the end of the concession. For the year ended December 31st 2015, the Group has recognized construction revenue related to the concession agreements of RON 502,641 thousand (2014: RON 449,742 thou- sand) and construction costs of RON 490,023 thousand (2014: RON 440,337 thousand). Intangible assets in progress as at December 31st 2015 and 2014 include the cost of implementa- tion for IT applications that imply a certain im- plementation period. 142 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 24 Spin off Based on the Extraordinary General Shareholders decision dated March 20th 2014 and the resolution of the Bucharest Court dated 10 April 2014, the Group recognised the spin-off of the Company’s shareholdings to a new company - ”Societatea de Administrare a Participatiilor in Energie SA” - whol- ly owned by the Ministry of Energy. The spin-off referred to the transfer of the shares held by the Company in 10 entities (Enel Distributie Muntenia, Enel Energie Muntenia, Enel Distributie Banat, Enel Distributie Dobrogea, Enel Energie, E.On Moldova Distributie, E.On Energie, Electrica Soluziona, Hi- dro Tarnita and BRM). The investments included equity accounted investees and other investments and were classified as assets held for distribution as at December 31st 2013, as follows: Assets held for Distribution Enel Distributie Muntenia Enel Energie Muntenia Enel Distributie Banat Enel Distributie Dobrogea Enel Energie E.On Distributie E.On Energie Electrica Soluziona Hidro Tarnita BRM Carrying amount at December 31st 2013 Percentage ownership interest 823,183 91,054 552,147 394,297 158,667 213,000 11,000 49 57 40 23.57% 23.57% 24.87% 24.90% 36.99% 27.00% 3.78% 49.00% 50% Total assets held for distribution 2,243,494 The spin-off was recorded as follows: Assets held for distribution Share capital Revaluation reserve related to equity accounted investees Other reserves (legal reserves) Retained earnings Total Carrying amount 2,232,476 507,429 388,018 408,195 928,834 2,232,476 On 17 February 2014 the Company sold part of the shares held in E.On Moldova Distributie and E.On Energie Romania to E.On following the exercise of call options by E.On. E.On paid the exercise price of RON 140,920 thousand to the Company. Cash received from trans- action with E.ON less the directly attributable costs were transferred to Societatea de Ad- ministrare a Participatiilor in Energie SA (RON 129,902 thousand). 143 ANNUAL REPORT 2015 ELECTRICA SA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 25 Capital and reserves (a) Share capital and share premium The issued share capital in nominal terms con- sists of 345,939,929 ordinary shares at December 31st 2015 (2014: 345,939,929) with a nominal val- ue of RON 10 per share. All shares rank equally with regard to the Company’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared, and are entitled to one vote per share at meetings of the Company. Changes in the number of shares were as follows: Number of shares at January 1st Shared issued during the year Decrease in the number of shares due spin-off Ordinary shares 2015 345,939,929 - - 2014 207,839,904 181,223,805 (43,123,780) Number of shares at December 31st 345,939,929 345,939,929 The Company recognizes changes in share cap- ital only after their approval in the General Share- holders Meeting and their registration by the Trade Register. The contributions made by the shareholders which are not yet registered with the Trade Register at year end are recognized as pre-paid capital contributions from shareholders. Until December 31st 2003, the statutory share capital in nominal terms was restated according to IAS 29 “Financial Reporting in Hyperinflationary Economies” with a corresponding adjustment to retained earnings. (b) Treasury shares In July 2014 the Company purchased 5,206,593 ordinary shares and 421,000 Global Depositary Receipts, equivalent to 1,684,000 shares. The total amount paid for acquiring the shares and Global Depositary Receipts was RON 75,372 thousand. (c) Revaluation reserve The reconciliation between opening and closing revaluation reserve is as follows: Balance at January 1st Revaluation of property, plant and equipment attributable to the owners of the Company Release of revaluation reserve to retained earnings corresponding to depreciation and disposals of property, plant and equipment Spin-off effect (Note 24) Loss of control over subsidiaries Balance as at December 31st (d) Other reserves 2015 156,018 - 2014 572,825 (835) (14,217) (15,202) - (1,443) 140,358 (388,018) (12,752) 156,018 Other reserves include: • legal reserves – set up as 5% of the gross profit for the year in the statutory individual financial state- ments of the companies within the Group, until the total legal reserves reach 20% of the paid-up nominal share capital of each company, according to the legislation. These reserves are deductible for income tax purposes and are not distributable; • other reserves set up in compliance with legis- lation in force. 144 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Balance at January 1st 2014 Set-up of legal reserves Spin-off effect Balance at December 31st 2014 Set-up of legal reserves Balance at December 31st 2015 (e) Dividends Legal reserves Other reserves Total other reserves 245,870 29,886 (39,159) 236,597 37,302 273,899 369,036 - (369,036) - - - 614,906 29,886 (408,195) 236,597 37,302 273,899 Romanian companies may distribute dividends from statutory earnings only, as per separate fi- nancial statements prepared in accordance with Romanian accounting regulations. The dividends declared by the Company in 2015 and 2014 (from the statutory profits of preceding years) were as follows: To the owners of the Company To non-controlling interests Total Distribution of dividends 2015 244,692 97,208 341,900 2014 22,475 67,250 89,725 The dividends per share were: 2015: RON 0.7217, 2014: RON 0.108, per share. Out of the dividends declared by the Company of RON 244,692 thousands, the dividends paid were RON 244,084 thousands, the remaining differences represents dividends unclaimed by the shareholders from the Depository. 26 Non-controlling interests The following tables summarise the informa- tion related to each of the Group’s subsidiaries that has material non-controlling interest (“NCI”), before any intra-group elimination. December 31st 2015 NCI percentage Non-current assets Current assets Non-current liabilities Current liabilities Net assets Carrying amount of NCI Revenues Net profit Other comprehensive income Total comprehensive income Profit allocated to NCI Other comprehensive income allocated to NCI (Continued on page 146) Electrica Distributie Muntenia Nord Electrica Distributie Transilvania Nord Electrica Distributie Transilvania Sud Electrica Furnizare Intra-group eliminations Total 22% 22% 22% 22% 1,288,375 399,710 (164,332) (190,731) 1,333,022 293,265 871,661 140,085 2,575 142,660 30,819 567 1,217,033 1,195,298 133,944 161,166 (80,112) (246,573) 1,051,514 231,332 857,589 143,033 3,171 146,204 31,467 698 262,649 1,005,095 (136,294) (67,293) (291,064) (726,104) 1,030,589 345,642 226,730 76,041 1,589 828,957 840,242 4,159,740 137,335 122,665 2,273 2,953 139,608 125,618 30,214 26,985 500 649 119,485 2,414 145 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) December 31st 2015 Electrica Distributie Muntenia Nord Electrica Distributie Transilvania Nord Electrica Distributie Transilvania Sud Electrica Furnizare Intra-group eliminations Total Cash flows from operating activities 179,668 242,102 270,443 124,725 Cash flows used in investing activities (14,980) (160,123) (78,064) (16,275) Cash flows used in financing activities** (135,242) (54,673) (137,947) (174,024) Net increase/(decrease) in cash and cash equivalents* Dividends paid to NCI during the year 29,446 24,653 27,306 16,702 54,432 (65,574) 17,568 38,285 97,208 *Amounts presented represent cash flows of the subsidiaries **Cash flows from financing activities include dividends paid to NCI December 31st 2014 restated*** Electrica Distributie Muntenia Nord Electrica Distributie Transilvania Nord Electrica Distributie Transilvania Sud Electrica Furnizare Intra-group eliminations Total NCI percentage 22% 22% 22% 22% Non-current assets Current assets Non-current liabilities – restated*** Current liabilities - restated*** Net assets - restated*** Carrying amount of NCI -restated*** Revenues Net profit - restated*** Other comprehensive income Total comprehensive income Profit allocated to NCI restated*** Other comprehensive income allocated to NCI Cash flows from operating activities Cash flows used in investing activities Cash flows used in financing activities** Net increase/(decrease) in cash and cash equivalents* 1,232,023 448,692 (203,063) (175,553) 1,302,099 286,462 876,482 136,554 (2,082) 134,472 30,042 (458) 181,225 (276,110) (135,141) 1,109,674 1,160,070 129,534 155,692 (90,664) (193,477) 981,225 215,870 750,669 131,822 625 132,447 29,001 138 162,827 (133,883) (81,689) 178,432 1,064,741 (131,720) (71,220) (235,945) (729,007) 970,837 394,048 213,584 86,691 1,659 804,266 815,823 3,994,524 78,561 180,786 (1,925) 3,070 76,636 183,856 17,283 39,773 (424) 676 181,781 443,936 (80,000) (1,116) (142,270) (89,262) 116,099 (68) (230,026) (52,745) (40,489) 353,558 Dividends paid to NCI during the year 23,212 11,666 12,734 19,638 67,250 *Amounts presented represent cash flows of the subsidiaries **Cash flows from financing activities include dividends paid to NCI *** See Note 7 146 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 27 Financing for network construction related to concession agreements Financing for network construction related to concession agreements is based on suppliers’ credit. The amounts are denominated in EUR and are backed by promissory notes issued by the Group to its suppliers. Part of these pro- missory notes are discounted by the suppliers at banks for early settlement. Such financing is measured at amortized cost, by using an ave- rage effective interest rate of 2.64% in 2015 (2014: 4.1%). The amounts are due as follows: Less than 1 year Between 1 and 5 years Total 28 Trade payables Electricity suppliers Capital expenditure suppliers Other suppliers Total December 31st 2015 December 31st 2014 99,576 122,065 221,641 99,064 151,486 250,550 December 31st 2015 December 31st 2014 302,267 181,945 172,198 656,410 318,549 93,283 143,424 555,256 Electricity suppliers are mainly state-owned power generators, as detailed in Note 32, but also other participants on the electricity market. Other suppliers include suppliers of services, ma- terials, consumables, etc. 29 Other payables VAT payable Late payment penalties to the State budget Other liabilities to the State Liabilities related to radio and TV tax Liabilities related to green certificates acquisition obligation Other liabilities Total * See Note 7 December 31st 2015 December 31st 2014 restated* Current Non-current Current Non-current 119,262 969 90,300 13,428 - 25,347 249,306 - - - - - 136,831 18,450 86,115 12,424 42,396 43,068 14,590 43,068 310,806 - 11,238 - - - 41,943 53,181 147 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) The late payment penalties to the State repre- sents amounts rescheduled for payment based on a plan issued by ANAF to Electrica Serv for a period of 48 months starting August 2012. In 2015 Electrica Serv made payments of RON 28,777 thousands in relation to these resched- uled debts. In relation to this ANAF instituted a pledge on certain property, plant and equipment of Electrica Serv (see Note 35 d)). Part of Other liabilities to the State refer to services subsidiaries, including those in financial distress presented in Note 33. In accordance with Law no. 533/2003, that amen- ded Law no. 41/1994 regarding the organization and functioning of Romanian Radio Company and Romanian Television Company, radio and TV taxes are collected by Electrica Furnizare SA on behalf of these companies. The payable of the Group to the above mentioned institutions represents radio and TV tax collected and not paid by the year-end. Other liabilities include mainly guarantees and sundry creditors. Other non-current liabilities re- fer to guarantees from customers related to elec- tricity supply. 30 Provisions Balance at January 1st 2015 Provisions made Provisions used Provisions reversed Balance at December 31st 2015 Provisions 72,634 87,473 (4,059) (28,435) 127,613 As at December 31st 2015, provisions refer mainly to: - RON 80,106 thousand representing potential fiscal obligations of the Group (including inte- rest and penalties); - RON 28,989 thousand representing restruc- turing provision in respect of Electrica Serv; - RON 2,388 thousand representing claims of in- dividuals in respect of land of the Group. The provisions made in 2015 refer mainly to: - provision of RON 31,252 thousands represen- ting penalties disputed with ANAF in court, following the adverse decision no. 1029 from 17 April 2015; - provision of RON 14,652 thousands represen- ting potential late payment interest and pe- nalties for fiscal obligations following controls from ANAF to certain subsidiaries. The amount refer mainly to consideration as non-deductible the intra-group management services; - provision for restructuring of RON 28,989 thou- sands as a result of a restructuring plan appro- ved by the Board of Directors of Electrica Serv in December 2015 to be implemented during 2016-2018, representing the lay-off of 500 em- ployees. Provisions reversed in 2015 refer mainly to: - RON 15,600 thousand representing claims of individuals in respect of land of the Group following the favourable Court decision no. 1182 from 17 September 2015; - RON 3,174 thousand representing claims of in- dividuals in respect of rent for use of land by the Group following the favourable Court decision no. 549 from 22 June 2015. As at December 31st 2014, provisions refer mainly to: - RON 34,175 thousand representing potential fis- cal obligations of certain subsidiaries as a result of controls performed by Court of Accounts (in- cluding interest and penalties); - RON 21,497 thousand representing claims of in- dividuals in respect of land of the Group. 148 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 31 Financial instruments - fair values and risk management (a) Accounting classifications and fair values following The the carrying table shows amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair va- lue information for financial assets and finan- cial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. December 31st 2015 Note Loans and receivables Financial assets not measured at fair value Carrying amount Held to maturity financial assets Other financial liabilities Fair value Total Level 1 Level 2 Level 3 Total Trade receivables 18 837,782 - Deposits, treasury bills and government bonds - 1,987,881 Cash and cash equivalents 21 893,492 - Total 1,731,274 1,987,881 837,782 1,987,881 893,492 3,719,155 Financial liabilities not measured at fair value Bank overdrafts Financing for network construction related to concession agreements Short-term bank borrowings Trade payables Total 21 27 28 December 31st 2014 Note Loans and receivables Financial assets not measured at fair value 65,963 65,963 221,641 221,641 224,124 224,124 59,821 59,821 656,410 656,410 1,003,835 1,003,835 224,124 224,124 Carrying amount Held to maturity financial assets Other financial liabilities Fair value Total Level 1 Level 2 Level 3 Total Trade receivables 18 780,821 - Deposits, treasury bills and government bonds - 1,220,521 Cash and cash equivalents 21 1,629,508 - Total 2,410,329 1,220,521 780,821 1,220,521 1,629,508 3,630,850 Financial liabilities not measured at fair value Bank overdrafts Financing for network construction related to concession agreements Finance lease Trade payables Total 21 27 28 48,132 48,132 250,550 250,550 256,130 256,130 294 294 555,256 555,256 854,232 854,232 256,130 256,130 149 ANNUAL REPORT 2015 ELECTRICA SA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) (b) Measurement of fair values The following table shows the valuation tech- niques used in measuring Level 2 fair values, as well as the significant unobservable inputs used. Financial instruments not measured at fair value Type Valuation technique Other financial liabilities Discounted cash flows (DCF) method The discount rates used are the average 12 M ROBID- ROBOR interest rates of 1.43% as at December 31st 2015 (2014: 1.67%). Significant unobservable inputs Not applicable (c) Financial risk management The Group has exposure to the following risks ari- sing from financial instruments: • credit risk • liquidity risk • market risk. (i) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a finan- cial instrument fails to meet its contractual obli- gations, and arises principally from the Group’s receivables from customers, cash and cash equivalents, bank deposits and treasury bills and government bonds. Cash, bank deposits, treasury bills and govern- ment bonds are placed in financial institutions, which are considered to have minimal risk of default. The carrying amount of financial assets repre- sents the maximum credit exposure. Trade receivables The Group’s credit risk in respect of receivables is concentrated around state-controlled compa- nies. The Group establishes an allowance for impair- ment that represents its estimate of incurred los- ses in respect of trade receivables. Impairment The ageing of trade receivables was as follows: December 31st 2015 December 31st 2014 Gross value Bad debt allowance Gross value Bad debt allowance Neither past due nor impaired Past due 1-90 days Past due 90-180 days Past due 180-360 days Past due 1-2 years Past due 2-3 years 654,679 189,243 12,525 9,864 33,561 19,388 - (15,916) (3,605) (9,008) (33,561) (19,388) Past due more than 3 years 1,043,639 (1,043,639) 501,052 240,421 23,542 29,463 52,801 105,710 975,487 - - - (13,657) (52,801) (105,710) (975,487) Total 1,962,899 (1,125,117) 1,928,476 (1,147,655) Neither past due nor impaired Past due 1-90 days Past due 90-180 days Past due 180-360 days Total Net trade receivables December 31st 2015 December 31st 2014 654,679 173,327 8,920 856 837,782 501,052 240,421 23,542 15,806 780,821 150 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) (ii) Liquidity risk Liquidity risk is the risk that the Group will en- counter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing li- quidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabili- ties when they are due, under both normal and stressed conditions, without incurring unac- ceptable losses. The Group aims to maintain the level of its cash and cash equivalents at an amount in excess of expected cash outflows on financial liabilities. The Group also monitors the level of expected cash inflows on trade receivables together with expected cash outflows on trade and other payables. In addition, the Group maintains over- drafts (refer to Note 21). Exposure to liquidity risk The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments. Contractual cash flows Carrying amount Total less than 1 year 1-2 years 2-5 years More than 5 years Financial liabilities December 31st 2015 Bank overdrafts Trade payables Total Financial liabilities December 31st 2014 Bank overdrafts - - - - - - - - - - 65,963 65,963 65,963 - - Financing for network construction related to concession agreements 221,641 228,332 100,248 97,002 31,082 Short term bank borrowings 59,821 59,821 59,821 656,410 656,410 656,410 1,003,835 1,010,526 882,442 97,002 31,082 - - - - Contractual cash flows Carrying amount Total less than 1 year 1-2 years 2-5 years More than 5 years 48,132 48,132 48,132 - - Financing for network construction related to concession agreements 250,550 262,231 101,633 87,114 73,484 Finance lease Trade payables Total 294 294 294 555,256 555,256 555,256 - - - 854,232 865,913 705,315 87,114 73,484 The Group has loan contracts from OTP and BCR as follows: Bank Contract date Facility type Maturity Annual interest Credit limit (thousand RON) Balance at December 31st 2015 OTP Bank Romania 13-Mar-15 financing of liabilities to Fiscal Authorities until November 2017 3M ROBOR + 3.25% 18,000 9,900 BCR Total 7-Sep-15 working capital financing and refinancing of other loans 4 months 1M ROBOR 50,000 49,921 68,000 59,821 151 ANNUAL REPORT 2015 ELECTRICA SA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) In March 2015 Electrica Serv contracted a loan from OTP Bank Romania of RON 18,000 thousand in order to finance the subsidiary’s payables to tax authorities. The loan bears an interest rate of ROBOR 3M plus a margin of 3.25% p.a. The loan is payable in equal monthly tranches until 11 November 2016. The loan is secured by pledges over part of the subsidiary’s assets (bank accounts, trade receivables from the contracts concluded with related parties and buildings). In September 2015 Electrica Distributie Transil- vania Nord contracted a revolving credit facility from Banca Comerciala Romana in order to fi- nance the operational activity and to refinance credit facilities contracted by the subsidiary from other banks. The credit has a maximum limit of RON 50,000 thousand and bears an in- terest rate of ROBOR 1M. The credit is payable in full in January 2016. (iii) Market risk Market risk is the risk that changes in market prices – such as foreign exchange rates, interest rates– will affect the Group’s income or the value of its holdings of financial instruments. The ob- jective of market risk management is to manage and control market risk exposures within accept- able parameters, while optimising the return. Currency risk The Group is exposed to currency risk to the ex- tent that there is a mismatch between the curren- cies in which sales, purchases and borrowings are denominated and the functional currency of the Group. The functional currency of all entities be- longing to the Group is the Romanian Leu (RON). The currencies in which these transactions are primarily denominated are RON and EUR. Certain liabilities are denominated in foreign currency (EUR). The Group also has deposits and bank ac- counts denominated in foreign currency (EUR). The Group’s policy is to use the local currency in its transactions as far as practically possible. The Group does not use derivative or hedging instru- ments. Exposure to currency risk The summary quantitative data about the Group’s exposure to currency risk is as follows: in thousands of RON Cash and cash equivalents Deposits (deposits, treasury bills and government bonds) Financing for network construction related to concession agreements Finance lease Net statement of financial position exposure December 31st 2015 December 31st 2014 EUR 10,241 139,581 (221,641) - (71,819) EUR 10,138 136,704 (250,550) (294) (104,002) The following significant exchange rates have been applied during the year: Average rate Year-end spot rate RON EUR 1 2015 4.4450 2014 4.4446 2015 4.5245 2014 4.4821 Sensitivity analysis A reasonably possible strengthening (weakening) of the EUR against RON at December 31st would have affected the measurement of financial instruments denominated in a foreign currency and profit before tax by the amounts shown below. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. 152 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Effect December 31st 2015 EUR (5% movement) December 31st 2014 EUR (5% movement) Profit before tax Strengthening Weakening (3,591) 3,591 (5,200) 5,200 Interest rate risk The Group’s policy is to mainly use supplier credit for financing its capital investments. The Group does not have significant long-term bank loans. Exposure to interest rate risk The interest rate profile of the Group’s inter- est-bearing financial instruments is as follows: December 31st 2015 December 31st 2014 Fixed-rate instruments Financial assets Bank accounts (cash and cash equivalent) Treasury bills and government bonds (cash and cash equivalent) Deposits, treasury bills and government bonds Financial liabilities Financing for network construction related to concession agreements Finance lease Variable-rate instruments Financial liabilities Short term bank borrowings Overdrafts 678,612 90,865 1,987,881 (221,641) - 2,535,717 (59,821) (65,963) (125,784) 1,352,487 199,500 1,220,521 (250,550) (294) 2,521,664 - (48,132) (48,132) Fair value sensitivity analysis for fixed-rate instru- ments The Group does not account for any fixed-rate financial assets or financial liabilities at fair value through profit or loss. Therefore, a change in in- terest rates at the reporting date would not affect profit or loss. Cash flow sensitivity analysis for variable-rate instruments A reasonably possible change of 50 basis points in interest rates at the reporting date would have increased (decreased) profit before tax by the amounts shown below. This analysis assumes that all other variables, in particular foreign cur- rency exchange rates, remain constant. December 31st 2015 Variable-rate instruments December 31st 2014 Variable-rate instruments Profit before tax 50 bp increase 50 bp decrease (629) (240) 629 240 153 ANNUAL REPORT 2015 ELECTRICA SA NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 32 Related parties (a) Main shareholders As at December 31st 2015, the main shareholder of Electrica SA is the Romanian State, represented by the Ministry of Energy (48.78%), after the own- ership dilution following an initial public offer. The second largest shareholder is the European Bank for Reconstruction and Development with 8.66%.. (b) Management and administrators’ compensation Management compensation 2015 5,540 2014 4,030 In 2014 management compensations included only one manager with mandate contract for Electrica SA, however starting with August 2015 two more managers were included in the disclosure above, and starting October 2015 one more manager was included. As at December 31st 2015 the Company has four managers with mandate contracts. Compensations granted to the members of the Board of Directors and representatives in the General Meeting of Shareholders were as follows: Members of Board of Directors Representatives in the General Meeting of Shareholders Total 2015 5,362 53 5,415 2014 3,093 115 3,208 Until 14 December 2015 the Board of Directors of Electrica SA comprised 5 members and afterwards 7 members. No loans were granted to managers or adminis- trators in 2015 and 2014. (c) Transactions with companies in which the state has control or significant influence The Group has transactions with companies in which the state has control or significant influ- ence in the ordinary course of its business, related mainly to the acquisition of electricity, transmis- sion and system services and sale of electricity. Significant purchases and balances are mainly with energy suppliers, as follows: Supplier Nuclearelectrica Transelectrica Complexul Energetic Oltenia Hidroelectrica OPCOM Electrocentrale Bucuresti SNGN ROMGAZ CN Posta Romana SA Electrocentrale Oradea Electrocentrale Galati Others Total Purchases (without VAT) Balance (including VAT) 2015 2014 December 31st 2015 December 31st 2014 304,412 651,045 242,181 482,448 326,655 32,487 - 5,654 - - 391,517 504,776 2,892 553,509 391,742 4,565 19,296 7,442 618 2,495 19,682 119,065 39,622 34,889 3,604 - - 437 - - 35,619 156,759 6,000 55,065 2,449 1 - 324 - - 72,929 30,676 2,117,811 1,909,528 16,285 233,584 5,540 261,757 154 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) The Group also makes sales to companies in which the state has control or significant influence representing electricity supplied, of which the most important transactions are the following: Client 2015 December 31st 2015 Sales (without VAT) Balance, gross (including VAT) Allowance (including VAT) Balance, net CFR Telecomunicatii Electrificare CFR SNGN ROMGAZ OPCOM Societatea Comerciala "Cupru Min"- S.A. Abrud Transelectrica CN Romarm CN Remin SA C.N.C.A.F. MINVEST S.A. Oltchim Baita SA Enel Distributie Muntenia Others Total 52,332 12,660 20,145 28,316 31,295 5,536 8,592 314 - - 1,845 15,576 56,784 7,040 1,139 1,497 3,537 10,122 1,403 33 71,173 78,735 715,277 5,349 4,933 15,253 - - - - (10,122) - - (71,173) (78,735) (715,277) (4,770) - (6,790) 7,040 1,139 1,497 3,537 - 1,403 33 - - - 579 4,933 8,463 233,395 915,491 (886,867) 28,624 Client 2014 December 31st 2014 Sales (without VAT) Balance, gross (including VAT) Allowance (including VAT) Balance, net CFR Telecomunicatii 126,868 Electrificare CFR SNGN ROMGAZ OPCOM Societatea Comerciala "Cupru Min"- S.A. Abrud Transelectrica CN Romarm Electrocentrale Oradea CN Remin SA C.N.C.A.F. MINVEST S.A. Oltchim SNTGN Transgaz Medias Hidroelectrica Baita SA Enel Distributie Muntenia Others Total 4,328 23,032 13,722 31,399 17,167 9,412 1,991 349 - - 2,668 3,996 2,143 33,918 13,359 1,367 27,681 1,544 2,374 24,122 2,080 366 341 71,192 78,735 715,277 110 306 6,366 14,814 4,737 - (19,711) - - (24,122) - - - (71,192) (78,735) (715,277) - - - - (75) 1,367 7,970 1,544 2,374 - 2,080 366 341 - - - 110 306 6,366 14,814 4,662 284,352 951,412 (909,112) 42,300 155 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 33 Subsidiaries in financial distress In 2013 the Company approved the liquidation of Servicii Energetice Moldova, Servicii Energetice Banat and Servicii Energetice Dobrogea. Servicii Energetice Dobrogea entered in bankruptcy in January 2015 and Servicii Energetice Banat in November 2014 and consequently the Company discontinued their consolidation as of these dates as it no longer has control over these entities. The individual assets and liabilities of Servicii Energetice Dobrogea at the date the Company ceased its consolidation (January 31st 2015) were as follows: Property, plant and equipment Trade receivables Cash and cash equivalents Total assets Trade payables Other payables Employee benefits Deferred tax liabilities Total liabilities Gain on loss of control (Note 11) Carrying amount Servicii Energetice Dobrogea as of January 31st 2015 3,435 1,367 2,863 7,665 1,802 22,006 22,214 144 46,166 38,501 In January 2014 the Board of Directors of Ser- vicii Energetice Oltenia and in October 2014, the Board of Directors of Servicii Energetice Munte- nia decided the commencement of the insol- vency procedure with a view to reorganization. The insolvency processes were initiated in 2014. On 22 January 2016 Servicii Energetice Moldova entered in bankruptcy. The Company will dis- continue their consolidation as of this date. Due to the above conditions that indicated the existence of significant uncertainties that cast sig- nificant doubt on the ability of these sub sidiaries to continue to operate as going concerns, the Group has measured the carrying amounts of the assets and liabilities of these subsidiaries on a liquidation basis as at December 31st 2015 (for Servicii Energetice Moldova SA, Servicii Energet- ice Oltenia SA, and Servicii Energetice Muntenia) and December 31st 2014 (for Servicii Energetice Moldova SA, Servicii Energetice Dobrogea SA, Servicii Energetice Oltenia SA, and Servicii Ener- getice Muntenia). As at 31st December 31st 2015 and at December 31st 2014, the carrying amount of the assets and liabilities of these companies included in the con- solidated financial information are as follows: December 31st 2015 Servicii Energetice Muntenia Servicii Energetice Moldova Servicii Energetice Oltenia Total Property, plant and equipment 106,389 21,709 32,312 160,410 Trade receivables Cash and cash equivalents Total assets Trade payables 7,878 2,252 116,519 (26,144) 2,027 1,609 25,345 (2,854) 6,780 16,685 392 4,253 39,484 181,348 (3,059) (32,057) Payables to the State budget (333) (41,931) (8,715) (50,979) Social security and other salary taxes (447) (34,610) (7,798) (42,855) Provisions, employee benefits and deferred taxes (24,752) (19,412) (14,329) (58,493) Total liabilities (51,676) (98,807) (33,901) (184,384) 156 ANNUAL REPORT 2015 ELECTRICA SADecember 31st 2014 Property, plant and equipment Trade receivables Cash and cash equivalents Total assets Trade payables Payables to the State budget NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Servicii Energetice Moldova Servicii Energetice Dobrogea Servicii Energetice Muntenia Servicii Energetice Oltenia Total 40,418 811 1,971 43,200 (2,900) (47,735) 3,435 1,313 2,863 7,611 (2,098) (22,006) 109,180 16,894 291 126,365 (5,976) (1,887) (2,471) 35,006 188,039 3,729 1,095 39,830 (2,865) (4,297) 22,747 6,220 217,006 (13,839) (75,925) (6,120) (63,913) Social security and other salary taxes (38,192) (17,130) Provisions, employee benefits and deferred taxes (26,387) (5,228) (27,762) (13,914) (73,291) Total liabilities (115,214) (46,462) (38,096) (27,196) (226,968) The Group has not classified the assets and lia- bilities of these subsidiaries as held for sale as at December 31st 2015, as the assets are not available for immediate sale in their present condition, the assets or disposal groups were not actively mar- keted for sale, the Group is not committed to a plan to sell the assets or disposal groups, and it has not initiated an active programme to locate a buy- er and complete the disposal plan. Consequently, the Group has not presented these subsidiaries as discontinued operations in the income statement for the year ended December 31st 2015. Assumptions used for adjusting the carrying amount of assets and liabilities of subsidiaries under financial distress The carrying amount of assets and liabilities were recognised on a liquidation basis as at the report- ing date when significant doubt on the ability of each subsidiary to continue as going concern ex- isted. Property, plant and equipment (PP&E). Land and buildings were valued under a forced sale assump- tion, where the Group recognized impairment ad- justments to carrying amounts based on market experience for forced sale transactions. The im- pairment losses recognized in 2015 were RON 2.5 million and in 2014 were RON 60 million, of which RON 26 million decreased the revaluation reserve and RON 34 million was recognised in profit or loss. Provisions, employee benefits and payables to the State budget. The Group recognised provisions or liabilities for the obligations as at December 31st 2015 and 2014. In addition, all non-current liabil- ities, if any, were reclassified as current liabilities. 34 Contingencies (a) Litigation and claims The Group is involved in various litigations for which the Group did not set-up provisions; the most signifi- cant is the following: • The Group was sued by Termoelectrica, which claimed the payment of RON 25,047 thousand representing penalties related to certain electrici- ty invoices, for the period 1 April 2007 – 31 March 2008. The court issued a decision that dismissed the claim and further Termoelectrica filed an appeal to this decision. The court of appeal issued no decision by the date of these financial statements. The Group expects a favourable outcome for this case. • The Group was sued by Hidroelectrica, which claimed the payment of RON 5,445 thousands and other damages, representing claims related to acquisition of electricity by the Group from Hidroe- lectrica at a price estimated by the counterparty as being in some cases lower than its production costs and in some cases determined unrealised benefits for the counterparty. (b) Fiscal environment Tax audits are frequent in Romania, consisting of detailed verifications of the accounting records of tax payers. Such audits sometimes take place after months, even years, from the date liabilities are es- tablished. Consequently, companies may be found liable for significant taxes and fines. Moreover, tax legislation is subject to frequent changes and the authorities demonstrate inconsistency in interpreta- tion of the law. Income tax returns may be subject to revision and corrections by tax authorities, generally for a five year period after they are completed. The management of the Group believes that ade- quate provisions were recorded for all significant tax obligations. 157 ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31ST 2015 (All amounts are in THOUSAND RON, if not otherwise stated) 35 Commitments (a) Contractual commitments The Group has the following contractual commitments as at December 31st 2015: Purchase of electricity Purchase of property, plant and equipment and intangible assets Amount 902,966 220,044 1,123,010 (b) Operating leases The main operating leases refer to vehicles and equipment leased by Electrica Serv, as follows: Supplier Operational Autoleasing SRL RCI Finantare Romania SA Electrical Business Center SRL Energopetroleum Top Service SRL SC Center TEA & Co SRL Total Contractual amount 60,241 1,421 37,145 7,578 12,134 118,519 The future minimum lease payments related to the operating lease contracts mentioned above are as follows: Less than 1 year Between 1 and 5 year Total (c) Investment program December 31st 2015 December 31st 2014 24,438 57,383 81,821 18,094 52,484 70,578 The investment program approved for the year 2016 is as follows: Distribution activity Supply activity Maintenance activity Other/ shared Total 2016 787,000 17,153 14,509 15,000 833,662 The amounts actually incurred may differ from the ones planned. (d) Guarantees and pledges At December 31st 2015 and 2014, the Group has guarantees on its bank accounts opened at ING, BRD and BCR for the overdrafts contracted (please see Note 21). At December 31st 2015 the Group has outstan- ding bank letters of guarantee of RON 188,084 thousand (2014: RON 180,127 thousand) issued in favour of its suppliers. In 2012, ANAF instituted pledges on land and buildings of ElectricaServin relation with outstan- ding taxes and contributions. As at December 31st 2015 the pledges amount to RON 13 million (2014: RON 73 million). 158 ANNUAL REPORT 2015 ELECTRICA SAINDEPENDENT AUDITOR REPORT 159 ANNUAL REPORT 2015 ELECTRICA SAINDEPENDENT AUDITOR REPORT 160 ANNUAL REPORT 2015 ELECTRICA SAINDEPENDENT AUDITOR REPORT 161 ANNUAL REPORT 2015 ELECTRICA SA162 ANNUAL REPORT 2015 ELECTRICA SA2015 DIRECTORS’ REPORT (STANDALONE) 163 ANNUAL REPORT 2015 ELECTRICA SAIDENTIFICATION DATA OF THE REPORT AND ISSUER Report date: 11 March 2016 Issuer name: Societatea de Distributie si Furnizare a Energiei Electrice - „ELECTRICA „ SA (SDFEE ELECTRICA SA) Registered Office: no. 9 Grigore Alexandrescu Street, 1st District, Bucharest, Romania Telephone/fax: +4021.208.5999; +4021.208.5998 Fiscal code: RO13267221 Registered with the Trade Register under no.: J40/7425/2000 Share Capital: RON 3,459,399,290 subscribed and paid up The main characteristics of securities issued: 345,939,929 ordinary shares of 10 RON nominal value, issued in dematerialized form and freely transferable, registered, tradable and fully paid. The regulated market where the securities issued are traded: On December 31, 2015, the company’s shares are listed on the Bucharest Stock Exchange and Global Depository Receipts are listed on London Stock Exchange. Ordinary Shares GDRs ISIN ROELECACNOR5 US83367Y2072 Bloomberg Symbol Currency Face value 0QVZ RON RON 10 ELSA: LI USD RON 40 Trading market Bucharest Stock Exchange REGS London Stock Exchange MAINMARKET Market symbol EL ELSA 164 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA1 HIGHLIGHTS SDFEE Electrica S.A., herein after refer to as “Electrica SA”/”the Company”, registered with the National Trade Registry Office under no. J40/7425/2000, with unique registration code 13267221 and having as main activity „Consul- ting activities and business management” - NACE Code 7022, aims at the coordination and effici- ent control of investments in subsidiaries carrying out electricity distribution and supply activities, as well as energy services. Also, the Company carries out services in the electricity balancing market, import-export and trading. A summary of the key indicators is presented be- low: • In the period ended December 31, 2015, reve- nues collected by the Company from dividends distributed by its subsidiaries increased by RON 106 million compared to 2014; • In the period ended December 31, 2015, the net profit amounted to RON 301 million, increasing by RON 31 million or 12% ascompared to 2014. 2 ORGANIZATIONAL STRUCTURE The Company’s subsidiaries as at December 31st 2015 are the following: Subsidiary Activity Unique Registration Code Registered Office % stake on December 31st 2015 Electrica Distributie Muntenia Nord SA Electricity distribution in the geographical area Muntenia Nord 14506181 Ploiesti 78.0000021% Electrica Distributie Transilvania Nord SA Electricity distribution in the geographical area Transilvania Nord 14476722 Cluj-Napoca 77.9999999% Electrica Distributie Transilvania Sud SA Electricity distribution in the geographical area Transilvania Sud 14493260 Brasov 78.0000019% Electrica Furnizare SA Electricity supply 28909028 Bucharest 77.9999700% Electrica Serv SA Services in the energy sector (maintenance, repair, construction) 17329505 Bucharest Servicii Energetice Muntenia SA (company in restructuring) Services in the energy sector (maintenance, repair, construction) 29384120 Bucharest Servicii Energetice Moldova SA (company in insolvency) Services in the energy sector (maintenance, repair, construction) 29386768 Bacau Servicii Energetice Oltenia SA (company in restructuring) Services in the energy sector (maintenance, repair, construction) 29389861 Craiova 100% 100% 100% 100% Servicii Energetice Dobrogea SA* (bankrupt company) Services in the energy sector (maintenance, repair, construction) 29388378 Constanta 100% Servicii Energetice Banat SA* (bankrupt company) Services in the energy sector (maintenance, repair, construction) 29388211 Timisoara 100% Source: Electrica *)Electrica SA lost control over Servicii Energetice Banat as of November 2014 and over Servicii Energetice Dobrogea as of January 2015 due to bankruptcy procedure. Starting January 2016 Servicii Energetice Moldova has initiated the simplified insolvency procedure estimated to be finalized at the end of 2016. Electrica’s subsidiaries do not hold any shares issued by the parent company. 165 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA3 KEY EVENTS IN 2015 The main events of 2015: Regarding corporate governance • Starting with July4, 2014, the Company’s shares were listed on the Bucharest Stock Exchange, and Global Depository Receipts were listed on London Stock Exchange. After admission to trading on regulated markets in Bucharest and London, Electrica has taken major steps to align to the best practices of listed companies, by de- fining and introducing an action plan regarding corporate governance, defining clear lines of responsibility and accountability, implementing a code of conduct, assessing the management by a third party consultant and implementing a whistle-blower policy. • The most important decisions of the General Meeting of Electrica’s Shareholders in 2015 (14 December 2015, 10 November 2015, 9 Septem- ber 2015, 9 July 2015 and 27 April 2015) refer to: - Election of a Board of Directors consisting of seven non-executive members on 14 Decem- ber 2015, out of which four are independent. - Approval of new Articles of Association in No- vember 2015. The main changes refer to the number of directors and changing the metho- dsof candidates’ selection. - Empowerment of the Board of Directors to start negotiations with Fondul Proprietatea to purchase the minority stakes in the distribution and supply subsidiaries. - Approval of the consolidated investment plan at group level and revenue and expenditure bu- dgets for Electrica and its subsidiaries (Note: the consolidated investment plan was initially rejec- ted on 27 April 2015 and then approved on 9 July 2015). - Approval of financial statements for 2014 and profit distribution for Electrica and its subsidia- ries. - Rejection of the standard employee contract and remuneration policy for non-executive di- rectors. - Approval of general limits of remuneration for executives with mandate. Regarding the executive management • In July and, respectively, October, the Board of Directors appointed four executives with man- date, on the date of the current report two po- sitions of executives with mandate being still vacant (COO and CISO). • The new organizational structure and the corres- ponding processes were approved by the Board of Directors in April 2015. Their implementation is achieved in several stages, starting with a tran- sition phase, during which the refining and con- solidation of structures and processes take pla- ce. The project will be completed and started at the level of Electrica’s subsidiaries during 2016. Other relevant events: • ANRE Order no. 115/2014 regarding the appro- val of the Rules for monthly payment settle- ment in the balancing market for imbalances of balance responsible parties, entered into force on 1 March 2015. • ANRE Orders 171, 172, 173/14.12.2015 that approves the distribution tariff for 2016 at a lower level than 2015. • In November 2015, the court cancelled the ANRE order for approval of the distribution ta- riff for Electrica Distributie Transilvania Nord, for 2015. The decision can be appealed by ANRE. 166 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA4 DECLARATION ON CORPORATE GOVERNANCE 4.1 OWNERSHIP STRUCTURE The General Meeting of Shareholders („GMS”) is the main corporate forum of Electrica S.A., with responsibilities of decision regarding matters men- tioned in the Articles of Association. Convening, operating, voting process and other provisions re- garding GMS are detailed in the Articles of Associ- ation of Electrica S.A. Until July 2014, the Romanian state, through the Ministry of Energy, was the sole shareholder of Electrica S.A. As of July 4, 2014, the Company’s shares are listed on the Bucharest Stock Exchan- ge, and Global Depository Receipts are listed on London Stock Exchange. The latest information on ownership structure was made available by the Central Depository on 3 March 2016 and is pre- sented in the following table: Shareholder The Ministry of Energy, Bucharest, Romania The European Bank for Reconstruction and Development, London, UK BNY MELLON DRS, New York, USA Legal entities Individuals TOTAL Number of shares 168,751,185 29,944,090 18,086,928 Stake held (% of the share capital) 48.78% 8.66% 5.23% 112,002,040 32.38% 17,155,686 345,939,929 4.96% 100% Source: Central Depository, Electrica S.A. FIGURE1: Ownership structure on 3 March 2016 4.96% Total shares: 345,939,929 The Romanian State EBRD 48.78% BNY Mellon DRS - LSE Legal entities Individuals 32.38% 5.23% 8.66% Source: Central Depository, Electrica 167 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA4.2 ELECTRICA S.A GENERAL MEETING OF SHAREHOLDERS According to the Articles of Association updated on 10 November 2015: Duties of the general meeting of shareholders 1. The general meeting of shareholders of “Elec- trica” is its management body, deciding on its activity and economic policy. 2. The general meetings of shareholders are ordi- nary and extraordinary. 3. The ordinary general meeting of shareholders shall have the following main duties: a) to appoint and revoke the members of the Board and establish the level of their remu- neration and other rights according to legal provisions; b) to establish the income and expenses budget; c) to approve the annual report of the Board; d) to debate, approve or amend the annual fi- nancial statements according to the reports submitted by the Board and the financial au- ditors; e) to approve the profit distribution according to the law and to establish the dividend; f) to analyse the reports of the Board regarding, among others, the status and perspectives of the profit and the dividends, the position on the domestic and international market, tech- nical level, quality, labour force, environmen- tal protection, customer relations; g) to decide on the directors’ management and on the discharge of liability, in accordance with the law; h) to decide to file legal actions against the directors, managers and financial auditors for damages they caused to the Company by breaching their obligations towards the Company; i) to decide on mortgaging, leasing or closing of some units; j) to carry out any other duties set out by the law; k) to appoint and dismiss the financial auditor and to set the minimum term of the financial audit contract. 4. The extraordinary general meeting of share- holders shall gather in order to decide on the following: a) withdrawal of the preference right of share- holders upon subscription of new shares is- sued by the Company; b) contracting any type of loans, debts or obli- gations representing a loan, as well as ensuring real or personal security guarantees to these loans, in each case in accordance with the competence limits provided in Annex 1 to Elec- trica’s Articles of Association; c) operations regarding the acquisition, dis- posal, exchange or creation of encumbrances over fixed assets of the Company whose value exceeds, individually or cumulated, during any financial year, 20% of the total fixed assets, less receivables, as well as leases of tangible assets for periods longer than 1 year, whose individu- al or cumulated value towards the same con- tractor or persons with whom it acts in concert exceeds 20% of the fixed assets value, less re- ceivables at the time of entering the relevant operation, as well as joint ventures in excess of the same value and with a duration of over 1 year; d) approving investment projects in which “Electrica” S.A. will be involved in accordance with the competence limits provided in Annex 1 to the Company’s Articles of Association, oth- er than the ones provided in the annual invest- ment plan of the Company; e) approving the issuance and admission to trading on a regulated market or on an alter- native trading system of shares, depositary re- ceipts, allotment rights or other similar financial instruments; approving the competencies del- egated to the Board; f) changing the legal form; g) relocation of the registered office; h) changing the main or secondary business objects; i) increasing the share capital, as well as de- creasing or replenishing it by issuing new shares, according to the law; j) the merger and the spin-off; k) the dissolution of the Company; l) carrying out any bond issuance or conversion of a category of bonds in a different category or to shares; m) any amendment to the Articles of Associ- ation; n) approving the conversion of preferential and nominative shares from one category to anoth- er, according to the law; o) setting-up or dissolving secondary offices: branches, agencies, representative offices or any other similar units without legal status, ac- cording to the legal provisions; p) any other decision that requires the approval of the extraordinary general meeting of share- 168 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAholders; q) participation in the establishment of new le- gal persons; r) approval of the eligibility and independence criteria with respect to the Board members; s) approval of the corporate governance strat- egy of the Company, including the corporate governance action plan; t) the annual consolidated investment plan at a group level (CAPEX plan); and u) donations within the limits of the compe- tence provided in Appendix 1 to the Articles of Association. Rights and obligations deriving from the shares 1. Each share subscribed and fully paid in by the shareholders, in accordance with the law, grants them the right to one vote in the gen- eral meeting of shareholders, the right to elect and be elected in the management bodies, the right to participate in the profit distribution ac- cording to the Articles of Association and the legal provisions, as well as other rights included in the Articles of Association. 2. Acquiring the property right over a share by a person, directly or indirectly, as it can be pro- vided by the law, has the effect of automatic acquiring the capacity of Company’s share- holder together with all rights and obligations deriving from this capacity, in accordance with the law and the Articles of Association. 3. The shares’ rights and obligations are attached to the shares and in case of new owners, they are transferred together with the shares. 4. When a nominative share is owned by several persons, the transfer shall be registered only if they appoint a sole representative for exercis- ing the rights derived from the shares. 5. The obligations of “Electrica” are secured by its social patrimony, and the liability of the share- holders shall be limited up to the concurrence of the subscribed share capital. 6. The Company’s patrimony cannot be encum- bered by debts or other personal obligations of the shareholders. 7. The shareholder that has, in a certain opera- tion, either personally or as a representative of another person, an interest contrary to that of the Company, must refrain from deliberations regarding the said operation. The exercise of the rights by the holders of the depositary receipts 1. The rights and obligations related to the un- derlying shares based on which the depositary receipts were issued are exercised by the hold- ers of the depositary receipts, proportionally to their holdings of depositary receipts and taking into account the conversion rate between un- derlying shares and the depositary receipts. 2. The issuer of the depositary receipts in the name of whom the underlying shares are reg- istered, is the shareholder within the meaning and for the application of the Regulation no. 6/2009 regarding the exercise of certain rights of the shareholders in the general meetings of the companies. To this end, the issuer of the depositary receipts is fully responsible for in- forming the holders of the depositary receipts in a proper, complete and timely manner, ac- cording the provisions of the issuance docu- ments of the depositary receipts related to documents and informing materials needed for a general meeting of shareholders, made available by the Company to the shareholders. 3. In order to exercise its rights and obligations related to a general meeting of shareholders, the holder of depositary receipts should send to the entity where it has opened its account for depositary receipts the instructions related to items of the agenda of the general meeting of shareholders, so the information could be sent to the issuer of the depositary receipts. 4. The issuer of the depositary receipts votes in the general meeting of shareholders of the Company in accordance and within the limits of the instructions of the holders of depositary receipts, which have this quality at the refer- ence date determined in accordance with the applicable legal provisions and accounting for the provisions of the issuance documents of the depositary receipts. 5. The issuer of the depositary receipts can ex- press in the general meeting of shareholders different votes for certain underlying shares than those expressed for other underlying shares. 6. The issuer of the depositary receipts is fully responsible for taking all the necessary meas- ures, so that the entity which keeps the records of the holders of depositary receipts, the inter- mediaries involved in the custody services for holders of depositary receipts on the market where the depositary receipts are traded and/ or any other entities involved in recording the holders of the depositary receipts, to send the voting instructions of the holders of the depos- itary receipts related to the items of the agenda of the general meeting of shareholders. 7. Any reference date for the identification of the shareholders which have the right to take part and to vote in the general meeting of share- holders of the Company and any registration date for the identification of the shareholders 169 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAwhich have rights deriving from their shares, as well as any other similar date set by the Com- pany related to any corporate events of the Company will be established in accordance with the applicable legal provisions and with a prior notice sent with at least [15] free calendar days, to the issuer of the depositary receipts, in the name of which the underlying shares are registered based on which the depositary receipts mentioned above are issued. The ref- erence date will be at least 15 working days pri- or to the deadline for submitting the power of attorney related to the vote. Transfer of shares 1. The shares are indivisible as regards “Electrica” which shall recognize a single owner per each share, subject to the provisions of art. 11(4) from Articles of Association. 2. The partial or total transfer of shares between the shareholders or to third parties shall be car- ried out according to the terms and procedure provided by the law applicable to companies, including, the capital markets legislation. Useful updated information is available for share- holders at the following website address: http:// www.electrica.ro/en/investors/. 4.3 ELECTRICA S.A. BOARD OF DIRECTORS During 2015, the Board of Directors has under- gone several changes. At the beginning of the year, the Board of Directors consisted of five non-exec- utive members, appointed by the Ordinary Gen- eral Meeting of Shareholders on 22 September 2014. One of the directors was elected following the proposal by the Romanian state, represented at the time by the Ministry for Energy, three were elected at the proposal of private shareholders and one was elected at both the proposal of the Ro- manian state and of private shareholders. Four of the five directors fulfilled the independence crite- ria provided by the Articles of Association. The Board of Directors is responsible for fulfilling all measures necessary to carry out the activity of the Company, and for supervising the activity. The structure, organization, duties and responsibilities are established under the Articles of Association and the Regulation of the Board of Directors. During September 22, 2014 – November 17, 2015, the Board of Directors consisted of the following members: • Mr. Victor Cionga – non-executive independent director, elected as Chairman of the Board of Di- rectors until January 2016 • Ms. Arielle Malard de Rothschild - non-executive independent director • Mr. Michael Boersma – non-executive independ- ent director • Mr. Cristian Bușu - non-executive independent director • Mr. Victor Grigorescu - non-executive director. We present below the most relevant aspects re- garding the professional experience of the mem- bers of the Board of Directors at the time of their appointments: Name Office term Professional experience • Has held non-executive positions, including in energy companies (Member of the Supervisory Board of Hidroelectrica, President of the Board of Directors of Arctic Găesti, Member of the Board of Directors of Sidex). • Has experience in listing processes (involved in the initial public offering of Transelectrica, Siderurgica Hunedoara, Sidex and Petrotub), in bond issue projects (he has prepared one of the largest issues of municipal bonds on the Romanian market, issued by the Local Council of Timisoara Municipality) and in M&A area (Continental Hotels, NetCity). • Has comprehensive knowledge of corporate governance: he was director of BSE and created a partnership with OPSPI in order to strat a program through which the Institute of Corporate Governance offered free training programs to state-owned companies regarding the listing process. • Has an extensive experience in the field of investment banking, spending over 25 years in the companies Lazard Frères & Cie and Rothschild. Is the founder of the Emerging Markets Division at the Rothschild & CIE investment bank, part of the Rothschild group. • Before joining Rothschild & CIE in 1999, she spent 10 years as an investment banker at Lazard Frères & Cie, as part of the Sovereign Advisory team. • Her experience covers major privatization projects in Romania, Poland, Russia, Hungary and Morocco, coordinating the privatization of companies such as MOL, Nafta Polska, ZIL, BCR or Dacia. • Has experienced in M&A projects, working in over 40 such projects in Eastern Europe and Africa. • Member of the Board of Directors of Imerys S.A. (SBF120) and of Rothschild & Co, both listed on the Paris Stock Exchange and of Groupe Lucien Barrière. Victor Cionga 4 years Arielle Malard de Rothschild 4 years 170 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAName Office term Professional experience Michael Boersma 4 years Cristian Bușu 4 years Victor Grigorescu 4 years • Professor of corporate governance at the TIAS School for Business and Society, University of Tilburg in the Netherlands • Senior adviser for First State European Diversified Infrastructure Fund, London, UK. • Non-executive independent director of Nynas AB, Stockholm, Sweden, a company owned by PDVE and Neste Oil Oyj, and specializing in the production and trade of oils and bitumen. • President of the Board of Directors of Prometheus Energy, based in Houston (Texas, U.S.A.). • President of the Supervisory Board of TMG, a Dutch listed company, Amsterdam. • Member of the Supervisory Board of PostNl, a Dutch listed company, The Hague, the Netherlands. • President of the Supervisory Board of the VieCuri Medical Center for Noord-Limburg in Venlo, the Netherlands. • Chairman/member of foundations/institutions/advisory bodies (e.g. Energy Fund Limburg, Jheronimus Bosch 500, Protective preference shares FUGRO). • From 2003 until the end of 2009 - CEO and Chairman of the Executive Board of Directors of Essent, the largest Dutch utility company. • Member of the Board of Directors and of the Audit Committee at SIF OLTENIA. • Manager at the Central branch of Marfin Bank in Bucharest. • Between 2009 and 2013, he served as Financial Manager of Fondul Proprietatea and was a member of the Representatives Committee. • Economic Adviser for the Economic Department of the Romanian Government. • Lecturer at the Bucharest Academy of Economic Studies, in which capacity he conducted various teaching and research activities. • Expert at the Department for Energy. • Manager of AG Industrial Consult, company specializing in consulting in the field of public policies. • During 2007-2011- Second Secretary at the Permanent Mission of Romania to the EU, the commercial division, with responsibilities for the EU’s common commercial policy. • Since 2004 - EU expert at the Ministry of Economy and Trade, Foreign Trade Department. • Since 2006 - Romania’s representative in the 133 Committee (Steel), as guest, in the pre-accession period, and then as a full member after January 1st 2007. • Before working in public administration, he was development manager for a firm trading textile and other industrial products. On November 17, 2015, following his nomination as Government member, Minister of Energy, Mr. Victor Grigorescu resigned from the position of member of the Board of Directors of Electrica SA. Given that on November 10, 2015 the General Meeting of Shareholders decided to amend the Articles of Association and increase the number of members of the Board of Directors from five to seven, and in order to ensure the fulfilment of statutory requirements for adopting decisions, on 19 November 2015 the Board of Directors appointed Mrs. Ioana Dragan as interim member of the Board of Directors, until the next Gener- al Meeting of Shareholders of the Company, i.e. until 14 December 2015. Also, in November, Mr. Cristian Bușu was appoint- ed Secretary of State in the Ministry of Energy, consequently changing his status of independent candidate. During September 22, 2014 – November 17, 2015, the Board of Directors consisted of the following members: • Mr. Victor Cionga - non-executive director, chairman of the Board of Directors • Ms. Arielle Malard de Rothschild - non-executive director • Mr. Michael Boersma – non-executive director • Mr. Cristian Bușu – non-executive director • Ms. Ioana Dragan - interim non-executive director. On December 14, 2015, the General Meeting of Shareholders elected, by cumulative voting, a Board of Directors consisting of seven non-ex- ecutive members. Their term of office, registered based on the decision of the General Meeting of Shareholders, is 4 years. Four of the seven direc- tors fulfil the independence criteria provided by the Articles of Association, according to state- ments presented on the occasion of nomination. 171 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAAt the date of this report, members of the Board of Directors are the following: No. Name Term of office (starting with 14.12.2015) Status Date of first election 1. Cristian Bușu 4 years non-executive director 22 September 2014 2. Arielle Malard de Rothschild 4 years non-executive director, independent 22 September 2014 3. 4. 5. 6. 7. Ioana Dragan Corina Popescu 4 years 4 years non-executive director 14 December 2015 non-executive director 14 December 2015 Bogdan Iliescu 4 years non-executive director, independent 14 December 2015 Michael Boersma* 4 years non-executive director 22 September 2014 Pedro Mielgo Alvarez 4 years non-executive director independent 14 December 2015 Source: Electrica *Note: Mr. Michael Boersma announced that he would resign from the position of Board member as of 1 May 2016. Details of biographies of Board members can be found on the company website under the “Inves- tors” section. Mr. Cristian Bușu was elected Chairman of the new Board of Directors in the first meeting, which took place on 13 January 2016, for a term of 1 year.  During 2015, until December 14, 2015, the com- position of the committees was the following: a) The Nomination and Remuneration Com- mittee  In the first meeting of the new Board of Di- rectors on January 13, 2016, it was decided to change the composition of committees, as fol- lows: a) The Nomination and Remuneration Com- mittee • Mr. Bogdan Iliescu - Chair of the committee • Mrs. Arielle Malard de Rothschild • Mrs. Corina Popescu b) The Audit Committee • Mr. Pedro Mielgo Alvarez - Chair of the • Mrs. Arielle Malard de Rothschild - Chair of committee the committee • Mr. Michael Boersma • Mr. Cristian Bușu b) The Audit Committee • Mr. Cristian Bușu - Chair of the committee (until November 27, 2015, when the chair- manship of the Committee was taken over by Mrs. Arielle Malard de Rothschild) • Mr. Victor Grigorescu; (until 17 November, as of November 27, 2015 he was replaced by Mr. Victor Cionga) • Mrs. Arielle Malard de Rothschild c) The Strategy, Restructuring and Corporate Governance Committee • Mr. Michael Boersma - Chair of the com- mittee • Mr. Victor Grigorescu; (until 17 November, as of November 27, 2015 he was replaced by Mrs. Ioana Dragan) • Mr. Victor Cionga. • Mrs. Arielle Malard de Rothschild • Mr. Bogdan Iliescu c) The Strategy, Restructuring and Corporate Governance Committee • Mr. Michael Boersma - Chair of the com- mittee • Mrs. Ioana Dragan • Mr. Cristian Bușu. Consultative committee members are elected for a period of one year. Organization, duties and responsibilities of each committee are set under the Articles of Association of Electrica S.A., re- spectively in the committee charters - an integral part of the Corporate Governance Code of the Company. According to information held, there is no agree- ment, understanding or family relation between the directors of the Company and another per- son who may have contributed to their appoint- ment as directors. 172 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAThe following table presents the number of Electrica S.A. shares held by all members of the Board of Directors in March 2016: Name Victor Cionga Victor Grigorescu Cristian Bușu Arielle Malard de Rothschild Ioana Dragan Corina Popescu Michael Boersma Bogdan Iliescu Pedro Mielgo Alvarez Source: Electrica Number of shares Stake held (% of the share capital) 5,000 0.00144534% - - - - - - - - - - - - - - - - According to information held, the members of Board of Directors were not involved in disputes or administrative proceedings regarding their activity within the Company in the last five years or regarding the capacity to fulfil their duties within the Company. During 2015, the Company established a special structure, the General Secretariat, functionally reporting to the Board of Directors and which among others duties covers to provide the nec- essary support for the development of Board’s meetings. The coordinator of the Secretariat has the position of secretary of the meeting with- in the Board meetings. Starting with September 26, 2015, Mrs. Mirela Dimbean-Creta fulfils this position. The activity of the Board of Directors of Electrica S.A and its consultative committees In 2015, the Board of Directors met 35 times. Out of 35 meetings that took place in 2015, 12 were organized at Electrica’s headquarters and 23 were held electronically, in accordance with the provisions of art. 17 paragraph 22 of the Articles of Association of the Company. We present below the situation of Board mem- bers’ presence (in person) in the meetings of the Board of Directors and its committees in 2015: Name The Board of Directors (no. of meetings - 35) The Audit Committee (no. of meetings - 9) The Nomination and Remuneration Committee (no. of meetings - 14) The Strategy, Restructuring and Corporate Governance Committee (no. of meetings - 11) Victor Cionga Victor Grigorescu Cristian Bușu Arielle Malard de Rothschild Ioana Dragan Michael Boersma 34* 31 35 35 4 35 1 8 9 9 - - - - 14 14 - 14 11 9 - - 1 11 Source: Electrica *Note: in a meeting of the Board of Directors, Mr. Victor Cionga as represented by Mr. Victor Grigorescu, on the basis of mandate. 173 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAThe main decisions adopted by the Board of Di- rectors in 2015 refer to: • Implementation of the charter of the Board of Directors and the charters of the committees set up by the board; • Approval of the Corporate Governance Code; • Approval of the Code of Ethics and Professional Conduct, of the procedure for reporting ethi- cal misconduct, irregularities or any violations of the law by professional alert devices (whis- tle-blower); • Approval of the Internal Audit Charter and Code of Ethics for the internal auditor; • Approval of the audit plan for 2015 and 2016; • Approval of the internal audit operational pro- cedure; • Implementation in Electrica SA subsidiaries of a similar corporate governance model as used by the Company, namely replacing the executive directors with non-executive ones; • Endorsement of Electrica SA’s financial state- ments at individual and consolidated levels for the financial year of 2014; • Endorsement of financial statements of Com- pany’s subsidiaries for the financial year of 2014; • Endorsement of Electrica SA’s income and ex- penses budgets at standalone and consolidated levels for the financial year of 2015; analysis of the budgetary projection for 2016; • Endorsement of income and expenses budgets of company’s subsidiaries for the financial year of 2015; analysis of the budgetary projection for 2016; • Endorsement of the consolidated investment plan for the financial year of 2015; ecutive managers for the positions of director of strategy, sales, human resources and CFO. In the first two months of 2016, the Board of Di- rectors met five times (out of which two meet- ings were held electronically) and adopted im- portant decisions for both its organization and the development and operational direction of the Company. The main decisions adopted by the Board of Di- rectors during meetings held in the period of De- cember 14, 2015 - February 29, 2016 refer to: • Election of the Board of Directors’ Chairman; • Establishment of the consultative committees and election of their presidents; • Analysis and endorsement of individual budgets of Electrica SA and its subsidiaries and the con- solidated budget at group level for 2016; • Endorsement of the consolidated investment plan at group level for 2016. Board of Directors’ evaluation The Board of Directors whose term ended on December 14, 2015 has initiated and carried out an evaluation of its activity. For this purpose, it has contracted the services of a well-established in- ternational company, with comprehensive expe- rience in corporate governance. The evaluation covered the period November-December 2015 and the main objectives established considered the following aspects: • Strengthening the effectiveness of the Board by identifying the possible improvements in its structure, functioning, ability to work as a team, and its capacity to constructively challenge management. • Approval of the transition organizational struc- ture and the Regulation of organization and functioning of the Company; • Development of shared views among Board members on how the Board could better con- tribute to Electrica’s performance. • Approval of a profile for the competences of the members of the board of directors of the Company. • Strengthen confidence in Electrica’s approach to governance among key shareholders and other stakeholders. Also, the Board of Directors discussed during several meetings and analysed the materials and proposals regarding Electrica’s Strategy and Busi- ness Plan, the Management Plan of the Board of Directors, the Remuneration Policy and the Board of Directors administration standard contract, and initiated projects regarding the restructuring of subsidiaries and review of the Articles of As- sociation of the Company and of its subsidiaries. Another area characterizing the activity of the Board of Directors in this period is represented by the concern for setting up a new team on exec- utive management and key-positions level. In this context, an extensive process of evaluation of in- ternal competences was carried out, in order to confirm and, respectively, select and recruit ex- • Encourage Electrica to be a leader in Romanian corporate governance by meeting best practice requirements and expectations of the BSE Code of Corporate Governance;; • Enhance comfort among Board members re- garding the fulfilment of collective responsibil- ities. The conclusions drawn from the evaluation pro- cess were discussed by the Board of Directors – both in the old structure valid until December 14, 2015 and in the new structure. Analysis of recommendations formulated revealed that the action plan should focus on the following main elements: 1. The Board of Directors should focus more on viewing the activity from a group level perspec- 174 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAtive and should receive more information on the activity of subsidiaries, in order to define and apply appropriate governance policies at group level; • periodically evaluates the size and structure of the Board and of the advisory committees and, if necessary, recommends any changes to the Board; 2. Improvement of the nomination process re- garding the candidates for a position within the Board of Directors, in order to ensure the necessary resources and competencies of the Board, while also strengthening the role of the Nomination and Remuneration Committee in managing this process; 3. The Board of Directors will have an approach from a strategic point of view rather than oper- ational, one of the areas requiring more focus being the creation and development of a prop- er framework for risk management and internal control; 4. Improving communication with the executive management and creating a relevant tool for the periodic reporting of Electrica and group activity; setting the annual calendar of meet- ings and key documents and reports to be pre- sented by the executive management. A first step in implementing the measures men- tioned is the initiation of a project to review and align the Articles of Association of Electrica and its subsidiaries, considering more clearly the scope of activity and the responsibilities by level of management, controlled delegation of abilities and implementation of a new corporate govern- ance at group level. The Nomination and Remuneration Committee The Nomination and Remuneration Committee consists of three non-executive Board of Direc- tors members, the majority of them being inde- pendent members, while the chairman of the committee is an independent director. The role of the Committee is to propose candi- dates for the Board of Directors, to develop and propose to the Board the selection procedure of candidates for the positions of director and oth- er management positions, to recommend to the Board candidates for the positions listed, to for- mulate proposals on the remuneration of direc- tors and management positions. Additionally to the provisions of the Articles of Association the Committee has the following duties in the area of remuneration: • elaborates and proposes to the Board the pol- icy for selection and evaluation of candidates and evaluates the balance of skills, experience, independence, knowledge and diversity of can- didates; • proposes to the Board procedures for the peri- odical assessment of performance of the Board and its members; • makes recommendations to the Board regard- ing the Company’s policies on remuneration, incentives and severance payments; • makes recommendations to the Board regard- ing the Company’s policies on staff recruitment, retention and termination of employment; • makes recommendations to the Board regard- ing the remuneration of the CEO and other executive directors, including the main compo- nents of remuneration, performance objectives and evaluation methodology; • makes recommendations to the Board regard- ing the structure of the remuneration of non-ex- ecutive directors. The Nomination and Remuneration Committee met 17 times during January 1, 2015 - February 29, 2016. During these meetings, the following topics were discussed and referred to the Board of Directors for approval: • recommendations on the remuneration of Board members and their administration stand- ard contract; • recommendations on the structure and remu- neration of the subsidiaries’ Board of Directors members; • recommendations on the appointment of exec- utive directors and performance criteria; • recommendations on the organizational struc- ture of the Company; • the profile of the Board of Directors and its evalu- ation policy - developed according to principles undertaken by Electrica SA under the Corporate Governance Code and taking into account the principles and provisions of the new Corporate Governance Code adopted by the Bucharest Stock Exchange, applicable as of 4 January 2016. The criteria envisages for the Board mem- bers covers the following areas: general man- agement, technology and regulation, financial and economic, social and economic, interna- tional experience and information technology, areas that reflect the Company’s activity and its anticipated challenges in the coming years. Furthermore, the Nomination and Remuneration Committee was involved in preparing the Gen- eral Meeting of Shareholders held on December 14, 2015, which had on its agenda the election of members of the Board of Directors via the cu- mulative voting procedure, at the request of the Romanian state as a shareholder. For this pur- pose, according to the provisions of the Articles of Association in force at the time of convening the General Meeting of Shareholders, the Nom- 175 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAination and Remuneration Committee decid- ed to hire an independent recruitment agency, with international experience, for identifying and providing a shortlist of potential independent candidates, from which the shareholders could choose one or several candidates. Also, in terms of nominations of independent candidates, the Nomination and Remuneration Committee veri- fied the existence of supporting documents prov- ing that they fulfilled the conditions mentioned in the Articles of Association of Electrica SA. The Audit Committee The Committee is made up of three members, most of them independent directors, the chair- man is a non-executive independent director. This structure provided the necessary expertise in finance and risk management, according to legal requirements. The main role of the Committee is to support the Board in fulfilling its duties of effective validation of Company’s financial reporting, internal control and risk management. While fulfilling this role, the Committee advises the Board regarding the Annual Report and Annual Financial Statements, whether the documents are accurate, balanced and comprehensive and provide all the neces- sary information for the shareholders’ evaluation of the financial performance, business model and strategy of the Company. At the same time, the Committee has the following duties: • reviews and monitors the independence of the external auditor, the objectiveness and effec- tiveness of the audit process; • monitors the auditor compliance with the rele- vant professional and ethical guidelines regard- ing the audit partner rotation, the level of fees paid by the Company compared to the overall income fees of the company, audit office and partner, and other related requirements; • ensures the compliance of the activities with the internal audit role; • monitors and reviews the adequacy and effec- tiveness of the internal audit role and internal financial controls in the context of the entire risk management system of the Company; • reviews the policies and systems of the Com- pany for detecting fraud and preventing taking/ giving of bribes; • assesses the financing requirements of the Company and the financing plans proposed and makes recommendations to the Board regarding the permits, notifications and appli- cations necessary and appropriate to enable the Company’s management to execute such plans. uary 1, 2015 - February 29, 2016. During these meetings, the following were discussed and re- ferred to the Board of Directors for debate and, when applicable, approval/endorsement: • The Regulation of organization and operation of the Audit Committee; • The audit plan for 2016; • The operational internal audit procedure; • The financial statements of Electrica SA at stan- dalone and consolidated levels for the financial years of 2014 and 2015 and the financial state- ments of Company’s subsidiaries for the finan- cial years of 2014 and 2015; • The income and expense budget of Electrica SA at standalone and consolidated levels for the fi- nancial years of 2015 and 2016 and the income and expense budgets of Company’s subsidiaries for the financial years of 2015 and 2016; • Various reports submitted by the internal auditor on missions carried out within Electrica SA and its subsidiaries. The internal audit activity is carried out by a sep- arate division from a structural point of view (the Internal Audit Office), within the Company. In or- der to ensure the fulfilment of its main functions, it reports to the Board of Directors through the Audit Committee and administratively - to the CEO. Given the recommendation resulting from the process of evaluation of the activity of the Board of Directors in its whole, regarding the creation and development of an adequate risk manage- ment framework, the Audit Committee decided to pay more attention and provide more support to the Company, from this perspective. A first step was the implementation of the decision, to rename it as the Audit and Risk Committee in the meeting held on 8 December 2015, and dur- ing the first meetings of the new Committee was planned the presentation of a report on risk man- agement process in the year 2015 and based on its analysis resulted the establishment of a calen- dar for the presentation of specific and periodical reports. The Strategy, Restructuring and Corporate Governance Committee The Committee consisted of three non-execu- tive directors, most of them being independent directors, and the chairman - a non-executive in- dependent director. The Committee has the following duties in terms of strategy: • supervises and monitors the strategy of the Company and makes recommendations to the Board in relation to this; The Audit Committee met 12 times during Jan- • makes sure that an effective strategic planning 176 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAprocess is being set by the Board, including the development of a medium-term strategic plan with measurable targets and deadlines; • evaluates the performance of the Company and makes sure that the Company is aware of trends in the industry and the local market, with the evolution of competition and technological de- velopments; • assesses whether acquisitions, disposals, joint ventures, cooperation projects fit into the strat- egy of the Company. Regarding the tasks of the Committee on restruc- turing, they mainly relate to: • making recommendations to the Board on the most appropriate ways for the Company to restructure and/or develop its activities and supervises the implementation by Company management of the decisions adopted by the Board on restructuring and/or development of the Company; • reviewing the structure, objectives and policies of the Company and making recommendations to the Board; • reviewing and making recommendations to the Board on the development and implementation of all restructuring plans and objectives of the Company, including any matters relating to the establishment and streamlining of core busi- nesses. At the same time, the Committee has duties in terms of corporate governance: • supervises and monitors the Company’s com- pliance with its legal and contractual obligations and with the principles of corporate govern- ance applicable and makes recommendations to the Board in connection to this; • develops and recommends to the Board corpo- rate governance guidelines and proposes any amendments on corporate governance policy and documentation of the Company; • reviews potential conflicts of interest that in- volve the directors and discusses with the Board if a director or directors may vote on any matter in relation to which there could be a conflict. The Strategy, Restructuring and Corporate Gov- ernance Committee met 13 times during January 1, 2015 - February 29, 2016. During these meet- ings, the following were discussed and referred to the Board of Directors for approval/endorse- ment: • the Regulation of organization and operation of the Board of Directors and of the Strategy, Re- structuring and Corporate Governance Com- mittee; • recommendations on acquisitions/investments opportunities, the strategy of respectively smart-metering implementation at the level of Electrica Group, unification of the Dispatcher, GIS etc.; • the Corporate Governance Code; • the consolidated investment plan for 2015 and 2016; • the strategy for the development of Electrica SA Group’s activity; • health and safety at Group level; • the procedure for reporting ethical misconduct, irregularities or any violations of the law by pro- fessional alert devices (whistle-blower); • proposals to amend the Articles of Association of Electrica SA and its subsidiaries, in its capacity as sponsor of the project for review and align- ment thereof. For 2016, the Committee proposed as main ob- jectives the completion and implementation of new Articles of Association of Electrica SA and its subsidiaries and greater involvement and coordi- nation of the process of defining and implement- ing the policy of corporate governance at Group level and the restructuring strategy thereof. 177 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA4.4 EXECUTIVE MANAGEMENT In accordance with art. 18 letter A, paragraphs (c) and (k) of the Articles of Association of the Company, the Board of Directors appoints and revokes the CEO, as well as the other executives with mandates. The CEO carries out the activity according to the provi- sions of the mandate contract concluded with the Company. Under the Decision no. 24 of July 5, 2013, the Board of Directors appointed Mr. Ioan Roșca as CEO with a four year mandate and delegated to him some responsibilities for internal management and power of representation of the Company. On 26 February 2016, the Board of Directors and Mr. Roșca announ- ced that they had reached an agreement on termi- nating his mandate as CEO of Electrica S.A. by June 2016 at the latest. According to the best practices applied by compa- nies listed on international markets, regarding the im- plementation of a succession plan for key-positions, the Nomination and Remuneration Committee co- ordinates the process of selection suitable applicants for the CEO position of Electrica SA. The Nomina- tion and Remuneration Committee is supported in this approach by an international consulting firm specialised in recruiting top management, in order to complete the selection process in the next two months. During the meeting held on 29 July 2015, the Board of Directors appointed the following directors for a mandate of four years starting 4 August 2015: • Ms. Alexandra Romana Augusta Popescu Borisla- vschi - Strategy and Corporate Governance Mana- ger • Mr Ramiro-Robert-Eduard Angelescu – Sales Coor- dination Division Manager • Mrs. Gabriela Marin – Human Resources Division- Manager During the meeting held on 26 October 2015, the Board of Directors appointed Ms. Iuliana Andro- nache as CFO for a mandate of four years starting 27 October 2015. According to information held by the Company, there is no contract, understanding or family relati- onship between the directors of the Company and another person who may have contributed to their appointment as directors. 4.5 THE CORPORATE GOVERNANCE CODE Electrica has adhered and voluntarily applies the provisions of the Corporate Governance Code issued by the Bucharest Stock Exchange, starting with the financial year of 2014. Formally, Electrica adopted the Corporate Governance Code („CGC ELSA”) as of February 2015 and made it available for all stakeholders on its website. This Corporate Governance Code incorporates Electrica’s general principles and rules of conduct, which set the corporate values, responsibilities, ob- ligations and business conduct of the Company. CGC ELSA also includes Electrica’s Articles of Association, the regulations of organization and operation of the Board of Directors and of the committees established within it, and together all these documents contain the reference terms and responsibilities of the administrative and ex- ecutive management of the company. Electrica has continuously developed and updat- ed the corporate governance principles in order to meet the requirements and to create opportu- nities, as well as to increase its competitivity. In September 2015, BSE issued a new Corporate Governance Code („BSE Code” or „CGC BSE”), which entered into force as of 4 January 2016. The provisions of the new Code are currently subject to careful analysis within the Company, and Company’s compliance with it is being thor- oughly assessed. The statement „Apply or Explain” (please refer to Appendix 1) is updated as of 29th February 2016 and presents the status on the Company’s com- pliance with the new provisions of CGC BSE. Electrica will continue to assess the provisions of the Code and any subsequent progress made by the Company in achieving compliance will be re- ported to the capital market. CGC is also a guide for Electrica’s management and employees, as well as other stakeholders, re- garding business conduct and governance and provides information on principles and policies of the Company. CGC also incorporates the Code of ethics and professional conduct. In accordance with the policies of the Compa- ny and with the provisions of the Code of Ethics and Professional Conduct, the Audit Committee ensures that the Company’s activity is carried out with honesty and integrity including by approving the whistle-blower procedure. The purpose of whistle-blower procedure is to protect the Com- pany from ethical misconduct, frauds and any is- sues of non-compliance that could bring image and/or commercial prejudice or would lead to legal sanctions, reducing the prestige and prof- itability of the Company. This procedure can be accessed on Electrica’s website. 178 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA4.6 DESCRIPTION OF THE MAIN FEATURES OF INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS IN RELATION TO THE FINANCIAL REPORTING PROCESS The internal control and the risk management systems in relation to the financial reporting pro- cess have the following objectives: • Compliance with the current financial and ac- counting regulations; • Applying the elaborated management instruc- tions regarding the financial information; • Ensuring the reliability of the financial informa- tion (i.e. ensuring that the provided and pub- lished accounting, financial and management information is complete and accurately reflects the company’s activity and current situation); • Preventing and detecting fraud as well as finan- cial and accounting irregularities. Realizing the above mentioned objectives is sup- ported by: • Recruiting personnel with adequate competen- cies that match the Company’s needs and the existence of an appropriate plan for continuous learning, which facilitates the updating and con- tinuous improvement of the knowledge con- cerning the fiscal and accounting regulations (according to the approved personnel policy) or supplementing the internal resources with ex- ternal advisors, if necessary. • Clearly establishing the responsibilities of each and every person involved in the financial re- porting process (according to the job descrip- tions) and the separation of duties on carrying out operations between persons in a way that the approval, control and registration authorities are, as much as possible, attributed to different individuals (according to the Company’s organ- izational structure). • The existence of an accounting policy manu- al drawn up according with the currently out- standing laws and approved by the Board of Directors. • The existence of a clearly established plan and process for preparing the accounting and fi- nancial information in line with the reporting standards (the capital market’s financial and accounting standards) as well as their adequate verification and approval by the Board of Direc- tors in order to be published. In order to prevent the identified risks, the Com- pany created and implemented internal controls. To ensure the fulfilment of objectives, to prevent the possibility of risks occurrence and to remove some risks already identified, the Company has at its disposal the Internal Audit Office and the Inter- nal Control Office, as well as a general financial control system, financial control management, unanticipated controls ordered by management, control on technical issues, controls that occur both within sub-units and at the headquarters or- ganizational entity. There are policies, procedures and processes documented in regards to the selection, devel- opment and performance assessments done by the management in order to determine which components of internal control verifies the actu- al control system. Thus, in 2015, it took place the Commission’s meeting regarding the monitor- ing, coordination and methodological guidance of the managerial control system development, appointed by Decision no. 97/17.2.2014. This Commission worked on the basis of the Com- mission’s system procedure, regarding the activi- ty of monitoring, coordination and methodolog- ical guidance of the managerial control system development, code SCM-PS-01. The management monitors the operation of in- ternal controls through periodic management reviews, e.g. budget implementation, monitoring security incidents, internal and external audit re- ports, internal control reports. The deficiencies in the implementation or op- eration of internal controls are documented in the internal control and internal audit reports and these matters are presented to the opera- tive management in order to dispose correction measures. The internal audits assess the internal control system, risks and control strategies implemented and suggest initiative, proposals, solutions and recommendations to mitigate the risk of fraud and improved control strategies (please refer to Appendix 2 to this report). Internal audit includes, but is not limited to, ex- amination and assessment of the adequacy and effectiveness of the organization’s corporate governance, risk management and internal con- trols and quality performance in fulfilling the re- sponsibilities assigned to achieve declared goals and objectives of the organization. The following policies/procedures have been im- plemented in order to prevent, detect, deter and reduce fraud: • The Policy of reporting ethical misconduct, ap- proved in Electrica’s Board of Directors and in subsidiaries – whistle-blower; 179 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA• The Policy of zero tolerance for corruption, fraud and money laundering, was adopted in January 2016 at ELSA level. The policy is cur- rently being approval process by the subsidiar- ies; • Based on the IT audit for identification and as- sessment of the information security risks, con- ducted in December 2014, were evaluated 261 security controls, according to best industry practices, resulting in 64 controls that are com- pliant, 70 controls partially compliant and 127 controls not implemented, resulting a “HIGH” risk level on the information security. This lev- el of risk was confirmed by tests conducted by SC SAFETECH INNOVATIONS SRL, in order to identify and assess vulnerabilities computer sys- tem, concluding that it is a number of critical vulnerabilities in the IT infrastructure exposed in Internet and also internally. By the proposed measures to be implemented in 2016, it is esti- mated that the risk will be reduced to a “Medi- um” level and on certain components to “Ac- ceptable” level. The program for improving the safety for IT sys- tem addresses four components as follows: • Management process for security, including the monitoring process; • Policy and security standards; • Training of the users on information security; • Systems and technologies to ensure IT security. 180 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA5 FINANCIAL REPORTING The standalone financial statements were pre- pared in accordance with the Order of the Deputy Prime Minister, Minister of Finance no. 1286/2012 approving the Accounting Regulations according to International Financial Reporting Standards („IFRS”), applicable to companies whose securities are admitted for trading on a regulated market, with further amendments („OVMFP 1286/2012”). In the acceptance of OVMFP 1286/2012, Inter- national Financial Reporting Standards represent the standards adopted under the procedure stip- ulated by the European Commission Regulation no. 1606/2002 of the European Parliament and Council of July 19, 2002 on the application of in- ternational accounting standards. 5.1 BALANCE SHEET ITEMS Financial information selected from Company’s balance sheet (thousand RON) December 31, 2015 December 31, 2014 Variation ASSETS Fixed assets Tangible Assets Intangible Assets Investments in subsidiaries Deferred tax receivables Total fixed assets Current assets Cash and cash equivalents Deposits, treasury bills and government bonds Trade receivables Other receivables Inventories Prepaid expenses Current income tax receivables Total current assets Total assets EQUITY AND DEBTS Equity Share capital, of which: Subscribed share capital Inflation adjustments to capital Share premium Treasury shares Contributions in kind of shareholders Revaluation reserve Legal reserves Retained earnings Total equity 293,375 1,499 1,430,819 7,250 1,732,943 283,366 1,900,395 77,531 13,056 117 56 23,134 2,297,656 291,259 678 1,427,361 7,206 1,726,502 1,075,620 1,038,420 87,696 15,391 166 337 23,134 2,240,763 4,030,599 3,967,266 3,459,399 3,459,399 0 103,049 -75,372 2,862 769 142,932 292,266 3,814,242 3,459,399 354,843 103,049 -75,372 3,277 829 127,897 -104,364 3,925,905 3,869,557 1% 121% 0% 1% 0% -74% 83% -12% -15% -30% -83% 0% 3% 2% -9% 0% -100% 0% 0% -13% -7% 12% - 1% 181 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SADecember 31, 2015 December 31, 2014 Variation Liabilities Long-term liabilities Employee benefits Total long-term liabilities Current liabilities Trade payables Other liabilities Deferred revenues Employee benefits Provisions Total current liabilities Total liabilities 1,796 1,796 60,634 7,632 497 2,885 31,251 102,898 104,694 2,991 2,991 83,400 8,663 384 2,270 0 94,718 97,709 Total equity and liabilities 4,030,599 3,967,266 -40% -40% -27% -12% 29% 27% - 9% 7% 2% Fixed assets On December 31, 2015 vs. December 31st 2014, fixed assets increased by RON 6,441 thousand or 0.4%, to RON 1,732,943 thousand from RON 1,726,502 thousand. Equipment and tangible assets in progress include mainly the costs of implementation of the AMR system (Automatic Meter Reading). The Compa- ny concluded four contracts for the implementa- tion and extension of the AMR system regarding the consumption measurement and control at Electrica Group level. In 2015 the Company put into function a part of this investment, amount- ing to RON 112,581,009 (2014: RON 59,920,097). Another portion of the investment, amounting to RON 21,524,137, is part of assets in progress as of December 31st 2015 (2014: RON 110,133,543). The net value capitalized relating to this system is RON 197,238,723 as of December 31st 2015. In connection with the AMR system, the Company concluded service agreements with the distribution subsidiaries. The main services provided refers to data acquisition by distribution subsidiaries’ em- ployee, using electricity reading system from the metering points, property of the Company. The Company assessed whether the arrangement con- tains a lease and concluded that it does not contain any lease due to the fact that the distribution sub- sidiaries do not have the right of usage of the assets. Trade receivables On December 31, 2015, the Company’s receiv- ables dropped by RON 10,165 thousand or 12%, to RON 77,531 thousand, from RON 87,696 thou- sand on December 31st 2014. Cash and short-term investments On December 31, 2015, the category including cash and cash equivalents, deposits, treasury bills and government bonds increased by RON 69,721 thousand or 3%, to RON 2,183,761 thousand, from RON 2,114,040 thousand on December 31, 2014, due to the net interests from the invest- ments made. Deposits, treasury bills and government bonds Th. RON December 31, 2015 December 31, 2014 Treasury bills and RON government bonds with a maturity greater than three months 1,756,339,194 901,415,791 Deposits with a maturity greater than three months 144,056,193 137,004,050 Total deposits, treasury bills and government bonds 1,900,395,387 1,038,419,841 182 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SADeposits, treasury bills and government bonds with an initial maturity over three months have an average interest rate (average yield) of 0.93% from the following financial institutions: Citibank Europe PLC Dublin, Raiffeisen Bank, BRD-CSG, Marfin Bank, ING Bank. Treasury bills and gov- ernment bonds are presented such as invest- ments hold until maturity. Share Capital The subscribed share capital in nominal terms consists of 345,939,929 ordinary shares on De- cember 31, 2015 (345,939,929 ordinary shares on December 31st 2014) with a face value of RON 10/share. All shares give equal rights to the net assets of the Company. Holders of ordinary shares are entitled to dividends and have the right to one vote per share in the General Meet- ings of Shareholders of the Company. The Company recognizes the changes in share capital only after their approval in the General Meeting of Shareholders and their registration with the Trade Register. Contributions made by the shareholder which are not yet registered with the Trade Register at the end of the year are recognized in „Contributions in kind of share- holders, paid in advance”. In 2015 there were no changes in the share capital. At December 31st 2015 the Company meet the requirements of share capital as per the legisla- tion in force. Dividends The Company can distribute dividends from the statutory profit, according to the individuals statu- tory financial statements prepared in accordance with the Romanian accounting regulation. The Company’s management intention as declared in the IPO Prospectus is to distribute dividends to Electrica’s shareholders representing approxi- mately 85% of the consolidated net profit. Dividends distributed by Company in the last 3 years (from statutory profits of previous years), as follows: 2015 RON 2014 2013 Distributed dividends 244,691,906 22,475,225 13,211,376 Dividends related to the year ended December 31st 2014, amounting to RON 244,691,906, were declared based on the standalone annual statu- tory financial statements of the Company. The distribution of dividends gross amount of RON 0.7217/share was approved under the De- cision of the Ordinary General Meeting of Share- holders no. 1 of April 27th, 2015 and their payment started on July 15th, 2015. At December 31st 2015 the Company recorded dividends liabilities amounting to RON 608 thou- sands representing the dividends uncollected by the shareholders from the Depository. Description of purchase and / or lending of assets The main purchases of assets done by the Com- pany during 2015 are the following: • Tangible assets in progress amounting to RON 23,957 thousands for the implementation of the AMR (Automatic Meter Reading) system – plea- se see “Tangible assets” for further details; • Treasury bills and government bonds purchase - please see “Cash and short term investments” for further details. 183 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA5.2 OPERATIONAL RESULTS Financial data selected from the profit and loss account of the Company (th. RON) Indicator Income Other operating income Purchased electricity Salaries and employees benefits Amortisation of tangible and intangible assets Value adjustments related to investments in subsidiaries Year 2015 Year 2014 383,708 244,517 1,533 4,462 -368,684 -224,176 -16,637 -20,242 0 -16,699 -13,252 -4,675 Var. 57% -66% 64% 0% 53% -100% Adjustments restatements/ (Adjustments) on impairment of trade receivables and other receivables, net value 2,832 -2,469 - Other operating expenses Change in provisions, net value Operating losses Financial revenues Financial expenses Profit from selling of shares hold in other entities Net financial revenues Profit before taxation Corporate tax – benefit/(expenses) Net profit -23,289 -31,251 -72,029 373,026 -289 0 372,737 300,708 157 -29,318 30,777 -10,832 257,583 -2,486 31,809 286,907 276,075 -6,586 300,864 269,490 -21% - 565% 45% -88% -100% 30% 9% - 12% Income In the year 2015, Electrica reported revenues of RON 384 million against RON 245 million re- ported in the year 2014. The variation is mainly caused by the unfavourable development of the activity carried out by Electrica SA as responsible party accountable for the stability of the energy market, reporting an increase by RON 148 mil- lion, respectively 64%. The breakdown structure of the income is as fol- lows: thousands RON 2015 2014 Supplying electricity on the balancing markets and the Day-Ahead Market (MGP) 379,039 230,731 Management and consultancy Services Revenues from services contracts related to the Automatic Meter Reading system Total - 4,669 9,051 4,735 383,708 244,517 Other operating income Other income mainly include the income from rent and penalties applied to clients for delay pay- ments. Purchased electricity The purchased electricity includes the cost of the electricity purchased for the settlements on the balancing market and the Day-Ahead Market (MGP), and it reached RON 368,684 thousands in 2015 against the amount of RON 224,176 thou- sands in 2014, following the same increasing trend as the energy revenues. Amortisation of tangible and intangible assets The amortisation increased by RON 6,990 thou- sands, reaching the amount of RON 20,242 thousands in 2015, from RON 13,252 thousands in 2014, due to the commissioning made as part of the investments program (AMR system, etc.). Salaries and other benefits of the employees In the year 2015, the expenditures related to sal- aries and other benefits of the employees were relatively constant, dropping by RON 62 thou- sands, reaching RON 16,637 thousands from RON 16,699 thousands in 2014. 184 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAChange in provisions, net value The expense registered as provisions mainly refer to the litigations with the National Agency for Fis- cal Administration (”ANAF”) relating to delay pen- alties claimed by ANAF. The Company admitted the amount of RON 3,250 thousands as provi- sions, following the unfavourable Court decision No 1029/17.04.2015. Operational Profit Because of the above-mentioned factors for the year 2015, the Company reported a higher loss resulting from the operating activity against the year 2014, from RON 10,832 thousands to RON 72,029 thousands. Financial revenues The major financial revenues of Electrica SA con- sist of the dividends distributed by its subsidiaries. The income from the dividends distributed by subsidiaries in the year 2015 amounted to RON 344,648 thousands against the amount of RON 238,432 thousands in the year 2014, their struc- ture being as follows: RON FDEE Electrica Muntenia Nord SA FDEE Electrica Transilvania Nord SA FDEE Electrica Transilvania Sud SA FFEE Electrica Furnizare SA TOTAL 2015 2014 87,406,431 82,297,979 59,214,482 41,361,960 62,288,316 45,147,641 135,738,720 69,624,139 344,647,949 238,431,719 Another category of financial revenues is rep- resented by interests, which increased to RON 26,379 thousands in 2015 against the amount of RON 19,090 thousands in 2014. The Company’s strategy was focused on placing the funds from IPO through the banks that have subscribed, as part of the Consortium, in risk-free bonds and short-term deposits. The increase of financial performance of 2015 is due to the income from interests related to cash money collected by the Company in July 2014, after transferring the property rights of the new shares, and invested in treasury bonds and gov- ernment bonds: RON 20,645 thousands (RON 9,867 thousands in 2014) and deposits: RON 5,732 thousands in 2015 (RON 4,739 thousands in 2014). Profit before taxation In 2015, the profit before taxation increased by RON 24,633 thousands or 9%, to RON 300,708 thousands, from RON 276,075 thousands in 2014, due to the rising revenues collected by the Company from the dividends distributed by its subsidies, and the interest income. Corporate Tax expenses In the year 2015, the Company reported a ben- efit in quantum of RON 157 thousands, against corporate tax expenses in quantum of RON 6,586 thousands for the year 2014. The variation is mainly generated by the deferred tax related to the customer Oltchim, according to financial restatements. Net Profit of the year Due to the above factors, the net profit of the year 2015 increased by 12% against the year 2014, to RON 300,864 thousands from RON 269,490 thousands. The main objective of the Company is to maxi- mize the net individual profit of Electrica SA, by efficient coordination and control of the partici- pating interests in subsidiaries, so that to give the Company’s management the possibility to fulfil the intention declared in the Prospectus, namely: to distribute dividends in a quantum of approxi- mately 85% of the consolidated net profit attrib- utable to Electrica’s shareholders. 185 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA6 OTHER INFORMATION 6.1 PERSONNEL The average number of employees decreased in 2015 as compared to 2014 by one employee, to 138 employees from 139 employees, as a result of the lay-offs made under the Company’s reor- ganisation and restructuring program, while the effective number of employees was 136 in 2015, respectively 149 in 2014. On December 31st 2015, approximately 96% of the Company’s employees are Union members, and their employment conditions are governed by the Collective Employment Contract, which is renegotiated at least every two years and sub- mitted to the Territorial Labour Inspectorate of Romania. Electrica never faced strikes or other forms of labour disturbances that might have interfered with the Company’s activity, and the Company’s Management trusts that the relations with the employees are good. On the 2nd of November 2015 the new transi- tion organisation chart of Electrica has been im- plemented. New procedures and processes have been developed and will be completed once the appointments of executive directors will be fin- ished Also in November 2015 the programme of vol- untary demission with compensatory payments has been implemented. The programme target- ed mainly the employees with maximum 5 years until the standard retirement age as well as em- ployees with medical issues. The Company issued by laws that mainly accom- modate the provisions related to the general dis- positions on employment, non-discrimination, safety and health at work, rights and obligations of the employer and employees, the employees’ complaint handling procedure, rules concerning the discipline at work, disciplinary sanctions and disciplinary misconduct, rules concerning the disciplinary procedure, criteria and procedures concerning the professional evaluation of the employees and finale dispositions. The training programs of Electrica SA considered the improvement of employees’ skills, to be able to cope with more complex work assignment and use optimally of existing resources. The Company’s Management feels that the focus on training and development helps the employees in efficiently tackling the professional challenges. 6.2 THE PREDICTABLE DEVELOPMENT OF THE COMPANY The Company estimates that for 2016 the in- come from dividends received from the subsid- iaries will be higher than in 2015. The Company expects that the 2016 profit will be slightly high- er than in 2015. The company estimates a reduction of revenues and expenses from the electricity transactions on the balancing market, although with a higher mar- gin than in 2015. Also, the Company estimates in 2016 to start the electricity trading activity. 6.3 MAIN RISK AND UNCERTAINTIES Taking into account that the Company has as main activity the administration of its stakes hold in the subsidiaries, its profit is mainly determined by the income from the dividends received from its subsidiaries. Thus, the Company is exposed to the risk affecting the financial performance of its subsidiaries, namely: • The financial performance of the distribution subsidiaries may be negatively influenced by changing tariffs on the regulated market and by the electricity prices; • The subsidiaries have to comply with regulatory requirements, being exposed to significant lia- bilities in case of non-compliance; • Components of the distribution subsidiaries’ network are subject to deterioration over time; • The Company may face additional claims from tax authorities for budgetary debts due for pre- vious periods. • The Romanian taxation system is subject to change and may issue inconsistent interpreta- tions of tax legislation. • Romania’s electricity demand is linked to vari- ous factors beyond control of the subsidiaries, such as economic, political and climate-chang- ing instances; • After the Offering, the State will continue to have significant influence over the Company. • The distribution subsidiaries’ activity may be negative impacted by natural disasters or unau- 186 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAthorized human interventions. • The existence of companies involved in the electricity distribution and network construc- tion in the area where the Group’s distribution subsidiaries performed their activity. • Regulation risk generated by frequently chang- es and without appropriate consulting sessions with the electricity distribution operators nega- tively influence the budget planning capabilities. • The subsidiaries’ IT systems are outdated and are not integrated and the implementation of a new integrated ERP system may experience difficulties and delays • The subsidiaries may face risks associated with restitution claims with regard to certain real es- tate properties; • Fondul Proprietatea, as a minoritary sharehold- er of the distribution and supply subsidiaries og the Group, may try to block the decision mak- ing process; • Electrica Furnizare may be prohibited by the leg- islation in place from suspending or interrupting the supply of electricity to certain customers, even if such customers are in payment default; • The supply segment may be exposed to in- creasing competition due to the liberalization of the market; • Group’s supply segment might lose its status of supplier of last resort; The regulation in place regarding the electricity supply envisages the liberalization calendar and the fact that cos- tumers can chose the supplier. By eliminating the regulated prices according to the liberali- zation calendar new opportunities rise for the number of households’ customers exercising their eligibility right to increase. Thus, supplier switching experienced by the households cus- tomers can influence the supply’s subsidiaries client base in a negative way. • Failure to execute management’s goals from the business strategy may lead to cost savings and revenue forecasts being lower than predicted; • The subsidiaries reputation, future prospects or results of operations may be materially adverse- ly affected by claims or litigation. • Failure to execute public procurement legisla- tion by the subsidiaries may lead to fines and voided contracts. 6.4 FINANCIAL RISK MANAGEMENT The following provisions were considered when implementing both the risk management system, and the internal control/management system across the Electrica Group: • Order no 946/2005 issued by the Ministry of Public Finances concerning the development of internal control/management system, as fur- ther modified and amended • Government Ordinance 119/1999 regarding the internal control and the preventive financial control, as further modified and amended • Internal procedures adopted in this regard In 2015, the Company re-evaluated all risks initial- ly identified and updated the risks register. Risks were re-evaluated according to their probabili- ty of occurrence and potential impact over the completion of the Company’s objectives. There- fore, after calculating the level of exposure, the risks were included in one of the four levels of tolerance, (tolerable/ high tolerance/ low toler- ance / intolerable) and the Company adopted proper measure control, according to the degree of emergency and the time required in order to implement new processes/procedures, meant to avoid or diminish such risks for the future. One major concern is the low level of employ- ees’ awareness on the importance of the risk management role within the organization, and the need of direct involvement in the risk man- agement process, and to implement the best na- tional and international practices in the field, in view of the applicable legislation, standards and norms. For the year 2016, the Company envisages the development of the risk management system ac- cording to the provisions of international stand- ard SR ISO 31000:2010 “Risk Management – Prin- ciples and Guidelines”. Financial Risk Management The Company is exposed to the following risks resulting from the use of financial instruments: • credit risk; • liquidity risk; • market risk. (i) Credit Risk The credit risk means the Company’s risk of a fi- nancial loss if a customer or counterparty within a financial instrument fails to meet its contract obligations, being mainly generated in connec- tion with the trade receivables of the Company, the cash flow and cash equivalents, bank depos- its and treasury bills and government bonds. The Company holds a high credit risk mainly be- cause of the State-owned companies. Until 2012, the Company concentrated its credit risk around Oltchim SA, a Company in insolvency. Currently, 187 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAthe Company estimates that the credit risk expo- sure had decreased significantly. The cash, bank deposits, treasury bills and gov- ernment bonds are placed in financial institutions deemed to have a high credit rating. The carrying amount of the financial assets means the maximum exposure to the credit risk. Impairment Here is the status of the age of trade receivables: December 31st 2015 December 31st 2014 In thousands RON Gross Value Adjustment for impairment Gross Value Adjustment for impairment Not outstanding Outstanding by 1-90 days Outstanding by 90-180 days Outstanding by 180-360 days Outstanding by 1-2 years Outstanding by 2-3 years Outstanding by more than 3 years Total 41,488 27,556 8,089 399 474 104 667,158 745,268 0 0 0 0 (474) (104) (667,158) (667,737) 83,382 744 498 3,072 3,805 34,542 632,051 758,094 0 0 0 0 (3,805) (34,542) (632,051) (670,398) The impairment adjustments mainly refer to the customer Oltchim SA. In thousands RON Not outstanding Outstanding by 1-90 days Outstanding by 90-180 days Outstanding by 180-360 days Total December 31st 2015 December 31st 2014 41,488 27,556 8,089 399 77,531 83,382 744 498 3,072 87,696 (ii) Liquidity Risk Liquidity risk means the Company’s risk of fac- ing difficulties in complying with the obliga- tions associated to financial liabilities settled by transfer of cash or another financial asset. The Company’s policy on liquidity management is focused on maintaining, to the maximum extent possible, sufficient liquid resources to be able to comply with its obligations while they become due, under normal conditions and under stress, so that to avoid unacceptable losses. The Company’s aim is to maintain a cash and cash equivalents level exceeding the cash out- flows predicted for the payment of financial li- abilities. The Company also monitors the level of predicted cash inflows from collecting trade receivables, and the level of predicted cash out- flows for paying the trade debts and other debts. 188 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAExposure to the liquidity risk The table below shows the contractual maturity data for financial liabilities at the report date. The amounts are expressed as gross value not upda- ted, including the estimated interest to be paid. in thousands RON Financial Debts December 31st 2015 Trade liabilities Total December 31st 2014 Trade liabilities Total Carrying amount Contractual Cash Flow Total less than 1 year 60,634 60,634 83,400 83,400 60,634 60,634 83,400 83,400 60,634 60,634 83,400 83,400 (iii) Market Risk The market risk is the risk for certain changes in the market prices – the exchange rate and the interest rate – to affect the Company’s profit or the value of the financial instruments in hand. The objective of market risk management is to manage the exposures and maintain them with- in acceptable limits, and optimize the results. the Company. The functional currency of the Company is Romanian Leu (RON). The currencies used for the denomination of such transactions are mainly RON and EUR. The Com- pany owns bank deposits denominated in foreign currency (EUR). The Company’s policy is focused on using the local currency as much as possible in the transactions done. The Company does not use derivative instruments or hedging instruments. Foreign currency risk The Company is exposed to a foreign currency risk if there is a misbalance between the curren- cies used for sales and acquisitions, and those used for loans and the functional currency of Exposure to foreign currency risk Summary of quantitative data related to the Company’s exposure to the foreign currency risk, as follows: In thousands RON December 31st 2015 December 31st 2014 Cash and cash equivalents Deposits (Deposits, treasury bills and government bonds) Net exposure according to the financial position status EUR 10,241 139,581 149,822 EUR 10,138 136,704 146,842 Throughout the year, the Company applied the following significant exchange rates: Average exchange rate SPOT exchange rate at the end of the year RON 1 EUR 2015 4.4450 2014 4.4446 RON 1 EUR 2015 4.5245 2014 4.4821 189 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SASensitivity analysis A potential and reasonable enhancement (im- pairment) of EUR against RON at December 31st would have affected the evaluation of financial instruments denominated in foreign currency and the profit before taxation and, respectively, equity instruments with the amounts shown be- low. The analysis implies that all the other varia- bles, particularly the interest rates, remain con- stant, and it ignores the impact of estimates sales and acquisitions. Effect (thousands RON) December 31st 2015 EUR (modified by 5%) December 31st 2014 EUR (modified by 5%) Interest rate risk The Company has no long-term bank loans. Profit before taxation Enhancement Impairment 7,491 7,342 (7,491) (7,342) Exposure to interest rate risk Here is the status of the interest rates related to the interest-bearing financial instruments of the Company: in thousands RON December 31st 2015 December 31st 2014 Fixed interest instruments Financial Assets Bank deposits (cash and cash equivalents) Deposits (Deposits, treasury bills and government bonds) Total 181,248 1,900,395 2,081,643 874,243 1,038,420 1,912,663 Fair value sensitivity analysis for the fixed interest instruments The Company has no financial assets and finan- cial liabilities bearing fixed interest rates recog- nized at fair value by profit or loss. Consequent- ly, the variation of the interest rate at the report date would not affect the profit or loss. 6.5 ENVIRONMENTAL ASPECTS In carrying out its activities and business strategy implementation, Electrica promotes environmen- tally friendly policies and procedures. The Com- pany has implemented a management system concerning environmental, health and operational security matters. The annual capital investment budget includes expenditures related to environ- mental matters. At the time of this report, the Company holds all important permits required by law to conduct its business and the activity is carried out in accordance with all specific envi- ronmental regulations. The Company has imple- mented Integrated Quality, Environment, Occu- pational Health and Safety management systems duly certified in accordance with ISO 9001: 2008, ISO 14001: 2004 and EN OHSAS 18001: 2007. 190 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA 6.6 RESEARCH AND DEVELOPMENT ACTIVITY Concerning the Electrica’s involvement in pro- moting technological innovation by participat- ing in research and development projects co-fi- nanced through European funds, opportunity to test new technologies, simulating and managing behaviours that can be integrated in the distri- bution electricity networks, the involvement in accessing these types of funds by submitting projects under the FP7 and Horizon 2020 calls is emphasized. Among project proposals attended by Electrica the following can be mentioned: • Electrica has participated as a member in vari- ous consortiums for the elaboration of project proposals in the open calls for research-devel- opment-innovation both within the EU and the Ministry of Research. Among these projects we can mention: - „SINGULAR”, the research and development project currently in progress, co-financed on FP7 which aims to test some software pro- grams to forecast loads on network nodes, as well as the production generated by a wind power plant and a photovoltaic plant, based on measures of remote reading meters. The consumption/production forecast in a net- work island area might ensure the allocation of electricity losses and better monitoring in order to reduce them. Moreover, testing soft- ware applications on a real computing basis to optimize power flow followed by demon- strations create opportunities for the develop- ment of methodologies to determine the loss of electricity in networks that have integrated renewable resources in order to improve ener- gy and operations in certain areas of the net- work with an increased degree of penetration of renewable resources. The main objective of the project is to generate data and efficient solutions to maximize the inte- gration of variable and unpredictable insular en- ergy resources, while minimizing related adverse economic and technical consequences. Other projects in which the Company participat- ed with development activities are: • H2020-DRS-12-2015 SUCCESS – project de- clared as eligible, for which Electrica has ob- tained full funding from the EU • H2020-SCC-2015 SmaSH • H2020-LCE-2015-3 InToReGRID • H2020-EE-2015-2-RIA DRIBLE • H2020-LCE-2016-2017 PROVISION Electrica Group’s strategy at the moment is to implement the “Green Highway” Innovation Pilot Project, designed to support infrastructure de- velopment for electric vehicles. Although initially suggested only for the Oradea – Bucharest route (in two route versions), if successful the Group extends the project, to other routes in Romania. This project is based on the study called “Devel- oping the strategy to implement a business op- erating in the electric vehicle supply sector for Electrica S.A.- Business Plan Development” and is accordingly to the Action Plan mentioned in the EU Framework Strategy, which mentions, among others, the need to accelerate the energy efficiency and decarbonisation process in trans- portation sector, the gradual implementation of alternative fuels and the integration of energy and transportation systems. In the Investment Plan for 2016 Electrica SA mentioned in the Studies positions – an feasibili- ty study „Electric vehicle charging infrastructure,” and in the Projects position „ Electromobilitiy Pi- lot project „ (6 stations for fast charging) and in the Equipment position - a purchase of two elec- tric vehicles. Another important endeavour of Electrica S.A. in promoting technological innovation is to dissem- inate the solutions for updating its electric grid using a smart grids concept in the international conferences/symposia that Electrica holds every year in November and which propose as an al- ternative topic the smart grids and smart me- tering solutions. We mention that Electrica S.A. has supervised the organization of the interna- tional symposium called “Intelligent monitoring - Smart-Metering”. We emphasize the participation in the CIRED conferences with presentations concerning technological innovation and promotion of new technologies that improve operational efficiency. Thus, in June 2015, Electrica participated with the paper entitled “Impact of distributed generation on distribution networks”. Electrica participated in May 2015, along with CNR-CME, as a co-organizer, in its conferences/ symposia: the symposium “Smart grids – Grids of the Future” and the symposium “Integrating re- newable energy sources in the electro-energetic sector”. 191 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA6.7 LEGAL DOCUMENTS REPORTED Legal documents reported in 2015, according to art. 225 of Law 297/ 2004: • S Filiala de Intretinere si Servicii Energetice „Electrica Serv” SA – C211/29.12.2015– valid un- til 31.12.2016 - Complex road transport services - value: RON 1,385 thousand • S Filiala de Intretinere si Servicii Energetice „Electrica Serv” SA – C134/01.09.2015- valid un- til 31.12.2016 - Complex road transport services - value: RON 461 thousand • S Filiala de Intretinere si Servicii Energetice „Electrica Serv” SA – C75/29.05.2015- valid until 31.08.2015 - Complex road transport services - value: RON 556 thousand • S Filiala de Intretinere si Servicii Energetice „Electrica Serv” SA – C21/26.02.2015- valid until 31.05.2015 - Complex road transport services - value: RON 1,000 thousand 6.8 SUBSEQUENT EVENTS In the period between the end of financial year 2015 and the date of this report, the following rel- evant events occurred: • On 13 January 2016, the new Board of Directors elected by the General Meeting of Shareholders appointed the chairman of the Board, the com- mittee’s structure and their presidents. Please see section 6.1 for further details. • On 19 January 2016, the Company announced that Electrica, acting as plaintiff, filed requests for summons for the annulment and suspen- sion of certain orders issued by the ANRE pres- ident (please see section 1.2 Key events for fur- ther details) • Electrica’s Board of Directors acknowledged that Mr. Michael Boersma decided to recede from his capacity of Board of Directors mem- ber, during the February 10, 2016 meeting. Elec- trica’s Board of Directors chairman, Mr. Cristian Bușu, asked the Nomination and Remuneration Committee to start proper procedures for iden- tification of candidates that could take over the responsibilities of member in the Board of Di- rectors. • On 26 February 2016, the Company announced the agreement reached by the Board of Direc- tors and Mr. Ioan Roșca, regarding the comple- tion of his duties as CEO of Electrica until no later than June 2016. The Company has sent current reports about all these events in order to inform investors and all interested parties. 6.9 KEY FACTORS, IMPORTANT MARKET DIRECTIONS AND TRENDS INFLUENCING ELECTRICA’S OPERATIONAL RESULTS The Board of Directors acknowledges between key factors, important market directions and trends that it cannot control and those that it can control (although frequently to a limited extent). The key factors, important market directions and trends that the Board of Directors cannot control are: (i) (ii) the macroeconomic trends of Romania (iii) the demand of electricity (iv) the domestic general regulatory and legal framework in which the Company oper- ates, including ANRE policies. the cost of electricity purchased, The key factors and the directions that the Board of Directors can control, at least partially, include the Company’s capital investments and the oper- ational costs. The Board of Directors considers that on the medium and long term the growth of Romania’s real GDP and the overall economy will have to a certain extend a positive impact on the electrici- ty consumption in Romania, which will positively affect Electrica’s activity. In particular, the Board of Directors considers that, as long as Romania’s economic growth will continue to exceed EU one, electricity consump- tion per capita in Romania is expected to con- tinue to grow. On the other hand, a significant slowdown in the growth of GDP and that of the Romanian economy in general could have some negative effect on electricity consumption in Ro- mania and, respectively, on Electrica activity. 192 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SAn o d e h s i l b u p d n a 5 1 0 2 y r a u r b e F n i d e t p o d a , C G C A S L E i n o i t a c o s s A f l o s e c i t r A e h t s e d u c n l i , ' e t i s b e w s y n a p m o c e h t s e d u c n l i i h c h w d r a o B e h t f o n o i t a u g e r l l a n r e t n i e v a h d u o h s l i s e n a p m o c l l A s e i t i l i b i s n o p s e R A n o i t c e S E T A R O P R O C E G N A H C X E K C O T S T S E R A H C U B W E N E H T H T I W E C N A I L P M O C F O S U T A T S - T R O P E R T N E R R U C - 1 X D N E P P A I 6 1 0 2 H T 9 2 Y R A U R B E F F O S A E D O C E C N A N R E V O G n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N f o s m r e t e h t s s a p m o c n e s t n e m u c o d d e n o i t n e m e v o b a e h t e h t f o e s o h t s a l l e w s a , s e i t i l i b i s n o p s e r ' s D o B e h t / e c n e r e f e r l l A . s e e t t i m m o c s t i f o d n a D o B e h t f o r e t r a h C e h t , A S L E f o . t n e m e g a n a m y e k ' s y n a p m o c e t a r o p r o C d n a g n i r u t c u r t s e R , y g e t a r t S e h t f o r e t r a h C e h t . e e t t i m m o c e c n a n r e v o G r e b m e c e D 4 1 e c n i s s r e b m e m n e v e s s e s i r p m o c D o B s A S L E ' . 5 1 0 2 n i s a l l e w s a i , s c h t E f o e d o C e h t n i , i n o i t a c o s s A f l o s e c i t r A e h t n i , ' C G C s A S L E n i d e n o i t n e m e r a s n o i s i v o r p h c u S S E Y S E Y S E Y l d u o h s d n a , e s i r a y a m r o n e s i r a e v a h h c h w i t s e r e t n i f i o s t c fl n o c y n a f o d r a o B e h t l y f i t o n d u o h s d r a o B e h t f o s r e b m e m , t n e v e y n a n I . l n o i t a u g e r d r a o B n i d e d u c n l i l e b d u o h s t s e r e t n i f i o t c fl n o c f o t n e m e g a n a m e h t r o f s n o i s i v o r P f l o s e p c n i r P i l a r e n e G e h t , s r e h t o g n o m a , i g n y p p a l , y n a p m o c e h t f o s n o i t c n u f . n o i t c e S s i h t t n e m e g a n a m y e k d n a d r a o B r o f s e i t i l i b i s n o p s e r / e c n e r e f e r f o s m r e t . 1 . A f i o t c fl n o c h c u s o t e s i r i i s e v g h c h w e u s s i e h t n o n o i t u o s e r l a f o n o i t p o d a e h t . t s e r e t n i . s r e b m e m e v fi t s a e l t a l e v a h d u o h s d r a o B y r o s i v r e p u S e h T . . 3 A n o g n i t o v m o r f d n a ) e t a r o u q - n o n g n i t e e m e h t r e d n e r t o n s e o d s i h t e r e h w i t n e s e r p g n e b t o n y b g n d u c n l i i ( n o i s s u c s i d e h t n i t r a p g n k a t i m o r f n a r f e r i . . 2 A . e v i t u c e x e - n o n e b d u o h s s r o t c e r i l D f o d r a o B e h t f o s r e b m e m e h t f j o y t i r o a m e h T l e b d u o h s d r a o B y r o s i v r e p u S r o s r o t c e r i D f o d r a o B e h t f o r e b m e m e n o t s a e l t A d r a o B e h t f o r e b m e m h c a E i . s e n a p m o C i r e T m u m e r P f i o e s a c e h t n i , t n e d n e p e d n i l e b d u o h s d r a o B y r o s i v r e p u S r o s r o t c e r i D f o d r a o B e h t f o s r e b m e m e v i t u c e x e - n o n o w t n a h t s s e l t o N i . s e n a p m o c r e T d r a d n a t S f i o e s a c e h t n i , t n e d n e p e d n i l n o i t a r a c e d a t i m b u s d u o h s , l e b y a m e s a c e h t s a , d r a o B y r o s i v r e p u S r o s r o t c e r i D f o - e r r o n o i t c e e r o l i f n o i t a n m o n r e h / s i h f o t n e m o m e h t t a t n e d n e p e d n i s i e h s / e h t a h t n i t n e m e g d u j d n a r e t c a r a h c n i t n e d n e p e d n i d e r e d i s n o c s i i e h s / e h h c h w n o d n u o r g e h t g n i t a r t s n o m e d y b , s e s i r a s u t a t s r e h / s i h n i e g n a h c y n a n e h w s a l l e w s a n o i t c e e l e v i t u c e x e / O E C e h t e b o t t o N . . 1 . 4 A : a i r e t i r c g n w o i l l o i f e h t o t g n d r o c c a d n a e c i t c a r p . t u o r u o F e v i t u c e x e - n o n e r a D o B s A S L E f ' o s r e b m e m e h t l l A i s u o v e r p e h t r o f n o i t i s o p h c u s n i n e e b e v a h t o n d n a t i y b d e l l o r t n o c y n a p m o c a f o t n e d n e p e d n i e h t l l A . s r e b m e m t n e d n e p e d n i e r a n e v e s f o n o i t a r e n u m e r l i a n o i t i d d a d e v e c e r e v a h t o n d n a e v e c e r o t i t o N . . . 3 4 A ; s r a e y ) 5 ( e v fi r o y n a p m o c e h t f l o e e y o p m e n a e b o t t o N . . . 2 4 A ; s r a e y 5 s u o v e r p e h t i r o f n o i t i s o p h c u s n i n e e b e v a h t o n d n a t i y b d e l l o r t n o c y n a p m o c a f o r o y n a p m o c e h t f o r e c ffi o n e h w , e c n e d n e p e d n i f l o n o i t a r a c e d a d e t t i m b u s s r e b m e m t r a p a , t i y b d e l l o r t n o c y n a p m o c a m o r f r o y n a p m o c e h t m o r f s e g a t n a v d a r e h t o r o e r a h c h w i , i n o i t a c o s s A f l o s e c i t r A s y n a p m o c ' e h t n i d e d u c n l i a i r e t i r c e h t h t i w e c n a d r o c c a n i e d a m s a w n o i t a r a c e d e h T l l . s r e d o h e r a h s e h t y b s e t a d d n a c i i s a d e t a n m o n e r e w y e h t S E Y r o t o n s I . . . 4 4 A ; r o t c e r i d e v i t u c e x e - n o n f o y t i l i a u q e h t o t g n d n o p s e r r o c e s o h t m o r f . . 4 A , i p h s n o i t a e r l l a u t c a r t n o c y n a t o n d a h r o t o n s a h r o , f l o e e y o p m e n a n e e b t o n s a h g n i l l o r t n o c , y n a p m o c e h t f l o r e d o h e r a h s t n a c fi n g i s a h t i i w i , r a e y s u o v e r p e h t g n i r u d . e d o C e h t y b d e l i a t e d e s o h t h t i w l i r a m i s t o N . . 5 4 A . ; t i y b d e l l o r t n o c y n a p m o c a h t i w r o s t h g i r g n i t o v f o % 0 1 n a h t e r o m l i a n o i s s e f o r p r o s s e n i s u b a r a e y s u o v e r p e h t g n i r u d d a h e v a h t o n d n a e v a h o t y l t c e r i d r e h t i e , t i y b d e l l o r t n o c y n a p m o c a h t i w r o y n a p m o c e h t h t i i w p h s n o i t a e r l s t i y b , f i i l p h s n o i t a e r a h c u s g n v a h y n a p m o c a f i l o e e y o p m e r o r e c ffi o e v i t u c e x e / O E C , r o t c e r i D / d r a o B e h t f o r e b m e m l , r e d o h e r a h s , r e n t r a p , r e m o t s u c a s a r o t o N . j . . 6 4 A ; y t i v i t c e b o r e h / s i h t c e ff a d u o c p h s n o i t a e r s i h t l l i , r e t c a r a h c l a i t n a t s b u s r o r o t i d u a l a n r e t n i r o l a n r e t x e e h t s r a e y e e r h t t s a l e h t n i n e e b e v a h t o n d n a e b o t r o t i d u a l a n r e t n i r o l i a c n a n fi l a n r e t x e t n e r r u c e h t f i o e t a c o s s a d e i r a a s r o r e n t r a p a l e v i t u c e x e / O E C a e b o t . t o N 7 4 A ; t i . . y b d e l l o r t n o c y n a p m o c a r o y n a p m o c e h t f o y n a p m o c e h t f o r e c ffi o e v i t u c e x e / O E C r e h t o n a e r e h w y n a p m o c r e h t o n a n i r e c ffi o e h t f o r o t c e r i d e v i t u c e x e - n o n a n e e b e v a h o t . . . t o N 8 4 A ; r o t c e r i d e v i t u c e x e - n o n a s i n i n o s r e p a h t i l i w s e i t y m a f e v a h o t . . . t o N 9 4 A ; s r a e y e v e w l t n a h t e r o m r o f y n a p m o c . . . 4 4 A d n a i . . 1 . 4 A s t n o p t a o t d e r r e f e r s n o i t a u t i s e h t 193 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA y l l a n o i t c n u f h c h w i , t a i r a t e r c e S l a r e n e G a s a h y n a p m o c e h T ’ i s D o B s u o v e r p e h t g n i r u d d e w o l l o f s a w n o i s i v o r p 8 A e h T . . D o B e h t o t s t r o p e r e r a n o i s i v o r p s i h t h t i i l w g n y p m o c n o s l i a t e d r e h t r u F . ) 5 1 0 2 r e b m e c e D 4 1 n o d e d n e h c h w i ( e t a d n a m d n a D o B - 2 6 r e t p a h c . , t r o p e R l a u n n A 5 1 0 2 e h t n i d e t n e s e r p ’ i s D o B s u o v e r p e h t g n i r u d d e w o l l o f s a w n o i s i v o r p 9 A e h T . . y t i v i t c a ’ s e e t t i m m o c s t i . D o B - 2 6 r e t p a h c , t r o p e R l a u n n A 5 1 0 2 e h t n i d e t n e s e r p e r a n o i s i v o r p s i h t h t i i l w g n y p m o c n o s l i a t e d r e h t r u F . e t a d n a m r e h t r u F . 6 1 0 2 f o s e u s s i n o r e b m e m e h t f o n o i t i s o p e h t t c e ff a i y a m h c h w p h s n o i t a e r l i f o d n k i i d e d v o r p e b l l i w r e t t a m s i h t n o n o i t a m r o f n i . y n a p m o c e h t y b . d r a o B e h t y b d e d c e d i S E Y S E Y S E Y e h t g n i t r o p p u s r o l f e b i s n o p s e r y r a t e r c e s d r a o B a i t n o p p a d u o h s l y n a p m o c e h T n a r e h t e h w n o m r o f n i l d u o h s t n e m e t a t s e c n a n r e v o g e t a r o p r o c e h T . d r a o B e h t f o k r o w . . 7 A e h t f i o p h s r e d a e l e h t r e d n u e c a p n e k a t l s a h d r a o B e h t f o n o i t a u a v e l , i e s o p r u p e h t g n n a t n o c d r a o B e h t i f o n o i t a u a v e l e h t g n d r a g e r i e c n a d u g i n o i t c a y e k e z i r a m m u s , s a h t i f i , d n a e e t t i m m o c n o i t a n m o n e h t i r o n a m r i a h c / y c i l o p a e v a h d u o h s l y n a p m o c e h T . t i m o r f g n i t l u s e r s e g n a h c d n a s t n o p i . . 8 A e h t n o n o i t a m r o f n i i n a t n o c d u o h s l t n e m e t a t s e c n a n r e v o g e t a r o p r o c e h T d r a o B e h t f o t r o p e r a d n a ) a i t n e s b a n i d n a n o s r e p n i ( s r o t c e r i d y b e c n a d n e t t a , r a e y t s a p e h t g n i r u d s e e t t i m m o c e h t d n a d r a o B e h t f o s g n i t e e m f o r e b m u n . . 9 A . s s e c o r p n o i t a u a v e l e h t f o y c n e u q e r f d n a a i r e t i r c ' s D o B s u o v e r p i e h t g n i r u d d e w o l l o f s a w n o i s i v o r p 1 1 . A e h T d n a i n o i t a c o s s A f l o s e c i t r A e h t , y l l a n o i t i d d A . e t a d n a m . t n e d n e p e d n i e r a D o B e h t f o s r e b m e m n e v e s f o t u o r u o F S E Y r o s r o t c e r i D f o d r a o B e h t f o s r e b m e m t n e d n e p e d n i e h t f o r e b m u n e s i c e r p . 0 1 . A . d r a o B y r o s i v r e p u S e h t f o . y t i v i t c a ’ s e e t t i m m o c s t i d n a e h t n o n o i t a m r o f n i i n a t n o c d u o h s l t n e m e t a t s e c n a n r e v o g e t a r o p r o c e h T . s e i t i v i t c a r i e h t n o s e e t t i m m o c d n a s i r e b m e m d r a o B h c a e f o y h p a r g o b i l a n o i s s e f o r p e h T . n o i t c e s A G A > R I e h t n i ' e t i s b e w s A S L E n o d e h s i l b u p h c u s r o f d e e n e h T e b l l i w s t n e m e t a t s ' s D o B o t t h g u o r b e h t n h t i i w n o i t n e t t a s g n i t e e m d r a o B t s r fi S E Y n i s n o i t i s o p d r a o B e v i t u c e x e - n o n d n a e v i t u c e x e g n d u c n l i i , s t n e m e g a g n e d n a l s r e d o h e r a h s o t d e s o c s i d e b d u o h s l l , s n o i t u t i t s n i t fi o r p - r o f - t o n d n a i s e n a p m o c . e t a d n a m r e h / s i h g n i r u d d n a i t n e m t n o p p a e r o f e b s r o t s e v n i n o n o i t a m r o f n i , d r a o B e h t o t t i l m b u s d u o h s d r a o B e h t l a i t n e t o p o t d n a f o r e b m e m y n A . . 5 A s e r a h s , y l t c e r i d n i r o y l t c e r i d s d o h o h w l l r e d o h e r a h s a h t i i w p h s n o i t a e r l y n a O N y n a s n r e c n o c n o i t a g i l b o s i h T . s t h g i r g n i t o v l l a f o % 5 n a h t e r o m g n i t n e s e r p e r . . 6 A s t n e m t i m m o c l a n o i s s e f o r p t n e n a m r e p y e v i t a e r l l r e h t o s ’ r e b m e m d r a o B A n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N 194 ’ s A S L E d n a n o i t a c o s s A f i l o s e c i t r A e h t , y l l a n o i t i d d A . e t a d n a m e r u t c u r t s s t i , e e t t i m m o c s i h t f o e c n e t s i x e e h t t h g i l i h g h C G C . s e i t i l i b i s n o p s e r d n a e h t n i d e h s i l b a t s e s a w e r u t c u r t s s t i d n a e e t t i m m o c e h T r e b m e c e D 4 1 n o d e t c e e ( l D o B w e n e h t f o g n i t e e m t s r fi e h T . 6 1 0 2 y r a u n a J 3 1 n o e c a p k o o t h c h w g n i t e e m l i , ) 5 1 0 2 . s M , l z e r a v A o g e M o r d e P l i . r M : s i n o i t i s o p m o c e e t t i m m o c o w T . u c s e i l I n a d g o B . r M d n a d l i h c s h t o R e d d r a a M e l l l e i r A . t n e d n e p e d n i e r a s r e b m e m ’ i s D o B s u o v e r p e h t g n i r u d d e w o l l o f s a w n o i s i v o r p 1 . B e h T , e e t t i m m o c s i h t f o e c n e t s i x e e h t t h g i l i h g h C G C s A S L E ' k o o t i h c h w g n i t e e m , ) 5 1 0 2 r e b m e c e D 4 1 n o d e t c e e ( l D o B : s i n o i t i s o p m o c e e t t i m m o c e h T . 6 1 0 2 y r a u n a J 3 1 n o e c a p l w e n e h t f o g n i t e e m t s r fi e h t n i d e h s i l b a t s e s a w e r u t c u r t s s t i d n a e e t t i m m o c e h T . s e i t i l i b i s n o p s e r d n a e r u t c u r t s s t i d n a d l i h c s h t o R e d l d r a a M e l l e i r A . s M , u c s e i l I n a d g o B . r M . t n e d n e p e d n i e r a s r e b m e m o w T . u c s e p o P a n i r o C . s M S E Y S E Y e t a u q e d a d n a n e v o r p e v a h d u o h s l e e t t i m m o c t i d u a e h t f o r e b m e m e n o t s a e l t A . e e t t i m m o c e h t f o s e i t i l i b i s n o p s e r d n a s n o i t c n u f e h t o t t n a v e e r l . 1 . B n o i t a c fi i l a u q e t a u q e d a n a n e v o r p e v a h d u o h s l , n a m r i a h c e h t g n d u c n l i i t i d u a e h t f j o y t i r o a m e h t d n a s r e b m e m e e r h t t s a e l t a f o d e s o p m o c e b d u o h s l . t n e d n e p e d n i l e b d u o h s e e t t i m m o c e e t t i m m o c t i d u a e h t i , s e n a p m o c i r e T m u m e r P f i o e s a c e h t n I r o g n i t i d u a i n o i t a n m o n a p u t e s d u o h s l i s e n a p m o c i r e T m u m e r P f i o d r a o B e h T d r a o B r o f s s e c o r p e h t d a e l l l i w h c h w i , s e v i t u c e x e - n o n f o d e m r o f e e t t i m m o c f j o y t i r o a m e h T . d r a o B e h t o t s n o i t a d n e m m o c e r e k a m d n a s t n e m t n o p p a i . 1 1 . A , s r e b m e m f j o y t i r o a m e h T . e v i t u c e x e - n o n t n e d n e p e d n i n a l e b d u o h s . t n e d n e p e d n i l e b d u o h s e e t t i m m o c n o i t a n m o n e h t i f o s r e b m e m e h t r e b m e m e n o t s a e l t a d n a , e e t t i m m o c t i d u a n a p u t e s d u o h s d r a o B e h T l m e t s y s l o r t n o c l a n r e t n i d n a t n e m e g a n a m k s i R B n o i t c e S 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA ’ C G C s A S L E d n a n o i t a c o s s A f i l o s e c i t r A e h t , y l l a n o i t i d d A . e t a d n a m . r l M d e t c e e D o B w e n e h t , 6 1 0 2 y r a u n a J 3 1 n o d e h g n i t e e m l s t i n I , r e b m e m D o B t n e d n e p e d n i e v i t u c e x e - n o n , l z e r a v A o g e M o r d e P l i . e e t t i m m o c s i h t f o e r u t c u r t s e h t d n a e c n e t s i x e e h t t h g i l h g h i . e e t t i m m o C t i d u A e h t f o n a m r i a h c s a y c a c ffi e e h t g n i r o t i n o m s n o i t n e m n o i t a c o s s A i f l o s e c i t r A s A S L E ' l a u n n a e h t o t d e t n e s e r p , t r o p e r ' s r o t c e r i d l a u n n a e h T , l o r t n o c l a n r e t n i e h t f o k s i r i t n a c fi n g i s d n a s l o r t n o c l a n r e t n i e h t n o s t n e m m o c t n e m e g a n a m k s i r ' s D o B e h t i s n a t n o c l , s r e d o h e r a h s f o g n i t e e m l a r e n e g d n a t i d u a l a n r e t n i s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . s r e t r a h c ’ s e e t t i m m o c l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c t o n e r a h c h w i ' s e e t t i m m o C t i d u A e h t i g n d d A . s e i t i l i b i s n o p s e r D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a r e t r a h C e h t f o t r a p s a y n a p m o c . n o i t a r e d i s n o c o t n i n e k a t e b e h t o t n o i s i v o r p s i h t e b o t e u s s i n a s i r e t r a h C n o i t n e t t a e h t o t t h g u o r b . e e t t i m m o C t i d u A e h t f o y c a c ffi e e h t g n i r o t i n o m s n o i t n e m n o i t a c o s s A i f l o s e c i t r A s A S L E ’ d n e m a o t j t c e o r p a d e t a i t i n i A S L E . m e t s y s t n e m e g a n a m e h t n h t i i w s m e t s y s i n o i t a c o s s A f l o s e c i t r A e h t d n e m a o t j t c e o r p a d e t a i t i n i A S L E s e e t t i m m o c D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a i e r a h c h w s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . s r e t r a h c n e k a t e b l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c t o n . n o i t a r e d i s n o c o t n i , l o r t n o c l a n r e t n i e h t f o d n a t i d u a l a n r e t n i t n e m e g a n a m k s i r e h t n h t i i w s m e t s y s n o i t n e t t a e h t o t t h g u o r b n o i s i v o r p s i h t g n d d A i e b l l i w r e t r a h C e h t o t . s e i t i l i b i s n o p s e r ’ s e e t t i m m o C t i d u A e h t f o t r a p s a y n a p m o c . e e t t i m m o C t i d u A e h t f o S E Y e v i t u c e x e - n o n t n e d n e p e d n i n a y b d e r i a h c l e b d u o h s e e t t i m m o c t i d u a e h T . r e b m e m . . 2 B I Y L L A T R A P l a u n n a n a e k a t r e d n u d u o h s l e e t t i m m o c t i d u a e h t , s e i t i l i b i s n o p s e r s t i g n o m A . l o r t n o c l a n r e t n i f o m e t s y s e h t f o t n e m s s e s s a I Y L L A T R A P s s e n e v i s n o p s e r s ’ t n e m e g a n a m , d r a o B e h t f o e e t t i m m o c t i d u a e h t o t s t r o p e r l a n r e t n i e h t f o e p o c s d n a s s e n e v i t c e ff e e h t r e d i s n o c d u o h s l t n e m s s e s s a e h T l o r t n o c l a n r e t n i d n a t n e m e g a n a m k s i r f o y c a u q e d a e h t , n o i t c n u f t i d u a r o s g n i l i a f l o r t n o c l a n r e t n i d e fi i t n e d i h t i w g n i l a e d n i s s e n e v i t c e ff e d n a . d r a o B e h t o t s t r o p e r t n a v e e r l f o n o i s s i m b u s r i e h t d n a s e s s e n k a e w . . 3 B . . 4 B ’ i s D o B s u o v e r p e h t g n i r u d d e w o l l o f s a w n o i s i v o r p 2 B e h T . n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N i n o i t a c o s s A f l o s e c i t r A e h t d n e m a o t j t c e o r p a d e t a i t i n i A S L E n o i s i v o r p s i h t g n d d A i s e e t t i m m o c D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a f l o s e c i t r A e h t o t n e k a t e b l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c t o n n o i t n e t t a e h t o t t h g u o r b i e r a h c h w s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . s r e t r a h c e b l l i w n o i t a c o s s A i O N f o s n o i t c a s n a r t n i s t s e r e t n i f i o s t c fl n o c w e v e r d u o h s l i e e t t i m m o c t i d u a e h T . s e i t r a p d e t a e r h t i l w s e i r a d i s b u s i s t i d n a y n a p m o c e h t i n o i t a c o s s A f l o s e c i t r A e h t d n e m a o t . n o i t a r e d i s n o c o t n i j t c e o r p a d e t a i t i n i A S L E s e e t t i m m o c D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a i e r a h c h w s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . s r e t r a h c n e k a t e b l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c t o n . n o i t a r e d i s n o c o t n i . e e t t i m m o C t i d u A e h t f o f l o s e c i t r A s A S L E ' ' s e e t t i m m o C t i d u A e h t y c a c ffi e e h t g n i r o t i n o m , l o r t n o c l a n r e t n i e h t f o s n o i t n e m n o i t a c o s s A i f o t r a p s a y n a p m o c e h t n h t i i w s m e t s y s d n a t i d u a l a n r e t n i t n e m e g a n a m k s i r I Y L L A T R A P l o r t n o c l a n r e t n i e h t f o y c n e c ffi e i e h t l e t a u a v e d u o h s l e e t t i m m o c t i d u a e h T . m e t s y s t n e m e g a n a m k s i r d n a m e t s y s . . 5 B . . 6 B e b o t e u s s i n a s i r e t r a h C n o i t n e t t a e h t o t t h g u o r b . e e t t i m m o C t i d u A e h t f o i g n d d A . s e i t i l i b i s n o p s e r e h t o t n o i s i v o r p s i h t 195 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA t i d u A e h t n i d e d u c n l i e r a r e t t a m s i h t n o s n o i s i v o r P . r e t r a h C s e e t t i ' m m o C . ' C G C s A S L E n i d e d u c n l i e r a r e t t a m s i h t n o s n o i s i v o r P i n o i t a c o s s A f l o s e c i t r A e h t d n e m a o t j t c e o r p a d e t a i t i n i A S L E . r e t r a h c D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a , s n o i t a u g e r l l a n r e t n i s e i t r a p d e t a e r l e h t e h t o t g n d r o c c A i e r a s n o i t c a s n a r t n o i t n e t t a e h t o t t h g u o r b n o i s i v o r p s i h t g n d d A i e b l l i w r e t r a h C e h t o t . e e t t i m m o C t i d u A e h t f o . n o i t a r e d i s n o c o t n i . m a e t t i d u a l a n r e t n i S E Y r o , ) l a u n n a t s a e l t a ( l a c i l c y c y b d e w o l l o f l e b d u o h s e s e h t , e e t t i m m o C t i d u A e h t y b d e s i c r e x e e b o t l s i s y a n a r o s w e v e r i s n o i t n e m e d o C e h t r e v e n e h W . s d r a w r e t f a d r a o B e h t o t d e t t i m b u s e b o t s t r o p e r c o h - d a S E Y l s r e d o h e r a h s r e h t o r e v o e c n e r e f e r p e u d n u n e v g e b y a m i l r e d o h e r a h s o N h t i w y n a p m o c e h t y b e d a m s t n e m e e r g a d n a s n o i t c a s n a r t o t d r a g e r h t i w . s e i t r a p d e t a e r l r i e h t d n a l s r e d o h e r a h s e h t f o n o i t c a s n a r t y n a t a h t g n i r u s n e y c i l o p a l t p o d a d u o h s d r a o B e h T . . 8 B . . 9 B t a h t , s n o i t a e r l e s o c l s a h t i i h c h w h t i i w s e n a p m o c e h t f o y n a h t i w y n a p m o c d e t a t s s a ( y n a p m o c e h t f o s t e s s a t e n e h t f o % 5 n a h t e r o m r o o t l a u q e s i o t n i n e k a t e b l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c n o i s i v o r p s i h t g n d d A i l e h t o t d e s o c s i d y l r i a f d n a , e e t t i m m o c t i d u a e h t f i i o n o n p o y r o t a g i l b o n a D o B e h t o t y l l a n o i t c n u f s t r o p e r e c ffi o d e n o i t n e m e v o b a e h T s t r o p e r l y e v i t a r t s i n m d a i e l i h w , e e t t i m m o C t i d u A e h t h g u o r h t . O E C e h t o t S E Y e h t o t d e t a e r l e p o c s e h t n i d n a s e s o p r u p e v i t a r t s i n m d a i r o F . e e t t i m m o c . 2 1 . B l d u o h s t i , s k s i r e t a g i t i m d n a r o t i n o m o t t n e m e g a n a m e h t f o s n o i t a g i l b o . r e c ffi o e v i t u c e x e i f e h c e h t o t y l t c e r i d t r o p e r t i d u a l a n r e t n i e h t f o s n o i t c n u f e r o c e h t f o t n e m l l l fi u f e h t e r u s n e o T t i d u a e h t i a v d r a o B e h t o t y l l a n o i t c n u f t r o p e r d u o h s l t i , t n e m t r a p e d d n a t i d u A l a n r e t n I e h t y b d e t c u d n o c s i t i d u a l a n r e t n i e h T . e c ffi O e c n a i l p m o C S E Y n o i s i v d i l a r u t c u r t s e t a r a p e s a y b t u o d e i r r a c l e b d u o h s s t i d u a l a n r e t n i e h T n a g n n a t e r i i y b r o y n a p m o c e h t n h t i i w ) t n e m t r a p e d t i d u a l a n r e t n i ( . 1 1 . B . y t i t n e y t r a p - d r i h t t n e d n e p e d n i . n o i t a r e d i s n o c . D o B e h t f o n o i t n e t t a l l i w r e t r a h C e h t o t e h t o t t h g u o r b e b l l a f s n o i t c a s n a r t h c u s t a h t t n e t x e e h t o t , s r o t s e v n i l a i t n e t o p d n a l s r e d o h e r a h s . s t n e m e r i u q e r l e r u s o c s i d o t j t c e b u s s t n e v e f o y r o g e t a c e h t r e d n u i t o n e r a h c h w s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . D o B e h t y b d e v o r p p a O N i g n w o l l o f d r a o B e h t y b d e v o r p p a l e b d u o h s , ) t r o p e r l i a c n a n fi t s e t a l e h t n i . 0 1 . B s e e t t i m m o c D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a i , s e v e c e r t i , y l l a n o i t i d d A d n a y r o t u t a t s f o n o i t a c i l p p a e h t r o t i n o m d u o h s l e e t t i m m o c t i d u a e h T n e k a t e b l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c t o n e h t f o s t r o p e r e h t . m a e t t i d u a l a n r e t n i e h t f o s t r o p e r e h t l e t a u a v e d n a i e v e c e r d u o h s l i e r a h c h w s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . s r e t r a h c s e s r o d n e d n a s e s s e s s a I Y L L A T R A P e e t t i m m o c t i d u a e h T . g n i t i d u a l a n r e t n i f o s d r a d n a t s d e t p e c c a y l l a r e n e g . . 7 B i n o i t a c o s s A f l o s e c i t r A e h t d n e m a o t j t c e o r p a d e t a i t i n i A S L E . t i d u a l a n r e t n i e h t l l a s e v o r p p a e e t t i m m o C s e c i i l o p , s e r u d e c o r p e h t i g n n r e c n o c s e d o c d n a t i d u A e h t , e c i t c a r p n I n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N 196 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA a , 6 1 0 2 y r a u r b e F n i , d e s r o d n e D o B e h t d n a d e t f a r d C R N e h t f o y c i l o p n o i t a r e n u m e R e h t g n d r a g e r i l a s o p o r p w e n a d n e g a S M G e h t n o d e d u c n l i s a w h c h w i , s r e b m e m D o B . 6 1 0 2 h c r a M 1 3 n o d e n e v n o c d e v o r p p a s a w s r e b m e m D o B e h t f o s r e b m e m . 4 1 0 2 r e b m e t p e S 2 2 n o ) S M G O ( l s r e d o h e r a h S f o g n i t e e M l a r e n e G i y r a n d r O e h t y b n o i t a r e n u m e r e h T e h t r o f m e t s y s s a l l e w s a , O E C e h t e v i t u c e x e r e h t o e h t r o f r o f s t i m i l n o i t a r e n u m e r e h t d n a m e t s y s h t i w s r e g a n a m D o B e h t m o r f e t a d n a m e h t y b d e v o r p p a e r e w n o i t a r e n u m e r e h T I Y L L A T R A P . l 5 1 0 2 y u J 9 n o S M G O S E Y y c i l o p s i h t f i l o n o i t a t n e m e p m e h t n o t n e m e t a t s n o i t a r e n u m e r a t r o p e r l a u n n a s t i . w e v e r i r e d n u d o i r e p l a u n n a e h t g n i r u d s w o l l a t a h t y a w a h c u s n i l d e t a u m r o l f e b d u o h s y c i l o p n o i t a r e n u m e r e h T i l n o i t a r e n u m e r e h t d n h e b e a n o i t a r d n a s e p c n i r p e h t d n a t s r e d n u o t s r e d o h e k a t s l l i d r a o b r e i t - o w t n i d r a o B t n e m e g a n a M e h t f o s r e b m e m e h t f o s a l l , e w s a O E C e h t d n a d r a o B e h t f o s r e b m e m e h t f o i g n k a m - n o i s i c e d d n a e c n a n r e v o g n o i t a r e n u m e r e h t e b i r c s e d d u o h s t I l . s m e t s y s l a u n n a , s e i r a a s . l e . i ( n o i t a r e n u m e r e v i t u c e x e f o s t n e n o p m o c e h t l i a t e d , s s e c o r p ) s r e h t o d n a , s n o i s n e p , i d n k n i s t fi e n e b , s e v i t n e c n i d e k n i l - k c o t s m r e t g n o l , s u n o b i g n d u c n l i ( s n o i t p m u s s a d n a s e p c n i r p l i , e s o p r u p s ’ t n e n o p m o c h c a e e b i r c s e d d n a n I . ) n o i t a r e n u m e r e b a i r a v f l o m r o l f y n a o t d e t a e r a i r e t i r c e c n a m r o f r e p l a r e n e g e h t ’ s e v i t u c e x e e h t f o n o i t a r u d e h t e s o c s i d d u o h s y c l l i l o p n o i t a r e n u m e r e h t , n o i t i d d a n o i t a c o v e r r o f n o i t a s n e p m o c l a u t n e v e d n a d o i r e p e c i t o n r i e h t d n a t c a r t n o c . e s u a c t u o h t i w n o i t a r e n u m e r e h t f o n o i t a t n e m e p m e h t l i l t n e s e r p d u o h s t r o p e r n o i t a r e n u m e r e h T l a u n n a e h t g n i r u d y c i l o p n o i t a r e n u m e r e h t n i d e fi i t n e d i s n o s r e p e h t s i v - à - s i v y c i l o p e h t n o d e h s i l b u p e b d u o h s y c l i l o p n o i t a r e n u m e r e h t f o e g n a h c l a i t n e s s e y n A . w e v e r i r e d n u d o i r e p . 1 . C . i n o h s a f y e m l i t a n i e t i s b e w e t a r o p r o c s ’ r e b m e m d r a o B a l a r e n e g , i n o i t a c o s s a f l o s e c i t r a e h t l : s n o i t a u g e r e t a r o p r o c l i a p c n i r P . 1 . 1 . D i , s e d o b g n n r e v o g s t i i f o s r e b m e m e h t f o s V C l a n o i s s e f o r P . 2 . 1 . D . s e r u d e c o r p g n i t e e m ’ l s r e d o h e r a h s d r a o B e v i t u c e x e - n o n d n a e v i t u c e x e g n d u c n l i i t i , s t n e m m m o c l a n o i s s e f o r p r e h t o ; s n o i t u t i t s n i t fi o r p - r o f - t o n d n a s e n a p m o c n i i s n o i t i s o p i : g n d u c n l i , s r o t s e v n i r o f t s e r e t n i f o n o i t a m r o f n i t n a v e e r l l l a h t i , w h s i l g n E d e l i a t e d h t i w s t r o p e r t n e r r u c g n d u c n l i i . – 8 D m e t i i t a d e d v o r p s a t s a e l t a – ) s t r o p e r l a u n n a d n a l a u n n a - i m e s , y l r e t r a u q i ( s t r o p e r c d o i r e p d n a s t r o p e r t n e r r u C . 3 . 1 . D i d n a n a n a m o R n i h t o b , n o i t c e s s n o i t a e R r o t s e v n l I i d e t a c d e d a e t i s b e w e t a r o p r o c s t i n o e d u c n l i l d u o h s y n a p m o c e h t , s n o i s i v o r p l a g e l y b d e r i u q e r n o i t a m r o f n i o t n o i t i d d a n I . c i l b u p l a r e n e g e h t o t , t i n u l i a n o i t a z n a g r o n a r o e b i s n o p s e r l ) s ( n o s r e p y b , d e t a c d n i i - n o i t c n u f s n o i t a e R r o t s e v n l I l n a e v a h d u o h s y n a p m o c e h T s n o i t a l e r ’ s r o t s e v n i h g u o r h t e u l a v g n d i l i u B D n o i t c e S ; e d o C t n e s e r p e h t h t i w e c n a i l p m o c - n o n o t d e t a e r n o i t a m r o f n l i ; s r e b m e m d r a o B f o n o i t c e e e h t l r o f d e v o r p p a e r u d e c o r p e h t ; s l a i r e t a m g n i t r o p p u s r e h t e g o t , d r a o B e h t o t n o i t c e e e h t l r o f s e t a d d n a c f i o l a s o p o r p e h t r o l f e a n o i t a r e h t d n a a d n e g a e h t l : s r e d o h e r a h s f l o s g n i t e e m a r e n e g o t d e t a e r n o i t a m r o f n l I . 4 . 1 . D e h t d n a a d n e g a e h t o t d e t a e r s n o i t s e u q l ’ l s r e d o h e r a h s ; s V C l a n o i s s e f o r p r i e h t h t i w n o i t a t i m i l r o n o i t i s i u q c a e h t o t g n d a e i l s t n e v e r e h t o r o l , s r e d o h e r a h s o t s n o i t u b i r t s d i r e h t o d n a s d n e d v d f i i o t n e m y a p s a h c u s , s t n e v e e t a r o p r o c n o n o i t a m r o f n I . 5 . 1 . D ; n e k a t s n o i s i c e d e h t g n d u c n l i i , s r e w s n a s y n a p m o c ’ l s e b a n e t a h t e m a r f e m i t a n h t i i w d e h s i l l b u p e b d u o h s n o i t a m r o f n i h c u S . s n o i t a r e p o , s n o i t a t n e s e r p s t l u s e r y l r e t r a u q , s n o i t a t n e s e r p R I . . g e ( s n o i t a t n e s e r p e t a r o p r o C 7 . 1 . D . ; t s e u q e r n o n o i t a m r o f n i l e b a e g d e w o n k l i l l e d v o r p o t e b a e b d u o h s o h w n o s r e p a f o a t a d t c a t n o c d n a e m a n e h T . 6 . 1 . D ; s n o i s i c e d t n e m t s e v n i e k a m o t s r o t s e v n i h c u s o t d e i l i l p p a s e p c n i r p d n a s e n i l d a e d e h t g n d u c n l i i l , r e d o h e r a h s a f o s t h g i r f o d n a s t r o p e r r o t i d u a , ) l a u n n a , l a u n n a - i m e s , y l r e t r a u q ( s t n e m e t a t s l i a c n a n fi , ) . c t e . s t r o p e r l a u n n a . 1 . D 197 n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P n i e d u c n l i d n a e t i s b e w s t i n o y c i l o p n o i t a r e n u m e r a h s i l l b u p d u o h s y n a p m o c e h T e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N n o i t a v i t o m d n a s d r a w e r r i a F C n o i t c e S 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA o t r o i r p s y a d 5 4 y e t a m x o r p p a l i , s t n e m e r i u q e r l a g e l e h t h t i w . g n i t e e m e h t l a u n n a e h t o t d e t n e s e r p , t r o p e r ’ s r o t c e r i d l a u n n a e h T ’ s D o B e h t i s n a t n o c l , s r e d o h e r a h s f o g n i t e e m l a r e n e g k s i r i t n a c fi n g i s d n a s l o r t n o c l a n r e t n i e h t n o s t n e m m o c e c n a d r o c c a n i d e h s i l b u p , i e c i t o n g n n e v n o c h c a e n h t i i w d e d u c n l i e r a l s r e d o h e r a h s f o s g n i t e e m l a r e n e g f o s e u r l e h T D o B e h t o t d e t t i m b u s . s i s y a n a l r o f t c e p s e r h t i w y c i l o p e h T D o B e h t o t d e t t i m b u s e b l l i w s t s a c e r o f o t . s i s y a n a l r o f e b l l i l w s e p c n i r p i i d e d v o r p s i n o i t u b i r t s i d O P I 4 1 0 2 e h t n i l a u n n a e h T . s u t c e p s o r P n o i t u b i r t s i d h s a c y c i l o p d n e d v d e h t i i y c i l o p d n e d v d r o i i f o l a v o r p p a e h t r o f d e t t i m b u s s t n e m u c o d e h t l l a , e c i t c a r p n I . m e t s y s t n e m e g a n a m n i d e t a t s y l r a e c l s i s i h t ; D o B e h t y b d e s r o d n e e r a S M G e h t l . s r e d o h e r a h s e h t o t d e t n e s e r p s t n e m u c o d e h t n e e b s a h a c i r t c e E l i g n w o l l a s d r a w o t n e p o I Y L L A T R A P e h t g n d r a g e r i w o l l o f o t s d n e t n i y n a p m o c e h t s n o i t c e r i d f o t e s a s a , d r a o B e h t y b d e t p o d a d n a d r a o B t n e m e g a n a M e h t r o O E C e h t y b d e s o p o r p . . 2 D r e h t e h w , s t s a c e r o f o t t c e p s e r h t i w y c i l o p a d e t p o d a e v a h d u o h s l y n a p m o c A . e t i s b e w e t a r o p r o c e h t n o d e h s i l b u p e b d u o h s l i l s e p c n i r p f l o s n o i s u c n o c d e fi i t n a u q e h t s n a e m s t s a c e r o F . t o n r o d e t u b i r t s i d e r a y e h t y c i l i i o p d n e d v d r o n o i t u b i r t s i d h s a c l a u n n a e h T . t fi o r p t e n f o n o i t u b i r t s i d , y c i l i i o p d n e d v d r o n o i t u b i r t s i d h s a c l a u n n a n a e v a h d u o h s l y n a p m o c A a o t d e t a e r l s r o t c a f f o t s i l a f o t c a p m i l a t o t i i e h t g n n m r e t e d t a d e m a i i s e d u t s a n o p u d e s a b s i k s a t a h c u s e r u t a n y b : ) s n o i t p m u s s a d e l l a c o s ( d o i r e p e r u t u f O N S E Y S E Y S E Y i m o r f g n i r e ff d y l t n a c fi n g i s i s e m i t e m o s s t l u s e r h t i w , i y t n a t r e c n u f o , y c n e u q e r f e h t r o f i e d v o r p d u o h s l y c i l o p e h T . d e t n e s e r p y l l a i t i n l e v e l h g h i i s t s a c e r o f . . 3 D y c i l o p t s a c e r o f e h T . s t r o p e r y l r e t r a u q r o l a u n n a - i m e s , l a u n n a f o t r a p e b y n o l y a m , d e h s i l b u p f i , s t s a c e r o F . s t s a c e r o f f o t n e t n o c d n a , d e g a s i v n e d o i r e p e h t t c i r t s e r t o n d u o h s l l s r e d o h e r a h s f o s g n i t e e m l a r e n e g f o s e u r l e h T . e t i s b e w e t a r o p r o c e h t n o d e h s i l b u p e b d u o h s l r i e h t f o g n i s i c r e x e e h t d n a s g n i t e e m l a r e n e g n i l s r e d o h e r a h s f o n o i t a p c i t r a p i e h t f o s a , t s e i l r a e e h t t a , t c e ff e e k a t d u o h s l s e u r l e h t f o s t n e m d n e m A . s t h g i r l . s r e d o h e r a h s f o g n i t e e m l a r e n e g t x e n r i e h t n e h w s g n i t e e m ’ l s r e d o h e r a h s e h t d n e t t a d u o h s l s r o t i d u a l a n r e t x e e h T . e r e h t d e t n e s e r p e r a s t r o p e r a l s r e d o h e r a h s f o g n i t e e m l a r e n e g l a u n n a e h t o t l t n e s e r p d u o h s d r a o B e h T t n e m e g a n a m k s i r i t n a c fi n g i s d n a s l o r t n o c l a n r e t n i e h t f o t n e m s s e s s a f e i r b l a r e n e g e h t t a n o i t u o s e r o t l j t c e b u s s e u s s i i n o s n o n p o s a i l l e w s a , m e t s y s . g n i t e e m . . 4 D . . 5 D . . 6 D l a r e n e g f . o t e s A g n i t e e m s e r u d e c o r p d n a s e u r l r o f d e t t i m b u s e b l l i w . D o B e h t o t n o i s s u c s i d h c a e f i o g n n n g e b i , s t n a t l u s n o c , s l a n o i s s e f o r p l s t s y a n a r o s t r e p x e e h t n i i e t a p c i t r a p o t l . s r e d o h e r a h s f o s g n i t e e m e h t f o t n e m e e r g a e h T l s r e d o h e r a h s t n e s e r p e h t t a d e t s e u q e r s a w I Y L L A T R A P f o g n i t e e m l a r e n e g e h t n i i e t a p c i t r a p o s l a y a m s t s i l a n r u o j d e t i d e r c c A . d r a o B n i i e t a p c i t r a p y a m l t s y a n a l i a c n a n fi r o t r e p x e , t n a t l u s n o c , l a n o i s s e f o r p y n A e h t f o n a m r i a h C e h t m o r f n o i t a t i v n i r o i r p n o p u g n i t e e m ’ l s r e d o h e r a h s e h t . i e s i w r e h t o s e d c e d d r a o B e h t f o n a m r i a h C e h t s s e n u l l , s r e d o h e r a h s . . 7 D n o i t a m r o f n i l a n o i t i d d A n o n o i t a m r o f n I - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N 198 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA d n a l s t s y a n a h t i w s e c n e r e f n o c e e t l l y l r e t r a u q s d o h a c i r t c e E l . s r o t s e v n i i n h t i w e c n e s e r p e v i t c a n a d a h s a h a c i r t c e E l S E Y S E Y n o i t a m r o f n i e d u c n l i l d u o h s s t r o p e r l i a c n a n fi l a u n n a - i m e s d n a y l r e t r a u q e h T i e h t g n c n e u fl n i s r e v i r d y e k i e h t g n d r a g e r h s i l i g n E d n a n a n a m o R h t o b n i l i a c n a n fi t n a v e e r l r e h t o d n a t fi o r p t e n , t fi o r p g n i t a r e p o l , s e a s n i e g n a h c . s m r e t r a e y - n o - r a e y d n a r e t r a u q - n o - r e t r a u q n o h t o b , s r o t a c d n i i . . 8 D h t i w s l l a c e c n e r e f n o c / s g n i t e e m o w t t s a e l t a i e z n a g r o d u o h s l y n a p m o c A t a e t i s b e w y n a p m o c e h t f o n o i t c e s R I e h t n i d e h s i l b u p e b d u o h s l s n o i s a c c o e s e h t n o d e t n e s e r p n o i t a m r o f n i e h T . r a e y h c a e s r o t s e v n i d n a s t s y a n a l . s l l a c e c n e r e f n o c / s g n i t e e m e h t f o e m i t e h t . . 9 D n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N n i e d a m s n o i t a n o d r o s a e r a d e t r o p p u s e h t n o n o i t a m r o f n I . t r o p e r l a u n n a e h t n i d e t n e s e r p e r a 5 1 0 2 c fi i t n e c s i r o l a n o i t a c u d e s u o i r a v n i r o s n o p s a , l a r u t l u c , c i t s i t r a . s t n e v e r e d n u s i y c i l o p R S C A . t n e m p o e v e d l i s a g n d u c n l i , a e r a s i h t I Y L L A T R A P f o t r a p y n a p m o c e h t f o s s e n e v i t i t e p m o c d n a s s e n e v i t a v o n n i e h t n o t c a p m i . 0 1 . D y c i l o p e h t h s i l b u p d u o h s l t i , y g e t a r t s l t n e m p o e v e d d n a n o i s s i m s s e n i s u b s t i t r o p s , n o i s s e r p x e l a r u t l u c d n a c i t s i t r a f o s m r o f s u o i r a v s t r o p p u s y n a p m o c a f I g n i t l u s e r e h t s r e d i s n o c d n a , s e i t i v i t c a c fi i t n e c s i r o l a n o i t a c u d e , s e i t i v i t c a . a e r a s i h t n i y t i v i t c a s t i i g n d u g i 199 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA APPENDIX 2 INTERNAL AUDIT REPORT FOR 2015 The Annual Audit Plan for 2015, registered under no. 9900/25268/28.11.2014, endorsed by the Audit Committee and approved by the Board of Direc- tors by the Decision no. 3/17.02.2015, provided for seven missions planned for 2015 in the following auditable areas: human resources, technical, inter- national cooperation, legal and litigations, public re- lations, major project and patrimony. This plan was drawn up in view of identifying the efficiency of internal controls within ELSA. On the date of audit missions planning, the Audit & Compliance Office team was made of two internal auditors. In 2015, upon the request of the Board of Direc- tors, several ad-hoc missions were conducted, which resulted in the amendment of the Annual Internal Audit Plan for 2015. By Decision no. 26 of 16.09.2015, the Board of Directors approved the amendment of the Audit Plan for the period January-June 2015. During the first half year 2015, 5 audit missions were conducted in the company, one Annual In- ternal Audit Plan and 4 ad-hoc missions in ELSA subsidiaries. The missions conducted in the first half year are: • Management of employees and salary po- the mission Order no. licies based on 9900/488/12.01.2015, mission planned in the Annual Audit Plan, • Achievement verification of services procu- rement procedure for: Rehabilitation of IT in- frastructure of FISE Electrica Serv SA – working and multifunctional stations and “Integrated IT system to streamline operational activity”, conducted based on the mission Order no. 9900/487/12.01.2015, • Assessment and check up of the procedures achievement and of the procurement contracts for goods, services and works in the three elec- tricity distribution subsidiaries: FDEE “Electrica Transilvania Nord” S.A., FDEE “Electrica Transil- vania Sud” S.A., FDEE “Electrica Muntenia Nord” S.A. conducted based on the mission Order no. 9900/4636/03.03.2015, • Assessment of employees, salary policies ma- nagement in FDEE “Electrica Transilvania Nord” S.A., FDEE “Electrica Transilvania Sud” S.A., FDEE “Electrica Muntenia Nord” S.A., “Electri- ca Furnizare” S.A. and FISE “Electrica Serv” S.A. conducted based on the mission Order no. 9900/9479/04.05.2015, • Analysis of contracts signed by Electrica S.A. and “Bostina & Asociatii” Limited Liability Pro- fessional Company during 2010–2014 pe- riod, according to the mission Order no. 9900/11707/29.05.2015. In the second half of 2015 the following audit missions were conducted: • Assessment of legal and litigations activity in FDEE “Electrica Transilvania Nord” S.A., FDEE “Electrica Transilvania Sud” S.A., FISE ELECTRI- CA SERV S.A., during the period 01.01.2014 - 30.10.2015, conducted based on the mission Order no. 9900/20472/29.09.2015. • Verification of procurement procedures and of the project “Chirnogeni Wind Mills Park” in ELECTRICA SA, conducted based on the missi- on Order no. 9900/19389/31.08.2015. These missions were performed by teams made of two internal auditors. The internal audit report concluded as a result of the missions were acknowledged by the mana- gement of audited entities, endorsed by the Au- dit Committee and the implementation of their recommendations is consistently monitored by their follow up sheets. As a result of the audit missions and the acceptance of their recom- mendations by the audited entities and persons, the audited structures make up their own plans of measure to meet the recommendations. The internal audit engagements have confirmed the positive impact of an internal audit on the activities carried out within the Company and its subsidiaries. Since its dual listing on the Bucharest Stock Ex- change and the London Stock Exchange and until the year end, the Operational Procedure of Internal Audit, Handbook of Internal Audit and Code of Ethics of the internal auditor were up- dated, in compliance with the national legislation and the International Standards for Internal Audi- tors’ Professional Practice. All of these procedu- res have been endorsed by the Audit Committee and approved by the Board of Directors 200 2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SASEPARATE FINANCIAL STATEMENTS For the year ended December 31, 2015 201 ANNUAL REPORT 2015 ELECTRICA SAINDIVIDUAL FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2015 prepared in accordance with the order of the viceprime minister, Ministry of Finance no.1286/2012, as further amended CONTENTS Separate statement of financial position Separate statement of profit or loss Separate statement of comprehensive income Separate statement of changes in equity Separate statement of cash flows Notes to the separate financial statements Basis of preparation 1 Reporting entity 2 Basis of preparation 3 Functional and presentation currency 4 Use of judgments and estimates Accounting policies 5 Basis of measurement 6 Significant accounting policies 7 New standards and interpretations not yet adopted Performance for the year 8 Revenue 9 Income and expenses 10 Net finance income 11 Earnings per share Employee benefits 12 Short-term employee benefits 13 Post-employment and other long-term employee benefits 14 Employee benefit expenses Income tax 15 Income taxes Assets 16 Trade receivables 17 Deposits, treasury bills and government bonds 18 Other receivables 19 Cash and cash equivalents 20 Property, plant and equipment 21 Intangible assets 22 Investments in subsidiaries Equity and liabilities 23 Spin-off 24 Capital and reserves 25 Trade payables 26 Other payables 27 Provisions Financial instruments 28 Financial instruments - fair values and risk management Other information 29 Related parties 30 Contingencies 31 Commitments 203 204 205 206 208 210 211 211 211 212 212 218 218 218 219 219 220 220 223 223 225 226 226 226 227 228 229 230 231 232 232 232 233 236 238 239 202 ANNUAL REPORT 2015 ELECTRICA SASEPARATE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2015 (All amounts are in RON) Note Thursday, December 31, 2015 Wednesday, December 31, 2014 ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries Deferred tax assets Total non-current assets Current assets Cash and cash equivalents Deposits, treasury bills and government bonds Trade receivables Other receivables Inventories Prepayments Income tax receivable Total current assets Total assets EQUITY AND LIABILITIES Equity Share capital out of which: Subscribed and paid in share capital Inflation adjustment to share capital Share premium Treasury shares Capital contributions in kind from shareholders Revaluation reserves Legal reserves Retained earnings Total equity Liabilities Non-current liabilities Employee benefits Total non-current liabilities Current liabilities Trade payables Other liabilities Deferred revenue Employee benefits Provisions Total current liabilities Total liabilities 20 21 22 15 19 17 16 18 15 24 24 24 24 24 24 24 13 25 26 12,13 27 293,375,460 1,498,663 1,430,819,457 7,249,634 1,732,943,214 283,366,031 1,900,395,387 77,531,461 13,056,225 116,597 56,033 23,134,100 2,297,655,834 291,258,568 677,666 1,427,360,547 7,205,689 1,726,502,470 1,075,619,774 1,038,419,841 87,695,766 15,390,676 166,347 336,573 23,134,100 2,240,763,077 4,030,599,048 3,967,265,547 3,459,399,290 3,459,399,290 - 103,049,177 (75,372,435) 2,861,525 769,261 142,932,218 292,266,081 3,925,905,117 1,795,588 1,795,588 60,633,718 7,632,190 497,084 2,884,701 31,250,650 102,898,343 104,693,931 3,814,242,000 3,459,399,290 354,842,710 103,049,177 (75,372,435) 3,277,268 828,548 127,896,823 (104,364,433) 3,869,556,948 2,990,743 2,990,743 83,400,334 8,663,437 384,428 2,269,657 - 94,717,856 97,708,599 Total equity and liabilities 4,030,599,048 3,967,265,547 The accompanying notes are an integral part of these separate financial statements. General Manager Ioan Roșca CFO Iuliana Andronache 203 ANNUAL REPORT 2015 ELECTRICA SA SEPARATE STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2015 (All amounts are in RON) Revenues Other operating revenues Purchased electricity Employee benefits Note 2015 2014 8 9 9 14 383,708,120 244,517,469 1,533,233 4,462,492 (368,683,747) (224,176,045) (16,636,893) (16,699,072) Depreciation and amortization 20,21 (20,241,737) (13,252,249) Impairment of investments in subsidiaries - (4,674,871) Reversal of impairment/ (Impairment) of trade and other receivables, net 16,18 2,832,061 (2,469,481) Other operating expenses movement in provisions, net Operating loss Financial revenues Financial expenses Gain from disposals of shares held in other entities 9 27 10 10 10 (23,289,218) (29,317,714) (31,250,650) 30,777,355 (72,028,831) (10,832,116) 373,026,201 257,583,262 (289,466) (2,485,569) - 31,809,478 Net finance income 372,736,735 286,907,171 Profit before tax 300,707,904 276,075,055 Income taxes – income/(expense) 15 156,580 (6,585,537) Profit 300,864,484 269,489,518 Earnings per share Basic and diluted earnings per share 11 0.89 0.97 The accompanying notes are an integral part of these separate financial statements. General Manager Ioan Roșca CFO Iuliana Andronache 204 ANNUAL REPORT 2015 ELECTRICA SASSEPARATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Note 2015 2014 Profit 300,864,484 269,489,518 Other comprehensive income Items that will never be reclassified to profit or loss Revaluation of property, plant and equipment Tax related to revaluation of the property, plant and equipment Re-measurements of the defined benefit liability Tax related to re-measurements of the defined benefit liability 20 15 13 15 - - 986,367 (157,819) 703,969 (103,574) (112,635) 16,572 Other comprehensive income, net of tax 591,334 741,546 Total comprehensive income 301,455,818 270,231,064 The accompanying notes are an integral part of these separate financial statements. General Manager Ioan Roșca CFO Iuliana Andronache 205 ANNUAL REPORT 2015 ELECTRICA SASEPARATE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2015 (All amounts are in RON) , 1 8 0 6 6 2 2 9 2 , , 8 1 2 2 3 9 2 4 1 , , 1 6 2 9 6 7 5 2 5 , 1 6 8 2 , , ) 5 3 4 2 7 3 5 7 ( , , 4 8 4 4 6 8 0 0 3 , , 4 8 4 4 6 8 0 0 3 , 4 3 3 , 1 9 5 4 3 3 , 1 9 5 , 8 1 8 5 5 4 , 1 0 3 , 8 1 8 5 5 4 , 1 0 3 ) 3 4 7 5 1 4 , ( - ) 6 0 9 , 1 9 6 4 4 2 , ( ) 6 0 9 , 1 9 6 4 4 2 , ( , ) 9 4 6 7 0 1 , 5 4 2 ( ) 6 0 9 , 1 9 6 4 4 2 ( , - - - - - - , 8 4 9 6 5 5 9 6 8 3 , , , ) 3 3 4 4 6 3 4 0 1 ( , , 3 2 8 6 9 8 7 2 1 , - - - 7 1 1 , 5 0 9 5 2 9 3 , , , ) 5 9 3 5 3 0 5 1 ( , , 0 1 7 2 4 8 4 5 3 , 7 8 2 9 5 , , 5 9 3 5 3 0 5 1 , - - 8 4 5 8 2 8 , - - - - - - - - ) 7 8 2 9 5 ( , - - - ) 3 4 7 5 1 4 , ( - ) 3 4 7 5 1 4 , ( - - - - - - - - - - - - - - - - - - - - - ) 7 7 1 , 9 4 0 3 0 1 , - - - - - - - , 0 1 7 2 4 8 4 5 3 , - - - - - - - - - - - ( 4 2 4 2 , 0 9 2 9 9 3 9 5 4 3 , , 4 1 0 2 t s 1 3 r e b m e c e D t a e c n a l a B e m o c n i e v i s n e h e r p m o C e m o c - n i i e v s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T t fi o r P e h t f o s r e n w o h t i w s n o i t c a s n a r T y n a p m o C s n o i t - u b i r t s i d d n a s n o i t u b i r t n o C e h t f o s r e n w o h t i w s n o i t c a s n a r t l a t o T y n a p m o C s r a e y i s u o v e r p n i e d a m s e s s o l g n i r e v o C y t i u q e n i s e g n a h c r e h t O s e v r e s e r l a g e l f o p u t e S i d e n a t e r o t e v r e s - e r n o i t a u a v e r l f o e s a e e R l s d n e d v D i i i e r e w s t h g i r p h s r e n w o h c h w i r o f d n a L i d e n a t b o i s l a s o p s d d n a n o i t a c e r p e d o t i e u d s g n n r a e i i t n e m p u q e d n a t n a p l , y t r e p o r p f o 5 1 0 2 t s 1 3 r e b m e c e D t a e c n a l a B ) 7 0 2 e g a p n o d e u n i t n o C ( y t i u q e l a t o T i d e n a t e R i s g n n r a e l a g e L s e v r e s e r n o i t a u l a v e R s n o i t u b i r t n o c s e v r e s e r m o r f d n k n i i l s r e d o h e r a h s l a t i p a C y r u s a e r T s e r a h s e r a h S i m u m e r p n o i t a fl n I t n e m t s u d a j e r a h s o t l a t i p a c d e b i r c s b u S n i d i a p d n a l a t i p a c e r a h s e t o N 206 , 8 6 2 7 7 2 3 , , ) 5 3 4 2 7 3 5 7 ( , 7 7 1 , 9 4 0 3 0 1 , , 0 1 7 2 4 8 4 5 3 , , 0 9 2 9 9 3 9 5 4 3 , , ANNUAL REPORT 2015 ELECTRICA SA y t i u q e l a t o T i d e n a t e R i s g n n r a e l a g e L s e v r e s e r n o i t a u l a v e R s n o i t u b i r t n o c s e v r e s e r m o r f d n k n i i l s r e d o h e r a h s l a t i p a C y r u s a e r T s e r a h s e r a h S i m u m e r p n o i t a fl n I t n e m t s u d a j e r a h s o t l a t i p a c d e b i r c s b u S n i d i a p d n a l a t i p a c e r a h s e t o N SEPARATE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2015 (All amounts are in RON) , 0 7 5 3 4 6 3 5 3 2 , , , ) 3 6 5 8 4 2 7 1 3 ( , , 0 7 0 3 9 0 4 1 1 , , 8 1 5 9 8 4 9 6 2 , , 8 1 5 9 8 4 9 6 2 , 6 4 5 , 1 4 7 4 6 0 , 1 3 2 0 7 2 , , 7 1 6 6 3 9 4 7 8 , 1 , , ) 5 3 4 2 7 3 5 7 ( , ) , 3 8 0 5 6 8 3 , ( ) 2 0 0 7 8 , ( , 6 1 5 2 0 4 9 6 2 , - - - , ) 5 2 2 5 7 4 2 2 , ( , ) 5 2 2 5 7 4 2 2 , ( ) 0 6 5 , 1 4 5 7 2 5 ( , ) , 8 0 4 9 3 2 0 2 , ( , 4 1 3 2 8 6 5 4 2 , 1 , , ) 3 3 6 4 1 7 2 4 , ( - ) , 3 5 7 3 0 8 3 1 ( , - - - - - - - - - , 3 5 7 3 0 8 3 1 , , 8 4 9 6 5 5 9 6 8 3 , , , ) 3 3 4 4 6 3 4 0 1 ( , , 3 2 8 6 9 8 7 2 1 , - - , 8 4 5 8 2 8 8 4 5 8 2 8 , - - - - - - - 8 4 5 8 2 8 , , 1 6 9 2 9 4 7 4 , - - - - - - - - - - - - - - 7 7 1 , 9 4 0 3 0 1 , ) , 3 9 6 5 1 2 4 4 , - - ( - - - , ) 5 3 4 2 7 3 5 7 ( , - - - - ) , ) 3 9 6 5 1 2 4 4 , ( , ) 5 3 4 2 7 3 5 7 ( , 7 7 1 , 9 4 0 3 0 1 , , ) 2 5 3 4 6 0 6 7 ( , , 2 6 0 7 0 9 0 3 4 , - - - - - - - , 2 5 3 4 6 0 6 7 ( , , 0 4 0 9 9 3 8 7 0 2 , , - - - 3 1 0 2 t s 1 3 r e b m e c e D t a e c n a l a B e m o c n i e v i s n e h e r p m o C e m o c n i i e v s n e h e r p m o c r e h t O e m o c n i e v i s n e h e r p m o c l a t o T t fi o r P e h t f o s r e n w o h t i w s n o i t c a s n a r T y n a p m o C s n o i t u b - i r t s i d d n a s n o i t u b i r t n o C , 0 4 4 7 8 8 , 1 7 7 , 1 4 2 t e n , O P I e h t m o r f s g n i t i r w r e d n U - , 0 1 6 0 5 3 0 4 , - 4 2 4 2 4 2 l s r e d o h - e r a h s e h t y b d e t u b i r t - n o c d n a l f o t c e p s e r n i s e r a h s y r a n d r o i f o e u s s I y r u s a e r t s e r a h s n w o f o n o i t i s i u q c A s e r a h s s d n e d v D i i ) , 0 0 8 7 3 2 , 1 3 4 ( 3 2 t c e ff e ff o - n p S i , 0 5 2 0 0 0 , 1 8 3 , 1 e h t f o s r e n w o h t i w s n o i t c a s n a r t l a t o T y n a p m o C y t i u q e n i s e g n a h c r e h t O - - - - s e v r e s e r l a g e l f o p u t e S , 8 6 2 7 7 2 3 , , ) 5 3 4 2 7 3 5 7 ( , 7 7 1 , 9 4 0 3 0 1 , , 0 1 7 2 4 8 4 5 3 , , 0 9 2 9 9 3 9 5 4 3 , , 4 1 0 2 t s 1 3 r e b m e c e D t a e c n a l a B . s t n e m e t a t s l i a c n a n fi e t a r a p e s e s e h t f o t r a p l a r g e t n i n a e r a i s e t o n g n y n a p m o c c a e h T 207 ANNUAL REPORT 2015 ELECTRICA SA SEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2015 (All amounts are in RON) Cash flows from operating activities Profit Adjustments for: Depreciation Amortisation Impairment of investments in subsidiaries, net Impairment / (Reversal of impairment) of trade and other receivables, net Net finance income Changes in provisions, net Income tax – expense/(income) Changes in: Trade receivables Other receivables Trade payables Other liabilities Employee benefits Note 2015 2014 300,864,484 269,489,518 20 21 22 20,028,254 12,806,965 213,483 445,284 - 4,674,871 18,20 (2,832,061) 2,469,481 10 27 15 (372,736,735) (286,907,171) 31,250,650 (30,777,355) (156,580) 6,585,537 (23,368,505) (21,212,870) (23,028,726) (48,019,061) (631,077) 17,040,412 10,426,415 52,585,186 (1,369,714) (7,758,884) 123,858 (1,629,302) Cash used in operating activities (37,847,749) (8,994,519) Interest paid (38) (34,807) Net cash used in operating activities (37,847,787) (9,029,326) (Continued on page 209) 208 ANNUAL REPORT 2015 ELECTRICA SASEPARATE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2015 (All amounts are in RON) Cash flows from investing activities Payments for purchases of property, plant and equipment Note 2015 2014 (22,560,889) (31,416,511) Payments for purchases of intangible assets (1,034,480) (325,147) Proceeds from sale of other investments 23 - 140,920,000 Payments for purchase of treasury bills and government bonds Proceeds from maturity of treasury bills and government bonds Payments in deposits with initial maturity of 3 months or longer Proceeds from deposits with initial maturity of 3 months or longer Interest received Dividends received (4,093,998,000) (1,194,250,628) 3,240,481,000 295,598,291 (144,056,000) (137,004,050) 136,704,000 - 29,494,629 17,866,153 10 344,647,949 238,431,719 Net cash used in investing activities (510,321,791) (670,180,173) Cash flows from financing activities Proceeds from issue of shares, net of transaction costs Re-purchase of treasury shares Dividends paid Cash transferred at spin off 24 24 24 23 - - 1,874,936,617 (75,372,435) (244,084,165) (22,475,225) - (129,385,930) Net cash from / (used in) financing activities (244,084,165) 1,647,703,027 Net increase/(decrease) in cash and cash equivalents (792,253,743) 968,493,528 Cash and cash equivalents at January 1st Cash and cash equivalents at December 31st 19 19 1,075,619,774 107,126,246 283,366,031 1,075,619,774 The accompanying notes are an integral part of these separate financial statements. General Manager Ioan Roșca CFO Iuliana Andronache 209 ANNUAL REPORT 2015 ELECTRICA SA 1 Reporting entity Electrica was originally incorporated as a com- pany in 1998 by Government Decision no. 365/1998, following the restructuring of the former National Electricity Company (RENEL). On August 1st 2000, following the restructur- ing of the former National Electricity Company (CONEL) under the Government Decision no. 627/2000, the Company was allocated a new tax registration number, without changing the object of activity (distribution and supply of electricity in Romania). The registered office of the Com- pany is 9, Grigore Alexandrescu Street, District 1, Bucharest, Romania. The Company has unique registration number 13267221 and Trade Register registration number J40/7425/2000. As at December 31st 2015 the major shareholder of Electrica SA is the Romanian State, represented by the Ministry of Energy (48.78%), after the own- ership dilution following an initial public offer. The next large shareholder is the European Bank for Reconstruction and Development with 8.66%. As at December 31st 2015 and 2014, Electrica SA has the following shareholdings: Subsidiary Activity Tax code Head Office % shareholding as at Dec 31st 2015 % shareholding as at Dec 31st 2014 Electrica Distributie Munte- nia Nord SA Electrica Distributie Transil- vania Nord SA Electrica Distributie Transil- vania Sud SA Electricity distribution in geographical area of Munte-nia Nord Electricity distribution in geographical area of Transil-vania Nord Electricity distribution in geographical area of Transil-vania Sud 14506181 Ploiesti 78.0000021% 78.0000021% 14476722 Cluj-Napoca 77.99999% 77.99999% 14493260 Brasov 78.0000019% 78.0000019% Electrica Furnizare SA Electricity Supply 28909028 Bucuresti 77.99997% 77.99997% Electrica Serv SA Servicii Energetice Munte-nia (In reorganization) Servicii Energetice Oltenia SA (In reorganization) Servicii Energetice Oltenia SA (In insolvency) Servicii Energetice Banat SA (In bankruptcy)* Servicii Energetice Dobro- gea SA (In bankruptcy)* Services in the energy sector (maintenance, repairs, con-struction) Services in the energy sector (maintenance, repairs, con-struction) Services in the energy sector (maintenance, repairs, con-struction) Services in the energy sector (maintenance, repairs, con-struction) Services in the energy sector (maintenance, repairs, con-struction) Services in the energy sector (maintenance, repairs, con-struction) 17329505 Bucuresti 100% 29384120 Bucuresti 100% 29389861 Craiova 100% 29386768 Bacau 100% 29388211 Timisoara 100% 29388378 Constanta 100% 100% 100% 100% 100% 100% 100% *Electrica SA lost control over Servicii Energetice Banat in November 2014 and over Servicii Energetice Dobrogea in January 2015 as a consequence of starting the subsidiary’s bankruptcy procedure (see Note 22). 210 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SAThe Company’s main activities Currently, the core business of the Company, according to the Statute, annex to Government Decision no. 627/2000, consolidated, amended and supplemented, is the “Activities of business and management consulting.” The Company also covers services on the balancing electricity market, trading and import-export. According to the Commercial Code of the whole- sale electricity market, the balancing market was introduced and began operating in Romania in July 2005. The purpose of this market is to allow the balance of the production and consumption of power in real time, using resources provided in a competitive system. Each participant at the wholesale market (producer, supplier, operator, eligible consumer) has the obligation to register at the Operator of the balancing market of CN Transelectrica SA as a Balance Responsible Party (“BRP”) or to transfer his balancing responsibility to another licence holder registered as BRP. The Company operates as Balance Responsible Party for 110 license holders. Initial public offering The Government Decision no. 85/2013, amend- ed and completed by Government Decision no. 477/2014 approved the privatization strategy of Electrica SA by initial public offer (“IPO”). The pri- vatization strategy included the offer for sale of a 51% stake by issuance of new shares representing 105% of the existing share capital as at the date of the IPO. The shares were offered to both individ- ual and institutional investors on the Romanian market, as well as to qualified investors on the US market and outside USA, and as Global Deposito- ry Receipts (“GDRs”) on the UK market. The IPO was organised between 11th and 27th June 2014 and entailed to an offering by the Company of 177,188,744 ordinary shares in the form of shares and in the form of GDRs, each GDR representing four shares. Following the IPO, the Company sold 142,007,744 shares and 8,795,250 GDRs, at the offer price of RON 11 per share and 13.66 USD per GDR. The allocation of shares and GDRs was concluded on June 27th 2014. The transfer of ownership rights to new shares and the collection of cash by the Compa- ny took place on July 2nd 2014. At the same date the increase in share capital was recorded in the Trade Register. Starting July 4th 2014 the Company’s shares are listed on the Bucharest Stock Exchange, and the GDRs are listed on the London Stock Exchange. 2 Basis of preparation These individual financial statements have been prepared in accordance with the Minister of Public Finance Order no. 1286/2012 for approv- ing the Accounting Regulations in accordance with International Financial Reporting Standards (“IFRS”), applicable to companies whose securi- ties are admitted to trading on a regulated market, and related amendments (“OMPF 1286/2012”). In acceptance of OMPF 1286/2012, International Fi- nancial Reporting Standards are standards adopt- ed under the procedure provided by the Europe- an Commission Regulation no. 1606/2002 of the European Parliament and of the Council of July 19th 2002 regarding the application of the interna- tional accounting standards. They were authorized for issue by the Board of Directors on March 11th 2016. The financial state- ments will be submitted for shareholders’ approv- al in the meeting scheduled on April 27th 2016. 3 Functional and presentation currency These separate financial statements are present- ed in Lei (RON), which is the functional currency of the Company. All amounts are in RON, if not otherwise stated. 4 Use of judgements and estimates In preparing these separate financial statements, management has made judgements, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expens- es. Actual results may differ from these estimates. Estimates and underlying assumptions are re- viewed on an ongoing basis. Revisions to esti- mates are recognised prospectively. Judgements Information about judgements made in apply- ing accounting policies that have the most sig- nificant effects on the amounts recognised in the separate financial statements is included below. Commissions Company assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The Company has conclud- ed that it is acting as a principal in all of its rev- enue arrangements. If the Company acts in the capacity of an agent rather than as the principal in a transaction, then the income recognised is the net amount of commission earned by the Company. (a) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that may result in a material adjust- ment in the subsequent twelve month period is 211 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SAincluded in the following notes: • Note 6 h) and j) – estimates regarding the useful lives of property, plant and equipment and of intangible assets; The separate financial statements have been pre- pared on the historical cost basis, except for the land and buildings which are measured based on revaluation model. • Notes 16 and 28 – assumptions and estimates about the recoverability of trade receivables; • Note 20 - assumptions regarding the revalued amount of property, plant and equipment; • Note 22 – assumptions and estimates regarding the valuation of shareholdings in the subsidiaries; • Note 15 – recognition of deferred tax assets: availability of future taxable profit against which tax loss carried forward can be used; • Notes 27 and 30 – recognition and measure- ment of provisions and contingencies; • Note 13 – measurement of defined benefit ob- ligations and other long-term employee bene- fits: key actuarial assumptions. • Note 20 – determining whether an agreement contains a lease. Measurement of fair values A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices includ- ed in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); • Level 3: inputs for the asset or liability that are not based on observable market data (unob- servable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in differ- ent levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognises transfers between lev- els of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in Note 20: Property, plant and equipment. 5 Basis of measurement 6 Significant accounting policies The Company has consistently applied the fol- lowing accounting policies to all periods present- ed in these separate financial statements. (a) Revenue Revenue is recognized when it is probable that the economic benefits associated with the trans- action will flow to the company, and the amount of the revenue can be reliably measured. Reve- nue is recognized at the fair value of the services rendered or goods delivered, net of VAT, excises or other taxes related to the sale. Rendering of services Revenues related to services rendered are rec- ognised in the period in which the services were rendered based on statements of work per- formed, regardless of when paid or received, in accordance with the accrual basis. Sales of goods Revenue from sale of goods is recognized when the goods are delivered and significant risks and rewards of ownership of the goods have passed to the buyer. (b) Commissions Company assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. If the Company acts in the capacity of an agent rather than as the principal in a transaction, then the income recognised is the net amount of commission earned by the Company. (c) Finance income and finance costs The Company’s finance income and finance costs include: • interest income; • interest expense; • dividend income; • the foreign currency gain or loss on financial assets and financial liabilities; • impairment losses recognised on financial as- sets (other than trade receivables). Interest income or expense is recognised using the effective interest method. (d) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency at the exchange rates 212 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SAat the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the function- al currency at the exchange rate at the reporting date, as communicated by the National Bank of Romania. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was deter- mined. Foreign currency differences are recog- nised in profit or loss. Non-monetary items that are measured based on historical cost in a for- eign currency are not translated. (e) Employee benefits (i) Short-term employee benefits Short-term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Com- pany has a present legal or constructive obliga- tion to pay this amount as a result of past service provided by the employee and the obligation can be reliably estimated. (ii) Defined contribution plans Obligations for contributions to defined contri- bution plans are expensed as the related service is provided. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. (iii) Defined benefit plans The Company’s net obligation in respect of de- fined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the cur- rent and prior periods, discounting that amount. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. Re-measurements of the net defined benefit lia- bility, which comprise actuarial gains and losses, are recognised immediately in other compre- hensive income. The Company determines the net interest expense (income) on the net defined benefit liability for the period by applying the dis- count rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability, taking into account any changes in the net defined benefit liability during the period as a result of contribu- tions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Company recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. (iv) Other long-term employee benefits The Company’s net obligation in respect of long- term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present val- ue. Re-measurements are recognised in profit or loss in the period in which they arise. (v) Termination benefits Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Compa- ny recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted. (f) Income tax Income tax expense comprises current and de- ferred tax. It is recognised in profit or loss except to the items recognised directly in equity or in other comprehensive income. (i) Current tax Current tax comprises the expected tax paya- ble or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantive- ly enacted at the reporting date. Current tax also includes any tax arising from dividends. (ii) Deferred tax Deferred tax is recognised in respect of tempo- rary differences between the carrying amounts of assets and liabilities for financial reporting pur- poses and the amounts used for taxation purpos- es. Deferred tax is not recognised for: • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Company is able to con- trol the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future. Deferred tax assets are recognised for unused tax 213 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SAlosses, unused tax credits and deductible tempo- rary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is measured at the tax rates that are expected to be applied to temporary differenc- es when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the man- ner in which the Company expects, at the report- ing date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if certain criteria are met. Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the ex- tent that it has become probable that the future taxable profits will be available against which they can be used. (g) Inventories Inventories consist mainly of consumables and other inventories. Inventories are measured at the lower of cost and net realizable value. Net realizable value is the es- timated selling price in the ordinary course of the business, minus the estimated costs of comple- tion and the estimated costs necessary to make the sale. The cost of inventories is based on the weight- ed average cost method. The cost of inventories includes all the acquisition costs and other ex- penses related to bringing the inventories to their current place and condition. (h) Property, plant and equipment (i) Recognition and measurement Property, plant and equipment are stated initially at cost, which includes purchase price and oth- er costs directly attributable to acquisition and bringing the asset to the location and condition necessary for their intended use. After initial rec- ognition, land and buildings are measured at revalued amounts less any accumulated depre- ciation and any accumulated impairment losses since the most recent valuation. The Company used the fair value as deemed cost for the tangible assets for the opening of the fi- nancial position. Revaluations are made with sufficient regulari- ty to ensure that the carrying amount does not differ materially from that which would be de- termined using the fair value at the end of the reporting period. When a building is revalued, the accumulated de- preciation is eliminated against the gross carrying amount of that item, and the net amount is re- stated to the revalued amount of the asset. If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment. Spare parts, stand-by and servicing equipment are classified as property, plant and equipment if they are expected to be used during more than one period or can be used only in connection with an item of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. (ii) Subsequent expenditure Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company. (iii) Depreciation Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is recognised in profit or loss. Leased assets are de- preciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Land and construction in progress are not depreciated. The estimated useful lives of property, plant and equipment are as follows: Category Buildings Equipment Vehicles, furniture and office equipment Useful lives 60-70 (average 67 years) 4-12 (average 7 years) 3-10 (average 7 years) 214 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SADepreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (i) Intangible assets (i) Recognition and measurement Intangible assets that are acquired by the Com- pany and have finite useful lives are measured at cost less accumulated amortisation and any ac- cumulated impairment losses. (ii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embod- ied in the specific asset to which it relates. All oth- er expenditure, including expenditure on internal- ly generated goodwill and brands, is recognised in profit or loss as incurred. (iii) Amortisation Amortisation is calculated to write off the cost of intangible assets less their estimated residual val- ues using the straight-line method over their esti- mated useful lives, and is generally recognised in profit or loss. The estimated useful lives of software and licens- es are 3-5 years. The amortisation method, the useful lives and re- sidual values are reviewed at each reporting date and adjusted if appropriate. (j) Assets held for distribution Non-current assets, or disposal groups com- prising assets and liabilities, are classified as held-for-distribution if it is highly probable that they will be recovered primarily through distribu- tion rather than through continuing use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs of distribution. Impairment losses on initial classification as held-for-distribution and subsequent gains and losses on re-measurement are recognised in profit or loss. (k) Financial instruments The Company classifies non-derivative financial assets into the following categories: loans and receivables and held to maturity investments and available-for-sale financial assets. The Company classifies non-derivative financial liabilities into the other financial liabilities cate- gory. (i) Non-derivative financial assets and financial liabilities – recognition and derecognition The Company initially recognises loans and re- ceivables on the date when they are originated. Financial liabilities are initially recognised on the trade date, which is the date the Company be- comes a party to the contractual provisions of the instrument. The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a trans- action in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains sub- stantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised financial assets that is created or retained by the Company is recognised as a separate asset or liability. The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simulta- neously. (ii) Non-derivative financial assets – measurement Loans and receivables These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are meas- ured at amortised cost using the effective interest method. Loans and receivables comprise trade receiva- bles, cash and cash equivalents and deposits, treasury bills and government bond. Trade receivables Trade receivables include mainly unsettled invoic- es issued until reporting date for the balancing electricity market settlements, late payment pen- alties and accrued revenue for the balancing elec- tricity market settlements until the end of the year, but invoiced after the end of the year. Also trade receivables include invoices issued or to be issued to the subsidiaries for the rendered services. Cash and cash equivalents Cash and cash equivalents comprise cash bal- ances and call deposits and deposits with matur- ities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the 215 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA Company in the management of its short-term commitments. Held-to-maturity investments Held-to-maturity financial assets are initially rec- ognized at fair value plus any directly attributable transaction costs. Subsequent to initial recogni- tion, they are measured at amortized cost using the effective interest method. Available-for-sale financial assets Available for sale financial assets are non-deriva- tive financial assets that are designated as availa- ble for sale. Available-for-sale financial assets are initially recognized at fair value plus any directly attributable transaction costs. After the initial recognition, they are measured at cost minus any impairment losses. Financial assets available for sale for which there isn’t an active market and it is not possible to re- liably determine the fair value, are measured at cost and periodically tested for impairment. Financial assets available for sale include invest- ments in subsidiaries and investments in associates. (iii) Non-derivative financial liabilities – measurement Non-derivative financial liabilities are initially rec- ognised at fair value less any directly attributable transaction costs. Subsequent to initial recogni- tion, these liabilities are measured at amortised cost using the effective interest method. Other financial liabilities include bank borrow- ings, bank overdrafts and trade payables. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents in the statement of cash flows. (iv) Share capital Ordinary shares Ordinary shares are classified as equity. Incre- mental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recog- nised as a deduction from equity. Repurchase and reissue of ordinary shares (treas- ury shares) When shares recognised as equity are repur- chased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified and pre- sented in the treasury share reserve. When treas- ury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented within share premium. (l) Impairment (i) Non-derivative financial assets Financial assets are assessed at each reporting date to determine whether there is objective evi- dence of impairment. Objective evidence that financial assets are im- paired includes: • default or delinquency by a debtor; • restructuring of an amount due to the Compa- ny on terms that the Company would not con- sider otherwise; • indications that a debtor or issuer will enter bankruptcy; • adverse changes in the payment status of bor- rowers or issuers; • the disappearance of an active market for a se- curity; or • observable data indicating that there is meas- urable decrease in expected cash flows from a company of financial assets. Financial assets measured at amortised cost The Company considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been in- curred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics. In assessing collective impairment, the Compa- ny uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends. An impairment loss is calculated as the differ- ence between an asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and are reflected in an allowance account. The amounts are written off after the legal pro- ceedings regarding the bankruptcy or liquidation of the customer are completed. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss. 216 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA(ii) Non-financial assets At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For impairment testing, assets are grouped to- gether into the smallest group of assets that gen- erates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units (“CGUs”). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimat- ed future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recover- able amount. Impairment losses are recognised in profit or loss, except for the property, plant and equip- ment measured at the revalued amount, in which case the impairment loss is recognised in other comprehensive income and decreases the reval- uation reserve within equity to the extent that it reverses a previous revaluation surplus related to the same asset. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been deter- mined, net of depreciation or amortisation, if no impairment loss had been recognised. A reversal of an impairment loss other than on re- valued assets is recognised in profit or loss. A rever- sal of an impairment loss on a revalued asset is rec- ognised in profit or loss to the extent that it reverses an impairment loss on the same asset that was pre- viously recognised as an expense in profit or loss. Any additional increase in the carrying amount of the asset is treated as a revaluation increase. (m) Revaluation reserves The difference between the revalued amount and the net carrying amount of property, plant and equipment is recognised as revaluation re- serve included in equity. If an asset’s carrying amount is increased as a re- sult of a revaluation, the increase is recognised and accumulated in equity under the heading of revaluation reserve. However, the increase is recognised in profit and loss to the extent that it reverses a revaluation decrease of the same amount of the asset previously recognised in profit and loss. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised in profit or loss. However, the decrease is recog- nized in equity in revaluation reserves if there is any credit balance existing in the revaluation re- serve in respect of that asset. The revaluation reserve is transferred to retained earnings in an amount corresponding to the use of the asset (as the asset is depreciated) and upon disposal of the asset. (n) Dividends Dividends are recognized as a deduction from equity in the period in which their distribution is approved and recognised as a liability to the ex- tent it is unpaid at the reporting date. Dividends are disclosed in the notes to financial statements when their distribution is proposed after the re- porting date and before the date of the issuance of the financial statements. (o) Capital contributions in kind from shareholders These contributions from a shareholder (the Ro- manian State) represent pre-paid contributions of land for which the Company obtained title deeds in respect of future issuance of shares. The amounts recorded are based on the fair value of the land. (p) Provisions A provision is recognised if, as a result of a past event, the Company has a present legal or con- structive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liabil- ity. The unwinding of the discount is recognised as finance cost. A provision for restructuring is recognised when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced pub- licly. Future operating losses are not provided for. (q) Leases (i) Determining whether an arrangement con- tains a lease At inception of an arrangement, the Company determines whether the arrangement is or con- tains a lease. At inception or on reassessment of an arrange- ment that contains a lease, the Company sepa- rates payments and other consideration required 217 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SAby the arrangement into those for the lease and those for other elements on the basis of their rel- ative fair values. If the Company concludes that, for a finance lease, it is impracticable to separate the payments reliably, then an asset and a liabili- ty are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Company’s incremental borrowing rate. (ii) Leased assets Assets held by the Company under leases that transfer to the Company substantially all of the risks and rewards of ownership are classified as fi- nance leases. The leased assets and finance lease liability are measured initially at an amount equal to the lower of their fair value and the present val- ue of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy appli- cable to that asset. Assets held under other leases are classified as op- erating leases and are not recognised in the Com- pany’s individual statement of financial position. (iii) Lease payments Payments made under operating leases are rec- ognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives re- ceived are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance ex- pense and the reduction of the outstanding lia- bility. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remain- ing balance of the liability. (iv) Rent income Rental income from property other than invest- ment property is recognised as other income. Rental income is recognised on a straight-line basis over the term of the lease. (r) Subsequent events Events occurring after the reporting date Decem- ber 31st 2015, which provide additional informa- tion about conditions prevailing at those report- ing dates (adjusting events) are reflected in the separate financial statements. Events occurring after the reporting date that provide information on events that occurred after the reporting dates (non-adjusting events), when material, are dis- closed in the notes to the separate financial state- ments. When the going concern assumption is no longer appropriate at or after the reporting period, the financial statements are not prepared on a going concern basis. 7 New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after January 1st 2015, and have not been applied in preparing these separate financial statements. None of the new standards is expected to have a significant im- pact on the Company’s individual financial state- ments, except for „Equity Method in Separate Financial Statements (Amendments to IAS 27)”. These amendments refer to the accounting of investments in subsidiaries, joint ventures and as- sociates, either using the cost or, according to IFRS 9, or using the equity method, as described in IAS 28. The Company has not conducted the analysis in order to decide over the accounting method for investments in subsidiaries yet. 8 Revenue Supply energy in balancing market and day-ahead-market 379,038,959 230,730,695 2015 2014 Management and consultancy services for the sub-sidiaries Revenues from services contracts with the subsidiar-ies related to the Automatic Meter Reading System (Note 20) Total 9 Income and expenses - 4,669,161 9,051,202 4,735,572 383,708,120 244,517,469 (a) Other income Other income mainly include rent income and late payment penalties from customers. (b) Purchased electricity Electricity purchased include the cost of electricity purchased for settlements on balancing market and the day-ahead-market. 218 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA(c) Other operating expenses Rent Repair and maintenance expenses IT services Postage and telecommunication Penalties to the State for late payment of taxes Other taxes and duties Legal and consultancy fees Bank commissions Other Total 10 Net finance income Interest income Dividends Income Foreign exchange gains Other finance income Total finance income Interest expense Interest cost for employee benefits (Note 13) Foreign exchange losses Other finance cost Total finance costs Gain from disposals of shares held in other entities 2015 76,424 2,305,640 1,409,652 3,105,028 - 495,698 8,104,919 501,554 7,290,303 23,289,218 2015 26,379,877 344,647,949 1,932,933 65,442 2014 65,564 1,770,137 1,009,657 5,761,386 669,980 1,590,988 5,155,146 1,932,248 11,362,607 29,317,714 2014 19,090,471 238,431,719 - 61,072 373,026,201 257,583,262 (38) (93,404) - (196,024) (289,466) - (34,807) (147,286) (1,801,036) (502,440) (2,485,569) 31,809,478 Net finance income 372,736,735 286,907,171 In 2015, the Company received a total amount of RON 344,647,949 as dividends from its subsi- diaries (2014: RON 238,431,719). On February 17th 2014 the Company sold part of the shares held in E.On Moldova Distributie and E.On Energie Romania to E.On following the exer- cise of call options by E.On. (see Note 23). The Company recognized this transaction as follows: Sale price of share held in other entities Carrying amount of share held in other entities Gain from disposals of shares held in other entities Carrying amount 140,920,000 (109,110,522) 31,809,478 11 Earnings per share The calculation of basic and diluted earnings per share has been based on the following profit attributa- ble to ordinary shareholders and weighted-average number of ordinary shares outstanding: Profit attributable to ordinary shareholders Profit for the year attributable to the owners of the Company Profit attributable to ordinary shareholders 2015 300,864,484 300,864,484 2014 269,489,518 269,489,518 219 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SANOTES TO THE SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 (All amounts are in THOUSAND RON, if not otherwise stated) Weighted-average number of ordinary shares (in number of shares) Issued ordinary shares at January 1st Effect of shares issued in February Effect of spin-off in April Effect of shares issued in May Effect of underwritings from the IPO in June Effect of shares re-purchased in July 2015 2014 339,049,336 207,839,904 - - - - - 172,575 (32,342,835) 2,564,531 103,360,101 (3,445,297) Weighted-average number of ordinary shares at December 31st* 339,049,336 278,148,979 Earnings per share Basic and diluted earnings per share (RON) 0.89 0.97 * The number of shares presented on the table above does not include the number of treasury shares. 12 Short-term employee benefits Personnel payables Current portion of defined benefit liability and other long-term employee benefits Social security charges Tax on salaries Termination benefits Total December 31st, 2015 December 31st, 2014 1,509,846 1,164,359 344,582 629,642 285,750 114,881 252,613 663,931 188,754 - 2,884,701 2,269,657 For details of the related employee benefit expenses, see Note 13. In Romania, all employers and employees, as well as other persons, are contributors to the state social security system. The social security system covers pensions, allocations for children, temporary inability to work, risks of works and professional diseases and other social assistance services, unemployment benefits and incentives for employers creating new workplaces. 13 Post-employment and other long-term employee benefits In accordance with Government Decisions no. 1041/2003 and no. 1461/2003, the Company provides benefits in kind in the form of free elec- tricity to retired employees of the Company. The Company also provides cash benefits to em- ployees depending on seniority and years of ser- vice at retirement. In 2015 and 2014, employee benefit obligations were computed by independent actuaries using the projected unit credit method with benefits calculated proportionally to period of service. Defined benefit liability Other long-term employee benefits Total - Current portion* - Non-current portion *included in Personnel payables in Note 12 December 31st, 2015 December 31st, 2014 1,043,453 1,096,717 2,140,170 344,582 1,795,588 1,731,636 1,511,720 3,243,356 252,613 2,990,743 220 ANNUAL REPORT 2015 ELECTRICA SA(i) Movement in the defined benefit liability and other long-term employee benefits The following tables shows a reconciliation from the opening balances to the closing ba- lances for the defined benefit liability and other long-term employee benefits and its compo- nents. There are no plan assets. Defined benefit liability 2015 2014 Balance at January 1st Included in profit or loss Current service cost Interest cost Included in other comprehensive income Re-measurements loss (gain) - Actuarial loss / (gain) Other Benefits paid Balance at December 31st 1,731,636 1,512,070 38,417 45,575 83,992 70,506 76,064 146,570 (703,969) 103,574 (68,206) 1,043,453 (30,578) 1,731,636 Other long-term employee benefits 2015 2014 Balance at January 1st Included in profit or loss Current service cost Actuarial loss /(gain) Interest cost Benefits paid Balance at December 31st (ii) Actuarial assumptions 1,511,720 1,415,839 41,971 (414,894) 47,829 (89,909) 1,096,717 64,922 18,684 71,222 (58,947) 1,511,720 The following were the principal actuarial assumptions at the respective reporting date: (a) Macroeconomic assumptions: • inflation. The actuaries used the Consumer Price Index (CPI) published by the Economist Intelligence Unit: Year 2015 2016 2017 2018 2019+ Valuation date December 31st, 2015 Valuation date December 31st, 2014 - 1.8% 2.5% 2.3% 2.2% 2.1% 3.2% 2.7% 2.5% - • the discount rate used was the yield for Romanian government bonds maturing in 10 years at the re- porting date of 4.75% for the year 2015 (2014: 4.5%); • the electricity price per KWh used is 0.4847 RON at • the mortality rate published by the National Institute of Statistics was adjusted to allow for an anticipated decrease in mortality rates; • taxes and social charges are those in force as at the December 31st 2015 (2014: 0.464 RON/ KWh); reporting date. 221 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA (b) Company specific assumptions: • salaries increase in line with the estimated inflation rates in the future periods; • employees’ turnover: turnover rates are based on statistical information regarding employees’ mobility during 2003-2015. Considering historical Jubilee bonus based on years of service retirement data, it is assumed that the personnel turnover rate decreases with the employees’ age; • jubilee and retirement bonuses based on seniori- ty according to the collective labour contract, as follows: Seniority 20 years 30 years 35 years 40 years 45 years Retirement bonus based on years of service in the Company Vechime Between 8 and 10 years Between 10 and 25 years More than 25 years No. of gross monthly base salaries December 31st, 2015 December 31st, 2014 0.8 1.6 2.4 3.2 4 0.8 1.6 2.4 3.2 4 No. of gross monthly base salaries December 31st, 2015 December 31st, 2014 1 2 3 1 2 3 In case the conditions related to years of service are met, the Company offers as benefit free elec- tricity in quantity of 1,200 kWh per year to retired employees of the Company. In the event of pen- sioner’s death, husband/wife is entitled to receive the same benefit until he/she will marry again. Termination benefits a. Termination benefits for individual lay-offs at the Company’s initiative In accordance with the Collective labour contract concluded between the Company and the Uni- ons, when individual labour contract are termi- nated at the Company’s initiative, the Company will pay termination benefits to the employees depending on their period of service, as follows: Seniority 1 - 5 years 5 - 10 years 10 - 20 years More than 20 years No. of gross monthly base salaries 4 6 7 10 b. Termination benefits for collective lay-offs at the Company’s initiative For collective lay-offs, according to the Collec- tive labour contract, the Company will pay termi- nation benefits to the employees depending on their period of service, as follows: Seniority 1 - 3 years 3 - 5 years 5 - 10 years 10 - 20 years More than 20 years No. of gross monthly base salaries 4 6 7 15 20 222 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SACollective layoffs and termination benefits are only applicable subject to approval of a rectification of the budget, such that the approved salary fund for the year will not be affected by such measures. The above mentioned stipulations do not apply to employees with individual labour contract concluded for a determined period. The above stipulations do not apply to employees that obtained other higher cumulative salary com- pensation rights, provided by legal regulations regarding the Company’s reorganization and restructuring. Employees who are re-employed within the Company after layoff are not entitled to the above mentioned benefits. The financial statements do not include any pro- vision for liabilities relating to compensation pay- ments because there isn’t a present obligation in this regard. c. Termination benefits for voluntary redundan- cies According to the Collective labour contract from 13 August 2015 and to the Addendum on 1 Oc- tober 2015, signed by the Company and the Un- ion, in case the individual labour contracts are terminated as voluntary redundancy from the employee, the Company will pay termination benefits depending on their period to reach the standard retirement age, their period of service in the Company and their seniority. The number of gross monthly base salaries paid as termination benefits vary between 4 and 18. 14 Employee benefit expenses Average number of employees Number of employees at December 31st Wages and salaries Social security charges Meal tickets Termination benefits Total The termination benefits represent compensation for salary in case of employees’ voluntary depar- ture (see Note 13 c). Management compensation is presented within Note 29 – Related parties. In accordance with the changes in legislation, starting with October 2014 the social security con- tribution paid by the companies decreased by 5 percentage points from 20.8% to 15.8%. As a result the overall social charges paid by the Company decreased from 27.8% to 22.8%. 15 Income taxes In determining the amount of current and de- ferred tax, the Company takes into account the (i) Amounts recognised in profit or loss Deferred tax expense / (gains) Total expense/ (gain) related to income tax 2015 138 136 2015 12,819,916 2,598,117 269,909 948,951 2014 139 149 2014 13,288,226 3,140,154 270,692 - 16,636,893 16,699,072 impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. The Company considers that the accounting records for taxes due are adequate for all open tax years, based on assessment made by management taking into account var- ious factors, including the interpretation of tax legislation and previous experience. New infor- mation may become available that causes the Company to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the pe- riod that such a determination is made. 2015 (156,580) (156,580) 2014 6,585,537 6,585,537 223 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA(ii) Amounts recognised in other comprehensive income Before tax 2015 Fiscal benefit (expense) 2014 Net of tax Before tax Fiscal benefit (expense) Net of tax Revaluation of property, plant and equipment - - - 986,367 (157,819) 828,548 Re-measurement of defined benefit liability 703,969 (112,635) 591,334 (103,574) 16,572 (87,002) Total 703,969 (112,635) 591,334 882,793 (141,247) 741,546 (iii) Reconciliation of effective tax rate 2015 2014 Profit before tax 300,707,904 276,075,055 Tax using Company’s domestic tax rate Non-deductible expenses Non-taxable income Deduction of legal reserves Current-year tax losses for which no deferred tax asset is recognised Other tax effects Income taxes – expense/(income) 16% 2% -18% 0% 1% 0% 0% 48,113,265 4,655,583 (55,143,672) - 2,232,507 (14,263) (156,580) 16% 1% -14% -1% 0% 0% 2% 44,172,009 2,783,994 (38,149,075) (2,208,600) - (12,791) 6,585,537 Non-taxable income represents dividend income in the amount of RON 344,647,949 (2014: RON 238,431,719) (iv) Movement in deferred tax balances Balance at December 31st 2015 2015 Net balance at January 1st 2015 Recognised in profit or loss Recognised in other com- prehensive income Deferred tax assets Net Deferred tax assets Deferred tax liabilities Property, plant and equipment 2,953,090 (169,568) - Employee benefits Tax loss carried forward (386,508) (9,772,271) 12,988 112,635 2,783,522 (260,885) - 2,783,522 (260,885) - - - (9,772,271) (9,772,271) Tax liabilities (assets) before set-off (7,205,689) (156,580) 112,635 (7,249,634) (10,033,156) 2,783,522 2014 Net balance at January 1st 2013 Recognised in profit or loss Recognised in other com- prehensive income Deferred tax assets Net Deferred tax assets Deferred tax liabilities Balance at December 31st 2014 Property, plant and equipment Employee benefits 2,812,489 (359,163) (17,218) (10,773) 157,819 2,953,090 - 2,953,090 (16,572) (386,508) (386,508) Tax loss carried forward (16,385,799) 6,613,528 - (9,772,271) (9,772,271) - - Tax liabilities (assets) before set-off (13,932,473) 6,585,537 141,247 (7,205,689) (10,158,779) 2,953,090 224 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA (v) Unrecognised deferred tax assets Deferred tax assets have not been recognised in re- spect of the 2015 tax loss, because it is not proba- ble that future taxable profit will be available against which the Company can use the benefits therefrom. Tax losses for which no deferred tax assets were recognised expire as follows: Year when the tax loss was generated: 2015 (expiring in 2022) Total (vi) Income tax receivable Tax losses 2015 13,953,169 13,953,169 2014 - - As at December 31st 2015 and 2014, income tax receivables include RON 16,915,950 which are under litigation with Autoritatea Nationala de Administrare Fiscala (“ANAF”). The Company has not recorded any impairment allowance for this amount as it is expected a favourable outcome. 16 Trade receivables Trade receivables, gross Bad debt allowance Total trade receivables, net December 31st, 2015 December 31st, 2014 745,268,376 (667,736,915) 77,531,461 758,094,020 (670,398,254) 87,695,766 Receivables from related parties are presented in Note 29. Trade receivables gross comprise: December 31st, 2015 December 31st, 2014 Electricity supply on the balancing market 83,032,806 94,359,475 Electricity receivables from clients in litigation, insol-vency and bankruptcy (Oltchim SA) Late payment penalties from clients in litigation, insol-vency and bankruptcy (Oltchim SA) Others Total trade receivables, gross 569,811,232 569,811,232 88,968,313 88,968,313 3,456,025 4,955,000 745,268,376 758,094,020 A significant customer of the Company, until Jan- uary 2012, was Oltchim SA (a state-controlled company), when the Company has transferred the contract with Oltchim to Electrica Furnizare SA. In January 2013 Oltchim became insolvent. Due to uncertainties regarding the recoverability of amounts owed by this customer, the Compa- ny recognized bad debt allowances to the total amount of receivables. The movement in the bad debt allowance for trade receivables is as follows: Bad debt allowance Balance at January 1st Impairment recognized Impairment reversed Balance at December 31st For the ageing of trade receivables refer to Note 28. 2015 2014 670,398,254 667,928,773 - (2,661,339) 2,546,823 (77,342) 667,736,915 670,398,254 225 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA17 Deposits, treasury bills and government bonds Deposits, treasury bills and government bonds denom-inated in RON with original maturity of more than three months December 31, 2015 December 31, 2014 1,756,339,194 901,415,791 Deposits with maturity of more than three months 144,056,193 137,004,050 Total deposits, treasury bills and government bonds 1,900,395,387 1,038,419,841 Deposits, treasury bills and government bonds with original maturity of more than three months have an average interest rate (yield) of 0.93% at the following banks: Citibank Europe PLC Dublin, Raiffeisen Bank, BRD, Marfin Bank, ING Bank. The treasury bills and government bonds were classi- fied as held to maturity investments. 18 Other receivables Interest receivable Other receivables Bad debt allowance Total other receivables, net December 31st, 2015 December 31st, 2014 60,425 27,285,805 (14,290,005) 13,056,225 3,175,177 26,676,226 (14,460,727) 15,390,676 Other receivables, net include loans granted by the Company to Electrica Serv (see Note 29). The movement in the bad debt allowance for other receivables is as follows: Bad debt allowance Balance at January 1st Impairment recognized Impairment reversed Balance at December 31st 19 Cash and cash equivalents 2015 2014 14,460,727 14,460,727 795,686 (966,408) - 14,290,005 14,460,727 Bank current accounts Deposits with original maturities of less than 3 months Cash in hand Treasury bills and government bonds with origi-nal maturity of less than 3 months Total cash and cash equivalents in the individ-ual statement of financial position and in the individual statement of cash flow December 31st, 2015 December 31st, 2014 11,205,203 181,248,010 47,403 1,544,632 874,243,283 19,508 90,865,415 199,812,351 283,366,031 1,075,619,774 Cash and cash equivalents include treasury bills and government bonds denominated in RON of RON 90,865,415 (2014: RON 199,812,351) and an average interest rate (yield) of 0.56% p.a. (2014: 1.7% p.a.), at the following banks: Citibank Euro- pe PLC Dublin, Raiffeisen Bank, BRD-CSG, Marfin Bank, ING Bank. The following information is relevant in the con- text of the statement of cash-flows: Non-cash activity includes: • Compensations between trade receivables and trade payables, especially related to the Com- pany’s subsidiaries, of RON 33,193,031 in 2015 (2014: RON 55,983,780) 226 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA20 Property, plant and equipment The movements in property, plant and equipment in 2015 and 2014 were as follows: Land and land improvements Buildings Equipment Vehicles, furniture and office equipment Construction in progress Total Gross carrying amount Balance at January 1st 2014 113,369,795 16,884,919 122,319,784 751,681 88,287,422 341,613,601 Additions Disposals Revaluation recognized in other comprehensive in-come, net Gross book value netted off against the accumulated de-preciation at revaluation Revaluation of land contribution from the shareholders, net 9,265,658 (33,638,211) - - 449,420 536,947 - (663,294) (10,314,815) - 396,256 - 34,996,860 44,658,774 - - - - (8,127) - - - - - - - (33,646,338) 986,367 (663,294) (10,314,815) Balance at December 31st 2014 79,131,847 16,758,572 122,716,040 743,554 123,284,282 342,634,295 Additions Transfers from construction in progress Disposals - - (3,874,652) - - - 892,742 112,858,356 (15,680) - - 25,130,148 26,022,890 (112,858,356) - (10,877) - (3,901,209) Balance at December 31st 2015 75,257,195 16,758,572 236,451,458 732,677 35,556,074 364,755,976 Accumulated depreciation and impairment losses Balance at January 1st 2014 Depreciation Disposals Accumulated depreciation netted off against gross book value at revaluation Balance at December 31st 2014 Depreciation Disposals - - - - - - - 459,012 25,640,787 674,852 12,465,531 39,240,182 222,854 12,554,869 - (663,294) - - 29,242 (8,126) - - - - 12,806,965 (8,126) (663,294) 18,572 38,195,658 695,967 12,465,531 51,375,727 230,237 19,775,652 22,365 - (12,589) (10,876) - - 20,028,254 (23,465) Balance at December 31st 2015 - 248,809 57,958,721 707,456 12,465,531 71,380,516 Net carrying amounts Wednesday, January 1st, 2014 113,369,795 16,425,907 96,678,997 76,829 75,821,891 302,373,419 December 31st 2014 December 31st 2015 79,131,847 16,740,000 84,520,382 47,587 110,818,751 291,258,568 75,257,195 16,509,763 178,492,737 25,221 23,090,543 293,375,460 On December 31st 2015, the buildings and lands include the administrative offices of the Compa- ny and the corresponding land and the lands over which the Company has obtained title deeds and to be contributed to the share capital of the subsidiar- ies. The building is the administrative headquarters is of RON 16,360,119 of net book value and related land is worth RON 13,410,443 of net book at De- cember 31st 2015. Equipment and Construction in progress mostly include costs related to the implementation of the AMR system (Automatic Meter Reading). The Com- pany has concluded four contracts for the imple- mentation and development of the AMR system (Automatic Meter Reading) related to the electricity measuring and dispatch activity of the entire Group. In 2015 the Company put into operation a part of this investment, amounting to RON 112,581,009 (2014: RON 59,920,097). Another part of the investment, amounting to RON 21,524,137, is in the current assets as at December 31st 2015 (2014: RON 110,133,543). On December 31st 2015, the net capitalized amount regarding the system is RON 197,238,723. Related to the AMR system the Company has con- cluded services agreements with the distribution subsidiaries. The main services provided relates to the direct data acquisition of subsidiaries by the per- sonnel of the distribution subsidiaries using remote reading systems from electricity metering points, owned by the Company. The Company assessed whether the arrangement contains a lease and de- termined that does not contain a lease as distribution subsidiaries have no right to use specific assets, ac- cording to the contractual provisions. 227 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SAMeasurement of fair value The following table shows the valuation techniques used in measuring fair values (Level 3) for the revalu- ation of land and buildings as of December 31st 2014, as well as the significant unobservable inputs used. Category Valuation technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement Land Market approach The fair value is estimated based on sell-ing price per square meter of land of similar characteristics (i.e. ownership, legal limitations, location, physical prop-erties, and best use). The market price is mainly based on recent transactions. • Adjustment for liquidity, location, size The estimated fair value would increase (decrease) if: • Adjustment for liquidity, location, size was lower (higher) Buildings Market approach and discounted cash-flows (DCF) method The market approach is based on the selling price per square meter for build-ings of similar characteristics, adjusted for liquidity, location, size etc. The valuation model based on the DCF method estimates the present value of net cash flows to be generated by a building taking into account occupancy rate and costs not paid by tenants. The discount rate estimation considers, inter alia, the quality of a building and its location. • Occupancy rates (80- 90%) • Discount rates (9.5% on average) • Costs not paid by tenants (average 10%) • Annual rent per sqm • Rental growth • Adjustment for liquidity, location, size The estimated fair value would increase (decrease) if: • Occupancy rates were higher (lower) • Discount rates were lower (higher) • Costs not paid were lower (higher) • Annual rent per sqm was higher (lower) • Rental growth was higher (lower) • Adjustment for liquidity, location, size was lower (higher) 21 Intangible assets Intangible assets include mainly intangible assets related licenses and costs of implementation of SAP ERP, as follows: Gross carrying amount Balance at January 1st 2014 Additions Software and licenses Intangible assets in progress Total 2,539,758 325,436 2,865,194 - 325,147 325,147 Transfers from intangibles in progress 282,600 (282,600) - Balance at December 31st 2014 Additions 2,822,358 367,983 3,190,341 112,004 922,476 1,034,480 Transfers from intangibles in progress 1,290,459 (1,290,459) - Balance at December 31st 2015 4,224,821 Accumulated depreciation and impairment losses - - - - - - 4,224,821 2,067,391 445,284 2,512,675 213,483 2,726,158 2,067,391 445,284 2,512,675 213,483 2,726,158 472,367 309,683 1,498,663 325,436 367,983 797,803 677,666 - 1,498,663 Balance at January 1st 2014 Depreciation Balance at December 31st 2014 Depreciation Balance at December 31st 2015 Net carrying amounts January 1st, 2014 December 31st 2014 December 31st 2015 228 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA22 Investments in subsidiaries The situation regarding the investments in subsidiaries is presented as follows: Electrica Distributie Muntenia Nord SA Electrica Distributie Transilvania Nord SA Electrica Distributie Transilvania Sud SA Electrica Furnizare SA Electrica Serv SA December 31st, 2015 December 31st, 2014 Gross value Bad debt allowance 322,729,680 336,460,800 383,398,860 57,695,820 Gross value 322,729,680 336,460,800 383,398,860 57,695,820 - - - - Bad debt allowance - - - - 445,743,000 (144,849,133) 442,284,000 (144,849,043) Servicii Energetice Banat SA 43,761,094 (43,761,094) 43,761,094 (43,761,094) Servicii Energetice Dobrogea SA 23,822,124 (23,822,124) 23,822,124 (23,822,124) Servicii Energetice Muntenia SA 29,640,430 - 29,640,430 - Servicii Energetice Moldova SA 106,162,492 (106,162,492) 106,162,492 (106,162,492) Servicii Energetice Oltenia SA 82,033,220 (82,033,220) 82,033,220 (82,033,220) Total 1,831,447,520 (400,628,063) 1,827,988,520 (400,627,973) Investments in the subsidiaries, net value Thursday, December 31st, 2015 Wednesday, December 31st, 2014 Electrica Distributie Muntenia Nord SA Electrica Distributie Transilvania Nord SA Electrica Distributie Transilvania Sud SA Electrica Furnizare SA Electrica Serv SA Servicii Energetice Muntenia SA Total investments in subsidiaries 322,729,680 336,460,800 383,398,860 57,695,820 300,893,867 29,640,430 322,729,680 336,460,800 383,398,860 57,695,820 297,434,957 29,640,430 1,430,819,457 1,427,360,547 According to the Government Decision no. 760/21.07.2010, at the beginning of 2012 Electri- ca Serv subsidiary was reorganized for the pur- pose of separating the non-profitable branches. Consequently, five new companies fully owned by Electrica SA were set-up, as follows: SC Ser- vicii Energetice Banat SA, SC Servicii Energetice Dobrogea SA, SC Servicii Energetice Moldova SA, SC Servicii Energetice Oltenia SA and SC Servicii Energetice Muntenia SA. In year 2013 the Company approved the liquida- tion of Servicii Energetice Moldova, Servicii En- ergetice Banat and Servicii Energetice Dobrogea. For Servicii Energetice Banat, Timis Court has decided the opening of the simplified insolvency procedure. The bankruptcy of Servicii Energetice Banat was declared in November 2014. On Jan- uary the 22nd 2015, Constanţa Court decided the opening of the simplified insolvency procedure for Servicii Energetice Dobrogea. On January the 22nd 2016, Bacau Court decided the opening of the simplified insolvency procedure for Servicii Energetice Moldova. In January 2014 the Board of Directors of Servicii Energetice Oltenia and in October 2014, the Board of Directors of Servicii Energetice Muntenia decid- ed the commencement of the insolvency proce- dure with a view to reorganization. Having in view the above-mentioned, during year 2012 the Company recognized Impairment of in- vestments (amount to RON 173,745,710) represent- ing the investments value in the following subsidiar- ies Servicii Energetice Moldova, Servicii Energetice Banat and Servicii Energetice Dobrogea. During year 2013 the Company increased the Impairment of investments with RON 82,033,220, representing the value of investments in Servicii Energetice Olte- nia. The Company did not adjusted the carrying amount of the investments in Servicii Energetice Muntenia as long this amount is deemed to be re- coverable, taking into account the significant asset base of this company and the fact that its net assets have positive value. As regarding Electrica Serv, the Company recog- nized Impairments, based on the valuation report prepared by an independent valuator and having as purpose the assessment of the recoverable val- ue of the shares in Electrica Serv SA. The valuator used the discounted cash flows (DCF) method. The model envisages both the asset exploitation poten- tial, based on the current activity and the assets out- side exploitation. 229 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA23 Spin-off Based on the Extraordinary General Sharehold- ers decision dated March 20th 2014 and the res- olution of the Bucharest Court dated April 10th 2014, the Company recognised the spin-off of the Company’s shareholdings to a new compa- ny - „Societatea de Administrare a Participatiilor in Energie SA” - wholly owned by the Ministry of Energy, Small and Medium-sized Enterprises and Business Environment. The spin-off referred to the transfer of the shares held by the Compa- ny in 10 entities (Enel Distributie Muntenia, Enel Energie Muntenia, Enel Distributie Banat, Enel Distributie Dobrogea, Enel Energie, E.On Mol- dova Distributie, E.On Energie, Electrica Soluz- iona, Hidro Tarnita and BRM). The investments included equity accounted investees and other investments and were classified as assets held for distribution as at December 31st 2013. Assets held for distribution Enel Distributie Muntenia Enel Energie Muntenia Enel Distributie Banat Enel Distributie Dobrogea Enel Energie E.On Distributie E.On Energie Electrica Soluziona Hidro Tarnita BRM Total assets held for distribution Carrying amount at December 31st 2013 Percentage ownership interest 77,139,794 10,519,062 100,527,111 85,763,375 58,498,737 166,080,960 8,590,613 49,000 57,500 40,000 507,266,152 23.57% 23.57% 24.87% 24.90% 36.99% 27.00% 3.78% 49.00% 50% The balance sheet items transferred at spin-off are as follows: Assets held for distribution Cash and cash equivalents Total Share capital Retained earnings Total Carrying amount 398,155,630 129,385,930 527,541,560 507,302,152 20,239,408 527,541,560 On February 17th 2014 (before the spin-off) the Company sold part of the shares held in E.On Moldova Distributie and E.On Energie Romania to E.On following the exercise of call options by E.On. E.On paid the exercise price of RON 140,920,000 to the Company. Cash received from transaction with E.ON less the directly attributable costs were transferred to So- cietatea de Administrare a Participatiilor in Energie SA (RON 129,385,930). 230 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA 24 Capital and reserves (a) Share capital and share premium The issued share capital in nominal terms consists of 345,939,929 ordinary shares at December 31st 2015 (2014: 345,939,929) with a nominal value of RON 10 per share. All shares rank equally with re- gard to the Company’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared, and are entitled to one vote per share at meetings of the Company. Changes in the number of shares: Number of shares at January 1st Shared issued during the year Decrease in the number of shares due spin-off 2015 2014 345,939,929 - - 207,839,904 181,223,805 (43,123,780) Number of shares at December 31st 345,939,929 345,939,929 The Company recognizes changes in share cap- ital only after their approval in the General Share- holders Meeting and their registration by the Trade Register. The contributions made by the shareholders which are not yet registered with the Trade Register at year end are recognized as pre-paid capital contributions from shareholders. Between 11th and 27th June 2014 the Company organised an IPO, which entailed to an offering of 142,007,744 shares and 8,795,250 GDRs, each GDR representing four shares (see also Note 1). The subscriptions amounted to RON 1,556,094,600 and USD 120,143,115. On 2 July 2014 the increase of share capital by 177,188,744 ordinary shares was recorded in the Trade Register. Consequently, the Company recognized an increase of share capi- tal of RON 1,771,887,440 and a share premium of RON 171,128,062. The transaction costs of RON 68,078,885 thousand were deducted from the share premium. Until December 31st 2003, the statutory share capital in nominal terms was restated according to IAS 29 “Financial Reporting in Hyperinflationary Economies” with a corresponding adjustment to retained earnings. The General Meeting’s of Shareholders decision no. 1/27.04.2015 approved the use of the amount known as “Inflation adjustment to share capital” to cover the accounting loss reported according to OMVFP 1286/2012. (b) Treasury shares In July 2014 the Company purchased 5,206,593 ordinary shares and 421,000 Global Depositary Receipts, equivalent to 1,684,000 shares. The total amount paid for acquiring the shares and Global Depositary Receipts was RON 75,372,435. (c) Revaluation reserves The reconciliation between opening and closing revaluation reserve is as follows: Balance at January 1st Release of revaluation reserve to retained earnings due to depreciation and disposals of property, plant and equipment Balance at December 31st (d) Legal reserves 2015 828,548 (59,287) 769,261 The Legal reserves are set up as 5% of the gross profit, until the total legal reserves reach 20% of the paid-up nominal share capital of the Com- pany, according to the legislation. These reserves are deductible for income tax purposes and are not distributable. 231 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA(e) Dividends The dividends distributed by the Company in 2015 and 2014 (from the statutory profits of preceding years) were as follows: Distributed dividends 2015 2014 244,691,906 22,475,225 The dividends per share paid to the owners of the Company were: RON 0.7217 per share (2014: RON 0.108 per share). Out of the dividends declared by the Company of RON 244,691,906 the dividends paid were RON 244,084,165, the remaining difference re- presents dividends unclaimed by the sharehol- ders from the Depositary. 25 Trade payables Electricity suppliers Non-current assets suppliers Other suppliers Total December 31st, 2015 December 31st, 2014 35,737,272 18,995,707 5,900,739 60,633,718 73,665,026 3,547,546 6,187,762 83,400,334 Electricity suppliers are mainly related parties, as detailed in Note 29. Other suppliers include suppli- ers of services, materials, consumables etc. 26 Other liabilities December 31st, 2015 December 31st, 2014 Current Non-current Current Non-current Payables to the State budget Other liabilities Total 5,840,517 1,791,673 7,632,190 - - - 8,386,846 276,591 8,663,437 - - - Other liabilities include mainly guarantees and sundry creditors. Other non-current liabilities re- fer mainly to an instalment transaction for a lia- bility representing late payment of the invoices for electricity supply. 27 Provisions Balance at December 31st 2015 Provisions raised Balance at December 31st 2015 Litigations and other risks - 31,250,650 31,250,650 Provisions refer mainly to litigations with the Na- tional Agency for Fiscal Administration (ANAF), referring to late payment penalties claimed by ANAF. The company recognized a RON 31,250,650 provision related to the unfavourable sentence 1029/17.04.2015. 232 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA28 Financial instruments - fair values and risk management (a) Accounting classifications and fair values The following table shows the carrying amounts and it does not include fair value information for financial assets and financial liabilities not mea- sured at fair value if the carrying amount is a re- asonable approximation of fair value. December 31st, 2015 Financial assets not measured at fair value Trade receivables Other receivables Deposits, treasury bills and government bonds Cash and cash equivalents Total Financial liabilities not measured at fair value Trade payables Total December 31st, 2014 Financial assets not measured at fair value Trade receivables Other receivables Deposits, treasury bills and government bonds Cash and cash equivalents Total Financial liabilities not measured at fair value Trade payables Total (b) Financial risk management The Company has exposure to the following ris- ks arising from financial instruments: • credit risk • liquidity risk • market risk. Note Receivables and loans Held-to- maturity in- vestments Other financial liabilities Total Carrying amount 16 18 17 19 25 77,531,461 12,821,074 - - 77,531,461 12,821,074 - 1,900,395,387 1,900,395,387 283,366,031 - 373,718,566 1,900,395,387 283,366,031 2,274,113,953 60,633,718 60,633,718 60,633,718 60,633,718 Note Receivables and loans Held-to- maturity in- vestments Other financial liabilities Total Carrying amount 16 18 17 19 25 87,695,766 12,209,901 - - 87,695,766 12,209,901 - 1,038,419,841 1,038,419,841 1,075,619,774 - 1,175,525,441 1,038,419,841 1,075,619,774 2,213,945,282 83,400,334 83,400,334 83,400,334 83,400,334 233 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA(i) Credit risk Credit risk is the risk of financial loss to the Com- pany if a customer or counterparty to a financial instrument fails to meet its contractual obliga- tions, and arises principally from the Compa- ny’s receivables from customers, cash and cash equivalents, bank deposits and treasury bills and government bonds. The Company has a high credit risk mainly from State-owned companies. Until 2012, the Com- pany had a concentration of credit risk with Olt- chim SA, company that became insolvent (see Note 16). Currently, the Company consider that credit risk exposure has significantly diminished. Cash, bank deposits, treasury bills and government bonds are placed in financial institutions, which are considered to have minimal risk of default. The carrying amount of financial assets repre- sents the maximum credit exposure. Trade receivables The Company establishes an allowance for im- pairment that represents its estimate of incurred losses in respect of trade receivables. Impairment The ageing of trade receivables was as follows: Neither past due nor impaired Past due 1-90 days Past due 90-180 days Past due 180-360 days Past due 1-2 years Past due 2-3 years December 31st, 2015 December 31st, 2014 Gross value Bad debt allowance Gross value Bad debt allowance 41,487,637 27,556,241 8,088,743 399,034 474,206 104,441 - - - 83,382,090 743,587 498,036 (194) 3,072,053 - - - - (474,206) 3,804,652 (3,804,652) (104,441) 34,542,103 (34,542,103) Past due more than 3 years 667,158,074 (667,158,074) 632,051,499 (632,051,499) Total 745,268,376 (667,736,915) 758,094,020 (670,398,254) Bad debt allowance related to Oltchim SA. Neither past due nor impaired Past due 1-90 days Past due 90-180 days Past due 180-360 days Total (ii) Liquidity risk Net trade receivables Thursday, December 31st, 2015 Wednesday, December 31st, 2014 41,487,637 27,556,241 8,088,743 398,840 77,531,461 83,382,090 743,587 498,036 3,072,053 87,695,766 Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are se- ttled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have suffi- cient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses. The Company aims to maintain the level of its cash and cash equivalents at an amount in ex- cess of expected cash outflows on financial li- abilities. The Company also monitors the level of expected cash inflows on trade receivables together with expected cash outflows on trade and other payables. 234 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SAExposure to liquidity risk The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include estimated interest payments. Financial liabilities Thursday, December 31st, 2015 Trade payables Total Wednesday, December 31st, 2014 Trade payables Total (iii) Market risk Carrying value Contractual cash flowse Total less than 1 year 60,633,718 60,633,718 60,633,718 60,633,718 60,633,718 60,633,718 83,400,334 83,400,334 83,400,334 83,400,334 83,400,334 83,400,334 Market risk is the risk that changes in market prices – such as foreign exchange rates, interest rates– will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to man- age and control market risk exposures within ac- ceptable parameters, while optimizing the return. Currency risk The Company is exposed to currency risk to the extent that there is a mismatch between the cur- rencies in which sales, purchases and borrowings are denominated and the functional currency of the Company. The functional currency of the Company is the Romanian Leu (RON). The currencies in which these transactions are primarily denominated are RON and EUR. The Company also has deposits and bank accounts denominated in foreign currency (EUR). The Company’s policy is to use the local currency in its transactions as far as practically possible. The Company does not use derivative or hedging in- struments. Exposure to currency risk The summary quantitative data about the Com- pany’s exposure to currency risk is as follows: In RON December 31st, 2015 December 31st, 2014 EUR EUR EURO EURO Cash and cash equivalents 10,241,023 10,137,641 Deposits (deposits, treasury bills and government bonds) Net statement of financial position exposure 139,580,825 149,821,848 136,704,050 146,841,691 The following significant exchange rates have been applied during the year: RON EUR 1 Average rate Year-end spot rate 2015 4.4450 2014 4.4446 2015 4.5245 2014 4.4821 Sensitivity analysis A reasonably possible strengthening (weakening) of the EUR against RON at December 31st wo- uld have affected the measurement of financial instruments denominated in a foreign currency and profit before tax, and affected equity, re- spectively, by the amounts shown below. The analysis assumes that all other variables, in parti- cular interest rates, remain constant and ignores any impact of forecast sales and purchases. 235 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA Effect December 31st, 2015 EUR (5% movement) December 31st, 2014 EUR (5% movement) Interest rate risk Profit before tax Strengthening Impairment 7,491,092 (7,491,092) 7,342,085 (7,342,085) The Company does not have significant long-term bank loans. Exposure to interest rate risk The interest rate profile of the Company’s interest-bearing financial instruments is as follows: Fixed-rate instruments Financial assets Bank deposits (cash and cash equivalent) 181,248,010 874,243,283 Deposits, treasury bills and government bonds 1,900,395,387 1,038,419,841 December 31st, 2015 December 31st, 2014 2,081,643,397 1,912,663,124 Fair value sensitivity analysis for fixed-rate instru- ments The Company does not account for any fixed- rate financial assets or financial liabilities at fair value through profit or loss. Therefore, a change in interest rates at the reporting date would not affect profit or loss. 29 Related parties (a) Main shareholders As at December 31st 2015, the Romanian State, re- presented by the Ministry of Energy, Small and Me- dium-sized Enterprises and Business Environment holds 48.78% of the Company’s share capital. The next large shareholder is the European Bank for Reconstruction and Development with 8.66%. Management and administrators’ compensation Management compensation 2015 1,483,880 2014 821,012 In 2014 management compensations included only one manager with mandate contract for Electrica SA, however starting with August 2015 two more managers were included in the disclo- sure above, and starting October 2015 one more manager was included. As at December 31st 2015 the Company has four managers with mandate contracts. Compensations granted to the members of the Board of Directors and representatives in the Gen- eral Meeting of Shareholders were as follows: Members of Board of Directors Representatives in the General Meeting of Shareholders Total 2015 863,361 - 863,361 2014 915,885 8,389 924,274 236 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA Until December 14th 2015 the Board of Directors of Electrica SA comprised 5 members and after- wards 7 members. The decrease in the remuner- ation of the members of the Board of Directors is due to the limits imposed by the shareholders within the August 22nd 2014 General Meeting of Shareholders. No loans were granted to managers or adminis- trators in 2015 and 2014. (c) Transactions with the subsidiaries (i) Balance of receivables and payables from / to subsidiaries: Receivables balance from: Payables balance to: December 31st, 2015 December 31st, 2014 December 31st, 2015 December 31st, 2014 Electrica Furnizare 5,321,472 14,177,389 830,343 1,624,698 Electrica Muntenia Nord Distributie 4,392,453 13,807,379 1,522,087 Electrica Transilvania Nord Distributie 3,696,938 7,428,076 Electrica Transilvania Sud Distributie 2,244,875 6,860,197 Electrica Serv 10,429,579 10,962,160 Servicii Energetice Banat Servicii Energetice Moldova Servicii Energetice Dobrogea Servicii Energetice Muntenia Servicii Energetice Oltenia 214,006 147,305 105,426 2,952 320,025 214,006 147,305 105,426 320,026 638,824 390,440 370,089 - - - - 201,646 940,609 200,318 1,307,532 - - - - Total 26,875,031 54,021,962 3,751,784 4,274,803 Receivables and payables from/to electricity distri- bution and supply subsidiaries mainly include, re- ceivables/ payables from electricity supply, mainly from settlements on the balancing market. Receivables from the subsidiary Electrica Serv are mainly represented by loans granted by the com- pany to Electrica Serv, being at maturity and which were not received. The Company estimates that in the following period this amounts will be received, taking into account the improvement of Electrica Serv financial position. (ii) Transactions with the subsidiaries: Sales in 2015 Sales in 2014 Purchases in 2015 Purchases in 2014 Electrica Furnizare 59,726,555 71,166,230 13,513,298 21,029,810 Electrica Muntenia Nord Distributie 42,850,446 28,736,574 16,176,868 1,916,777 Electrica Transilvania Nord Distributie 25,151,596 20,380,439 10,415,814 1,062,056 Electrica Transilvania Sud Distributie 16,497,151 15,177,388 9,379,110 1,738,183 Electrica Serv Total 807,297 3,928,571 1,796,940 2,970,456 145,033,045 139,389,203 51,282,030 28,717,283 237 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA(d) Transactions with companies in which the state has control or significant influence In 2015 the Company had sale and purchase transactions mainly with the following companies: Net Receivables balance at December 31st, 2015 Payables balance at December 31st, 2015 Sales 2015 Purchases 2015 Transelectrica CET Braila Complexul Energetic Oltenia OPCOM CET Grivita ANRE ANCOM ICPE Others TOTAL 1,376,440 3,656,056 - - 2,161 - - 396,998 28,346 23,719,925 6,075,370 317,210,185 - - 31,496 22,176 - - 4,748 20,444 - - - 79,641 - - 386,225 217,622 - 197,326 56,692 194,727 188,235 131,402 79,648 223,042 5,460,001 23,798,789 6,758,858 318,281,257 The transactions with Transelectrica represent the energy imbalances from the balancing market. The transactions with Transelectrica have signifi- cantly increased in 2015 mostly due to an increase in the number of costumers for which the Com- pany is responsible with rebalancing. In 2014 the Company had sale and purchase transactions mainly with the following companies controlled by state: Net Receivables balance at December 31st, 2014 Payables balance at December 31st, 2014 Sales 2014 Purchases 2014 Transelectrica OPCOM Complexul Energetic Oltenia Electrocentrale Oradea Others TOTAL 669,015 18,900,021 12,530,551 162,058,079 - - - 382,917 1,051,932 12,524 117,127 30,650 5,802,674 - 28,742 - 552,615 911,047 - 617,797 1,006,441 24,743,961 14,111,340 163,712,967 Transactions refer mainly to purchase and sales on the balancing market. 30 Contingencies (a) Litigation and claims The Company is involved in various litigations; the most significant are the followings: • The Company was sued by Termoelectrica, claiming the payment of RON 25,047,353 repre- senting penalties related to certain invoices, for the period April 1st, 2007 – March 31st, 2008. The court rejected the application based on cause, so Termoelectrica appealed the decision. Until the date of the financial statements, the court has not issued a response. The Company ex- pects a favourable outcome for this case and in consequence, no provisions were registered. • The Company was sued by Hidroelectrica, which requires the payment of RON 5,444,761 and other damages, representing the damages claimed for the sale of electricity at a price es- timated by the defendant as below the cost of energy production in some cases and, at a price which led to unrealized benefits, in other cases. 238 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SA(b) Fiscal environment Tax audits are frequent in Romania, consisting of detailed verifications of the accounting records of tax payers. Such audits sometimes take place after months, even years, from the date liabilities are established. Consequently, companies may be found liable for significant taxes and fines. Moreover, tax legislation is subject to frequent changes and the authorities demonstrate incon- sistency in interpretation of the law. Income tax returns may be subject to revision and correc- tions by tax authorities, generally for a five year period after they are completed. The management of the Company believes that adequate provisions were recorded for all signifi- cant tax obligations. (c) Transfer prices According to the fiscal legislation, the fiscal as- sessment for a transaction with affiliates is based on the market price concept for that transaction. Based on this concept, the transfer prices must be adjusted in order to reflect the market prices established between the entities having no affilia- tion relation and which act independently, based on “normal market conditions”. Likely, verifications of the transfer prices may be done in the future by the fiscal authorities, in or- der to establish if these prices are respecting the principle of the “normal market conditions” and that the tax base for Romanian taxpayer is not distorted. 31 Commitments Guarantees and pledges At December 31st, 2015 the Company has outstanding bank letters of guarantee as follows: Bank Beneficiary Value Currency Issue Date Expiry Date ING Bank BV Transelectrica 27,000,000 RON 10/10/2013 10/10/2016 BCR OPCOM 300,000 RON 3/23/2015 3/31/2016 Contractual commitments The Company has the following contractual commitments as at December 31st 2015: Purchase of property, plant and equipment and intangible assets 14,842,000 Amount 239 NOTES TO THE SEPARATE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2015(All amounts are in THOUSAND RON, if not otherwise stated)ANNUAL REPORT 2015 ELECTRICA SAINDEPENDENT AUDITOR REPORT 240 ANNUAL REPORT 2015 ELECTRICA SAINDEPENDENT AUDITOR REPORT 241 ANNUAL REPORT 2015 ELECTRICA SAINDEPENDENT AUDITOR REPORT 242 ANNUAL REPORT 2015 ELECTRICA SASTATUS OF COMPLIANCE with the new Bucharest Stock Exchange Corporate Governance Code as of February 29th 2016 ANNUAL REPORT 2015 ELECTRICA SAANNUAL REPORT 2015 ELECTRICA SAE D O C E C N A N R E V O G E T A R O P R O C E G N A H C X E K C O T S T S E R A H C U B W E N E H T H T I W E C N A I L P M O C F O S U T A T S - T R O P E R T N E R R U C 6 1 0 2 H T 9 2 Y R A U R B E F F O S A n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N n o d e h s i l b u p d n a 5 1 0 2 y r a u r b e F n i d e t p o d a , C G C A S L E i n o i t a c o s s A f l o s e c i t r A e h t s e d u c n l i , ' e t i s b e w s y n a p m o c e h t s e d u c n l i i h c h w d r a o B e h t f o n o i t a u g e r l l a n r e t n i e v a h d u o h s l i s e n a p m o c l l A s e i t i l i b i s n o p s e R A n o i t c e S f o s m r e t e h t s s a p m o c n e s t n e m u c o d d e n o i t n e m e v o b a e h t e h t f o e s o h t s a l l e w s a , s e i t i l i b i s n o p s e r ' s D o B e h t / e c n e r e f e r l l A . s e e t t i m m o c s t i f o d n a D o B e h t f o r e t r a h C e h t , A S L E f o . t n e m e g a n a m y e k ' s y n a p m o c e t a r o p r o C d n a g n i r u t c u r t s e R , y g e t a r t S e h t f o r e t r a h C e h t . e e t t i m m o c e c n a n r e v o G r e b m e c e D 4 1 e c n i s s r e b m e m n e v e s s e s i r p m o c D o B s A S L E ' . 5 1 0 2 n i s a l l e w s a i , s c h t E f o e d o C e h t n i , i n o i t a c o s s A f l o s e c i t r A e h t n i , ' C G C s A S L E n i d e n o i t n e m e r a s n o i s i v o r p h c u S S E Y S E Y S E Y l d u o h s d n a , e s i r a y a m r o n e s i r a e v a h h c h w i t s e r e t n i f i o s t c fl n o c y n a f o d r a o B e h t l y f i t o n d u o h s d r a o B e h t f o s r e b m e m , t n e v e y n a n I . l n o i t a u g e r d r a o B n i d e d u c n l i l e b d u o h s t s e r e t n i f i o t c fl n o c f o t n e m e g a n a m e h t r o f s n o i s i v o r P f l o s e p c n i r P i l a r e n e G e h t , s r e h t o g n o m a , i g n y p p a l , y n a p m o c e h t f o s n o i t c n u f . n o i t c e S s i h t t n e m e g a n a m y e k d n a d r a o B r o f s e i t i l i b i s n o p s e r / e c n e r e f e r f o s m r e t . 1 . A f i o t c fl n o c h c u s o t e s i r i i s e v g h c h w e u s s i e h t n o n o i t u o s e r l a f o n o i t p o d a e h t . t s e r e t n i n o g n i t o v m o r f d n a ) e t a r o u q - n o n g n i t e e m e h t r e d n e r t o n s e o d s i h t e r e h w . s r e b m e m e v fi t s a e l t a l e v a h d u o h s d r a o B y r o s i v r e p u S e h T . . 3 A i t n e s e r p g n e b t o n y b g n d u c n l i i ( n o i s s u c s i d e h t n i t r a p g n k a t i m o r f n a r f e r i . . 2 A d r a o B e h t f o r e b m e m h c a E i . s e n a p m o C i r e T m u m e r P f i o e s a c e h t n i , t n e d n e p e d n i l e b d u o h s d r a o B y r o s i v r e p u S r o s r o t c e r i D f o d r a o B e h t f o s r e b m e m e v i t u c e x e l e b d u o h s d r a o B y r o s i v r e p u S r o s r o t c e r i D f o d r a o B e h t f o r e b m e m e n o t s a e l t A - n o n o w t n a h t s s e l t o N i . s e n a p m o c r e T d r a d n a t S f i o e s a c e h t n i , t n e d n e p e d n i l n o i t a r a c e d a t i m b u s d u o h s , l e b y a m e s a c e h t s a , d r a o B y r o s i v r e p u S r o s r o t c e r i D f o - e r r o n o i t c e e r o l i f n o i t a n m o n r e h / s i h f o t n e m o m e h t t a t n e d n e p e d n i s i e h s / e h t a h t n i t n e m e g d u j d n a r e t c a r a h c n i t n e d n e p e d n i d e r e d i s n o c s i i e h s / e h h c h w n o d n u o r g e h t g n i t a r t s n o m e d y b , s e s i r a s u t a t s r e h / s i h n i e g n a h c y n a n e h w s a l l e w s a n o i t c e e l e v i t u c e x e / O E C e h t e b o t t o N . . 1 . 4 A : a i r e t i r c g n w o i l l o i f e h t o t g n d r o c c a d n a e c i t c a r p . e v i t u c e x e - n o n e b d u o h s s r o t c e r i l D f o d r a o B e h t f o s r e b m e m e h t f j o y t i r o a m e h T . t u o r u o F e v i t u c e x e - n o n e r a D o B s A S L E f ' o s r e b m e m e h t l l A i s u o v e r p e h t r o f n o i t i s o p h c u s n i n e e b e v a h t o n d n a t i y b d e l l o r t n o c y n a p m o c a f o t n e d n e p e d n i e h t l l A . s r e b m e m t n e d n e p e d n i e r a n e v e s f o n o i t a r e n u m e r l i a n o i t i d d a d e v e c e r e v a h t o n d n a e v e c e r o t i t o N . . . 3 4 A ; s r a e y ) 5 ( e v fi r o y n a p m o c e h t f l o e e y o p m e n a e b o t t o N . . . 2 4 A ; s r a e y 5 s u o v e r p e h t i r o f n o i t i s o p h c u s n i n e e b e v a h t o n d n a t i y b d e l l o r t n o c y n a p m o c a f o r o y n a p m o c e h t f o r e c ffi o n e h w , e c n e d n e p e d n i f l o n o i t a r a c e d a d e t t i m b u s s r e b m e m t r a p a , t i y b d e l l o r t n o c y n a p m o c a m o r f r o y n a p m o c e h t m o r f s e g a t n a v d a r e h t o r o e r a h c h w i , i n o i t a c o s s A f l o s e c i t r A s y n a p m o c ' e h t n i d e d u c n l i a i r e t i r c e h t h t i w e c n a d r o c c a n i e d a m s a w n o i t a r a c e d e h T l l . s r e d o h e r a h s e h t y b s e t a d d n a c i i s a d e t a n m o n e r e w y e h t S E Y r o t o n s I . . . 4 4 A ; r o t c e r i d e v i t u c e x e - n o n f o y t i l i a u q e h t o t g n d n o p s e r r o c e s o h t m o r f . . 4 A , i p h s n o i t a e r l l a u t c a r t n o c y n a t o n d a h r o t o n s a h r o , f l o e e y o p m e n a n e e b t o n s a h g n i l l o r t n o c , y n a p m o c e h t f l o r e d o h e r a h s t n a c fi n g i s a h t i i w i , r a e y s u o v e r p e h t g n i r u d . e d o C e h t y b d e l i a t e d e s o h t h t i w l i r a m i s t o N . . 5 4 A . ; t i y b d e l l o r t n o c y n a p m o c a h t i w r o s t h g i r g n i t o v f o % 0 1 n a h t e r o m l i a n o i s s e f o r p r o s s e n i s u b a r a e y s u o v e r p e h t g n i r u d d a h e v a h t o n d n a e v a h o t y l t c e r i d r e h t i e , t i y b d e l l o r t n o c y n a p m o c a h t i w r o y n a p m o c e h t h t i i w p h s n o i t a e r l s t i y b , f i i l p h s n o i t a e r a h c u s g n v a h y n a p m o c a f i l o e e y o p m e r o r e c ffi o e v i t u c e x e / O E C , r o t c e r i D / d r a o B e h t f o r e b m e m l , r e d o h e r a h s , r e n t r a p , r e m o t s u c a s a r o t o N . j . . 6 4 A ; y t i v i t c e b o r e h / s i h t c e ff a d u o c p h s n o i t a e r s i h t l l i , r e t c a r a h c l a i t n a t s b u s r o r o t i d u a l a n r e t n i r o l a n r e t x e e h t s r a e y e e r h t t s a l e h t n i n e e b e v a h t o n d n a e b o t r o t i d u a l a n r e t n i r o l i a c n a n fi l a n r e t x e t n e r r u c e h t f i o e t a c o s s a d e i r a a s r o r e n t r a p a l e v i t u c e x e / O E C a e b o t . t o N 7 4 A ; t i . . y b d e l l o r t n o c y n a p m o c a r o y n a p m o c e h t f o y n a p m o c e h t f o r e c ffi o e v i t u c e x e / O E C r e h t o n a e r e h w y n a p m o c r e h t o n a n i r e c ffi o e h t f o r o t c e r i d e v i t u c e x e - n o n a n e e b e v a h o t . . . t o N 8 4 A ; r o t c e r i d e v i t u c e x e - n o n a s i n i n o s r e p a h t i l i w s e i t y m a f e v a h o t . . . t o N 9 4 A ; s r a e y e v e w l t n a h t e r o m r o f y n a p m o c . . . 4 4 A d n a i . . 1 . 4 A s t n o p t a o t d e r r e f e r s n o i t a u t i s e h t 245 STATUS OF COMPLIANCE with the new Bucharest Stock Exchange Corporate Governance Codeas of February 29th 2016ANNUAL REPORT 2015 ELECTRICA SA y l l a n o i t c n u f h c h w i , t a i r a t e r c e S l a r e n e G a s a h y n a p m o c e h T ’ i s D o B s u o v e r p e h t g n i r u d d e w o l l o f s a w n o i s i v o r p 8 A e h T . . D o B e h t o t s t r o p e r e r a n o i s i v o r p s i h t h t i i l w g n y p m o c n o s l i a t e d r e h t r u F . ) 5 1 0 2 r e b m e c e D 4 1 n o d e d n e h c h w i ( e t a d n a m d n a D o B - 2 6 r e t p a h c . , t r o p e R l a u n n A 5 1 0 2 e h t n i d e t n e s e r p ’ i s D o B s u o v e r p e h t g n i r u d d e w o l l o f s a w n o i s i v o r p 9 A e h T . . y t i v i t c a ’ s e e t t i m m o c s t i . D o B - 2 6 r e t p a h c , t r o p e R l a u n n A 5 1 0 2 e h t n i d e t n e s e r p e r a n o i s i v o r p s i h t h t i i l w g n y p m o c n o s l i a t e d r e h t r u F . e t a d n a m r e h t r u F . 6 1 0 2 f o s e u s s i n o r e b m e m e h t f o n o i t i s o p e h t t c e ff a i y a m h c h w p h s n o i t a e r l i f o d n k i i d e d v o r p e b l l i w r e t t a m s i h t n o n o i t a m r o f n i . y n a p m o c e h t y b . d r a o B e h t y b d e d c e d i S E Y S E Y S E Y e h t g n i t r o p p u s r o l f e b i s n o p s e r y r a t e r c e s d r a o B a i t n o p p a d u o h s l y n a p m o c e h T n a r e h t e h w n o m r o f n i l d u o h s t n e m e t a t s e c n a n r e v o g e t a r o p r o c e h T . d r a o B e h t f o k r o w . . 7 A e h t f i o p h s r e d a e l e h t r e d n u e c a p n e k a t l s a h d r a o B e h t f o n o i t a u a v e l n o i t c a y e k e z i r a m m u s , s a h t i f i , d n a e e t t i m m o c n o i t a n m o n e h t i r o n a m r i a h c / y c i l o p a e v a h d u o h s l y n a p m o c e h T . t i m o r f g n i t l u s e r s e g n a h c d n a s t n o p i . . 8 A , i e s o p r u p e h t g n n a t n o c d r a o B e h t i f o n o i t a u a v e l e h t g n d r a g e r i e c n a d u g i e h t n o n o i t a m r o f n i i n a t n o c d u o h s l t n e m e t a t s e c n a n r e v o g e t a r o p r o c e h T d r a o B e h t f o t r o p e r a d n a ) a i t n e s b a n i d n a n o s r e p n i ( s r o t c e r i d y b e c n a d n e t t a , r a e y t s a p e h t g n i r u d s e e t t i m m o c e h t d n a d r a o B e h t f o s g n i t e e m f o r e b m u n . . 9 A . s s e c o r p n o i t a u a v e l e h t f o y c n e u q e r f d n a a i r e t i r c . t n e d n e p e d n i e r a D o B e h t f o s r e b m e m n e v e s f o t u o r u o F S E Y r o s r o t c e r i D f o d r a o B e h t f o s r e b m e m t n e d n e p e d n i e h t f o r e b m u n e s i c e r p . 0 1 . A . d r a o B y r o s i v r e p u S e h t f o . y t i v i t c a ’ s e e t t i m m o c s t i d n a e h t n o n o i t a m r o f n i i n a t n o c d u o h s l t n e m e t a t s e c n a n r e v o g e t a r o p r o c e h T . s e i t i v i t c a r i e h t n o s e e t t i m m o c d n a s i r e b m e m d r a o B h c a e f o y h p a r g o b i l a n o i s s e f o r p e h T . n o i t c e s A G A > R I e h t n i ' e t i s b e w s A S L E n o d e h s i l b u p h c u s r o f d e e n e h T e b l l i w s t n e m e t a t s ' s D o B o t t h g u o r b e h t n h t i i w n o i t n e t t a s g n i t e e m d r a o B t s r fi S E Y n i s n o i t i s o p d r a o B e v i t u c e x e - n o n d n a e v i t u c e x e g n d u c n l i i , s t n e m e g a g n e d n a l s r e d o h e r a h s o t d e s o c s i d e b d u o h s l l , s n o i t u t i t s n i t fi o r p - r o f - t o n d n a i s e n a p m o c . e t a d n a m r e h / s i h g n i r u d d n a i t n e m t n o p p a e r o f e b s r o t s e v n i n o n o i t a m r o f n i , d r a o B e h t o t t i l m b u s d u o h s d r a o B e h t l a i t n e t o p o t d n a f o r e b m e m y n A . . 5 A s e r a h s , y l t c e r i d n i r o y l t c e r i d s d o h o h w l l r e d o h e r a h s a h t i i w p h s n o i t a e r l y n a s t n e m t i m m o c l a n o i s s e f o r p t n e n a m r e p y e v i t a e r l l r e h t o s ’ r e b m e m d r a o B A O N y n a s n r e c n o c n o i t a g i l b o s i h T . s t h g i r g n i t o v l l a f o % 5 n a h t e r o m g n i t n e s e r p e r . . 6 A n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N 246 ’ s A S L E d n a n o i t a c o s s A f i l o s e c i t r A e h t , y l l a n o i t i d d A . e t a d n a m e r u t c u r t s s t i , e e t t i m m o c s i h t f o e c n e t s i x e e h t t h g i l i h g h C G C . s e i t i l i b i s n o p s e r d n a e h t n i d e h s i l b a t s e s a w e r u t c u r t s s t i d n a e e t t i m m o c e h T r e b m e c e D 4 1 n o d e t c e e ( l D o B w e n e h t f o g n i t e e m t s r fi e h T . 6 1 0 2 y r a u n a J 3 1 n o e c a p k o o t h c h w g n i t e e m l i , ) 5 1 0 2 . s M , l z e r a v A o g e M o r d e P l i . r M : s i n o i t i s o p m o c e e t t i m m o c o w T . u c s e i l I n a d g o B . r M d n a d l i h c s h t o R e d d r a a M e l l l e i r A . t n e d n e p e d n i e r a s r e b m e m ' s D o B s u o v e r p i e h t g n i r u d d e w o l l o f s a w n o i s i v o r p 1 1 . A e h T , e e t t i m m o c s i h t f o e c n e t s i x e e h t t h g i l i h g h C G C s A S L E ' d n a i n o i t a c o s s A f l o s e c i t r A e h t , y l l a n o i t i d d A . e t a d n a m ’ i s D o B s u o v e r p e h t g n i r u d d e w o l l o f s a w n o i s i v o r p 1 . B e h T k o o t i h c h w g n i t e e m , ) 5 1 0 2 r e b m e c e D 4 1 n o d e t c e e ( l D o B : s i n o i t i s o p m o c e e t t i m m o c e h T . 6 1 0 2 y r a u n a J 3 1 n o e c a p l w e n e h t f o g n i t e e m t s r fi e h t n i d e h s i l b a t s e s a w e r u t c u r t s s t i d n a e e t t i m m o c e h T . s e i t i l i b i s n o p s e r d n a e r u t c u r t s s t i d n a d l i h c s h t o R e d l d r a a M e l l e i r A . s M , u c s e i l I n a d g o B . r M . t n e d n e p e d n i e r a s r e b m e m o w T . u c s e p o P a n i r o C . s M S E Y S E Y e t a u q e d a d n a n e v o r p e v a h d u o h s l e e t t i m m o c t i d u a e h t f o r e b m e m e n o t s a e l t A . e e t t i m m o c e h t f o s e i t i l i b i s n o p s e r d n a s n o i t c n u f e h t o t t n a v e e r l . 1 . B n o i t a c fi i l a u q e t a u q e d a n a n e v o r p e v a h d u o h s l , n a m r i a h c e h t g n d u c n l i i t i d u a e h t f j o y t i r o a m e h t d n a s r e b m e m e e r h t t s a e l t a f o d e s o p m o c e b d u o h s l . t n e d n e p e d n i l e b d u o h s e e t t i m m o c e e t t i m m o c t i d u a e h t i , s e n a p m o c i r e T m u m e r P f i o e s a c e h t n I r o g n i t i d u a i n o i t a n m o n a p u t e s d u o h s l i s e n a p m o c i r e T m u m e r P f i o d r a o B e h T d r a o B r o f s s e c o r p e h t d a e l l l i w h c h w i , s e v i t u c e x e - n o n f o d e m r o f e e t t i m m o c f j o y t i r o a m e h T . d r a o B e h t o t s n o i t a d n e m m o c e r e k a m d n a s t n e m t n o p p a i . 1 1 . A , s r e b m e m f j o y t i r o a m e h T . e v i t u c e x e - n o n t n e d n e p e d n i n a l e b d u o h s . t n e d n e p e d n i l e b d u o h s e e t t i m m o c n o i t a n m o n e h t i f o s r e b m e m e h t r e b m e m e n o t s a e l t a d n a , e e t t i m m o c t i d u a n a p u t e s d u o h s d r a o B e h T l m e t s y s l o r t n o c l a n r e t n i d n a t n e m e g a n a m k s i R B n o i t c e S STATUS OF COMPLIANCE with the new Bucharest Stock Exchange Corporate Governance Codeas of February 29th 2016ANNUAL REPORT 2015 ELECTRICA SA k s i r i t n a c fi n g i s d n a s l o r t n o c l a n r e t n i e h t n o s t n e m m o c t n e m e g a n a m k s i r ' s D o B e h t i s n a t n o c l , s r e d o h e r a h s f o g n i t e e m l a r e n e g d n a t i d u a l a n r e t n i l a u n n a e h t o t d e t n e s e r p , t r o p e r ' s r o t c e r i d l a u n n a e h T , l o r t n o c l a n r e t n i e h t f o ’ C G C s A S L E d n a n o i t a c o s s A f i l o s e c i t r A e h t , y l l a n o i t i d d A . e t a d n a m . e e t t i m m o C t i d u A e h t f o n a m r i a h c s a y c a c ffi e e h t g n i r o t i n o m s n o i t n e m n o i t a c o s s A i f l o s e c i t r A s A S L E ' . r l M d e t c e e D o B w e n e h t , 6 1 0 2 y r a u n a J 3 1 n o d e h g n i t e e m l s t i n I , r e b m e m D o B t n e d n e p e d n i e v i t u c e x e - n o n , l z e r a v A o g e M o r d e P l i . e e t t i m m o c s i h t f o e r u t c u r t s e h t d n a e c n e t s i x e e h t t h g i l h g h i S E Y e v i t u c e x e - n o n t n e d n e p e d n i n a y b d e r i a h c l e b d u o h s e e t t i m m o c t i d u a e h T . r e b m e m . . 2 B ’ i s D o B s u o v e r p e h t g n i r u d d e w o l l o f s a w n o i s i v o r p 2 B e h T . n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . s r e t r a h c ’ s e e t t i m m o c l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c t o n e r a h c h w i ' s e e t t i m m o C t i d u A e h t i g n d d A . s e i t i l i b i s n o p s e r D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a r e t r a h C e h t f o t r a p s a y n a p m o c . n o i t a r e d i s n o c o t n i n e k a t e b e h t o t n o i s i v o r p s i h t e b o t e u s s i n a s i r e t r a h C n o i t n e t t a e h t o t t h g u o r b . e e t t i m m o C t i d u A e h t f o y c a c ffi e e h t g n i r o t i n o m s n o i t n e m n o i t a c o s s A i f l o s e c i t r A s A S L E ’ , l o r t n o c l a n r e t n i e h t f o i n o i t a c o s s A f l o s e c i t r A e h t d n e m a o t j t c e o r p a d e t a i t i n i A S L E s e e t t i m m o c D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a i e r a h c h w s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . s r e t r a h c n e k a t e b l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c t o n . n o i t a r e d i s n o c o t n i n o i t n e t t a e h t o t t h g u o r b n o i s i v o r p s i h t g n d d A i e b l l i w r e t r a h C e h t o t . s e i t i l i b i s n o p s e r ’ s e e t t i m m o C t i d u A e h t f o t r a p s a y n a p m o c . e e t t i m m o C t i d u A e h t f o d n a t i d u a l a n r e t n i t n e m e g a n a m k s i r e h t n h t i i w s m e t s y s d n e m a o t j t c e o r p a d e t a i t i n i A S L E . m e t s y s t n e m e g a n a m e h t n h t i i w s m e t s y s I Y L L A T R A P l a u n n a n a e k a t r e d n u d u o h s l e e t t i m m o c t i d u a e h t , s e i t i l i b i s n o p s e r s t i g n o m A . l o r t n o c l a n r e t n i f o m e t s y s e h t f o t n e m s s e s s a I Y L L A T R A P s s e n e v i s n o p s e r s ’ t n e m e g a n a m , d r a o B e h t f o e e t t i m m o c t i d u a e h t o t s t r o p e r l a n r e t n i e h t f o e p o c s d n a s s e n e v i t c e ff e e h t r e d i s n o c d u o h s l t n e m s s e s s a e h T l o r t n o c l a n r e t n i d n a t n e m e g a n a m k s i r f o y c a u q e d a e h t , n o i t c n u f t i d u a r o s g n i l i a f l o r t n o c l a n r e t n i d e fi i t n e d i h t i w g n i l a e d n i s s e n e v i t c e ff e d n a . d r a o B e h t o t s t r o p e r t n a v e e r l f o n o i s s i m b u s r i e h t d n a s e s s e n k a e w i n o i t a c o s s A f l o s e c i t r A e h t d n e m a o t j t c e o r p a d e t a i t i n i A S L E n o i s i v o r p s i h t g n d d A i s e e t t i m m o c D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a f l o s e c i t r A e h t o t n e k a t e b l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c t o n n o i t n e t t a e h t o t t h g u o r b i e r a h c h w s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . s r e t r a h c e b l l i w n o i t a c o s s A i O N f o s n o i t c a s n a r t n i s t s e r e t n i f i o s t c fl n o c w e v e r d u o h s l i e e t t i m m o c t i d u a e h T . s e i t r a p d e t a e r h t i l w s e i r a d i s b u s i s t i d n a y n a p m o c e h t i n o i t a c o s s A f l o s e c i t r A e h t d n e m a o t . n o i t a r e d i s n o c o t n i j t c e o r p a d e t a i t i n i A S L E s e e t t i m m o c D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a i e r a h c h w s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . s r e t r a h c n e k a t e b l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c t o n . n o i t a r e d i s n o c o t n i . e e t t i m m o C t i d u A e h t f o f l o s e c i t r A s A S L E ' ' s e e t t i m m o C t i d u A e h t y c a c ffi e e h t g n i r o t i n o m , l o r t n o c l a n r e t n i e h t f o s n o i t n e m n o i t a c o s s A i f o t r a p s a y n a p m o c e h t n h t i i w s m e t s y s d n a t i d u a l a n r e t n i t n e m e g a n a m k s i r I Y L L A T R A P l o r t n o c l a n r e t n i e h t f o y c n e c ffi e i e h t l e t a u a v e d u o h s l e e t t i m m o c t i d u a e h T . m e t s y s t n e m e g a n a m k s i r d n a m e t s y s . . 3 B . . 4 B . . 5 B . . 6 B e b o t e u s s i n a s i r e t r a h C n o i t n e t t a e h t o t t h g u o r b . e e t t i m m o C t i d u A e h t f o i g n d d A . s e i t i l i b i s n o p s e r e h t o t n o i s i v o r p s i h t 247 STATUS OF COMPLIANCE with the new Bucharest Stock Exchange Corporate Governance Codeas of February 29th 2016ANNUAL REPORT 2015 ELECTRICA SA t i d u A e h t n i d e d u c n l i e r a r e t t a m s i h t n o s n o i s i v o r P . r e t r a h C s e e t t i ' m m o C . ' C G C s A S L E n i d e d u c n l i e r a r e t t a m s i h t n o s n o i s i v o r P i n o i t a c o s s A f l o s e c i t r A e h t d n e m a o t j t c e o r p a d e t a i t i n i A S L E . r e t r a h c D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a , s n o i t a u g e r l l a n r e t n i s e i t r a p d e t a e r l e h t e h t o t g n d r o c c A i e r a s n o i t c a s n a r t n o i t n e t t a e h t o t t h g u o r b n o i s i v o r p s i h t g n d d A i e b l l i w r e t r a h C e h t o t . e e t t i m m o C t i d u A e h t f o . n o i t a r e d i s n o c o t n i . m a e t t i d u a l a n r e t n i S E Y r o , ) l a u n n a t s a e l t a ( l a c i l c y c y b d e w o l l o f l e b d u o h s e s e h t , e e t t i m m o C t i d u A e h t y b d e s i c r e x e e b o t l s i s y a n a r o s w e v e r i s n o i t n e m e d o C e h t r e v e n e h W . s d r a w r e t f a d r a o B e h t o t d e t t i m b u s e b o t s t r o p e r c o h - d a S E Y l s r e d o h e r a h s r e h t o r e v o e c n e r e f e r p e u d n u n e v g e b y a m i l r e d o h e r a h s o N h t i w y n a p m o c e h t y b e d a m s t n e m e e r g a d n a s n o i t c a s n a r t o t d r a g e r h t i w . s e i t r a p d e t a e r l r i e h t d n a l s r e d o h e r a h s e h t f o n o i t c a s n a r t y n a t a h t g n i r u s n e y c i l o p a l t p o d a d u o h s d r a o B e h T . . 8 B . . 9 B t a h t , s n o i t a e r l e s o c l s a h t i i h c h w h t i i w s e n a p m o c e h t f o y n a h t i w y n a p m o c d e t a t s s a ( y n a p m o c e h t f o s t e s s a t e n e h t f o % 5 n a h t e r o m r o o t l a u q e s i o t n i n e k a t e b l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c n o i s i v o r p s i h t g n d d A i l e h t o t d e s o c s i d y l r i a f d n a , e e t t i m m o c t i d u a e h t f i i o n o n p o y r o t a g i l b o n a D o B e h t o t y l l a n o i t c n u f s t r o p e r e c ffi o d e n o i t n e m e v o b a e h T s t r o p e r l y e v i t a r t s i n m d a i e l i h w , e e t t i m m o C t i d u A e h t h g u o r h t . O E C e h t o t S E Y e h t o t d e t a e r l e p o c s e h t n i d n a s e s o p r u p e v i t a r t s i n m d a i r o F . e e t t i m m o c . 2 1 . B l d u o h s t i , s k s i r e t a g i t i m d n a r o t i n o m o t t n e m e g a n a m e h t f o s n o i t a g i l b o . r e c ffi o e v i t u c e x e i f e h c e h t o t y l t c e r i d t r o p e r t i d u a l a n r e t n i e h t f o s n o i t c n u f e r o c e h t f o t n e m l l l fi u f e h t e r u s n e o T t i d u a e h t i a v d r a o B e h t o t y l l a n o i t c n u f t r o p e r d u o h s l t i , t n e m t r a p e d d n a t i d u A l a n r e t n I e h t y b d e t c u d n o c s i t i d u a l a n r e t n i e h T . e c ffi O e c n a i l p m o C S E Y n o i s i v d i l a r u t c u r t s e t a r a p e s a y b t u o d e i r r a c l e b d u o h s s t i d u a l a n r e t n i e h T n a g n n a t e r i i y b r o y n a p m o c e h t n h t i i w ) t n e m t r a p e d t i d u a l a n r e t n i ( . 1 1 . B . y t i t n e y t r a p - d r i h t t n e d n e p e d n i . n o i t a r e d i s n o c . D o B e h t f o n o i t n e t t a l l i w r e t r a h C e h t o t e h t o t t h g u o r b e b l l a f s n o i t c a s n a r t h c u s t a h t t n e t x e e h t o t , s r o t s e v n i l a i t n e t o p d n a l s r e d o h e r a h s . s t n e m e r i u q e r l e r u s o c s i d o t j t c e b u s s t n e v e f o y r o g e t a c e h t r e d n u i t o n e r a h c h w s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . D o B e h t y b d e v o r p p a O N i g n w o l l o f d r a o B e h t y b d e v o r p p a l e b d u o h s , ) t r o p e r l i a c n a n fi t s e t a l e h t n i . 0 1 . B s e e t t i m m o c D o B e h t s e s i r p m o c o s l a h c h w i , C G C e h t d n a i , s e v e c e r t i , y l l a n o i t i d d A d n a y r o t u t a t s f o n o i t a c i l p p a e h t r o t i n o m d u o h s l e e t t i m m o c t i d u a e h T n e k a t e b l l i w l l ) y e t e p m o c r o y l l a i t r a p ( d e l l l fi u f y l t n e r r u c t o n e h t f o s t r o p e r e h t . m a e t t i d u a l a n r e t n i e h t f o s t r o p e r e h t l e t a u a v e d n a i e v e c e r d u o h s l i e r a h c h w s t n e m e r i u q e r e h t , e s i c r e x e s i h g n i r u D . s r e t r a h c s e s r o d n e d n a s e s s e s s a I Y L L A T R A P e e t t i m m o c t i d u a e h T . g n i t i d u a l a n r e t n i f o s d r a d n a t s d e t p e c c a y l l a r e n e g . . 7 B i n o i t a c o s s A f l o s e c i t r A e h t d n e m a o t j t c e o r p a d e t a i t i n i A S L E . t i d u a l a n r e t n i e h t l l a s e v o r p p a e e t t i m m o C s e c i i l o p , s e r u d e c o r p e h t i g n n r e c n o c s e d o c d n a t i d u A e h t , e c i t c a r p n I n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N 248 STATUS OF COMPLIANCE with the new Bucharest Stock Exchange Corporate Governance Codeas of February 29th 2016ANNUAL REPORT 2015 ELECTRICA SA a , 6 1 0 2 y r a u r b e F n i , d e s r o d n e D o B e h t d n a d e t f a r d C R N e h t f o y c i l o p n o i t a r e n u m e R e h t g n d r a g e r i l a s o p o r p w e n a d n e g a S M G e h t n o d e d u c n l i s a w h c h w i , s r e b m e m D o B . 6 1 0 2 h c r a M 1 3 n o d e n e v n o c d e v o r p p a s a w s r e b m e m D o B e h t f o s r e b m e m . 4 1 0 2 r e b m e t p e S 2 2 n o ) S M G O ( l s r e d o h e r a h S f o g n i t e e M l a r e n e G i y r a n d r O e h t y b n o i t a r e n u m e r e h T e h t r o f m e t s y s s a l l e w s a , O E C e h t e v i t u c e x e r e h t o e h t r o f r o f s t i m i l n o i t a r e n u m e r e h t d n a m e t s y s h t i w s r e g a n a m D o B e h t m o r f e t a d n a m e h t y b d e v o r p p a e r e w n o i t a r e n u m e r e h T I Y L L A T R A P . l 5 1 0 2 y u J 9 n o S M G O S E Y y c i l o p s i h t f i l o n o i t a t n e m e p m e h t n o t n e m e t a t s n o i t a r e n u m e r a t r o p e r l a u n n a s t i . w e v e r i r e d n u d o i r e p l a u n n a e h t g n i r u d s w o l l a t a h t y a w a h c u s n i l d e t a u m r o l f e b d u o h s y c i l o p n o i t a r e n u m e r e h T i l n o i t a r e n u m e r e h t d n h e b e a n o i t a r d n a s e p c n i r p e h t d n a t s r e d n u o t s r e d o h e k a t s l l i d r a o b r e i t - o w t n i d r a o B t n e m e g a n a M e h t f o s r e b m e m e h t f o s a l l , e w s a O E C e h t d n a d r a o B e h t f o s r e b m e m e h t f o i g n k a m - n o i s i c e d d n a e c n a n r e v o g n o i t a r e n u m e r e h t e b i r c s e d d u o h s t I l . s m e t s y s l a u n n a , s e i r a a s . l e . i ( n o i t a r e n u m e r e v i t u c e x e f o s t n e n o p m o c e h t l i a t e d , s s e c o r p ) s r e h t o d n a , s n o i s n e p , i d n k n i s t fi e n e b , s e v i t n e c n i d e k n i l - k c o t s m r e t g n o l , s u n o b i g n d u c n l i ( s n o i t p m u s s a d n a s e p c n i r p l i , e s o p r u p s ’ t n e n o p m o c h c a e e b i r c s e d d n a n I . ) n o i t a r e n u m e r e b a i r a v f l o m r o l f y n a o t d e t a e r a i r e t i r c e c n a m r o f r e p l a r e n e g e h t ’ s e v i t u c e x e e h t f o n o i t a r u d e h t e s o c s i d d u o h s y c l l i l o p n o i t a r e n u m e r e h t , n o i t i d d a n o i t a c o v e r r o f n o i t a s n e p m o c l a u t n e v e d n a d o i r e p e c i t o n r i e h t d n a t c a r t n o c . e s u a c t u o h t i w n o i t a r e n u m e r e h t f o n o i t a t n e m e p m e h t l i l t n e s e r p d u o h s t r o p e r n o i t a r e n u m e r e h T . 1 . C l a u n n a e h t g n i r u d y c i l o p n o i t a r e n u m e r e h t n i d e fi i t n e d i s n o s r e p e h t s i v - à - s i v y c i l o p e h t n o d e h s i l b u p e b d u o h s y c l i l o p n o i t a r e n u m e r e h t f o e g n a h c l a i t n e s s e y n A . w e v e r i r e d n u d o i r e p . i n o h s a f y e m l i t a n i e t i s b e w e t a r o p r o c s ’ r e b m e m d r a o B a l a r e n e g , i n o i t a c o s s a f l o s e c i t r a e h t l : s n o i t a u g e r e t a r o p r o c l i a p c n i r P . 1 . 1 . D i , s e d o b g n n r e v o g s t i i f o s r e b m e m e h t f o s V C l a n o i s s e f o r P . 2 . 1 . D . s e r u d e c o r p g n i t e e m ’ l s r e d o h e r a h s d r a o B e v i t u c e x e - n o n d n a e v i t u c e x e g n d u c n l i i t i , s t n e m m m o c l a n o i s s e f o r p r e h t o ; s n o i t u t i t s n i t fi o r p - r o f - t o n d n a s e n a p m o c n i i s n o i t i s o p i : g n d u c n l i , s r o t s e v n i r o f t s e r e t n i f o n o i t a m r o f n i t n a v e e r l l l a h t i , w h s i l g n E d e l i a t e d h t i w s t r o p e r t n e r r u c g n d u c n l i i . – 8 D m e t i i t a d e d v o r p s a t s a e l t a – ) s t r o p e r l a u n n a d n a l a u n n a - i m e s , y l r e t r a u q i ( s t r o p e r c d o i r e p d n a s t r o p e r t n e r r u C . 3 . 1 . D i d n a n a n a m o R n i h t o b , n o i t c e s s n o i t a e R r o t s e v n l I i d e t a c d e d a e t i s b e w e t a r o p r o c s t i n o e d u c n l i l d u o h s y n a p m o c e h t , s n o i s i v o r p l a g e l y b d e r i u q e r n o i t a m r o f n i o t n o i t i d d a n I . c i l b u p l a r e n e g e h t o t , t i n u l i a n o i t a z n a g r o n a r o e b i s n o p s e r l ) s ( n o s r e p y b , d e t a c d n i i - n o i t c n u f s n o i t a e R r o t s e v n l I l n a e v a h d u o h s y n a p m o c e h T s n o i t a l e r ’ s r o t s e v n i h g u o r h t e u l a v g n d i l i u B D n o i t c e S ; e d o C t n e s e r p e h t h t i w e c n a i l p m o c - n o n o t d e t a e r n o i t a m r o f n l i ; s r e b m e m d r a o B f o n o i t c e e e h t l r o f d e v o r p p a e r u d e c o r p e h t ; s l a i r e t a m g n i t r o p p u s r e h t e g o t , d r a o B e h t o t n o i t c e e e h t l r o f s e t a d d n a c f i o l a s o p o r p e h t r o l f e a n o i t a r e h t d n a a d n e g a e h t l : s r e d o h e r a h s f l o s g n i t e e m a r e n e g o t d e t a e r n o i t a m r o f n l I . 4 . 1 . D e h t d n a a d n e g a e h t o t d e t a e r s n o i t s e u q l ’ l s r e d o h e r a h s ; s V C l a n o i s s e f o r p r i e h t h t i w n o i t a t i m i l r o n o i t i s i u q c a e h t o t g n d a e i l s t n e v e r e h t o r o l , s r e d o h e r a h s o t s n o i t u b i r t s d i r e h t o d n a s d n e d v d f i i o t n e m y a p s a h c u s , s t n e v e e t a r o p r o c n o n o i t a m r o f n I . 5 . 1 . D ; n e k a t s n o i s i c e d e h t g n d u c n l i i , s r e w s n a s y n a p m o c ’ h c u s o t d e i l i l p p a s e p c n i r p d n a s e n i l d a e d e h t g n d u c n l i i l , r e d o h e r a h s a f o s t h g i r f o l s e b a n e t a h t e m a r f e m i t a n h t i i w d e h s i l l b u p e b d u o h s n o i t a m r o f n i h c u S . s n o i t a r e p o , s n o i t a t n e s e r p s t l u s e r y l r e t r a u q , s n o i t a t n e s e r p R I . . g e ( s n o i t a t n e s e r p e t a r o p r o C 7 . 1 . D . ; t s e u q e r n o n o i t a m r o f n i l e b a e g d e w o n k l i l l e d v o r p o t e b a e b d u o h s o h w n o s r e p a f o a t a d t c a t n o c d n a e m a n e h T . 6 . 1 . D ; s n o i s i c e d t n e m t s e v n i e k a m o t s r o t s e v n i d n a s t r o p e r r o t i d u a , ) l a u n n a , l a u n n a - i m e s , y l r e t r a u q ( s t n e m e t a t s l i a c n a n fi , ) . c t e . s t r o p e r l a u n n a . 1 . D 249 n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P n i e d u c n l i d n a e t i s b e w s t i n o y c i l o p n o i t a r e n u m e r a h s i l l b u p d u o h s y n a p m o c e h T e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N n o i t a v i t o m d n a s d r a w e r r i a F C n o i t c e S STATUS OF COMPLIANCE with the new Bucharest Stock Exchange Corporate Governance Codeas of February 29th 2016ANNUAL REPORT 2015 ELECTRICA SA o t r o i r p s y a d 5 4 y e t a m x o r p p a l i , s t n e m e r i u q e r l a g e l e h t h t i w . g n i t e e m e h t l a u n n a e h t o t d e t n e s e r p , t r o p e r ’ s r o t c e r i d l a u n n a e h T ’ s D o B e h t i s n a t n o c l , s r e d o h e r a h s f o g n i t e e m l a r e n e g k s i r i t n a c fi n g i s d n a s l o r t n o c l a n r e t n i e h t n o s t n e m m o c e c n a d r o c c a n i d e h s i l b u p , i e c i t o n g n n e v n o c h c a e n h t i i w d e d u c n l i e r a l s r e d o h e r a h s f o s g n i t e e m l a r e n e g f o s e u r l e h T D o B e h t o t d e t t i m b u s . s i s y a n a l r o f t c e p s e r h t i w y c i l o p e h T D o B e h t o t d e t t i m b u s e b l l i w s t s a c e r o f o t . s i s y a n a l r o f e b l l i l w s e p c n i r p i i d e d v o r p s i n o i t u b i r t s i d O P I 4 1 0 2 e h t n i l a u n n a e h T . s u t c e p s o r P n o i t u b i r t s i d h s a c y c i l o p d n e d v d e h t i i y c i l o p d n e d v d r o i i f o l a v o r p p a e h t r o f d e t t i m b u s s t n e m u c o d e h t l l a , e c i t c a r p n I . m e t s y s t n e m e g a n a m n i d e t a t s y l r a e c l s i s i h t ; D o B e h t y b d e s r o d n e e r a S M G e h t l . s r e d o h e r a h s e h t o t d e t n e s e r p s t n e m u c o d e h t n e e b s a h a c i r t c e E l i g n w o l l a s d r a w o t n e p o I Y L L A T R A P e h t g n d r a g e r i w o l l o f o t s d n e t n i y n a p m o c e h t s n o i t c e r i d f o t e s a s a , d r a o B e h t y b d e t p o d a d n a d r a o B t n e m e g a n a M e h t r o O E C e h t y b d e s o p o r p . . 2 D r e h t e h w , s t s a c e r o f o t t c e p s e r h t i w y c i l o p a d e t p o d a e v a h d u o h s l y n a p m o c A . e t i s b e w e t a r o p r o c e h t n o d e h s i l b u p e b d u o h s l i l s e p c n i r p f l o s n o i s u c n o c d e fi i t n a u q e h t s n a e m s t s a c e r o F . t o n r o d e t u b i r t s i d e r a y e h t y c i l i i o p d n e d v d r o n o i t u b i r t s i d h s a c l a u n n a e h T . t fi o r p t e n f o n o i t u b i r t s i d , y c i l i i o p d n e d v d r o n o i t u b i r t s i d h s a c l a u n n a n a e v a h d u o h s l y n a p m o c A a o t d e t a e r l s r o t c a f f o t s i l a f o t c a p m i l a t o t i i e h t g n n m r e t e d t a d e m a i i s e d u t s a n o p u d e s a b s i k s a t a h c u s e r u t a n y b : ) s n o i t p m u s s a d e l l a c o s ( d o i r e p e r u t u f O N S E Y S E Y S E Y i m o r f g n i r e ff d y l t n a c fi n g i s i s e m i t e m o s s t l u s e r h t i w , i y t n a t r e c n u f o , y c n e u q e r f e h t r o f i e d v o r p d u o h s l y c i l o p e h T . d e t n e s e r p y l l a i t i n l e v e l h g h i i s t s a c e r o f . . 3 D y c i l o p t s a c e r o f e h T . s t r o p e r y l r e t r a u q r o l a u n n a - i m e s , l a u n n a f o t r a p e b y n o l y a m , d e h s i l b u p f i , s t s a c e r o F . s t s a c e r o f f o t n e t n o c d n a , d e g a s i v n e d o i r e p . e t i s b e w e t a r o p r o c e h t n o d e h s i l b u p e b d u o h s l e h t t c i r t s e r t o n d u o h s l l s r e d o h e r a h s f o s g n i t e e m l a r e n e g f o s e u r l e h T r i e h t f o g n i s i c r e x e e h t d n a s g n i t e e m l a r e n e g n i l s r e d o h e r a h s f o n o i t a p c i t r a p i e h t f o s a , t s e i l r a e e h t t a , t c e ff e e k a t d u o h s l s e u r l e h t f o s t n e m d n e m A . s t h g i r l . s r e d o h e r a h s f o g n i t e e m l a r e n e g t x e n r i e h t n e h w s g n i t e e m ’ l s r e d o h e r a h s e h t d n e t t a d u o h s l s r o t i d u a l a n r e t x e e h T . e r e h t d e t n e s e r p e r a s t r o p e r a l s r e d o h e r a h s f o g n i t e e m l a r e n e g l a u n n a e h t o t l t n e s e r p d u o h s d r a o B e h T t n e m e g a n a m k s i r i t n a c fi n g i s d n a s l o r t n o c l a n r e t n i e h t f o t n e m s s e s s a f e i r b l a r e n e g e h t t a n o i t u o s e r o t l j t c e b u s s e u s s i i n o s n o n p o s a i l l e w s a , m e t s y s . g n i t e e m . . 4 D . . 5 D . . 6 D l a r e n e g f . o t e s A g n i t e e m s e r u d e c o r p d n a s e u r l r o f d e t t i m b u s e b l l i w . D o B e h t o t n o i s s u c s i d h c a e f i o g n n n g e b i , s t n a t l u s n o c , s l a n o i s s e f o r p l s t s y a n a r o s t r e p x e e h t n i i e t a p c i t r a p o t l . s r e d o h e r a h s f o s g n i t e e m e h t f o t n e m e e r g a e h T l s r e d o h e r a h s t n e s e r p e h t t a d e t s e u q e r s a w I Y L L A T R A P f o g n i t e e m l a r e n e g e h t n i i e t a p c i t r a p o s l a y a m s t s i l a n r u o j d e t i d e r c c A . d r a o B n i i e t a p c i t r a p y a m l t s y a n a l i a c n a n fi r o t r e p x e , t n a t l u s n o c , l a n o i s s e f o r p y n A e h t f o n a m r i a h C e h t m o r f n o i t a t i v n i r o i r p n o p u g n i t e e m ’ l s r e d o h e r a h s e h t . i e s i w r e h t o s e d c e d d r a o B e h t f o n a m r i a h C e h t s s e n u l l , s r e d o h e r a h s . . 7 D n o i t a m r o f n i l a n o i t i d d A n o n o i t a m r o f n I - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N 250 STATUS OF COMPLIANCE with the new Bucharest Stock Exchange Corporate Governance Codeas of February 29th 2016ANNUAL REPORT 2015 ELECTRICA SA d n a l s t s y a n a h t i w s e c n e r e f n o c e e t l l y l r e t r a u q s d o h a c i r t c e E l . s r o t s e v n i i n h t i w e c n e s e r p e v i t c a n a d a h s a h a c i r t c e E l S E Y S E Y n o i t a m r o f n i e d u c n l i l d u o h s s t r o p e r l i a c n a n fi l a u n n a - i m e s d n a y l r e t r a u q e h T i e h t g n c n e u fl n i s r e v i r d y e k i e h t g n d r a g e r h s i l i g n E d n a n a n a m o R h t o b n i l i a c n a n fi t n a v e e r l r e h t o d n a t fi o r p t e n , t fi o r p g n i t a r e p o l , s e a s n i e g n a h c . s m r e t r a e y - n o - r a e y d n a r e t r a u q - n o - r e t r a u q n o h t o b , s r o t a c d n i i . . 8 D h t i w s l l a c e c n e r e f n o c / s g n i t e e m o w t t s a e l t a i e z n a g r o d u o h s l y n a p m o c A t a e t i s b e w y n a p m o c e h t f o n o i t c e s R I e h t n i d e h s i l b u p e b d u o h s l s n o i s a c c o e s e h t n o d e t n e s e r p n o i t a m r o f n i e h T . r a e y h c a e s r o t s e v n i d n a s t s y a n a l . s l l a c e c n e r e f n o c / s g n i t e e m e h t f o e m i t e h t . . 9 D n o i t a m r o f n i l a n o i t i d d A - n o n r o f n o s a e R e c n a i l p m o c e c n a i l p m o C / O N / S E Y Y L L A I T R A P e d o C e c n a n r e v o G e t a r o p r o C E S B f o s n o i s i v o r P . o N n i e d a m s n o i t a n o d r o s a e r a d e t r o p p u s e h t n o n o i t a m r o f n I . t r o p e r l a u n n a e h t n i d e t n e s e r p e r a 5 1 0 2 c fi i t n e c s i r o l a n o i t a c u d e s u o i r a v n i r o s n o p s a , l a r u t l u c , c i t s i t r a . s t n e v e r e d n u s i y c i l o p R S C A . t n e m p o e v e d l i s a g n d u c n l i , a e r a s i h t I Y L L A T R A P f o t r a p y n a p m o c e h t f o s s e n e v i t i t e p m o c d n a s s e n e v i t a v o n n i e h t n o t c a p m i . 0 1 . D y c i l o p e h t h s i l b u p d u o h s l t i , y g e t a r t s l t n e m p o e v e d d n a n o i s s i m s s e n i s u b s t i t r o p s , n o i s s e r p x e l a r u t l u c d n a c i t s i t r a f o s m r o f s u o i r a v s t r o p p u s y n a p m o c a f I g n i t l u s e r e h t s r e d i s n o c d n a , s e i t i v i t c a c fi i t n e c s i r o l a n o i t a c u d e , s e i t i v i t c a . a e r a s i h t n i y t i v i t c a s t i i g n d u g i 251 STATUS OF COMPLIANCE with the new Bucharest Stock Exchange Corporate Governance Codeas of February 29th 2016ANNUAL REPORT 2015 ELECTRICA SA DECLARATION OF THE MANAGEMENT DECLARATION OF THE MANAGEMENT We confirm to the best of our knowledge that the consolidated financial statements, prepared in accordance with the applicable ac- counting standards, give a true and fair view of the financial position of the Group, its financial performance and cash flows for the year ended December 31st, 2015, and that the Directors‘ re- port gives a true and fair view of the development and performance of the business of the Group, together with a description of the main risks and uncertainties associated with the expected devel- opment of the Group. CRISTIAN BUȘU non-executive director, Chairman of the Board of Directors MICHAEL BOERSMA non-executive director ARIELLE MALARD DE ROTHSCHILD non-executive director PEDRO MIELGO ALVAREZ non-executive director CORINA POPESCU non-executive director BOGDAN ILIESCU non-executive director IOANA DRAGAN non-executive director IULIANA ANDRONACHE General Manager 252 ANNUAL REPORT 2015 ELECTRICA SA

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