Image should be here
CONTENTS
MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS
3
MESSAGE FROM THE CHIEF EXECUTIVE OFFICER
4
DIRECTORS’ REPORT FOR THE YEAR 2020
6
CONSOLIDATED FINANCIAL STATEMENTS
197
INDEPENDENT AUDITOR’S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
271
SEPARATE FINANCIAL STATEMENTS
277
INDEPENDENT AUDITOR’S REPORT ON THE SEPARATE FINANCIAL STATEMENTS
335
DECLARATION OF THE MANAGEMENT
339
MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS
3
Message from the Chairman of the Board of Directors
Year 2020 has proved that unforeseen circumstances may represent an opportunity to become more united and focused on achieving common goals, demonstrating adaptability and consistency. Ensuring continuity in power supply represents an essential activity and Electrica Group respected, in an extraordinary context, both its commitment towards its investors, partners and also towards its consumers. We managed to do this with a united team of over 8,000 dedicated personnel with extensive experience in the energy sector. At the same time, the good cooperation between the Board of Directors and the management team of the Group was essential in achieving business objectives in a period such as 2020.
Based on a well-defined strategy, the company engaged in an extensive transformation and optimization process, process that was implemented as planned and which led to a greater degree of flexibility. The Board of Directors appreciates the progress recorded on all business lines, especially that of finalizing the two merger processes conducted, namely the merger of the distribution companies and the merger of the service companies within the Group. We are confident that the new form of organization will help increase quality standards throughout the entire organization, along with effective use of existing resources.
The Group continued its investments plan in all areas of activity, and the acquisition of renewable electricity generation capacity is an important first step in the context that we need to invest in sustainable solutions that would contribute to carbon footprint reduction and fight against climate change.
Moreover, for the first time, the Group took the first step in its internationalization strategy, developing business outside Romania's borders by deciding to open a branch in the Republic of Moldova. It was an important moment in the history of the company, which confirms the commitment to analyze and capitalize opportunities that can generate sustainable growth and positive effects for clients, partners, employees and investors.
Efficient management is also confirmed by the financial results, which strengthen the solid profile of the company, but also its role in the economy. Furthermore, Electrica’s admission to trading represents the largest initial public offering in the history of the Romanian stock exchange, being a model for local companies.
I believe that we need to consider this atypical period in terms of the opportunities it can offer and focus, as before, on measures that can bring long-term added value. Electrica has the necessary resources to overcome any challenge and I am confident that, regardless the context, the Group will not deviate from the development strategy, respecting its commitments and objectives set by all stakeholders.
CRISTIAN BOSOANCA – Chairman of the Board of Directors
MESSAGE FROM THE CHIEF EXECUTIVE OFFICER
4
Message from the Chief Executive Officer
The year 2020 was a totally atypical year, during which Electrica once again proved to be one of the pillars of the Romanian economy, a strategic group made up of solid companies, which even under more difficult conditions, has fulfilled its mission to stakeholders and achieved the objectives outlined in the development strategy.
The pandemic context, the major changes in the energy market and the start of the alignment with the European Green Deal objectives have created challenges on all business lines, which we have successfully faced, thanks to the effort and diligence of the entire Electrica team, which is worth, perhaps, more than in any other year, recognition of performance and of demonstrated spirit of unity.
Despite the unprecedented global health crisis, we have been able to adapt, in a very short time, by putting in place, from the very first signs of the pandemic, a resilience plan that guaranteed business continuity in a national strategic sector, that is safe for our customers, colleagues, and partners. We have worked to speed up the strategic steps of digitalization in order to provide our customers various means of remote contact and payment, initiative that has increased their confidence and satisfaction, according to the results of the “2020 Excellence in Customer Experience” report, carried out by KPMG Romania, on the utilities segment. Beyond ensuring the current activity, we felt it was our responsibility to help society revert to normality and to support with all possible means the medical units and non-governmental associations that were at the forefront of the fight against the new coronavirus.
The liberalization of the natural gas market, which took place starting 1 July 2020, followed by a period of intense changes in the functionality of the power market prior to its liberalization, have led us to implement a series of measures aimed primarily at optimizing the costs for the final customer, while facilitating customer transition to the competitive market by simplifying contracting flows. We have also diversified our product portfolio to meet consumers with stable offers that reflect different consumer habits, predictable prices and transparent contract terms. These sustained efforts, reflecting the customer satisfaction Group's strategy, have contributed to maintain the position of market leader in the supply segment in 2020.
We took important steps to align to the objectives of the European Green Deal, that implies adopting solutions for resource efficiency and pollution reduction, by entering the market of renewable electricity producers following the acquisition of the Stanesti photovoltaic park in Giurgiu County.
MESSAGE FROM THE CHIEF EXECUTIVE OFFICER
5
We have also made significant progress in modernizing distribution facilities and promoting smart grids, with total investments in the distribution segment of lei 596 million, ranking Electrica Group number 1 in the investment hierarchy of distribution operators in 2020.
In the same year, Electrica also implemented a major process of optimizing its activity by merging the three distribution companies within the group, as well as the two energy services companies, which creates the conditions for improving operational performance and increasing the quality of service provided to approximately 3,8 million users whose confidence we enjoy.
All the initiatives implemented during 2020 are also confirmed by the financial results, which show a consolidated net profit at group level of lei 388 million and an increase of 87,5% compared to 2019.
We remain consistent with our mission to deliver energy anywhere, anytime and to anyone at the highest standards outlined in more than 120 years of energy tradition, and we continue to develop our work to strengthen our leadership in a constantly changing market.
GEORGETA CORINA POPESCU – Chief Executive Officer
DIRECTORS’ REPORT FOR THE YEAR 2020
6
Image should be here
Directors’ Report for the year 2020
- Electrica Group -
Chairman of the Board of Directors Iulian Cristian BOSOANCA
Image should be here
DIRECTORS’ REPORT FOR THE YEAR 2020
7
DIRECTORS’ REPORT
FOR THE YEAR 2020
(based on the individual financial statements prepared in accordance with the Order of the Ministry of Public Finance no. 2844/2016 for the approval of the Accounting Regulations in accordance with International Financial Reporting Standards, respectively on the consolidated financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union)
REGARDING THE ECONOMIC AND FINANCIAL ACTIVITY OF
SOCIETATEA ENERGETICA ELECTRICA S.A. and ELECTRICA GROUP
in compliance with art. 63 of the Law no. 24/2017 on issuers of financial instruments and market operations and with annex no. 15 to ASF Regulation no. 5/2018 and the Bucharest Stock Exchange Code
for the 12-month period ended 31 December 2020
Free translation from Romanian, which is the official and binding version, and will prevail, in the event of any discrepancies with the English version
DIRECTORS’ REPORT FOR THE YEAR 2020
8
Table of Contents
Glossary ........................................................................................................................ 10
Identification details of Electrica ..................................................................................13
1 Electrica 2020 Overview ......................................................................................... 14
1.1. 2020 Key financial data ............................................................................................ 14
1.2. Key events in 2020 .................................................................................................. 19
1.3. Post balance sheet events date ................................................................................ 46
2 Electrica Group ....................................................................................................... 48
2.1. Organizational structure ........................................................................................... 48
2.2. Mission, vision, values .............................................................................................. 49
2.3. Key elements of the 2019 – 2023 Strategic Plan ........................................................ 49
2.4. Outlook .................................................................................................................. 52
2.5. Key factors, directions and significant market trends affecting the operational results of
Electrica Group .................................................................................................................. 55
3 Electrica on the capital markets ............................................................................. 57
3.1. Ownership structure ................................................................................................ 57
3.2. Shares evolution on BSE and Global depository receipts (GDRs) evolution on LSE ........ 58
3.3. Investor relations (IR) ............................................................................................. 61
3.4. Legal acts reported .................................................................................................. 62
3.5. Dividends policy ...................................................................................................... 62
3.6. Dividend distribution ................................................................................................ 63
3.7. Own shares ............................................................................................................. 64
4 Corporate Governance in ELSA ............................................................................... 65
4.1. Corporate Governance Code ..................................................................................... 65
4.2. General Meeting of ELSA’s Shareholders .................................................................... 67
4.3. Shareholders’ rights ................................................................................................. 68
4.4. ELSA’s Board of Directors ......................................................................................... 70
4.5. The activity of ELSA’s Board of Directors and of its consultative committees in 2020 ..... 76
4.6. ELSA’s Executive management ................................................................................. 84
4.7. Remuneration of the Directors and of the Executive Managers with mandate agreements
........................................................................................................................................ 86
DIRECTORS’ REPORT FOR THE YEAR 2020
9
4.8. Corporate Governance in ELSA’s subsidiaries ............................................................ 90
4.9. Statement regarding the corporate governance “Comply or Explain” .......................... 97
4.10. Implementing action plans undertaken by signing the framework agreement with EBRD
...................................................................................................................................... 109
4.11. Internal audit activity report for 2020 ..................................................................... 114
5 Operating activity of Electrica in 2020 ................................................................. 116
5.1. Operating segments ............................................................................................... 116
5.2. Fixed assets .......................................................................................................... 119
5.3. Procurement ......................................................................................................... 123
5.4. Sales activity ......................................................................................................... 123
5.5. Reorganization and disposal of assets ..................................................................... 126
5.6. Personnel .............................................................................................................. 126
5.7. Environmental considerations ................................................................................. 131
5.8. Research and development activities ....................................................................... 134
6 Electrica financial reporting for 2020 .................................................................. 135
6.1. Consolidated statement of the financial position ....................................................... 135
6.2. Consolidated statement of profit or loss .................................................................. 140
6.3. Consolidated cash flow statement ........................................................................... 149
6.4. Separate statement of the financial position ............................................................ 152
6.5. Separate statement of profit or loss ........................................................................ 159
6.6. Separate cash flow statement ................................................................................. 162
6.7. Risk management .................................................................................................. 164