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 SA KEY 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 SA KEY 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 SA DISTRIBUTION
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 SA KEY 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 SA 6
ANNUAL REPORT 2015 ELECTRICA SA 2015was 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 SA 8
ANNUAL REPORT 2015 ELECTRICA SA IULIANA 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 SA 10
ANNUAL REPORT 2015 ELECTRICA SA CONSOLIDATED
DIRECTORS’ REPORT
FOR THE YEAR 2015
11
ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015 SUMMARY
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 2015 GLOSSARY
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 2015 GLOSSARY
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 2015 Figure 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 2015 IDENTIFICATION 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 2015 1 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 2015 FIGURE 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 2015 1.2 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 2015 tablishing 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 2015 have 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 2015 FIGURE 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 2015 Key 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 2015 2014. 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 2015 2 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 2015 The 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 2015 2.2 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 2015 Board 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 2015 the 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 2015 The 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 2015 3 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 2015 DISTRIBUTION 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 2015 SUPPLY 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 2015 ANRE, 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 2015 3.3 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 2015 The 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 2015 BRP 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 2015 3.5 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 2015 ly 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 2015 The 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 2015 3.6 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 2015 applications 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 2015 31000:2010 “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 2015 RON 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 2015 Sensitivity 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 2015 Depending 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 2015 5 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 2015 No.
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 2015 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)
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 2015 Dividend 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 2015 6 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 2015 Name
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 2015 More 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 2015 6.2 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 2015 tors 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 2015 penditure 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 2015 6.3 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 2015 During 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 2015 6.6 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 2015 7 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 2015 7.2 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 2015 management, 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 2015 of 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 2015 during 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 2015 and 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 2015 8 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 2015 RON 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 2015 Non-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 2015 to 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 2015 Intra-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 2015 Penalties 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 2015 THE 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 2015 Other 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 2015 FIGURE 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 2015 Net 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 2015 The 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 2015 8.3 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
-
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280.38%
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-
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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 2015 d
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ANNUAL REPORT 2015 ELECTRICA SACONSOLIDATED DIRECTORS’ REPORT FOR THE YEAR 2015
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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 2015 During 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 2015 APPENDIX 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 2015 CONSOLIDATED FINANCIAL
STATEMENTS
For the year ended
December 31st 2015
99
ANNUAL REPORT 2015 ELECTRICA SA CONSOLIDATED 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 SA CONSOLIDATED 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 SA CONSOLIDATED 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 SA CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31ST 2015
(All amounts are in THOUSAND RON, if not otherwise stated)
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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)
)
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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 SA NOTES 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 SA NOTES 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;
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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)
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
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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)
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.
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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 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 SA NOTES 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 SA NOTES 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 SA NOTES 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-
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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)
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 SA NOTES 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.
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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 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 ,
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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)
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126
ANNUAL REPORT 2015 ELECTRICA SA
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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)
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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 SA NOTES 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 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 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 SA NOTES 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 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 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 SA NOTES 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 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) 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 SA NOTES 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 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 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 SA NOTES 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 SA December 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 SA NOTES 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 SA INDEPENDENT AUDITOR REPORT
159
ANNUAL REPORT 2015 ELECTRICA SA INDEPENDENT AUDITOR REPORT
160
ANNUAL REPORT 2015 ELECTRICA SA INDEPENDENT AUDITOR REPORT
161
ANNUAL REPORT 2015 ELECTRICA SA 162
ANNUAL REPORT 2015 ELECTRICA SA 2015
DIRECTORS’ REPORT
(STANDALONE)
163
ANNUAL REPORT 2015 ELECTRICA SA IDENTIFICATION 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 SA 1 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 SA 3 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 SA 4 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 SA 4.2 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 SA holders;
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 SA which 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 SA Name
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 SA At 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 SA The 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 SA The 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 SA tive 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 SA ination 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 SA 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
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 SA 4.4 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 SA 4.6 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 SA 5 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 SA December 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 SA Deposits, 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 SA 5.2 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 SA Change 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 SA 6 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 SA thorized 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 SA the 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 SA Exposure 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 SA Sensitivity 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 SA 6.7 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 SA n
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2015 DIRECTORS’ REPORT (STANDALONE)ANNUAL REPORT 2015 ELECTRICA SA
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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 SA SEPARATE FINANCIAL
STATEMENTS
For the year ended
December 31, 2015
201
ANNUAL REPORT 2015 ELECTRICA SA INDIVIDUAL 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 SA SEPARATE 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 SA SSEPARATE 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 SA SEPARATE STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
(All amounts are in RON)
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ANNUAL REPORT 2015 ELECTRICA SA
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SEPARATE STATEMENT OF CHANGES IN EQUITY
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(All amounts are in RON)
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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 SA SEPARATE 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 SA The 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 SA included 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 SA at 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 SA losses, 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 SA Depreciation 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 SA by 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 SA NOTES 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 SA Collective 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 SA 17 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 SA 20 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 SA Measurement 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 SA 22 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 SA 23 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 SA 28 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 SA 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.
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 SA INDEPENDENT AUDITOR REPORT
240
ANNUAL REPORT 2015 ELECTRICA SA INDEPENDENT AUDITOR REPORT
241
ANNUAL REPORT 2015 ELECTRICA SA INDEPENDENT AUDITOR REPORT
242
ANNUAL REPORT 2015 ELECTRICA SA STATUS OF
COMPLIANCE
with the new Bucharest Stock Exchange Corporate
Governance Code as of February 29th 2016
ANNUAL REPORT 2015 ELECTRICA SA ANNUAL REPORT 2015 ELECTRICA SA E
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245
STATUS OF COMPLIANCE with the new Bucharest Stock Exchange Corporate Governance Codeas of February 29th 2016ANNUAL REPORT 2015 ELECTRICA SA
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STATUS OF COMPLIANCE with the new Bucharest Stock Exchange Corporate Governance Codeas of February 29th 2016ANNUAL REPORT 2015 ELECTRICA SA
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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