5.6 Development and design of the power system 77 5.7 Other services under the Contract with SODO 79 5.8 Market services 79 5.9 Financial performance criteria of the Group 81 5.9.1 Significant indicators 81 5.9.2 Structure of assets and liabilities 83 5.9.3 Structure of revenue and expenditure 84 5.9.4 Cash flow statement 86 6 SUSTAINABLE DEVELOPMENT 87 6.1 Care for employees 87 6.1.1 Demographic structure in the Group 87 6.1.2 Employment 88 6.1.3 Education and educational structure of employees 89 6.1.4 Employee motivation and remuneration 90 6.1.5 Organizational culture and employee commitment 90 6.1.6 Absence of employees 91 6.1.7 Relations between employees and management of individual companies 91 6.1.8 Communication with employees 91 6.1.9 Health and safety at work 92 6.2 Concern for the natural environment 92 6.3 Care for the public interest – social responsibility 93 7 EVENTS AFTER THE BALANCE SHEET DATE 95 FINANCIAL REPORT 97 8 MANAGEMENT RESPONSIBILITY STATEMENT 99 9 AUDITOR'S REPORT 100 10 FINANCIAL STATEMENTS OF ELEKTRO GORENJSKA GROUP FOR BUSINESS YEAR ENDED AS AT 31. 12. 2019 102 10.1 Statement of financial position of Elektro Gorenjska Group as at 31. 12. 2019 102 10.2 Profit or loss account of Elektro Gorenjska Group for business year ended as at 31. 12. 2019 104 10.3 Statement of other comprehensive income of Elektro Gorenjska Group for business year ended as at 31. 12. 2019 105 10.4 Cash flow statement of Elektro Gorenjska Group for business year ended as at 31. 12. 2019 106 10.5 Statement of changes in equity of Elektro Gorenjska Group for the business year ended as at 31. 12. 2019 107 11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT 109 11.1 Reporting company and Group structure 109 11.2 Basis for compiling the consolidated financial statements 109 11.2.1 Statement of compliance 109 11.2.2 Basis for measurement 109 11.2.3 Functional and presentation currency 109 11.2.4 Use of significant estimates and judgements 110 11.2.5 New accounting standards and interpretations not yet in force 111 11.3 Summary of significant accounting policies 114 11.3.1 Basis for consolidation 114 11.3.2 Intangible assets 114 11.3.3 Tangible fixed assets 115 11.3.4 Investment property 117 11.3.5 Assets received and leased 117 11.3.6 Financial instruments 118 11.3.7 Stocks 120 11.3.8 Other assets 120 11.3.9 Capital 120 11.3.10 Provisions 120 11.3.11 Assets acquired free of charge 121 11.3.12 Other liabilities 121 11.3.13 Deferred tax liabilities and tax receivables and income tax 121 11.3.14 Revenues 122 11.3.15 Expenditure 122 11.3.16 Consolidated cash flow statement 122 11.3.17 Earnings per share 123 11.4 Determination of fair value 123 11.5 Business combinations 124 12 NOTES TO THE STATEMENT OF FINANCIAL POSITION 126 12.1 Intangible assets 126 12.2 Tangible fixed assets 127 12.3 Investment property 130 12.4 Long-term financial investments 132 12.5 Assets (disposal groups) for sale 135 12.6 Stocks 135 12.7 Short-term financial investments 135 12.8 Short-term operating receivables 135 12.9 Other current assets 137 12.10 Cash and cash equivalents 137 12.11 Capital 137 12.12 Provisions 139 12.13 Long-term financial liabilities 142 12.14 Other long-term liabilities 144 12.15 Deferred tax liability 146 12.16 Short-term financial liabilities 146 12.17 Short-term operating liabilities 146 12.18 Other short-term liabilities 147 12.19 Off-balance sheet records 147 13 NOTES ON PROFIT AND LOSS ACCOUNT ITEMS 148 13.1 Net sales revenues 148 13.2 Capitalized own products and own services 148 13.3 Other operating revenues 149 13.4 Acquisition cost of goods sold and cost of material used 149 13.5 Costs of services 150 13.6 Labour costs 151 13.7 Write-offs 151 13.8 Other operating expenses 152 13.9 Financial expenses from financial liabilities 152 13.10 Recognized profit or loss for investments valued using the equity method 152 13.11 Income tax 153 13.12 Deferred tax liabilities and deferred taxes 153 14 NOTES ON OTHER COMPREHENSIVE INCOME ITEMS 154 15 NOTES ON CASH FLOW ITEMS 155 16 FAIR VALUES 156 17 CAPITAL MANAGEMENT 158 18 TRANSACTIONS WITH AFFILIATES 159 18.1 Transactions with Group companies 159 18.2 Transactions with the Republic of Slovenia 159 18.3 Transactions with companies directly or indirectly owned by the Republic of Slovenia 160 18.4 Transactions with Management and Supervisory Board 161 19 AUDITING COSTS 163 20 FINANCIAL RISKS 164 21 EVENTS AFTER THE BALANCE SHEET DATE 169 3 9 13 6 1 18 2 1 11 1 18 2 1 20 8 5 9 16 6 3 1 7 4 20 12 1 11 16 1 1 12 1 10 5 4 10 13 POSLOVNO POROCILO POSLOVNO POROCILO POSLOVNO POROCILO POSLOVNO POROCILO POSLOVNO POROCILO POSLOVNO POROCILO POSLOVNO POROCILO 149 19 63 109 103 101 127 99 159 165 157 55 95 31 21 87 18 160 20 164 156 148 102 62 54 110 126 100 88 30 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 Consolidated Annual Report - Elektro Gorenjska Group 2019 5,100 kilometres of grids and helps providing reliable and quality supply of electricity to more than 90,500 customers. 4.3.1 Significant business risks ›› Methodology of the Energy Agency and other regulations in the field of electricity distribution Revenues referring to infrastructure lease and payments for services rendered are determined by the Agency through Act determining the methodology for charging for the network charge and the criteria for establishing eligible costs for electricity networks. In accordance with the Act there is a risk of lower income due to: failure to achieve the required cost-effectiveness or changes in legislation or regulations. Company is constantly concerned with the cost-effectiveness of its operations and is actively involved in the preparation of legal acts and decrees. ›› Operation of own information system Due to inadequate operation of its own information system or connections with a single entry point at Informatika, d. d. there may be a failure to fulfil the provisions of legislation and contractual obligations according to the Contract with SODO and inadequate commercial quality. Company manages the operation of its own information system by implementing an information security policy and implementing the activities of the business continuity plan. ›› Risk of information security Activities of Elektro Gorenjska Company may result in the loss or unauthorized disclosure of business and personal data. Risk is managed by implementing legal requirements, training of employees and implementing of information security policy. ›› Modification of the contract with SODO Contract with SODO contains increasing number of provisions that are disadvantageous for Elektro Gorenjska. In the future the following might occur: transfer of ownership of EG assets to SODO, transfer of task implementation to SODO, transfer of cash flow to SODO. All of the above reduces the autonomy of EG operation. Company manages the risk through an active dialogue with the stakeholders of the contract with SODO. ›› Defects and averages Due to weather conditions, faults on devices or unintentional interventions by third parties, defects and averages of different size may occur. Risk is managed primarily through proper network construction and maintenance, as well as fire and machine breakage insurance. ›› Implementation of investments in the network and influence on the quality of supply To achieve adequate voltage quality it is essential to carry out the necessary investments or follow the long-term Development plan. Risk is managed by appropriate project and financial planning of the implementation of investments, active cooperation with stakeholders and implementation of procurement procedures. ›› Adverse outcome of denationalization processes Denationalization procedures for MHE Sava and MHE Jelendol cause additional costs related to extended court procedures and payment of eventual damages. Company is at the stage of problem solving, which can have a significant financial impact in the event of return of objects in kind and payment of compensation to new owners. ›› Lack of adequate staff or personnel risk Risk includes the loss of key personnel, the lack of skilled personnel and the provision of competent personnel. Company manages the risk by carefully recruiting new staff, scholarships, educating employees and developing an organizational culture. ›› Risk of influence on environment Company can have an indirect or direct impact on the environment through its operation. To this end, environmental aspects are identified, over which watches the environment management council. Risks are managed by monitoring and compliance with environmental legislation, meeting the requirements of the ISO 14001:2015 environmental management standard, training and regular performance audits. ›› Attacks on infrastructure, terrorism Risk represents the possibility of intrusions in the ICT, IT and DCV systems, destruction or damage to individual facilities and theft of parts of the infrastructure. We manage this risk by implementing an information security policy and by physically protecting parts of the infrastructure. Connecting Gorenjska with electricity. Elektro Gorenjska Group Consolidated Annual Report 2019 Published by: Elektro Gorenjska, d. d. Text: Elektro Gorenjska, d. d. Design: Barbara Kocjancic s. p. July 2020 TABLE OF CONTENTS - BUSINESS REPORT Table of contents BUSINESS REPORT 15 1 OVERVIEW OF SIGNIFICANT EVENTS IN ELEKTRO GORENJSKA GROUP IN YEAR 2019 17 2 MANAGEMENT REPORT OF THE PARENT COMPANY 20 2.1 Corporate governance statement 23 2.2 Supervisory board report 24 3 PRESENTATION OF ELEKTRO GORENJSKA GROUP 30 3.1 Structure Of Elektro Gorenjska Group and associated companies 30 3.1.1 Elektro Gorenjska Company identity card 31 3.1.2 Gorenjske elektrarne Company identity card 32 3.1.3 GEK Vzdrževanje Company identity card 33 3.1.4 GE LES Company identity card 34 3.1.5 ECE Company identity card 35 3.1.6 Soenergetika Company identity card 36 3.2 Other related companies or related legal entities 37 3.3 Main activities and fields of business 37 3.4 Main area of operation 38 3.5 Main technical data 39 3.6 Management and governance of companies in Elektro Gorenjska Group 40 3.6.1 Management and governance of Elektro Gorenjska Company 40 3.6.2 Management and governance of Gorenjske elektrarne Company 44 3.6.3 Management and governance of GEK Vzdrževanje Company 44 3.7 Share capital and ownership structure 45 3.7.1 Share capital and ownership structure of Elektro Gorenjska Company 45 3.7.2 Share capital and ownership structure of Gorenjske elektrarne Company 46 3.7.3 Share capital and ownership structure of GEK Vzdrževanje Company 46 3.7.4 Share capital and ownership structure of GE LES Company 46 3.8 Vision, mission and values of the Group 47 3.9 Key strategic guidelines of the Group 48 3.10 Analysis of the environment and its impact on the operations of the Group 48 3.10.1 General economic environment and economic trend forecasts 48 3.10.2 Presentation of the industry 49 3.10.3 Network charge and price of electricity 51 3.10.4 Energy legal environment of group's operation in year 2019 52 3.10.5 Contract with SODO 52 3.10.6 Production of electricity 53 4 MANAGEMENT AND QUALITY SYSTEMS 54 4.1 Integrated quality management system (iSVK) of Elektro Gorenjska Company 54 4.2 Integrated quality management system of Gorenjske elektrarne Company 56 4.3 Risk management in Elektro Gorenjska Company 57 4.3.1 Significant business risks 58 4.3.2 Significant financial risks 59 4.3.3 Significant operating risks 59 4.3.4 Internal Audit 59 4.4 Risk management in Gorenjske elektrarne Company 60 5 BUSINESS ANALYSIS OF THE GROUP 62 5.1 Production of electricity 62 5.2 Quantities of distributed electricity 65 5.3 Quality of electricity supply 66 5.4 Investments 74 5.5 Maintenance of energy facilities 76 5 TABLE OF CONTENTS - BUSINESS REPORT 6 TABLE OF CONTENTS - FINANCIAL REPORT 7 TABLE OF CONTENTS - FINANCIAL REPORT 8 INDEX OF FIGURES Index of figures Figure 1: Graphic image of the Group 26 Figure 2: Elektro Gorenjska Company identity card 27 Figure 3: Gorenjske elektrarne controlled Company identity card 28 Figure 4: GEK Vzdrževanje controlled Company identity card 29 Figure 5: GE LES Company identity card 30 Figure 6: ECE associated Company identity card 31 Figure 7: Soenergetika associated company identity card 32 Figure 8: Area of supply of electricity distribution companies 34 Figure 9: Organization chart of Gorenjske elektrarne Company 41 Figure 10: Organization chart of GEK Vzdrževanje Company 42 Figure 11: Changes in the number of shareholders of Elektro Gorenjska Company from 31. 12. 2015 to 31. 12. 2019 44 Figure 12: Ownership structure of Elektro Gorenjska Company as of 31. 12. 2019 (in %) 44 Figure 13: Supply model 49 Figure 14: Organization of electricity supply in Slovenia 51 Figure 15: Areas of operation of electricity distribution companies in Slovenia 52 Figure 16: Integrated quality management system within Elektro Gorenjska Company 56 Figure 17: Risk severity assessment matrix 59 Figure 18: Evaluation of risks 63 Figure 19: Electricity produced (in MWh) in period 2015–2019 67 Figure 20: Electricity produced (in MWh) in HE by months of year 2019 67 Figure 21: Electricity produced (in MWh) in FE and SPTE by months of year 2019 67 Figure 22: Share of revenues from electricity sales by individual production sources in year 2019 68 Figure 23: Changes in distributed quantities of electricity and GDP from year 2015 to year 2019 69 Figure 24: SAIDI - Average time of duration of all unannounced long-term interruptions 71 Figure 25: SAIFI – Average number of all unannounced long-term interruptions 71 Figure 26: MAIFI in MAIFIe – average number of all momentary interruptions 72 Figure 27: Share of losses in the network from 2015 to 2019 75 Figure 28: Parameter SAIDI for unplanned long-term interruptions (own causes) in the period 2015–2019 76 Figure 29: Parameter SAIFI for unplanned long-term interruptions (own causes) in the period 2015–2019 76 Figure 30: Share of the network in the cable design from 2017 to 2019 79 Figure 31: Share of measuring points in the remote measurement system in years 2017, 2018 in 2019 80 Figure 32: SAIFI - Average number of announced interruptions per customer in years 82 Figure 33: SAIDI - Average number of announced interruptions per customer in years 82 Figure 34: Changes in maintenance costs from 2015 to 2019 (in €) 83 Figure 35: Information on the number of project documentation made from 2015 to 2019 86 Figure 36: Changes in balance sheet total in the period 2017–2019 92 Figure 37: Structure of assets as of 31. 12. 2019 and 31. 12. 2018 94 Figure 38: Structure of funds as of 31. 12. 2019 and 31. 12. 2018 95 Figure 39: Composition of profit or loss (in €) 95 Figure 40: Operating profit or loss in period 2017–2019 (in €) 96 Figure 41: Structure of operating expenditure 97 Figure 42: Financial result in period 2017–2019 (in €) 98 Figure 43: Net profit in period 2017–2019 (in €) 98 Figure 44: Changes in the number of employees in the period from 2015 to 2019 100 Figure 45: Commitment of employees rate at last measurement , compared with Slovenian and the best global organizations 104 Figure 46: Number of accidents at work 106 Figure 47: Sponsorships and donations of Elektro Gorenjska Group in year 2019 108 9 INDEX OF TABLES Index of Tables Table 1: Other important information on Elektro Gorenjska Company (in €) 27 Table 2: Other important information on Gorenjske elektrarne Company (in €) 28 Table 3: Other important information on GEK Vzdrževanje Company (in €) 29 Table 4: Other important information on GE LES Company (in €) 30 Table 5: Other important information on ECE Company (in €) 31 Table 6: Other important information on SOENERGETIKA Company (in €) 32 Table 7: Main technical data on electric power distribution network of Elektro Gorenjska Company 35 Table 8: Share owners with capital share exceeding 1 percent as of 31. 12. 2019 45 Table 9: Data and economic trends forecasts 48 Table 10: Unannounced long-term interruptions according to type of network in year 2019 70 Table 11: Announced long-term interruptions per customer in the year 2019 70 Table 12: Number of momentary interruptions per customer in year 2019 70 Table 13: Consistency of power quality parameters with the SIST EN 50160 standard on high voltage level for year 2019 73 Table 14: Commercial quality parameters for year 2019 74 Table 15: Change in cash and cash equivalents 99 Table 16: Fluctuation rate in Elektro Gorenjska Group 102 Table 17: Educational structure of employees in Elektro Gorenjska Group as at 31. 12. 2019 103 10 LIST OF ABBREVIATIONS List of Abbreviations AGEN Agency of Republic of Slovenia for Energy AMI Advanced Metering Infrastructure BDP Gross Domestic Product BTP Technical Data Base CIM Common Information Model DA Diesel aggregate DCV Distribution Management Center DDV Value Added Tax DDPO Corporate Income Tax DO Distribution Network DPN Live work DV Overhead power line EE Electricity EG Elektro Gorenjska, d. d. ELES Transmission network system operator EURIBOR Euro Interbank Offered Rate is an interbank offered rate for deposits in Euro, which is formed on the European interbank market EZ-1 Energy act FE Photovoltaic power station GIS Geographic Information System GJS SODO Public service obligation relating to the activity of the electricity distribution system operator HE Hydroelectric power station IKT Information and communication technology IT Information technology MFE Small photovoltaic power station MHE Small hydroelectric power station NN Low voltage NNO Low-voltage network OS Fixed assets OVE Renewable energy sources Contract with SODO Contract on electricity infrastructure lease and provision of services for electricity distribution system operator RN Development plan RP Distribution station RS Republic of Slovenia RTP Transformer substation SAIDI System Average Interruption Duration Index SAIFI System Average Interruption Frequency Index SDH Slovenian Sovereign Holding SN Medium voltage SODO Distribution network system operator SPTE Cogeneration of heat energy SRO Environmental Management Council SUPP Charging station management system iSVK Quality management system TP Transformer station VN High voltage VZD Health and safety at work ZGD-1 Companies act 11 GROUP ACHIVEMENTS Achievements of Elektro Gorenjska Group EBIT, EBITDA, Net profit (000 €) Sales revenues (000 €) 7,260,202 € of realized Net profit Net profit (MWh) Sales revenues (000 €) 1,162 GWh of distributed electricity Quantities of distributed electricity (MWh) 56 GWh of electricity generated Quantities of generated electricity (MWh) ‹ 12 IMPORTANT INFORMATION ON OPERATION OF GROUP Important information on operation of Elektro Gorenjska Group 2017 2018 2019 IMPORTANT FINANCIAL INFORMATION Sales revenues (000 €) 36,105 37,317 37,854 EBIT (000 €) 8,384 9,682 8,861 EBITDA (000 €) 20,016 21,403 21,290 Pre-tax profit (000 €) 7,998 9,954 8,516 Net profit (000 €) 6,975 8,796 7,260 Value added (000 €) 32,956 34,490 34,817 Assets (000 €) 232,099 238,793 243,141 Capital (000 €) 155,011 161,338 165,914 SIGNIFICANT INDICATORS Current ratio 1.3 1.4 1.3 Profability rate of revenue (%) 18.8 22.3 19.3 Share of labour costs in value added (%) 39.3 37.9 38.9 Return on assets (ROA) in % 3.1 3.7 3.0 Return on equity (ROE) in % 4.6 5.6 4.4 NETWORK, PRODUCTION SAIDI (average duration time of unplanned interruptions longer than 3 min/customer) 20 26 18 SAIFI (average number of unplanned interruptions longer than 3 min/customer) 0.7 0.9 0.7 Number of customers connected to the distribution network 89,361 89,963 90,547 Quantities of distributed electricty (MWh) 1,103,725 1,149,085 1,161,866 Quantities of generated electricity (MWh) 52,099 53,760 56,071 SHARE DATA Total number of shares 17,286,376 17,286,376 17,273,475 Net profit per share (€) 0.4 0.5 0.4 Book value of share (equity/No. of shares) in € 9.0 9.3 9.6 EMPLOYEES Costs of education per employee 498 451 426 Share of employees that attended the trainings 81.1 88.4 76.0 Average level of education 6.2 6.2 6.2 Number of employees at the end of the year 308 311 315 Number of employees (average) 307 309 313 13 › ‹ 14 14 Consolidated Business Report 15 › 1 1 POSLOVNO POROCILO 1 Overview of significant events in Elektro Gorenjska Group in year 2019 JANUARY ›› Activities at the 110 kV Kamnik-Visoko powerline are underway at Elektro Gorenjska. Key activities in 2019 are aimed at acquiring the right to build, project documentation is being prepared for obtaining a building permit. ›› Elektro Gorenjska participates in a roundtable at the forum Energy industry and regulation 19. ›› Elektro Gorenjska Group enters the new year with a new strategy and updated visual image. To this end, it publishes a folder with three booklets entitled How we will jointly realize the strategy of the Elektro Gorenjska Group, which all employees received. ›› At the 25th Winter Sports Games of electricity distribution companies of Slovenia, athletes of Elektro Gorenjska Group reach the first place in the overall ranking. ›› Gorenjske elektrarne approach the rehabilitation of the energy facility MHE Standard. FEBRUARY ›› In accordance with the amended Decree on the self-supply of electricity from renewable energy sources the Elektro Gorenjska Group connects to the distribution network the first group self-supply plant on the roof of a multi-family residential building in Jesenice. ›› In the Elektro Gorenjska Group results of the satisfaction survey show a high level of satisfaction in all areas. ›› In Jesenice Gorenjske elektrarne successfully connect an e-charging station for electric vehicles on a new location in front of the Merkur Jesenice shopping centre. MARCH ›› Chairman of the Board in Elektro Gorenjska takes over the chairmanship of the Slovenian National Committee of the World Energy Council (SNC WEC). ›› Representative of Elektro Gorenjska attends the third EASYRES project development partners meeting in Athens. APRIL ›› Elektro Gorenjska presents to the Secretary General of Eurelectric Association Kristian ruby a pilot project of smart communities and a demonstration of the use of energy storage at TP Suha in Predoslje. ›› In Rogaška Slatina the 5th Strategic Conference of Electricity Distribution Companies in Slovenia, organized annually by the Economic Interest Association of Electricity Distribution , takes place, presenting current topics and the work of the working groups operating within the association. Common thread of the 5th conference was the role of the distribution on the way to a low carbon society. ›› Elektro Gorenjska Group participates in the press conference of the international e-MOTICON project and by signing the letter of support and a memorandum of understanding supports the expansion of e-mobility in Gorenjska region. ›› Representatives of Elektro Gorenjska actively participate in the preparation of the National Energy Climate Plan of Slovenia. ›› Gorenjske elektrarne purchased 100 % share in company Energetika Pogacnik, d. o. o., which owns the SPTE unit on wood gas with a 45 kW gross electric power and 90 kW of heat. MAY ›› Elektro Gorenjska Group participates with numerous papers at the 14th CIGRE – CIRED Conference in Laško. ›› At the demonstration ground in Suha near Predoslje Elektro Gorenjska hosts the president of the Republic of Slovenia Borut Pahor and president of the Republic of Finland Sauli Niinistö. ›› In Elektro Gorenjska a course for internal auditors of the integrated quality management system for the following standards ISO 9001:2015, ISO 14001:2015, ISP 45001:2018 and ISO /IEC 27001:2013, takes place. ›› Gorenjske elektrarne with three projects successfully apply for the fourth public invitation of the Energy Agency, namely with two solar power plants on the roof of TC Merkur Nova Gorica with a power of 264 kW, one solar power plant on the roof of TC Merkur Maribor with a power of 250 kW and a renovation of the existing hydro power plant Rudno. Consolidated Annual Report - Elektro Gorenjska Group 2019 JUNE ›› Representatives of Elektro Gorenjska attend the 25th CIRED Congress in Madrid. ›› Elektro Gorenjska is visited by the representatives of Croatian distributer HEP. Representatives of th e company present to them their experience in the field of inspection and maintenance of power facilities. ›› The 25th Annual General Meeting of Shareholders of Elektro Gorenjska is held at the company’s headquarters. ›› Representative of Elektra Gorenjska attends the partner meeting of TDX ASSIST project in Brussels. ›› Elektro Gorenjska Group is visited by the employees of the Ministry of Infrastructure RS, from the Energy Directorate. They take a look at the operations of HPP Lomšcica and electricity storage in Suha. ›› Regular annual General Meeting of Shareholders of Soenergetika Company is held at the headquarters of the Gorenjske elektrarne Company. JULY ›› Elektro Gorenjska is visited by the representatives of the Austrian company KNG-Kärnten Netz GmbH, electricity and natural gas distribution system operator in Carinthia region. They are presented with the European development project Story and use of the demonstration storage in Suha. ›› Elektro Gorenjska successfully connects into the distribution network a new substation Brnik. ›› In accordance with the Strategy of Elektro Gorenjska Group for period 2018 – 2022 the Elektro Gorenjska approaches the reorganization of Elektro Gorenjska Company, which will be fully implemented from January 1 2020. AUGUST ›› Representative of Elektro Gorenjska attends the EUREL professional excursion to Portugal. Participants take a look at some of the most innovative and breakthrough electrical engineering companies in and around Lisbon. ›› In cooperation with the European Institute of Innovation and Entrepreneurship (EIT) the Faculty of Economics of the University of Ljubljana for the first time organizes a summer school in the field of digital technologies where Elektro Gorenjska Group participates with a challenge. ›› Elektro Gorenjska approaches the replacement of the worn out suspension equipment and ropes on the 110 kV power line between Bled and Bohinj. ›› At the Planina Kranj boiler room the main drive unit of the production facility SPTE Planina , whose owner is Soenergetika, d. o. o., which is owned quarterly by Gorenjske elektrarne, is replaced. SEPTEMBER ›› Chairman of the Board dr. Ivan Šmon receives the honorary title – Ambassador of Knowledge. Honorary title is awarded once a year by company Life Learning Academia. ›› Energy Agency publishes on its website the Report on the quality of electricity supply for 2018. Elektro Gorenjska Company is once more recognized as the distribution with the most reliable and high-quality electricity supply. ›› Facility RP Brnik, built by Elektro Gorenjska, is visited by the participants of the VAR Partner Day 2019 Conference to take a look at the built-in Siemens equipment. ›› Elektro Gorenjska joins the consortium for the promotion and fostering of Slovenia’s green transformation, the purpose of which is to implement research and development projects and joint promotional activities for the transition to a carbon-free society. ›› Consortium of companies Gorenjske elektrarne, Petrol and Domplan presents the results of energy rehabilitation of buildings owned by the Municipality of Kranj. ›› Gorenjske elektrarne carry out sanitation works on the dam of hydro power plant Standard. ›› Consortium of companies Gorenjske elektrarne, Petrol and Domplan was selected by the University of Maribor on the basis f the submitted offer and competitive dialogue for the implementation of the project »Comprehensive energy renovation of buildings at the location Zlato polje in Kranj«. ›› OCTOBER ›› Representatives of Elektro Gorenjska attend the 4th Workshop entitled Implementation of live works on low and medium voltage in Slovenian distribution, organized by the live working (DPN) project group operating within the Economic Interest Grouping for Electricity Distribution. ›› Electricity distribution companies set up a new portal and mobile application called My Electro (Moj elektro), where users get all the data on all metering points in one place. ›› Elektro Gorenjska officially hands over the distribution substation Brnik. Minister of Infrastructure mag. Alenka Bratušek attends the event. ›› Elektro Gorenjska together with the Srednja Vas Mountaineering Society and Bohinj Municipality concludes the construction of electricity infrastructure and connects the Voje alpine cottage to the distribution network. ›› Elektro Gorenjska signs a consortium contract with companies Eles and GEN-i to promote green transformation of Slovenian energy industry with the help of smart grids. ›› Elektro Gorenjska successfully passes an external assessment of standards ISO 9001:2015, ISO 14001:2015, BS OHSAS 18001:2007, transitional assessment of ISO 45001:2018 and regular assessment of ISO/IEC 27001:2013. ›› With October 1 2019 Gorenjske elektrarne start charging for their services of electricity charging in e-charging stations that they own in Gorenjska region. NOVEMBER ›› Elektro Gorenjska Group receives the Best Annual report in Communications 2018 award at the Best Annual report 2018 Competition of the Finance Business Academy. ›› Representative of Elektro Gorenjska participates at the roundtable »How to achieve sustainable electricity supply for sensitive mountain areas?«, organized by CCI (Chamber of Commerce and Industry of Slovenia) as part of the Sustainable alpine cottages in Slovenia workshop. ›› Representatives of Elektro Gorenjska Group participate at the 28th Annual SZKO Conference held in Portorož. ›› The 26th Extraordinary Annual General Meeting of Elektro Gorenjska Shareholders is held at the Elektro Gorenjska headquarters. ›› Elektro Gorenjska Group organizes a charity meeting with its business partners in Brdo pri Kranju. Funds are once again allocated to the Neodvisen.si program. DECEMBER ›› Elektro Gorenjska Group and its business partners at the end of the year once again allocate the funds to the socially responsible program Neodvisen.si. ›› Gorenjske elektrarne as the first energy company receives by SIQ a new version of the international energy management standard ISO 50001:2018. 2 Management report of the parent company Dr. Ivan Šmon, Chairman of the Board in Elektro Gorenjska, d. d., evaluates the achievements and results of the Elektro Gorenjska Company and Elektro Gorenjska Group for year 2019. In his talk, he highlights the updated strategy of Elektro Gorenjska Group and especially the role of distribution companies in the transition to a carbon-free society. How did the distribution company operate and how Elektro Gorenjska Group? In 2019 the new three-year rules and conditions of regulation, defined by the regulator, came into force. In Elektro Gorenjska we responded to the newly confirmed and foreseen limit conditions by formulating a new strategy for the period 2018 – 2022, in which the main highlights are based on exploiting the synergy effects in the Elektro Gorenjska Group as a whole and not on the operations of the individual Group companies. With the new strategy, we put more emphasis on the areas of innovation, market presence – engineering and market of flexibility services. Otherwise, Elektro Gorenjska Company ended the year 2019 with 8.2 million € of pre-tax profit. Value of investments exceeded 16 million €. Most investments were intended to increase the robustness of the network, with 7.9 million € intended for the modernization of medium and low voltage network. At the end of 2019, the share of medium-voltage underground network was more than 65 %, while the share of low-voltage network almost 86 %. Total share of underground cable network in Elektro Gorenjska thus amounts to nearly 78 %. In 2019, we distributed 1.16 GWh of electricity in the network, which is by 1.1 % more than in 2018, with connected load increasing by 0.7 % and amounted to 1.508 GW at the end of 2019. Elektro Gorenjska Group ended the year 2019 with 8.5 million € of profit before tax. Achieved result is lower than in 2018, mainly due to the new rules of regulation applicable to the Elektro Gorenjska Company, and poorer operations of the associated company. Climate change is already shaping the energy industry. What were the key development activities in year 2019? Industry, in which distribution companies operate has recently been heavily exposed to the effects of the external environment. Electrification, decentralization, decarbonisation, European legislation and tighter regulatory conditions require additional flexibility and development orientation from distribution companies. Elektro Gorenjska Company has always been the bearer of changes, new working ways and use of advanced technologies. Once more, we recognized the need for changes in the company and approached the implementation of new business models which also require adjustments to the organization of Elektro Gorenjska Group. In Elektro Gorenjska Group we are establishing an advanced, computerized and innovative business environment and we are also changing our business processes in this direction. At the same time, we are introducing new technological and process improvements as a result of increasing digitalization and introduction of mobile services. In 2019, we introduced a new solution for digitized support of field work (i.e. Task Manager). Year 2019 will also be remembered for many other milestones. We formally handed over the new Brnik distribution substation, which will significantly contribute to the development and reliability of supply to Brnik industrial zone and surrounding areas. We have participated and will participate in development projects in which we test new and advanced technologies and thus upgrade them and ensure higher efficiency. One of these is electricity storage in Suha. Beginning of 2020 was marked by a global pandemic with the Coronavirus SARS-CoV-2 (COVID-19), which severely affected Slovenian economy as well. What measures have the companies in Elektro Gorenjska Group taken? Elektro Gorenjska Group, which manages a very important infrastructure, follows the adopted rules in both normal or crisis situations: ›› a plan for the continuous operation of business and process informatics (according to ISO 22301 standard) and ›› a security plan prepared in accordance with the Decree on obligatory setting-up of security service. In the adoption and implementation of all measures during the crisis situation due to the COVID-19 epidemic, Elektro Gorenjska Group pays special attention to employees and other stakeholders in addition to ensuring the uninterrupted operation of the public utility service, and especially minimizing negative effects on operation and reducing economic damage. We have introduced a number of measures to try to protect the health of our employees as much as possible. This emergency situation we are witnessing in Slovenia right now (March and April) and consequently measures taken by businessmen and the Government of RS, will have a strong impact on the course of events in the future. It is certainly in our interest to realize the plans we have set for 2020 as far as possible. Due to uncertain situation at the moment, it is still difficult to assess the negative impact on the realization of set goals, indicators and recommendations or the realization of Elektro Gorenjska Group business strategy. What are your plans in the energy business? Due to the aggravated economic situation and severely disadvantaged operations of the manufacturing and service sectors, as a result of the spread of Coronavirus, the set goals will certainly be very difficult to achieve. In any case, despite the changed situation, we will try to reach them to the greatest extent possible. Key challenge for Elektro Gorenjska Group, in addition to eliminating the business consequences caused by the Coronavirus epidemic in 2020, will be the implementation of the set strategy of Elektro Gorenjska Group for 2018-2022, which is aimed at greater exploitation of synergy effects of companies within the Group and greater market presence. We intend to update the strategy in year 2020 , especially in the areas of consolidation and launch of engineering activities on the level of Elektro Gorenjska Group and renovation and optimization of the development of planning processes and implementation of investments and maintenance. New facts are related to the national energy strategies the orientations of which are expected to require significantly higher, according to some forecasts even more than four times higher than today, investments in electricity distribution network. Group wants and must be prepared for such a challenge in time and from all aspects of operation. But how is this reflected in the investment activity? Elektro Gorenjska Company plans to invest 14.7 million € in 2020, mostly in energy infrastructure. Despite the difficult economic situation and delays caused by the epidemic, we will try to provide resources for their financing. Almost 70 % of the funds will ne earmarked for the investments in expansion and strengthening of the medium- and low-voltage networks, while 30 % of planned funds will be earmarked for new investments. In investment projects we follow the basic goals of efficient distribution network planning, with which we want to: ›› ensure long-term technically and economically optimal development of the network, ›› ensure long-term stability, reliability and availability of the distribution network, ›› ensure the long-term increase of maintenance of supply quality according to the target level of quality and above all ›› meet the planned and actual consumption and power needs, ›› meet the needs of including the dispersed electricity production, ›› provide a cost-effective network, ›› meet the needs dictated by national energy climate goals. When implementing investments, we always take into account the current tying and state of the art, which has already been tested in practice. Investments in 2020 and beyond will also incorporate state-of-the-art equipment and devices that will ensure reliable electricity supply with the least downtime possible. Goals of the company are: providing quality and reliable electricity infrastructure with resistance to different weather conditions, growth and successful development of the company, fulfilment and following of the approved strategy. At the high-voltage level, in 2020, we will allocate 3.1 million € of investment funds for: ›› start of construction of a new 110/20 kV transformer station Škofja Loka, where a new 110 kV switchyard will be built as well. In 2020, we received a building permit, while the works and the construction of facilities themselves should be completed in 2021 – 2022; ›› modernization of several distribution substations, like 110/20 kV substations Labore and Kranjska Gora and RP Naklo; ›› continuation of procedures for the start of construction of a new 110 kV powerline between Visoko and Kamnik. At the medium-voltage level, we will allocate a total of 4.1 million € of funds. Part of the investment will include a replacement of worn-out cable conduits, as well as worn-out powerlines on wooden poles, and associated transformer stations. Major part of the investment funds will be primarily intended for the renovation and replacement with new 20 kV cable connections, especially in more exposed locations and where due to wear and tear new and more reliable equipment is needed. On the low-voltage network, funds will be used for the renovation of the network, with emphasis on replacement of conductors with earth cables, and we will also perform reinforcements in parts whit poor voltage conditions and necessary reinforcements due to connection f new dispersed energy sources into the network. In 2020, we will continue to follow the municipalities completing their municipal infrastructure for which they have also received European funding. In total, we have 2.4 million € in funding for projects of this type. At the end users, we continue to replace measuring systems, replacing 12,000 with advanced ones annually. Same trend will be followed for the replacement of measuring devices in years 2020 and 2021, when all users in Gorenjska region are expected to be equipped with advanced measuring systems and integrated into the remote reading system. We have included 60,309 users in the advanced measuring system by the end of 2019, and by the end of 2020 72,300 users or 80 % of all measuring points in Gorenjska region are expected to be included. Among the strategic orientations, the transformation of the organization and its culture into an even more cooperative and agile system is of special importance. What steps did you take in 2019? Environment has changed, we are faced with new technologies and business models that are increasingly cohesive. We are aware of these trends and accept the challenges of the modern environment. We are establishing the culture of embracing changes and promoting diversity. Mobility of employees between projects and project teams as well as between sectors and companies can certainly be a way to such a culture. We are creating a stimulating work environment for the systematic development of modern, technological knowledge and competences, so that we are well prepared for the digital future. It doesn’t help us if everyone is the best for themselves. It is more important that we are more successful together as a team. This is not about finding ideals, but about moving closer to mutual understanding, respecting the differences and strengthening relationships, including responsiveness and reliability. Cooperation also outside of the formal organizational forms and thus breaking down the silos is the area where we must make a step forward. For this purpose, in 2019 we approached the creation of a new organizational structure in Elektro Gorenjska Company, which came to life in 2020. New organization is not designed to dismiss or downgrade the employees’ bonuses, but rather it sets new starting points for new business models and consequently it enhances the companies’ competitive opportunities. It also seeks to encourage employee innovation and increase employee efficiency and motivation. Reorganization is a logical consequence of a changed vision, goal or strategy of the company. Aim of the reorganization is therefore not only to define new, changed roles and responsibilities of employees, but also to establish an agile organization that will be able to respond quickly to future opportunities. What is your view on the Group’s integration into the social environment? Elektro Gorenjska Group systematically invests in the social environment and is actively committed to responsible business practices. Number of projects, embedded into the local environment and beyond, show that we are an active member of our community. We want to remain a reliable business partner and an interesting and reputable employer in the future as well. Achieved results and implementation of outlined strategy are a reflection of the joint work and knowledge of our employees. On behalf of the Management Board I would like to thank all the employees of Elektro Gorenjska Group for their efforts. 3 5 4 6 6 2.1 Corporate governance statement Companies in Elektro Gorenjska Group inform the shareholders and public that they operate in accordance with applicable regulations and acts in force in the companies. Management of the individual company represents the company as well as manages the business independently and at its own risk. In this it adopts the decisions in accordance with the strategic goals of the company and to the benefit of the shareholders. Companies in the Group comply with the documents adopted by the Slovenian Sovereign Holding (hereinafter SDH): Corporate Governance Code for Companies with Capital Assets of the State, Recommendations and expectations by the Slovenian Sovereign Holding, procedures and code of conduct for members of managerial and supervisory bodies in companies with capital investments of the state. Applicable regulations important mainly for the operations of the parent company and parent company statute are published on the company’s web site (https://www.elektro-gorenjska.si/o-podjetju/zakonodaja). Other acts in force for group companies are available on the web pages of SDH (https://www.sdh.si/sl-si/o-druzbi/dokumentno-sredisce). In year 2010 companies in the Group have not derogated essentially from the principles, procedures and criteria imposed by the stated SDH documents. Parent company declares that it does not respect code provisions or recommendations in regulating issues that are regulated by the law or that the company regulates in accordance with the provisions of the statute in different way than defined by the codes, or in cases when non-statutory conducts are not prescribed in its acts or when conducts are not determined as legal obligation. Parent company believes that supervisory board members are professional, responsible and independent in performing the tasks in accordance with the provisions of the stated acts by SDH. The parent company informs all supervisory board and committees members about changes and amendments in SDH acts, as well as about trainings organized by SDH free of charge. We do not have recorded a diversity policy in group companies and we do not implement it as stipulated by the Companies Act-1. We have a one-member Management Board, Supervisory Board members from representatives of the shareholders are elected by the General Meeting, while two employee representatives are elected by the Workers’ Council. In group companies, candidates for a job and employees in group companies are not discriminated based on gender, age, race and religion. Management Board of each company is responsible for keeping proper accounts and the establishment and provision of internal controls, the selection and application of accounting policies and the safeguarding of company assets. Group companies in the establishment and operation of internal controls pursue the following main objectives: ›› accuracy, reliability and completeness of the accounting records and the true and fair financial reporting, ›› compliance with laws, regulations, internal regulations and ›› effectiveness and efficiency of operations. We strive to provide the control system effective and efficient in terms of risk management and at the same time cost-effective. So we maintain: ›› transparent organizational scheme, ›› clear accounting policies and their uniform application throughout the Elektro Gorenjska Group, ›› effective and full staffed accounting function, ›› efficient and modern accounting and business information system, ›› regular internal and external audits of business processes and operations of the entire company. Financial controls are based on the principles of division of responsibilities, truthfulness, updating of records, reconciling the balance in the accounts with the actual situation, separation of records from the implementation of the business and the professionalism and independence of accountants. Accounting controls are closely related to the general and application controls in the field of information technology, which among other things, ensure restricting and monitoring of accesses and the completeness and accuracy of data capture and processing. Control mechanisms referring to individual fields of operation are presented in more detail in chapters 4.3 – Risk management in Elektro Gorenjska Company and 4.4 – Risk management in Gorenjske elektrarne Company. We believe that the current system of internal controls enabled successful operation of the Company and Elektro Gorenjska Group, functioning in accordance with the rules and fair and transparent financial reporting. Elektro Gorenjska Company also declares that the management of the controlling company actively followed and directly controlled the operations of the controlled company Gorenjske elektrarne and financial investments of ECE d. o. o., and indirectly the controlled company of the subsidiary Gorenjske elektrarne, GEK Vzdrževanje Company, in accordance with the strategic guidelines with the purpose of reaching the set business goals. In leading and managing the controlled company and its controlled company, it has pursued the same standards of corporate management applicable for the controlling company in Elektro Gorenjska Group. Company Elektro Gorenjska will respect the recommendations of new SDH acts in the future too and in accordance with this it will perfect and improve its management system. In eventual derogation from the given statement on respecting the codes the company will provide for the timely publication. 2.2 Supervisory Board Report 1. Supervisory board operation in year 2019 Operation of the Supervisory Board in 2019 is characterized by the fact that, in addition to regular supervision over the operations of companies, the Supervisory Board continued its efforts to establish new practices. Among other things, this year the Supervisory Board adopted the Annual Work Plan of the Supervisory Board of EG, d. d., and its Committees for 2020 and the financial Calendar of EG, d. d., for 2020, which is published primarily for all shareholders on the Company’s official website. This will continue to be a well-established practice in the future, all with the aim of optimizing work of the Supervisory Board and transparent operations from the point of view of all shareholders. In year 2019, the supervisory board met at fourteen regular sessions and one correspondence session. A total of 114 decisions were adopted, the implementation of which is regularly monitored at the beginning of each regular session. In their decisions, all members of the Supervisory Board acted independently and in accordance with the statements given and transparently published on the company’s website. They prepared appropriately on the topics of the individual sessions, gave constructive proposals and comments, as well as adopted decisions in accordance with their respective responsibilities. Members of the Supervisory Board carried out their work diligently and responsibly with the duty of careful and conscientious management, in accordance with the fundamental function of supervision over the management of the companies and based on the competences as defined mainly in the Companies Act (ZGD-1), Statute of the company and Rules of the Supervisory Board. In its work, the Supervisory Board members acted in accordance with the recommendations and expectations of the Slovenian Sovereign Holding and Corporate Governance Code for Companies with State capital investment. Management board commented on the fulfilment of the above acts and recommendations in the statement on corporate governance, which is a component part of the annual report. Successful implementation of good supervisory practices was successfully continued and upgraded. Management Board’s reports on the implementation of eight strategic projects were regularly presented quarterly at the meetings of the Supervisory Bard Committees in 2019, based on the authorization of the Supervisory Board. Powers of the Committees regarding the reporting on individual strategic projects were duly harmonized with the rules of procedure of both Committees. In addition to the Company’s strategy, the Supervisory Board regularly monitored the reporting on the implementation of the Company’s IT strategy. Company’s participation in the adoption of the National Energy and Climate Plan – NEPN was particularly extensively presented at the Supervisory Board. Supervisory Board paid a lot of attention to the supervision of investment projects (regular semi-annual reporting on the status of major investments) and the implementation of public procurement procedures, and carried out a self-assessment of the work it performs every two years. It regularly monitored changes in the Company’s internal organization as a result of the implementation of the Elektro Gorenjska Group’s Strategy for the period 2018-2022, which further increased the Company’s operations in terms of corporate governance. In 2019, the Supervisory Board operated only digitally, through a special application using passwords, which the Company provided with appropriate technical support. Key changes in 2019 were in the area of the Company’s internal organization, which was previously presented by the Management Boards in accordance with the Company’s Statute, and approved by the Supervisory Board as well as agreed in parallel with all involved stakeholders (works council, trade union representations). Based on the authorization of the 22nd regular general Meeting, the Supervisory Board adopted a resolution on the withdrawal of treasury shares and reduction of share capital, which also resulted in the harmonization of the Statute in the part determining the Company’s share capital. General Meeting’s authorization to repurchase the Company’s own shares expired, so the Company proposed to the Supervisory Board that all treasury shares (12,901) acquired based on the General Meeting’s resolutions be withdrawn without further resolution. Share capita decreased by 53,658.26 EUR. In accordance with the resolutions of the 26th (extraordinary) General Meeting of the Company, which was held in November, an increase in share capital was successfully carried out in 2019, which was regularly reported by the Management Board at Supervisory Board sessions. Supervisory Board adopted everything necessary for the preparation of the General Meeting and was previously acquainted in detail with the content of the Company’s General Meeting proposed by the Management Board. Also in 2019, as part of the reporting of companies in the Group, the reporting of the companies Gorenjske elektrarne, d. o. o., and GEK Vzdrževanje, d. o. o., was carried out, as the Supervisory Board monitors the operations of subsidiaries in accordance with its responsibilities and good corporate governance practice. 2. Composition of the Supervisory Board in year 2019 Membership in the Supervisory Board was not changed in 2019, despite the expiration of the term of both members, who are employee representatives. Term of office of both members appointed by the employee representatives in the Supervisory Board expired on August 8 2019. Workers’ Council informed the regular General Meeting that the term of office of both was extended until August 8 2023. Members of the Supervisory Board thus operated continuously in the same composition all year round. Supervisory Board operated in the following composition in year 2019: mag. Samo Logar, Chairman of the Supervisory Board, mag. Tedo Djekanovic, Deputy Chairman of the Supervisory Board, Andrej Koprivec, member, Franjo Curanovic, member, Borut Jereb, member, representative of employees, Iztok Štular, member. Members of the Supervisory Board complement each other with their knowledge and experience, since different professional and theoretical competences are represented. Supervisory Board is composed in such a way that members have all the necessary professional competences for effective control over the Company’s operations. Contribution of both employees’ representatives, who show great commitment in following the sessions of the Supervisory Board and Supervisory Board Committees, should be emphasized, and based on good knowledge of the Company, they contribute to efficient supervision of the business. 3. Verification of Company’s operations and work of the management in year 2019 During the year, the Supervisory Board verified operations of the company mainly based on the quarterly financial reports and reports on implementation of strategic projects of the Company’s management and obtained data on operations (monthly evaluations of operations of Group companies). Members of the Supervisory Board mainly focused on the following: ›› regular business of the companies, mainly the parent company and companies in the Elektro Gorenjska Group, Gorenjske elektrarne, d. o. o., and GEK Vzdrževanje, d. o. o., with an emphasis on the current monitoring of business and financial reporting, ›› monitoring the operations of company ECE, d. o. o., as a major financial investment, which, due to its activity, is also interesting for further consolidation in the field of market and production activities, with which the SB was also acquainted, ›› monitoring of the implementation of the general meeting decisions, in particular with regard to the exercise of an authorization to the management board for the purchase of own shares, ›› implementation of the general meeting’s authorization for withdrawal of own shares, reduction of share capital and harmonization of the text in the Company’s Statute, ›› monitoring larger investment projects, ›› monitoring of strategic projects according to the strategy of the Group for period 2018–2022, ›› control over contracts, which need the supervisory board consent according to the provisions of the statute, ›› monitoring public procurement procedures, ›› forming proposals for the decisions at the regular general meeting, cooperation and acquaintance with proposals for the extraordinary general meeting, ›› monitoring risks, ›› conducting a self-assessment of the Supervisory Board work in year 2018 (held every two years). According to the stated areas of work, it is especially necessary to highlight the following activities of the Supervisory Board: ›› Supervisory Board regularly monitored operations of the Group companies, discussed quarterly information and evaluations on Group companies’ operations, and was devoted to realization of the business plan for year 2018. ›› In accordance with the ZDG-1 Supervisory Board verified and approved the audited Annual Report of Elektro Gorenjska, d. d., and audited Consolidated Annual Report of Elektro Gorenjska Group for year 2018, and composed a written report of the Supervisory Board on verification and approval of the stated reports for business year 2018. ›› Supervisory Board participated in preparing the proposals for decisions of the 25th regular General Meeting session, which took place on June 27 2019. Supervisory Board proposed to the General Meeting to approve the work of the Chairman of the Management Board for the financial year 2018, and grant a discharge. After the selection procedure of the Audit Committee it proposed the General Meeting a company BDO Revizija, BDO Revizija, d. o. o., Cesta v Mestni log 1, 1000 Ljubljana for the implementation of the authorized audit in 2019. ›› Supervisory Board was acquainted with the proposed resolutions of the Management Board for the 26th (extraordinary) General Meeting of the joint-stock company, which was held on November 28 2019. Based on the interim balance sheet as at August 31 2019, which was audited by the auditor that gave an unqualified opinion, the Management Board proposed to the General Meeting that the share capital of the Company be increased from the Company’s assets by transforming other profit reserves into share capital. In addition, the Management Board also proposed some amendments and supplements to the Statute in particular by supplementing activities and possibilities of operation without the stamp. ›› Supervisory board regularly monitored all eight strategic projects from the Strategy of Elektro Gorenjska Group for the period 2018-2022. Based on the authorization of the Supervisory Board, quarterly supervision of three strategic projects in the field of human resources was carried out at the meetings of the Nomination Committee, and of the remaining strategic projects within the Audit Committee. ›› Supervisory Board regularly monitored all procedures related to the new organization in the Company and, in accordance with the Company’s Statute, first gave its consent to the new internal organization of the Company in June 2019, as defined in the Rules on Internal Organization. In accordance with the adopted resolution of the Supervisory Board, the Management Board reported on the next steps at the meetings on the Nomination Committee and at the Supervisory Board. In December 2019, the Supervisory Board gave its consent to the Rules on Internal Organization of Elektro Gorenjska, d. d. ›› Supervisory Board was regularly acquainted with the reports on the review of individual projects in the Company; twice a year, the Management board in obliged to report on the status of all major projects from the Business Plan, as at May 31 and October 31. Reporting was further specified in accordance with the discussions at the meetings. ›› Supervisory board was regularly informed about the operations of the Group companies and the operations of ECE, d. o. o., which represents a major financial investment. ›› Supervisory Board continued with the practice of acquainting the Supervisory Board with public procurement matters, already at the time of the introduction of the PP (in the form of information), to which the SB, in accordance with the Statute, gave its consent. In addition, it quarterly checked reports on public procurement procedures implemented (including those that did not require the consent of the SB). It also welcomes the new practice in the field of public procurement, as the Management Board is already informing the Supervisory Board of any changes in the information on PP, so that there is no ambiguity when considering the prior consent of the Supervisory Board. ›› Until the increase in the share capital in 2019 and in accordance with the Statute of the Company, the Supervisory Board gave consent to seven legal transactions above the value of 718,980.61 € (1% of the Company’s share capital), with a total value of these transactions in the amount of 7,666,310.29 € (excluding VAT). ›› On the basis of the provisions of the Company’s Statute, within the framework of the consideration of the Business Plan of the company Elektro Gorenjska, d. d. for 2020, together with a financial projection for the years 2021 and 2022, and with the assurance of the Management that the Company will respect the provisions of the Regulation on the conditions and procedures of borrowing of legal persons from Article 87 of the Public Finance Act, as well as with the assurance that the Company is able to hire and repay the planned debt, the Supervisory Board gave its consent to the Company’s borrowing. ›› In accordance with the Act Governing the Remuneration of Managers of Companies (ZPPOGD), the Supervisory Board decided on the amount of the variable part of the remuneration of both chairmen of the board, who (individually) acted in year and adopted benchmarks for the variable part of the chairman of the management board for 2019. Supervisory Board is of the opinion that the Chairman of the Board has taken a very good approach to the implementation of good operations and, above all, to the implementation of the new Strategy, which applies to all the companies in the Group. In given circumstances he reacted appropriately to all perceived conditions of organization in companies, to economic and other situations as well as to expressed will of the Company’s shareholders, above all the majority shareholder, and has led the Company very successfully during that period. 4. Cooperation with the Chairman of the Board In the past year, Supervisory Board worked very well with the Chairman of the Board, dr. Ivan Šmon, MBA, whose four-year term began on June 15 2018. Management submitted materials for the sessions to the Supervisory Board in time, in writing, and additionally interpreted them orally at the sessions. For the Supervisory Board the management prepared reports on implementation of decisions regularly and other reports requested from the management by the Supervisory Board. Members of the Supervisory Board had all requested and appropriate reports, information and data available to them, so that based on them they could monitor and control Company’s operations and made their decisions responsibly. 5. Operation of Supervisory Board Committees In 2019, two Committees operated within the Supervisory Board, namely without a change of membership. 5.1. Audit Committee In 2019, the Audit Committee met at eleven regular and one correspondence sessions. Committee was chaired by chairman Andrej Koprivec, CFA, FCCA throughout the year, including Franjo Curanovic as a member and prof. dr. Simon Cadež as an external member. Members of the Committee regularly attended the sessions. To all the sessions of the Committee the Chairman of the Company’s Management Board and the internal auditor were invited, along with individual reporters. In accordance with the Rules of Procedure of the Audit Committee, the members of the Supervisory Board were kept informed both by invitations to the meetings of the Audit Committee and by the minutes of the Committee meetings, while the Chairman of the Audit Committee reported quarterly to the Supervisory Board on the work of the committee. Below we present the substantive points of the work of the Audit Committee in the financial year 2019: Annual report 2018: Committee discussed the Annual Report of the company Elektro Gorenjska, d. d., Annual Report of the subsidiary company Gorenjske elektrarne, d. o. o., Annual Report of company GEK Vzdrževanje, d. o. o., and the Consolidated Annual Report of the Elektro Gorenjska Group. Regarding the consideration of the annual report, the Committee met with the partner of the audit company BDO and discussed the report of the external auditor. Business Plan and current operations: Committee discussed the business plans of the parent company and subsidiaries for the period 2020-2022 and proposed them to the Supervisory Board for approval. Committee reviewed quarterly business results of the companies in the Elektro Gorenjska Group and reported it to the Supervisory Board. Committee also monitored the operations of company ECE, d. o. o. in which the company Elektro Gorenjska, d. d., has 25.67 % ownership share. Committee reviewed quarterly the implementation of the strategic projects implemented in Elektro Gorenjska Group and reported it to the Supervisory Board. Internal audit: Audit Committee worked closely with the internal auditor. In 2019, the Committee discussed the Annual Report on the work of the internal audit for 2018, discussed the internal auditor’s reports on all conducted internal audits and monitored the implementation of the recommendations made. It discussed the work plan of the internal audit for 2020 and proposed it to the Supervisory Board for approval. Risk Management System: Committee discussed the management of Company’s key risks and took note of the relevant management and internal audit reports. Selection and cooperation with the external auditor: Audit Committee conducted the procedure for selecting an external auditor of the financial statements and forwarded the proposal to the Supervisory Board. General Meeting of the Company appointed the proposed contractor – BDO Revizija Company - as auditor of the financial statements for 2019. 5.2 Nomination Committee Within the Supervisory Board, the Nomination and Human Resources Committee of the Elektro Gorenjska, d. d., Supervisory Board, has been operating since 2014 and in the following composition the whole year of 2019: In year 2019, the Nomination Committee had seven regular sessions, where besides members of the Committee other members of the SB were mostly present, usually both representatives of employees. Committee adopted a total of 28 decisions, which were all realized. In the year 2019, the Committee focused mainly on: ›› regular quarterly monitoring and control over the strategic projects in the areas of the human resources from the Strategy of the EG Group companies for the period 2018- 2022, under the authority of the Supervisory Board to monitor three strategic projects (Organizational culture and employee commitment, Corporate governance upgrade in the EG Group and Establishment of an effective project management at the level of EG Group), ›› examination of the fulfilment of the performance criteria of the Chairman of the Management Board in 2018 and proposal of the amount of the variable part of the remuneration to the chairmen of the management board for work performed (in 2018 there were two chairmen of the management board), ›› being regularly acquainted with the reports of the Management Board on further steps in the Company’s reorganization, all in accordance with the resolution of the Supervisory Board and proposed to the Supervisory Board the adoption of the Rules on the organizational structure of company Elektro Gorenjska, d. d. ›› determination and proposal of the SB for the adoption of performance criteria for the variable part of the remuneration of the Chairman of the Management Board for 2020, ›› results of the self-assessment of the work of the Supervisory Board, on the basis of which it adopted a report for the Supervisory Board proposing the Supervisory Board to hold a discussion with emphasis on the content of management policy, teamwork and individual contributions. In 2019, the Nomination Committee continued with new practices that proved to be very successful, especially in monitoring strategic projects in the field of human resources, and was very active in the process of reorganizing the Company as well. 6. Position of the Supervisory Board to audit report 2020 At the 28th session of the Audit Committee on May 14 2020, where a revised Annual Report of Elektro Gorenjska, d. d., and revised Consolidated Annual Report of Elektro Gorenjska Group for year 2019 were discussed, the representatives of the audit firm BDO Revizija, d. o. o. from Ljubljana, which audited the financial statements of the companies for year 2019, were present. At the 35th regular session of the Supervisory Board held on May 21 2020, at the examination of the audited Annual Report of the company Elektro Gorenjska, d. d., and the audited Consolidated Annual Report of the Elektro Gorenjska Group for 2019, the Supervisory Board was acquainted with the decisions of the Audit Committee regarding the reports, and found that the auditor carried out the audit in accordance with the legislation and the rules on auditing. Supervisory board had no comments on the independent auditor’s report, and its position on the audit report was positive. Audit Committee and the Supervisory Board found that the auditors issued a positive opinion. 7. Approval of the Annual and Consolidated Report 2019 and proposal for the use of distributable profit Management of the Company submitted the Annual Report and Consolidated Annual Report, including the Audit Report, to Supervisory Board for verification within the legal deadline. Audit Committee verified the Annual and Consolidated Report and Audit Report in detail and gave its opinions and views. Based on the regular monitoring of operations of the Company and other companies in the Group and a detailed verification of the stated reports, the Supervisory Board has established that the report for year 2019 is composed in accordance with the regional legislation and regulations and in a clear and transparent manner represents true and fair views of the assets, liabilities, financial position, income statement and comprehensive income of the Company. Annual and consolidated reports for year 2019 are composed in accordance with the provisions of the Companies Act and valid international accounting standards. Besides the parent company, the Elektro Gorenjska Group includes another company Gorenjske elektrarne, proizvodnja elektrike, d. o. o., which is in 100 % ownership of the parent company, and company GEK Vzdrževanje, which is in 100 % ownership of Gorenjske elektrarne Company. All Group companies closed the business year with profit. Total distributable profit of Elektro Gorenjska, d. d., for the year 2019 amounts to 2,418,286.50 €, which represents 1.51 % of the total capital or 2.32 % of the Company’s share capital as at 31 December 2019. Management board will propose to the General Meeting of shareholders that the distributable profit in 2019 is fully paid out to shareholders in the form of dividends in the amount of 0.14 €, which is lower by 1 cent per share or 6.67 % decrease in dividends per share compared to last year’s pay-out. Management board will propose to the General Meeting that the dividend payment will be made on 23 July 2020 to those shareholders who will be listed in the Company’s share register on 22 July 2020. Supervisory Board verified the proposal for the use of accumulated profit, and agreed with the proposal of the Management Board. After the Supervisory Board members verified the Annual Report and Consolidated Report of the Company for year 2019 and had no comments, the Supervisory Board adopted this Supervisory Board Report on Verification and Approval unanimously at the 35th regular session on May 21 2020. In Kranj, May 21 2020 mag. Samo Logar Chairman of the Supervisory Board Andrej Koprivec, CFA, FCCA chairman prof. dr. Simon Cadež external member Franjo Curanovic member Supervisory Board considers the cooperation with the Chairman of the Board in the past year to be very successful mag. Samo Logar chairman Milena Pervanje external member mag. Tedo Djekanovic member 3 Presentation of Elektro Gorenjska Group 3.1 Structure of Elektro Gorenjska Group and associated companies Elektro Gorenjska Group consists of the controlling company Elektro Gorenjska and its controlled company Gorenjske elektrarne, which is in 100 % ownership of Elektro Gorenjska Company. As associated companies the group also considers GEK Vzdrževanje Company and GE LES Company, which are in 100 % ownership of Gorenjske elektrarne, ECE Company, where Elektro Gorenjska has a 25.6744 % ownership share, and associated company Soenergetika, where Gorenjske elektrarne has 25 percent share. In addition to the listed companies, the Elektro Gorenjska Group is also composed of nformatika, d. d., in which Elektro Gorenjska owns a 9.56 % stake. We do not include the stated company in the consolidated financial statements of the Group due to irrelevance. None of the companies in the Group has any subsidiaries. Figure 1: Graphic image of the Group 100 % 25,67 % GE LES SOENERGETIKA 100 % 100 % 25 % 3.1.1 Elektro Gorenjska Company identity card Figure 2: Elektro Gorenjska Company identity card Name: ELEKTRO GORENJSKA, podjetje za distribucijo elektricne energije, d. d. Abbreviated name:: ELEKTRO GORENJSKA, d. d. Business address: Ulica Mirka Vadnova 3 a, 4000 Kranj Phone: 080 30 19 Fax: 04 20 83 600 Web site: www.elektro-gorenjska.si E-mail address: info@elektro-gorenjska.si Registration number: 5175348000 VAT identification number: SI20389264 Core activity code: 35.130 electricity distribution Legal form: joint-stock company Company register entry number: 1/00259/00 Date of company register entry: 27. 1. 1998 Place of court's register entry: Kranj District Court Share capital as of 31. 12. 2019: 104,136,615.39 € Number of shares as of 31. 12. 2019: 17,273,475 Chairman of the Board: dr. Ivan Šmon, MBA Supervisory board chairman: mag. Samo Logar Table 1: Other important information on Elektro Gorenjska Company (in €) 31. 12. 2019 31. 12. 2018 Carrying amount of capital 159,773,376 155,364,641 Carrying amount of assets (balance sheet total) 235,643,069 232,048,722 Year 2019 Year 2018 Net profit of the business year 7,093,511 8,148,808 3.1.2 Gorenjske elektrarne Company identity card Figure 3: Gorenjske elektrarne controlled Company identity card GORENJSKE ELEKTRARNE, podjetje za proizvodnjo elektricne energije, d. o. o. Abbreviated name: GORENJSKE ELEKTRARNE, d. o. o. Business address: Stara cesta 3, 4000 Kranj Phone: 04 20 83 531 Fax: 04 20 83 512 Web site: www.gek.si E-mail address: info@gek.si Registration number: 1658298000 VAT identification number: SI76567788 Founder: Elektro Gorenjska, d. d. Legal form: limited liability company Core activity code: 35.111 production of electricity in HE generation facilities Date of company register entry: 4. 1. 2002 (amendment 21. 9. 2004) Place of court's register entry: Kranj District Court Share capital as of 31. 12. 2019: 13,684,880.11 € Director: Aleš Ažman, MBA Name: Table 2: Other important information on Gorenjske elektrarne Company (in €) 31. 12. 2019 31. 12. 2018 Carrying amount of capital 18,723,617 18,243,030 Carrying amount of assets (balance sheet total) 19,724,563 18,908,065 Year 2019 Year 2018 Net profit of the business year 1,111,754 643,275 3.1.3 GEK Vzdrževanje Company identity card Figure 4: GEK Vzdrževanje controlled Company identity card Name: GEK Vzdrževanje, družba za vzdrževanje in storitve, d. o. o. Abbreviated name: GEK Vzdrževanje, d. o. o. Business address: Stara cesta 3, 4000 Kranj Phone: 04 20 83 531 Fax: 04 20 83 512 Registration number: 7239360000 VAT identification number: SI53409540 Founder: Gorenjske elektrarne, d. o. o. Legal form: limited liability company Core activity code: 68.320 management of real estate on a fee or on contract basis Date of company register entry: 27. 2. 2017 Place of court's register entry: Kranj District Court Share capital as of 31. 12. 2019: 121,050.64 € Director: Matej Kuhar Table 3: Other important information on GEK Vzdrževanje Company (in €) 31. 12. 2019 31. 12. 2018 Carrying amount of capital 152,381 142,540 Carrying amount of assets (balance sheet total) 411,658 389,597 Year 2019 Year 2018 Net profit of the business year 73 6,768 3.1.4 GE LES Company identity card GE LES Figure 5: GE LES Company identity card Name: GE LES, proizvodnja toplotne in elektricne energije d. o. o. Abbreviated: GE LES d. o. o. Business address: Stara cesta 5, 4000 Kranj Phone: 04 20 83 531 Fax: 04 20 83 512 Registration number: 8474257000 VAT identification number: SI61444502 Founder: Gorenjske elektrarne, d. o. o. Legal form: limited liability company Core activity code: 35.119 Other electricity generation Date of company register entry: 18. 7. 2019 Place of court's register entry: Kranj District Court Share capital: 129,686.00 € Director: Aleks Jan Table 4: Other important information on GE LES Company (in €) 31. 12. 2019 Carrying amount of capital 130,084 Carrying amount of assets (balance sheet total) 420,254 Year 2019 Net profit of the business year 397 3.1.5 ECE Company identity card Figure 6: ECE associated company identity card Name: ECE, energetska družba, d. o. o. Abbreviated name: ECE, d. o. o. Business address: Vrunceva 2a, 3000 Celje Call centre: 080 22 04 Fax: 03 62 09 559 Web site: www.ece.si E-mail address: info@ece.si, prodaja@ece.si, podjetja@ece.si Registration number: 6064892000 VAT identification number: SI55722679 Founders: Elektro Celje, d. d.; Elektro Gorenjska, d. d., Legal form: limited liability company Core activity code: 35.140 trade of electricity Company register entry number: 2015/37235 Date of company register entry: 1. 10. 2015 Place of court's register entry: Celje District Court Share capital as of 31. 12. 2019: 3,436,767.65 € Director: mag. Sebastijan Roudi Table 5: Other important information on ECE Company (in €) 31. 12. 2019 31. 12. 2018 Carrying amount of capital 18,406,620 19,694,179 Carrying amount of assets (balance sheet total) 46,501,223 44,801,821 Year 2019 Year 2018 Net profit of the business year 66,555 2,859,689 3.1.6 Soenergetika Company identity card SOENERGETIKA Figure 7: Soenergetika associated company identity card Name: SOENERGETIKA Gorenjske elektrarne, Holding Slovenske elektrarne, Domplan in Petrol, družba za proizvodnjo elektrike in toplote, d. o. o. Abbreviated name: SOENERGETIKA d. o. o. Business address: Stara cesta 3, 4000 Kranj Registration number: 3700054000 VAT identification number: SI26004330 Founders: Elektro Gorenjska, d. d., Holding Slovenske Elektrarne, d. o. o., Domplan, d. d., in Petrol, d. d. Legal form: limited liability company Core activity code: 35.112 Production of electricity in thermal, nuclear power stations Company register entry number: 2010/6818 Date of company register entry: 26. 2. 2010 Place of court's register entry: Kranj District Court Share capital as of 31. 12. 2019: 1,020,000.00 € Director: Aleš Ažman, MBA Table 6: Other important information on SOENERGETIKA Company (in €) 31. 12. 2019 31. 12. 2018 Carrying amount of capital 1,822,060 1,811,157 Carrying amount of assets (balance sheet total) 2,748,088 2,700,116 Year 2019 Year 2018 Net profit of the business year 691,738 680,768 3.2 Other related companies or related legal entities Elektro Gorenjska Company identifies its related persons on the basis of provisions of the International Financial Reporting Standards, mainly the IAS 24 and IAS 28, Companies Act (ZGD -1) and the Corporate Income Tax Act (ZDDPO-2). Elektro Gorenjska does not have direct or indirect ownership of at least 20 % of value or number of shares or shares in capital, management or control in any other company, except in the ones already mentioned. Company also does not control other companies on the basis of a contract in a way that is different from relations among unrelated persons, or has no significant influence in any of the other companies. 3.3 Main activities and fields of business Companies in the Group are implementing three main activities, namely the activity of electricity distribution, which is a regulated activity (contract with SODO), activity of electricity production and other activities (market services). Distribution activity includes tasks (services) of a public utility service distribution operator, which Elektro Gorenjska Company performs under the contract for the distribution operator: ›› maintenance of adequate electricity infrastructure, ›› organization and implementation of emergency service, ›› management and operation of electricity distribution network, ›› network development planning, ›› preparation and management of investments in electricity infrastructure, ›› monitoring and determining the quality of electricity supply, ›› performing electricity metering, ›› providing access services and other user services, ›› connecting users, ›› providing data to cover electricity losses in the distribution network and SODO supply, ›› other user services. Production activity includes production of electricity in hydro power plants, in solar and photovoltaic power plants and production in high-efficiency cogenerations. Other activities carried out for both the regulated activities as well as for the market include: ›› implementation of investments and maintenance, ›› research and development, ›› designing, ›› electricity efficiency projects and energy management and ›› engineering. Two main registered activities of the Group are distribution of electricity (activity code 35.130) and production of electricity in HE generation facilities (activity code 35.111). Other important registered activities of the Group are the following: ›› construction of other civil engineering projects n.e.c (activity code 42.990), ›› electrical installation (activity code 43.210), ›› other building completion and finishing (activity code 43.390), ›› other specialized construction activities n.e.c. (activity code 43.990), ›› wired telecommunications activities (activity code 61.100), ›› renting and operating of own or leased real estate (activity code 68.200), ›› other engineering activities and related technical consultancy (activity code 71.129), ›› other production of electricity (activity code 35.119), ›› management of real estate on a fee or contract basis (activity code 68.320). 3.4 Main area of operation Main area of operation of Elektro Gorenjska Group includes north-eastern part of Slovenia – Gorenjska region. In this area we can also find hydropower plants of Gorenjske elektrarne. Companies Elektro Gorenjska, Gorenjske elektrarne and GEK Vzdrževanje have their headquarters in Kranj. Company Elektro Gorenjska has another plant in Žirovnica and eight local inspectorates: Bohinj, Cerklje – Visoko, Jesenice – Kranjska Gora, Kranj, Radovljica – Bled, Škofja Loka – Medvode, Tržic and Železniki. 90.500 Elektro Gorenjska Company has its distribution network set on the area of 1,986 km˛ which amounts to more than Figure 8: Area of supply of electricity distribution companies ELEKTRO GORENJSKA Kranj ELEKTRO MARIBOR Maribor ELEKTRO CELJE Celje ELEKTRO PRIMORSKA Nova Gorica ELEKTRO LJUBLJANA Ljubljana 3.5 Main technical data Table 7: Main technical data on electric power distribution network of Elektro Gorenjska Company 31. 12. 2019 31. 12. 2018 Powerlines 110 kV 102,363 m 102,363 m Powerlines 35 kV 20,356 m 20,356 m Powerlines 20 kV 555,033 m 575,589 m Powerlines 10 kV 0 m 0 m Total powerlines 677,752 m 698,308 m Cable conduits 110 kV 3,349 m 3,349 m Cable conduits 35 kV 158 m 158 m Cable conduits 20 kV 1,073,768 m 1,028,921 m Cable conduits 10 kV 6,416 m 6,416 m Total cable conduits 1,083,691 m 1,038,844 m Total LV network 3,454,780 m 3,371,070 m Total network 5,216,223 m 5,108,222 m Transformer substations 12 12 Substations 8 8 Transformer stations 1,381 1,379 Source: Elektro Gorenjska, internal data, 31. 12. 2019 3.6 Management and governance of companies in Elektro Gorenjska Group 3.6.1 Management and governance of Elektro Gorenjska Company Company management bodies are: management, supervisory board, and shareholders’ meeting. MANAGEMENT Single-member administration, chairman of the board, is appointed by the supervisory board of Elektro Gorenjska Company. Term of office of the Chairman of the Management Board shall be four years with the possibility of reappointment. Chairman of the Board, dr. Ivan Šmon, MBA, started his four-year term on June 15 2018. In accordance with the Statute, the Management Board of the company has a mandate in relation to all issues related to the organization and management of the company. Based on the law, statute, and rules of procedure of the supervisory board the management of the company is obliged to exhaustively and exactly introduce to the supervisory board the course of transactions and company’s condition at least four times a year. In 2019, the Company was reorganized. Organizational chart as at 31. 12. 2019 was as follows: Each sector, headed by sector directors, consists of several services. Directly under the Management are the Project and Innovations Office and Internal Audit. Network Sector manages the tasks of the public utility service distribution operator, which Elektro Gorenjska executes under the contract for SODO Company. Tasks of the Engineering Sector are to provide services for the Network Sector and other companies in Elektro Gorenjska Group in the segment related to market services. Corporate Services Sector performs general and financial services, health and safety at work services, and vehicle fleet services for all sectors and companies in Elektro Gorenjska Group. Information and Communication Technologies (ICT) Sector provides information and communication technologies services for all sectors and companies in Elektro Gorenjska Group. New organizational structure came to life in 2020. SUPERVISORY BOARD Competence and composition of the supervisory board are defined by the statute of the company. Supervisory board consists of six members, four of them being representatives of the capital and two of them representatives of the employees. Members of the supervisory board are elected for the period of four years and can be re-elected. Members of the supervisory board, which are representatives of the capital, are appointed to the supervisory board by the shareholders’ meeting with a simple majority vote of the present shareholders. Two members representing the employees are appointed by the company’s works council. In year 2019 both members of the SB representing the employees were appointed for a further four-year term, so there were no changes in the composition of the supervisory board. Based on the decision of the General Meeting the members of the supervisory board in addition to the attendance fees in the amount of 275 € receive also monthly payment for performing the function in the amount of 942 € per member or 1,412.50 € to which the chairman of the supervisory board is entitled. Remuneration of supervisory board members in 2019 are presented in Chapter 18.4 – Transactions with management and supervisory board. Composition of the supervisory board in 2019 was as follows: AUDIT COMMITTEE OF ELEKTRO GORENJSKA SUPERVISORY BOARD In year 2019 a permanent audit committee of Elektro Gorenjska supervisory board (audit committee) operated in the following composition: NOMINATION COMMITTEE OF ELEKTRO GORENJSKA SUPERVISORY BOARD In year 2019 a permanent nomination committee of Elektro Gorenjska supervisory board (nomination committee) operated in the following composition: Term of office of the committee is bound to the term of office of the supervisory board, which is also defined in the Rules of procedure of the nomination committee of Elektro Gorenjska supervisory board. SHAREHOLDERS’ MEETING In 2019, the Management Board convened one regular and one extraordinary session of the General Meeting of Shareholders. Regular session was held on 27 June 2019. At the 25th regular General Meeting of Shareholders of Elektro Gorenjska, 85.70 % of the voting shareholders were present. At the general meeting, shareholders voted on six items on the agenda, which was published in the convocation of the General Meeting of Shareholders on the web portal of Agency for Public Legal Records and Services. Company’s shareholders were acquainted with the audited annual report and the consolidated annual report for 2018, the auditor’s opinion and the written report of the supervisory board on the verification and approval of the annual report of the company Elektro Gorenjska and the consolidated annual report of the Elektro Gorenjska Group for the 2018 financial year. Shareholders decided on the use the accumulated profit, which stood at 2,591,021.25 € as at 31 December 2018. It was decided that the total accumulated profit was used for the payment of dividends in the gross value of 0.15 per share. Company paid dividends on 26 July 2019 to those shareholders who were on the day 25 July 2019 entered into the company’s share register as shareholders of the company. General Meeting granted a discharge for work in 2018 to both Chairmen of the Board operating in 2018 and specifically to the Supervisory Board members. It further appointed a certified auditor for year 2019, namely the company BDO Revizija, d. o. o., Cesta v Mestni log 1, Ljubljana. In accordance with paragraph 3 of Article 247 of the Companies Act, the Management Board informed the General Meeting of Shareholders of the Company’s report on the redemption of treasury shares in the business year 2018. Workers’ Council informed the General Meeting of the two employees appointed to the Supervisory Board until 8. 8. 2023. Extraordinary session of the General Meeting was held on 28. 11. 2019. At the 26th extraordinary General Meeting of Shareholders of Elektro Gorenjska, 80.07 % of the voting shareholders were present. At the general meeting, shareholders voted on three items on the agenda, which was published in the convocation of the General Meeting of Shareholders on the web portal of Agency for Public Legal Records and Services: 1. Opening of the General Meeting and election of working bodies of the General Meeting 2. Increase of share capital from the Company’s assets and harmonization of the Articles of Association 3. Amendments to the Company’s Articles of Association Shareholders decided on the increase in share capital on the basis of the interim balance sheet as at August 31 2019, which was reviewed by the auditor of BDO Revizija d. o. o., Cesta v Mestni log 1, Ljubljana and gave an unqualified opinion in it. It was unanimously decided that the share capital of the company be increased from the Company’s assets by transforming other profit reserves in to the share capital in the amount of 32,292,212.96 € , so that the share capital of the Company after the increase amounts to 104,136,615.39 €. Decision on amendments to the Company’s Articles of Association, which referred to the operation of the stamp and especially to the supplementation of registered activities, was also adopted unanimously. Due to the adopted Strategy of the companies in the Elektro Gorenjska Group, which foresees the implementation of market activities, new activities of the Company were proposed to the shareholders, so that the Company will be able to follow the adopted Strategy and also implement it. MANAGEMENT BOARD Project Office Internal Audit Office Innovations Office Engineering Sector Network Sector Corporate Services Sector ICT Sector Implementation of Investments and Maintenance Service Controlling Service IT Solutions Service Development, Investment and Maintenance Service (Strategic) Project 1 (Strategic) Project 2 Research Service Operation Service Legal and General Affairs Service Purchasing Service Measurement Service Design Service Personnel and Corporate Communications Service Customer Service (Strategic) Project N Energy Solutions Service Finance and Accounting Service ICT Infrastructure Service SUPERVISORY BOARD EG, d. d. Function Term of office from Term of office until mag. Samo Logar chairman 28. 8. 2017 (as a chairman since 14. 9. 2017) 28. 8. 2021 mag. Tedo Djekanovic deputy chairman 28. 8. 2017 (as a deputy chairman since 14. 9. 2017) 28. 8. 2021 Andrej Koprivec member 28. 8. 2017 28. 8. 2021 Franjo Curanovic member 28. 8. 2017 28. 8. 2021 Borut Jereb member 8. 8. 2019 8. 8. 2023 Iztok Štular member 8. 8. 2019 8. 8. 2023 AUDIT COMMITTEE SB EG, d.d. Function Term of office from Term of office until Andrej Koprivec chairman 14. 9. 2017 28. 8. 2021 Franjo Curanovic member 14. 9. 2017 28. 8. 2021 dr. Simon Cadež member 14. 9. 2017 28. 8. 2021 NOMINATION AND HUMAN RESOURCES COMMITTEE SB EG, d.d. Function Term of office from Term of office until mag. Samo Logar chairman 14. 9. 2017 28. 8. 2021 mag. Tedo Djekanovic member 14. 9. 2017 28. 8. 2021 Milena Pervanje member 14. 9. 2017 28. 8. 2021 3.6.2 Management and governance of Gorenjske elektrarne Company Since its establishment Gorenjske elektrarne Company has been in 100 % ownership of its founder and sole partner of the company, that is Elektro Gorenjska Company. As of 31. 12. 2019 the Company has two controlled companies, namely GEK Vzdrževanje, d. o. o. and GE LES d. o. o.. Both are in 100 % ownership of Gorenjske elektrarne. Company also has a 25 % share in Soenergetika d. o. o., which it controls together with three other equal partners. Financial statements of the company are included in group financial statements of the parent company Elektro Gorenjska which is also the final parent company. Figure 9: Organization chart of Gorenjske elektrarne Company Company’s director is Aleš Ažman, MBA. Company’s management is carried out directly on the basis of the founders’ decisions, since the company does not have a supervisory board. Chairman of the Management Board and the Supervisory Board of the parent company, regularly monitor the company’s operations. In the year 2019, five decisions of the founder were issued to the company Gorenjske elektrarne. Supervisory Board of the parent company is also familiar with the operations. 3.6.3 Management and governance of GEK Vzdrževanje Company GEK Vzdrževanje Company was established by the spin-out of maintenance activities from the company Gorenjske elektrarne and is 100 % owned by the company Gorenjske elektrarne. Financial statements of the company are included in the group financial statements of the parent company Elektro Gorenjska, which is also the final parent company. Figure 10: Organization chart of GEK Vzdrževanje Company Company’s director is Matej Kuhar. Company’s management is carried out directly on the basis of the founders’ decisions, since the company does not have a supervisory board. Director of Gorenjske elektrarne company, as well as the General Meeting of Shareholders, regularly monitor the company’s operations. In the year 2019, two decisions of the founder were issued to the company GEK Vzdrževanje. Supervisory Board of Elektro Gorenjska is also familiar with the operations. HEAD OFFICE POSLOVODSTVO Kabinet uprave Kabinet uprave Projektno vodenje Director’s Office Project Management Kabinet direktorja HEAD OFFICE Maintenance Service Machinery group Electro group 3.7 Share capital and ownership structure 3.7.1 Share capital and ownership structure of Elektro Gorenjska Company On December 31 2019 share capital of Elektro Gorenjska Company amounted to 104,136,615 €. It is distributed to 17,273,475 of ordinary registered unit shares (designation EGKG). All shares are shares of one category. In 2019 the Company withdrew its own shares and increased its share capital. More is explained in chapter 12.11 – Capital. Company has no authorized capital. In 2019 the Elektro Gorenjska Company had no transactions with own shares on a regulated market. As of December 31 2019, 96.19 % of company shares were in the ownership of the Republic of Slovenia and legal entities, which represent 18.08 % of all shareholders. Figure 11: Changes in the number of shareholders of Elektro Gorenjska Company from 31. 12. 2015 to 31. 12. 2019 Figure 12: Ownership structure of Elektro Gorenjska Company as of 31. 12. 2019 (in %) Republic of Slovenia Other shareholders – legal entities Financial companies Other shareholders - individuals Kapitalska družba, d. d. Kapitalska družba, d. d. - PPS Investment companies SDH, d. d. Participants of internal distribution According to the balance as at December 31 2019 the largest shareholder, holding a 79.48 %, is the Republic of Slovenia. It is followed by Kapitalska družba holding 2.50 % and Bau 1, d. o. o., with 1.63 %. As at December 31 2019 the largest 10 owners held a total of 91.46 % of the company. Table 8: Share owners with capital share exceeding 1 percent as of 31. 12. 2019: 3.7.2 Share capital and ownership structure of Gorenjske elektrarne Company Share capital of Gorenjske elektrarne Company (13,684,880 €) represents an investment in the capital and has been in 100 % ownership of the founder and sole partner of the company - Elektro Gorenjska Company, since its establishment. 3.7.3 Share capital and ownership structure of GEK Vzdrževanje Company Share capital of GEK Vzdrževanje Company (121,051 €) represents an investment in the capital and has been in 100 % ownership of the founder and sole partner of the company Gorenjske elektrarne Company, since its establishment. 3.7.4 Share capital and ownership structure of GE LES Company Share capital of GE LES Company (129,686 €) represents an investment in the capital of Gorenjske elektrarne Company at the time of the purchase. 31. 12. 2019 Ownership exceeding 1 % Number of shares % Republic of Slovenia 13,728,882 79.48 Kapitalska družba, d. d. 431,933 2.50 BAU 1, d. o. o. 281,620 1.63 Sava Re, d. d. 280,000 1.62 Pivovarna Laško Union, d. o. o. 270,648 1.57 DUTB, d. d. 207,200 1.20 DZS, d. d. 200,000 1.16 Total 15,400,283 89.16 3.8 Vision, mission and values of the Group Vision of the Group Elektro Gorenjska Group is a modern, innovative and in the public positively identified key player in the development of services flexibility market. In parallel with the increasing dynamics of deployment and incorporation of new technologies, we ensure 100% connectivity of all network users. In addition to the highest quality electricity supply in the Republic of Slovenia, we also provide our customers with an up-to-date and comprehensive user experience. We create clean energy for sustainable development. To all participants in the value chain we signify a quality, trustworthy and desirable partner. Fast and efficiently we are able to adapt to all modern challenges, trends and various external factors. We are increasing our presence in the market environment, continuously improving our economic indicators and reducing business, development, security, regulatory and environmental risks. Equal and reliable access to electricity with a superior user experience for all. Mission of the company is to provide an environmentally friendly way of energy production and services to increase the efficient use of energy to provide a better future for the coexistence of mankind and nature. With professional and efficient services we achieve customer satisfaction. With our knowledge and experience, we increase the production of renewable energy sources. Mission of the Group Values of the Group KNOWLEDGE AND COOPERATION We share knowledge, experience and positive energy with our colleagues and partners. EXCELLENCE AND PROFFESIONAL COMPETENCE We are target-oriented. QUALITY AND TRUST We induce customers’ confidence. RESPONSIBILITY AND DILIGENCE We assume responsibility. BUSINESS INNOVATION We implement services and processes in line with market trends. KINDNESS AND OPENNESS We maintain friendship and sociability. 3.9 Key strategic guidelines of the Group In August 2018 supervisory board of Elektro Gorenjska Company confirmed the strategy of the Elektro Gorenjska Group for the period 2018-2022. Key elements for implementation of the strategy are the following strategic projects: ›› Acquisition of own concession for the distribution of electricity ›› Organizational culture and employee commitment ›› Development of a comprehensive and advanced innovation system on the level of Elektro Gorenjska Group ›› Establishment of a new business model of energy engineering on the level of Elektro Gorenjska Group ›› Introducing Business Intelligence (BI) in Elektro Gorenjska Group ›› Establishing corporate governance in Elektro Gorenjska Group ›› Establishment of effective project management on the level of Elektro Gorenjska Group ›› Optimal planning and implementation of investments. Strategic projects Organizational culture and employee commitment, Development of a comprehensive and advanced innovation system on the level the Group, Establishment of a new business model of energy engineering on the level of the Group and Establishment of effective project management on the level of the Group were concluded in year 2019. 3.10 Analysis of the environment and its impact on the operations of the Group 3.10.1 General economic environment and economic trend forecasts Table 9: Data and economic trends forecasts Source: Spring Forecast of Economic trends 2020, UMAR – Institute of Macroeconomic Analysis and Development Due to the spread of Coronavirus COVID -19 in many countries, the economic consequences are difficult to predict. Due to many unknowns, the forecast is based on the assumption that the spread of the virus in China and European countries will reach a peak in the first half of 2020, and in the second half of the year there will be a gradual stabilization. If Coronavirus spread is gradually restricted and contained in the second half of the year, economic growth will slow to 1.5 % and will be slightly higher in the next two years (2.2 %). In case of an ongoing epidemic of Coronavirus in Slovenia and other EU countries and absence of stabilization in the second half of the year, economic growth will be lower than projected this year and in 2021. According to the revised Spring Forecast, assuming a tightening of conditions and severely aggravated operation of the manufacturing and services sectors to last for two months, we can expect a GDP fall of 6 to 8 %. In addition, realization of some of the other risks could contribute to lower GDP. Risk of lower economic growth is posed by at least the following: possible new US protectionist measures, which could be aimed at raising tariffs on imports of cars and car parts in the USA, increasing Chinese imports from the USA at the expense of reducing imports from other partners, significant increase in economic barriers between EU and UK by 2021, when the transitional period of unchanged conditions for economic cooperation expires, as well as climate change and related environmental measures that could hamper growth in individual activities in the short-term. Based on data for previous years, we find that electricity consumption is largely related to economic growth or GDP growth. Given that the projections for future GDP trends are highly uncertain due to the uncertain conditions surrounding the coronavirus epidemic, electricity consumption is also uncertain. Marketing activities are similarly uncertain. 3.10.2 Presentation of the industry Participants on the electricity market are producers of electricity, electricity traders, and suppliers supplying electricity to end customers. From electric power stations to customers electricity is transmitted through transmission and distribution networks, which are the responsibility of electricity distribution operators. Figure 13: Supply model Indicators for Republic of Slovenia 2019 Forecast 2020 2021 2022 GDP (real growth, %) 2.4 1.5 2.2 2.2 Employment (growth %) 2.4 1.1 0.7 0.5 Registered unemployment rate (%) 7.7 7.4 7.1 6.8 Inflation (Dec/Dec, %) 1.9 2.0 2.2 2.0 Inflation (average of the year, %) 1.6 1.7 2.2 2.0 Gross wage per employee (real growth, %) 2.7 2.1 1.5 1.9 Labour productivity– GDP per employee (real growth, %) 0.1 0.4 1.5 1.7 Gorenjske elektrarne Company is engaged mainly in the production of electricity. Electricity is produced by electric power stations, which use different renewable (e.g. water, wind, sun) and non-renewable (e.g. coal, oil, gas, nuclear fuel) sources of energy. Gorenjske elektrarne Company produces electricity in hydro and solar power stations and in heat and electricity co-generation facilities. Opening of the market for household customers enables also selection of electricity in terms of the manner of production or in terms of the energy source used. Elektro Gorenjska operates in the sector of electricity supply, namely in that business segment of electricity supply which ensures the distribution of electricity to final consumers. Implementation of electricity supply and consequently organization of the market are among other subject to some fundamental characteristics of electricity as a product: ›› in general it cannot be replaced with another product (has no substitutes), ›› is essential for economic activity and daily life, ›› consumption in the long run depends on the level of economic activity, ›› current consumption is highly dependent on daylight and temperature, ›› storage of electricity is not possible (current knowledge of storage technology is not yet sufficient to significantly change those fundamental properties), ›› in principle at any given moment the generated quantity must be equal to the consumed quantity, ›› any imbalances between production and consumption have an immediate effect, ›› supply options depend on the characteristics of the network (on network restrictions), ›› price of electricity among other things is affected by the prices of primary energy used to produce electricity. Organization of electricity supply in Slovenia is shown in the figure below: Figure 14: Organization of electricity supply in Slovenia While electricity generation, electricity trading and supply of electricity to end-customers are market activities, with free competition between suppliers, the management of the transmission system and distribution network management are non-market, regulated activities , and are implemented on the basis of the concession granted by the state. Tasks of the system operator of the electricity transmission network provides a public company Elektro – Slovenija, d. o. o. (ELES). High-voltage network, which includes objects 400, 220 and 110 kV, provides reliable and quality power supply to large customers and distribution companies. ELES carries out tasks related to the maintenance, development and construction of transmission network, management and operation of the transmission network and the provision of ancillary services. Implementation of tasks of the distribution operator is the responsibility of company SODO, d. o. o. Since the company SODO, d . o. o. does not have capacity for the implementation of activities ( does not have its own infrastructure necessary for the implementation of the electricity distribution system, it does not have its own staff and skills needed to perform the operation, planning and development of the distribution network), it concludes contracts for the lease of the network and the provision of services for the distribution operator with five electricity distribution companies, which operate in a specific geographical area. Due to the characteristics resulting from the ownership of the electricity distribution infrastructure, distribution companies do not operate outside their geographic area - in this respect we can speak of a natural monopoly. PRODUCERS Physical flow Transmission network system operator Market organizer Trader Distribution network operater Supplier Use of network contracts Supply contracts Regulated CUSTOMERS Source: Energy Agency TRADING PRODUCTION TRANSMISSION SUPPLY DISTRIBUTION Source: Agency energy Non-market activity Market activity Figure 15: Areas of operation of electricity distribution companies in Slovenia ELEKTRO MARIBOR Maribor ELEKTRO GORENJSKA Kranj ELEKTRO CELJE Celje ELEKTRO PRIMORSKA Nova Gorica ELEKTRO LJUBLJANA Ljubljana 3.10.3 Network charge and price of electricity Final price of supplied electricity for the customer that is charged for consumed electricity together with the network charge by the electricity supplier, is according to EZ-1 composed of the following items: ›› electricity price formed freely on the market, ›› network charges and contributions:-- network charge for transmission (set by AGEN), -- network charge for distribution (set by AGEN), -- contribution for market operator operations (set by the Government RS), -- contribution for energy efficiency (set by the Government RS), -- contribution for ensuring the production of electricity from renewable energy sources and high-efficiency cogeneration (set by the Government RS), ›› excise duties on electricity (set by the Government RS), ›› value added tax (set by the Government RS). Price of electricity is set by the suppliers of electricity and created freely on the market. Legal relationship between final customers and suppliers is specified in the contract of purchase and sale of electricity and general terms and conditions, which are different depending on household or business consumption. Price for the network charge and the contributions is the price that the client pays for the use of electricity system and includes the network charge, which is determined by AGEN and contributions laid down by the RS Government. Network charge is intended for the payment of the public utility distribution system operator. As a basis of the methodology for calculating network AGEN uses the non-transaction method of postage stamps. This stems from the system of uniform tariff items, which are charged to end customers according to the measuring point by the authorized electricity operator. Contribution for operation of market operator is contribution intended for covering the costs of market operator Borzen, d. o. o., excluding the operation of the Support center. Contribution for energy efficiency is intended to increase the energy efficiency. It is calculated for each consumed kilowatt hour of electricity in high, low or single tariff. Contribution for ensuring support for the production of electricity from high-efficiency cogeneration and renewable energy sources (OVE and SPTE) is aimed at promoting the production of electricity from renewable sources and high efficiency cogeneration. It is charged on the billing capacity in kilowatts. Excise duty on electricity is determined by the Government of the Republic of Slovenia as a state budget income. Excise duty amounts to 3.05 €, and 1.8 € for each MWh of consumed electricity for large consumers (above 10,000 MWh). Value Added Tax (VAT) is determined by the Government of the Republic of Slovenia as a state budget income and is accounted for in the amount of 22 % of the net electricity price (composed of all the elements presented). Revenues from network charges are the income of the system operator and the distribution operator. Bills for the network charge and contributions to the final customer are issued by the company Elektro Gorenjska in its own name and on behalf of SODO. End customers, who have a combined electricity bill, are charged for the network charge and contributions, together with the electricity, by the electricity supplier in its own name and on behalf of SODO as well. 3.10.4 Energy legal environment of group’s operation in year 2019 Operations of the Elektro Gorenjska Group are regulated. Main rules and regulations relating to electricity distribution and electricity production and supply are: ›› Energy Act, ›› Companies Act, ›› Construction, spatial planning, spatial management and environment protection act, ›› General Administrative Procedure Act, ›› Directive 2009/72/ES of the European Parliament and of the Council concerning common rules for the internal market in electricity, ›› General conditions for supply and consumption of electricity from electricity distribution network, ›› Decree on the method for the implementation of public service obligation relating to the electricity distribution system operator, and public service obligation relating to the electricity supply to tariff costumers, ›› Decree on the concession for performing public service obligation relating to the activity of the electricity distribution system operator, ›› Legal Act on the methodology determining the regulatory framework and network charge for the electricity distribution system, ›› Price list for the use of network (network charge and supplements to the network charge), ›› Rules on the system operation of electricity distribution network, ›› Decree supplementing the Decree laying down the list of goods and services subject to price control measures, ›› Decree on energy infrastructure, ›› Decree on measures and procedures for the introduction and interoperability of advanced electric power metering systems, ›› Legal Act on the rules for monitoring the quality of electricity supply, ›› Legal Act on the identification of entities in the data exchange among participants in the electricity and natural gas markets, ›› Decree on the division of the 110 kV network into the distribution and transmission systems, ›› Decree on the terms and conditions and methods of borrowing, ›› Waters Act, ›› Construction Act, ›› Environment Protection Act, ›› Excise Duty Act. 3.10.5 Contract with SODO SODO, d. o. o., Company owns only a small part of electricity infrastructure for the implementation of the public utility service distribution operator. It has therefore concluded a contract with Elektro Gorenjska Company, which owns the electricity infrastructure in the area of Gorenjska region, on the lease of the electricity distribution infrastructure and the provision of services for the distribution network system operator (hereinafter: Contract with SODO). Annex defining planned values of rent and services for the period 2019-2021 was also made to the last contract, effective from 1. 1. 2019. In accordance with the Contract with SODO, Elektro Gorenjska leases to SODO Company the electricity infrastructure and provides contractually agreed services related to the public utility service of distribution operator. Under the Contract with SODO Company Elektro Gorenjska is making out the bills for use of network to end users of the distribution network on the basis of the respective in force Act determining the methodology for charging for the network charge, the methodology for setting the network charge, and the criteria for establishing eligible costs for electricity networks, but also in accordance with other regulations, mainly the EZ-1. Elektro Gorenjska Company has been making out these bills on its own behalf and for the account of SODO. End users settle the received bills on the transaction account of the Elektro Gorenjska Company. Invoiced amounts represent liabilities of the company Elektro Gorenjska to SODO, d. o. o., and therefore do not constitute revenue of Elektro Gorenjska. For electricity infrastructure leased and for implementation of services presented before, Company Elektro Gorenjska has been making out bills for rent and implemented services to SODO Company. These revenues represent approximately 79 % of entire company’s revenues. Elektro Gorenjska charges amounts for rent and services in monthly advance amounts based on the Decision on a regulatory framework, issued by the Energy Agency or values determined in the Annex to the Contract with SODO. In March SODO Company carries out a preliminary calculation for the previous year. Calculation is based on the unaudited financial statements. It is followed by the final statement, which is based on audited financial statements prepared by the Agency for Energy. Both accounts are prepared on the basis of the provisions of the Legal Act on the methodology determining the regulatory framework and network charge for the electricity distribution system. 3.10.6 Production of electricity Under the provisions of the Energy Act, the company must acquire the appropriate licenses for performing energy activities, including the production of electricity in power plants with a power exceeding 1 MW in a single power plant, electricity supply, trading, representation and transmission on the electricity market. Licenses are issued by the Energy Agency of the Republic of Slovenia. Company Gorenjske elektrarne has obtained all the necessary licenses for performing energy activities, and the power plants have received declarations for generating installations of electricity from renewable sources and high-efficiency cogeneration of heat and power. Power plants are therefore entitled to receive operating supports or operation in the guaranteed purchase system. Support is implemented in two ways, namely: A call for tenders has been introduced for the award of supports, where aid is awarded through a competitive process, which means only the most competitive projects can receive supports. By the end of 2019, Slovenia has made six public calls. 6 In the first two and the fourth one Gorenjske elektrarne Company has submitted a total of 10 projects. It was successful in applying for 6 projects. guaranteed purchase (ZO) of generated electricity delivered to the public network or as financial support for operating activities for other producers (operational support). 4 Management and quality systems Companies in the Elektro Gorenjska Group do not have a joint quality management system, as each company performs its own activity. 4.1 Integrated quality management system (iSVK) of Elektro Gorenjska Company Since year 2011 the Elektro Gorenjska Company has an integrated quality management system (iSVK) in the framework of which it meets the quality policy commitments of Elektro Gorenjska, d. d. With the quality policy, which is part of the business policy, the company’s management is committed to following the vision in the long run and achieving the set goals in line with strategic orientations. In doing so, it will promote the culture of a company based on quality, risk management, information protection, employee and environmental protection, investing in employees, ensuring their commitment and satisfaction through the principles of reconciling professional and private life and ultimately committing to constant improvement. Through established and managed iSVK it meets the requirements of the following certification systems: ›› system SVK (standard ISO 9001:2015), ›› system SRO (requirements of standard ISO 14001:2015), ›› system VZD (requirements of standard ISO 45001:2018) and ›› system SVI (requirements of standard ISO/IEC 27001:2013). iSVK does not only meet the requirements of the certification systems, but also integrates and ensures the coherent operation of the company also with the requirements three non-certification systems: ›› requirements for risk management (standard ISO 31000), ›› requirements for the Family friendly company certificate and ›› requirements arising from social responsibility (standard ISO 26000). Figure 16: Integrated quality management system within Elektro Gorenjska Company Systematic implementation of policies, strategies and objectives and organization plans are enabled by clear and mutually linked processes, which are optimized, managed, controlled and improved every day. In 2019 the company Elektro Gorenjska monitored and controlled its business with the help of 46 identified and interconnected business processes, which it manages through laws, organizational regulations and work instructions. Operation of business processes was monitored with the help of 205 established quality indicators, and 31 identified risks. In 2019, 76 proposals – measures, improvements, were submitted that helped to improve the functioning of the system and encourage employees to seek improvements and additional measures that have a positive impact on the Company’s good operations and encourage additional employee commitment and environmental management. At the same time, it proves that the Company is fulfilling its commitments to continuous improvement and constant growth. Trend of increasing the quality of implementation of individual business processes of Elektro Gorenjska is reviewed quarterly and discussed at the meetings of the Quality Committee, where activities of other management systems are also reported. In Elektro Gorenjska we are aware that all employees are responsible for the success of the company. For successful development and growth, their satisfaction and their commitment are crucial, which is also a key goal of the Family Friendly Company Certificate. As a result, since 2015 Elektro Gorenjska Company has been implementing as many as 16 family-friendly measures aimed at improving the overall well-being of its employees in the workplace. 45001 14001 9001 Corporate communication System of continuous improvement System VZD System SRO System SVK 31000 IEC 27001 26000 System SVI Family friendly company Social responsibility System OT Internal/external assessments of quality management 4.2 Integrated quality management system of Gorenjske elektrarne Company In the Gorenjske elektrarne Company quality and excellence are reflected in business processes established according to revised standard ISO 9001:2015 and excellence model EFQM. As the first company in the electric power system Gorenjske elektrarne Company has established an energy management system according to standard ISO 50001:2011, which improves energy efficiency, while in 2019 it was certified as the first energy company under the new version of the international standard ISO 50001:2018. It currently manages the following two certified systems: ›› quality management according to requirements of ISO 9001:2015, Q-1864, edition 03 / 2019-02-18, annex Q-1864/03 (valid until 16.12.2020) and ›› energy management system ISO 50001:2011, En-014, edition 03 / 2019-11-11, annex En- 014/03 (valid until 21. 8. 2021) and ISO 50001:2018, En-014, edition 04 / 2019-11-11, annex En-014/04 (valid until 11. 11. 2022) Renewed quality management system according to the ISO 9001: 2015 standard was integrated into the energy management system according to the ISO 50001: 2011 standard. We are still the only company in the power industry and the second in the energy sector that has obtained the ISO 50001 certificate for energy management. A revision of the ISO 50001:2018 standard was adopted as well, which we implemented as the first energy company in 2019 when the three-year term since we have been certified with the ISO 50001 standard for energy management for the first time. Focus of energy management was to integrate standard SIST EN 50001:2018 into the quality management system and thereby establishing connection with the SIST EN 9001:2015 standard. We are introducing improvements in monitoring approaches and activities in implementation of ISO 50001:2011 standard, which we received in the certification process in November 2016. Through ISO 50001:2011 standard and ISO 50001:2018 standard, the company has developed and implemented an energy policy and set a framework and targets and action plans which take into account legal requirements and information about significant energy use. Further we are developing new services in the field of energy efficiency and energy management for use in our own and marketing projects. Therefore references represented by quality standards are important and are provided by the standard in the field of energy management. Interconnection of the processes of the company Gorenjske elektrarne and GEK Vzdrževanje Company and strategic connections in the field of establishing joint energy engineering in the Elektro Gorenjska Group and improvement of technological, business and organizational flows will also be a permanent task in the field of quality management system for the period 2020-2022. Transition to revised standards 2020 – 2022 In the period 2020 - 2022 the company will continue with its activities in the field of improvements, monitoring of legislation in terms of processes, in terms of energy management and in terms of environmental management and in accordance with the new requirements it will modify and supplement the existing processes. In 2020 there will be a regular audit of ISO 90001:2015, while in 2022 a regular audit of USO 50001:2018, in between there will be annual renewal audits conducted by an authorized organization for implementation of external audits of quality management systems. 4.3 Risk management in Elektro Gorenjska Company Risk management system is one part of our integrated quality management system (iSVK). Systematic management of risks and continuous or regular monitoring of changes that could affect the realization of risk, is an important condition for successful and efficient reaching of the set long-term business goals. Process of risk management includes the identification, assessment, planning and implementation of responses and information, communication and control of risks and their control measures, including reporting on the risks to which the company is or might be exposed in its operations. In addition to managing the risks already identified, the risk management system must also effectively and timely identify new risks. Foundation of risk management is their identification by type of risk and assessment of individual risk severity. According to the type of identified risk in Elektro Gorenjska Company we classified them in financial, business and operating risks. Risk severity is assessed as a product of two dimensions of risk: probability of risk materialization and extent of the damage, which materialization of the risk could represent for the company. Loss or damage adversely affects the business success of the company. Based on the assessment of severity of individual risks, they are classified into three groups, as presented in the figure below. In 2019 a large part of the identified risks in Elektro Gorenjska Company came from the field of business risks, related to the activity of distribution, which the company implements under the contract with SODO, d. o. o., as the Company makes the majority of its income under this contract. Business risks thus relate to the ability to provide adequate electricity infrastructure, human, material and financial resources for the long-term and stable implementation of the company’s core activity (electricity distribution), and are followed by financial and operating risks. Figure 17: Risk severity assessment matrix Legend of influence degree: 1 2 3 4 5 potential business loss =< 100,000 € potential business loss > 100,000 € in =< 0.5 mio € potential business loss > 0.5 mio € in =< 2 mio € potential business loss > 2 mio € in =< 10 mio € potential business loss > 10 mio € 5 10 15 20 25 4 8 12 16 20 3 6 9 12 15 2 4 6 8 10 1 2 3 4 5 Impact Legend of degree of occurrence probability: 1 2 3 4 5 Occurrence of unwanted events is completely unique. (Frequency: at least once in a 21 year period.) Event is not particularly probable, but cannot be excluded. (Frequency: at least once every 10 years.) Event can happen only occasionally over a period of time, the more likely it is a random event. (Frequency: at least once during a 6 year period.) Event can happen several times over a certain period, it is an often threat. (Frequency: at least once in a 4 year period.) Probable event occurs often with a constant risk. (Frequency: at least once every 2 years.) Probability High risk (critical risk) Significant risk (necessary to monitor) Medium and small risk 4.3.2 Significant financial risks ›› Risk of investments in subsidiaries Company Elektro Gorenjska has the following important investments: Gorenjske elektrarne, d. o. o., 100 % share and ECE, d. o. o., 25.6744 % share. Investment values represent an impact risk (positive or negative) on the operating result of the parent company. Company manages the risk of both investments as an active owner. ›› Credit risk of business partners and distribution system users payments On the basis of the Contract for leasing the electricity distribution infrastructure and the provision of services to the operator, the company collects customer payments in its own name and for the SODO Company account. In doing so, it is exposed to credit risk, because despite any unpaid overdue claims of customers, the company has to settle all its liabilities to SODO. Company also faces the risk of non-payment in the provision of market services. In both cases the risk is first and foremost managed by careful monitoring of receivables and implementation of recovery procedures. ›› Liquidity risk or risk of short-term insolvency Company could have major liquidity problems, mainly due to uneven inflows and outflows, and long-term procedures for obtaining long-term loans and possibly larger uncontrolled exceeding planned investments. Company manages the risk through implementation of recovery procedures, financial plan- ning, timely implementation of procedures for obtaining debt resources and financial control over the volume of investments. ›› Interest risk Company borrowed more than half of long-term loans at a variable interest rate that could increase in the event of a greater economic activity and measures of central banks in the EU, which would have a direct negative impact on the result of operations due to higher financing costs. ›› Inadequate payment of EG services by SODO Inappropriate payment of EG services by SODO may occur due to: requirements for provision of services that are not subject to a contract with SODO, dispute concerning the quality of the service performed and charged by the Elektro Gorenjska, inadequate decision of the Agency to determine the regulatory framework. We manage this risk by actively negotiating with the parties to the Contract with SODO. ›› Lack of investment funds Realization of the risk could occur if the company fails to provide funds for the realization of planned investments due to lack of own funds or due to the inability of the company to borrow to the required extent. Company manages the risk through appropriate financial planning and sustainable long-term borrowing. 4.3.3 Significant operating risks ›› Risk of serious injury and death at work Due to the nature of the work, the company faces the risk of serious injuries and deaths at work, which may be the result of incorrect procedures at work, negligence of employees and external influences. Risk is managed by implementing a comprehensive set of safety and health at work measures and by taking out accident insurance for employees. ›› Public procurement implementation process Public procurement procedures may result in compliance risks, prolongation of procedures due to complaints by the tenderers, insufficient competition or even collusion between providers. Risk can have the greatest adverse effect on the implementation of investment and maintenance work, and is managed by compliance with the law and proper scheduling and coordination. ›› Impartiality and independence of the Measurement Laboratory There is a possibility of influencing the result of the control of the measuring laboratory, which would mean a loss of its credibility and functioning. Company manages the risk through appropriate organizational placement and compliance with certification requirements. 4.3.4 Internal Audit Since 2012 Elektro Gorenjska has established an independent support function of internal audit, which covers the operation area of the entire Group. Organization wise, the internal auditor reports directly to the chairman of the board, while function wise it reports to the audit committee or the supervisory board. In 2019, the internal audit carried out nine audits. Special attention was paid to the areas of investments, procurement, maintenance, execution of strategic projects, and management and project management of the IT function. In addition, it regularly monitored the implementation of the recommendations made and followed the risk management in Elektro Gorenjska Group. Internal audit in the framework of individual audits assesses and checks the adequacy and effectiveness of the operation of internal controls. Internal audit estimates that the internal control system in the company is in place and appropriate, and there are possibilities for its improvement, to which it refers with the issuing of recommendations. 4.4 Risk management in Gorenjske elektrarne Company Company Gorenjske elektrarne is aware of the necessity for timely and advance identification of all types of risks. On this basis, the Company adopted the Rules for the Identification and Assessment of Risks. Risk management is a process for identifying and evaluating, managing and controlling possible events that could have an adverse impact on the company. Risk management involves providing appropriate assurances in order to achieve the company’s objectives. Basis of the final risk management is their identification and assessment of the severity that the company assesses as a product of the probability of risk materialization and effects on the company’s operations and is graphically depicted in the matrix below. Figure 18: Evaluation of risks In Gorenjske elektrarne Company the following risks are considered the key ones: Reduction of supports for electricity generated from OVE Company recognized as one of the major risks the risk of reducing supports for electricity generated from renewable energy sources. In this context, we evaluate the risk that the government will, in any way, reduce the already approved supports within a single power plant or source of production by means of a regulation or a decree. Indirectly, we can avoid the risk or mitigate its materialization with other revenue sources, especially in the area where revenues are not linked to supports for electricity produced. Risk of weather conditions Gorenjske elektrarne Company is decisively linked to weather conditions in its primary activity, electricity production. About 90 % of the volume production comes from hydroelectric plants whose production is decisively affected by the amount of precipitation. It can also swing +/- 25 % around the long-term average. Also, the operation of solar power plants depends on the insolation, and the operation of the SPTE on mild or cold winters. Risks are also associated with changes in climatic conditions due to the warming of the atmosphere. Company manages this risk primarily through a development policy that is intensely focused on diversifying revenue sources and introducing new types of revenues from energy efficiency projects, thus reducing the share of sold electricity in sales revenues in the long run. Market risk – decrease in the sales price of electricity Gorenjske elektrarne Company is exposed to fluctuations in the market price of electricity when selling electricity produced. Company manages the risk mainly by the ongoing monitoring of all factors that affect the price and the consequent anticipation of price developments. On the basis of analyses, the Company decides to sell electricity for future periods. Customer is selected on the basis of the best offer. Risk of fluctuations in electricity prices is significantly controlled by the Company by selling the production of individual power plants in the system of operating supports. Borzen, for each kWh produced, adds a difference in the form of support. Availability of production capacity As a concessionaire, the Gorenjske elektrarne Company must regularly maintain water infrastructure facilities and aquatic land owned or possessed by it. Loss of production in combination with the machinery breakdown as a result of average, unplanned downtime and poor maintenance can make a significant loss of revenue for the Company. Therefore, the Company ensures that failure of production units does not occur by performing regular monitoring, enhanced monitoring in case of adverse weather conditions and planned and ongoing maintenance. In the event that a production failure occurs, the Company, by engaging employees and own funds or with the help of outsourcers, ensures the elimination of faults as soon as possible. All production facilities are also mechanically protected and fire protected, while the largest five solar power plants and five largest hydro power plants are insured also in the event of a loss of income from the machinery breakdown or fire. Impact of Qes requirements Qes is the economic minimum flow that must be provided when capturing water for generating electricity from the HPPs. Possible change, especially in the direction of the increase in Qes due to the introduction of water permits (previously a concession), would mean a decrease in production capacity in the hydrological sector and a consequent decrease in revenues in this segment. Company manages this risk through an appropriate dialogue with the Ministry of Infrastructure and the Ministry of the Environment and Spatial Planning as well as through a revenue diversification. IT risk In the context of IT risk, we identified the following risks: risk of data security against external intrusions and abuses, risk of unreliable business support due to unreliability of the system, risk of quality of IT services by external IT provider. Company manages the risk through a binding contract with an information service provider. Non-economy of purchases and inadequacy of investments In the context of the risk of non-economy of purchases, we mainly recognize the risk of purchasing material and services at prices that significantly deviate from average market prices. In the case of investments, we recognize the risk of implementing economically ineligible investments. Company manages the risk through the process of obtaining more bids for the same material or service, and of course with procedural instructions and measures in the entire system of purchasing materials, services and investments. Risks related to safety and health at work In this segment, we primarily recognize the risk of serious injuries and death at work. Company manages the risk by compulsory use of protective equipment, training and implementation of other legislative requirements in the field of safety and health at work. In addition, all employees are collectively accidentally insured. Environmental risks In operation of hydroelectric power plants, environmental risks arise in terms of the impact of power plants on the environment, groundwater and fish in waters. The greatest risks are the installation of mechanical and electrical devices that contain oils and, where in case of a possible discharge pollution of the environment and water could occur. Company manages environmental risks with high standards in the construction of production facilities and the placement of production facilities into space. Possible interventions in the riverbed are dealt with professionally, on the basis of prepared solutions with the elaboration of a water management company and with minimal environmental impacts. Company has concluded insurance to reduce risks, insofar as all preventive measures would still exceptionally result in ecological damage. Impact Probability 1-Minor 2-Small 3-Moderate 4-Big 5-Catastrophic 1-Almost impossible 2-Very unlikely 3-Possible 4-Very likely 5-Almost certain Risk severity: High risk Significant risk Medium and low risk 5 Business analysis of the Group 5.1 Production of electricity In year 2019 the Gorenjske elektrarne Company generated and sold a total of 56,071 MWh of electricity, which is by 4.3 % more than in year 2018. It generated electricity in 15 hydro power stations (hereinafter: HE), of which one power station the company is renting from the founder Elektro Gorenjska Company since its establishment, as well as in 19 solar power stations (hereinafter: FE). Besides that the company produced heat and electricity in six high-efficient cogenerations (hereinafter: SPTE). Figure 19: Electricity produced (in MWh) in period 2015–2019 , Figure 20: Electricity produced (in MWh) in HE by months of year 2019 Figure 21: Electricity produced (in MWh) in FE and SPTE by months of year 2019 Of renewable energy sources the company Gorenjske elektrarne uses water sources (hydro power stations) as well as solar energy (solar power stations) and natural gas and wood biomass (cogenerations). Operation of hydro power stations to a great extent depends on natural resources - current rainfall, which impacts the quantity of water in water courses, as hydro power stations do not have their own accumulations in general. This means that in the event of heavier rainfall high-rise waters spill over devices, so hydro power stations are not able to utilize high waters for electricity production. In dry seasons water courses dry out heavily, which again means limited and in extreme cases even disabled electricity production. Quantity of produced electricity in hydro power stations does not only depend on the quantity of water, but also on difference in altitude of the water drop, geographical location of individual power station and other characteristics influencing electricity production in hydro power plants. Advantage of utilization of hydro power is mainly the use of renewable energy sources (hereinafter: OVE), while its weakness is fluctuation of production according to water availability. Construction of hydro power plants also represents a great intervention in the environment and brings high investment costs. Besides that in the regime of water course utilization we need to consider also requirements set by fishermen and environmentalists. In solar power plants it is mainly about direct transformation of solar radiation into electricity. Main advantages of solar energy utilization are: environment friendliness, possibility of supply in remote areas, production and consumption at the same location. Main problem of solar energy utilization occurs due to different solar radiation. Co-generation of electricity and heat is simultaneous production of electricity and heat. It represents the method of converting the fuel energy into electricity, where main part of heat, which occurs as side product during this conversion, is put to good use. Different technologies enable the use of various fuels with different efficiencies. What all technologies have in common is the total more efficient process of converting the energy for the good use of the heat, which is otherwise present in traditional thermal power plants. Advantage of acquiring electricity in this way is mainly in efficient conversion of fuel energy into useful heat and electricity. Mentioned ways also reduce the dependence on the existing ways of acquisition of electrical energy. Most or 67.8 % of the total revenues from the sale of electricity in Gorenjske elektrarne Company is generated in HE, followed by FE with 24.3 % and SPTE with the smallest share (7.9 %). Figure 22: Share of revenues from electricity sales by individual production sources in year 2019 7.9 % 24.3 % 67.8 % 5.2 Quantities of distributed electricity In year 2019 there were 1,161,866 MWh of distributed electricity through the network of Elektro Gorenjska Company or 1.1 % more than in year 2018 (1,149,085 MWh). As can be seen in the figure below, quantities of distributed electricity have been increasing since 2015. In all these years we also recorded the growth of the GDP. Figure 23: Changes in distributed quantities of electricity and GDP from year 2015 to year 2019 In year 2019 household customers within the network of Elektro Gorenjska Company were distributed 347,411 MWh of electricity, which is by 0.8 % more than in year 2018 (344,606 MWh). Business users were distributed 814,455 MWh of electricity, which is by 1.2 % more than in year 2018 (804,479 MWh). GDP growth GWh 2019 GDP growth 5.3 Quality of electricity supply Users of electricity expect the electricity to be available when they need it (reliability/continuity of supplies) and that all devices operate safely and satisfactory (power quality). In addition every day new customers appear as well as increasing number of electricity producers, which are connecting to the distribution network or wish to change the conditions of their connection. Number of services are needed, which have to be performed in an expected time and way foreseen by the legislation. Quality of electricity supply thus includes: ›› continuity, ›› power quality and ›› commercial quality or quality of services offered by the company to network users. Continuity Continuity has been followed in accordance with the legislation. According to the report from AGEN the the indicators in 2019 are within the prescribed limits. Indicators presented below are defined in the Act for monitoring quality of electric power. Table 10: Unannounced long-term interruptions according to type of network in year 2019 Own Foreign Force majeure Total SAIFI SAIDI CAIFI CAIDI SAIFI SAIDI CAIFI CAIDI SAIFI SAIDI CAIFI CAIDI SAIFI SAIDI CAIFI CAIDI [interr./cust.] [min/cust.] [interr./cust.] [min/interr.] [interr./cust.] [min/cust.] [interr./cust.] [min/interr.] [interr./cust.] [min/cust.] [interr./cust.] [min/interr.] [interr./cust.] [min/cust.] [interr./cust.] [min/interr.] Total urban 0.337 7.735 0.849 22.977 0.022 0.151 0.355 6.971 - - - - 0.358 7.886 1.558 22.008 Total mixed 0.053 1.558 0.134 29.363 0.002 0.061 0.032 31.332 - - - - 0.055 1.619 0.197 29.433 Total rural 0.342 8.590 0.862 25.122 0.046 1.222 0.760 26.295 0.008 1.887 1.575 249.690 0.396 11.699 2.383 29.547 Total 0.732 17.884 1.844 24.442 0.070 1.433 1.147 20.456 0.008 1.887 1.575 249.690 0.809 21.205 4.566 26.201 Table 11: Announced long-term interruptions per customer in the year 2019 SAIFI SAIDI CAIFI CAIDI [interr./cust.] [min/cust.] [interr./cust.] [min/interr.] Total urban 0.073 8.546 0.307 117.787 Total mixed 0.031 7.319 0.131 236.268 Total rural 0.192 25.375 0.812 132.317 Total 0.295 41.240 1.251 139.652 Table 12: Number of momentary interruptions per user in year 2019 Rural Urban Total 2019 MAIFI 2.1 1.4 3.5 MAIFIe 1.4 0.9 2.3 Figure 24: SAIDI - Average time of duration of all unannounced long-term interruptions Minutes/customer Unplanned Unplanned Foreign cause Unplanned Force majeure Unplanned Proper Unannounced values of SAIDI indicator decreased compared to the previous years, but are within comparable limits from years 2015 and 2016. Reasons for the decrease in the duration of unannounced long-term interruptions were more lenient weather influences and faster and better elimination of defective parts of electric power devices (hereinafter EEN) from operation. This was the result of more contemporary EEN, higher number of remotely controlled EEN and better trained staff in the field of electricity system operation in Gorenjska region. Values of planned interruptions have slightly deteriorated, which means that better maintenance will be required in the future, and in the event of not reaching the set goals it will be necessary to implement planned interruptions to a greater extent by oversupplying customers and use of generators. Figure 25: SAIFI – Average number of all unannounced long-term Interruptions/customer Unplanned Unplanned Foreign cause Unplanned Force majeure Unplanned Proper Unannounced values of SAIFI indicator have also decreased compared to the previous year, but they are within comparable limits from 2015. Reasons for the decrease in the number of unannounced long-term interruptions were more lenient weather influences and faster and better elimination of defective parts of electric power devices from operation. As with the SAIDI indicator, recommendations from the previous indicator will have to be taken into account also with indicator SAIFI. Figure 26: MAIFI in MAIFIe – average number of all momentary interruptions Interruptions/customer Unannounced values of indicators MAIFI and MAIFIe have decreased compared to the previous year, but are within comparable limits from 2015. Reasons for the decrease in the number of unannounced short-term interruptions were more lenient weather influences and additional transition from above-ground to the cable network on medium-voltage level. Voltage quality We find that situation in the field of power quality has not changed substantially compared to year 2018. Cause for inconsistent voltage conditions is mainly the flicker, which is transmitted from high voltage transmission 110 kV network (hereinafter: HV) and spreads to lower voltage levels. In year 2019 other parameters were throughout the measurement in accordance with the requirements of SIST EN 50160 standard. During the year we received ten official complaints on the condition of voltage quality on the low-voltage level (hereinafter: LV), of which two proved to be justified. We try to eliminate inconsistencies as quickly as possible and within statutory deadlines. Table 13: Consistency of power quality parameters with the SIST EN 50160 standard on high voltage level for year 2019 Deviation Uef Harmo- nica Flicker Imbalance Signal voltages Frequency Voltage drops Voltage increases Consistency KEE Facilities Number of weeks under control Number of inconsistent weeks No. of con­sistent weeks No. of incon­sistent weeks RTP Jesenice 110 kV 51 0 0 48 0 0 0 50 25 3 48 RTP Radovljica 110 kV 51 0 0 48 0 0 0 160 7 3 48 RTP Tržic 110 kV 51 0 0 48 0 0 0 48 27 3 48 RTP Primskovo 110 kV 51 0 0 48 0 0 0 48 21 3 48 RTP Zlato polje 110 kV 51 0 0 48 0 0 0 49 28 3 48 RTP Labore 110 kV DV Okroglo 51 0 0 47 0 0 0 52 22 4 47 RTP Škofja Loka 110 kV DV Okroglo 51 0 0 10 0 0 0 56 16 41 10 RTP Škofja Loka 110 kV DV Klece 51 0 0 13 0 0 0 57 24 38 13 RTP Bohinj 110 kV 51 0 0 38 0 0 0 16 2 13 38 We can conclude that the voltage quality status in the area of Elektro Gorenjska is good and that with the construction and maintenance of communication and measuring infrastructure on the LV level we would even further improve the process of establishing and eliminating the inadequate voltage conditions. Commercial quality In most commercial quality parameters for year 2019 we established that average achieved values of indicators were essentially better than the limits of minimum quality standards. In some indicators, there were deviations of individual cases above limit values. Share of more than 10 % of services provided above the limit value was exceeded in parameters No. 1.1, 1.2, 2.1 and 3.3. In parameter 1.1. “Average time to issue consent for connection” the reason for lower share of services above the limit value (25 %) was the fact that data according to the General Administrative Procedure Act (ZUP) refer to summary and declaratory proceedings together. ZUP otherwise defines that in summary proceedings permissible time of issue of the order is 30 days, while in declaratory proceedings, where oral hearing is implemented as well, it is 60 days. For parameter no. 1.2. reason for delays in issuing some of the pro forma invoices was the insufficient staffing given the high volume of demand. With parameter 2.1. “Average time taken to answer written questions, complaints or requests of users”, the share of services over the threshold (15 %) in most cases refers to the complaints of account data associated with the replacement, error elimination or identification of the correct operation of the meter. In these cases it is necessary, before replying to the complaint, for the measurement service to replace, eliminate the error or properly check the meter, which may take longer than eight working days. For parameter no. 3.3. in one of the procedures of rehabilitation of voltage conditions, where a new part of the distribution system had to be built, we were not able to get the consent of the landowners in time, which was the reason for the delay in the implementation of investment. Minimum quality standards (MQS) Achieved values Share of services rendered PARAMETER ID PARAMETER System / guaranteed standard Required level of compliance [%] Limit value Unit Number of all required or executed services Number of eligible exemptions (force majeure, foreign cause) Parameter value Standard deviation Up to and including the limit value [%] Above the limit value [%] 1.1 Average time needed to issue a consent for the connection S 95 20 Working days 1669 0 18.00 53.80 75.00 25.00 1.2 Average time required to issue cost esti­mates (prepayments) for simple work Z 100 8 Working days 426 0 6.00 12.20 88.00 12.00 1.3 Average time needed to issue an agree­ment on connection to the LV network S 95 20 Working days 1626 0 1.00 3.04 99.00 1.00 1.4 Average time needed to activate the connection to the system Z 100 8 Working days 2143 0 2.20 12.66 97.00 3.00 2.1 Average time needed to answer written questions, complaints or user requests Z 100 8 Working days 487 0 5.10 0.70 85.00 15.00 2.2 Average call hold time in call centre - 0 0 - 48988 0 15.00 11.24 - - 2.3 Call centre service level parameter - 0 0 - 48988 0 93.09 - - - 3.1 Average time to restore power in the event of a fault on the current limiting device (6:00-22:00) Z 100 4 Hours 2341 0 0.89 1.20 99.00 1.00 3.2 Average time to restore power in the event of a fault on the current limiting device (22:00-6:00) Z 100 6 Hours 36 0 1.00 0.92 100.00 0.00 3.3 Average time needed to answer a com­plaint regarding the quality of the voltage S 95 30 Working days 10 0 14.10 3.70 100.00 0.00 3.4 Average time needed to solve voltage quality deviations S 50 6 Months 3 0 22.90 19.50 66.00 34.00 4.1 Average time needed to eliminate meter failure Z 100 8 Working days 619 0 2.71 6.00 93.00 7.00 4.2 Average time to restore power due to non-payment of user Z 100 3 Working days 316 0 0.20 0.91 100.00 0.00 Table 14: Commercial quality parameters for year 2019 Losses in the distribution network Share of losses in the distribution network is lower year by year. In 2019, losses were 4.0 %, which is the lowest loss to date. Figure 27: Share of losses in the network from 2015 to 2019 share of losses in network Comparison with data from other distribution companies in Slovenia Elektro Gorenjska Company constantly strives to ensure the highest possible level of quality of customer care. From the company’s annual reports and the data provided by individual companies in 2019, it follows that in this area Elektro Gorenjska is the most successful among all distribution companies. This is illustrated in the following figures. Figure 28: Parameter SAIDI for unplanned long-term interruptions (own causes) in the period 2015–2019 Figure 29: Parameter SAIFI for unplanned long-term interruptions (own causes) in the period 2015–2019 Fact that Elektro Gorenjska Company is very successful in the field of quality of supply is also confirmed by the information that the company reaches significantly lower values of SAIDI and SAIFI indicators for unplanned long-term interruptions of its own cause than those defined in the Act on the methodology for determining the regulatory framework and the methodology for charging the network charge for Electricity Operators issued by the Energy Agency. SAIDI target level of the SAIDI parameter specified in the Act is 90 min/ userr, and the target level of the SAIFI indicator is 2.35 interrupt / client. In Elektro Gorenjska SAIDI indicator reached the value of 17.8 min/ user in 2019 and the value of the SAIFI indicator was 0.73 interruptions / user. Achieved values are significantly below the AGEN target values, but above all they are better than the achieved values in 2018. 5.4 Investments In year 2019 Elektro Gorenjska Group invested 16.9 million €. Major investments are presented below. Within investments in high-voltage network which amounted to somewhat less than 3.4 million €, the major ones are: ›› 2x110 kV power line (hereinafter: DV) Kamnik - Visoko: In 2019, we started the procedures for obtaining a building permit. We prepared a project with the necessary studies for obtaining consents, carried out land valuation and started concluding easement agreements, and about half of them have already been implemented. ›› 110 kV DV Soteska – transformer station (hereinafter: RTP) Bohinj: Due to age and consequents poor condition, it was necessary to replace the DV ropes. According to development studies, this one was planned in 2023, but in 2018, when we restored or reconstructed two DV poles as a result of the windbreak, it turned out that it makes a lot of sense to replace DV equipment and ropes due to their wear. Works were fully completed by the end of 2019. In 2020, the final takeover will follow after deficiencies have been eliminated. ›› RTP 110 /20 kV Brnik: In 2018, a building permit was obtained for a new distribution station (hereinafter: RP) – RTP Brnik. This was followed by the construction of the facility, the supply and installation of equipment, and at the end of the year a technical inspection. In 2019, tests and connection to the 20 kV network took place. Obtaining a use permit is planned for 2020. ›› RTP 110/20 kV Bohinj: In 2019, a renovated power transformer from RTP Zlato polje was supplied and installed, and an additional sector of 20kV cells with control and protection was installed in the substation, which we purchased and brought from the abandoned RTP Sava. ›› RTP 110/20 kV Kranjska Gora: In 2019, the extension of the existing 20 kV switchyard to the third sector was planned. Reason is the constant increase in consumption and load in the area of Kranjska Gora in recent years (especially the construction of a new Nordic Centre in Planica and artificial snow production, and the construction of a cable car for Vitranc). ›› RTP 110/20 kV Škofja Loka: In 2018, we started the process of obtaining a building permit for a new 110 KV switchyard. At the same time, the 20 kV cell sector was upgraded to expand the 20 kV network in the Škofja Loka area. In 2019, the assembly of cells followed. Value of investments in medium (hereinafter: MV) and low-voltage network (hereinafter: LV) in year 2019 amounted to 9.7 million €. ›› In 2019, we carried out expansions and renovation of the MV network, especially the rehabilitations of critical part of the network or to ensure better robustness of the network In 2019, we also spent a large share of financial resources on the construction of a new cable network and associated cable duct in the area of the Brnik airport complex. We continued with the cabling in the Kokra valley from Jablanca to Celar and from Jezerski vrh to Ravne. Intensive cabling also took place in the municipalities of Bled and Radovljica, Bohinj and Škofja Loka. With this, we eliminated some of the most critical points on the 20kV network, where there were frequent outages due to wind and also ice. In 2019, we laid 41.5 km of MV cable conduits and newly built 21 transformer stations (hereinafter: TP). ›› With additional funds approved for investment needs, we increased realization on the low voltage facilities, especially in the field of arranging the LV network cabling in parts where we have carried out construction work together with municipalities in recent years. We continued this practice in municipalities that were still building their municipal infrastructure. In 2019, we laid 69 km of LV cable conduits. ›› In 2019, the growth trend in the number of new constructions and the increase in the connected load further increased, which affected the greater scope of expansion and strengthening of arts of the LV network. Funds were also intended for the processing of measuring points in accordance with the typing within AMI project, which at the same time also regulates measuring points by individual facilities in accordance with the adopted typing. Result of constant and targeted investments is also reflected, among other things, in increasing the share of the network in the cable design. At the end of 2019, 65.3 % of the entire MV network and 86 % of the entire LV network were in the cable version. Compared to eh end of 2018, the share of HV and MV network in cable implementation increased by 1.5 percentage points, and the share of LV network by 0.8 percentage points. Figure 30: Share of the network in the cable design from year 2017 to year 2019 LV voltage (%) Share of measuring points in the remote measurement system (%) MV voltage (%) Among other investments (3.3 million €) the following were significant: ›› telecommunications and protection (new optical connection between RTP Primskovo and RTP Zlato polje), ›› measuring devices (AMI project – 11,592 meters in year 2019), ›› business and technical equipment, ›› integration of the new Geographical Information System (hereinafter: GIS), ›› renovation of HE Standard, ›› energy rehabilitation of the Najdihojca Kindergarten within the consortium with Municipality of Kranj. Each year Elektro Gorenjska Company increases the share of measuring points (MM) in the remote measurement system. Growth of the share at the end of year 2019 was 66.6 %, while growth of the share compared to year 2018 amounted to 10.7 percentage points. Figure 31: Share of measuring points in the remote measurement system in years 2017, 2018 in 2019 5.5 Maintenance of energy facilities Elektro Gorenjska implements all tasks of the distribution network system operator in its geographical area. Among these tasks maintenance of electricity infrastructure is of special significance. We implement these tasks successfully mainly due to optimum organization and competences of employees, who are closely connected to everyday developments on the field. Knowing the local environment, local situation and organizing and deciding on all aspects of maintenance are the key to quality electricity supply today and in the future too. Maintenance is divided into preventive and repair maintenance. In year 2019 mainly preventive maintenance on the infrastructure was performed with the aim of reducing the likelihood of a failure of facility’s component part or system, which is achieved with appropriate interventions executed according to the criteria, which are determined in advance. Preventive maintenance included inspection of electric power devices, execution of clearings in power lines and low-voltage overhead lines corridors, revision of transformer stations, switches, transformers, protection devices, carrying out control measurements and operating tests of protective devices. For the purpose of preventing unplanned interruptions, in the past year we started with the systematic implementation of diagnostic measurements on MV cables. As in previous years also in the 2019 we continued to actively perform audits of transformer stations with the method of work under tension (hereinafter: DPN). Following charts show the share of contribution of DPN and use of alternative power supply with diesel generators (hereinafter: DA) on the value of the indicators or simulation of the value thereof in the case, it would be necessary to carry out the work without power. Figure 32: SAIFI - Average number of announced interruptions per user in years Number Share of SAIFI DPN of 0.1 in practice means that in year 2019 more than 8,500 electricity consumers did not feel the implementation of maintenance work on the network. If the works were not carried out using the DPN method, the value of the indicator would be 0.39 and not the actually reached 0.29. Figure 33: SAIDI - Average number of announced interruptions per user in years 5.6 Development and design of the power system Development of the electricity system in Elektro Gorenjska Company is organized within the joint Service for Development, Investments and Maintenance. Work scope provides necessary knowledge for the needs of development of new technologic solutions, systems, and processes of electricity distribution and other services, which the company is obliged to provide in accordance with its mission. By preparing modern development plans the development service directs the investments in new devices and provides for suitable renovations of the existing devices, mainly by introducing new and modern technologies. Tasks are performed in the following fields: ›› planning the consumption and production of electricity (making of development plans according to EZ-1, data processing for studies, conference papers, justifications and users, cooperation in preparing and processing of BTP and making of consumption and production prognoses), ›› development of Elektro Gorenjska network (cooperation in studies, planning, and processing of HV, MV, and LV networks, solutions for larger customers, network formation, studies’ reviews and proposals of new ones, cooperation in preparing the conditions for connection to the network and counseling), ›› introduction of new technologies and typing (following and introducing new technologies and typing, preparing project works and cooperating in creation of concepts and plans). In Elektro Gorenjska Group business processes are implemented in accordance with the valid legislation, which prescribes the company to use modern technologies as well. For this purpose the Group together with education institutions and companies with research departments in the field of electricity distribution technologies in accordance with the annual investment program introduces also new progressive products. Introduction of new technologies is conditional on the progress in the field of development, current demands of the company, and possibilities within the framework of annual investment programs. For the purposes of certain investments from the 2019 investment plan, different expert studies, preliminary studies, concepts, and different project documentation in the mentioned development fields have been made in cooperation with the education institutions. Investments, which foresaw acquisition of mentioned development documents, are for the most part technologically more demanding and cover all investment fields implemented. In 2019, an important development study of REDOS 2040: the development of the electricity distribution network of Slovenia continued. In the field of development and implementation of modern distribution technologies, Elektro Gorenjska Company continues to actively participate in a series of research development projects co-financed by the European Union. In 2019, work on research and development projects Story, TDX - ASSIST and EASY RES continued. ›› In the Story project, company Elektro Gorenjska is in charge of the realization of two demonstration examples of the use of a larger electricity storage. Project explores and practically demonstrates state-of-the-art ways of storing energy in distribution networks. ›› Project TDX-ASSIST (Coordination of Transmission and Distribution data eXchanges for renewables integration in the European marketplace through Advanced, Scalable and Secure ICT Systems and Tools) focuses on the introduction and testing of state-of-the-art information-communication technologies in the framework of vertical connections between distribution and transmission network operators. ›› Project EASY RES (Enable Ancillary Services By Renewable Energy Sources) is designed to study the various dispersed energy sources in an environment with a large number of dispersed sources. Large majority of the documentation for the implementation of investment and maintenance projects is also prepared within the Group. Figure 35: Information on the number of project documentation made from 2015 to 2019 Using the DPN method we managed to reduce the average duration of the interruption per user by 23 minutes, and by providing replacement power supply with DA another 13 minutes. Instead of 77 minutes we thus reached an average time of interruption duration per customer to 41 minutes. Each year as part of routine maintenance we carry out approximately 300-350 audits transformer stations. As in the past few years, also in 2020, we plan to continue the implementation of audits in transformer stations with DPN method (work under voltage). Field of repair maintenance in year 2019 represented another kind of maintenance, which is unpredictable in terms of time and it can only be roughly estimated based on the past events. Reasons for failures were various, from weather conditions, failure of equipment to cause of damage by a third party. Problems were also caused by local storms and heavier downpours in summer months. We also need to stress the influence of modern technological devices and solutions, which technically ensure fulfillment of strict criteria of quality of electricity supply, safety of operation and have an indirect effect also on reduction of maintenance costs. They undoubtedly include modern high and medium-voltage equipment, capturing data systems and distribution network remote control (RCC – remote control centers), automation of medium voltage network by remote control switches, systems of power quality registration, telecommunication systems, advanced software and similar. Repair maintenance costs in 2019 amounted to 347 thousand € and were the lowest in the last five years. Figure 34: Changes in maintenance costs from y 2015 to 2019 (in €) in 000 € Preventive Repair Number Foreign projects Projects for Elektro Gorenjska 5.8 Market services In accordance with the development plans , we are making the necessary investments in the electricity network, with which we are providing a reliable and quality electricity supply to users in Gorenjska region. Both EU and Slovenia have committed themselves to relatively ambitious goals in the field of efficient energy use (hereinafter: URE), increasing the use of renewable energy sources (hereinafter: OVE) and reducing greenhouse gas emissions. In accordance with the guidelines , Elektro Gorenjska Group also offers various market services to end users, and in the coming years the range of comprehensive energy solutions that will promote URE and OVE will be further increased. Market services offered by Elektro Gorenjska Group are classified in the following sections: ›› Comprehensive design services For users we create complete project documentation for all electricity power facilities, underground and overhead power lines of all voltages, transformer stations (TP, RP, RTP), and low-voltage connecting conduits with account measurements. We advise and help in preparing main files and urbanism of energy facilities, planning of cogeneration units, hydro power and solar power plants, projects for public and street lighting, preparation of projects for electricity infrastructure of industrial, commercial, trade and/or residential zones, and we also cooperate in preparation of electrical installations in buildings. ›› Execution of maintenance and works of power facilities and devices by using modern technologies We offer competitive services in the field of work performance for all types of transformer stations 10-20/0,4  kV, low- and medium-voltage underground and overhead power lines, low-voltage connections for all types of consumption, relocations, recoveries and reconstructions of electricity power facilities, devices and lines. In the field of electricity power facilities and devices maintenance we offer contractual implementation of regular checks, measurements and audits of transformer stations, connection-measuring points, devices and lines on the low- and medium-voltage level by monitoring operational state and record keeping. Currently, we have concluded 82 such contracts, on the basis of which we maintain 79 transformer stations and 49 low voltage connecting and measuring stations of foreign ownership. We offer users also implementation of live work on low-and medium-voltage levels. ›› Implementation of various types of measurements We implement voltage quality measurements under the standard SIST EN50160, load diagrams and measurements on electricity power cables using VLF method. We have a special measuring vehicle, so we can offer our users the services of diagnostic on LV and MV cable conduits. We also implement calibration and security settings of separation as well as other protection for hydro and solar power plants and other dispersed production, and inspections of electrical power elements by thermo-vision. ›› Efficient energy use projects Among the projects of energy efficiency the most important are projects of the so-called contractual assurance of energy savings. Contractual assurance of energy savings is a contractual obligation to exploit the available economic potential for energy savings, including financing measures necessary for efficient energy use. Contractor shall assume all the costs of the design, financing and implementation of energy efficiency measures, and investments shall be reimbursed in the form of a share in the achieved reduction in energy costs, which is a consequence of the implementation of energy efficiency measures. Contracts are usually concluded for a period of 5 to 15 years, depending on the business interest of the entities. At the end of the contract the owner or the user of the infrastructure gets the entire amount of saved energy costs, while they need to re-assume the costs of operation of the devices. We have successfully implemented many such projects through several projects of changing the lighting, replacement of compressed air compressors and in the field optimization of measuring points. For larger projects, the company also acquired grant funds. ›› Energy management Within the product energy management the customers are offered identification of measures to reduce consumption and reduce energy costs, the implementation of these measures, financing of the project at no cost to the client and making recommendations to optimize consumption and reduce energy costs. After the successful implementation the provider and the client share a technically demonstrable savings namely depending on whether the project required investments or not, and for how many years the contract on the implementation of measures is concluded. For this purpose, own information system GEKenergija was also developed, which provides support to the energy and environmental management, and allows for continuous cost management. In 2017, we upgraded the application in terms of a reporting system in order to make the application a unique tool for physical and cost management of energy flows in buildings. Currently, the system is in the process of further development of an application that will also provide energy accounting services. ›› E-mobility E - mobility represents a relatively new concept of sustainable and environmentally friendly mobility. Strategic development of the infrastructure and networks of electric vehicles are also encouraged by the European Union with the directives and objectives to which they are committed by all EU members, as well as Slovenia with its vision of the transition to a low-carbon society by 2050. In the area of greenhouse gas reduction, one of the European Union’s (EU) targets is also 20 million electric vehicles on world roads by 2020. In 2015, we invested in building the first green station for quick charging of electric cars on the location of the shopping centre Merkur Primskovo in Kranj. In addition to this charging station, there are 19 more stations that we own or operate. In 2017 we established a back office and connected to the SUPP system managed by Elektro Ljubljana. We plan to further increase of our own network of e-charging stations, and offer the e-charging stations management also to the wider market. In 2019, a billing system for e-charging stations was set up named “Let’s go for electricity” (“Gremo na elektriko”). ›› Implementation of power checks, energy advisory service and forming solutions for more efficient use of electricity for business users We advise our users, implement various types of energy sources and consumption analysis, we create programs with measures of consumption management and efficient electricity use and prepare appropriate investment documentation. ›› Other market services We offer users rental of diesel generators to the power of 550 kilowatts and rental of working vehicles with a lift or hydraulic platform for working at height. 5.7 Other services under the Contract with SODO In addition to development, investments and maintenance Elektro Gorenjska Company also performs the following activities under the Contract with SODO: ›› Management and operation of the electricity distribution network In the field of announced customer interruptions we focused on optimizing the shutdowns and joining the work into one planned shutdown. We encouraged maintenance by the method of live work (DNP) and thus significantly influence the continuity of supply indicators (5.5 Maintenance of energy facilities). In 2019 we started processing the calculation of power supply continuity indicators on a daily basis. As the first of all Slovenian electricity distribution companies, we succeeded in calculating daily uninterrupted power supply indicators at the beginning of 2020. In this way we will also calculate indicators for year 2019. ›› Implementation of electricity measurement In the field of electricity measuring, we continued with the accelerated installation of AMI meters in accordance with the plan for the introduction of the advanced metering system. Thus, in 2019, we installed an additional 11,592 of advanced electronic meters with G3 technology. At the end of the year, 67,021 measuring points were included in the system of remote reading and monthly billing. Share of remotely read measuring points thus reached 66.6 %. As part of the maintenance plan for measuring devices, regular replacement of meters or statistical sampling was executed, where populations successfully passed all tests. ›› Implementation of access services and other services for the user, connection of users In the field of user connection, in 2019 , the company provided services on average in significantly shorter periods than prescribed by law. Connection of self-sufficient power plants was a special challenge, mainly due to frequent changes and amendments to sectoral legislation. We were the first in Slovenia to carry out the procedure of connecting a group self-sufficiency. Number of issued documents in the connection procedures in 2019 was by 6 % lower than in 2018, but still by 30 % higher than in 2015. Fast course of procedures is the result of optimizing the procedures of issuing the documents and employee commitment.In the field of network access, the Company provided network charge billing and data change services at metering points in accordance with sectoral legislation. Number of services provided is comparable with the number of services in previous year. Based on improvements in information support and work processes, we increased the quality and speed of services provided. 5.9 Financial performance criteria of the Group 5.9.1 Significant indicators Safe level of indebtedness of the Group is monitored by the indicator, which expresses the ratio of NET FINANCIAL DEBT / EBITDA. As at December 31 2019 this amounted to 2.2, which is by 0.1 percentage point less than at the end of 2018 and on the level of planned. Degree of unacceptable indebtedness represents the value of the indicator that would exceed the value of 3.5. This commitment is used by some of the banks in the existing credit agreements. Current ratio shows the solvency. In comparison with 2018 it is by 0.1 percentage points lower and by 0.3 percentage points higher than plan for 2019. Recommended value of the current ratio is equal to 1. Main activity of the Group is the provision of services for SODO and transmitting electricity infrastructure in the lease, under which we have provided the major part of regular monthly inflows, so we believe that the value of the indicator below 1 is still adequate and would not pose problems to the Group in terms of its liquidity. Value of the indicator is largely influenced by short-term financial obligations, which represent the short-term part of long-term loans (amounts, which in accordance with the depreciation plans of loans mature throughout the next year and are smoothly and without delays settled from a positive operating cash flow), which are hired to provide constant investment in electricity infrastructure. Profit ratios tell us that the Group generated profits of 19.3 € per 100 € of achieved revenue, which was 3.0 € of profit less than in 2018 and 1.2 € of profit less than planned. Value added was in the group Elektro Gorenjska in relation to 2018 higher by 0.1% as a result of higher revenues from the sale of electricity. Compared with the planned one it is by 2.9 % higher, which is the result of higher revenues from the sale of electricity, higher revenues from construction for the market and lower costs of goods, material and services. Share of labour costs in value added in 2019 amounted to 37.9 % and was compared to 2018 lower by 1.3 percentage point as a result of higher value added. EBITDA as a proxy cash flow was in 2019 by 113 thousand € lower than in 2018 and by 465 thousand € higher than planned. EBIT as a result of the operations is by 821 thousand € lower than in 2018 and by 22 thousand € higher than planned. . Profit before taxes was by 1,438 thousand € lower than in 2018 and by 409 thousand € lower than planned. Lower profit before tax, EBIT and EBITDA in 2019 compared to year 2018 were mainly due to lower operating revenues, namely the revenues under the contract with SODO (because of the new Legal Act on the methodology for determining the regulatory framework and network charges for the electricity distribution system). Values of the indicators ROA and ROE is relatively low, but in regards of the industry, and regulation, in which the Group operates, they are above average. It is a fact that the values of the indicator ROA adversely affect constant investments. At the same time it must be emphasized that only with constant investments we are able to pursue one of the tasks of the mission namely to provide quality and reliable electricity distribution. Reliability of power supply on the distribution network is measured by the indicators SAIDI and SAIFI (more on quality is explained in chapter 5.3 – Quality of electricity supply), the value of which is the best among the distribution companies and is the result of constant investment in electricity infrastructure. In order for the Group to achieve value of ROA indicator higher by 0.1, it should realize either by 0.15 million € higher net profit or decrease the assets of the company by 3 million €. Operating revenue per employee in year 2019 amounted to 140,040 € and were by 1.3 % lower than in year 2018 and by 2.6 % higher than planned. Compared to the ones reached in 2018, they are lower due to lower revenues under the Contract with SODO (because of the new Legal Act on the methodology for determining the regulatory framework and network charges for the electricity distribution system). Value added per employee in year 2019 amounted to 111,176 € which is similar to the one in 2018 and by 1.9 % more than planned. 5.9.2 Structure of assets and liabilities Group’s balance sheet total of 243 million € at the end of 2019 is increasing year by year. Figure 36: Changes in balance sheet total in the period 2017–2019 Assets On the last day of year 2019 the assets of Elektro Gorenjska Group amounted to 243,140,554 € (31. 12. 2018: 238,792,693 €) and have increased by 1.8 % compared to the balance on the last day of year 2018. Long-term assets increased by 2.3 % in year 2019, while short-term assets decreased by 3.8 %. Figure 37: Structure of assets as of 31. 12. 2018 and 31. 12. 2019 Long-term assets represent 92.8 % of all Group’s assets. Among them tangible fixed assets representing 95.0 % of all long-term assets are the most important. Value of tangible fixed assets increased by 2.3 % or by 4,869 thousand € in year 2019. Besides tangible fixed assets long-term assets also consist of the following categories (explained in more detail in chapter 12 – Notes on statement of financial position): ›› intangible fixed assets, which increased by 28.5 % or by 402 thousand € in 2019, ›› investment property, whose value decreased by 2.8 % or 51 thousand € in 2019, ›› long-term financial investments, whose value decreased by 3.5 % or by 264 thousand € in 2019, ›› long-term operating receivables, which increased by 165.4 % or by 133 thousand € and ›› other long-term assets in the amount of 88 thousand €. Current ratio Plan 2019 Plan 2019 Creditworthiness Plan 2019 Revenue profitability rate (in%) Plan 2019 Value added (in 000 €) Plan ROA 2019 ( % ) Plan ROE 2019 ( % ) EBITDA (in €) EBIT (in €) Planned EBITDA 2019 (in €) Planned EBITDA 2019 (in €) Operating revenues per employee (in €) Value added per employee (in €) Planned operating revenues per employee 2019 (in €) Planned value added per employee 2019 (in €) In 000 € Short-term assets Long-term assets Balance sheet total (in 000 €) 5.9.3 Structure of revenue and expenditure In year 2019 Elektro Gorenjska Group achieved a pre-tax profit in the amount 8,515,619 €. Figure 39: Composition of profit or loss (in €) As can be seen from the picture above, profit before tax is mainly affected by the operating profit, above all the distribution activities which Elektro Gorenjska Company implements under the Contract with SODO and electricity production. Figure 40: Operating profit or loss in period 2017–2019 (in €) Operating profit or loss for year 2019 amounted to 8,861,006 €. Compared to year 2018 it was by 821 thousand € lower, due to higher operating expenses. Somewhat worse operating result was mainly due to higher labor costs and higher write-off of values. Structure of operating expenditure for years 2019 and 2018 is shown in the figure below: Figure 41: Structure of operating expenditure Figure 42: Financial result in period 2017–2019 (in €) 5.9.4 Cash flow statement Table 15: Change in cash and cash equivalents In 2019 Group Elektro Gorenjska increased the value of cash and cash equivalents by 1.5 million €, as the positive cash flow from operating activities was higher than the negative cash flows from investing and financing activities. Negative cash flow from investing was due to investments, as the industry in which the Elektro Gorenjska Group operates is technologically very intensive. New acquisitions of intangible and tangible assets were mainly financed by drawing on a long-term loan (6 million €), and by the positive cash flow from operations. Outflows from financing activities mainly represent expenditures for the repayment of loans and interest, and payment of dividends. Capital and debts As at December 31 2019 Elektro Gorenjska Group reached a ratio between equity and debt capital in the amount of 2 : 1, which is similar as at the end of year 2018. In the structure of liabilities capital represents 68.2 % of the entire balance sheet total. In year 2019, capital increased by 2.8 % or by 4,576 thousand €. Long-term liabilities, mostly long-term banking credits, represented as of 31. 12. 2019 26.0 % of all funds. In year 2019 they decreased by 1.0 % . 660 thousand €. Short-term liabilities represented 5.7 % of all funds and have increased by 3.2 % or 432 thousand € in year 2019. Figure 38: Structure of funds as of 31. 12. 2019 and 31. 12. 2018 31. 12. 2019 Pre-tax profit Financial result Operating result Capital Short-term liabilities Long-term liabilities 31. 12. 2018 Operating revenues Operating expences Operating result Capital Short-term liabilities Long-term liabilities 2019 Financial revenues Financial expenses Financial result Financial result in year 2019 was negative and it amounted to 345,388 €. Negative result in years 2019 and 2017 was mainly influenced by interest for loans received from banks for financing investment. In 2018 the group realized a positive financial result in the amount of 271,829 €. Positive result is mainly influenced by recognized profit or loss of investments, valued using the equity method. Figure 43: Net profit in period 2017–2019 (in €) Costs of goods, material and services Labour costs Other operating expenses Write-offs 2018 Financial result Pre-tax profit Income tax and deferred taxes Pre-tax profit and net profit of the Group in 2019 were slightly lower than in 2018 and higher than in 2017. Costs of goods, material and services Labour costs Write-offs Other operating expenses In € 2019 2018 Cash flows from operating activities 21,288,235 20,568,391 Cash flows from investing -15,945,912 -21,020,051 Cash flows from financing activities -3,823,448 -1,872,677 Change in cash and cash equivalents 1,518,875 -2,324,337 6 Sustainable development Elektro Gorenjska Group set its sustainable development clearly – with set goals, environmental strategy integrated with the business strategy, and achieved results clearly presented. Group operates according to the system that we demonstrate our responsibility where we operate. Today’s cooperation must enable conditions for the quality of life to the future generations too. We realize and connect that with energy. 6.1 Care for employees Carefully planned recruitment policy, striving for continuous development and education of employees, effective reward system, and monitoring the commitment and employee satisfaction, are the main guidelines of the personnel management in the group Elektro Gorenjska. Our employees are our strategic advantage, so colleagues are stimulated to follow the Group’s strategy and to be innovative in searching for new opportunities and discovering new ways. This way we are able to identify opportunities more quickly and adapt to change. We respect equality, open information and mutual cooperation. We place great emphasis on interpersonal communication. Collaboration among employees actively creates the best conditions for work, including conditions to facilitate the achievement of personal and business goals. We want every employee in the Group to do what they are best at. 6.1.1 Demographic structure in the Group On December 31 2019 Elektro Gorenjska Group had 315 employees. Compared to the situation as at December 31 2018, number of employees increased by four workers. On December 31 2019 the Group had 6.67 % of employees employed with fixed-term employment, which is by a poor 1 percent less than in year 2018. At the end of year there were 78.73 % of men and 21.27 % of women employed in the Group. Percentage is entirely comparable with the previous years and closely connected with the primary activity of all three companies. Average age of employees in the Group has been increasing in the past years. At the end of the year it was 45.4 years, which is by 0.8 year more according to the previous year. Analysis of groups of employees according to age shows that in year 2019 there were the most employees in the age group between 46 and 55 years, namely 33 % of all employees. Figure 44: Changes in the number of employees in the period from 2015 to 2019 GEK Vzdrževanje Group 6.1.2 Employment Human resources planning is a constituent part of strategic and annual plan. We seek to gain ambitious and professional new workers. In the process of selection and choice of employees to all candidates we provide equal opportunities, regardless of gender or other circumstances. Development, advanced technologies, changes, and needs of the work process request more and more of knowledge and high level of competence of our employees therefore we mainly employ highly educated staff. Throughout the years we have been keeping the high share of employees from electro-technical fields and of electro-technical and engineering fields in Gorenjske elektrarne Company and GEK Vzdrževanje Company, as they are closely related to the main activities of the companies. Fluctuation of personnel in the Group is small. Fluctuation mainly emerges due to departure of workers for retirement and to lower extent also due to fixed-term employments. Table 16: Fluctuation rate in Elektro Gorenjska Group 2015 2016 2017 2018 2019 Elektro Gorenjska 2.83 % 2.82 % 2.10 % 2.77 % 1.42 % Gorenjske elektrarne 6.25 % 3.23 % 11.76 % 6.25 % 0.00 % GEK Vzdrževanje -- -- 13.33 % 7.14 % 6.67 % Group 3.17 % 2.86 % 3.14 % 3.73 % 1.56 % On 31. 12. 2019 there were eight disabled persons employed in the Group. In accordance with the statutory quota of employing disabled persons, which amounts to 6 % for electricity supply activity, Elektro Gorenjska Company would have to employ 17 disabled persons monthly. In year 2019 by signing the contract with two social enterprises Elektro Gorenjska made use of the possibility of claiming replacement quota fulfilment for a total of 44 disabled persons. 6.1.3 Education and educational structure of employees Much attention is given to the appropriate staff education. Employees receive various forms of education and vocational training, with a large proportion of them being in the field of health and safety at work. Because of the specific branch in which we operate, the employees are obliged to regularly restore the professional examinations required by the work with power supply equipment. Within the strategic project Managing of the organizational culture 2016 – 2020 or the strategic projects Organizational culture and committed employees in the revised strategy of the Group 2018-2022, in year 2019 we continued with trainings for the Heads in the field of managing the soft skills. Table 17: Educational structure of employees in Elektro Gorenjska Group as at 31. 12. 2019 Elektro Gorenjska Gorenjske elektrarne GEK Vzdrževanje Group Number Structure (%) Number Structure (%) Number Structure (%) Number Structure (%) Level of education 31. 12. 2019 doctoral level (9) 3 1.1 % 1 6.3 % 0 0.0 % 4 1.3 % master's degree (8) 17 6.0 % 2 12.5 % 0 0.0 % 19 6.0 % university level (7/2) 56 19.6 % 8 50.0 % 1 7.1 % 65 20.6 % graduate level (7/1) 43 15.1 % 2 12.5 % 1 7.1 % 46 14.6 % post-secondary level (6) 50 17.5 % 2 12.5 % 0 0.0 % 52 16.5 % secondary level (5) 70 24.6 % 1 6.2 % 8 57.1 % 79 25.1 % three-year vocational level (4) 46 16.1 % 0 0.0 % 4 28.6 % 50 15.9 % two-year vocational level (3) 0 0.0 % 0 0.0 % 0 0.0 % 0 0.0 % primary school (1) 0 0.0 % 0 0.0 % 0 0.0 % 0 0.0 % TOTAL EMPLOYEES 285 100.0 % 16 100.0 % 14 100.0 % 315 100.0 % Average level of education in Elektro Gorenjska Group as at December 31 2019 amounted to 6.22 - with level 6 representing high-school education. 6.1.5 Organizational culture and employee commitment We are carefully following the recruitment of competent, creative and highly committed employees at all levels. In accordance with the Strategy of the Elektro Gorenjska Group for the period 2018-2022 in year 2019 we paid special attention to the strategic project Organizational culture and the commitment of employees, whose goal is to create a constructive organizational culture among the employees. This means that we expect co-workers to get involved, cooperate with each other, take responsibility and focus on goals. We create an environment where employees live the values of the company, Heads know the features of their colleagues and guide them individually and accordingly, thus contributing to the implementation of the strategy. We make sure that employees feel comfortable in their working environment. Good atmosphere and wellbeing helps us to be successful, creative and precise in our work. Feedback on comprehension of a working environment and relations in the company is received from employees by anonymous survey on the satisfaction every three years and by survey on employee commitment, which is done annually. This way with colleagues we actively create optimal conditions for work, thus also the conditions to facilitate the achievement of personal and professional business goals. Our goal is that everyone does what they are the best in. By implementing various measures we try to rectify the established negative effects. Satisfaction is measured by ourselves, and the commitment with Gallup’s methodology is measured in cooperation with external experts. Gallup is one of the best and most experienced global companies in the field of analysing and increasing the commitment of employees, which has been present in over 20 world countries for more than 80 years and has more knowledge in this field than any other company in the world. Level of commitment is measured for the entire Elektro Gorenjska Group, as for individual companies in the Group we measure in which percentile the company ranks, compared to the global database on commitment. Based on the performed measurements, the Group has a higher percentage of committed employees compared to other Slovenian organizations. Compared to the top third of the world’s companies, we still have quite a few opportunities for improvement. 6.1.4 Employee motivation and remuneration Offering privileges is one of the segments in employee remuneration whose aim is to increase employee satisfaction and improve the quality of work. Employee remuneration is connected also with reassignments. In employees we are looking for creative potentials and development opportunities, that is why knowledge and skills of the employees are remunerated by measuring their competences, advising and with progress of their professional career. This way we try to preserve high level of motivation and increase competitiveness of the internal labor market. We have been conducting annual interviews, which are an opportunity for an in-depth conversion with a colleague at least once a year, for more than a decade. Interviews are a rough estimate of the achievement of the objectives, tasks and competences for the past period and the setting of objectives for the next year as well as a plan of training and development of employees. Individual work performance of employees is determined on the basis of an assessment after an annual interview. Level of achievement of set goals, expected behaviours and knowledge and competencies is determined. We encourage employees to innovations and finding new solutions. Level of self-initiative in the field of making rationalization or innovation proposals has significantly increased due to the adopted systematic measures in this field, in particular the adopted rules on innovation and additional stimulation. 6.1.6 Absence of employees Absenteeism or longer absence from the workplace for the purpose of using sick leave is monitored annually. In 2019, in comparison with 2018, the value of refunded absences decreased by less than 18 % in Elektro Gorenjska Company. Non-refunded absences increased by more than 7 % compared to the previous year. In 2019 more employees benefited from sick leave at least once a year than in previous year, but these absences were of shorter nature. Compared to 201, all types of absences in Gorenjske elektrarne decreased significantly, non-refunded to almost a third and refunded to 20 % of the past value. Compared to 2018, the values of absences in GEK Vzdrževanje Company almost doubled, mainly due to a larger number of long-term absences due to injuries outside work. 6.1.7 Relations between employees and management of individual companies Management pays particular attention to the dialogue with different representations of the employees. There are two unions operating within the Group. Each company has formed its works council, which provides for appropriate information and chance of submitting the opinions of all employees. Cooperation with the bodies takes place in the form of regular sessions between the company’s management and representatives of union and works council. Sessions are convened at least once in three months, if necessary also more frequently. There are always chairman of the board or the vice president and a member of the management present at the sessions. This way it is additionally taken care of the employee information about the operation of the companies, current activities, and plans for the future. The persons present at these sessions can express their initiatives, opinions, and highlight problems the employees face every day. 6.1.8 Communication with employees In the Group conducting effective internal communication with employees is demanding, since employees are located in different locations, as well as perform various types of work in the field. Consequently, direct and indirect communication channels for communicating with employees are used. Direct communication is carried out on meetings and events, which are annually organized for employees (Company Day, New Year’s employee party, sports games, etc.). Due to the diversity of jobs events are an opportunity for socializing and getting to know the employees who do not work together on a daily basis. Figure 45: Commitment of employees rate at last measurement, compared with Slovenian and the best global organizations Elektro Gorenjska Group Slovenian average Gallup Top 33 % Actively committed Actively uncommitted Uncomitted 6.2 Concern for the natural environment Responsibility and care for the space in which the Elektro Gorenjska Group operates is one of our core values. Proper and responsible environmental management is included in the strategic guidelines of Elektro Gorenjska Company. It is based on adopted environmental policies and sustainable development guidelines. Systematic approach to environmental management is provided within the Environmental Management Council on the basis of the principles of the ISO 14001:2015 standard, and the success of the results can be influenced by every employee in their everyday work, taking into account internal instructions. Results and progress in this area are monitored through 14 measurable environmental indicators. In 2019, we did not change them significantly. Most of their values are within the intended goals. Objectives of the Environmental Management Council (SRO) are clear: ›› prevention of environment pollution on locations of power facilities and works related ( spills of dangerous oils or fuels); ›› control of individual effects by measurements and with it taking into account noise, radiation and light pollution; ›› encouraging employees to separate waste collection in order to reduce the quantities of the remaining disposed waste; ›› rational use of energy. In addition to regular activities that include monitoring of changes in environmental legislation, introduction of necessary changes and optimizations in implementation processes, awareness raising of employees and external operators and implementation of environmental programs objectives, in year 2019 we successfully passed the external assessment according to standard ISO 14001:2015. Internal regulations in the field of environment were also reviewed and optimized in accordance with the strategic project of the company. In 2019, we performed a minor rationalization of environmental aspects. Environmental aspect »Technological waste from work on measuring and control devices« was included in the environmental aspect »Construction and electrical waste«, which was expanded at the end of the year with effects of larger construction sites (noise, dust). We considered the potential environmental impacts of the new car air conditioning charging device in the vehicle fleet and found that they can be managed within the environmental aspect »Fluorinated greenhouse gas emissions«. For environmental impacts of electricity storage in the distribution network, which is temporarily connected to the transformer station TP Suha, we found that they are identical to the environmental impacts of batteries used for own use of larger power facilities and we already have them identified. In 2019, we continued with the realization of environmental program goals relating to the sanitary and rainwater discharge. Objectives of the program are adjusted to the Decree on the discharge and treatment of urban wastewater, which from 31. 12. 2021 sets a deadline for the connection of facilities to the public sewerage network or the arrangement of small treatment plants and oil traps . In 2019, the discharge of waste water for the RP Naklo facility was arranged, including the waterproof septic tank and rainwater drainage. At the end of 2020, we plan to continue construction activities at the RTP Škofja Loka facility and in a nearby residential building, within which the arrangement of the wastewater drainage system is also planned. At the RTP/KN Tržic facility, the connection to the public network will be carried out after the construction of the municipal sewerage system. Our successful work in the field of the environment in the past year is also shown in the fact that we did not record any extraordinary environmental events. 6.1.9 Health and safety at work Health is the basis for a good and successful life and work - for both the individual as well as the organization. Care for preserving and improving the health of employees is useful because healthy and satisfied workers working in a safe and stimulating working environment are more productive and creative, they are less likely to get sick and less likely to take sick leave and remain faithful to the organization or employer. Employer, who offers a good and stimulating working environment, is better able to employ better quality staff and gain public reputation. Therefore, the Health and Safety at Work Service of Elektro Gorenjska is constantly taking care of adequate and safe working conditions, and draws attention to the observance of safety rules at work performed by employees. In 2019, seven injuries at work occurred in Elektro Gorenjska. They were all slight physical injuries. We would point out two injuries at work that happened while lifting the shaft covers with the fingers of workers being squeezed. Based on these two accidents, and in order to avoid further damage, we purchase a shaft lifting device that allows the shaft covers to be lifted without worker. We had no electrical accidents. Following figure shows the number of accidents at work in Elektro Gorenjska Company in the past five years. Figure 46: Number of accidents at work Number of accidents 6.3 Care for the public interest – social responsibility Placement of electricity infrastructure is a lengthy and demanding process. Understandable communication with residents and a clear presentation of the ultimate benefits for the inhabitants are a key emphasis we are following in any space intervention. We provide for the transparent publication of data on web pages, and we also actively cooperate with representatives of local communities and inform them through various communication channels. Sponsorships and donations Projects that we financially support, follow the identity of the Group companies and approved strategy. Through projects in various fields we recognize opportunities where with our knowledge, financial resources or other resources we can contribute to progress. We support the work of non-profit organizations, associations, societies and clubs in the field of sport, culture and education, health, humanitarian projects and other socially useful activities. Projects are selected on the basis of the internal rules, which define quality criteria and social relevance of the project. We consider short-term as well as long-term positive effects on companies in the Group, local community and environment we operate in. We also consider recommendations of the majority owner or investment manager as well as the legislation in force. Figure 47: Sponsorships and donations of Elektro Gorenjska Group in year 2019 Culture Humanitarianism Science, research activity Sport In year 2019 there was a total of 23,085 € of funds allocated to sponsorships and a total of 35,530 € to donation projects. In accordance with good business customs we provide for the permanent communication with our business partners. With our key partners we strengthen our relations at the charity event at the end of the year, and we inform them about the activities of the companies in the internal gazette, through financial publications and other communication channels that we publish. Professional services in this field ensure regular and proactive communication with the media. They encourage positive and neutral presence in the media and understanding of the electricity contents with regular answers to journalists’ questions, socially responsible content and by proactively identifying and communicating the more complex topics. We communicate with our end users through: ›› free telephone line 080 30 19, which operates continuously 24 hours a day, every day of the year, ›› traditional and electronic mail and ›› application Moj EG account, available on the web site https://racun.elektro-gorenjska.si/prijava, with the help of which business users can govern activities in the field of network activity. Contents is communicated to end users through media, our website and social media. In accordance with accepted good corporate governance practices as defined by the governance codes, we follow the recommendations of the majority owner or the investment manager, as well as the current legislation, so all company’s data, concluded deals, and sponsorship and donation projects are reported on the web site www.elektro-gorenjska.si/za_delnicarje and www.elektro-gorenjska.si/o-podjetju/katalog-informacij-javnega-znacaja. Contents related to regulation and legislation, as well as arrangements between different institutions, is regularly and openly communicated with key influential public. 7 Events after the balance sheet date There were no major events, except those presented in the Financial report (Chapter 21 – Events after the balance sheet date). ‹ 96 Consolidated Financial Report 97 › 98 8 Management responsibility statement Management board of Elektro Gorenjska Company hereby approves the financial statements published and presented in this annual report and all other component parts of the consolidated annual report. Consolidated annual report provides a true and fair picture of the financial condition of the Group. Management board of Elektro Gorenjska Company certifies that International Financial Reporting Standards were used and relevant accounting principles were applied in drafting the consolidated financial statements and that accounting estimates were prepared according to the principles of prudence and due diligence. Management board of Elektro Gorenjska Company approved the financial statements of the Group prepared for the financial year 2019 on April 8 2020. Management board of Elektro Gorenjska is responsible for appropriate accounting in the company, for adoption of appropriate measures to protect the property and other assets, and hereby certifies that financial statements were prepared on a going concern basis and in line with the relevant legislation and International Financial Reporting Standards as adopted by the European Union. At any time within 5 years after the year in which it was necessary to levy the tax, tax authorities may check the company’s operations, which may result in an additional tax liability, default interest and penalties for corporate income tax or other taxes and charges. Management of the company has not been acquainted with any circumstances that could cause eventual significant liability in this respect. Kranj, April 8 2020 Chairman of the Board: dr. Ivan Šmon, MBA 9 Auditor’s Report 10 Financial statement of Elektro Gorenjska Group for business year ended as at 31. 12. 2019 10.1 Statement of financial position of Elektro Gorenjska Group as at 31. 12. 2019 ITEM Note 31. 12. 2019 31. 12. 2018 ASSETS Long-term assets 225,585,936 220,543,223 Intangible assets 12.1 1,809,794 1,408,216 Tangible fixed assets 12.2 214,353,345 209,484,786 1. Land and buildings 155,033,490 150,354,413 2. Production plant and equipment 56,033,924 55,773,388 3. Other plant and equipment 538,843 542,029 4. Tangible fixed assets in acquisition 2,747,088 2,814,956 Investment property 12.3 1,762,990 1,813,588 Long-term financial investments 12.4 7,358,730 7,622,874 1. Long-term financial investments, excluding loans 7,152,115 7,480,076 b) Financial investments calculated using the equity method 7,152,115 7,480,076 c) Other shares and stakes 0 0 2. Long-term loans 206,615 142,798 b) Long-term loans to others 206,615 142,798 Long-term operating receivables 213,402 80,408 Other long-term assets 87,675 104,847 Deferred tax assets 0 28,504 Short-term assets 17,554,618 18,249,470 Assets (group for disposal) for sale 12.5 138,796 381,264 Stocks 12.6 601,289 363,106 Short-term financial investments 12.7 988,632 1,800,835 1. Short-term financial investments, excluding loans 181,670 835 2. Short-term loans 806,962 1,800,000 b) Short-term loans to others 806,962 1,800,000 Short-term operating claims 12.8 7,689,979 9,220,679 Other short-term assets 12.9 240,686 118,144 Cash and cash equivalents 12.10 7,895,236 6,365,442 TOTAL ASSETS 243,140,554 238,792,693 In € Statement of financial position of Elektro Gorenjska Group as at 31. 12. 2019 (continued from previous page) In € ITEM Note 31. 12. 2019 31. 12. 2018 LIABILITIES Capital 12.11 165,914,359 161,338,484 Called-up capital 104,136,615 71,898,061 Capital reserves 45,973,479 45,944,898 Profit reserves 9,162,865 37,099,229 Other reserves -267,183 -163,464 Retained profit or loss 6,908,583 6,559,760 Long-term liabilities 63,298,016 63,957,608 Provisions 12.12 8,942,104 8,827,319 Long-term financial liabilities 12.13 46,910,199 48,332,599 Long-term operating liabilities 363,728 17,969 Other long-term liabilities 12.14 6,803,353 6,540,190 Deferred tax liabilities 12.15 278,632 239,531 Short-term liabilities 13,928,179 13,496,601 Short-term financial liabilities 12.16 7,699,711 6,574,020 Short-term operating liabilities 12.17 4,975,068 5,792,670 Liabilities for income tax 166,642 176,640 Other short-term liabilities 12.18 1,086,758 953,271 TOTAL LIABILITIES 243,140,554 238,792,693 Explanatory notes are part of the financial statements and should be read in conjunction with them. 10.2 Profit or loss account of Elektro Gorenjska Group for business year ended as at 31. 12. 2019 In € ITEM Note 2019 2018 Net sales revenue 13.1 37,853,514 37,316,975 Capitalized own products and services 13.2 5,033,533 5,325,998 Other operating revenues 13.3 969,348 1,111,025 Costs of goods, material, and services 8,502,446 8,553,687 a. Costs of goods sold and material used 13.4 4,715,848 4,673,486 b. Costs of services 13.5 3,786,598 3,880,201 Labor costs 13.6 13,527,188 13,087,130 Amortization/depreciation expense 13.7 12,428,932 11,720,804 Other operating expenses 13.8 536,822 710,676 Financial revenues from shares 6,991 6,901 c. Financial revenues from other investments 6,991 6,901 Financial revenues from given loans 2,059 729 Financial revenues from operating claims 21,194 26,500 Financial expenses from impairments and financial investment write-offs 0 30,105 Financial expenses from financial liabilities 13.9 514,787 582,994 Financial expenses from operating liabilities 50,754 53,716 Recognized profit or loss of investments, valued using the equity method 13.10 189,909 904,513 ENTIRE PROFIT OR LOSS 8,515,619 9,953,529 Income tax 13.11 1,187,812 1,114,004 Deferred taxes 13.12 67,605 43,240 NET PROFIT OR LOSS OF THE ACCOUNTING PERIOD 7,260,202 8,796,285 Explanatory notes are part of the financial statements and should be read in conjunction with them. 10.3 Statement of other comprehensive income of Elektro Gorenjska Group for business year ended as at 31. 12. 2019 In € TITLE 2019 2018 1. Net profit or loss of the accounting period 7,260,202 8,796,285 2. Items of other comprehensive income (other than amounts under the equity method) that will not be subsequently reclassified to profit or loss -91,077 -66,447 - Actuarial gains and losses -91,077 -66,447 3. Items of other comprehensive income (excluding amounts under the equity method) that will subsequently be reclassified to profit or loss on the basis of the fulfillment of special conditions 0 14,156 - Effective portion of gains and losses from hedging instruments in hedging cash flows from risk 0 14,156 4. Share of other comprehensive income of associates and joint ventures accounted for using the equity method, which will not be subsequently reclassified to profit or loss -2,229 1,519 TOTAL COMPREHENSIVE INCOME OF THE ACCOUNTING PERIOD 7,166,896 8,745,513 Explanatory notes are part of the financial statements and should be read in conjunction with them. 10.4 Cash flow statement of Elektro Gorenjska Group for business year ended as at 31. 12. 2019 In € ITEM Year 2019 Year 2018 A. OPERATING CASH-FLOW a. Operating receipts 46,592,471 46,012,694 1. Receipts from sales of products and services 45,593,907 45,232,112 2. Receipts from income tax 0 66,094 3. Other operating receipts 998,564 714,488 b. Operating expenditure -25,304,236 -25,444,303 1. Expenditure for purchase of material and services -6,634,806 -8,220,719 2. Expenditure for salaries and employees profit shares -9,823,369 -9,417,431 3. Expenses for income tax -1,197,810 -1,090,065 4. Expenditure for other duties -4,165,694 -3,440,225 5. Other operating expenditure -3,482,557 -3,275,863 c. Positive or negative cash flows from operating activities (a+b) 21,288,235 20,568,391 B CASH FLOWS IN INVESTING ACTIVITIES a. Receipts in investing activities 3,040,226 3,123,193 1. Receipts from received interest and profit shares of others 538,278 550,740 3. Receipts from disposal of tangible fixed assets 57,429 70,265 4. Receipts from disposal of investment property 579,764 167,042 5. Receipts from disposals of financial investments 1,864,755 2,335,146 b. Expenditure in investing activities -18,986,138 -24,143,244 1. Expenses for acquisition of intangible assets -522,902 -467,624 2. Expenses for acquisition of tangible fixed assets -17,103,189 -20,586,866 3. Expenses for acquisition of investment property -81,327 -60,424 4. Expenses for acquisition of financial investments -1,124,912 -3,028,330 5. Expenses for purchase of subsidiaries -153,808 0 c. Positive or negative cash flow from investing activities (a+b) -15,945,912 -21,020,051 C. CASH FLOWS IN FINANCING ACTIVITIES a. Receipts in financing activities 6,038,320 18,315,000 2. Receipts from increase in financial liabilities 6,038,320 18,315,000 b. Expenditure in financing activities -9,861,768 -20,187,677 1. Expenditure for given interest referring to financing activ. -524,236 -908,411 3. Expenditure for repayment of l financial liabilities -6,746,511 -16,860,979 4. Expenditure for dividend and other profit share payment -2,591,021 -2,418,287 c. Positive or negative cash flow from financing activities (a+b) -3,823,448 -1,872,677 C. CLOSING CASH BALANCE 7,895,236 6,365,442 x. CASH FLOW FOR THE PERIOD (Ac+Bc+Cc) 1,518,875 -2,324,337 y. CASH GAINED BY MERGER 10,919 0 y. OPENING CASH BALANCE 6,365,442 8,689,779 Explanatory notes in Chapter 15.– Notes to the cash flow statement are part of the financial statements and should be read in conjunction with them. Called-up Capital Capital reserves Profit reserves Other reserves Retained profit or loss I. II. III. IV. V. Share capital Share premium account Cap. res. from reduction of share cap. by withdrawal of shares General capital valuation adjustment Statutory reserves Reserves for own shares and own sharehold­ings own shares and own sharehold­ings Other profit reserves Reserves for fair value Net profit or loss brought forward Net profit or loss of the business year Events in individual capital I./1. II./1. II./2. II./3. III./1. III./2. III./3. III./5. IV./3. V./1. V./2. TOTAL CAPITAL Balance as of december 31 2018 71,898,061 1 0 45,944,897 3,014,245 25,077 -25,077 34,084,984 -163,464 3,090,186 3,469,574 161,338,484 Balance as of january 1 2019 71,898,061 1 0 45,944,897 3,014,245 25,077 -25,077 34,084,984 -163,464 3,090,186 3,469,574 161,338,484 Changes in equity capital – transactions with owners 0 0 0 0 0 0 0 0 0 -12,964 -2,578,057 -2,591,021 Dividend payment 0 0 0 0 0 0 0 0 -12,964 -2,578,057 -2,591,021 Total comprehensive income of reporting period 0 0 0 0 0 0 0 0 -93,306 0 7,260,202 7,166,896 Entry of net profit or loss for the reporting period 0 0 0 0 0 0 0 0 0 0 7,260,202 7,260,202 Items of other comprehensive income (except under the eq­uity method) that will not be reclassified to profit or loss later 0 0 0 0 0 0 0 0 -91,077 0 0 -91,077 Actuarial gains and losses 0 0 0 0 0 0 0 0 -91,077 0 0 -91,077 Share of other comprehensive income calculated under the equity method that will not be reclassified to profit or loss later 0 0 0 0 0 0 0 0 -2,229 0 0 -2,229 Changes within capital 32,238,554 0 28,581 0 379,103 -25,077 25,077 -28,315,467 -10,413 917,941 -5,238,299 0 Allocation of remaining part of net profit of the comparative reporting period to other capital items 0 0 0 0 0 0 0 9,066 0 882,451 -891,517 0 Allocation of part of net profit of reporting period to other items of capital following the decision of the management and control 0 0 0 0 379,103 0 0 3,967,679 0 0 -4,346,782 0 Release of reserves for own shares and allocation into other components of capital 0 0 0 0 0 -25,077 0 0 0 25,077 0 0 Increase in share capital from other profit reserves 32,292,212 0 0 0 0 0 0 -32,292,212 0 0 0 0 Withdrawal of own shares - decrease in share capital by withdrawal of own shares into capital reserves -53,658 0 28,581 0 0 0 25,077 0 0 0 0 0 Transfer of actuarial gains/losses due to departures of employees, to profit/loss brought forward 0 0 0 0 0 0 0 0 -10,413 10,413 0 0 BALANCE AS OF DECEMBER 31 2019 104,136,615 1 28,581 45,944,897 3,393,348 0 0 5,769,517 -267,183 3,995,163 2,913,420 165,914,359 In € Explanatory notes in Chapter 12.11 – Capital are part of the financial statements and should be read in conjunction with them. 10.5 Statement of changes in equity of Elektro Gorenjska Group for the business year ended as at 31. 12. 2019 a) From January 1 2019 to December 31 2019: 10 Called-up Capital Capital reserves Profit reserves Other reserves Retained profit or loss I. II. III. IV. V. Share capital Share premium account General capital valuation adjustment Statutory reserves Reserves for own shares and own share­holdings own shares and own sharehold­ings Other profit reserves Reserves for risk hedging Reserves for fair value Net profit or loss brought forward Net profit or loss of the business year Events in individual capital I./1. II./1. II./3. III./1. III./2. III./3. III./5. IV./2. IV./3. V./1. V./2. TOTAL CAPITAL Balance as of december 31 2017 71,898,061 1 45,944,897 2,594,198 25,077 -25,077 29,159,535 -14,156 -101,263 3,015,367 2,514,618 155,011,258 Balance as of january 1 2018 71,898,061 1 45,944,897 2,594,198 25,077 -25,077 29,159,535 -14,156 -101,263 3,015,367 2,514,618 155,011,258 Changes in equity capital – transactions with owners 0 0 0 0 0 0 0 0 0 -105,376 -2,312,911 -2,418,287 Dividend payment 0 0 0 0 0 0 0 0 -105,376 -2,312,911 -2,418,287 Total comprehensive income of reporting period 0 0 0 0 0 0 0 14,156 -64,928 0 8,796,285 8,745,513 Entry of net profit or loss for the reporting period 0 0 0 0 0 0 0 0 0 0 8,796,285 8,796,285 Items of other comprehensive income (except under the eq­uity method) that will not be reclassified to profit or loss later 0 0 0 0 0 0 0 0 -66,447 0 0 -66,447 Actuarial gains and losses 0 0 0 0 0 0 0 0 -66,447 0 0 -66,447 Items of other comprehensive income (except under the equity method) that will be reclassified to profit or loss later 0 0 0 0 0 0 0 14,156 0 0 0 14,156 Effective part of profit and loss from instrum, For risk hedging 0 0 0 0 0 0 0 14,156 0 0 0 14,156 Share of other comprehensive income calculated under the equity method that will not be reclassified to profit or loss later 0 0 0 0 0 0 0 0 1,519 0 0 1,519 Changes within capital 0 0 0 420,047 0 0 4,925,449 0 2,727 180,195 -5,528,418 0 Allocation of remaining part of net profit of the comparative reporting period to other capital items 0 0 0 0 0 0 29,526 0 0 172,181 -201,707 0 Allocation of part of net profit of reporting period to other items of capital following the decision of the management and control 0 0 0 420,047 0 0 4,895,923 0 0 10,741 -5,326,711 0 Transfer of actuarial gains/losses due to departures of employees, to profit/loss brought forward 0 0 0 0 0 0 0 0 2,727 -2,727 0 0 BALANCE AS OF DECEMBER 31 2018 71,898,061 1 45,944,897 3,014,245 25,077 -25,077 34,084,984 0 -163,464 3,090,186 3,469,574 161,338,484 In € b) From January 1 2018 to December 31 2018: 108 Consolidated Annual Report - Elektro Gorenjska Group 2019 11 Notes to the Consolidated financial statement 11.2 Basis for compiling the consolidated financial statements 11.2.1 Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, and the notes adopted by the Committee for Interpretations of International Financial Reporting Standards (OMSRP) and in accordance with the requirements of the Companies Act ( ZGD-1) and the Energy Act (EZ-1). Management of Elektro Gorenjska Company approved the consolidated financial statements on April 8 2020. 11.2.2 Basis for measurement Consolidated financial statements have been prepared on a historical cost basis, except in the case of receivables, which are recorded at amortized cost. Methods used to measure fair value are described in Chapter 11.4 – Determination of fair value. Consolidated financial statements have been prepared assuming that the Group will continue with its operations in the future. Operations of the Group are not seasonal in nature. 11.2.3 Functional and presentation currency Presented financial statements of Elektro Gorenjska Group are presented in Euro. Degree of accuracy in reporting is 1 €. Exchange rate differences, which occur in settlements of monetary items or with transference of monetary items at exchange rates different from those at which they were transferred at initial recognition in the period, are recognized in profit and loss for the period they occur in. In order to convert values in foreign currencies, the Group uses the reference rate of the European Central Bank published by the Bank of Slovenia. 11.1 Reporting company and Group structure Elektro Gorenjska Company is the parent company of Elektro Gorenjska Group. Business address of the parent company is Ulica Mirka Vadnova 3a, Kranj. Consolidated financial statements of Elektro Gorenjska Group for the year ended as at 31. 12. 2019, include: ›› company Elektro Gorenjska, Ul. Mirka Vadnova 3a, Kranj, ›› company Gorenjske elektrarne, Stara cesta 3, Kranj, which is in 100 % ownership of the controlling company; capital of this company as at 31. 12. 2019 amounted to 18,723,617 €, €, net profit for year 2019 was 1,111,754 €, ›› company GEK vzdrževanje, Stara cesta 3, 4000 Kranj, which is in 100 % ownership of company Gorenjske elektrarne; capital of this company as at 31. 12. 2019 amounted to 152,381 €, net profit for year 2019 was 73 €, ›› company GE LES, Stara cesta 5, 4000 Kranj, which is in 100 % ownership of company Gorenjske elektrarne; capital of this company as at 31. 12. 2019 amounted to 130,084 €, net profit for year 2019 was 397 €, ›› associate company ECE, Vrunceva 2a, Celje, which is in 25.6744 % ownership of the controlling company; capital of this company as at 31. 12. 2019 amounted to 18,406,620 €, net profit for year 2019 was 66,555 €, ›› associate company Soenergetika, Stara cesta 3, Kranj, which is in 25 % ownership of company Gorenjske elektrarne; capital of this company as at 31. 12. 2019 amounted to 1,822,059 €, net profit for year 2019 was 691,738 €. In addition to the listed companies, Elektro Gorenjska Group also consists of the company Informatika d. d., in which the company Elektro Gorenjska holds 9.56 % stake. Due to insignificance, this company is ot included in the consolidated financial statements of the Group. Elektro Gorenjska Group is engaged in the production, sale and distribution of electricity. 11.2.4 Use of significant estimates and judgements In the application of presented accounting policies and guidelines, the Group must carry out a number of estimates and assumptions about the carrying amounts of assets and liabilities that are not readily available from other sources. Estimates and associated assumptions are based on historical experience and factors that the Group believes to be appropriate. Estimates and assumptions used are continuously reviewed. Actual results may differ from these estimates. Checks to accounting estimates are recognized in the period in which the estimate is checked, but also in future periods if the revised estimate affects both current and future periods. Following are the main assessments that have a significant effect on the amounts recognized in the financial statements. Assumptions and estimates Assumptions and estimates that have the biggest impacts on amounts in the financial statements are: ›› Determination of useful lives of intangible and tangible fixed assets (please see chapters 11.3.2 – Intangible assets and 11.3.3 – Tangible fixed assets) ›› Value adjustments of receivables (please see chapter 11.3.6 – Financial instruments) ›› Provisions estimate (please see chapter 11.3.10 – Provisions). Transactions with SODO Company Transactions with company SODO are generally regulated by the Contract with SODO, which is presented in more detail also in the Business report, in chapter 3.10.5 – Contract with SODO. In March 2020 the Elektro Gorenjska Company received a preliminary settlement of the regulatory year 2019 from SODO. Preliminary settlement for year 2019 was executed by SODO on the basis of the unaudited financial statements. Settlement shows that the already charged contractual value of services and rent in year 2019 was by 1,222,443 € lower than the value established on the basis of the preliminary settlement. On this basis the company in 2019 recognized additional revenue (short-term accrued revenues) in the amount of 1,222,443 €. In year 2018 revenues established on the basis of preliminary settlement of the regulatory year 2018 were by 2,172,781 € higher than the already charged ones during the year. In year 2018 the Elektro Gorenjska Company therefore recognized additional revenue (short-term accrued revenues) in the amount of 2,172,781 €. Elektro Gorenjska has not yet received the final settlement for the regulatory year 2018, but after the balance sheet date for 2019 it was informed of the facts before the decision was issued. From the established facts before the issue of the decision it results that the already charged value of rents and services was by 155,421 € higher than the value of the final settlement. As Elektro Gorenjska Company agreed with the established facts, it reasonably expects the final settlement of the regulatory year in the amount stated. On this basis, Elektro Gorenjska reduced its revenues by 155,421 € (long-term deferred revenues). Final settlements for regulatory years 2018 and 2019 will be executed by SODO on the basis of the decision by the Energy Agency, which will take into account the revised data of both contracting parties. In case JARSE issued a decision in which it established different surpluses or deficits than the ones established by SODO, both contracting parties are bound to consider the JARSE decision. Disputes in progress and related provisions There are several disputes in progress, including important denationalization procedures, where Elektro Gorenjska Company acts as the liable party. Company does not disclose details regarding these disputes, as it estimates that such disclosures might threaten the benefits of the company. Adopted standards and interpretations that came into force as at 1. 1. 2019 In the current accounting period, the following amendments to existing standards and new interpretations issued by the International Accounting Standards Board (IASB) and adopted by the EU apply: ›› IFRS 16 – Leases (apply to annual periods beginning on or after January 1 2019), ›› Amendments to IFRS 9 – Financial instruments – Advance payment elements with negative compensation (apply to annual periods beginning on or after January 1 2019), ›› Amendments to IAS 19 – Employee benefits – Modification, limitation or settlement of the program (apply to annual periods beginning on or after January 1 2019), ›› Amendments to IAS 28 – Financial investments in associates and joint ventures – Long-term interest in associates and joint ventures (apply to annual periods beginning on or after January 1 2019), ›› Amendments to different standards due to IFRS Improvements (period 2015 – 2017), arising from the annual IFRS Improvement Project (IFRS 3, IFRS 11, IAS 12 and IAS 23), with primary purposes of eliminating the inconsistencies and interpreting the text (apply to annual periods beginning on or after January 1 2019), ›› IFRIC 23 – Uncertainty when dealing with income tax (apply to annual periods beginning on or after January 1 2019). Adoption of these standards, changes to existing standards and interpretations did not entail significant changes to the Elektro Gorenjska Group’s financial statements. 11.2.5 New accounting standards and interpretations not yet in force On the date of approval of these financial statements, the following new standards and amendments to existing ones issued by the IASB and adopted by the EU have already been issued but have not yet entered into force: ›› Amendments to IAS 1 – Presentation of financial statements and IAS 8 – Accounting policies, changes in accounting estimates and errors – Definition of Material, adopted by EU on November 29 2019 (apply to annual periods beginning on or after January 1 2019), ›› Amendments to IFRS 9 – Financial instruments, IAS 39 – Financial instruments: recognition and measurement and IFRS 7 – Financial instruments: disclosures – Reform of reference interest rates adopted by the EU on January 15 2020 (apply to annual periods beginning on or after January 1 2019), ›› Amendments to the references to the conceptual framework in IFRS, adopted by the EU on November 29 2019 (apply to annual periods beginning on or after January 1 2019). Elektro Gorenjska Group does not expect that the mentioned interpretations and amendments will have a significant effect on its consolidated financial statements. Accounting Standards and Interpretations issued by the IASC, but not yet adopted by the EU At present, the IFRS, as adopted by the EU, do not differ significantly from the regulations adopted by the International Accounting Standards Board (IASB), with the exception of the following new standards and amendments to existing standards, which were not yet adopted in the EU on April 9 2020 (the effective dates set out below apply to IFRS as issued by the IASB): ›› IFRS 17 – Insurance contracts (apply to annual periods beginning on or after January 1 2019), ›› Amendments to IFRSP 3 – Business combinations – Definition of a business entity (effective for business combinations for which the acquisition date is the same as the start date of the first annual reporting period beginning on or after January 1 2020and the acquisition of assets occurring at or after the beginning of that period). We anticipate that the introduction of these new standards and amendments to existing standards during the period of initial application will not have a significant impact on the financial statements of Elektro Gorenjska Group. Brief descriptions of new standards and amendments to new standards and interpretations ›› IFRS 14 – Statutory postponement of payment of invoices, issued by IASB on January 30 2014. Objective of the standard is to enable first-time IFRS adopters who currently recognize statutory deferrals in accordance with previous generally accepted accounting principles to continue with such recognition upon transition to IFRS. ›› IFRS 16 – Leases, issued by IASB on January 13 2016. lessee recognized the right to use the asset and the lease liabilities in accordance with IFRS 16. Right to use an asset is treated in a similar was to other non-financial assets and is amortised accordingly. Lease liability is initially measured at the present value of the lease payments paid during the lease term, discounted at the implicit interest rate, if it can be determined immediately. If this rate cannot be determined immediately, the lessee must apply the assumed borrowing rate. As in IAS 17, which was replaced by IFRS 16, the lessor defines a lease as operating or financial depending on the nature of the lease. Lease is classified as finance lease if it transfers substantially all the risks and benefits connected to the ownership of the asset. All leases that are not financial are operating leases. In a finance lease, the lessor recognizes finance income over the lease term on a sample basis that reflects a constant periodic rate of return on the net investment. Payments made under operating leases are recognized by the lessor as revenue on a straight-line basis or, if the pattern previously reflects a reduction in the benefits or using the asset, using another systematic method. ›› IFRS 17 – Insurance contracts, issued by IASB on May 18 2017. New standard requires the measurement of insurance liabilities at the current values of performance and provides a more uniform method of measurement and presentation for all insurance contracts. Purpose of the requirements is to ensure consistent and principle-based accounting for insurance contracts. IFRS 17 replaces IFRS 4 – Insurance contracts and related interpretations. ›› Amendments to IFRS 3 – Business combinations – Definition of a business entity, issued by IASB on October 22 2018. Changes were introduced to improve the definition of a business entity. Amended definition highlights that the business entity’s purpose is to provide goods and services to customers, while previous definition emphasized dividend returns, lower costs and other economic benefits for investors and other stakeholders. In addition to the emended wording, the Committee provided additional guidance on the definition. ›› Amendments to IFRS 9 – Financial instruments – Advance payment elements with negative compensation, issued by IASB on October 12 2017. Existing requirements of IFRS 9 regarding the right to terminate the contract are amended to allow measurement at amortized cost (or at fair value through other comprehensive income, depending on the business model) even in the case of negative compensation payments. According to the changes, signing he amount of the advance payment is not important – depending on the prevailing interest rate at the time of the interruption, the payment can also be made in favour of the contracting party who makes the early payment. Calculation of the compensation must be the same in the case of a penalty for early repayments well as in the case of a reward for early repayment. Amendments also include clarifications regarding the accounting for changes in financial liabilities that do not result in elimination of recognition. In this case, the carrying amount is adjusted for the result recognized in comprehensive income. Effective interest rate is not recalculated. ›› Amendments to IFRS 9 – Financial instruments, IAS 39 – Financial instruments: recognition and measurement and IFRS 7 – Financial instruments: disclosures – Reform of reference interest rates, issued by IASB on September 26 2019. Amendments in the reference interest rate reform:a. amend the specific hedge accounting requirements so that companies can account for hedging assuming that the reference interest rate on which the hedged cash flows and cash flows from the hedging instrument are based will not change as a result of the reform of the reference interest rates; b. are mandatory for all hedging relations directly affected by the reference interest rates reform; c. are not intended to mitigate other consequences of the reference interest rates reform (if the hedging relation no longer meets the requirements for hedge accounting for reasons other than those specified in the amendments, hedge accounting should be discontinued) and d. require specific disclosures about the extent to which amendments to the reform affect the hedging relations between the companies. ›› Amendments to IFRS 10 – Consolidated financial statements and IAS 28 – Investments in associates and joint ventures – Sale or contribution of assets between an investor and its associate or joint venture, published by IASB on September 11 2014. Amendments refer to the divergence of the requirements under IAS 28 and IFRS 10 and clarify that the scope of recognition of profit or losses in a transaction with an associate or in a joint venture depends on whether sold or the contributed assets represent a business entity. ›› Amendments to IAS 1 – Presentation of financial statements and IAS 8 – – Accounting policies, changes in accounting estimates and errors– Definition of Material, published by IASB on October 31 2018. Amendments clarify the definition of the term material and how it should be included in the guidance on the definition. ›› Amendments to IAS 19 – Employee benefits – Modification, limitation or settlement of the program, issued by IASB on February 7 2018. Amendments require the use of updated re-measurement assumptions to determine current service cost and net interest for the remainder of the reporting period following the program change. ›› Amendments to IAS 28 – Investments in associates and joint ventures – Long-term interest in associates and joint ventures, published by IASB on October 12 2017. Amendments are intended to clarify that an entity applies IFRS 9, including impairment requirements, for long-term interests in an associate or joint venture that are part of a net investment in an associate or joint venture and for which the equity method does not apply. Amendments also eliminate paragraph 41, as in the Committee’s view it merely repeated the requirements of IFRS 9 and caused confusion regarding the accounting for long-term interests. ›› Amendments to different standards due to IFRS Improvements (period 2015 – 2017), published by IASB on December 12 2017. Amendments to different standards arise from the annual IFRS Improvement Project (IFRS 3, IFRS 11, IAS 12 and IAS 23), with primary purposes of eliminating the inconsistencies and interpreting the text. Amendments contain the following interpretations: the entity re-measures its previous interest in the joint venture when it acquires control of the entity (IFRS 3); if an entity acquires joint control of a business entity, it shall not re-measure its previous interest in the joint venture (IFRS 11); company calculates all consequences of the payment of dividends on income tax in the same way (IAS 12); and the entity treats, as part of general loans, any loans that were originally intended to develop an asset, such as an asset capable of being used or sold. ›› Amendments to the references to the conceptual framework in IFRS, issued by IASB on March 29 2018. Due to the revision of the conceptual framework for IFRS, the IASB has updated the reference to it in IFRS. Document contains amendments IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22 and SIC-32. Purpose of amendments is to support the transition to a revised conceptual framework for companies that use this framework to develop their accounting policies when no IFRS standard applies to a particular transaction. ›› IFRIC 23 – Uncertainty when dealing with income tax, issued by IASB on June 7 2017. There may be uncertainty as to how tax law applies to a particular transaction or circumstance or whether the tax authority will accept the tax treatment in the company. IAS 12 Income tax sets out how current and deferred tax should be calculated, and not how the effects of the uncertainty should be reflected. IFRIC 23 complements the requirements of IAS 12 by specifying how the effect of uncertainty should be reflected in the calculation of income tax. We anticipate that the introduction of the above new standards, amendments to existing standards and new interpretations during the period of initial application will not have a significant impact on the Group’s financial statements. 11.3 Summary of significant accounting policies Financial statements of the Group have been prepared on the basis of accounting policies presented below. 11.3.1 Basis for consolidation Financial statements of the Group have been prepared on the basis of the financial statements of Elektro Gorenjska Company and its subsidiary and associated companies. a. Subsidiaries Subsidiaries are companies controlled by the Group. Control exists when the controlling company has the opportunity to decide on the financial and operating policies of the company in order to obtain benefits from its operations. Financial statements of subsidiaries are included in the consolidated financial statements of the Group from the date that control commences until the date that control ceases. Accounting policies of subsidiaries are consistent with the policies of the Group. b. Associated companies Associated companies are those companies in which the Group has significant influence, but not control over their financial and operating policies. Significant influence exists when the Group owns 20 to 50 per cent of the voting rights in another company. Investments in associates at initial recognition are stated at cost and then accounted for under the equity method. Consolidated financial statements of the Group include the Group’s share in the profits and losses of associates from the date that significant influence commences until the date when it ends. c. Transactions eliminated from the consolidated financial statements In preparing the consolidated financial statements we eliminate balances, unrealized gains and losses resulting from intra-Group transactions. Unrealized gains on transactions with associated companies (accounted for under the equity method) are eliminated to the extent of the Group’s share in this company. Unrealized losses are eliminated in the same way as unrealized gains, provided that there is no evidence of impairment. d. Assumptions used in preparation of consolidated financial statements In preparing the consolidated financial statements the following assumptions have been used: ›› Assumption of a single company (consolidated Group accounts show the assets, financial condition and results of operations and changes in financial position and changes in equity of the Group companies as if it were one company). ›› Assumption of demonstrating the true asset and financial position and profit or loss. ›› Assumption of the Group’s completeness. ›› Assumption of the completeness of the financial statements and their uniform scope. ›› Assumption of the same date. ›› Assumption of consistent consolidation methods. ›› Assumption of clarity and transparency. ›› Assumption of economy. ›› Assumption of significance. 11.3.2 Intangible assets Intangible asset is a non-monetary asset, which does not exist physically. It is recognizable when it is identifiable, detachable, it can be replaced, transferred or sold. Intangible asset managed by the Group has the power to receive future economic benefits and limit the access of others to these benefits. Group recognizes an intangible fixed asset when, and only when, it is probable that the expected future economic benefits will flow to the Group, and its value can be reliably measured. After initial recognition, the Group has the selected accounting policy as the cost model. Intangible assets are initially recognized at cost, less accumulated amortization and accumulated impairment losses. Impairment of intangible assets with a definite useful life is carried out in the same way as for tangible fixed assets. Average useful lives and depreciation rates of larger groups of depreciable assets are: Significant categories of depreciable assets Estimated useful life (in years) Depreciation rate (in %) Buildings of energy infrastructure 25–50 2–4 Buildings of hydroelectric power stations 5–40 2.5–20 Solar power stations 7–30 3.33–13.13 Other buildings 20–50 2–5 Equipment of energy infrastructure 10–35 2.86–10 Computer hardware equipment 3–4 25–33.33 Equipment of hydro power stations 3–30 3.33–33.33 Equipment SPTE 6–10 10–16.21 Other equipment 2–20 5–50 Investments in foreign tangible fixed assets 1.5–30 3.33–70 Vehicles 6–12 8.33–16.67 Depreciable amount of tangible fixed assets is equal to their acquisition cost, reduced by any eventual impairment, which is systematically allocated throughout the useful life. Group annually verifies useful lives and other values of significant items of tangible fixed assets, depreciation rates are then converted to current and future periods if expectations differ significantly from the estimates. At the end of the financial year the Group assesses whether there are any indications that assets may be impaired. In doing so, indications from external and internal sources of information are assessed. Impairment loss is the amount by which the carrying amount of an asset or cash-generating unit exceeds it recoverable amount and is generally recognized in profit or loss as an operating expense. 11.3.4 Investment property In recognizing investment property the Group considers the same conditions as with tangible fixed assets, reliability of measuring the acquisition value and inflow of economic benefits. Investment property is property owned by the Group in order to bring rent , to increase the value of long-term investment or both. Investment property in the Group generates cash flows independently of other assets held by the Group. Investment properties in the Group include mainly: ›› land held for increasing the value of long-term investment rather than for short-term sale in the ordinary course of business; ›› land that has no future use determined by the Group; ›› building in single or multiple operational leasing; ›› vacant buildings owned to hire out in single or multiple operational leasing; ›› property that is being constructed or developed for future use as investment property. Investment property does not include: ›› real estate used by employees (for example apartments hired out for operational leasing to the employees); ›› real estate hired out for a long–term operational leasing to company SODO Maribor, on the basis of a long-term contract with SODO; ›› property comprising Sava HE, in connection with which a denationalization dispute is in progress. Until the dispute is resolved Sava HE is under long-term operating lease of the controlled company Gorenjske elektrarne. All of the above listed real estate is treated as a component part of the tangible fixed assets. For measuring investment property after recognition model of acquisition value is used, reduced by depreciation and eventual impairments. Group transfers funds from the account or to the investment property account only when the use is changed and there is evidence of a change in use. Such a case is a sale that is probable within a period of one year, a transfer to a disposal group, or among assets intended for sale. Straight-line depreciation method is used. Useful life of investment property is the same as for tangible fixed assets of the same kind. 11.3.5 Assets received and leased When concluding a contract, the Group assesses whether it is a lease contract or whether the contract contains a lease. Contract is a lease if it transfers the right-of-use control of a particular asset for a specified period of time in return for payment. Lessee must have the right to derive all significant economic benefits from the use of the assets and the right to direct the use of the asset. For all such contracts, the Group recognizes the right to use the assets and the related lease obligation when concluding the lease. This equates the accounting treatment of leases for both operating and finance leases. Exceptions are short-term leases and leases in which the leased asset is of small value. For these leases, the Group recognizes lease payments as a cost of services (rent costs) on a straight-line basis over the term of the lease or on any other systematic basis that best reflects the pattern of benefits received. Group defines the assets it leases as operating or financial, depending on the nature of the lease. Lease is classified as finance lease if it transfers substantially all the risks and benefits connected to the ownership of the asset. All leases that are not financial are operating leases. In a finance lease, the lessor recognizes finance income over the lease term on a sample basis that reflects a constant periodic rate of return on the net investment. Payments made under operating leases are recognized by the lessor as revenue on a straight-line basis or, if the pattern previously reflects a reduction in the benefits or using the asset, using another systematic method. Group discloses assets leased under operating leases under its own assets and calculates depreciation from their purchase value in accordance with the guidelines, while the amounts charged for the use of the asset are included in rental income. All contractual relationships where the Group acts as a lessor are concluded as operating leases. Group discloses assets among its assets. Rental income over the lease term is recognized on a straight-line basis over net operating income. All costs associated with leased assets (including depreciation) are recognized as expenses of the period. As at 1. 1. 2019, due to the requirements of IFRS 16, there were no effects on the Group’s financial statement because the Group has no contracts that would meet the conditions for recognizing the right to use. 11.3.6 Financial instruments Financial instruments include the following items: ›› non-derivative financial assets, ›› non-derivative financial liabilities and ›› derivative financial instruments. Non-derivative financial assets Non-derivative financial assets are: ›› financial investments recorded in the statement of financial position as long-term and short-term financial investments, ›› receivables and loans, ›› cash and cash equivalents. Financial investments At initial recognition, non-derivative financial instruments are classified into one of the following categories: financial asset at fair value through other comprehensive income, financial assets at amortized cost and financial asset at fair value through profit or loss. Classification depends on the purpose for which the instrument was acquired. All long-term loans and short-term financial investments are classified in the group of financial assets at amortized cost. In a regular way of purchase or sale of financial assets in the accounting records and statement of financial position such financial asset is recognized taking into account the trade date (trade), this is the date on which the Group commits to purchase or sell the asset. Upon initial recognition, the financial investment is measured at fair value. Initial value is added also transaction costs arising from the acquisition or issue of financial assets, except for investments classified as financial assets at fair value through profit or loss. Investments in subsidiaries and associate companies and joint ventures are measured using the cost model. If there is an objective evidence that an impairment loss occurred the stated investment is tested for impairment in accordance with the IAS 36 – Asset impairment. Claims Claims are rights based on property and other relations to require from a certain person to pay the debt, or in the case of given advances supply goods or implement a service. Claims are initially recognized in amounts that originate from suitable documents assuming that they will be paid. Later, they can increase or decrease due to subsequent rebates, returns due to inadequate quality, for received payments and other forms of settlement. After their initial recognition claims are measured at their amortized cost. In the statement of financial position long-term claims, which are already due (but not yet settled), and long-term claims, which are due in one year after the balance sheet date at the latest, are recognized as short-term claims. At least quarterly, before compiling the quarterly statement of accounts, we verify the suitability of individual recognized claim’s amounts. Receivables, which are assumed to not be settled wholly or partially, are recognized as doubtful; if they result in legal proceedings or there is a dispute about their pay, they are recognized as disputable. To this end, the Group has established appropriate records. In the records of disputable claims it classifies all claims: ›› in the execution procedures based on the execution title; ›› in the execution procedures based on the authentic document (e.g. action) and ›› in the insolvency proceedings (composition proceedings, simplified composition proceedings, and bankruptcy proceedings). Value adjustment of short-term operating receivables to Group companies is formed on the basis of the criterion of maturity and collateral. Thus, the estimate obtained is corrected by individual assessment with regard to the creditworthiness of the customer and the internal and external signs of impairment. Cash and cash equivalents Monetary assets include: ›› cash on transactional and foreign currency accounts in banks or other financial institutions that can be used to make payments, and ›› cash equivalents. Cash equivalents are investments that can be readily converted to known amounts of cash and which are subject to an insignificant risk of changes in value. Group also includes deposits, bank deposits and loans among the companies in the Group with a maturity of up to three months, and receipts from their disposals, among cash equivalents. Group has transactional accounts in following commercial banks: Current account number Bank of current account Company SI56 0700 0000 0641 939 Gorenjska banka, Kranj Elektro Gorenjska SI56 0700 0000 0542 805 Gorenjska banka, Kranj Gorenjske elektrarne SI56 1910 0001 1259 911 Deželna banka Slovenije, Ljubljana Elektro Gorenjska SI56 2900 0000 1824 912 Unicredit banka, Ljubljana Elektro Gorenjska SI56 3000 0000 3480 687 Sberbank, Ljubljana Elektro Gorenjska SI56 3000 0000 8793 959 Sberbank, Ljubljana Gorenjske elektrarne SI56 0700 0000 3208 559 Gorenjska banka, Kranj GEK Vzdrževanje SI56 6100 0002 2664 688 Delavska hranilnica, Ljubljana GE LES All current accounts are kept in Euros, only current account No. SI 56 0700 0000 0641 939 in Gorenjska bank Kranj is opened also as foreign currency account. Accounts in Sberbank represent saving accounts. Revaluation of monetary assets is a change of their carrying value and can be done at the end of the financial year or during the year. Revaluation occurs only in case of assets in foreign currencies if exchange rate changes at the first recognition. Exchange rate difference, which occurs in this situation, either increases or reduces the original recognized value and in first case it represents financial revenue related to monetary assets or in the second case a financial expenditure related to monetary assets. Non-derivative financial liabilities Non-derivative financial liabilities are recognized obligations associated with the financing of own assets, which must be repaid or settled in cash. As a special type of debt deferred tax liabilities are considered. In the statement of financial position of the Group long-term debts that have already fallen overdue (but not yet settled) and long-term debts due and payable not later than one year after the balance sheet date, are recognized as short-term debts. Debts can be financial (borrowings under the loan agreements, liabilities to lessors in finance lease) or business (purchased materials and services from suppliers, liabilities to employees, liabilities to the state, liabilities to customers for advances and securities). After initial recognition, liabilities are measured at amortized cost. They are increased by implied interest and decreased by paid amounts and any other settlements, agreed upon with creditors. Recognition of debts in the accounting records and the balance sheet shall be eliminated when the obligation specified in the contract or another legal instrument is discharged, canceled or expired (and the organization does not intend to settle). 11.3.7 Stocks Stocks are assets that are held for sale in the ordinary course of business, which are being used in the process of production for such sale, or in the form of materials to be consumed in the production or provision of services. Quantity units of stock materials (including small tools and packaging) are initially recognized at the purchase price. Cost comprises of the purchase price, import and non-refundable charges (including value added tax, which is not reimbursed) and direct acquisition costs. Costs of material kept in stocks before use are recognized at moving average price method at the level of OE. Moving average price is calculated on a daily basis. Group valuates stocks at their original value. Group continuously or at least once a year, during the inventory, verifies the real value of stocks and impairs it, if their book value exceeds the net realizable value, which is the estimated selling price. 11.3.8 Other assets Other assets of the Group include accrued income and deferred expenses. Accrued income are revenues that are considered in the income statement, although they have not yet been charged. In accordance with IFRS 15 they are recognized as assets under the contracts with buyers. Deferred expenses are amounts that when incurred are not yet charged to the profit and loss account. 11.3.9 Capital Entire capital of the Group consists of called-up capital, capital reserves, profit reserves, other reserves and retained profit. All other components of entire capital belong to the capital owners in proportion of their ownership shares in the capital stock. 11.3.10 Provisions Group recognizes provisions if due to past events it has a legal or indirect obligation that can be reliably estimated and future events occur that may affect the amount required to settle the obligation. Before forming provisions the Group first assesses the likelihood of future events. It is noted that the future event really occurred, if there is material evidence about it at the time of the assessment (eg. action lodged, denationalisation claim made,…). Accounting value of provisions is equal to their original value, reduced by spent amounts until the need for their increase or reduction occurs. Contingent liabilities are not considered provisions. Significant provisions include long-term employee benefits, which are divided into: ›› long-service bonus, which belongs to other long-term employee benefits, and ›› severance pay upon retirement, which belongs to post-employment benefits. Calculations for provisions for severance pays at retirement and long service bonuses are prepared by an authorized actuary and are formed in the amount of estimated future payments discounted on the balance sheet date, taking into consideration also costs of service for the current year, costs of interest and actuarial surplus or deficits resulting from changes in actuarial assumptions and experiential adjustments. On the balance sheet date the Group establishes and in the profit or loss account recognizes revenues or expenses in connection with the adjustment of provisions for retirement benefits from: ›› amount of additional provisions for current service costs relating to severance pays for the current year; ›› amount of the increase or decrease in the provisions already made in the event of the introduction or modification of the program (amendment of past service costs); ›› accrued interest in respect of the provisions (as additional cost of provisions); ›› effects of all limitations or shrinking of provisions for severance pay upon retirement. Actuarial gains and losses from severance pays upon retirement are not recognized in the income statement, but directly in equity under other reserves, which can also be negative. Reserves created under this title are eliminated in the net profit or loss from previous periods in the actual amounts, when for the employees who left or retired, the recognition of provisions for retirement is eliminated. Long service bonuses are classified as other long-term employee benefits. On the balance sheet date the Group determines and recognizes in the profit or loss revenues or expenses in connection with the adjustment of provisions for long-service bonuses (including actuarial gains and losses). Recognition of provisions in accounting records and the balance sheet is eliminated when the created opportunities for which the provisions were formed, have already been used out or there no longer is a need for them. Provisions for accrued costs and expenses are directly reduced by the costs and expenses for which they were made. Therefore, during the spending of provisions the costs or expenses no longer appear in the income statement. 11.3.11 Assets acquired free of charge Assets acquired free of charge include: ›› connections of customers that the group took over into its tangible fixed assets together with its commitment to care for their maintenance and reconstruction, in accordance with the regulations, namely the General conditions for connection to the distribution electric system, ›› free acquisitions of other fixed assets, ›› assets acquired through government support or donation and ›› earmarked funds for co-financing the construction of tangible fixed assets. Assets acquired free of charge are initially recognized in the financial statements as deferred income under other long-term liabilities. They are recognized as other operating income over the useful life of each asset. 11.3.12 Other liabilities Other liabilities include deferred revenues and cost provisions or expenses. Deferred revenue is revenue received to cover costs and is recognized consistently as revenue over the periods in which they arise. Other income is recognized when the Group expects to receive benefits. Cost provisions are amounts that have not yet occurred, but already have an impact on profit. 11.3.13 Deferred tax liabilities and tax receivables and income tax Deferred tax assets and tax liabilities are calculated using the balance sheet liability method, which focuses on temporary differences. They relate to those items of income or expense that are taxable or deductible in the coming years. Deferred tax assets are recognized for deductible temporary differences, unused tax losses carried forward and unused tax credits carried forward to be transferred to the next period, when it is probable that in the future taxable income will be available against which it will be possible to use the unused tax losses and unused tax credits. Receivables and deferred tax liabilities are not recognized in the accounting records if the amounts of deferred tax assets and deferred tax liabilities are individually or jointly insignificant for the Group. Deferred income tax is determined using tax rates (and laws) that are in effect at the balance sheet date and which are expected to be in effect when the related deferred tax asset is realized or the deferred tax liabilities settled and when a taxable profit against which it will be possible to eliminate temporary differences is available. At the end of each reporting period the Group reassesses unrecognized deferred tax assets and recognizes a previously unrecognized deferred tax asset if it is probable that future profit will allow the coverage of deferred tax assets. Current tax expense is the amount of tax that is payable (recoverable) according to the taxable profit (tax loss) for the period, using tax rates enacted on the reporting date, and any adjustments to tax payable in respect of previous years. Useful life is the period in which the Group expects that the intangible asset will be available for use. Useful life of all intangible assets in the Group is finite and intangible assets are depreciated. Depreciable amount of an intangible asset with a finite useful life the Group strictly allocates to the entire period of its useful life. Amortization of intangible assets is calculated individually based on the straight-line depreciation method. Depreciation charge for each period shall be recognized in profit or loss account. Useful lives and depreciation rates of larger groups of depreciable assets are: Significant categories of depreciable assets Estimated useful life (in years) Depreciation rate (in %) Computer software equipment 3 - 7 14.29 – 33.33 Other rights 3 33.33 For major items of intangible fixed assets, the Group reviews annually the period and method of depreciation and the residual value of assets. Effect of the change in the assessment the Group describes in the notes in the accounting period in which it occurred. Recognition of the intangible asset is eliminated by the Group upon disposal or when it does not expect any economic benefits from its use. 11.3.3 Tangible fixed assets Tangible fixed assets are assets owned by the Group that it uses in the production or supply of products, when providing services, leasing them to others, or using them for office purposes. They are expected to use them for these purposes in more than one accounting period. Group recognizes an asset as a fixed asset solely on the condition that future economic benefits will flow and the cost of the asset can be reliably measured. Carrying amounts of tangible fixed assets and thus the basis for depreciation of these assets acquired upon the establishment of companies in the Group with in-kind contributions, were initially recognized at the estimated fair value determined with the participation of a certified appraiser. Tangible fixed asset that qualifies for recognition as an asset is measured at cost. Cost of a tangible fixed asset corresponds to the price of money on the day of recognition. Cost includes its purchase price, non-refundable purchase taxes, discounts, costs incurred to enable the asset to operate in accordance with management expectations, and direct costs that can be attributed to purchase value. If the Group postpones the payment of acquisition cost for a longer period of time, the difference between the cash equivalents and the total consideration is recognized as interest and accrued. Therefore, among costs that increase the acquisition cost of a fixed asset, the Group also includes borrowing costs related to the acquisition of a tangible fixed asset , until it is ready for use if it is produced for more than one year. Borrowing costs are attributed to the acquisition costs at the completion of the investment. In case the investment is not completed in the current year, they are attributed on the last day of the accounting period to the items of the project (investment items). Items are named in the contract of lending, and those items of the project, which name is not listed, but their planned value exceeds 400,000 €. If the newly acquired and recognized building, which is part of tangible fixed assets due to the construction of new building, which will be part of the tangible fixed assets, is disposed, the carrying value of the existing building is the cost of site preparation, which is included in the cost of the new building. Acquisition cost of a tangible fixed asset constructed or produced in its own context is determined by the Group using the same principles as with the asset purchased. Group companies that produce its own assets in the acquisition cost include costs that are directly related to it, and the general costs of construction, which can be attributed to that asset. Costs not related to its construction or making, and costs that the market does not recognize are not included in the acquisition price. Acquisition cost of such tangible fixed asset cannot be greater than the acquisition cost of an identical or similar tangible fixed assets on the market. Acquisition cost of tangible fixed asset constructed or produced in Group companies thus consists of outsourcing services, hours of direct labor, material costs (valued at the weighted average price at the level OE) and other direct production costs (depreciation of labor resources, administrative and legal fees, notary services…). Group estimates that it has no significant obligations for decommissioning and disposal of tangible fixed assets, restoration of sites and similar obligations. Tangible fixed assets acquired through state aid or a donation are stated at cost upon acquisition. Donations or government grants are not deducted from their acquisition cost, but are included in deferred revenues and are used in accordance with the charged depreciation. For measuring the tangible fixed asset after recognition the Group uses the cost model. Under tangible fixed assets and not investment property we record also the electricity distribution infrastructure leased under operating lease to SODO under the Contract with SODO. In terms of content, this is a proprietary use of assets, but the Group does not originally have it in order to earn rent or other returns, but in order to carry out its activity. If subsequently incurred costs related to tangible fixed assets, increase its future benefits compared to the originally estimated, its cost increases. However, if the costs are increasing the useful life of the asset, the acquisition cost of tangible fixed asset is increased for the value of these costs and the useful life is extended. Costs related to tangible fixed assets, which arose later and are necessary to operate normally, are disclosed as maintenance costs. Depreciation of tangible fixed assets is calculated individually based on the straight-line method over the entire estimated useful life of assets. 11.3.15 Expenditure Expenditure is classified into operating and financial expenses. Operating expenses include all costs incurred in the period and operating expenses from revaluation. Latter occur mainly due to the impairment of tangible fixed assets, intangible assets, investment property, accounts receivable and stocks, as well as the sale or other disposal of tangible fixed assets and investment property at a price that is lower than their carrying value. Financial expenses are financing expenses and investment expenses. First consist primarily of interest, while second are primarily of revaluation financial expenses nature. Latter are due to impairment of financial investments and due to the sale or other disposal at a price that is lower than their book value. Interest expenses are recognized according to the elapsed time and the applicable interest rate. 11.3.16 Consolidated cash flow statement Group presents its cash flows from operating activities, investing and financing activities in a manner that best suits its business. Statement of cash flows is prepared using the direct method. For the purpose of preparation of cash flows cash equivalents are classified as monetary assets as well. These are short term, highly liquid investments that are readily convertible to known amounts of cash and where the risk of changes in value is insignificant. Group treats as cash equivalents the short-term deposits and deposits with banks and loans between companies in the Group with a maturity of up to three months after the acquisition, and receipts from their disposal. For each group of assets (of e.g. intangible assets and tangible fixed assets) as an increase (expenses) are treated the paid acquisition costs of the newly acquired assets, and as a reduction (income) the received payments for the value of assets disposed. Cash flows relating to capitalized development costs and self-constructed tangible fixed assets are classified as cash flows from investing activities. Cash flows from interest received and paid and dividends the Group classifies based on the contents of the transaction under cash flows from operating, investing and financing activities. 11.3.14 Revenues Revenue is recognized by the Group when an increase in economic benefits is connected to the increase in an asset or a decrease in the debt and that this increase can be measured reliably. Group recognizes revenue when transferring control of the goods or services to the customer in an amount that reflects the compensation for which the Group considers it will be entitled to in return for those goods or services. Only a negligible portion of revenue is recognized over time period. Revenues are recognized from the sale of goods, provision of services and the use of the assets of the Group, which bring interest, royalties and dividends of others. Revenues in the books are divided into operating and financial revenues. Operating revenue is revenues from sales, capitalized own products and services and other operating revenues associated with business impact. These include also operating revenues that occur mainly on the sale of tangible fixed assets and investment property at a price that exceeds their book value, or as a result of adjustment of receivables. Financial revenue arises in relation to financial investments, as well as in association with receivables. They consist of accrued interest and profit shares as well as other financial revenues from revaluation. Interest on unpaid claims are not recognized as revenue but increase the value adjustment of receivables because there is reasonable doubt about the payment of claims until the principal is paid. Majority of revenue is generated by the Group on the basis of Contract with SODO, from the lease of electricity infrastructure and provision of services for SODO. Amounts collected on behalf of SODO in operations on their own behalf and the account of SODO are not recognized as revenue, but as operating liabilities to SODO. Group also generates revenue by building real estate for the market. Contract is usually concluded within a period of less than 12 months. Therefore, the Group recognizes revenue gradually over the construction period with respect to the measuring of the progress towards the complete fulfilment of the obligation . To measure the progress it uses the input method. This is based on the ratio of the costs actually incurred and estimated ones. Company estimates that there is no significant component of financing in this construction contracts. 11.4 Determination of fair value Financial instruments are recorded at fair value. Fair value is the amount at which the asset could be sold or a liability exchanged between knowledgeable, willing parties in an arm’s length transaction. In determining the fair value of financial instruments, the following hierarchy of levels for determination of fair value is considered: ›› first level includes quoted prices (unadjusted) in active markets for identical assets or liabilities, ›› second level includes values other than quoted prices included within the first level, but it is nevertheless possible to obtain directly from the market (prices for identical or similar assets or liabilities in a less active or inactive markets) or indirectly (e.g. values derived from quoted prices in an active market based interest rates and yield curves), ›› third level includes inputs for the asset or liability that are not based on observable market data, while unobserved data must reflect the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. As a base for the fair value of financial instruments the Group uses quoted prices. If a financial instrument is not quoted on a regulated market or the market is considered inactive, the Group in order to assess the fair value of the financial instrument uses the input data of the second and third level. In the investment property the Group discloses the fair value. Fair value results from the valuation of investment property, which is carried out every 3-5 years. Operating and other receivables are not discounted due to their short-term character, whereas impairments of the fair value are taken into account. 11.3.17 Earnings per share Basic return per share is calculated by the Group by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in the business year. Corrected return per share equals the basic, as all of the shares belong to the same class of ordinary registered shares. 11.5 Business combinations In 2019, Gorenjske elektrarne Company acquired 100 % stake in companies Energetika Pogacnik, d. o. o. and GE LES, d. o. o. based on the Agreement on the purchase and sale of business shares. Purchase price for both companies amounted to 153,808 €, net payment, taking into account the cash and cash equivalents acquired with the purchase, was 129,843 €. Energetika Pogacnik Based on the Agreement on the purchase and sale of business shares concluded in January 2019, company Gorenjske elektrarne acquired 100% share in company Energetika Pogacnik, d. o. o. Company’s primary activity is the production of electricity and heat in high-efficiency cogeneration (SPTE) (cogeneration of heat and electricity). Company owns one cogeneration plant. Plant uses wood biomass as its primary energy source, while producing heat and electricity. Primary activity thus coincides with the main activity of Gorenjske elektrarne Company. Company Gorenjske elektrarne also merged the company Energetika Pogacnik immediately after the purchase. Accounting day of the merger was 31. 12. 2018. Consequently, from that day onwards (i.e. from January 1 2019 inclusive) actions of the transferring company Energetika Pogacnik, d. o. o. were performed entirely on behalf of the acquiring company Gorenjske elektrarne, d. o. o. Merger was entered in the court register on 1. 4. 2019. In accordance with IFRS 3 the acquiring company based on the acquired business books, enters the acquired assets and liabilities in its own business books as at the balance on the day of the settlement of the merger, that is the balance as at 31. 12. 2018 in the amounts that the acquired company recognized on the day of the merger, that is on 31. 12. 2018, and recalculates these amounts at their fair value on the date of the settlement of the merger (date of the acquisition). Fair value of tangible fixed assets was assessed using the return-based method. In the assessment of the value projections of the future cash flows for the period until the end of the operational support to which the SPTE plant is entitled (until 2025), were used. Statement of financial position of the Company on the day that Gorenjske elektrarne acquired the controlling influence, is shown in the following table: ITEM Fair value Book value Tangible fixed assets 186,408 162,000 Short-term operating claims 18,830 18,830 Cash and cash equivalents 10,919 10,919 TOTAL ASSETS 216,377 191,968 Long-term financial liabilities 126,992 126,992 Short-term operating liabilities 21,944 21,944 TOTAL LIABILITIES 148,936 148,936 NET ASSETS OF THE ACQUISITION 67,441 43,032 In 2019 the plant SPTE Pogacnik made 111,427.95 € of revenues, of which 25,840.31 € in the period from 1. 1. 2019 until the entry of the merger in the court register. In € In € GE LES Based on the Agreement on the purchase and sale of business shares concluded in September 2019, company Gorenjske elektrarne acquired 100 % share in company GE LES, d. o. o. Company’s primary activity is the production of electricity and heat in high-efficiency cogeneration (SPTE) (cogeneration of heat and electricity). Company owns one cogeneration plant with two engines. Plant uses wood biomass as its primary energy source, while producing heat and electricity. Primary activity thus coincides with the main activity of Gorenjske elektrarne Company. Conditions for recognizing a new investment in financial statements of Gorenjske elektrarne Company and for its control were met on 20. 9. 2019. Statements of company GE LES, d. o. o. are included in the consolidated financial statements of Elektro Gorenjska Group. Upon acquiring a controlling position in GE LES, d. o. o. the fair value verification of the acquired net assets was made, on the basis of which the Group recognized assets at fair value in its consolidated financial statements. Fair value of tangible fixed assets was assessed using the return-based method. In the assessment of the value projections of the future cash flows for the period until the end of the operational support to which the SPTE plant is entitled (until 2030), were used. Statement of financial position of the Company on the day that Gorenjske elektrarne acquired the controlling influence, is shown in the following table: ITEM Fair value Book value Tangible fixed assets 384,210 384,210 Short-term operating claims 22,998 22,998 Cash and cash equivalents 13,046 13,046 TOTAL ASSETS 420,254 420,254 Long-term financial liabilities 175,388 175,388 Short-term financial liabilities 76,201 76,201 Short-term operating liabilities 38,581 38,581 TOTAL LIABILITIES 290,170 290,170 NET ASSETS OF THE ACQUISITION 130,084 130,084 Within four months since the acquisition of the Company Elektro Gorenjska Group has generated revenues in the amount of 57,032 €, while net profit before tax was negative in the amount of 2,817 €. If control had occurred on January 1 2019, the Group’s revenues would be higher by 180,302 €, and net profit of the Group would be higher by 1,011 €. 12 Notes to the Statement of financial position 12.1 Intangible assets Following tables present changes in intangible assets in years 2019 and 2018. In € 2019 Property rights Property rights in acquisition Total intangible assets 1 2 3 4 = 2+3 Acquisition cost Balance 1. 1. 2019 5,434,903 269,484 5,704,388 New acquisitions 541,221 403,235 944,456 Disposals, withdrawals, transfers -791,867 0 -791,867 Completion of ongoing investments 582,108 -582,108 0 Balance 31. 12. 2019 5,766,366 90,611 5,856,977 Value adjustment Balance 1. 1. 2019 4,296,171 0 4,296,171 Increase (depreciation) 542,878 0 542,878 Disposals, withdrawals, transfers -791,867 0 -791,867 Balance 31. 12. 2019 4,047,182 0 4,047,182 Carrying amount Balance 1. 1. 2019 1,138,733 269,484 1,408,216 Balance 31. 12. 2019 1,719,184 90,611 1,809,794 In € 2018 Property rights Property rights in acquisition Total intangible assets 1 2 3 4 = 2+3 Acquisition cost Balance 1. 1. 2018 5,455,281 187,510 5,642,791 New acquisitions 22,011 318,711 340,722 Disposals, withdrawals, transfers -279,125 0 -279,125 Completion of ongoing invest­ments 236,737 -236,737 0 Balance 31. 12. 2018 5,434,903 269,484 5,704,388 Value adjustment Balance 1. 1. 2018 4,036,330 0 4,036,330 Increase (depreciation) 538,966 0 538,966 Disposals, withdrawals, transfers -279,125 0 -279,125 Balance 31. 12. 2018 4,296,171 0 4,296,171 Carrying amount Balance 1. 1. 2018 1,418,950 187,510 1,606,459 Balance 31. 12. 2018 1,138,733 269,484 1,408,216 Intangible assets refer mainly to long-term property rights, which represent rights to use computer software solutions or licenses. Property rights in acquisition include investments in renovation and modernization of computer software equipment. Of all intangible assets that were in use as at 31. 12. 2019, 50 % were fully depreciated. On the last day of 2018 there were 56 % of all intangible assets fully depreciated. Share is calculated according to the acquisition cost of intangible assets. As at December 31 2019 the Group had no financial obligations in respect of acquiring intangible fixed assets. 12.2 Tangible fixed assets As at December 31 2019 tangible fixed assets amounted to 214,353,345 €, which represents 88 % of balance sheet total of the Group. Compared to the balance as at December 31 2018 their value is by 4.9 million € or 2.3 % higher. Presentation of changes in tangible fixed assets in year 2019: In € 2019 Land Buildings Equipment Tangible fixed assets under construction Total tangible fixed assets 1 2 3 4 5 6=2+3+4+5 Acquisition cost Balance 31. 12. 2018 8,093,140 300,816,894 139,093,004,06 2,814,956 450,817,994 Amalgamation 0 0 162,000 0 162,000 Balance 1. 1. 2019 8,093,140 300,816,894 139,255,004 2,814,956 450,979,995 New acquisitions 139,741 16,056 2,291,189 13,546,951 15,993,937 Purchase of Company 0 0 422,000 0 422,000 Disposals, separations, transfers -3,688 -1,605,909 -1,793,670 -104,250 -3,507,516 Transfer from investments in progress 11,791 10,383,302 3,115,477 -13,510,569 0 Transfer from/to investment property 0 -23,584 0 0 -23,584 Balance 31. 12. 2019 8,240,984 309,586,760 143,290,000 2,747,088 463,864,832 Valuation adjustment Balance 31. 12. 2018 0 158,555,621 82,777,588 0 241,333,209 Amalgamation 0 0 0 0 0 Balance 1. 1. 2019 0 158,555,621 82,777,588 0 241,333,209 Increase (depreciation) 0 5,745,448 5,655,751 0 11,401,199 Disposals, separations, transfers 0 -1,487,675 -1,716,106 0 -3,203,781 Transfer from/to investment property 0 -19,140 0 0 -19,140 Balance 31. 12. 2019 0 162,794,254 86,717,233 0 249,511,487 Carrying amount Balance 1. 1. 2019 8,093,140 142,261,273 56,315,417 2,814,956 209,484,786 Balance 31. 12. 2019 8,240,984 146,792,506 56,572,767 2,747,088 214,353,345 Presentation of changes in tangible fixed assets in year 2018: In € 2018 Land Buildings Equipment Tangible fixed assets under construction Total tangible fixed assets 1 2 3 4 5 6=2+3+4+5 Acquisition cost Balance 1. 1. 2018 8,030,495 290,877,351 135,597,195 3,493,960 437,999,002 New acquisitions 49,334 33,548 2,339,117 16,088,921 18,510,919 Disposals, separations, transfers -420 -2,293,468 -3,398,038 0 -5,691,927 Transfer from investments in progress 13,732 12,199,464 4,554,729 -16,767,925 0 Balance 31. 12. 2018 8,093,140 300,816,894 139,093,003 2,814,957 450,817,994 Valuation adjustment Balance 1. 1. 2018 0 155,120,317 80,695,024 0 235,815,341 Increase (depreciation) 0 5,486,882 5,251,749 0 10,738,631 Disposals, separations, transfers 0 -2,051,578 -3,169,185 0 -5,220,763 Balance 31. 12. 2018 0 158,555,621 82,777,588 0 241,333,209 Carrying amount Balance 1. 1. 2018 8,030,495 135,757,034 54,902,172 3,493,961 202,183,660 Balance 31. 12. 2018 8,093,140 142,261,273 56,315,417 2,814,956 209,484,786 New acquisitions are presented in the business report, in chapter 5.4 – Investments. Disposals and withdrawals of tangible fixed assets are the consequence of new investments, investments in modernization and renovation (reconstruction) of existing assets. Individually significant disposals (withdrawals) connected to energy facilities are the following buildings: ›› 20 kV DV D1000 D0902 – Jezerski vrh (reduction of acquisition cost by 245,343 € and revaluation adjustment by 245,343 €), ›› Power equipment RTP Brnik Airport - primary (reduction of acquisition cost by 238,015 € and revaluation adjustment by 225,600 €) in ›› Power equipment RTP Brnik Airport - secondary (reduction of acquisition cost by 118,552 € and revaluation adjustment by 116,209 €). Important part of tangible fixed assets represents electricity distribution infrastructure as defined in the Decree on energy infrastructure (Official Gazette RS, No. 22/2016). It includes buildings and equipment as well as part of the land. Book value of electricity distribution infrastructure as at December 31 2019 amounted to 185,344,653 € (31. 12. 2018: 179,729,601 €). For the needs of implementation of system operator activity, which SODO implements on the basis of the concession contract for implementation of public utility service of distribution network system operator, SODO has hired from Elektro Gorenjska Company complete electricity infrastructure. Group does not have any assets under its fixed assets that would represent the right to use the assets under IFRS 16. Of all tangible assets that were in use as at 31. 12. 2019, 22.6 % were fully depreciated (as at 31. 12. 2018 these assets were 22.3 %). Share is calculated according to the acquisition cost of intangible assets. To finance new acquisitions of fixed assets the Group took several long-term loans in year 2019 and previous years, whose balance on 31. 12. 2019 amounted to 54,566,451 € (31. 12.  2018: 54,880,386 €). Please see also chapter 12.13 – Long-term liabilities. Individually significant acquisitions are: Buildings: ›› investment in 2x110 KV DV Bled – Soteska D281 – 20 KV (547,362 €), ›› investment in 2x110 KV DV Soteska – RTP Bitnje (337,342 €) and ›› investment in GD RP Naklo 110/35/20 KV (162,261 €) Equipment: ›› measuring devices project AMI (1,145,122 €), ›› EO RTP Škofja Loka 20 kV switchyard (479,417 €), ›› EO T1233 RTP Brnik - secondary (289,481 €). 12.3 Investment property At the end of 2019 investment property amounted to 1,762,990 €. Changes in their acquisition value, valuation adjustment and their carrying amount in years 2019 and 2018 are presented in the following tables. Presentation of changes in investment property in year 2019: In € 2019 Land Buildings Investment property in acqusition Total investment property 1 2 3 4 5=2+3+4 Acquisition cost Balance 1. 1. 2019 484,118 2,035,448 4,240 2,523,805 New acquisitions 0 0 126,081 126,081 Disposals, transfers -13,883 -281,899 0 -295,782 Transfer from ongoing investments 0 130,321 -130,321 0 Transfer from/to intangible FA 0 23,584 0 63,915 Balance 31. 12. 2019 470,235 1,907,454 0 2,418,020 Value adjustment Balance 1. 1. 2019 0 710,218 0 710,218 Depreciation 0 42,935 0 42,935 Disposals, transfers 0 -157,594 0 -157,594 Transfer from/to intangible FA 0 19,140 0 19,140 Balance 31. 12. 2019 0 614,699 0 614,699 Carrying amount Balance 1. 1. 2019 484,118 1,325,230 4,240 1,813,588 Balance 31. 12. 2019 470,235 1,292,755 0 1,762,990 Presentation of changes in investment property in year 2018: In € 2018 Land Buildings Investment property in acqusition Total investment property 1 2 3 4 5=2+3+4 Acquisition cost Balance 1. 1. 2018 732,921 2,475,012 2,450 3,210,383 New acquisitions 0 0 54,826 54,826 Disposals, transfers -248,803 -492,600 0 -741,404 Transfer from ongoing investments 0 53,036 -53,036 0 Transfer from/to intangible FA 0 0 0 0 Balance 31. 12. 2018 484,118 2,035,448 4,240 2,523,805 Value adjustment Balance 1. 1. 2018 0 1,039,715 0 1,039,715 Depreciation 0 52,845 0 52,845 Disposals, transfers 0 -382,343 0 -382,343 Transfer from/to intangible FA 0 0 0 0 Balance 31. 12. 2018 0 710,218 0 710,218 Carrying amount Balance 1. 1. 2018 732,921 1,435,298 2,450 2,170,669 Balance 31. 12. 2018 484,118 1,325,230 4,240 1,813,588 12.4 Long-term financial investments On December 31 2019 long-term financial investments of the Group amounted to 7,358,730 €. Compared to the balance as at 31. 12. 2018 (7,622,874 €) their value did not change significantly. Largest item under long-term financial investments is an invest-ment in ECE (6,572,446 €). Investment was recognized in 2015, the value of the investment then amounted to 5,606,005 €. Investment is taken into account in the consolidated financial statements of the Group using the equity method. This means that the value of the investment at the end of each accounting period increases by a proportion of the net profit and direct changes in the capital of this company, and decreases by the amount of profit paid. From ECE Company the Group received by 345,432 € of dividends in 2019. More important data from the ECE Company’s accounts for year 2019 are the following: Item 31. 12. 2019 or year 2019 Current assets 43,855,578 Non-current assets 2,645,645 Current liabilities 27,053,418 Capital, provisions and non-current liabilities 19,447,805 Revenues 174,849,062 Net profit or loss 66,555 Other comprehensive income -8,683 Total comprehensive income 57,872 Within financial investments accounted for using the equity method, investments in ECE and Soenergetika companies were recorded. Long-term invested assets represent assets invested in joint holiday facilities, managed by Eldom Maribor and finance lease receivables. With regard to long-term financial investments, the Group is primarily exposed to the risk of adverse changes in the fair value of long-term financial investments. Group does not possess special financial instruments to hedge from this risk. Exposure to risks and hedging systems are explained in the Business Report, Chapter 4 – Management and Quality System. Following is the presentation of investment property structure. In € Item description 31. 12. 2019 31. 12. 2018 Apartments 329,891 413,928 Holiday facilities 845,182 782,201 Other buildings 117,681 129,102 Land 470,235 484,118 Investment property in acquisition 0 4,240 Total investment property 1,762,990 1,813,588 Based on the appraisal carried out by a certified appraiser of real estate in the Slovenian Audit Institute, fair value of investment property that Elektro Gorenjska Company stated in its balance on 31. 12. 2019 amounted to 2,458,826 €. A revaluation of investment property was not carried out in 2019, but important assumptions for valuation were verified, which did not change significantly. Revenues from rent in investment property amount to 189,924 € (in year 2018: 194,952 €). Direct operating expenses (including repairs and maintenance), originating from investment property, which made revenues from rents in year 2019, and direct operating expenses, which did not make revenues from rents in year 2019 consist of depreciation costs (42,935 €) and costs of material and services (90,454 €). In year 2018 costs of depreciation were 52,845 € and costs of material and services 100,377 €. All investment properties are owned by the Group and are not pledged as security for debts. In € Investment description Share designation Number of shares Share in the ownership (in %) Balance Increases in year 2019 Decreases in year 2019 Balance 1. 1. 2019 31. 12. 2019 1. 1. 2019 31. 12. 2019 1. 1. 2019 Change in value (equity method) New acqui­sitions or redestribu­tions Change in value (equity method) Sale or segregation 31. 12. 2019 Soenergetika, d. o. o. - - - 25.00 % 25.00 % 452,789 0 0 2,726 0 455,515 ECE, d. o. o. 25.6744 % 25.6744 % 6,903,132 -330,686 0 0 0 6,572,446 Informatika, d. d., Maribor INFG 1,562 1,562 9.56 % 9.56 % 124,155 0 0 0 0 124,155 Total investments in shares and interests in associates 7,480,076 -330,686 0 2,726 0 7,152,115 Total long-term financial investments, except loans 7,480,076 -330,686 0 2,726 0 7,152,115 Long-term invested assets (Eldom Maribor) 142,798 0 0 0 0 142,798 Long-term financial lease receivables 0 0 63,817 0 0 63,817 Total long-term loans 142,798 0 63,817 0 0 206,615 TOTAL LONG-TERM FINANCIAL INVESTMENTS 7,622,874 -330,686 63,817 2,726 0 7,358,730 In € Changes in long-term financial investments in 2019 and 2018 are presented in the two tables below. Investment description Share designation Number of shares Share in the ownership (in %) Balance Increases in year 2018 Decreases in year 2018 Balance 1. 1. 2018 31. 12. 2018 1. 1. 2018 31. 12. 2018 1. 1. 2018 Change in value (equity method) New acqui­sitions or redestribu­tions Change in value (equity method) Sale or segregation 31. 12. 2018 Soenergetika, d. o. o. - - - 25.00 % 25.00 % 458,498 0 0 -5,709 0 452,789 ECE, d. o. o. 25.6744 % 25.6744 % 6,512,724 390,409 0 0 0 6,903,132 Informatika, d. d., Maribor INFG 1,562 9.56 % 0 0 124,155 0 0 124,155 Total investments in shares and interests in associates 6,971,222 390,409 124,155 -5,709 0 7,480,076 Informatika, d. d., Maribor INFG 1,562 9.56 % 124,155 0 0 0 -124,155 0 Total other shares and interests 124,155 0 0 0 -124,155 0 Total long-term financial investments, except loans 7,095,376 390,409 124,155 -5,709 -124,155 7,480,076 Long-term invested assets (Eldom Maribor) 142,798 0 0 0 0 142,798 Employees 840 0 0 0 -840 0 Total long-term loans 143,638 0 0 0 -840 142,798 TOTAL LONG-TERM FINANCIAL INVESTMENTS 7,239,015 390,409 124,155 -5,709 -124,995 7,622,874 In € 12.5 Assets (disposal groups) for sale Assets for sale, which amounted to 138,796 € at the end of 2019, represent investment properties, which are in the process of being sold. At the end of 2018 value of these assets was 381,264 €. 12.6 Stocks Value of stocks of material, small tools, and merchandise as at 31. 12. 2019 amounted to a total 601,289 €. Compared to the balance as at 31. 12. 2018 they have increased by 238 thousand €. Group estimates that net realizable value of stocks is at least equal to their book value. Movement of material stocks in years 2019 and 2018 is shown in the following table. Group has no pledged stocks as security for its liabilities. 12.7 Short-term financial investments According to the balance as at 31. 12. 2019 the Group records 988,632 € of short-term financial investments. Of which the major part refers to deposits fixed for a period exceeding three months. At the end of year 2018 the Group recognized 1.8 million € of such investments. 12.8 Short-term operating receivables Short-term operating receivables as at 31. 12. 2019 amounted to 7,689,979 € and have decreased by 1.5 million € compared to the balance as at 31. 12. 2018. Following table represents the structure of short-term operating receivables: Short-term accounts receivable represent 98 % of all short-term operating receivables. Short-term operating receivables are entirely unsecured. Breakdown of short-term claims for electricity, network charge and services including receivables referring to default interest as of December 31 2019 according to maturity terms is shown in the following presentation: Changes in valuation adjustment of claims in year 2019 are presented in the next table. 12.9 Other current assets Value of other current assets as at 31. 12. 2019 amounted to 240,686 €. The largest item under other current assets is short-term deferred costs or expenses. 12.10 Cash and cash equivalents As at 31. 12. 2019 Elektro Gorenjska Group had 7,895,236 € of cash on the commercial banks accounts and short-term redeemable deposits in banks in the state. 12.11 Capital Entire capital of the Group consists of the called-up capital, capital reserves, profit reserves, other reserves, and retained profit. Balance of the entire capital as at 31. 12. 2019 amounted to 165,914,359 € and was higher by 4.6 million € or 2.8 % compared with the balance of capital as at 31. 12. 2018. Called-up capital of Elektro Gorenjska Company is the same as share capital (104,136,615 €). It is divided in 17,273,475 ordinary registered unit shares. All shares are fully paid up. Shares are issued in dematerialized form and are managed in KDD – Central Securities Clearing Corporation, d. d., in accordance with regulations. In 2019, in accordance with paragraph 6 of Article 381 of ZGD- 1, the company Elektro Gorenjska withdrew 12,901 ordinary freely transferable unit shares of the holder Elektro Gorenjska Company (treasury shares), which it acquired in the period from 1. 9. 2016 to 31. 3. 2018 in accordance with the resolution of the General Meeting. On this basis the share capital decreased by 53,658 €. After the decrease, the share capital amounted to 71,844,402 € and was divided into 17,273,475 ordinary freely transferable unit shares. Company then, on the basis of the interim balance sheet as at 31. 8. 2019, which was reviewed by the auditor BDO Revizija d. o. o. and gave an unqualified opinion on it, increased its share capital from the Company’s assets by transforming 32,292,213 € of other profit reserves into the Company’s share capital. After the increase, the share capital of the Company amounts to 104,136,615 €. It is divided to 17,273,475 ordinary registered unit shares. Other details in respect with the share capital and ownership structure of the capital are explained also in Business report, chapter 3.7 – Share capital and ownership structure. Capital reserves in the amount of 45,973,479 € were formed on 1.1.2006 in accordance with the transitional provisions item No. 15 Introduction to 2006 SAS, from the hitherto general revaluation equity adjustment, while a part in the amount of 28,581 € results from the withdrawal of treasury shares in 2019. They are applied in accordance with the Article 64 of ZGD-1. Statutory reserves as at 31. 12. 2019 amount to 3,393,348 € and are formed in accordance to the Article 64 of ZGD-1. Other profit reserves amount to 5,769,517 € and represent other profit reserves in the Group, taking into account the distribution of profits of parent companies. Group uses them in accordance with the Articles of Association of the joint-stock company Elektro Gorenjska and Articles of Association of companies. Other reserves (-267,183 €) represent reserves arising from the valuation at fair value. They include mainly post-employment benefits – severance pay upon retirement (-270,644 €). In € Item description 2019 2018 Material stocks at the beginning of the period 1. 1. 363,106 296,344 Purchases 3,888,407 3,802,543 Transfer from fixed assets 0 103,104 Consumption -3,494,561 -3,633,761 Sale -118 -4,603 Impairments and cancellation of impairments 0 -45,335 Transfer of small tools in use -155,545 -155,186 Material stocks at the end of the period 31. 12. 601,289 363,106 In € Item description 31. 12. 2019 31. 12. 2018 Short-term accounts receivable 7,860,123 8,956,086 Short-term advances 27,337 1,110 Adjustment of short-term accounts receivable -321,213 -228,928 Short-term accounts receivable 7,566,248 8,728,268 Short-term operating receivables from others 216,994 503,421 Adjustment of short-term receivables from others -93,262 -11,009 Short-term operating receivables from others 123,732 492,412 Short-term operating receivables 7,689,979 9,220,679 In € Item description Not yet due Up to 30 days 31-60 days 61-90 days More than 90 days Total amount due Total accounts receivable Claims on buyers of electricity, network charge and services 7,361,974 162,682 32,869 13,493 278,368 487,412 7,849,386 Default interest claims 1,767 627 233 9 8,101 8,970 10,737 TOTAL 7,363,741 163,308 33,102 13,502 286,469 496,382 7,860,123 In € Item description Balance 1. 1. 2019 New formations Withdrawal (use) and elimination Balance 31. 12. 2019 Chargeable to expenses Chargeable to claims Claims write-off Paid interest – transfer to revenues Elimination of excess valuation adjustments Valuation adjustment of accounts receivable 220,426 67,391 29,115 4,471 0 0 312,460 Valuation adjustment of interest claims 8,502 145 651 109 438 0 8,752 Valuation adjustment of other ahort-term claims 11,009 93,263 0 6,797 4,212 0 93,263 Total valuation adjustment of claims 239,936 160,799 29,767 11,377 4,650 0 414,475 Item Balance 1. 1. 2019 Change in the fair value of financial investments Elimination of actuarial gains/losses New formation of actuarial gains/losses Transfer to profit or loss brought forward Balance 31. 12. 2019 Actuarial gains/losses -169,154 1,710 -92,786 -10,414 -270,644 Change in fair value of financial investment available for sale (associate company) 5,690 -2,229 3,461 Total -163,464 -2,229 1,710 -92,786 -10,414 -267,183 In € Retained profit or loss amounted to 6,908,583 €. Return on share in year 2019 amounted to 0.42 €, which is by 0.09 € less than in year 2018. Controlling company has no preference shares, therefore basic and adjusted returns per share are equal. Basis for the calculation of the indicators of return on share are the net profit for the year and the weighted average number of ordinary shares in the period. Calculation is shown in the following table. In € Item Year 2019 Year 2018 Net profit or loss of the business year 7,260,202 8,796,285 Weighted average number of ordinary shares 17,273,475 17,273,475 Return per share, basic/adjusted 0.42 0.51 12.12 Provisions As at December 31 2019 provisions amounted to 8,942,104 €. Compared to their balance as at December 31 2018 they increased by 115 thousand €. Provisions for long-service bonuses and severance pay at retirement are formed in the amount of estimated future payments on the basis of actuary report on calculation of provisions for long-term earnings according to IAS 19. Actuary calculation as at 31. 12. 2019 takes into account the following actuarial assumptions: ›› mortality tables of population of Slovenia from year 2007, reduced by 10 %; ›› linearly decreasing fluctuation from 1.5 % at 18 years of age to 0.5 % at 58 years, then constant 0.0 % fluctuation; total on employees as at 31. 12. 2019 this means fluctuation of 0.8 % a year for next business year; ›› estimated retirement date, given by the companies in the Group; earlier or later retirement depending on the date of retirement is not taken into account . In the event that an employee is entitled to the long-service bonus within three months after the expected date of retirement, provisions for this long-service bonus are formed as well. ›› growth of average earnings in RS for years 2020 and 2021, resulting from the Autumn forecasts of economic trends 2019 (UMAR); from 2022 onwards average salary in RS will increase annually by 2.0 % inflation and by real growth of 1.0  %. It is assumed that the amounts from the Decree will not keep increasing until 2021, while later the growth of these amounts in accordance with the inflation are predicted; ›› increase in starting and basic salaries and variable part of salaries in the company in the amount of 85 % of annual inflation. Increase in average salaries in electricity sector is assumed in the amount of annual inflation increased by 0.2 % or 0.5 % from 2022 onwards; ›› growth of salaries due to promotion is linearly decreasing, namely from 3.0 % at 15 years to 0.5 % at 45 years, then constant 0.5 % annually, as a total on employees as at December 31 2019 this means 0.8 % annually for next year; ›› length of service allowance in the amount of 0.5 % from the basic salary for each year of service is taken into account for employees under the collective agreement. Female workers with more than 25 years of service get a 0.25 % pay increase; ›› yield curve, which reflects the estimated timing of earning payments. Used inflation yield curve is calculated for all government bonds for Euro zone countries (spot rates) as at 30. 12. 2019 and published on the following web page http://www.ecb.eu/stats/money/yc/html/index.en.html. From year 30 onwards the curve is extrapolated by a formula which reflects the relationship between the forward and spot rates wherein the forward rate for 30 years is used. Yield curve represents the relationship between market yields on government bonds in the euro area and the time remaining to maturity, therefore, the time structure of interest rates. While actuary calculation as at 31. 12. 2018 took into account the following actuarial assumptions: ›› mortality tables of population of Slovenia from year 2007, reduced by 10 %; ›› linearly decreasing fluctuation from 1.5 % at 15 years of age to 0.5 % at 55 years, then constant 0.5 % fluctuation; total on employees as at 31. 12. 2018 this means fluctuation of 0.7 % a year for next business year; ›› expected date of retirement for individual employee is calculated based on gender, date of birth and achieved total length of service as at 31. 12. 2018 in accordance with the Article 27 of ZPIZ-2 and indent 3 of paragraph 1 of Article 28 in ZPIZ – 2; at the same time it is taken into account that women will not retire before the age of 56 and men before the age of 58, regardless of total length of service; ›› growth of average earnings in RS for years 2019 and 2020, resulting from the Autumn forecasts of economic trends 2018 (UMAR); from 2021 onwards average salary in RS will increase annually by 2 % inflation and by real growth of 1.0 %. It is assumed that the amounts from the Decree will not keep increasing until 2020, while later the growth of these amounts in accordance with the inflation are predicted; ›› increase in basic salaries and variable part of salaries in the company in the amount of the annual inflation, from 2020 onwards increased also by real growth in the amount of 0.2 %. Increase in average salaries in electricity sector is assumed in the amount of growth in basic salaries of the company increased by 0.5 %; ›› growth of salaries due to promotion is linearly decreasing, namely from 3 % at 15 years to 0.5 % at 45 years, then constant 0.5 % annually, as a total on employees as at December 31 2018 this means 0.8 % annually for next year; ›› length of service allowance in the amount of 0.5 % from the basic salary for each year of service is taken into account for employees under the collective agreement. Female workers with more than 25 years of service get a 0.25 % pay increase; ›› yield curve, which reflects the estimated timing of earning payments. Used inflation yield curve is calculated for all government bonds for Euro zone countries (spot rates) as at 28. 12. 2018 and published on the following web page http://www.ecb.eu/stats/money/yc/html/index.en.html. From year 30 onwards the curve is extrapolated by a formula which reflects the relationship between the forward and spot rates wherein the forward rate for 30 years is used. Yield curve represents the relationship between market yields on government bonds in the euro area and the time remaining to maturity, therefore, the time structure of interest rates. Provisions for severance pays at retirement and similar increased by 363 thousand € in year 2019. Balance of other provisions compared to the balance on the last day of 2018 decreased by 248 thousand €. There were no significant differences between planned and realized forming and drawing on individual category of provisions. Following tables present changes in provisions in years 2019 and 2018. In € Item description Beginning of the period 1. 1. 2019 Increases (formations) Decreases (withdrawals, elimination) End of the period 31. 12. 2019 Chargeable to costs (expenses) Recognition chargeable or credit to Credit to operating revenues Credit to liabilities or short-term accrued charges Derecog­nition chargeable or credit to capital Provisions for long-service bonuses 908,265 206,018 2,500 92,904 0 1,018,879 Provisions for severance pay at retirement 2,120,254 169,082 95,464 139 10,060 1,710 2,372,892 Total provisions for long-service bonuses and severance pay 3,028,520 375,100 95,464 2,639 102,964 1,710 3,391,771 Provisions for damages in connection with denationalization claims 5,798,799 197,969 453,637 5,543,132 Other provisions 7,201 7,201 Total other provisions 5,798,799 205,170 453,637 5,550,333 Total provisions 8,827,319 580,270 95,464 2,639 556,600 1,710 8,942,104 In € Item description Beginning of the period 1. 1. 2018 Increases (formations) Decreases (withdrawals, elimination) End of the period 31. 12. 2018 Chargeable to costs (expenses) Recognition chargeable or credit to Credit to operating revenues Credit to liabilities or short-term accrued charges Derecog­nition chargeable or credit to capital Provisions for long-service bonuses 884,073 130,979 2,607 104,180 0 908,265 Provisions for severance pay at retirement 2,038,329 159,881 80,666 54,550 89,853 14,219 2,120,254 Total provisions for long-service bonuses and severance pay 2,922,402 290,861 80,666 57,157 194,032 14,219 3,028,520 Provisions for damages in connection with denationalization claims 5,447,242 351,558 5,798,799 Provisions for possible losses in disputes in progress 4,309 4,309 0 Total other provisions 5,451,550 351,558 4,309 5,798,799 Total provisions 8,373,952 642,419 80,666 57,157 198,341 14,219 8,827,319 12.13 Long-term financial liabilities As at 31. 12. 2019 Elektro Gorenjska Group had 46,910,199 € of long-term financial liabilities, which is by 1.4 million € less than as at 31. 12. 2019. All long-term financial liabilities in the amount of 16,133,043 € have the maturity of more than five years. In year 2019 we redeemed 6,489,325 € worth of principals. Costs of interest amounted to 514,582 €. Interest in the amount of 6,670 € was capitalized. In year 2018 we redeemed 16,862,877 € worth of principals, of which 10.3 million € refers to refinancing. Costs of interest amounted to 582,994 €. Interest in the amount of 1,466 € was capitalized. Balance of received loans as at 31. 12. 2019 amounted to 54,566,451 €, while at the end of 2018 to 54,880,387 €. Contractual interest rate in most loans is the result of collecting the offers of interested deposit money banks in acquiring the loan, in accordance with the Decree on the terms and conditions and methods of borrowing by legal entities from Article 87 of the Public Finance Act (Official Gazette RS, No. 23/04, 56/05, 65/06, 65/09) and subsequent negotiations with banks. Interest rate of three of the loans is fixed, while all other loans have a floating rate, bound by three or six month EURIBOR. Add-on to EURIBOR is between 0.58 and 1.70 percent point. Majority of financial liabilities are secured by bills of exchange. Balance of received loans to finance tangible fixed assets as at 31. 12. 2019 amounted to 54,566,451 €. In connection with long-term financial liabilities the Group is exposed mainly to the interest risk, as the long-term loans raised are loans with a floating interest rate (EURIBOR + add-on). As at December 31 2019 there were 29 % of long-term loans secured with the fixed interest rate, which represents the amount of 16 million €. Exposure to risks and hedging systems are explained in the Business report, in chapters 4.3 – Risk management in Elektro Gorenjska Company and 4.4 – Risk management in Gorenjske elektrarne Company. Group has no long-term debts to the members of the management board (management), members of the supervisory board and internal owners. Title Year of approval Year of maturity Purpose of loan Insurance of loan Balance 31. 12. 2018 Increases Amortizations 2019 Balance 31. 12. 2019 Short-term part of long-term loans 31. 12. 2019 Long-term part of loans 31. 12. 2019 Part of loan due from 31. 12. 2019 to 31. 12. 2024 1 2 3 4 5 6 7 8 9=6+7+8 10=part 9 11=part 9 12=part 9 Credit 1 2012 2023 Investments blank bills 2,250,000 0 -450,000 1,800,000 450,000 1,350,000 1,800,000 Credit 2 2015 2024 Investments (refinancing) blank bills 6,735,787 0 -1,122,632 5,613,155 1,122,632 4,490,522 5,613,155 Credit 3 2015 2030 Investments blank bills 6,964,213 0 -601,227 6,362,986 601,227 5,761,759 3,006,135 Credit 4 2015 2028 Investments - 18,571,429 0 -2,571,428 16,000,000 2,571,428 13,428,572 12,857,143 Credit 5 2017 2029 Investments blank bills 3,333,333 0 -83,333 3,250,000 333,333 2,916,666 1,666,667 Credit 6 2018 2029 Investments blank bills 8,000,000 0 0 8,000,000 800,000 7,200,000 4,000,000 Credit 7 2018 2024 Investments (refinancing) blank bills 9,025,625 0 -1,719,167 7,306,458 1,719,167 5,587,292 7,306,458 Credit 8 2014 2023 Investments Bills of exchange, mortgage on land, assignment of the claim 0 292,313 58,463 233,851 58,463 175,388 233,851 Credit 9 2019 2031 Investments blank bills 0 6,000,000 0 6,000,000 0 6,000,000 1,950,000 Total long-term loans 54,880,387 6,292,313 -6,489,325 54,566,451 7,656,250 46,910,199 38,433,408 In € Changes in long-term financial liabilities in year 2019 are presented in the following table: 12.14 Other long-term liabilities On the last day of year 2019 Elektro Gorenjska Group had by 6,803,353 € of other long-term liabilities. Structure and changes in other long-term liabilities in years 2019 and 2018 are shown in the two tables below. Structure and changes in other long-term liabilities in year 2019: In € Item description Beginning of the period 31. 12. 2018 Increases (formations) Decreases (withdrawals, elimination) End of the period 31. 12. 2019 Chargeable to costs (expenses) Recognition chargeable to assets Recognition chargeable to assests Credit to operating revenues Credit to liabilities or short-term accrued charges Fixed assets acquired free of charge 580,515 0 0 41,491 0 539,023 Free acquisition of connections 3,952,853 0 275,174 0 167,703 0 4,060,324 Total tangible fixed assets received free of charge 4,533,368 0 275,174 0 192,927 0 4,599,347 Dedicated funds to cover disproportionate costs 150,894 0 53,300 0 601 0 203,592 Long-term deferred revenue-rentals and user charges 248,758 0 89,008 0 34,149 0 303,617 Deferred revenue from the average connection costs 1,440,194 0 0 0 85,319 0 1,354,875 Long-term deferred revenue-rentals and SODO RO services 14,742 0 0 0 0 14,742 0 Project STORY- long-term deferred revenue 37,204 0 55,990 0 12,132 0 81,061 Project TDX ASSIST - long-term deferred revenue 34,364 0 21,875 0 54,313 0 1,926 Project STORY- long-term deferred revenue 0 0 86,863 0 84,986 0 1,877 Received state benefits 69,434 0 0 193,872 25,203 0 238,102 Other long-term accrued costs 11,233 5,856 6,406 0 353 4,186 18,956 Total other long-term liabilities 6,540,190 5,856 588,615 193,872 506,251 18,928 6,803,353 Structure and changes in other long-term liabilities in year 2018: In € Item description Beginning of the period 31. 12. 2017 Increases (formations) Decreases (withdrawals, elimination) End of the period 31. 12. 2018 Chargeable to costs (expenses) Recognition chargeable to assets Credit to operating revenues Credit to operating revenues Credit to appropriate assets Fixed assets acquired free of charge 619,028 0 4,900 43,414 0 0 580,515 Free acquisition of connections 3,858,190 0 244,177 149,513 0 0 3,952,853 Total tangible fixed assets received free of charge 4,477,218 0 249,077 192,927 0 0 4,533,368 Dedicated funds to cover disproportionate costs 150,894 0 0 0 0 0 150,894 Long-term deferred revenue-rentals and user charges 100,193 0 175,803 27,238 0 0 248,758 Deferred revenue from the average connection costs 1,525,513 0 0 85,319 0 0 1,440,194 Long-term deferred revenue-rentals and SODO RO services 22,113 0 0 0 7,371 0 14,742 Project EASY RES- long-term deferred revenue 0 0 86,638 49,433 0 0 37,204 Project TDX ASSIST - long-term deferred revenue 189,209 0 -54,688 100,158 0 0 34,364 Project STORY- long-term deferred revenue 70,216 0 0 70,216 0 0 0 Received state benefits 84,920 0 0 15,487 0 0 69,434 Other long-term accrued costs 6,711 9,116 0 0 0 4,594 11,233 Total other long-term liabilities 6,626,987 9,116 456,830 525,291 7,371 4,594 6,540,190 Biggest items of other long-term liabilities are free acquisitions of connections and other fixed assets (total 4,599,347 €) and long-term deferred revenue from average connection costs (1,354,875 €). Tangible fixed assets acquired free of charge consist of connections of customers that the company Elektro Gorenjska took over into its tangible fixed assets together with its commitment to care for their maintenance and reconstruction, in accordance with the regulations, above all the General conditions for connection to the distribution electric system (Official Gazette of RS No. 126/07 et seq.) and free acquisition of other fixed assets. Long-term deferred revenue from average connection costs were formed until June 30 2007 regarding the implementation of GJS SODO. Average cost of a connection is a one-off amount paid for connection to the network or to increase the installed capacity. It is a dedicated source of funding for investment in network expansion. Group has no long-term debts to members of the Board (of management), members of the Supervisory Board or internal owners. 12.15 Deferred tax liability Deferred tax liabilities as at 31. 12 . 2019 amounted to 278,632 €, while on 31. 12. 2018 they amounted to 239,531 €. Deferred taxes are calculated on the basis of temporary differences using the balance sheet liability method and expected tax rates. 12.16 Short-term financial liabilities Short-term financial liabilities as at 31. 12. 2019 amounted to 7,699,711 € and are by 1.1 million € higher than as at 31. 12. 2018. Main part of short-term financial liabilities refer to the short-term financial liabilities to banks or to short part of long-term loans and interest. 12.17 Short-term operating liabilities At the end of 2019 short-term operating liabilities in the amount of 4,975,068 € were by 0.8 million € lower than compared to the balance on the last day of 2018. Detailed review of the short-term operating liabilities is presented in the following table. 12.18 Other short-term liabilities Other short-term liabilities as at 31. 12. 2019 amounted to 1,086,758 € and represent mainly the accrued liabilities. Compared to the balance as 31. 12. 2018 they are higher by 133 thousand €. 12.19 Off-balance sheet records Off-balance sheet assets or liabilities as at 31. 12. 2019 amounted to 5,838,168 €. They were lower by 133 thousand € compared to the balance as at 31. 12. 2018. Contingent assets amount to 3,836,893 €, with received guarantees representing the highest value. Contingent liabilities represent the given guarantees and bills. Other off-balance record include fixed assests owned by SODO (1,950,538 €). Elektro Gorenjska Company is liable to keep records of assets financed from average connection costs, which were after the balance as at 31. 8. 2010 transferred to the ownership and indirect property of SODO or sold to SODO in year 2011, in the off-balance sheet in accordance with the Contract with SODO or contract of sale. In € Item description 31. 12. 2019 31. 12. 2018 Liabilities to suppliers for own account 1,659,186 1,723,784 Liabilities to other suppliers on its own behalf and for third party account 1,769,800 2,069,709 - liabilities to SODO, d. o. o. 1,767.454 2,069,709 - to others 2,346 0 Other liabilities 1,546,082 1,999,177 - to workers 922,898 1,069,779 - to state and other institutions 375,387 411,676 - for received advances and collaterals 120,665 119,013 - other (interests, employee deductions, capital company …) 127,132 398,709 Total short-term liabilities from operating activities 4,975,068 5,792,670 In € Item description 31. 12. 2019 31. 12. 2018 Foreign material in warehouse 0 101,695 Received guarantees 3,349,275 3,268,637 Easements 487,618 550,799 Total potential assets 3,836,893 3,921,131 Issued guarantees, bills of exchange 50,736 2,056 Total potential liabilities 50,736 2,056 Fixed assets in the property of SODO 1,950,538 2,044,703 Undrawn loan amount 0 0 Retained amount from paid dividends 0 3,011 Total other 1,950,538 2,047,714 Total off-balance sheet assets and liabilities 5,838,168 5,970,902 Group does not have any contingent off-balance liabilities as defined by ZGD – 1. 13 Notes on Profit and Loss Account Items 13.2 Capitalized own products and own services In year 2019 capitalized own effects amounted to 5,033,533 €. They were mostly investments in tangible fixed assets – energy infrastructure. Compared to year 2018 the amount of capitalized own effects was by 292 thousand € lower. 13.1 Net sales revenues In year 2019 net sales revenues amounted to 37,853,514 €. Their structure is presented in the following table. In € Item description 2019 2018 Revenues from electricity sale 4,157,714 3,323,012 Revenues from rent and services in relation to SODO 31,582,738 32,035,238 Revenues from rents 505,842 582,870 Revenues from construction and assembly works 937,144 911,920 Revenues from services rendered 188,700 152,574 Revenues from sale of other business effects 481,378 311,363 Total net sales revenues from sale of business effects 37,853,514 37,316,975 Majority of net sales revenues of the Group (88 %) represent revenues of the controlling company. Major item of net sales revenues of the Group in year 2019 represent revenues from rent and services related to SODO (31,582,738 €). Revenues from rent in relation to SODO will amount to 18,112,920 € in accordance with the Decision of the Energy Agency in 2020. This is a data based on a set regulatory framework that takes into account the planned values and parameters for the calculation. Actual revenues from this item will depend on the realized values. In 2019 revenues from contracts with customers amounted to 18,488 thousand €, and other revenues 19,366 thousand €. In 2018 revenues from contracts with customers amounted to 18,658 thousand €, and other revenues 18,659 thousand €. In € Item description 2019 2018 Direct material costs 3,057,841 3,267,352 Direct costs of others' services in the production of products and the provision of services 63,100 120,773 Direct labour costs 1,595,722 1,493,742 Total direct costs of material, services and labour 4,716,663 4,881,867 Total indirect costs of material, services, work and depreciation 316,870 444,131 Total costs in the manufacture of products and the provision of services in relation to capitalized own effects 5,033,533 5,325,998 13.3 Other operating revenues Other operating revenues in the amount of 969,348 € consist of: 13.4 Acquisition cost of goods sold and cost of material used Acquisition cost of sold goods and material used consists of: In € Item description 2019 2018 Revenues from reversal of provisions 4,659 57,157 Revaluation operating revenues 258,904 178,212 Revenue from the transfer of long-term deferred revenue to regular operating revenues: 489,491 512,421 -free acquisition of FA 41,491 43,414 -free acquisition of connections 167,703 149,513 -average connecting costs 85,319 85,319 -other 194,978 234,175 Damages recovered from insurance companies 180,976 244,894 Other operating revenues 35,317 118,342 Total other operating revenues 969,348 1,111,025 In € Item description 2019 2018 Costs of material: 4,715,850 4,673,486 – material costs of maintenance 300,599 211,061 – costs of materials in connection with capitalized own effects, market services 3,498,200 3,647,744 – energy costs 560,161 469,641 – small tool write-off 155,545 155,186 – costs of office supplies 70,586 78,504 – other material costs 130,759 111,351 Acquisition cost of goods sold and costs of material used 4,715,850 4,673,486 Costs of material used in maintenance of tangible fixed assets are presented also in the Business Report, chapter 5.5 – Maintenance of energy facilities. Costs of material in connection to the capitalized own effects and services for the market (year 2019: 3,498,200 € and year 2018: 3,647,744 €) include the value of the material, which is then treated by the Group as a component part of: ›› acquisition cost of tangible fixed assets constructed or made in the Group for the purposes of the Group (capitalized own effects), which is explained in more detail in chapter 13.2 – Capitalized own products and own services; ›› value of services (construction, electrical installation and similar services), sold on the market (please see also note 13.1 – Net sales revenues). Revenues from transfer of long-term deferred revenues to regular revenues are explained also in chapter 12.14 – Other long-term liabilities. 13.5 Costs of services In 2019 costs of services amounted to 3,786,598 €, in 2018 they were 3,880,201 €. More detailed structure of service costs is provided in the following table. Biggest cost within the cost of services is the costs of services related to the maintenance of the electricity infrastructure and other tangible fixed assets. Maintenance of electricity infrastructure is also presented in the Business Report, chapter 5.5 – Maintenance of energy devices. The most important part of payment transactions, banking services and insurance premiums costs are insurance premiums from insurance of electricity infrastructure. Cost of intellectual services consists of costs for the needs of scientific research, tuition fees and costs of additional professional training, which is also presented in the business report, chapter 5.6 – Development and design of the power system. Costs of advertising and representation also include the costs of sponsoring, which are presented in more detail in the chapter 6.3 – Care for the public interest - social responsibility. Costs of other services are primarily the costs associated with the computer information system and include the care for the smooth and safe operation of the Group’s information system, e-mail, access to the World Wide Web, ensuring an adequate level of data and service security, implementation of a common security policy, data processing, storage of computer-processed data and other computer software maintenance services. In € Item description 2019 2018 Costs of service in creating products and implementing services 62,220 74,814 Costs of transport services 178,958 174,248 Costs of services in respect of maintenance of electric power infrastructure and other tangible fixed assets 1,311,627 1,159,211 Rents 147,650 167,587 Reimbursements of work related costs to employees 63,098 42,381 Costs of payment transactions, banking services and insurance premiums 607,789 614,058 Costs of intellectual and personal services 460,341 593,864 Costs of advertising and representation 75,111 87,228 Costs of services of individuals not performing the activity, including duties chargeable to the company (costs under work contracts, authorship contracts, meeting fees of supervisory board members…) 157,293 162,495 Costs of information and other services 722,511 804,314 Total costs of services 3,786,598 3,880,201 13.7 Write-offs In 2019 write-offs amounted to 12.428.932 €. Their composition is as follows: Costs of depreciation of intangible fixed assets (542,878 €) are presented also in chapter 12.1 – Intangible assets; costs of depreciation of tangible fixed assets (11,370,218 €) in chapter 12.2 – Tangible fixed assets; costs of depreciation of investment property (42,935 €) in chapter 12.3 – Investment property. 13.6 Labour costs Costs of labour in the amount of 13,527,188 € consist of: In € Item description 2019 2018 Salary costs 9,100,766 8,798,835 Costs of voluntary pension insurance of employees 464,982 449,042 Costs of employer's contributions and other benefits from salaries 1,599,143 1,574,448 Other labour costs 2,362,297 2,264,805 Total labour costs 13,527,188 13,087,130 In € Item description 2019 2018 Depreciation of intangible fixed assets 542,878 537,545 Depreciation of tangible fixed assets 11,370,218 10,738,632 Depreciation of investment property 42,935 52,845 Total depreciation costs 11,956,031 11,329,022 Operating expenses from revaluation of fixed assets and investment property 312,445 336,033 Operating expenses from revaluation of current assets 160,456 55,749 Total write-offs 12,428,932 11,720,804 Other labour costs include reimbursement of transport and food expenses during work, provisions for long-service benefits and severance pay, holiday pay, benefits, insurance costs for employees and payment to intern students. Number of employees and their educational structure and other information related to employees are presented in more detail in the Business Report, chapter 6.1 – Care for employees. Remuneration of the Management and Supervisory Boards are presented in 18.4 – Transactions with management and supervisory board. 13.9 Financial expenses from financial liabilities In year 2019 the Group realized by 514,787 € of financial expenses from financial liabilities, of which the majority represent interest expenses for received loans in commercial banks. 13.10 Recognized profit or loss for investments valued using the equity method In 2019 the profit or loss for investments valued using the equity method amounted to 189,909 €, while in year 2018 it was 904,513 €. It represents a pro rata portion of the net profits of associated companies ECE and Soenergetika. 13.8 Other operating expenses Other operating expenses in the amount of 536,822 € consist of: In € Item description 2019 2018 Contribution for promotion of employment of persons with disabilities 47,169 48,376 Contribution for urban land 87,738 89,364 Contribution for contaminated water 14,371 14,371 Provisioning 205,170 351,558 Other expenses (environment protection costs, compensations …) 182,374 207,008 Total other operating expenses 536,822 710,676 Provisioning refers to the damages related to denationalisation proceedings and is explained in more detail in chapter 12.12 – Provisions. 13.11 Income tax Accrued income tax for business year 2019 amounts to 1,187,812 € (year 2018: 1,114,004 €). In the years 2019 and 2018, all Group companies disclosed income tax liability. An overview of the calculation of the income tax for each year is given in the following table: 13.12 Deferred tax liabilities and deferred taxes Deferred tax liabilities as at 31. 12. 2019 amounted to 278,632 €. They refer to taxable temporary differences arising from the merger of Elektro Gorenjska Prodaja Company to ECE Company and small inventory in fixed assets. Compared to the balance as at 31. 12. 2018 they increased by 39,101 €. In 2019 the Group eliminated by 28.504 € of deferred tax assets as the event in respect of which the claims were created was realized in 2019. Deferred tax assets, which according to the balance as at 31. 12. 2019 amount to 763,231 €, the Group did not recognise due to uncertainty about the future taxable profits. In € Item description 2019 2018 Pre-tax profit 9,461,152 9,956,095 Revenues reducing the tax base -1,192,470 -961,088 Expenses increasing the tax base 1,130,811 943,247 Expenses reducing the tax base -435,390 -490,032 Reduction of the tax base on the basis of relief -2,718,448 -3,555,677 Other 5,981 -29,367 Tax base 6,251,644 5,863,178 Tax rate 19 % 19 % Income tax 1,187,812 1,114,004 Tax base for deferred taxes 355,814 227,579 Tax rate 19 % 19 % Deferred taxes 67,605 43,240 Entire tax (income tax and deferred taxes) 1,255,417 1,157,244 14 14 Notes on Other comprehensive income items Total comprehensive income in addition to the net profit or loss for the period (7,166,896 €) includes also actuarial gains and losses of the parent company and subsidiary as well as the effect of impairment of the long-term financial investment in the associate company in the total amount of – 93,306 €. Individual items of other comprehensive income are presented also in chapter 12.11 – Capital (table fair value changes). 154 Consolidated Annual Report - Elektro Gorenjska Group 2019 15 15 Notes on Cash flow items In year 2019 Elektro Gorenjska Group had 55,671,017 € of receipts and 54,152,141 € of expenditures. Receipts and expenditures include appropriate amounts of duties, mainly VAT and excise duties, in accordance with the issued invoices or receipted invoices. Cash flow in year 2019 was positive and amounted to 1,518,875 €. As at 31. 12. 2019 the Group had on transaction accounts in banks and in the form of short-term deposits or deposits redeemable monetary assets in the amount of 7,895,236 €, while the balance of these assets on 31.12.2018 amounted to 6,365,442 €. Net cash from operating activities in year 2019 exceeded expenditure by 21,288,235 €, which means that the Group operates positively with its main activity and creates a positive cash flow. The largest revenues were revenues received under the Contract with SODO for implementation of services and rents for electric power infrastructure. With operating cash flow surplus in year 2019 the Group was able to settle all its liabilities (expenditure) referring to the repayment of the principals and interests in respect of long-term credits in the amount of 7,270,747 €, settle all liabilities related to payment of dividends in the amount of 2,591,021 €, and could partly finance new acquisitions of intangible and tangible assets. The largest revenues were revenues received under the Contract with SODO for implementation of services and rents for electric power infrastructure. Negative net cash used in investing activities in year 2019 amounted to 15,945,912 €. Industry the Elektro Gorenjska Group operates in is technologically very intense and in order to provide quality supply to its customers in the area of Elektro Gorenjska distribution network large and constant investments are required. New acquisitions of intangible and tangible assets were mainly financed by drawing from long-term credit in the amount of 6 million € (explained in chapter 12.13 – Long-term financial liabilities), and also by positive net cash from operating activities. Cash flow from financing activities in the period considered was -3,823,448 €. 155 Consolidated Annual Report - Elektro Gorenjska Group 2019dirano letno porocilo Skupine Elektro 16 Fair values Overview of fair value and carrying amount of assets and liabilities: In € 31. 12. 2019 31. 12. 2018 Book value Fair value Book value Fair value Non-derivative financial assets at amortized cost Long-term and short-term financial receivables 1,195,247 1,195,247 1,943,633 1,943,633 Long-term and short-term trade receivables 7,706,733 7,706,733 8,808,676 8,808,676 Cash and cash equivalents 7,895,236 7,895,236 6,365,442 6,365,442 Total non-derivative financial assets 16,797,216 16,797,216 17,117,751 17,117,751 Non-derivative financial liabilities at amortized cost Bank loans and other financial liabilities -54,609,910 -54,609,910 -54,906,619 -54,906,619 Short-term operating liabilities to suppliers for their own and foreign accounts -3,428,986 -3,428,986 -3,793,493 -3,793,493 Total non-derivative financial liabilities -58,038,896 -58,038,896 -58,700,112 -58,700,112 Total -41,241,680 -41,241,680 -41,582,361 -41,582,361 Estimated fair value of short-term assets and liabilities is equal to their book value. Fair value scale Fair value and method of valuation of assets: In € 31. 12. 2019 31. 12. 2018 1. Level 2. Level 3. Level Total 1. Level 2. Level 3. Level Total Assets measured at fair value Total assets maeasured at fair value 0 0 0 0 0 0 0 0 Asetss for whitch fair value is disclosed Long-term and short-term financial claims 0 0 1,195,247 1,195,247 0 0 1,943,633 1,943,633 Long-term and short-term trade reciveables 0 0 7,706,733 7,706,733 0 0 8,808,676 8,808,676 Cash and cash equvivalents 0 0 7,895,236 7,895,236 0 0 6,365,442 6,365,442 Total assets for whitch fair value is disclosed 0 0 16,797,216 16,797,216 0 0 17,117,751 17,117,751 Total 0 0 16,797,216 16,797,216 0 0 17,117,751 17,117,751 Fair value and method of valuation of liabilities: In € 31. 12. 2019 31. 12. 2018 1. Level 2. Level 3. Level Total 1. Level 2. Level 3. Level Total Liabilities measured at fair value Liabilities measured at fair value total 0 0 0 0 0 0 0 0 Liabilities for which fair value is disclosed Bank loans and other financial liabilities 0 0 -54,609,910 -54,609,910 0 0 -54,906,619 -54,906,619 Short-term trade payables 0 0 -3,428,986 -3,428,986 0 0 -3,793,493 -3,793,493 Total liabilities for which fair value is disclosed 0 0 -58,038,896 -58,038,896 0 0 -58,700,112 -58,700,112 Total 0 0 -58,038,896 -58,038,896 0 0 -58,700,112 -58,700,112 17 17 Capital management Key factor in the success of Elektro Gorenjska Group is a long-term orientation towards the customer and constant adaptability to external operating conditions (national interest, regulatory and legislative changes, major technological changes, ...). Main purpose of capital management in Elektro Gorenjska Group is therefore to ensure capital adequacy, high financial stability and long-term solvency, and appropriate value for shareholders. Group monitors the long-term financial stability with the ratio between net financial debt and EBITDA. Policy of the Group is that it does not exceed the value of 3.5, which allows the Group long-term stable operation (more explained in chapter 5.9.1 – Significant indicators). For control of the capital, the Group uses a leverage ratio, which indicates the proportion of net debt to equity. Indicator was in 2019 at a similar level as in 2018, which confirms the fact that the Group manages its capital stably. Financial stability of companies in the Group is also evident from the rating GVIN. Credit rating of the parent company Elektro Gorenjska and its subsidiary Gorenjske elektrarne is currently B 1++, which is very well according to the very technologically intensive activity in which the company operates. Other electricity distribution companies in Slovenia have the same rating or ratings B1+ or C1+. In € Item description Note 31. 12. 2019 31. 12. 2018 Long-term financial liabilities 12.13 46,910,199 48,332,599 Short-term financial liabilities 12.16 7,699,711 6,574,020 Total financial liabilities 54,609,910 54,906,619 Capital 12.11 165,914,359 161,338,484 Debt/Capital 0,33 0,34 Cash and cash equivalents 12.10 7,895,236 6,365,442 Net financial liability 46,714,674 48,541,177 Net debt/capital 0,28 0,30 In 2018 the Elektro Gorenjska Group’s Strategy for period 2018-2022 was revised, identifying strategic projects that will significantly influence the Group’s capital growth in the future as well. 158 Consolidated Annual Report - Elektro Gorenjska Group 2019 18 Transactions with affiliates Below we present transactions with related parties, namely transactions with Group companies, transactions with the Republic of Slovenia, transactions with companies owned by the Republic of Slovenia and the operations of the Management Board and the Supervisory Board. On the basis of the statements we have received from the Chairman of the Management Board in controlling company, Director of subsidiary and members of the Supervisory Board, transactions with related parties on the basis of connections individual - the company, as defined by IAS 24, are irrelevant. 18.1 Transactions with Group companies Among transactions of the controlling company with the subsidiary Gorenjske elektrarne, which in 2019 amounted to 977 thousand €, besides the paid profit in the amount of 642,075 € (payment of the subsidiary to the controlling company) the most important were the following: In € Item Payments in year 2019 Dividends 2,059,332 Corporate income tax (tax and advance payments) 1,197,810 Other duties (VAT, employer contributions) 5,601,381 Total 8,858,523 In € Item description 2019 Revenues from general services (costs of affiliates) 93,324 Revenues from rents (costs for rents of affiliates) 157,587 Among the transactions between the Gorenjske elektrarne Company and GEK Vzdrževanje more significant transaction is transaction for maintenance services in the amount of 587 thousand €. The most important transaction of Gorenjske elektrarne with associate company Soenergetika in 2019 was the transfer of profit to Gorenjske elektrarne in the amount of 170 thousand €. Among the transactions with the associated company ECE the important one was the purchase of electricity from the associate company Soenergetika in the amount of 627 thousand € and the sale of natural gas to the associate company Soenergetika in the amount of 2.2 million €. In 2019, the associated company ECE remitted the profit in the amount of 345 thousand € to Elektro Gorenjska Company. Other transactions did not reach significant values. All transactions with Group companies were implemented under normal market conditions. As a controlling company Elektro Gorenjska Company did not obstruct or impair operations of company Gorenjske elektrarne as the controlled company. 18.2 Transactions with the Republic of Slovenia Most important transactions of the parent company and its subsidiary with the Republic of Slovenia were in 2019 the following: 18.3 Transactions with companies directly or indirectly owned by the Republic of Slovenia Table below shows significant transactions with companies in which the state has directly or indirectly a dominant influence. Outstanding liabilities to SODO Company represent payables for the account of third parties. Transactions with other companies in which the State has a dominant influence do not represent a significant amount. 18.4 Transactions with Management and Supervisory Board In year 2019 Elektro Gorenjska Group paid the management (employees under individual contracts) the following receipts: Part of the receipts of Elektro Gorenjska Chairman of the Board for business performance in the amount of 649 € refers to the period before taking up this position. Reimbursement of costs include: daily allowances, transfer to work, meals and costs of official journeys. They are charged in accordance with the employment contracts or company’s collective agreement. Bonuses include insurance premiums, use of a company car and medical examination. Gross remuneration of Supervisory Board members in 2019 are shown in the following table. As some members are also members of the committees of SB remuneration for participation in the committees is also included. Remuneration policy of Supervisory Board members is presented in chapter 3.6.1 – Management and governance of Elektro Gorenjska Company. Gross receipts of external members of the Audit and Nomination Committees are shown in the table below. In 2019 the Supervisory Board held a total of 15 sessions, of which 14 were regular and one correspondence. Mag. Samo Logar was present at 13 sessions, Mr. Borut Jereb and mag. Tedo Djekanovic at 14, other members of the Supervisory Board were present at all sessions. Nomination Committee held a total of 7 regular sessions in 2019. Mag. Samo Logar and Mrs. Milena Pervanje were present at six sessions, while mag. Tedo Djekanovic at all seven. Audit Committee held a total of 12 sessions in 2019, 11 regular and one correspondence. Dr. Simon Cadež was present at 10 sessions, Mr. Franjo Curanovic at 11 sessions, Mr. Andrej Koprivec at all sessions. Costs of other supervisory board members’ benefits in year 2019 refer to the liability insurance in accordance with the decision of the 16th shareholders meeting of Elektro Gorenjska Company. These benefits represent the creditworthiness of the supervisory board members. In € Business partner Open receivables on 31. 12. 2019 Open liabilities on 31. 12. 2019 Expenditure in year 2019 Revenues in year 2019 Dividend payment in year 2019 SODO, d. o. o. 2,984,829 1,767,455 31,582,738 Modra zavarovalnica, d. d. 37,277 443,985 Zavarovalnica Sava, d. d. 735 513,701 SID, d. d. 6,362,986 91,152 Kapitalska družba, d. d. 64,790 Sava RE, d. d. 42,000 DUTB, d. d. 31,080 Total 2,984,829 8,168,452 1,048,838 31,582,738 137,870 Receipts of chairman of the board or directors Fixed earning (gross salary) Operating performance (gross) Pay for annual leave (gross) Reimburse­ments of costs Bonuses Chairman of the BoardElektra Gorenjska 97,200 3,056 0 2,828 7,685 Director Gorenjskih elektrarn 56,625 8,204 1,907 1,697 2,192 Director GEK Vzdrževanja 55,383 0 1,907 1,462 4,043 In € Payment for the perfor­mance of the function (gross) Attendance fee SB (gross) Attendance fee commit­tee (gross) Gross total Travel expenses 1 2 3 4=1+2+3 5 Representatives of capital mag. Samo Logar 21,188 3,520 1,100 25,808 452 Andrej Koprivec 15,538 3,450 2,200 21,188 672 mag. Tedo Djekanovic 15,255 3,494 1,320 20,069 207 Franjo Curanovic 14,125 3,875 1,980 19,980 53 Employee representatives Iztok Štular 11,300 4,070 15,370 Jereb Borut 11,300 3,795 15,095 In € In € Payment for the performance of the function (gross) Attendance fee committee (gross) Gross total Travel expenses 1 2 3=1+2 4 External committee members Milena Pervanje 5,650 1,100 6,750 0 dr. Simon Cadež 5,650 1,980 7,630 229 Liability insurance Representatives of capital mag. Samo Logar 730 Andrej Koprivec 730 mag. Tedo Djekanovic 730 Franjo Curanovic 730 Employee representatives Iztok Štular 730 Borut Jereb 730 In € Board of Directors and the Supervisory Board did not receive any receipts in respect of performing the functions in controlled companies. Elektro Gorenjska received and also approved no advances, loans, or guarantees to groups of people mentioned in this chapter and did not disclose any claims on them in this respect as of December 31 2019. 19 19 Auditing costs Under Article 57 of the Companies Act (ZGD-1) Elektro Gorenjska Group is subject to annual report audit. Contractual amount for auditing the annual report of companies within the Group and Elektro Gorenjska Group for year 2019 amounted to 16,210 €. In addition, the auditor who has audited the annual report has been paid an additional 6,050 € for other auditing services and another 2,400 € for assurance services. 163 Consolidated Annual Report - Elektro Gorenjska Group 2019 20 Financial risks In Elektro Gorenjska Group we are aware of the risks that are an integral part of our operations. We are also aware that only a comprehensive and systematic risk management can be effective. Management of risks is an important condition for successful and efficient reaching of the set long-term business goals. Financial risks are connected with the ability to create financial income, control financial expenses, maintain the value of financial assets, control financial liabilities and ensure competitive and long-term solvency. In the Group Elektro Gorenjska, we are exposed to numerous financial risks, which include, in particular: credit risk of customer payments, extraordinary expenses (penalties), interest rate risk, lack of investment funds, risk of investments in subsidiaries and associates, inadequate payment of EG services by SODO and liquidity risk. Credit risk Carrying amount of financial assets represents a maximum exposure to credit risk. Maximum exposure to credit risk at the reporting date were: Under the Contract on the lease of electricity distribution infrastructure and the provision of services for the distribution system operator the Group collects customer payments on its own behalf and on behalf of SODO, d. o. o. There is a higher risk, as the Group despite unpaid claims of customers has to settle all liabilities to SODO. In part, the Group in accordance with the control has recognized and covered potential write-offs, but only up to 0.2% of charged network charges, which is approx. 51,000 € annually. Breakdown of short-term receivables for the network charge, electricity and services and interest receivable as at 31. 12. 2019 and 31. 12. 2018 are shown by maturity in the following table: Changes in valuation adjustment of claims in years 2019 and 2018 are presented in the next table. Receivables are reviewed regularly and monthly in the Group. Recovery is conducted regularly to all customers under the same criteria. We recover also default interest consistently. Accuracy of the records and the recovery has brought us to a good result. Largest debtors or. non-payers of network charge are discussed at the regular monthly meetings, where for the individual debtor we make the plan of activities, which should lead to the highest possible recovery. It is an individual treatment. We also review the credit rating of the debtors. We also use telephone recovery, possibility of granting payments in installments, search options for compensation, assignment, etc. In the case of an installment debt repayment, contract of assignment of claim, we always include in the contract the accrued default interest. When closing the outstanding receivables we respect the provisions of the general part of the contract on access to distribution networks. When we have exhausted all possible instruments of “soft” recovery, in the event of non-payment of the network charge, we send a notice of disconnecting the user system. In the event that a party despite the notice still does not settle the debt within the time limit specified in the notice, disconnection of the measuring point follows. In this way, the company prevents further damage to the business or financial indiscipline, which would otherwise lead to higher outstanding receivables. Receivable from the biggest buyer as at 31. 12. 2019 amounted to 2,984,829 €, which means 39 % of all accounts receivable. According to the assessment, credit risk has a moderate impact on the business or liquidity. Assuming a 25 % annual probability of risk realization, an individual assessment of risky rates on business amounts to 57 thousand €, with the range of losses in case of realization going from a minimum of 0 € to a maximum of 150 thousand €. In € 31. 12. 2019 31. 12. 2018 Receivables non past due 7,363,741 8,462,753 Overdue to 30 days 163,308 273,558 Overdue from 31-60 days 33,102 3,536 Overdue from 61-90 days 13,502 14,960 Overdue over 90 days 286,469 201,278 Overdue receivables 496,382 493,333 Share of overdue receivables in open ones 6 % 6 % Total 7,860,123 8,956,086 In € 2019 2018 Long-term receivables 213,402 80,408 Short-term financial investments 988,632 1,800,835 Short-term receivables 7,689,979 9,220,679 - of which trade receivables 7,566,246 8,728,267 Cash 7,895,236 6,365,442 Total 16,787,249 17,467,364 Liquidity risk Risk of short-term insolvency or liquidity risk stems from the possibility that the Group at any given time will not have sufficient liquidity to meet its current obligations and to maintain normal operations. Liquidity risk is managed primarily with the following activities: ›› Supervision and coordination among all OU in the field of procurement of goods and services or conclusion of purchase contracts with respect to the expected available cash. This area includes also prioritization of purchases depending on available funds . This applies to all areas of action in the Group. ›› Monitoring the implementation of open orders and concluded procurement contracts in particular as regards the date of completion, and the date and amount of the anticipated payment obligations. ›› Control over the timeliness of payments of claims, especially with major clients, as late payments of customers as a result of worsened financial discipline, requests for extension of payment deadlines and discounts as well as higher costs for the recovery of arrears, all reflect in the poorer liquidity of the Group. This includes the establishment of an information system on overdue receivables, and timely mutual information on outstanding receivables between individual OUs, so that appropriate and timely action is taken (issuing timely reminder, court claims …). In concluding commercial contracts with customers of our services special attention is paid to further integration of the relevant insurance of payments. Customers with overdue receivables are regularly and monthly reminded. ›› Constant monitoring of the stocks. At the level of the management decisions were adopted, defining the monitoring of stocks. Group finally and fully realizes the decisions in connection with the consignment of material and equipment suppliers. Group further optimizes working processes (in the field of planning - purchasing material – implementation). ›› Established cash management system at the Group level, on the basis of which companies borrow cash from each other. Main objective of managing the monetary assets in Elektro Gorenjska Group is to optimize the liquidity of Group companies. It is a matter of short-term cash management, that is the covering of short-term deficits and short-term placement of cash surpluses among companies in the Group. Severity of liquidity risk is assessed as significant. Due to the established control mechanisms and the implementation of measures, especially cash management, at the Group level, we believe that the probability of materialization of illiquidity is small, but the company is aware that illiquidity could cause great business damage. Liquidity risk is closely associated with investment risks. Liquidity risk management is the implementation of investment financing in accordance with the business plan, in a way that ensures sufficient resources to avoid delays in the implementation of investments, since the processes of borrowing can be long lasting. In the Group we have set up cash management, whose main objective is to optimize the liquidity situation and the need for utilization of short-term external debt financing. Source of financing the short-term deficits of a certain company is excess cash of one of the Group companies. This is to achieve the best conditions for both of borrowing as investment funds, in particular, in a way that exploits the synergistic effects of the Group as a whole. Much attention is given to the preparation and monitoring of cash flows plan. Effective planning of liquidity enables us to optimally manage any short-term surpluses or deficits of liquid assets. Following table shows financial liabilities to banks and other long-term financial liabilities by maturity. In € 2019 2018 Opening balance 1. 1. 239,937 446,154 New formations 190,566 38,973 Drawing and elimination 16,027 245,188 Closing balance 31. 12. 414,475 239,937 In € Maturity TOTAL 2019 Within 1 year From 2 to 5 years Over 5 years Financial liabilities to banks 7,656,464 30,777,158 16,133,043 54,566,665 In € Maturity TOTAL 2018 Within 1 year From 2 to 5 years Over 5 years Financial liabilities to banks 6,547,788 30,391,151 17,941,447 54,880,386 Short-term operating receivables according to maturity were following: In € 2019 Non past due Due from 0 to 30 days Due 31 to 90 days Due over 90 days Total due Total liabilities Short-term trade payables 1,634,550 2,519 22,117 0 24,636 1,659,186 Short-term operating liabilities from advances 120,665 0 0 0 0 120,665 Short-term operating labilities for a foreign account 1,769,800 0 0 0 0 1,769,800 Short-term liabilities for salaries 800,031 0 0 0 0 800,031 Liabilities to state and other institutions 498,700 0 0 0 0 498,700 Other short-term operating liabilities 126,684 0 0 0 0 126,684 Total 4,950,431 2,519 22,117 0 24,636 4,975,068 In € 2018 Non past due Due from 0 to 30 days Due 31 to 90 days Due over 90 days Total due Total liabilities Short-term trade payables 1,705,799 10,080 7,697 207 17,984 1,723,783 Short-term operating liabilities from advances 119,013 0 0 0 0 119,013 Short-term operating labilities for a foreign account 2,069,221 0 0 0 0 2,069,221 Short-term liabilities for salaries 1,069,780 0 0 0 0 1,069,780 Liabilities to state and other institutions 404,347 0 0 0 0 404,347 Other short-term operating liabilities 406,528 0 0 0 0 406,528 Total 5,774,688 10,080 7,697 207 17,984 5,792,670 Severity of liquidity risk is assessed as significant. Due to the established control mechanisms and the implementation of measures, especially cash management at the Group level, we believe that the probability of materialization of illiquidity is small, although we are aware that illiquidity could cause a great business damage. Assuming a 25% annual probability of risk realization an individual assessment of risk situations on operations amounts to 8 thousand €, with the range of losses in the case of realization going from a minimum of 0 € to a maximum of 20 thousand €. Interest risk Interest rate risk is the danger in the event of unfavorable movements in interest rates. Since the Group has certain loans contracted at a variable interest rate (EURIBOR), they are sensitive to movements in interest rates. At the end of 2019, the Group had 71 % of unpredictable cash flow (at the end of year 2018 it had 66 %). Exposure to interest rate risk was as follows: In € 2019 2018 Financial liabilities with variable interest rate 38,566,664 36,308,958 Financial liabilities with fixed interest rate 16,000,001 18,571,429 Total 54,566,665 54,880,386 Change in interest rates for financial instruments with a variable interest rate by 50 basis points at the reporting date would have increased or decreased the Group’s profit for the amounts shown below. Some loan agreements include provisions that the variable interest rate equals zero, if the EURIBOR is negative. In € Impact on profit or loss 2019 Impact on profit or loss 2018 Increase by 50 bt Decrease by 50 bt Increase by 50 bt Decrease by 50 bt Financial liabilities with a variable interest rate -86,897 41,196 -51,994 89,020 Severity of interest risk is assessed as small. Given the current economic situation, significant rise in interest rates is not expected, so that the impact of the risk is assessed as moderate. Assuming a 17% annual probability of risk realization an individual assessment of risky rate (with 95 % of confidence level) on operations amounts to 30 thousand €, with the range of losses in case of realization going from a minimum of 0 € to a maximum of 110 thousand €. Foreign exchange risk Operations are conducted in euros, therefore the Group is not exposed to the risk of exchange rate changes. 21 21 Events after the balance sheet date After the balance sheet date (31. 12. 2019) and until the date of the auditor’s report (17. 4. 2020) Elektro Gorenjska Company was informed by the Energy Agency of the established facts before issuing the decision regarding the final statement for year 2018. It follows from the established facts before the decision was issued that the already charged value of rent and services was by 155,421 € higher than the value form the final statement. As the Company agreed with the established facts, it has reasonable ground to expect the final settlement of the regulatory year to be in the stated amount. On this basis the Elektro Gorenjska Company in 2019 reduced the revenues by 155,421 € (long-term deferred revenues). In March 2020 Elektro Gorenjska Company received from SODO the preliminary account of the regulatory year 2019. Preliminary account for year 2019 was implemented by SODO on the basis of unrevised financial statements. From the account it is clear that in year 2019 the already charged contractual value of services and rent was by 1,222,443 € lower than the values established on the basis of the preliminary account. Based on this the Elektro Gorenjska Company in year 2019 recognized by 1,222,443 € of additional revenues (short-term accrued revenues). Beginning of 2020 was marked by a global pandemic with the Coronavirus SARS-CoV-2 (COVID-19), which has also severely affected the Slovenian economy. According to the currently known information, the impact of the pandemic in the operations of the companies in Elektro Gorenjska Group cannot be assessed, but we do not expect significant deviations from the set plans. 169 Consolidated Annual Report - Elektro Gorenjska Group 2019