financial statements for the year ended 31 december …

SOCIETATEA DE DISTRIBUTIE A ENERGIEI ELECTRICE

MUNTENIA NORD S.A.

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

In accordance with OMFP 1802/2014 amended

Free translation from Romanian, which is the official and binding version

CONTENT: Page

Financial statements for the year ended 31 December 2018

Statement of financial position 1 - 4

Statement of Profit or loss 5 - 7

Statement of Cash flows 8

Statement of Changes in Equity 9 - 10

Notes to the Financial Statements 11 - 39


MUNTENIA NORD S.A.

STATEMENT OF FINANCIAL POSITION FOR YEAR ENDED 31 DECEMBER 2018

(all amounts in RON, unless otherwise stated)

1

Element denomination

Row

No.

Note

no.

Balance at the

beginning of the

year

Balance at the

end of the year

A B 1 2

A. FIXED ASSETS

I. INTANGIBLE ASSETS

1. Set-up cost (acc. 201-2801) 01 - -

2. Development expenses (acc. 203-2803-2903) 02 - -

3. Concessions, patents, licenses, trademarks, rights and assimilated and

other intangible assets (acc. 205+208-2805-2808-2905-2908) 03 25.127.238 25.605.373

4. Goodwill (acc. 2071-2807) 04 3.759.283 2.983.964

5. Other intangible assets for exploration and evaluation of mineral

resources (acc. 206 - 2806 - 2906) 05 - -

6. Advances and intangible assets in progress ( acc. 4094) 06 - -

TOTAL: (rows 01 to 06) 07 3 28.886.521 28.589.337

II. TANGIBLE ASSETS

1. Land and buildings (acc. 211+212-2811-2812-2911-2912) 08 1.462.153.150 1.544.045.998

2. Technical installations and machinery (acc. 213+223-2813-2913) 09 791.550.017 905.878.635

3. Other equipment, machinery and furniture (acc. 214+224-2814-2914) 10 3.495.865 3.107.938

4. Property Investments (acc. 215 – 2815 – 2915) 11 - -

5. Tangible assets in progress (acc. 231 - 2931) 12 50.481.295 74.370.496

6. Property investments in progress (acc. 235 - 2935) 13 - -

7. Tangible Assets of exploration and evaluation of mineral resources

(acc. 216 - 2816 - 2916) 14 - -

8. Productive biological assets (acc. 217 + 227 - 2817 - 2917) 15 - -

9. Advances for tangible assets( acc. 4093) 16 - -

TOTAL: (rows 08 to 16) 17 3 2.307.680.327 2.527.403.067

III. FINANCIAL ASSETS

1. Shares held at affiliated entities (acc 261-2961) 18 247 247

2. Loans to affiliated entities (acc. 2671+2672-2964) 19 - -

3. Shares held in affiliated entities and jointly controlled entities (acc.

262 + 263 - 2962) 20 - -

4. Loans to affiliated entities and jointly controlled entities (acc. 2673 +

2674 - 2965) 21 - -

5. Other financial assets (acc. 265 + 266 - 2963) 22 - -

6. Other loans (acc. 2675* + 2676* + 2677 + 2678* + 2679* - 2966* -

2968*) 23 301.784 638.310

TOTAL: (rows. 18 to 23) 24 3 302.031 638.557

FIXED ASSETS - TOTAL (rows 07+17+24) 25 3 2.336.868.879 2.556.630.961

B. CURRENT ASSETS

I. INVENTORIES

1. Raw materials and consumables (acc 301 + 302 + 303 +/- 308 + 321 +

322 + 323 + 328 + 351 + 358 + 381 +/- 388 - 391 - 392 - 3951 - 3958 -

398) 26 4 25.229.850 27.937.093

2. Work in progress (acc 331+332+341+/-348*-393-3941-3952) 27 - -


MUNTENIA NORD S.A.



2


Row

No.

Note

no.

Balance at the

beginning of the

year

Balance at the

end of the year

A B 1 2

3. Finished goods and merchandise (acc. 327 + 345 + 346 + 347 +/-

348* + 354 + 356 + 357 + 361 + 326 +/- 368 + 371 +/- 378 - 3945 - 3946

- 3947- 3953 - 3954 - 3955 - 3956 - 3957 - 396 - 397 - din acc. 4428) 28 - -

4. Advances for inventories(acc.. 4091) 29 - -

TOTAL: (rows 26 to 29) 30 25.229.850 27.937.093

II. RECEIVABLES

1. Trade receivables (acc.2675*+2676*+2678*+2679*-2966*-

2968*+4092+411+413+418-491) 31 38.814.526 47.460.116

2. Accounts receivable from affiliated entities (acc.451**-495*) 32 86.711.244 81.027.486

3. Accounts receivable from affiliated entities and jointly controlled

entities (acc. 453-495*) 33 - -

4. Other receivables (acc.425+4282+431**+437**+4382+441**+4424+

4428**+444**+445+446**+447**+4482+4582+461+ 473**-496+5187) 34 11.658.923 21.407.129

5. Share capital subscribed, but not paid in (acc. 456-495*) 35 - -

TOTAL: (rows 31 to 35) 36 5 137.184.693 149.894.731

III. SHORT-TERM FINANCIAL INVESTMENTS

1. Shares held at affiliated entities (acc. 501-591) 37 - -

2. Other short-term investments

(acc.505+506+508-595-596-598+5113+5114) 38 - -

TOTAL: (rows 37 + 38) 39 - -

IV.

PETTY CASH AND BANK ACCOUNTS

(acc. 508+5112+512+531+532+541+542) 40 6 96.563.489 125.363.551

CURRENT ASSETS - TOTAL (rows. 30+36+39+40) 41 258.978.032 303.195.375

C. PREPAYMENTS (acc. 471) 42 184.539 460.411

Amounts to be resumed within a period of up to one year (from acc.

471*) 43 184.539 460.411

Amounts to be resumed within a period of more than one year (from acc.

471*) 44 - -

D.

LIABILITIES: AMOUNTS PAYABLE WITHIN A PERIOD UP TO

ONE YEAR

1. Loans from bond issues

(acc. 161+1681-169) 45 - -

2. Amounts owed to credit institutions (acc.1621 + 1622 + 1624 + 1625

+ 1627 + 1682 + 5191 + 5192 + 5198) 46 28.104.806 1.867.622

3. Advance payments from customers (419) 47 - -

4. Trade payables (acc.401 + 404 + 408) 48 117.329.880 132.522.921

5. Bills of exchange payable (403 + 405) 49 - -

6. Amounts owed to group entities (acc.1661 + 1685 + 2691 + 451 ***) 50 19.731.954 33.136.967

7. Amounts owed to associates and jointly controlled entities (1663 +

1686 + 2692 + 453 ***) 51 - -

8. Other payables, including tax and social security liabilities (1623 +

1626 + 167 + 1687 + 2693 + 421 + 423 + 424 + 426 + 427 + 4281 + 431

*** +437 *** + 4381 + 4423 + 4428 + 441 *** *** *** + 446 + 444 +

447 *** *** + 4481 + 455 + 456 *** + 457 + 4581 + 462 + 473 *** +

509 + 5186 + 5193 + 5194 + 5195 + 5196 + 5197) 52 27.000.551 26.929.851

TOTAL: (rows from 45 to 52) 53 7 192.167.191 194.457.361


MUNTENIA NORD S.A.



3


Row

No.

Note

no.

Balance at the

beginning of the

year

Balance at the

end of the year

A B 1 2

E.

NET CURRENT ASSETS / NET CURRENT LIABILITIES (rws.

41+43-53-70-73-76) 54 39.174.461 85.845.841

F.

TOTAL ASSETS MINUS CURRENT LIABILITIES (rws.

25+44+54) 55 2.376.043.340 2.642.476.802

G.

LIABILITIES: AMOUNTS PAYABLES WITHIN A PERIOD

OVER ONE YEAR

1. Loans from bonds issue, showing separately the loans from the issue

of convertible bonds

(acc. 161+1681-169) 56 - -

2. Amounts owed to credit institutions

(acc.1621+1622+1624+1625+1627+1682+5191+5192+ 5198) 57 81.966.872 80.100.250

3. Advance payments from customers (acc. 419) 58

4. Trade payables (acc. 401+404+408) 59 - -

5. Bills of exchage payable (acc. 403+405) 60 - -

6. Amounts owed to group entities (acc. 1661+1685+2691+451***) 61 94.000.000 366.559.387

7. Amounts owed to associates and jointly controlled entities (acc.

1663+1686+2692+453***) 62 - -

8. Other liabilities, including tax and social security liabilities

(acc.1623+1626+167+1687+2693+421+423+424+426+427+4281+431*

**+437***+4381+441***+4423+4428***+444***+446***+447***+4

481+455+456***+4581+462+473***+509+5186+5193+5194+5195+51

96+5197) 63 - -

TOTAL: (rows from 56 to 63) 64 7 175.966.872 446.659.637

H. PROVISIONS

1. Provisions for Employees Benefits (1515) 65 38.735.625 54.597.578

2. Provisions for taxes (cf. 1516) 66 39.048.705 -

3. Other provisions (1511 + 1512 + 1513 + 1514 + 1518) 67 774.936 1.551.882

TOTAL PROVISIONS: (rows 65+66+67) 68 8 78.559.266 56.149.460

I. DEFERRED INCOMES

1. Investment subsidies (acc.475) (rd. 70 + 71): 69 9.705.516 9.323.775

Amounts resumed within a period of up to one year (from acc. 475) 70 603.353 637.228

Amounts resumed within a period of more than one year (from acc.

475) 71 9.102.163 8.686.547

2. Deferred Income (acc.472) – total (rws. 73+74), of which: 72 962.918 1.214

Amounts resumed within a period up to one year (acc. 472*) 73 962.918 1.214

Amounts resumed within a period over one year (acc. 472*) 74 - -

3. Deferred incomes related to assets received from customers by transfer

(acc. 478) (rw. 76+77) 75 528.221.559 551.475.217

Amounts resumed within a period up to one year (acc. 478*) 76 26.254.648 22.714.142

Amounts resumed within a period over one year (acc. 478*) 77 501.966.911 528.761.075

Negative goodwill (acc. 2075) 78 - -

TOTAL: (rws. 69+72+75+78) 79 9 538.889.993 560.800.206


MUNTENIA NORD S.A.



4


Row

No.

Note

no.

Balance at the

beginning of the

year

Balance at the

end of the year

A B 1 2

J. CAPITAL AND RESERVES

I. CAPITAL

1. Subscribed and paid-up capital (acc. 1012) 80 354.364.670 354.364.670

2. Subscribed and unpaid capital (acc. 1011) 81 - -

3. State-owned equity plus assets (acc. 1015) 82 - -

4. Heritage of national research and development institutes (acc. 1018) 83 - -

5. Other equity items (acc. 1031) – BALANCE C 84 - -

TOTAL: (rws. 80+81+82+83+84) 85 10 354.364.670 354.364.670

II. SHARE PREMIUMS (acc. 104) 86

III. REVALUATION RESERVES (acc. 105 ) 87 10 573.424.161 540.337.369

IV. RESERVES

1. Legal reserves (acc. 1061) 88 61.361.299 61.361.299

2. Statutory or contractual reserves (acc. 1063) 89 - -

3. Other reserves (acc. 1068) 90 115.240.459 115.240.459

TOTAL: (raws 88 to 90) 91 176.601.758 176.601.758

Equity capital (acc. 109) 92

Gains related to equity capital instruments (acc.141) 93

Losses related to equity capital instruments (acc.149) 94

V. PROFIT AND LOSS CARRIED FORWARD CREDIT 95 467.937.098 536.633.510

(ct 117) DEBIT 96

VI. PROFIT OR LOSS AT END OF THE REPORTING PERIOD

CREDIT 97 40.384.327 -

(acc. 121) DEBIT 98 - 5.717.224

Profit distribution (acc. 129) 99 10 2.263.886 -

EQUITY CAPITAL- TOTAL (rows 85 + 86 + 87 + 91 - 92 + 93 - 94

+95 - 96 + 97 - 98 - 99) 100 1.610.448.128 1.602.220.083

Public (acc. 1016) 101 - -

Private (acc. 1017) 102 - -

TOTAL SHARES CAPITALS (rows 100+101+102) 103 1.610.448.128 1.602.220.083

The attached notes form an integral part of this Statement of Financial Position.

Administrator,

General Manager

Branescu Valentin

Director of Support Services Division Dumitriu Raluca Florentina

Director Financial Department

Stegarita Marian

12 April 2019


MUNTENIA NORD S.A.

STATEMENT OF PROFIT OR LOSS

FOR THE YEAR ENDED 31 DECEMBER 2018

(all amounts are in RON, unless otherwise stated)

5

Indicator Denomination

Row

no.

Note

no.

Previous financial

year

Ended financial

year

A B 1 2

1 Net turnover (rw. 02+03-04+05+06) 01 11 636.612.471 646.617.212

Sold production (acc.701+702+703+704+705+706+708) 02 11 635.435.419 645.627.230

Revenues from sales of goods (acc.707) 03 11 1.177.052 989.982

Commercial discounts granted (acc.709) 04 - -

Interest incomes recorded by the General register of removed

entities that have ongoing leasing agreements (acc.766*) 05 - -

Income from grants related to net turnover (acc. 7411) 06 - -

2 Income related to work in progress (acc. 711+712)

Credit Balance 07 - -

Debit Balance 08 - -

3 Incomes from the production of tangible and intangible assets

(acc. 721 + 722 ) 09 2.922.536 15.280.041

4. Incomes from the revaluation of tangible assets (acc. 755) 10 2.922.999 -

5. Incomes from property investment production (acc. 725) 11 - -

6. Income from subsidies (acc. 7412 + 7413 + 7414 + 7415 + 7416 +

7417 + 7419) 12 - -

7. Other operating revenues (acc.751+758+7815) 13 12 25.677.384 28.395.448

- of which, incomes from negative goodwill (acc.7815) 14 - -

-of which incomes from investment grants(acc. 7584) 15 9 22.122.686 23.830.854

OPERATING INCOME - TOTAL

(rws. 01 + 07 - 08 + 09 + 10 + 11 + 12 + 13) 16 668.135.390 690.292.701

8. a) Expenses for raw materials and consumables (acc. 601+602) 17 5.731.764 13.160.412

Other material expenses (acc.603+604+606+608) 18 231.173.352 242.778.426

b) Other external charges (for water and energy) (acc. 605) 19 9.563.556 12.413.811

c) Expenses on merchandise (acc. 607) 20 496.294 391.574

Trade discounts received (acc.609) 21 - -

9 Personnel related expenses (rws. 23+24) ,of which 22 13 136.998.230 165.348.581

a) Wages and salaries (acc. 641+642+643+644) 23 110.609.361 158.765.778

b) Social security and other related costs (acc. 645) 24 26.388.869 6.582.803

10.a) Value adjustments on tangible and intangible assets (rws. 26-27) 25 3 120.985.299 127.158.359

a.1) Expenses (acc. 6811+6813+6817) 26 121.864.268 128.301.991

a.2) Incomes (acc. 7813) 27 878.969 1.143.632

10.b) Value adjustments on current assets (rws. 29-30) 28 1.615.687 1.356.699

b.1) Expenses (acc. 654+6814) 29

3.489.918

2.844.419

b.2) Incomes (acc. 754+7814) 30 1.874.231 1.487.720

11 Other operating expenses (rows from 32 to 38) 31 118.021.875 113.206.295

11.1

Expenses on external services

(acc.611+612+613+614+621+622+623+624+625+626+627+628) 32 14

104.413.985

92.494.160


MUNTENIA NORD S.A.




6


Row

no.

Note

no.

Previous financial

year

Ended financial

year

A B 1 2

11.2. Other taxes, duties and assimilated payments,

Expenses representing transfers and contributions due under

special regulations (acc. 635 + 6586*)

33

8.629.012

13.726.907

11.3. Expenses on environmental protection (acc. 652) 34 59.374 31.362

11.4. Expenses from the revaluation of tangible assets (acc. 655) 35 1.826.568 -

11.5 Expenses related to calamities and other similar events (acc. 6587) 36 - -

11.6 Other expenses (acc. 651+6581+6582+6583+6588) 37 14

3.092.936

6.953.866

Expenses on refinancing interests recorded by the General register

of removed entities that have ongoing leasing agreements (acc.

666*) 38 - -

Adjustments regarding the provisions (rw. 40-41) 39 8 (1.751.248) 13.199.814

-Expenses (acc. 6812) 40 110.599 16.962.007

-Incomes (acc. 7812) 41 1.861.847 3.762.193

OPERATING EXPENSES – TOTAL

(rows 17 to 20 - 21 + 22 + 25 + 28 + 31 + 39) 42

622.834.809

689.013.971

OPERATING PROFIT OR LOSS:

- Profit (rws. 16-42) 43 45.300.581 1.278.730

- Loss (rws. 42-16) 44 - -

-12 Incomes from participation interests (acc. 7611+7613) 45 - -

- of which, incomes received from affiliated entities 46 - -

13 Interest incomes (acc. 766*) 47 536.736 1.398.199

- of which, incomes received from affiliated entities 48 - -

14 Incomes from subsidies for the interest due (acc.7418) 49 - -

15. Other financial incomes (acc. 762+764+765+767+768+7615) 50 1.616.358 1.074.345

- of which, income from other financial assets (acc. 7615) 51 - -

FINANCIAL INCOME - TOTAL

(rows 45 + 47 + 49 + 50) 52

2.153.094

2.472.544

16 Value adjustments on financial assets and financial investments

held as current assets (rws. 54-55) 53 - -

Expenses (acc. 686) 54 - -

Incomes (acc. 786) 55 - -

17 Expenses on interests (acc. 666*) 56 164.271 7.942.668

- of which, expenses in relation to affiliated entities 57 - -

Other financial expenses (acc. 663+664+665+667+668) 58

2.011.692

259.478

FINANCIAL EXPENSES - TOTAL

(rows 53+56+58) 59 2.175.963 8.202.146

FINANCIAL PROFIT OR LOSS:

- Profit (rws. 52-59) 60 - -

- Pierdere (rd. 59-52) 61 22.869 5.729.602

TOTAL INCOMES (rw. 16+52) 62

670.288.484

692.765.245


MUNTENIA NORD S.A.




7


Row

no.

Note

no.

Previous financial

year

Ended financial

year

A B 1 2

TOTAL EXPENSES (rw. 42+59) 63

625.010.772 697.216.117

GROSS PROFIT OR LOSS (A):

- Profit (rws. 62-63) 64 45.277.712 -

- Loss (rws. 63-62) 65 - 4.450.872

18 Proofit TAX (acc. 691) 66 15 4.893.385 1.266.352

19 Other taxes not mentioned for the above items (acc. 698) 67 - -

20

NET PROFIT OR LOSS RELATED TO THE REPORTING

PERIOD - -

- Profit (rws. 64-66-67) 68

40.384.327

-

- Loss (rws. 65+66+67)

(rws. 66+67-64) 69 - 5.717.224

The attached notes form an integral part of this balance sheet.

Administrator,

General Manager

Branescu Valentin



Stegarita Marian


MUNTENIA NORD S.A.

STATEMENT OF CASH FLOWS



8

Element denomination 2017 2018

Cash flows from operating activities 45.277.712 (4.450.872)

Result before profit tax

Adjustments for non-monetary items:

Adjustment of tangible and intangible assets, net 120.985.299 127.158.359

Adjustments for current assets, net 1.615.687 1.356.699

Provisions change, net (1.751.248) 13.199.813

(Gain)/ Loss from concession of fixed assets, net 724.865 810.429

Income in advance resumed (22.122.686) (23.830.854)

Impact of revaluation of fixed assets on the profit and loss account, net (1.096.431)

Net financial result (22.870) 5.729.602

Operating result before change in working capital 143.610.327 119.973.177

Changes in net working capital in:

Inventories (18.065.711) (2.707.243)

Trade receivables and other receivables (37.296.556) (67.845.947)

Trade payables and other payables (10.200.418) 54.914.063

Deferred revenue 28.424.792 22.291.954

Changes of working capital (37.137.893) 6.652.826

Interest paid (164.271) (1.484.111)

Profit tax paid (8.453.504) (5.167.998)

Net cash flow from operating activities 97.854.659 119.973.894

Cash flow from investment activity

Payments for acquisitions of tangible and intangible assets (217.335.712) (294.868.379)

Payments for purchases of fixed assets from customer contributions

(connection fee) (28.688.953) (43.984.287)

Receipts from the customer from financial contributions 33.787.676 57.404.983

Increase in deposits with a maturity of more than 3 months - -

Proceeds for deposits with a maturity of more than 3 months 7.939.085 -

Interest received 517.540 1.398.199

Net cash flow used in the investment activity (203.800.364) (280.049.484)

Cash flow from financing activity

Debt repayments to banks related to assigned supplier credits (32.389.399) (18.297.008)

Proceeds from affiliated parties loans 94.000.000 266.426.921

Proceeds from short-term loans 80.000.000 -

Paid dividends (87.894.930) (38.120.441)

Net cash flow (used in) / derived from financing activity 53.715.671 210.009.474

Net increase / (decrease) in cash and cash equivalents (52.230.034) 49.933.884

Cash and cash equivalents at the beginning of the year 127.659.701 75.429.667

Cash and cash equivalents at the end of the year 75.429.667 125.363.551

The attached notes form an integral part of this statement of cash flows.

During 2018 the amount from the connection fee from the client was reclassified. This was presented in operating

activity flows, and now are included in investment activity.

General Manager

Branescu Valentin



Stegarita Marian


MUNTENIA NORD S.A.

STATEMENT OF CHANGES IN EQUITY



Element of equity Balance at 31

december 2017

Increases Decreases Balance at 31

Total, of which by transfer Total, of

which by transfer december 2018

0 1 2 3 4 5 7

Share capital 354.364.670 - - - - 354.364.670

Revaluation reserve 573.424.161 - - 33.086.792 33.086.792 540.337.369

Legal reserve 61.361.299 - - - - 61.361.299

Reserve from

development fee 42.028.641 - - - - 42.028.641

Other reserves 73.211.818 - - - - 73.211.818

Retained Earnings 467.937.098 106.816.853 71.207.233 38.120.441 - 536.633.510

Result of the year 40.384.327 (5.717.225) - 40.384.327 40.384.327 (5.717.224)

Profit distribution (2.263.886) - - (2.263.886) (2.263.886) -

Total capital and

reserves 1.610.448.128 101.099.628 71.207.233 109.327.675 71.207.233 1.602.220.083

The main changes in equity during the financial year ended December 31, 2018 are as follows:

-Dividends distributed to shareholders in 2018 for the financial year 2017 amounting to 38.120.441 Lei;

-Impact of the revaluation reserve depreciated transfered to retained earnings in amount of 33.086.792 Lei;

-Correction of accounting error with retained earnings, regarding the taxes provision for the revaluation reserve, in

amount of 35.609.620 Lei. The Company considers that recognition criteria for this to be a provision were not meet.

According with fiscal regulations the revaluation reserve will be taxed with the change in destionation. The decision

of changing the destination of the reserve is of the shareholders.

-Net loss of 2018 is in the amount of 5.717.225 Lei;

General Manager

Branescu Valentin



Stegarita Marian


MUNTENIA NORD S.A.

STATEMENT OF CASH FLOWS



10

In 2017, the situation of the equity changes is the following:

Element of equity Balance at 31

december 2016

Increases Reductions Balance at 31

Total, of which by transfer Total, of

which december 2017

0 1 2 3 4 5 7

Subscribed capital 354.364.670 - - - - 354.364.670

Revaluation reserve 541.671.824 76.149.571 - 44.397.234 30.847.615 573.424.161

Legal reserve 59.097.413 2.263.886 2.263.886 - - 61.361.299

Reserve from

development fee 42.028.641 - - - - 42.028.641

Other reserves 63.446.503 9.766.104 9.766.104 789 789 73.211.818

Reported profit 437.088.694 128.509.438 128.509.438 97.661.034 9.766.104 467.937.098

Result of the financial

year - profit 103.686.814 40.384.327 - 103.686.814 103.686.814 40.384.327

Profit distribution (6.025.780) (2.263.886) (2.263.886) (6.025.780) (6.025.780) (2.263.886)

Total capital and

reserves 1.595.358.779 254.809.440 138.275.542 239.720.091 138.275.542 1.610.448.128

The main changes in equity during the financial year ended December 31, 2017 are as follows:

- Profit of the year 2016 after distribution of dividends and legal reserve, transferred to "Other reserves", in amount

of 9.766.104 lei;

- Declared dividends in 2017, in the amount of 87.894.930 Lei;

- Transfer to retained earnings of the depreciation of surplus from revaluation in the amount of 30.848.404 Lei;

- Net profit of 2016 in the amount of 40.384.327 Lei;

-Legal reserve in the amount of 2.263.886 Lei.


MUNTENIA NORD S.A.

NOTES TO FINANCIAL STATEMENTS



11

1. INFORMATION ABOUT THE COMPANY

i) General information on the Company

„SOCIETATEA DE DISTRIBUTIE A ENERGIEI ELECTRICE MUNTENIA NORD S.A. (SDEE Muntenia Nord SA

or "The Company") was established on 1 March 2002 on the basis of GD no. 1342/2001, through the reorganization

of Energetic Company Electrica S.A. ("Parent Company" or "Electrica S.A.").

On 31 December 2018, the shareholders of the Company are as follows: 35.436.457 shares, representing 99.99997%,

Societatea Energetica Electrica SA. and 10 shares, representing 0.00003%, Societatea de Distributie a Energiei

Electrice Transilvania Sud SA.

The company has as main activity the distribution of electricity, efficiently operating the transit of electricity through

its own networks, distributing electricity to more than 1.3 mil customers, modernising and re-technology of existing

installations, expanding of automation as well as research-design in its field of activity, according to the Distribution

License no. 455 of 29 April 2002, updated by the Decision of the National Regulatory Authority for Energy no. 549

of 14 April 2017.

SDEE Muntenia Nord has its headquarter in Ploiesti, Marasesti str. 44, Prahova County and it is registered at the

Trade Registry Office of the Prahova Court with the order number J 29/269/2002 and CIF(fiscal identification code)

- RO 14506181.

The company is structured on two levels, with the following competencies and attributions: the central structure and

power distribution branches (SDEE).

Business (activity) transfer agreement

On 31 October 2017, as a result of obtaining the necessary corporate approvals, the activity transfer agreements were

signed between each of the electricity distribution subsidiaries and the Company Filiala de Intretinere si Servicii

Energetice Electrica Serv SA within the Electrica group.

Societatea de Distributie a Energiei Electrice Transilvania Nord SA. carried out the transfer / internalization of some

activities within Electrica Serv S.A. (belonging to the SISE Muntenia Nord branch), transfer approved by the Decision

of the General Meeting of Shareholders no.8 / 27.10.2017.

ii) Regulatory environment

The activity in the energy sector is regulated by the National Authority for Energy Regulation ("ANRE").

Some of ANRE's main attributions are to approve prices and tariffs and to issue calculation methodologies used to

establish regulated prices and tariffs.

Electric energy distribution

Electricity distribution is a monopolistic activity.

Determination of distribution tariffs is regulated by the "ceiling tariff" method. The "Pricing methodology for

electricity distribution service", approved by ANRE Order no.169 / 2018, with the subsequent amendments, regulates

the calculation of the distribution tariffs.

The distribution tariffs are established for the three voltage levels (high, medium and low).

The methodology of the "ceiling tariff" used to establish the distribution tariffs ensures the reduction of income

variation and the avoidance of significant price fluctuations for users.

ANRE determines the target for annual revenues for a regulatory period, using the financial data provided by the

distribution operators. The annual revenue level is established taking into account the controllable operating and

maintenance costs, obtained after applying the annual efficiency factor, imposed by ANRE, non-controllable, with

the purchase of electricity to cover its own technological consumption, the depreciation of the regulated asset base


MUNTENIA NORD S.A.




12

(AM), the rate of return of the regulated asset base (RBAR) and the revenues from the application of the reactive

energy regulated tariff. (Article 23, ANRE Order 72/2013).

In the year 2014, a new regulatory period started, governed by the provisions of ANRE Order 72/2013 for the approval

of the Tariff Pricing Methodology for the Electricity Distribution Service (Regulatory Period III: 2014-2018).

In the year 2014, ANRE Order 72/2013 was amended by the Order ANRE 112/2014, and as a result of this

amendment, it was approved the Order 146/2014, by which the regulated rate of BAR's return for the third regulatory

period, 2014-2018, was modified from 8.52% to 7.7% starting with the year 2015.

In the year 2015, ANRE Order 72/2013 was amended through ANRE Order 165/2015, modification following which

the limitation of the various tariffs set at 7% from one year to the next, is applied only in the case of their growth, not

in the sense of the decrease, as was the case for 2016 tariffs.

The regulated electricity distribution tariffs for the Company are the following:

Order 197/14.12.2018 Order 116/12.12.2017 Order 112/14.12.2016

1 January-31 December 2019 1 January-31 December 2018 1 January-31 December 2017

High

voltage

Medium

voltage

Low

voltage

High

voltage

Medium

voltage

Low

voltage

High

voltage

Medium

voltage

Low

voltage

15,21 33,08 114,18 14,79 31,54 109,38 14,79 33,67 109,35

Regulated asset base (BAR)

According to the ANRE Order no. 72/2013, the determination of distribution tariffs is based, among other things, on

the regulated asset base.

The regulated asset base at the beginning of the first regulatory period (January 1, 2005) (Initial BAR) included the

net value of tangible and intangible assets recognized by ANRE and used only for regulated electricity distribution.

The BAR subsequently calculated includes, in addition to initial BAR, as net value, also the net value of tangible and

intangible assets subsequently acquired through investments approved by ANRE. The BAR does not include fixed

assets funded by donations, the development fee received or other non-reimbursable funds, including the connection

fee received from new users of the power distribution network.

Concession of electricity distribution service

The company (as a concessionaire) concluded in the year 2005 concession agreements with the Ministry of Energy

(as concession holder), updated in 2015 by additional acts, a concession agreement having as object the concession

of the electricity distribution service in the determined territory (North Muntenia region), on the risk and

responsibility of the concessionaires and with the observance of the technical regulations applicable to the operation,

modernization, rehabilitation and development of the electricity distribution networks, stipulated in the Energy Law,

of the terms and conditions of the electricity distribution license and of the regulations issued by ANRE. The

concession agreement is concluded for a period of 49 years, with the possibility of extension for a period equal to no

more than half of this period. As a price for the concession, the Company pays an annual fee recognized in the

distribution tariff of 1/1000 of the revenues from the electricity distribution. In order to provide the electricity

distribution service, the company uses the assets representing the electricity distribution network owned by it, situated

in the abovementioned territory. According to the concession agreement, the concessionaire will buy, at the end of

the concession agreement, the ownership of the "relevant goods", respectively the electricity distribution networks,

at a price equal to the regulated asset base as established with the regulatory authority.


MUNTENIA NORD S.A.




13

2. PRINCIPLES, POLICIES AND ACCOUNTING METHODS

2.1 Basis of drawing up the financial statements

These are the financial statements of the Company for the financial year ended on 31 December 2017, prepared in

accordance with:

• Accounting Law 82/1991 (republished in 008), as amended

• The provisions of the Order of the Minister of Public Finance no. 1802/2014, approving the Accounting Regulations

on the individual annual financial statements and the consolidated annual financial statements, as amended ("OMFP

1802/2014").

The accounting policies adopted for the preparation and presentation of the financial statements are in accordance

with the accounting principles provided by OMFP 1802/2014.

These financial statements include:

- Statement of financial position

- Statement of profit or loss

- Statement of cash flows

- Statement of equity changes

- Notes to the financial statements.

The financial statements refer only to SDEE Muntenia Nord SA. The company does not have subsidiaries to make

consolidation necessary.

The accounting records on the basis of which were prepared these financial statements are in lei ("RON").

These financial statements are not intended to present the financial statement, result of operations, cash flows and a

complete set of notes to the financial statements, in accordance with accounting regulations and principles accepted

by countries and jurisdictions other than Romania. Therefore, the financial statements are not prepared for the use of

persons who are not familiar with the accounting and legal regulations in Romania, including OMFP 1802/2014.

2.2 Significant accounting principles

The financial statements for the financial year ended on 31 December 2018 were prepared in accordance with the

following accounting principles:

Going contern

Preparation of the financial statements under going concern assumption: the company will normally continue its

activity for the forseable future without treat of liquidation or significant reduction of activity.

Consistency principle

The Company consistently applies accounting policies and valuation methods from one financial year to the next.

Principle of prudence

In the preparation of the annual financial statements, the recognition and evaluation has been carried out on a prudent

basis, and especially:

a) the profit and loss account included only the profit realized at the balance sheet date;

b) debts incurred during the current financial year or in a previous financial exercise have been recognized, even if

they become apparent only between the balance sheet date and the date of its drawing up;

c) impairments have been recognized, whether the result of the financial year is loss or profit.


MUNTENIA NORD S.A.




14

Accrual principle

The effects of transactions and other events have been recognized when transactions and events have occurred (and

not as cash or equivalent has been earned or paid) and have been registered in the accounting and reported in the

financial statements of the related periods.

All income and expenses of the financial exercise have been taken into account, without taking into account the the

date of receipt or payment. Revenues and expenses that resulted directly and simultaneously from the same

transaction were recognized simultaneously in the accounting, by the direct association between expenses and related

income, with a distinct indication of such income and expense.

The principle of intangibility

The opening balance sheet of the financial year corresponds to the closing balance sheet of the previous financial

year.

The principle of separate valuation of assets and liabilities

In order to determine the corresponding value of a balance sheet position, the value of each component of the asset

and liability items was determined separately.

The principle of non-compensation

The values of the items that represent the assets were not compensated by the values of the items that represent the

debts, respectively the revenues with the expenses.

Accountability and presentation of the items in the financial statements, taking into account the economic fund of

the transaction or engagement in question

Accounting record and presentation in financial statements of economic and financial operations reflects their

economic reality, highlighting the rights and obligations, as well as the risks associated with these operations.

Cost principle

The items presented in the financial statements were valued on the basis of the acquisition cost or production cost,

less tangible assets, that are valued using the revaluation method.

Materiality Principle

The Company may deviate from the requirements included in the applicable accounting regulations, regarding the

information presentations and publication, when the effects of their observance are insignificant.

2.3. Reporting currency

The accounting is realized in Romanian language and in the national currency ("RON"). The bookkeeping of foreign

currency transactions is carried out both in national currency and in foreign currency. The elements included in these

situations are presented in Romanian lei (RON).

2.4. Use of accounting estimates

The preparation of the financial statements prepared in accordance with OMFP 1802/2014 with subsequent

amendments, requires management to make estimates and assumptions that influence the reported amounts of assets

and liabilities and the presentation of contingent assets and liabilities at the date of the financial statements, as well

as the amounts of revenues and expenses of the reporting period. Actual results may differ from the estimated ones.

These estimates are reviewed periodically and, if adjustments are required, they are recorded in the profit and loss

account when they become available.


MUNTENIA NORD S.A.




15

2.5 Continuity of activity (going concern principle)

These financial statements have been prepared on the basis of the principle of continuity of activity, which implies

that the Company will continue its activity in the foreseeable future. To valuate the applicability of this assumption,

the Companu management analyzes the estimates related to the future cash inflows. Based on these analyzes, the

Company management considers that the Company will be able to continue its business in the foreseeable future, and

therefore the application of the going concern principle in the preparation of the financial statements is justified.

2.6 Currency conversions

Transactions in foreign currency are initially recorded at the exchange rate communicated by the National Bank of

Romania for the transaction date.

At the balance sheet date, monetary items expressed in foreign currency and receivables and debts expressed in lei,

which are settled according to the exchange rate, are evaluated and presented in the annual financial statements at the

exchange rate communicated by the National Bank of Romania, valid on the closing date of the financial year.

The profits and losses from the foreign exchange differences, realized and unrealized, between the exchange rate of

the foreign exchange market communicated by the National Bank of Romania for the date of recording the

receivables or debts in foreign currency and those expressed in lei, the settlement of which is made according to the

the exchange rate, or the rate at which they are recorded in the accounts and the exchange rate at the end of the

financial year, are recorded in the profit and loss account for that financial year.

Non-monetary items purchased with foreign currency payments and recorded at historical cost (fixed assets, stocks)

are presented in the annual financial statements using the exchange rate from the date of the transaction. Non-

monetary items purchased in foreign currency and recorded at fair value (for example, revalued tangible assets) are

presented in the annual financial statements at that amount.

Monetary assets and liabilities expressed in foreign currency are revalued in lei at the exchange rate from the end of

each month and the exchange rate differences are recorded in the profit and loss account.

Exchange rates RON / EUR communicated by the National Bank of Romania on 31 December 2017 and 31

December 2016 were the following:

Currency 31 december 2017 31 december 2018

Leu/USD 3,8915 4,0736

Leu/EUR 4,6597 4,6639

2.7 Significant accounting policies

a) Intangible assets

Intangible assets acquired by the Company are presented at cost less accumulated amortization and impairment loss

(see accounting policy g)). Amortization is recognized in the profit and loss account on a straight-line basis, for the

estimated useful life of the intangible asset. Most of the intangible assets registered by the Company are represented

by dedicated software programs. These are linearly depreciated for a period of 3-6 years.


MUNTENIA NORD S.A.




16

b) Tangible assets

i. Cost/ Evaluation

Tangible assets are initially recognized at the cost, and after that they are periodically measured at fair value. The

cost of tangible assets (property, plant and equipment) includes the purchase price and other direct expenses related

to the acquisition and commissioning of the tangible assets.

Significant exchange items (electricity meters) and security equipment are considered to be tangible assets when they

are expected to be used for a period longer than one year.

After initial recognition, tangible assets are recorded at cost, less cumulative depreciation and impairment (see

accounting policy g) and are periodically revalued.

Elemen Items in a group of tangible assets (property, plant and equipment) are revalued simultaneously, to avoid

selective revaluation and reporting in the annual financial statements of values that are a combination of costs and

values calculated on different dates. If a non-current asset is revalued, all other assets in the group to which it belongs

must be revalued.

Revaluations are performed with sufficient regularity, so that the accounting value does not differ materially from

that which would have been determined using fair value at the balance sheet date.

In the revaluation of a tangible asset, cumulative depreciation at the revaluation date is eliminated from the gross accounting value of the asset, and the net value determined as a result of the adjustment with the value adjustments is recalculated at the revalued value of the asset.

ii. Subsequent costs

Subsequent expenses incurred related to a tangible asset are expenses of the period in which the asset has been

carried out or increases the value of that asset, depending on the economic benefits related to such expenses,

according to the general recognition criteria.

In the case of replacement of a component of a long-term asset, the Company recognizes the cost of the partial

replacement, the accounting value of the replaced part being removed from the accounting records, with the related

amortization, if the required information is available and if the recognition criteria for tangible assets are met.

The costs of regular inspections or general revisions , performed by the entity for the detection of malfunctions,

are recognized at the moment of each general inspection, as expense or in the accounting value of the item of the

tangible asset as a replacement, if the following conditions are cumulatively met:

- Inspections or general revisions are mandatory for maintaining and operating at normal parameters the

equipment and machinery

- The cost of inspections or general revisions exceeds the materiality threshold established by the entity's

accounting policies.

If the cost of the inspection is recognized as a component of the asset, the component value is amortized over the

period between the two planned inspections. The cost of current revisions and inspections, other than those

recognized, as a component of the asset, represents expenses of the period.

iii. Amortization

Amortization (Depreciation) is calculated to decrease the gross value, less the residual value, using the linear

depreciation method over the lifetime of the tangible assets and of their components, which are separately accounted

for.

The Company calculates the accounting amortization on the basis of the remaining economic lifetimes, established

by the valuer in the valuation report or on the basis of the durations established by the Company's technical


MUNTENIA NORD S.A.




17

departments. Fiscal amortization is calculated on the basis of the tax periods from the Catalogue on the classification

of tangible assets under HG 2139/2004.

The economic and fiscal periods of amortization (in years) used for the tangible assets used by the Company are the

following:

Category Economic Periods

(on average) Fiscal periods

Buildings

Administrative and industrial 60 40

Special installations

Lines of electricity distribution

Overhead lines on wood poles 15 9

Overhead lines on concrete poles 40 32

Underground lines 30 12

Other cables 12 9

Transformers 24 16

CMeters 15 8

Measuring and control devices 15 8

Means of transport 8 4

Office supplies 6 4

Others 5 3

Land and current assets are not amortized. Investments in progress are amortized starting from the date of

commissioning.

c) Inventories

Inventories are made up of consumables and other materials. These are recorded as inventory at the time of purchase

and are passed on expenses at the time of consumption. The cost of inventories includes all acquisition costs and

other costs incurred in bringing stocks to and from the current situation.

The cost of inventories is based on the weighted average cost method of evaluation. Where appropriate, depreciation

adjustments for excess or old inventories, or scrap are recorded.

d) Trade receivables and other receivables

Customers accounts and assimilated accounts include mainly invoices issued until 31 December for electricity

distribution, including estimated receivables related to the electricity, distributed by the end of the year, but invoiced

in the period after the end of the year.

Customers accounts and assimilated accounts are recorded at the nominal value, reduced to recoverable amount,

estimated by recording an adjustment for impairment loss. Generally, value adjustments are recorded for old

receivables and payment delays penalties.

e) Short-term investments

Short-term investments include short-term bank deposits, with a maturity of more than 3 months and up to one year.

f) Cash and cash equivalents

Cash holdings consist of cash, bank accounts, term deposits of up to three months, if they are held to cover the short-

term need of cash, checks and commercial effects deposited at the banks. Account overdraft is included in the

balance sheet, within the amounts owed to credit institutions, to be paid within one year.


MUNTENIA NORD S.A.




18

For the cash flow situation, cash and cash equivalents include cash in the bank, current accounts at the banks, financial

investments for less than three months, net of account overdraft.

g) Impairment losses

The book value of the Company's assets, other than stocks, is analyzed at each balance sheet date, to determine

possible impairment losses. If such a decrease is probable, the recoverable amount of the asset in question is

estimated. If appropriate, an ajustment for impairment is recognized in the profit and loss account or in the equity,

when the book value of the asset is greater than its recoverable value.

The adjustment for impairment may be resumed if there has been a change in the conditions existing at the moment

when the recoverable amount is determined. The resumption of an impairment adjustment may be made only in such

a way that the net value of the asset does not exceed its historical net book value, taking into account the depreciation.

h) Share capital

The Company recognizes the changes of the share capital only after their approval in the General Meeting of

Shareholders and registration with the Trade Registry Office.

i) Dividends

Dividends are recognized as a debt in the period in which their distribution is approved.

j) Revaluation reserve

Revaluations are carried out with sufficient regularity at the balance sheet date, so that the book value does not differ

materially from that that would be determined using fair value.

The difference between the amount resulting from the revaluation and the net book value is presented in the

revaluation reserve, as a separate sub-item in "Capital and reserves".

If the result of a revaluation is an increase compared to the net book value, then it is treated as follows:

- as an increase of the revaluation reserve presented under the item "Capital and reserves", unless there has been a

prior decrease recognized as an expense related to that asset, or

- as an income to compense the expense with the decrease, previously recognized for that asset.

If the result of a revaluation is a decrease of the net book value, it is treated as follows:

- as an expense with the full amount of depreciation, when no amount related to that asset (revaluation surplus) is

recorded in the revaluation reserve; or

- as a decrease of the revaluation reserve, with the minimum between the value of that reserve and the value of the

decrease, and any remaining uncovered difference is recorded as an expense.

The revaluation surplus included in the revaluation reserve is capitalized by the direct transfer to the reported result

(account 1175 "Reported result representing the surplus realised from revaluation reserves "), when that surplus

represents a realised gain. The gain is considered realised as the asset is used by the entity; the value of the transferred

reserve is the difference between the amortization calculated on the basis of the revalued book value and the

amortization value, calculated on the basis of the initial cost of the asset.

According to the tax legislation in force, the revaluation reserve is taxed at the moment of its change of destination.

Starting with 1 May 2009, as a result of changes in tax legislation, revaluation reserves recorded after 1 January 2004

become taxable as amortization of the related tangible assets.

k) Legal reserves

Legal reserves represent 5% of the gross profit from the end of the year until the total legal reserves reach 20% of

the paid up share capital, in accordance with the legal provisions. These reserves are deductible at the calculation of

the profit tax and are not distributable


MUNTENIA NORD S.A.




19

l) Income in advance

Income in advance includes the connection fee, the development fee, donations and inventory pluses. They are

resumed at income when recognizing the related costs (depreciation of related tangible assets).

Connection fee

The value of the new connections to the electricity network is invoiced to consumers by a connection tariff (in

accordance with ANRE Order no. 59/2013). New connections to the electricity network are the property of the

Company.

Receipts from the connection fee are recorded as prepaid earnings and are resumed at income as the depreciation of

related tangible assets.

m) Grants (subsidies)

Government grants, including non-monetary grants at fair value, should not be recognized until there is sufficient

certainty that:

1) the entity will comply with the conditions imposed by its award; and

2) grants will be received.

Only receiving a grant does not itself provide conclusive evidence that all the conditions attached to the award of

grant have been or will be met.

The accounting of the projects financed by the grants is distinct, for every project, every financing source, according

to the concluded contracts, without drawing up separate annual financial statements for each such projeacc.

In order to ensure the correlation of the expenses financed from the grants with the related incomes, proceed as

follows:

1) from the point of view of the profit and loss account:

- during each month the expenses are highlighted by their nature;

- at the end of the month, the grants corresponding to the expenses incurred are highlighted as income.

2) from the point of view of the balance sheet:

- the grant receivable is recognized in correspondence with the grants income, if the expenses incurred from these

grants have been incurred, or the deferred income, if these expenses have not yet been incurred;

- on a regular basis, with the request for reimbursement of the expenses incurred or on the basis of other

documents establishing and approving the appropriate amounts, the amounts registered as receivables from the

grants shall be regularized.

n) Loans

Long-term bank loans are recognized at cost.

o) Debts related to leasing contracts

Leasing contracts in which the Company substantially assumes the risks and benefits associated with the property

are classified as financial leasing. Other contracts are classified as operational leasing. Debt to the Leasing Company

is included in the balance sheet as a debt regarding the leasing contraacc. Financing costs are recorded in profit and

loss account for the leasing period at a constant interest rate.

Payments made under operating leasing contracts are recorded in the profit and loss linear account for the period of

the leasing contraacc. The reductions in the leasing receipts received are recognized in the profit and loss account as

a reduction in expenses.


MUNTENIA NORD S.A.




20

p) Suppliers and other liabilities

Liabilities to suppliers are highlighted at cost and include bills for deliveries, contracted works and services.

q) The provisions

The provisions are recognised in the balance when the company is born a legal or implied obligation related to a past

event and it is likely that in the future it is necessary to consume some economic resources that left this obligation.

The provisions are revised at each year-end and adjusted to reflect the most appropriate current estimation.

A provision is recognized when:

-an entity has a current obligation generated by a previous event;

-a resource output is likely to be necessary to honour that obligation; and

-a credible estimate of the value of the obligation can be achieved.

Provisions for taxes

The company constitutes provisions for taxes to the extent that for future amounts of payment due to the state budget,

whereas those amounts are not reflected as debt in relation to the state.

Provisions shall be constituted for differences in taxes resulting from uncompleted control operations; Taxes for

which the entity has open court processes; Reserves from tax facilities or other reserves for which in tax legislation

there are provisions relating to their taxation, as well as in other situations that may generate debts in the form of

corporation tax.

Provisions for pensions and other benefits

In accordance with GD no. 1041/2003 and no. 1461/2003, the Company provides benefits in kind in the form of free

energy to employees who have retired from the Company. The Company also provides cash benefits based on

seniority in work and retirement for employees.

The Company records pension provisions and employee benefits based on actuarial calculations performed by

professional actuaries

r) Revenues recognition

Revenues from services are recognized in the period in which they are incurred. Income is mainly the value of the

power distribution service. Revenues are recognized at the fair value of the services rendered or the goods delivered,

net of VAT, excise duties and other taxes related to the sale.

Revenues from electricity distribution to consumers are recognized when electricity is delivered to consumers, based

on meters readings and on the estimates for non-invoiced electricity

s) Financial income and expenses

Financial income includes: income from exchange rate fluctuations, interest income, other financial income.

Financial expenses include: unfavorable exchange rate fluctuations, interest expense, other financial charges. The

principle of the separation of financial exercises is respected for the recognition of these types of expenses and

income.

t) Employees costs

Short-term employee rights include salaries and social contributions. The rights of short-term employees are

recognized as expenses when the service is rendered by them.


MUNTENIA NORD S.A.




21

Profit (corporate) tax

Short-term employee rights include salaries and social contributions. The rights of short-term employees are

recognized as expenses when the service is rendered by them.

u) Affiliated parties

According to the Order of the Ministry of Public Finance no. 1802/2014 with subsequent modifications, affiliated

(or linked) parties are defined as follows:

(a) A company is linked to an entity that reports whether it meets one of the following conditions:

i) the entity and the reporting entity are parts of the same group (which means that each parent company,

affiliate or member affiliate is linked to the other entities);

ii) the entity is an associate or joint venture of a member entity of a group to which the other entity belongs;

iii) both entities are joint ventures of the same third party;

iv) the entity is a joint venture of a third party and the other entity is an associate of the third party;

v) the entity is a post-employment benefit plan for the benefit of employees of the reporting entity or of an

entity related to the reporting entity. If the entity that reports itself is such a plan, employers who finance the plan are

also linked to the reporting entities;

vi) the entity is controlled or jointly controlled by a person as defined in paragraph (b);

vii) the person identified in paragraph (b) lit. i) has significant influence on the entity or is part of the key

personnel in the entity's management (or in the direction of a parent company of the entity).

(b) A person or a close relative of the person's family is linked to an entity that reports whether the person concerned:

(i) holds control or joint control over the reporting entity;

ii) has a significant influence on the reporting entity; or

(iii) is part of the key management personnel of the entity reporting or managing a parent company of the

reporting entity.

A reporting entity is exempt from reporting requirements, in accordance with the Order of the Minister of Public

Finance no. 1802/2014 with subsequent amendments at transactions with linked parties and open balances, including

commitments, with:

a) Government, which has control, joint control or has significant influence on the reporting entity;

b) Another entity that is a linked entity for which the same government has control, joint control or

significant influence, both on the reporting entity and on the other entity.

A reporting entity shall present the following aspects related to transactions and outstanding balances, with the

entities referred to in the preceding paragraph, as follows:

- type and value of each significant transaction individually; and

- for other transactions, that are collectively significant, but not individually, a qualitative or quantitative

indication of their importance.

v) Contingent liabilities

A contingent liability is :

a) a potential obligation, arising as a result of past events, prior to the balance sheet date and whose existence

will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events,that can

not be wholly under the control of the entity; or

b) a current liability arising from past events prior to the balance sheet date, but that is not recognized, because:

- is not sure that there will be necessary resources outflows to extinguish this debt; or

- the amount of the debt can not be valuated sufficiently reliably.

Contingent liabilities are not recognized in the balance sheet, they are presented only in the explanatory notes of the

financial statements.


MUNTENIA NORD S.A.




22

Contingent liabilities are continually evaluated to determine whether an outflow of resources that incorporates

economic benefits has become probable. If it is considered that the outflow of resources generated by an item

previously considered contingent liability is necessary, a liability or a provision shall be recognized, as appropriate,

in the financial statements related to the period in which the change in the event's classification occurred.

w) Events after the balance sheet date

These financial statements reflect events after the end of the year, events that provide additional information about

the Company's position at the balance sheet date or those that indicate a possible breach of the business continuity

(going concern) principle (events that determine adjustments). Subsequent events that are not events that determine

adjustments are presented in notes, when they are considered significant.

3. FIXED ASSETS

Between 1 January and 31 December 2018, fixed assets have evolved as follows:

Gross value

Item

description

Balance at

31 December

2017

Direct inputs

Transfers

Discounts

Balance at

31 December

2018

Intangible assets

Goodwill 3.823.000 -13.000 - - 3.810.000

Concessions and other

intangible assets 73.915.893 1.561.710 5.686.878 - 81.164.481

Total Intangible

assets 77.738.893 1.548.710 5.686.878 - 84.974.481

Tangible assets

Land 43.963.342 - -

- 43.963.342

Buildings 1.420.969.781 164.266 139.719.915

129.364 1.560.724.598 Technical installations

and machines 792.620.981 276.318 175.308.850 75.589 968.130.560

Other installations,

machinery and

furniture 7.220.859 - 114.604 20.151 7.315.312

Advances and tangible

assets in progress 51.015.425 344.719.448 (320.830.247) - 74.904.626

Total tangible assets 2.315.790.388 345.160.032 (5.686.878) 225.104 2.655.038.438

Equity securities 247 - - - 247

Other receivables 301.784 524.462

-

187.936 638.310

Total financial assets 302.031 524.462 - 187.936 638.557

Total fixed assets 2.393.831.312 345.233.204 - 413.040 2.740.651.476


MUNTENIA NORD S.A.




23

Adjustments for depreciation of f fixed assets

Item description Balance at

31 December 2017 Increases Reductions

Balance at 31

December 2018

Adjustments for building

depreciation 2.779.972 2.112.250 920.645 3.971.577

Adjustments for installations

depreciation 1.070.965 482.015 221.870 1.331.110

Adjustments for depreciation

of other fixed assets 1.117 32.974 1.117 32.974

Adjustments for depreciation

of current fixed assets 534.130 - - 534.130

Total fixed assets 4.386.184 2.627.239 1.143.632 5.869.791

Accumulated amortization


31 December 2017 Increases Reductions

Balance at 31

December 2018

Intangible assets

Goodwill 63.717 792.319 - 826.036

Concessions and other

intangible assets 48.788.655 6.770.453 - 55.559.108

Total intangible assets 48.852.372 7.532.772 - 56.385.144

Tangible assets

Buildings - 56.674.902 4.537 56.670.365

Technical installations and

machines

- 60.996.403

75.589 60.920.814

Other installations,

machinery and furniture 3.723.877 470.675 20.151 4.174.401

Total tangible assets 3.723.877 118.141.980 100.277 121.765.580

Total depreciation of fixed

assets

52.576.249 125.674.752 100.277 178.150.724

Net value


31 December 2017 Balance at 31 December 2018

16 17 18

Intangible assets

Goodwill 3.759.283 2.983.964

Concessions and other intangible assets 25.127.283 25.605.373

Total intangible assets 28.886.521 28.589.337

Tangible assets

Land and land improvements 43.963.342 43.963.342

Buildings 1.418.189.808 1.500.082.656

Technical installations and machines 791.550.017 905.878.636

Other installations,machinery and furniture 3.495.865 3.107.937

Advances and tangible assets in progress 50.481.295 74.370.496

Total tangible assets 2.307.680.327 2.527.403.067

Financial assets

Equity securities 247 247

Other receivables 301.784 638.310

Total financial assets 302.031 638.557

Total fixed assets 2.336.868.879 2.556.630.961


MUNTENIA NORD S.A.




24

In the year 2017, following the internalization of the maintenance activity taken from FISE Electrica Serv, a goodwill

was set up in the amount of 3.823.000 lei (see Note 1). In February 2018, following the completion of the contract,

it was corrected by 13.000 lei. Thus, at the end of 2018 the gross value of the goodwill is 3.810.000 lei.

Tangible assets include mainly low, medium and high-voltage power distribution lines. The Company records the

tangible assets based on the revaluation method.

Within the "Constructions" are included administrative buildings, with a net accounting value of 32.479.887 Lei at

31 december 2018 (32.479.887 Lei la 31 december 2017), the rest representing the electrical networks and special

constructions related to the electrical networks.

"Technical equipment and machines" are mainly equipment and apparatus for electrical stations and transformation

stations, with a net accounting value of 755.109.096 Lei at 31 december 2018 (669.763.628 Lei at 31 december

2017) and measuring devices and installations , control and adjustment with a net value of 152.052.031 Lei at 31

december 2018 (122.793.725 Lei at 31 december 2017).

At 31 December 2017 The Company carried out the revaluation of tangible fixed assets (land, buildings, technical

installations and machinery) existing, at fair value at the balance sheet date. The revaluation was carried out by Darian

DRS SA.

The fair value was determined as follows:- market value for all goods (real estate and mobile), for which it exist a

market on which they can be traded: land, apartments and service or intervention dwellings, administrative buildings,

dynamics market equipment;

- the net replacement cost for specialized goods for which there is no market on which these can be capitalized (by

sale or rent): buildings, special operational buildings and equipment;

Revaluation reserve

2017 2018

Revaluation reserve at the beginning of the financial year 541.671.824 541.671.824

Surplus from revaluation during the financial year 76.149.571 -

Decrease from revaluation during the financial year 13.548.830 -

Resume of revaluation reserve to retained earnings as a result of

depreciation and disposal of tangible assets 30.848.404 33.086.791

Revaluation reserve at the end of the financial year 573.424.161 540.337.370

As described in note 1 ii), according to ANRE Order no. 72/2013 and no. 172/2015, the determination of the

distribution tariffs is based, among other things, on the regulated asset base (BAR). Based on the estimates made by

the Company as at 31 December 2018, the carrying amount of property, plant and equipment is recoverable.

A Value adjustments for the impairment of property, plant and equipment are attributable to depreciated fixed assets,

unused for normal operating or preserving capacity. The Company has as at 31 December 2018 adjusted for

impairment of tangible assets of 5.869.792 Lei (31 december 2017: 4.386.184 Lei).


MUNTENIA NORD S.A.




25

4. INVENTORIES

On 31 December 2018 and 31 December 2017 inventories are as follows:

Item name 31 december 2017 31 december 2018

Auxiliary materials 5.679.394 7.523.558

Spare parts 8.469.416 18.087.485

Materials and materials at third parties 8.487.233 22.630

Inventory materials and supplies for work protection 1.252.419 819.068

Other stocks 1.341.388 1.484.352

Total stocks 25.229.850 27.937.093

Inventories held by the company as at 31 December 2018 include mainly cables, breakers and fuses necessary for the

proper functioning of the distribution network.

As at 31 December 2018, the Company constituted provisions for inventories amounting to 1.313.111 Lei.

5. RECEIVABLES On 31 December 2018, the Company's receivables are as follows:

Receivables Balance at 31

december 2017

Balance at 31

december 2018

Liquidity deadline

Less than 1 an Over 1 an

1 2 3 4

Advances to suppliers 8.445.010 9.056.075 9.056.075 -

Clients, gross book value 45.735.190 53.680.385 53.680.385 -

Adjustment for uncertain customers (15.365.674) (15.276.344) (15.276.344) -

Total third parties trade receivables 38.814.526 47.460.116 47.460.116

Trade receivables to be collected from

affiliated parties 86.757.994 81.073.372 81.073.372 -

Other receivables to be collected from

affiliated parties 99.488 102.975 102.975 -

Adjustment for receivables to be collected

from affiliated parties (146.238) (148.861) (148.861)

Total receivables affiliated parties 86.711.244 81.027.486 81.027.486 -

Various debtors, gross book value 6.817.324 7.365.761 7.365.761 -

Other receivables 8.351.579 17.592.896 17.592.896 -

Adjustment for various uncertain debtors (3.509.980) (3.551.528) (3.551.528) -

Total other receivables 11.658.923 21.407.129 21.407.129 -

Total receivables 137.184.693 149.894.731 149.894.731 -

Commercial receivables from third parties mainly include receivables from the distribution of electricity. Advances

to suppliers mainly include the amount of electricity contracted and paid until 31 December 2018 and delivered in

2019.


MUNTENIA NORD S.A.




26

Claims receivable from affiliated entities are mainly distribution services and other services provided to Electrica

Supply (see Note 16.2).

Other claims include mainly:

- VAT to be recovered of 12.183.897 lei (2017: 7.084.523 lei);

- Profit tax to be recovered of 5.035.236 Lei (2017: 1.133.590 Lei).

6. CASH ACCOUNT AND BANK ACCOUNTS

At 31 December 2017 and 31 December 2018, cash assets and assimilated items are as follows::

Intem name 31 december 2017 31 december 2018

Bank liquid assets 96.495.618 125.284.804

Cash account assets 67.678 78.642

Other assets 193 105

Total cash and bank accounts 96.563.489 125.363.551

Credit Line (presented in short-term Balance Sheet) (21.133.822) -

Total liquid assets ans assimilated items according to

the cash flow situation 75.429.667 125.363.551

7. LIABILITIES

Liabilities

Balance

at 31

december

2017

Balance at

31 december

2018

Liquidity term

Less than 1

an Over 1 an Over 5 ani

0 1 2 3 4 5

Amounts owed to credit institutions 110.071.678 81.967.872 1.867.622 80.100.250 -

Suppliers 24.352.156 22.192.015 22.192.015 - -

Assets suppliers 92.977.724 112.297.778 112.197.528 - -

Total trade debts payables to third

parties 117.329.880 132.522.921 132.522.921 -

Loans due to affiliated parties 94.000.000 372.792.101 6.232.714 - 366.559.387

Suppliers - affiliated parties 14.205.504 24.346.330 24.325.351 - -

Assets suppliers – affiliated parties 4.976.058 2.048.776 2.048.776 - -

Other debts to affiliated companies 550.392 509.147 509.147 - -

Total debts to affiliated parties 113.731.954 399.696.354 33.136.967 - 366.559.387

Anticipations and guarantees 2.835.437 3.904.071 3.904.071 - -

Salaries and other salary rights 8.731.972 7.664.184 7.664.184 - -

Social security and other wage related

taxes 7.185.878 6.730.897 6.730.897 - -

Other debts to the state budget and to

local budgets 7.630.177 5.496.383 5.496.383 - -

Other debts

617.087 3.134.316 3.134.316 - -

Total other debts 27.000.551 26.929.851 26.929.851 - -

Total debts 368.134.063 641.116.998 194.457.361 80.100.250 366.559.387


MUNTENIA NORD S.A.




27

For debts to affiliated parties see Note 16. As of December 31, 2018 the amounts owed to credit institutions are

represented by the loan of BRD GSG of 80.000.000 Lei, which was fully drawn;

The situation of the liabilities related to these contracts is presented as follows:

Supplier’s name Balance at

31.12.2018 Short-term Long-term

Assigned to

the bank

AEM_2014 SD_TG R2565 /

26.06.2014

501.250

401.000

100.250 BCR

EXIMPROD GRUP SD BR

SAD RURAL R2231 / 04.06.2014

415.321

415.321 0

Banca

Transilvania

EXIMPROD GRUP SD FCS

SAD RURAL R2231 /

04.06.2014

391.714

391.714 0

Banca

Transilvania

EXIMPROD GRUP SD GL

SAD RURAL R2231 / 04.06.2014

658.587

658.587 0

Banca

Transilvania

TOTAL SUPPLIER CREDITS 1.966.872

1.866.622 100.250

On 17 October 2016, the Company concluded with BRD Groupe Societe Generale S.A. the loan agreement

196/8130/2016, through which the Bank makes available to the Company until 16 October 2021 a credit in the form

of a ceiling, with a limit of 80.000.000 lei, with a fixed interest rate of 0.02% per annum, for the financing of the

general needs of the Company . The guarantor is Societatea Energetica Electrica SA, which constituted a guarantee

in favor of the bank in the form of a chattel mortgage on amounts of money blocked in its account, which will cover

100% of the amounts used in the loan.

On 31 December 2018 the credit was drawn in full.

On 29.05.2018, the Company concluded with BRD GSG the credit contract no. 76/8130/29.05.2018,

(R1877/29.05.2018), through which the Bank makes available to the Company up to 25 May 2019 an overdraft credit,

with a limit of 95.000.000 lei, with a ROBOR1M-0,60% p.a. interest, for financing the general needs of the Company.

On 31 December 2018, other debts to the state budget and to local budgets refer, mainly, to the following:

VAT not applicable at 31.12.2018 of 3.528.129 Lei (2017: 5.921.501 Lei);

tax on profit to pay of 910.492 Lei (626.650 Lei la 31 december 2017).

On 31 December 2018, social security and other taxes related to the salaries refer mainly to the following:

tax on salaries : 1.028.618 Lei (1.867.588 Lei at 31 decembrie 2017);

social security contributions: 5.702.280 Lei (5.180.503 Lei at 31 decembrie 2017).


MUNTENIA NORD S.A.




28

8. PROVISIONS

On 31 December 2018 and 31 December 2017, the statement of provisions is the following:

Balance at

Constitutions

Return

Return

provisions

Sold la

31

december

2017

based on

retained

earnings

31 decembrie

2018

Provisions for Employee

Benefits 38.735.625 15.861.953

- 54.597.578

Provisions for taxes 39.048.705 - 35.609.620 3.439.085 -

Provisions for litigation 774.936 103.145 323.108 554.973

Other Provisions - 996.909 - 996.909

Total 78.559.266 16.962.007 35.609.620 3.762.193 56.149.460

8.1. Provisions for pensions and similar obligations

In accordance with GD no. 1041/2003 and no. 1461/2003, the Company provides benefits in kind in the form of

free energy to employees who have retired from the Company. The Company also provides cash benefits based on

length of service and retirement for employees. Given the complexity of the calculation, the Company contracted

an independent actuary - Mazars Romania S.R.L.

Based on the actuarial valuation report, the Company has registered in 2017 the resumption of a provision for

employees pensions and benefits, as follows:

Initial balance 1 January

2017 2018

39.969.778 38.735.625

Cost of current seniority 1.076.368 1.295.650

Cost of interest 1.430.091 1.714.682

Paid benefits (2.223.029) (2.558.813)

(Gain)/Actuarial loss (1.517.583) 15.410.435

Final balance 31 december 38.735.625 54.597.578

The assumptions which were the basis of the actuarial calculation were the following:

- the inflation rate used is 4,92 %.

- it is estimated that wages will increase: in 2019 by 5%, and in 2020 and 2021 by 2.5%. Starting in

2022, it is estimated that wages will increase annually by 2.5%;

- the price of electricity is expected to increase in 2019 by 2.8%, in 2020 by 2.5%, in 2021 by 2.3%,

and by 2022 by 2.2%;

- rotation rate of estimated staff: 6.55% in the years 2019 and 2020 and 2.31% in the years 2021 and

the following.


MUNTENIA NORD S.A.




29

The long-term benefits granted to employees under the Collective Bargaining Agreement are mainly the

following:

Jubilee premiums granted for seniority in work within Electrica:

Seniority Value of the benefit in relation to the gross salary

at 31 december 2017 at 31 december 2018

20 years 80% 100%

30 years 160% 200%

35 years 240% 300%

40 years 320% 400%

45 years 400% 500%

Premiums at retirement based on the seniority within Electrica:

Seniority Value of the benefit in relation to the gross salary

at 31 december 2017 at 31 december 2018

Between 8 and 10 years 100% 100%

Between 10 and 25 years 200% 200%

Over 25 years 300% 300%

The company also offers a benefit of 1.200 kWh of free energy annually to employees who have retired from the

Company and have met certain seniority conditions.

8.2. Provisions for taxes

The Company considered it necessary to reversal the provision for taxes related to the revaluation reserves realized,

amounting to 35.609.620 lei, on the account of the retained earnings arising from the correction of the accounting

errors, since it was no longer justified to maintain it, being transformed into current debt only at the moment of

changing the destination of this reserve.

In 2018 the non-deductible provision for accessories (SPFL Ploiesti) was resumed in the amount of 3.439.085 Lei

as a result of Decision no. 3693 / 01.11.2018 of the High Court of Cassation and Justice of Romania, which dismissed

the appeal filed by SDEE MN as plaintiff against the Sentinete nr.32 from 10.02.2016 of the Ploiesti Court of Appeal

- Civil Section II , administrative and fiscal litigation, as unfounded.

8.3 Provisions for litigation

On December 31, 2018, the Company has provisions for litigation amounting to 554.973 Lei (774.936 Lei as at 31

December 2017), mainly for the restitution of a building in kind or by equivalent, based on the Law no. 10/2001, the

applicant Niculescu Vladimir, amounting to 510.000 Lei.

8.4 Other provisions

Other provisions refer to the variable part of the bonus granted to directors with a Company's mandate contract and

directors with an employment contract with MKP functions, for which a provision of 996.909 lei was created and

resumed on the basis of the payment of the remuneration, during the year 2019 (on 31 December 2017, the Company

had no payment to directors with a mandate contract).


MUNTENIA NORD S.A.




30

9. INCOME IN ADVANCE

31 decembrie 2017 31 decembrie 2018

Contributions from customers, development fee,

inventory overs and connection fee 537.927.075 560.798.992

Other income in advance 962.918 1.214

Total 538.889.993 560.800.206

In the year 2018, the Company has collected the connection fee in the amount of 42.441.703 lei (26.359.583 lei in

2017) and resumed in the income the amount of 23.830.854 Lei (22.122.686 Lei in 2017), representing the

amortization of the fixed assets acquired from the tax connection.

10. CAPITAL AND RESERVES

On 31 December 2018, the share capital is of 354.364.670 lei, divided into 35.436.467 shares, with a nominal value

of 10 lei, being held as follows:

99,99997%, respectively 354.364.570 Lei, by Societatea Energetica Electrica SA;

0,00003%, respectiv 100 Lei, by Societatea de Distributie a Energiei Electrice Transilvania Sud S.A.

During the year 2018, the amount of the share capital of the Company has not changed.

The members of the Board of Directors of the Company at 31.12.2018 are the following:

- Ms. Georgeta-Corina Popescu was appointed provisional member of the Board of Directors of SDEE

Muntenia Nord SA, for a period of one (1) year by CA Resolution no.34 of 20.11.2018, from the date of the

present decision or until the meeting of the General Assembly Ordinary Shareholders of SDEE Muntenia

Nord SA.

- Ms. Livioara Sujdea - appointed member by GMS Decision no.3 of 14.04.2017, starting with 14.04.2017 until

14.04.2021;

- Ms. Ana Maria Nistor - appointed member by AGA Decision no.3 of 14.04.2017, starting with 14.04.2017 until

14.04.2021;

Distribution of profit

During the year 2018, the Company registered a loss in the amount of 5.717.224 Lei.

The net profit in the amount of 40.384.327 Lei, distributed as follows:

• the amount of 2.263.886 Lei (5% of the gross profit) to the legal reserve;

• the amount of 38.120.441 Lei it was distributed in 2018.


MUNTENIA NORD S.A.




31

11. TURNOVER

For 2017 and 2018 net turnover is composed of the following:

Indicator 2017 2018

0 1 2

Revenues from power distribution 567.119.519 567.392.560

Income from selling reactive power 25.527.180 30.263.622

Rental income 33.846.058 40.610.277

Other income from various works rendered to third parties 8.942.662 7.360.771

Income from sales of merchandise 1.177.052 989.982

Net turnover 636.612.471 646.617.212

The average distribution tariff in the year 2018 was 93.81 Lei / MWh (86.64 Lei / MWh in 2017).

In the year 2018, the average purchase price of electricity to cover CPT (own technological use) was 245.41 Lei /

MWh (236.56 Lei / MWh in 2017).

The revenues from the provision of the energy distribution service amounted to 554.768.220 lei (558.498.843 lei in

2017) and were made mainly to Electrica Furnizare, which amounted to 378.277.884 Lei in 2018 (394.548.395 Lei

in 2017).

In the year 2018, the revenues from energy sales on the Balancing Market amounted to 12.624.340 lei (8.620.675 lei

in 2017) to Societatea Energetica Electrica SA.

12. OTHER OPERATING REVENUE

Other operating income includes the following:

Indicator 2017 2018

0 1 2

Income from indemnities and penalties 2.152.628 2.441.770

Resumption of prepaid income as depreciation

of related tangible assets 22.122.686 23.830.853

Other operating income 1.402.070 2.122.825

Total other operating income 25.677.384 28.395.448


MUNTENIA NORD S.A.




32

13. EXPENSES RELATING TO PERSONNEL AND INFORMATION ON EMPLOYEES,

MEMBERS OF THE ADMINISTRATIVE, MANAGEMENT AND SUPERVISORY BODIES

The total personnel (staff) costs for the years 2018 and 2017 were as follows:

2017 2018

Salaries related to the financial exercise 106.533.642 151.840.863

Meal tickets 4.075.719 6.924.915

Social security costs 26.388.869 6.582.803

Total 136.998.230 165.348.581

The social insurances expenses also included the amount of 3.501.431 lei related to the insurance contribution for the

work, a contribution that did not exist in 2017, this contribution being introduced as of 01.01.2018, according to GEO

no. 79/2017 amending the Fiscal Code .

The expenses for the remuneration of directors with a mandate contract in 2018 amounted to 2.086.753 lei, plus

related contributions in the amount of 46.952 lei. The amount of 2.086.753 lei represents the fixed remuneration for

the year 2018.

The expenditures with the remuneration of directors with a mandate contract in 2017 amounted to 636.852 lei (fixed

remuneration + the corresponding fixed remuneration granted upon revocation of the mandate contract), plus related

contributions in the amount of 143.474 lei.

The expenses with the remuneration of the members of the Board of Directors in the year 2018 were 0 lei.

The expenses with the remuneration of the members of the General Meeting of Shareholders were 0 Lei in 2018 (0

Lei in 2017) and the related contributions were 0 lei (0 lei in 2017).

No loans were given to directors or managers in 2018 and 2017.

The average number of employees for the financial year ended at 31 December 2018 and 2017 was as follows:

2017 % 2018 %

Workers 1.065 58% 1.305 60%

Other categories 771 42% 866 40%

Total 1.836 100% 2.171 100%

The evolution of the average number of employees in 2018 compared to the year 2017 is significantly influenced by

the transfer of the activity of maintaining and taking over the personnel contained therein on 01.11.2017 (580

employees), in the sense of growth, and the personnel outflows due to termination of the contract individual work

with the agreement of the parties and a compensatory package in the sense of decrease (196 employees in 2017 and

80 employees in 2018).

In July 2018, an Agreement on CIM Termination Conditions with the agreement of the parties and a compensatory

package was signed between the Company and the Trade Union, which provides compensatory payments for

voluntary departures of employees.

Based on this, in 2018, 80 (2017: 196) individual labor contracts were terminated with the agreement of the parties

and compensatory packages. The total cost of compensatory packages was 6.394.013 Lei (2017: 11.981.094 Lei)

representing the gross amount of the 80 employees. The cost of the contributions paid by the employer (corresponding

to the fund consumed with the compensatory packages) was 143.865 Lei (2017: 2.734.565 Lei).


MUNTENIA NORD S.A.




33

14. OTHER OPERATING EXPENSES

Indicator 2017 2018

Expenses related to external services 104.413.985 92.494.161

Expenses with other taxes, fees and similar charges 8.629.012 13.726.907

Expenses with penalties, damages compensation, donations

and transferred assets 3.152.310 6.985.228

Adjustments for risk and expense provisions, net (1.751.248) 13.199.814

Other operating expenses 114.444.059 126.406.110

Expenses on external services mainly includes the following:

Indicator 2017 2018

Expenses with maintenance and repairs 34.481.326 7.242.559

Expenses with other services Electrica Serv (auto, design,

maintenance and repairs)

24.409.590 420.007

Expenses with other services Electrica 65.456 4.611.918

Expenses with rents 12.225.006 15.598.798

Expenses with energy reading 12.667.894 12.651.774

Expenses with IT services 4.073.575 3.791.126

Expenses with work travels 1.154.806 1.405.123

Transportansions costs 1.440 26.938.418

Guard and protection expenses 6.602.297 9.931.392

Expenses with other services 8.732.595 9.903.045

Total expenses related to external services 104.413.985 92.494.160

15. TAX ON PROFIT

Item name 2017 2018

Profit before tax 45.277.712 (4.450.872)

Legal reserve (2.263.886) -

Non-deductible expenses 9.787.555 46.491.993

Other items of income nature 55.372.064 46.371.999

Non-taxable incomes (7.522.466) (6.278.452)

Expenses with additional tax depreciation (70.067.320) (74.080.607)

Taxable profit 30.583.659 7.914.698

Tax on profit (16%) 4.893.385 1.266.352

The main non-deductible expenses are as follows:

- overtaking of the own technological consumption (CPT) of 14.832.212 Lei (650.698 Lei in 2017);

- expenses with value adjustments and provisions of 22.253.698 Lei (6.094.725 Lei in 2017);

- accessory expenses due to the local budget SPFL Ploiesti according to civilian order No. 3693/2018 = 3.439.085

Lei

- non-deductible VAT expenses related to the excess CPT and excise = 3.924.232 Lei;

- amortization of goodwill = 826.036 Lei;

- other material aid granted under CCM of 202.905 Lei

- other non-deductible expenses of RON 1.013.826 of which indemnities, protocol, fines (BRML and ANRE)

Other revenue influences mainly refer to the following:

- amortization of the revaluation reserve not fiscally recognized, in accordance with OMF 34/2009 of 28.631.128


MUNTENIA NORD S.A.




34

lei (55.372.064 lei in 2017);

Additional tax depreciation refers to:

- the difference between the tax depreciation and the accounting depreciation of fixed assets put into operation by the

connection fee of RON 74.219.970 (70.067.320 Lei in 2017).

Non-taxable income mainly refers to the following:

- cancellation of value adjustments and provisions of 6.278.452 lei (2017: 4.599.467 lei);

16. INFORMATION ABOUT RELATIONS WITH RELATED PARTIES

16.1 Type of transactions with affiliated parties

Affiliated parties, as well as a brief description of their activities and their relationship with the Company, are as

follows:

Affiliated part Activity Main business relationship with the

Company

Societatea Energetica Electrica SA,

Parent Company

Electricity distribution and

commercialization, consultancy and

management. Major shareholder of the

company.

Balancing market, other services to the

Company.

Electrica Serv,

Company from the group

Maintenance and repair services in the

field of electricity distribution

Providing maintenance and repair

services, car services and other

services to the Company

Electrica Furnizare SA,


Electricity commercialization Invoicing of the electricity distribution

service for consumers who have

electricity supply contracts with

Electrica Furnizare SA

SDEE Transilvania Sud - Company

from the group

Electricity distribution in the

Transylvania South geographical area

There were no significant transactions.

SDEE Transilvania Nord - Company

from the group

Electricity distribution in the

Transylvania North geographical area

There were no significant transactions..

Servicii Energetice „Muntenia” S.A. -



field of electricity distribution.

In insolvency for reorganization

Servicii Energetice „Oltenia” S.A. –



field of electricity distribution.

In insolvency for reorganization

16.2 Amounts due and receivable from affiliated parties

Receivables balance at

31 decembrie 2018

(net value)

Debts balance at

31 decembrie 2018

Electrica SA - 374.151.110

Electrica Furnizare SA 80.996.166 12.970.801

Electrica Serv 31.320 12.464.497

SE Muntenia - 109.946

Total 81.027.486 399.696.354


MUNTENIA NORD S.A.




35

Receivables balance at

31 decembrie 2018

(net value)

Debts balance at

31 decembrie 2017

Electrica SA 2.030.523 94.714.653




Total 86.711.244 113.731.954

The receivables from Electrica Furnizare mainly refer to the amounts collected from the electricity distribution

service.

At 31 December 2018, debts to affiliated companies come mainly from:

• The amounts drawn from a loan received from Societatea Energetica Electrica SA, amounting to 366.559.387 lei,

were used to finance the investment plan for 2018. We mention that the value of the loan agreement concluded by

SDEE Muntenia Nord with Societatea Energetica Electrica SA is 380.000.000 lei.

• Electricity related to the balancing market invoiced by Electrica Furnizare SA amounting to RON 11.175.664

• Maintenance and other services provided by F.I.S.E. Electrica Serv S.A., in the amount of 12.464.497 lei

(17.051.548 lei at 31 December 2017).

16.3 Information on transactions with affiliated parties

Sales 2018 Purchases 2018

Electrica SA 3.134.014 285.866.879


SDEE Transilvania Nord - 76.650

SDEE Transilvania Sud - -



407.853.126 372.271.975

Sales 2017 Purchases 2017

Electrica SA 6.969.294 124.558.725


SDEE Transilvania Nord 47.342 12.000

SDEE Transilvania Sud 44.292 -

Electrica Serv 155.454 110.955.110


421.234.764 248.042.211

The main transactions with affiliated parties are represented by the following:

i. services of maintenance and repair of electrical networks and car transport services, provided by Electrica Serv;

ii. the purchase of energy for the balancing market with Electrica SA;

iii. the purchase of energy for the balancing market with Electrica Furnizare SA;

iv. the sale of electricity distribution services to Electrica Furnizare SA;


MUNTENIA NORD S.A.




36

v. amounts drawn from a loan received from Energetica Electrica SA in the amount of Lei 272.559.387 and related

interests in the amount of 7.716.825 Lei.

The main sales transactions re-invoiced with affiliated parties, not presented in the above transactions, are

represented by the following types of transactions:

- re-invoicing of utilities, telephony, maintenance, in the amount of 380.161 lei (2017: 405.343 lei) with Electrica

Furnizare SA;

- re-invoicing of utilities, security, elevator maintenance, in the amount of 209.599 lei (2017: 387.816 lei) with

Electrica Serv.

The main re-invoiced purchase transactions with the affiliated parties, not presented in the above transactions, are

represented by the following types of transactions:

- re-invoicing of telephone services, fees and work travel, in the amount of 841.405 lei (2017: 1.280.872 lei) with

Electrica SA;

- re-invoicing of utilities, security, in the amount of 3.620.378 lei (2017: 1.449.158 lei) with Electrica Serv.

Dividends distributed to affiliated parties in the result of the financial year 2017 amounting to RON 38.120.441 are

not disclosed in the transactions with affiliated parties.

16.4. Balances and transactions with other companies in which the State holds significant control or

influence

In 2018 and 2017, the Company had significant purchase and sale transactions with the following companies in which

the State holds significant control or influence:

Receivables

balance at 31

december 2017

(net value)

Receivables

balance at 31

december 2018

(net value)

Debt balance

31 december

2017

Debt balance

31 december 2018

Transelectrica 1.147 355.500 6.519.566 4.409.259

Hidroelectrica 36.496 429.027 50.499 58.013

OPCOM - - 13.040 8.729

SNGN Romgaz 25.575 24.114 - -

Electrificare CFR 526.519 384.742 - -

Municipiul Ramnicu

Sarat 2.080 779.496

TOTAL 591.817 1.972.879 6.583.105 4.476.001

Sales 2017 Sales 2018

Purchases 2017 Purchases 2018

Transelectrica 6.126 303.572 26.092.071 25.465.655

Hidroelectrica 253.099 4.392.037 15.083.382 55.102.941

Electrocentrale Bucuresti - - 6.311.597 -

OPCOM - 1.810.642 59.639.680 51.495.637

Nuclearelectrica - - 43.365.272 18.592.532

CE Oltenia - - 22.857.703 26.814.337

SNGN Romgaz 3.161.176 2.961.616 - -

Electrificare CFR 4.896.085 4.305.206 - -

Municipiul Ramnicu Sarat 2.080 676.820

TOTAL 8.318.566 14.449.893

173.349.705 177.471.102


MUNTENIA NORD S.A.




37

17. Contractual commitments

On December 31, 2018, the Company has the following contractual commitments:

Amount

Purchase of electricity

107.286.816

Purchases of tangible and intangible assets

215.083.805

Total contractual commitments 322.370.621

18. Guarantees and mortgages

On 31 December 2018, the Company has 9 issued bank guarantee letters (SGB) for a total amount of 24.682.814,80

lei, of which 2 SGBs of 4.486.320 lei, valid until 25 January 2019, a SGB of 5.500.000 lei, valid until 05.02.2019, a

SGB of 3.587.940 lei, valid until 25 February 2019, 3 SGBs of 7.589.248,80 lei, valid until 25.04.2018 and 2 SGBs

of 3.519.306 lei, valid until 25 January 2020.

With the exception of the SGB, issued in favor of OPCOM for participation at auctions on the PZU market, all the

others are issued for the purchase of electricity from the PCCB-NC or PCCB-LE market, in favor of electricity

suppliers: Ezpada(Cehia), GEN.I (Slovenia), Veolia Energie Iasi, Energy Distribution Services, Next EnergyPartners,

Axpo Energy Romania, Tinmar Energy and EFT Furnizare.

19. Contingents 19.1 Fiscal risks

The legislative-fiscal framework in Romania and its implementation in practice is changing frequently and is the

subject of different interpretations by various Government Ministries. The Romanian Government has a number of

agencies that are authorized to carry out controls on Romanian companies, as well as on foreign companies operating

in Romania. These controls are similar, in their nature, to tax audits carried out by fiscal authorities from many

countries, but they can focus not only on fiscal issues, but also on other legal or regulatory elements, of interest to

that agency. In addition, the agencies carrying out these controls appear to be much less regulated, and the company

subject to control seems to have fewer practical ways of protecting than in many other countries.

Fiscal controls are frequent in Romania, consisting of detailed verifications of taxpayers' accounting registers. Such

controls occur sometimes after months or even years after the payment obligations have been established.

Consequently, companies may owe taxes and penalties. In addition, fiscal legislation is subject to frequent changes,

and authorities often interpret legislation inconsistently. However, the Company's management considers that

adequate reserves have been created for all significant fiscal obligations.

Corporate tax declarations are subjected to the revision and correction by the fiscal authorities, generally for a period

of five years after the date of their completion.

Management considers that it has appropriately recorded the fiscal obligations in the attached financial statements;

however, there is a risk that the fiscal authorities will take different positions on the interpretation of these issues (see

Note 8 -Tax Provisions).


MUNTENIA NORD S.A.




38

19.2 Transfer price

According to the fiscal legislation, the fiscal evaluation of a transaction realized with affiliated parties is based on

the market price concept orelated to that transaction. Based on this concept, transfer prices needs to be adjusted, to

reflect market prices that would have been set between entities that do not have an affiliate relationship and that act

independently, based on "normal market conditions".

It is likely that transfer prices checks will be carried out in the future by fiscal authorities, to determine whether those

prices comply with the "normal market conditions" principle and that the Romanian taxpayer's taxable base is not

distorted.

19.3 Land used by the Company

According to the Company's policy, the financial statements include only the value of the land for which the property

title was obtained at the date of preparation of the financial statements.

In accordance with the provisions of Chapter V ^ 1, Article 32 ^ 2, paragraph (3) of the Law no. 99 of 26 May 1999,

regarding certain measures for accelerating the economic reform, with subsequent amendments and completions, if

the Company obtains the attestation certificate of land ownership right, after the privatization, the share capital is

increased by the value of the land, which will be considered as a contribution in kind of the state or of the

administrative-territorial unit, as the case may be.

In accordance with the provisions of art. 2 of the Law no 169/2004, the increase of the share capital of the electricity

distribution affiliates is preceded by the corresponding increase of the share capital with the value of the land for

which the certificate of attestation of ownership right is issued.

Law no. 123/2012 on electricity and natural gas stipulates in art. 44, paragraph (4), that the land on which the existing

electricity distribution networks are located upon the entry into force of this law are and remain in the public property

of the state.

At the same time, according to art. 12 of the Law 123/2012, holders of authorizations for the establishment of energy

capacities and license holders, benefit from the exercise of some rights of use and easement of free passage over land

and goods, public or private property of natural or legal persons, rights necessary for the establishment and operation

of energy capacities.

The rights of use and easement of free passage shall be exercised without registration in the Land Book, for the whole

duration of the existence of the energetic capacity or, temporarily, on the occasion of the re-technologization of a

functioning capacity, of the repair, of the revision, of the intervention works in case of damage.

The exercise of the rights of use and easement on the properties of the state and of the administrative-territorial units

affected by the energetic capacities is performed free of charge, during their whole existence.

The company is involved in a number of property-related disputes over land on which energy capacities are located,

but the outcome of these legal actions is not significant for the financial statements.


MUNTENIA NORD S.A.




39

19.4 Compensation payments

a) Benefits following individual layoffs at the Company's initiative

According to the collective labor agreement, concluded between the Company and the Unions, at the termination of

the individual labor contract of the employees at the initiative of the Group, this will pay to the employees benefits

at the termination of the labor contract, according to their length of service, as follows:

Seniority (length of service)

Number of

basic monthly gross salaries

1 - 2 years 2

2 – 5 years 3

5 - 10 years 4

10 - 20 years 5

More than 20 years 8

b) Benefits following collective redundancies at the Company's initiative

In the case of collective redundancies, according to the collective labor agreement, the Company will pay to the

employees benefits at the termination of the labor agreement, according to their length of service, as follows:

Seniority (length of service)

Number of

basic monthly gross salaries

1- 3 years 3

3 – 5 years 6

5 - 10 years 7

10 - 20 years 11

More than 20 years 16

The above provisions do not apply to employees with an individual labor contract concluded for a specified period

of time. The above provisions do not apply to employees who benefit from other cumulative compensating salary

rights, established by legal regulations regarding the reorganization or restructuring of the Company. Employees

reassigned to the Group after redundancy do not benefit from the rights set out above.

c) Benefits following voluntary departures

According to the Additional Act to the Collective Labor Agreement, signed by the Company and the trade union, if

the individual labor contract is concluded by the voluntary departure of the employee, the Company will pay

compensatory salaries according to the remaining period until retirement, seniority in the Society and seniority in

work. The number of monthly gross salaries paid as compensatory salaries ranges from 6 to 20

.

The financial statements do not include any provision for debts related to compensation payments, because there is

no present obligation related to this aspeacc.

General Manager

Branescu Valentin



Stegarita Marian

financial statements for the year ended 31 december …

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