SOCIETATEA DE DISTRIBUTIE A ENERGIEI ELECTRICE MUNTENIA NORD SA

Transcription

1 MUNTENIA NORD SA FINANCIAL STATEMENTS MADE ACCORDING TO OMFP 1802/2014 WITH THE SUBSEQUENT CHANGES AT THE DATE AND FOR THE FINANCIAL EXERCISE ENDED AT 31 DECEMBER 2017

2 BALANCE SHEET AT 31 DECEMBER 2017 (all amounts are expressed in RON, unless otherwise stated) Indicator name Row No. Note no. Balance at the beginning of the year Balance at the end of the year A B 1 2 A. FIXED ASSETS I. INTANGIBLE ASSETS 1. Set-up costs (ct ) Development expenses (ct ) Concessions, patents, licenses, trademarks, rights and similar values and other intangible assets (ct ) 03 29,569,526 25,127, Goodwill (ct ) 04-3,759, Intangible Assets for exploration and evaluation of mineral resources ( ) Advances ( ct. 4094) TOTAL: (rows from 01 to 06) ,569,526 28,886,521 II. TANGIBLE ASSETS 1. Land and buildings (ct ) 08 1,372,926,735 1,462,153, Plant and machinery, motor vehicles (ct ) ,124, ,550, Other installations, machinery and furniture (ct ) 10 3,935,615 3,495, Real Estate investments (ct ) Tangible fixed assets in progress (ct ) 12 46,825,921 50,481, Real estate investments in progress (ct ) Tangible assets of exploration and evaluation of mineral resources (ct ) Biological assets (ct ) Advances ( ct. 4093) TOTAL: (rdows from 08 to 16) ,087,813,230 2,307,680,327 III. FINANCIAL ASSETS 1. Shares held in affiliated entities (ct ) Loans granted to affiliated entities (ct ) Shares held in affiliated entities and jointly controlled entities (ct ) Loans to affiliated entities and jointly controlled entities (ct ) Other financial assets (ct ) Other long term loans (ct. 2675* * * * * *) , ,784 TOTAL: (rd. 18 la 23) , ,031 FIXED ASSETS - TOTAL (rows ) ,117,556,837 2,336,868,879 B. CURRENT ASSETS I. INVENTORIES 1. Raw materials and consumables (ct / / ) ,164,139 25,229, Works and services in progress (ct /-348* ) Finished goods and commodities (ct /- 348* / / din ct. 4428)

3 BALANCE SHEET AT 31 DECEMBER 2017 (all amounts are expressed in RON, unless otherwise stated) Indicator name Row No. Note no. Balance at the beginning of the year Balance at the end of the year A B Advances (ct. 4091) TOTAL: (rows from 26 to 29) 30 7,164,139 25,229,850 II. RECEIVABLES 1. Commercial receivables (ct.2675*+2676*+2678*+2679*-2966*- 2968* ) 31 28,549,967 38,814, Amounts receivable from affiliated entities (ct.451**-495*) 32 97,427,547 86,711, Amounts receivable from affiliated entities and jointly controlled entities (ct *) Other receivables (ct **+437** ** **+444** **+447** ** ) 34 6,082,612 11,658, Subscribed and unpaid capital (ct *) TOTAL: (rows from 31 to 35) ,060, ,184,693 III. SHORT-TERM FINANCIAL INVESTMENTS 1. Shares held in affiliated entities (ct ) Other short-term investments (ct ) 38 7,939,085 - IV. TOTAL: (rows ) 39 7,939,085 - CAHS AND BANK ACCOUNTS (ct ) ,659,701 96,563,489 CURRENT ASSETS - TOTAL (rd ) ,823, ,978,032 C. EXPENSES IN ADVANCE (PREPAYMENTS) (ct. 471) 42 3,782, ,539 Amounts to be resumed within a period of up to one year (from ct. 471*) 43 3,782, ,539 Amounts to be resumed within a period of more than one year (from ct. 471*) LIABILITIES: AMOUNTS DUE WITHIN A PERIOD OF UP TO D. ONE YEAR 1. Loans from bond issues (ct ) Amounts owed to credit institutions (ct ) 46 19,198,976 28,104, Advance payments on the orders account (419) Commercial debt providers (ct ) 48 87,151, ,329, Bills of exchange payable ( ) Amounts owed to group entities (ct ***) 50 35,434,904 19,731, Amounts owed to associates and jointly controlled entities ( ***) Other liabilities, including tax and social security debts ( *** +437 *** *** *** *** *** *** *** *** ) 52 24,215,800 27,000,551 TOTAL: (rows from 45 to 52) ,001, ,167,191 E. NET CURRENT ASSETS / NET CURRENT LIABILITIES (rws ) 54 83,042,485 39,174,461 F. TOTAL ASSETS MINUS CURRENT LIABILITIES (rws ) 55 2,200,599,322 2,376,043,340 3

4 BALANCE SHEET AT 31 DECEMBER 2017 (all amounts are expressed in RON, unless otherwise stated) Indicator name Row No. Note no. Balance at the beginning of the year Balance at the end of the year A B 1 2 G. LIABILITIES: AMOUNTS DUE WITHIN A PERIOD OF MORE THAN ONE YEAR 1. Loans from the issue of bonds, showing separately the loans from the issue of convertible bonds (ct ) Amounts owed to credit institutions (ct ) 57 8,954,650 81,966, Advance payments from customers (ct. 419) Commercial debt-suppliers (ct ) 59 11,760, Bills of exchange payable (ct ) Amounts due to group entities (ct ***) 61-94,000, Amounts owed to associates and jointly controlled entities (ct ***) Other liabilities, including tax and social security debts (ct *** +437*** *** ***+444***+446***+447*** *** *** ) TOTAL: (rows from 56 to 63) ,715, ,966,872 H. PROVISIONS 1. Provisions for Employee Benefits (1515) 65 39,969,778 38,735, Provisions for taxes (cf. 1516) 66 39,048,705 39,048, Other provisions ( ) 67 1,292, ,936 TOTAL PROVISIONS: (rows ) ,310,514 78,559,266 I. DEFERRED INCOMES 1. Investment subsidies (ct.475) (rd ): 69 10,894,106 9,705,516 Amounts resumed within a period of up to one year (from ct. 475) , ,353 Amounts resumed within a period of more than one year (from ct. 475) 71 10,209,460 9,102, Deferred Income (ct.472) total (rws ), of which: 72 1,662, ,918 Amounts resumed within a period of up to one year (ct. 472*) 73 1,662, ,918 Amounts resumed within a period of more than one year (ct. 472*) Deferred income related to assets received from customers by transfer (ct. 478) (rw ) ,219, ,221,559 Amounts resumed within a period of up to one year (ct. 478*) 76 27,214,008 26,254,648 Amounts resumed within a period of more than one year (ct. 478*) ,005, ,966,911 Negative goodwill (ct. 2075) TOTAL: (rws ) ,776, ,889,993 J. CAPITAL AND RESERVES I. CAPITAL 1. Subscribed and paid-up capital (ct. 1012) ,364, ,364, Subscribed and unpaid capital (ct. 1011) State-owned equity plus assets (ct. 1015) National institutes of research and development patrimony (ct. 1018) Other equity items (ct. 1031) BALANCE C

5 BALANCE SHEET AT 31 DECEMBER 2017 (all amounts are expressed in RON, unless otherwise stated) Indicator name Row No. Note no. Balance at the beginning of the year Balance at the end of the year A B 1 2 TOTAL: (rws ) ,364, ,364,670 II. SHARE PREMIUMS (ct. 104) 86 III. REVALUATION RESERVES (ct. 105 ) ,671, ,424,161 IV. RESERVES 1. Legal reserves (ct. 1061) 88 59,097,413 61,361, Statutory or contractual reserves (ct. 1063) Other reserves (ct. 1068) ,475, ,240,459 TOTAL: (raws from 88 to 90) ,572, ,601,758 Own equities (ct. 109) 92 Gains related to equity instruments (ct.141) 93 Losses related to equity instruments (ct.149) 94 V. RETAINED EARNINGS BALANCE C ,088, ,937,098 (ct 117) BALANCE D 96 VI. PROFIT OR LOSS AT END OF THE REPORTING PERIOD BALANCE C ,686,814 40,384,327 (ct. 121) BALANCE D Distribution of profit (ct. 129) ,025,780 2,263,886 EQUITY - TOTAL (rows ) 100 1,595,358,779 1,610,448,128 Public patrimony (ct. 1016) Private patrimony (ct. 1017) TOTAL EQUITY(rows ) 103 1,595,358,779 1,610,448,128 The attached notes form an integral part of this balance sheet. CEO Branescu Valentin Financial Department Manager Somodi Radu Common Services Division Manager Marian Stegarita Head of Accounting Service, Margarit Liliana 5

6 PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR ENDED AT 31 DECEMBER 2017 (all amounts are expressed in RON unless otherwise specified) Indicator Name Row no. Note no. Previous financial year Ended financial yesr A B Net turnover (rw ) ,429, ,612,471 Sold production (ct ) ,338, ,435,419 Revenues from sales of goods (ct.707) ,096 1,177,052 Trade discounts granted (ct.709) Interest income recorded by the General register of removed entities that have ongoing leasing agreements (ct.766*) Income from subsidies related to net turnover (ct. 7411) Income related to production cost in progress (ct ) Balance C Balance D Incomes from the production of tangible and intangible assets (ct ) 09 1,748,277 2,922, Incomes from the revaluation of tangible assets (ct. 755) 10-2,922, Incomes from real estate investment production (ct. 725) Income from subsidies (ct ) Other operating revenues (ct ) ,222,438 25,677,384 - of which, incomes from negative goodwill (ct.7815) din care, venituri din subventii pentru investitii (ct. 7584) ,557,190 22,122,686 OPERATING INCOME - TOTAL (rws ) ,400, ,135, a) Expenses for raw materials and consumables (ct ) 17 4,743,584 5,731,764 Other material expenses (ct ) ,614, ,173,352 b) Other external charges (for water and energy) (ct. 605) 19 6,702,047 9,563,556 c) Expenses on goods (ct. 607) 20 23, ,294 Trade discounts received (ct.609) Staff expenses (rws ),of which ,172, ,998,230 a) Wages and salaries (ct ) ,077, ,609,361 b) Expenses on social security and welfare (ct. 645) 24 24,094,428 26,388, a) Value adjustments on tangible and intangible assets (rws ) ,026, ,985,299 a.1) Expenses (ct ) ,108, ,864,268 a.2) Income (ct. 7813) 27 81, , b) Value adjustments on current assets (rws ) 28 9,701,038 1,615,687 b.1) Expenses (ct ) 29 11,414,285 3,489,918 b.2) Income (ct ) 30 1,713,247 1,874, Other operating expenses (rows from 32 to 38) ,111, ,021, Expenses on external services (ct ) ,803, ,413,985 Other taxes, duties and assimilated payments, Expenses representing transfers and contributions due under special regulations (ct *) ,938,450 8,629,012 6

7 PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR ENDED AT 31 DECEMBER 2017 (all amounts are expressed in RON unless otherwise specified) Expenses on environmental protection (ct. 652) 34 15,454 59, Expenses from the revaluation of tangible assets (ct. 655) 35-1,826, Expenses related to calamities and other similar events (ct. 6587) Other expenses (ct ) ,354,078 3,092,936 Expenses on refinancing interests recorded by the General register of removed entities that have ongoing leasing agreements (ct *) 38 - Adjustments regarding the provisions (rw ) 39 8 (14,206,225) (1,751,248) -Expenses (ct. 6812) , ,599 -Incomes (ct. 7812) 41 14,788,256 1,861,847 OPERATING EXPENSES TOTAL (rows 17 to ) ,888, ,834,809 OPERATING PROFIT OR LOSS: - Profit (rws ) ,511,733 45,300,581 - Loss (rws ) Incomes from participation interests (ct ) of which, incomes received from affiliated entities Interest incomes (ct. 766*) 47 1,327, ,736 - of which, incomes received from affiliated entities Incomes from subsidies for the interest due (ct.7418) Other financial incomes (ct ) 50 3,175,297 1,616, of which, income from other financial assets (ct. 7615) 51 - FINANCIAL INCOME - TOTAL (rows ) 52 4,502,965 2,153,094 Value adjustments on financial assets and financial investments held as current assets (rws ) 53 - Expenses (ct. 686) Incomes (ct. 786) Expenses on interests (ct. 666*) ,271 - of which, expenses in relation to affiliated entities Other financial expenses (ct ) 58 2,499,099 2,011,692 FINANCIAL EXPENSES - TOTAL 2,175,963 (rows ) 59 2,499,099 FINANCIAL PROFIT OR LOSS: - Profit (rws ) 60 2,003, Pierdere (rd ) ,869 TOTAL INCOMES (rw ) ,903, ,288,484 TOTAL EXPENSES (rw ) ,387, ,010,772 GROSS PROFIT OR LOSS (A): - Profit (rws ) ,515,599 45,277,712 - Loss (rws ) INCOME TAX (ct. 691) ,828,785 4,893,385 7

8 PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR ENDED AT 31 DECEMBER 2017 (all amounts are expressed in RON unless otherwise specified) 19 Other taxes undisclosed for the above items (ct. 698) NET PROFIT OR LOSS DURING THE REPORTING PERIOD - - Profit (rws ) ,686,814 40,384,327 - Loss (rws ) (rws ) 69 - The attached notes form an integral part of this balance sheet. CEO Branescu Valentin Financial Department Manager Somodi Radu Common Services Division Manager Marian Stegarita Head of Accounting Service, Margarit Liliana 8

9 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED ON 31 DECEMBER 2017 Name of the cash flow element Cash flows from operating activities 120,515,599 45,277,712 Result before profit tax Adjustments for non-monetary items: Adjustment of tangible and intangible fixed assets, net 113,026, ,985,299 Adjustments for current assets, net 9,701,038 1,615,687 Provisions movement, net (14,206,226) (1,751,248) (Gain)/ Loss from sale of fixed assets, net (734,996) 724,865 Revenue from deferred income (21,557,190) (22,122,686) Impact of revaluation of fixed assets in the profit and loss account, net - (1,096,431) Net financial result (2,003,866) (22,870) Operating result before change of working capital 204,740, ,610,327 Changes of net working capital in: Inventories (2,581,294) (18,065,711) Receivables and other assets 35,281,048 (3,508,880) Suppliers and other debts (10,153,225) (10,200,418) Deferred income 35,310,029 28,424,792 Changes of working capital 57,856,558 (3,350,217) Paid interest - (164,271) Paid income tax (15,927,692) (8,453,504) Net cash flow from operating activities 246,669, ,642,335 Cash flow from investment activity Payments for purchases of tangible and intangible assets (136,731,151) (217,335,712) Payments for purchases of fixed assets from customer contributions (connection fee) (33,013,539) (28,688,953) Creation of deposits with a maturity of more than 3 months (191,808,257) - Receipts for deposits with a maturity of more than 3 months 271,355,172 7,939,085 Earned interests 1,667, ,540 Net cash flow used in the investment activity (88,530,006) (237,588,040) Cash flow from financial activity Debt repayments to banks related to ceased supplier loans (32,211,886) (32,389,399) Withdrawals from intercompany loans - 94,000,000 Withdrawals from short-term loans - 80,000,000 Paid dividends (122,253,641) (87,894,930) Net cash flow (used in) / derived from financial activity (154,465,527) 53,715,671 Net increase / (decrease) in cash and cash equivalents 3,674,286 (52,230,034) Cash and cash equivalents at the beginning of the year 123,985, ,659,701 Cash and cash equivalents at the end of the year 127,659,701 75,429,667 The attached notes form an integral part of this situation of equity changes. CEO Branescu Valentin Financial Department Manager Somodi Radu Common Services Division Manager Marian Stegarita Head of Accounting Service, Margarit Liliana 9

10 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED ON 31 DECEMBER 2017 In 2017, the statement of changes in equity is the following: Increases Reductions Balance at 31 Balance at 31 Element of equity december 2016 Total, of december 2017 Total, of which by transfer by transfer which Subscribed capital 354,364, ,364,670 Revaluation reserve 541,671,824 76,149,571-44,397,234 30,847, ,424,161 Legal reserve 59,097,413 2,263,886 2,263, ,361,299 Reserve from development fee 42,028, ,028,641 Other reserves 63,446,503 9,766,104 9,766, ,211,818 Reported profit 437,088, ,509, ,509,438 97,661,034 9,766, ,937,098 Result of the financial year - profit 103,686,814 40,384, ,686, ,686,814 40,384,327 Profit distribution (6,025,780) (2,263,886) (2,263,886) (6,025,780) (6,025,780) (2,263,886) Total capital and reserves 1,595,358, ,809, ,275, ,720, ,275,542 1,610,448,128 The main changes in equity during the financial year ended December 31, 2017 are as follows: - The 2016 remaining profit, after distribution of dividends and legal reserve, was transferred to "Other reserves", amounting to 9,766,104 RON; - Dividends distributed to shareholders in 2017 in the amount of 87,894,930 RON; - Transfer of revaluation reserve (as the assets are depreciated or decommisioned) value of 30,848,404 RON; - Net profit of 2017 in the amount of 40,384,327 RON; - Set up of legal reserve amounting to 2,263,886 RON. CEO Branescu Valentin Financial Department Manager Somodi Radu Common Services Division Manager Marian Stegarita Head of Accounting Service, Margarit Liliana 10

11 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED ON 31 DECEMBER 2017 In 2016, the statement of changes in equity is the following: Element of equity Balance at 31 december 2015 Increases Reductions Balance at 31 december 2016 Total, of Total, of which by transfer by transfer which Subscribed capital 354,364, ,364,670 Revaluation reserve 576,449, ,777,636 34,777, ,671,824 Legal reserve 53,071,633 6,025,780 6,025, ,097,413 Reserve from development fee 42,028, ,028,641 Other reserves 41,872,337 21,574,166 21,574, ,446,503 Reported profit 402,311, ,605, ,605, ,827,813 21,574, ,088,694 Result of the financial year - profit 153,159, ,686, ,159, ,159, ,686,814 Profit distribution (9,331,816) (6,025,780) (6,025,780) (9,331,816) (9,331,816) (6,025,780) Total capital and reserves 1,613,925, ,866, ,179, ,433, ,179,614 1,595,358,779 The main changes in equity during the financial year ended December 31, 2016 are as follows: - The 2015 remaining profit, after distribution of dividends and legal reserve, was transferred to "Other reserves", amounting to 21,574,172 RON; - Dividends distributed to shareholders in 2016 in the amount of 122,253,641 RON; - Transfer of revaluation reserve (as the assets are depreciated or decommisioned) value of 34,772,636 RON; - Net profit of 2016 in the amount of 103,686,814 RON; - Set up of legal reserve amounting to 6,025,780 RON. CEO Branescu Valentin Financial Department Manager Somodi Radu Common Services Division Manager Marian Stegarita Head of Accounting Service, Margarit Liliana 11

12 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER INFORMATION ABOUT THE COMPANY i) Company presentation Societatea de Distributie a Energiei Electrice Muntenia Nord (SDEE Muntenia Nord or "The Company") was established on March based on GD no. 1342/2001, through the reorganization of Societatea Energetica Electrica S.A. ( Parent company or Electrica S.A. ). On 31 December 2016, the Company was held by: Societatea Energetica Electrica SA - 78% and Proprietatea Fund - 22% (under Law no. 247/2005 and GEO 81/2007). In 2017, the Company shareholders approved the transfer of 7,796,012 shares belonging to the Proprietatea Fund to Societatea Energetica Electrica SA, with the remaining 10 shares belonging to the Proprietatea Fund being transferred to Societatea de Distributie a Energiei Electrice Transilvania Sud SA. Thus, on December , the Company is held by: 35,436,457 shares, representing %, are owned by Societatea Energetica Electrica SA and 10 shares, representing %, belong to Societatea de Distributie a Energiei Electrice Transilvania Sud SA. Moreover, in 2017, there was approved the acquisition of 10 shares belonging to the Proprietatea Fund by Societatea de Distributie a Energiei Electrice Transilvania Nord SA, representing % of the share capital of Societatea de Distributie a Energiei Electrice Transilvania Nord SA. The Company's main object of activity is electricity distribution, transit of electricity through its own networks, dispatching of electricity through a distribution operator, modernization and upgrading of the existing power plants, increase of the level of automation, as well as carrying out research-design projects in its field of activity, according to the Distribution License no. 455 of April , updated through the Decision of the National Energy Regulatory Authority no. 549 of April SDEE Muntenia Nord is headquartered in Ploiesti Municipality, str. Marasesti nr. 44, judetul Prahova, and is registered with the Trade Register attached to the Prahova Court under no. J 29/269/2002 and CIF-RO (TIN) It is a two-tier company, having the following componence and responsibilities: the Executive and the electricity distribution branches (SDEE). Activity transfer agreement On October , after all the necessary approvals at corporate level were given, there were signed the business transfer agreements between each of the electricity distribution branches and Societatea Filiala de Intretinere si Servicii Energetice Electrica Serv SA, part of the Electrica Group. Societatea de Distributie a Energiei Muntenia Nord S.A. made the transfer/internalization of some of the activities of Electrica Serv S.A. (belonging to the SISE Muntenia Nord branch), the transfer being approved by means of the Resolution of the General Shareholders Assembly no.8/ In 2017, after the internalization of the maintenance activity taken over from FISE Electrica Serv, the Company took over the following assets: - inventories of 10,474,250 RON; - tangible and intangible assets worth 1,494,261 RON; - goodwill of 3,823,000 RON. The Company's regional electricity distribution branches are the following: a) Sucursala de Distributie a Energiei Electrice Ploiesti b) Sucursala de Distributie a Energiei Electrice Galati c) Sucursala de Distributie a Energiei Electrice Braila d) Sucursala de Distributie a Energiei Electrice Buzau e) Sucursala de Distributie a Energiei Electrice Targoviste f) Sucursala de Distributie a Energiei Electrice Focsani. ii) The regulatory environment The activity in the energy sector is regulated by the National Energy Regulatory Authority ( ANRE ). 12

13 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2017 Some of ANRE's main attributions are to approve pricing and tariffs and to issue calculation methodologies used to establish regulated prices and tariffs. Electricity distribution The electricity distribution activity is a monopoly type of activity. Determination of distribution tariffs is regulated by the allowed revenue methodology. The Tariff methodology for the electricity distribution service, approved by ANRE Order no.72/2013, with the subsequent modifications and amendments, regulates the calculation method for the distribution tariffs. The distribution tariffs are set depending on three voltage levels (high, medium and low). The allowed revenue methodology used in establishing the distribution tariffs helps reducing revenue fluctuation and avoiding significant fluctuations in consumer prices. ANRE determines the need for annual revenues for a regulatory period by using the financial data provided by the distribution operators. The annual revenue level is established taking into account the controllable operating and maintenance costs resulted after the application of the annual efficiency factor imposed by ANRE, non-controllable, with the acquisition of electricity to cover its network losses, the depreciation of the regulated asset base (RAB), the rentability rate for the regulated asset base (RBAR) and the revenues from the application of the reactive energy regulated tariff. (Article 23, ANRE Order no. 72/2013). In 2014, a new regulatory period started, based on the provisions of ANRE Order no. 72/2013 on the approval of the Tariff Methodology for the electricity distribution service (Regulatory Period III: ). In 2014, the ANRE Order no. 72/2013 was amended by means of the Order ANRE no. 112/2014, which led to the approval of the Order no. 146/2014, by which the regulatory rentability rate BAR for the third regulatory period, , was changed from 8.52% to 7.7%, starting in In 2015, the ANRE Order no. 72/2013 was amended through the ANRE Order no. 165/2015, which change led to the limitation of the variation of tariffs set at 7% from one year to the next will only apply to increase them and not to decrease them, as the case in The regulated electricity distribution tariffs applied by the Company are as follows: Order no. 116/ Order no. 112/ Order no. 172/ January 1-December January 1-December January 1-31 December 2016 High voltage Medium voltage Low voltage High voltage Medium voltage Low voltage High voltage Medium voltage Low voltage 14,79 31,54 109,38 14,79 33,67 109,35 15,93 36,67 118,78 Regulated Asset Base (RAB) According to the ANRE Order no. 72/2013, the determination of the distribution tariffs is based, among other things, on the regulated asset base. The regulated asset base in the beginning of the first regulatory period (January ) (initial RAB) included the net value of the tangible and intangible assets recognized by ANRE and used only for the regulated electricity distribution. The RAB subsequently calculated includes, in addition to the initial RAB, as net value, also the net value of tangible and intangible assets that were acquired later through investments approved by ANRE. RAB does not include fixed assets financed through donations, the received development fee or other non-reimbursable funds, including the connection fee received from the new users of the electricity distribution network. Concession of the electricity distribution service The company (as a concessionaire) concluded in 2005 concession agreements with the Ministry of Energy (as concession provider), updated in 2015 by addenda, the concession agreement object being the concession of the electricity distribution service in the given territory (North Muntenia region), at the risk and responsibility of the concessionaires and by observing the technical regulations applicable to the operation, modernization, rehabilitation and development of the electricity distribution networks, according to the Energy Law, the terms and conditions of the electricity distribution license and according to the regulations issued by ANRE. The concession agreement is concluded for a 49-year period, with the possibility of an extension for a period equal to half of this period at the 13

14 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2017 most. As a price for the concession, the Company pays an annual fee recognized in the distribution tariff of 1/1000 of the revenues from the electricity distribution. In order to provide the electricity distribution service, the Company uses the assets representing the electricity distribution network that it owns, located in the abovementioned territory. According to the concession agreement, the concessionaire will buy at the end of the concession agreement the ownership right for the "relevant goods," respectively for the electricity distribution networks, at a price equal to the regulatory asset base, as established with the regulator. 2. ACCOUNTING PRINCIPLES, POLITICS AND METHODS 2.1 Basics in making the financial statements These are the financial statements of the Company for the financial exercises concluded on December , made according to: Accounting Law no. 82/1991 (republished 2008), with the subsequent modifications Provisions of the Order of the Minister of Public Finances no. 1802/2014 on approval of the Accounting Regulations regarding the annual individual financial statements and the consolidated annual financial statements, with the subsequent modifications ( OMFP 1802/2014 ). The accounting policies adopted for the making and presentation of the financial statements comply with the accounting principles provided by OMFP no. 1802/2014. These financial statements include: - Balance-sheet - Statement of profit or loss - Statement of cash flows - Statement of changes in equity - Explanatory notes to the financial statements. The financial statements only refer to SDEE Muntenia Nord SA. The Company has no subsidiaries that would require consolidation. Accounting records based on which the financial statements were based were made in RON (RON). These financial statements are not intended to present the financial status, results of operations, cash flows and a full set of notes to the financial statements in compliance with the accounting regulations and principles accepted by countries and jurisdictions other than Romania. Therefore, the financial statements were not prepared for the use of persons who are not familiar with the accounting and legal regulations in Romania, including OMFP no. 1802/ Significant accounting principles The financial statements for the financial exercise concluded on December were made in compliance with the following accounting principles: Uninterrupted activity principles The Company will continue to function normally, without entering liquidation or significantly reducing activity. The principle of permanent methods The Company consistently applies the accounting politics and the evaluation methods from a financial exercise to another. Prudence principle In making the annual financial statement, the recognition and evaluation was made on a prudent basis and, especially: a) the profit and loss statement only include the profit achieved at the balance sheet date; 14

15 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2017 b) the debts that appeared during the current financial exercise or the previous one, were recognized, even if they only become obvious between the balance sheet date and the date of its drafting; c) depreciations were recognized, regardless whether the result of the financial exercise was loss or profit. The accounting accrual principle The effects of the transactions and other events have been recognized when the transactions and events actually occurred (and not as the cash or its equivalent has been received or paid) and have been accounted for and reported in the financial statements of the corresponding periods. All revenues and expenses of the respective exercise have been taken into account, regardless of the date when the payment was made or received. Revenues and expenses that resulted directly and simultaneously from the same transaction were recognized simultaneously in accounting, by the direct association between expenses and related revenues, with a distinct indication of such revenues and expenses. The intangibility principle The opening balance sheet of the financial exercise corresponds to the balance sheet closing the previous financial exercise. The principle of separate evaluation of active and passive elements In order to establish the corresponding value for a position in the balance sheet it was separately determined the value of each component of the active elements and debts. The principle of non-compensation The values of the elements representing assets were not compensated for with the values of the elements representing debts, revenues and expenses, respectively. Accounting and presentation of the elements of the financial statements considering the economic nature of the transaction or engagement in question Bookkeeping and presentation of the financial-economic operations reflect their economic reality, by highlighting the rights and obligations, as well as the risks associated with these operations. The principle of evaluation based on acquisition of production cost The elements presented in the financial statements were assessed based on the principle of acquisition or production costs less tangible asset, which are evaluated based on the revaluation method. The principle of materiality threshold The Company may deviate from the requirements included in the applicable accounting regulations referring to the presentations of information and publication, when the effects of their observance are insignificant. 2.3 Reporting currency The accounting records are kept in Romanian language and in the national currency ( RON ). The accounting records of the operations carried out in foreign currency are kept both in national currency and in foreign currency. The elements included in these statements are presented in Romanian lei. 2.4 Using of the accounting estimates The preparation of the financial statements according to the OMFP no. 1802/2014, with the subsequent modifications, requires the management to make estimates and assumptions that influence the reported values of assets and liabilities and the presentation of contingent assets and liabilities, at the date of the financial statements, as well as the values of the revenues and expenses during the reporting period. The actual results may differ from the estimated ones. These estimates are periodically revised and, if adjustments are required, they will be recorded in the profit and loss statement, when they become available. 15

16 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER Continuity of the activity The financial statements herein have been made based on the principle of continuity of activity, which implies that the Company will continue its activity in the foreseeable future. In order to assess the applicability of this assumption, the Company management analyzes the cash inflows forecasts. Based on this analysis, the management believes that the Company will be able to continue its business in the foreseeable future, and therefore the application of the continuity principle in the preparation of the financial statements is justified. 2.6 Foreign exchanges Transactions in foreign currency are initially recorded at the exchange rate communicated by the National Bank of Romania as of the transaction date. At the balance sheet date, the monetary items denominated in foreign currency and the debts, and also the debts denominated in RON, which are settled depending on a certain exchange rate, are being evaluated and presented in the annual financial statements at the exchange rate communicated by the National Bank of Romania, valid at the date of the closing of the financial exercise. The gains and losses caused by the foreign exchange differences, realized and non-realized, between the exchange rate of the foreign exchange market communicated by the National Bank of Romania as of the date when the receivables and liabilities in either foreign or national currency are recorded, the settlement of which depends on a certain exchange rate, or between the exchange rate from the date when they are recorded in the accounting records and the exchange rate at the end of the financial exercises, shall be recorded in the profit and loss statement for the respective financial exercise. Non-monetary items purchased in foreign currency and recorded at historical cost (fixed assets, stocks) are presented in the annual financial statements using the exchange rate from the date of the transaction. Non-monetary items purchased in foreign currency and recorded at fair value (for example, revalued tangible assets) are presented in the annual financial statements at that value. Monetary assets and liabilities denominated in foreign currency are revalued in RON at the end of each month and the exchange rate differences are recorded in the loss and profit statement. Exchange rates RON/EUR communicated by the National Bank of Romania on December and 31 December 2016 were as follows: Currency 31 December 2016 December Leu/USD Leu/EUR Significant accounting policies a) Intangible assets The intangible assets acquired by the Company are stated at cost, less the accrued amortization and impairments (see accounting policy g)). Amortization is recognized in the profit or loss statement based on the straight line method for the estimated intangible asset lifetime. Most intangible assets recorded by the Company are represented by special software programmes. These are amortized using the straight line method for a period of 3-5 years. b) Tangible assets i. Cost/Evaluation Tangible assets are initially recognized as cost, and periodically measured at fair value. The cost of tangible assets includes the acquisition rice and other direct expenses related to the acquisition and commissioning of the tangible assets. 16

17 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2017 Significant spare parts (meters) and the security equipment are considered to be tangible assets when they are expected to be used over a period of time longer than one year. After initial recognition, tangible assets are recorded as cost, less the accrued depreciation and impairment adjustments (see accounting policy g) and are periodically revalued. Items from a group of tangible assets are revalued simultaneously in order to avoid selective revaluation and reporting in the annual financial statements of such values which represent a combination of costs and values calculated on different dates. If a fixed asset is revalued, all the other assets in the group to which it belongs must be revalued. Revaluations are performed regularly enough, so that their accounting value shall not differ materially from that which would have been determined by using the fair value at the balance sheet date. Upon the revaluation of a tangible asset, the accrued amortization at the revaluation date is being removed from the gross accounting value of the asset, and the net value determined as a result of the value adjustments is recalculated to the revalued value of the asset. ii. Subsequent expenses Subsequent expenditures incurred in connection with a tangible asset are expenses belonging to the period in which they were made or increases in the value of the respective tangible asset, depending on the economic benefits of such expenses, according to the general recognition criteria. In the case of replacement of a component of a long-term asset, the Company recognizes the cost of partial replacement, with the accounting value of the replaced part being removed from the records, plus the related amortization, provided that the required information is available and the recognition criteria for the tangible assets are met. The cost of periodical inspections or revisions performed by the entity for identifying failures are recognized at the time of each general inspection as expense, or in the accounting value of the elements of the tangible asset as a replacement, if the following criteria are cumulatively met: - Inspections or general revision are mandatory for maintaining and operating the equipment and tools at normal parameters - The cost of general inspections or revisions exceeds the materiality threshold established by the entity's accounting policies. If the cost of the inspection is recognized as a component of the asset, the component value is amortized over the period between the two planned inspections. The cost of current revisions and inspections, other than the recognized ones, as a component of the asset, represents expense of the respective period. iii. Depreciation Depreciation is calculated for the purpose of decreasing the gross value, less the residual value, by using the straight line method of amortization during the tangible assets; and their components, which are separately accounted for, lifetime The Company calculates the accounting amortization based on the remaining economic lifetimes set by the Valuer in the Valuation Report or based on the periods established by the Company's technical departments. Fiscal amortization is calculated based on the tax periods from the Catalogue on the classification of tangible assets, under the GD no. 2139/2004. The economic and tax amortization periods (in years) used for the Company's tangible assets are as follows: Category Economic period (as average) Tax period Buildings Administrative and industrial Special installations 17

18 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2017 Electricity distribution lines Overhead power lines on wooden poles 15 9 Overhead power lines on concrete poles Underground Other cables 12 9 Transformers Meters 15 8 Measurement and control devices 15 8 Transportation means 8 4 Office supplies 6 4 Other 5 3 Land and fixed assets are not depreciated. Ongoing investments are depreciated starting with the moment of their commissioning. c) Inventories Inventories are represented by consumables and other materials. These are recorded as inventories at the time of their acquisition and recorded as expenses at the time of their consumption. The cost of inventories includes all acquisition costs and other costs incurred in bringing the inventories to the current location and state. The cost of inventories is based on the weighted average cost method. Depending on the case, there can be adjustments recorded for depreciation for excess, old or wasted stocks. d) Commercial receivables and other receivables Receivables and other receivables accounts mainly include the invoices issued until December 31 for electricity distribution, including the estimated debts related to the electricity distributed by the end of the year, but invoiced in the period after the end of the year. Client accounts and assimilated accounts are recorded at the nominal value, less the recoverable value estimated by recording an adjustment for the impairments. In general, value adjustments are recorded for old receivables and late payment penalties. e) Short term investments Short term investments include short-term deposits with a maturity between 3 months and 1 year. f) Cash and cash equivalents Cash consist of cash, bank accounts, term deposits of up to three months, if they are held in order to cover for the need for cash on short-term, cheques and commercial effects deposited with the banks. Overdrafts are included in the balance sheet as amounts owed to credit institutions to be paid within one year. Regarding the cash flow statement, cash and cash equivalents include cash in hand, current accounts held at banks, short term financial investments for less than three months, net of overdraft. g) Impairment The accounting value of the Company's assets, other than inventories, is being analyzed at each balance sheet date, in order to determine possible impairment adjustments. If such a decrease is probable, the recoverable amount of the asset in question is estimated. Depending on the case, an adjustment for impairment is recognized in the profit and loss account or in equity, when the accounting value of the asset is higher than its recoverable value. The adjustment for impairment may be resumed if there has been a change in the conditions existing at the time the recoverable value is determined. The reversal of an impairment adjustment may be made only in such a way that the 18

19 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2017 net asset value does not exceed its historical net book value, taking into account the amortization. h) Share capital The Company recognizes the changes operated in its share capital only after their approval by the General Shareholders Assembly and registration with the Trade Register. i) Dividends Dividends are recognized as debt in the period during which their distribution is being approved. j) Revaluation reserves Revaluations are performed with sufficient regularity at the balance sheet date, so that the accounting value does not differ materially from that which would be determined by using the fair value. The difference between the value resulting from the revaluation and the net book value is presented in the reserve from the revaluation as a separate sub-item in "Capital and reserves". If the result of a revaluation is an increase from the net book value, then it is treated as follows: - as an increase in the revaluation reserve presented under the item "Capital and reserves", unless there has been a prior decrease recognized as an expense related to that asset, or - as an income to offset the expense with the previously recognized impairment for that asset. If the result of a revaluation is a decrease in net book value, it is treated as follows: - as an expense with the full value of the impairment, when no value related to the respective asset is recorded in the revaluation reserve; or - as a decrease in the revaluation reserve with the minimum of the value of that reserve and the value of the decrease, and any remaining uncovered difference is recorded as an expense. The revaluation surplus included in the revaluation reserve is capitalized by direct transfer to the retained earnings (account 1175 "Reversed earnings for revaluation surplus"), when that surplus represents a gain. The gain is to be considered as achieved, as the asset is used by the entity; the amount of the transferred reserve is the difference between the amortization calculated on the basis of the revalued carrying amount and the amortization value calculated based on the initial cost of the asset. Under the tax legislation in force, the revaluation reserve is taxed at the time of its change of destination. Starting on May , as a result of changes in the tax legislation, the revaluation reserves recorded after January become taxable as amortization of tangible fixed assets. k) Legal reserves Legal reserves represent 5% of the gross profit at the end of the year, until the total legal reserves reach 20% of the paid up share capital, according with the legal provisions. These reserves are deductible in the calculation the corporate income tax and are not distributable. l) Prepaid revenues Prepaid revenues include the connection fee, development fee, donations and inventory pluses. They are reconsidered in the income when recognizing related costs (depreciation of the related tangible assets). Connection fee The value of the new connections to the electricity grid is invoiced to consumers based on a connection fee (according to ANRE Order No. 59/2013). New connections to the power grid are the property of the Company. Receipts from the connection fee are recorded as deferred income and are being recognized as the income as the related tangible assets are depreciated. 19

20 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2017 m) Subsidies Government subsidies, including non-monetary subsidies at fair value, should not be recognized until there is sufficient certainty that: 1) the entity will comply with the criteria imposed for their award; and 2) subsidies will be received. Getting a subsidy in itself does not provide conclusive evidence that all the criteria attached to the subsidy have been or will be met. The accounting of the projects financed by subsidies differs depending on the project, the financing source, the concluded agreements, without drawing up separate annual financial statements for each such project. In order to ensure the correlation of the expenditures financed from subsidies with the related income, proceed as follows: 1) from the profit and loss account point of view: - during each month the expenses are highlighted by their nature; - at the end of the month, the subsidies corresponding to the expenses incurred are highlighted as income. 2) from the balance sheet point of view: - the subsidy receivable is recognized in correspondence with the subsidy income, if the expenses paid from these subsidies have been incurred, or the deferred income, if these expenses have not yet been incurred; - on a regular basis, once with the request for reimbursement of the expenses incurred or based on other documents establishing and approving the corresponding amounts, the amounts registered as receivables from the subsidies shall be regularized. n) Loans Long-term banking loans are recognized as cost. o) Debts related to leasing agreements Leases in which the Company substantially assumes the risks and rewards of ownership are classified as financial leases. Other agreements are classified as operating leases. The liability to the Leasing Company is included in the balance sheet as a lease liability. Financing costs are recorded in the loss and profit statement for the lease period at a constant interest rate. Payments made under the operating leases are recorded in the profit and loss statement for the period of the lease. The reductions in the lease premiums are recognized in the loss and profit statement as a reduction in expenses. p) Suppliers and other debts Debts to suppliers are recorded as cost and include invoices for deliveries, contracted works and services. q) Provisions Provisions are recognized in the balance sheet when a legal or implicit obligation is incurred for the Company for a past event and it is probable that in the future it will be necessary to use economic resources, in order to extinguish such obligation. Provisions are revised at each year-end and adjusted to reflect the most appropriate current estimate. A provision is recognized when: - an entity has a current obligation generated by a previous event; - it is likely that an outflow of resources will be needed to honor that obligation; and - a credible estimate of the value of the obligation can be made. Tax provisions The Company makes a provision for the tax related to the revaluation tax deducted up to the balance sheet date. According to the tax legislation in force, the deducted reserves are taxed at the time of the change of the destination 20