ANNUAL REPORT ELEKTRO LJUBLJANA GROUP

We are networking with positive energy. 2014

ANNUAL REPORT ELEKTRO LJUBLJANA GROUP 2014 Contents ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP

Energy is all around us. You can hear it, smell it, taste it. It can cheer you up, take you anywhere you want to go, connect you with friends …. 3 That is why we are proud of our operation and eager to fulfill our mission: Networking with positive energy.

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Performance Highlights 6 2.6 Electricity Production 56 Key financial data of the Elektro Ljubljana Group 7 2.7 Other Marketing Activities 57

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 2.8 Capital Investments 58 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 1 Introduction 9 1.1 Letter from the President of the Management Board 10 2.9 Purchasing Goods, Materials And Services 62 1.2 Report of The Supervisory Board 12 2.10 Information Technology 63 1.3 Group Profile 14 2.11 Quality Management System 64 2.12 Risk Management 1.3.1 Composition of the Elektro Ljubljana Group 14 66 2.12.1 Risk management at Elektro Ljubljana, d. d. 1.3.2 Management and corporate governance in the Elektro Ljubljana Group 16 66 2.12.2 Risk management in Elektro energija, d.o.o. 1.3.3 Ownership structure of group companies 17 74 1.4 Major Events In 2014 19 3 Sustainable Development 81 1.5 Corporate Governance Statement 21 3.1 Responsibility To Employees 82 3.2 Responsibility Towards Investors and Financial Institutional Stakeholders 85 2 Business Report 23 2.1 Mission, Vision And Values Of The Group 24 3.3 Responsibility to Customers 86 3.4 Social Responsibility 88 4 2.2 General Operating Conditions 25 5 3.5 Responsibility to the Environment 2.2.1 Macroeconomic environment 25 89 2.2.2 Energy environment 26 4 Independent Auditor’s Report 94 2.3 Performance Analysis 30 5 Financial report 97 2.3.1 Revenue 30 Financial statements 98 2.3.2 Expenses 30 Consolidated balance sheet 98 2.3.3 Assets 32 Consolidated comprehensive income statement 100 2.3.4 Equity and liabilities 33 Consolidated statement of changes in equity 102 2.3.5 Performance ratios 34 Notes to the financial statements 103 2.4 Distribution of Electricity 36 6 Statement on Management’s Responsibilities 124 2.4.1 Scope of the network 36 Abbreviations 126 2.4.2 Power flows 36 2.4.3 Network access 38 2.4.4 Electricity metering 42 2.4.5 Network maintenance 45 2.4.6 Quality of electricity supply 46 2.4.7 Development of the distribution network and advanced services 49 2.5 Sales of Energy Products 52 2.5.1 Trade in energy products on international markets 52 2.5.2 Retail sales of energy products 54 Contents

Performance Highlights Key financial data of the Elektro Ljubljana Group

We realised a profit of 5 million EUR in 2014.

2.8 %

ANNUAL REPORT 2014 LEKTRO LJUBLJANA GROUP 3.7 % ANNUAL REPORT 2014 LEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 2.4 % ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 3.3 %

2.0 % 1.8 % 2.4 % 1.7 % 1.8 %

1.9 % 1.7 %

1.3 %

0.9 % (in EUR)

1,7 44 6,438 8,825 10,039 4,998 2010 2011 2012 2013 2014 Net sales 271,556,799 448,497,983 569,679,991 518,577,489 561,075,470 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 EBIT 1 5,004,071 10,564,720 11,611,105 14,281,831 9,790,354 Net profit (thousand EUR) Net return on equity (ROE) 2 EBIT margin1 ( %) Net return on assets (ROA) EBITDA 29,226,500 35,503,835 36,606,309 39,631,987 35,326,080 1 Operating profit/net sales Net profit or loss 1,743,792 6,438,243 8,825,140 10,039,426 4,997,833 Value added 3 60,926,204 69,094,394 70,276,957 75,263,248 71,084,667 Capital investments 25,037,539 22,260,734 24,411,770 26,387,949 31,514,846 Total assets as of 31 Dec 492,668,652 514,692,741 524,678,655 531,289,131 525,372,287 Our net revenue increased by 8.2%. Equity as of 31 Dec 266,262,181 268,826,335 275,577,812 283,266,520 285,796,355 Financial liabilities as of 31 Dec 123,846,507 122,776,021 119,667,818 114,541,496 106,777,547

78.3 INDICATORS 539.6 72.8 6 74.6 EBIT margin 4 1.8% 2.4% 2.0% 2.8% 1.7% 77 590.3 70.7 588.7 Return on assets (ROA) 5 - 1.3% 1.7% 1.9% 0.9% 459.1 Return on equity (ROE) 6 - 2.4% 3.3% 3.7% 1.8% Debt / EBITDA 4.2 3.5 3.3 2.9 3.0 268.1 60.1 EMPLOYEES Number of employees as of 31 Dec. 984 964 956 955 947 Average number of employees 1,013 977 965 961 953 ACTIVITY 271,557 448,498 569,680 518,577 561,075 60,926 69,094 70,277 75,263 71,085 Distribution of electricity in MWh 3,935,965 3,921,785 3,833,294 3,892,550 3,874,370 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Number of consumers in the area of supply 326,520 327,689 329,622 330,971 333,264 Net sales (thousand EUR) Value added (thousand EUR) Market electricity sales in MWh 7 3,466,649 6,399,079 8,313,183 8,600,991 10,739,030 Net sales per employee2 (thousand EUR) Value added per employee2 (thousand EUR) Electricity production in MWh 14,352 12,042 13,368 14,653 15,683 2 based on the average number of employees SHARES Number of issued shares 39,160,286 39,160,286 39,160,286 39,160,286 39,160,286 Earnings per share in EUR 0.04 0.16 0.23 0.26 0.13 We invested a total of 31.5 million EUR while reducing our debt by 6.8%. Dividend per share in EUR - 0.0155 0.0560 0.0612 0.0600 Book value per share as of 31 Dec in EUR 8 6.80 6.86 7.04 7.23 7.30

9.2 % 4.2 3.5 3.3 2.9 5.6 3.0 5.0 4.3 5.1 123,847 122,776 119,668 114,541 106,778 31,515 25,038 22,261 24,412 26,388 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Investments (thousand EUR) Debt (thousand EUR) 1 operating profit Investments/net sales (%) Debt/EBITDA3 2 operating profit including depreciation 3 gross operating revenue - costs of goods, material costs, costs of services - other operating expenses 3 operating profit with depreciation and amortisation 4 operating profit/net sales 5 net profit/average assets 6 net profit/average capital 7 excluding electrical power for loss covers and supply to SODO within the supply area of the Elektro Ljubljana

Performance Highlights 8 capital as of 31 December/number of shares issued Key financial data of the Elektro Ljubljana Group Contents

Energy that you can hear. ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP

We are networking with positive energy.

8 9

1 Introduction Contents

1.1 Letter from the President of activities for the effective management of our operations and improved all our performance indicators, the Management Board i.e. value added per employee, operating efficiency and return on assets and equity. We also continued to pursue our strategy of financial consolidation, which proved very effective in 2014. Due to the favourable conditions in the banking market following the recapitalisation of Dear shareholders, business partners and colleagues, the banking sector, we were able to secure loans under the most favourable conditions possible, which allowed us to restructure our financial debts using less expensive loans with more favourable Another year has passed, and with it another great challenge. maturities. By settling our expensive existing loans, we were thus able to reduce our total debt below

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Early in the year, we were hit by the greatest natural disaster in ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 100 million EUR for the first time since 2009. Although we achieved the objective of having an EBITDA- the history of Elektro Ljubljana’s existence. Glaze ice damaged to-debt ratio below 1:2.6, we will continue our consolidation and restructuring activities with a focus roughly 2.5% or more than 400 km of our network. Our response to on securing funds for investments in the construction and reconstruction of our distribution network. this disaster fills me with pride and joy, as our employees displayed remarkable loyalty and responsibility by taking immediate action We are less satisfied, however, with our performance in electricity trading. The market price of electricity to repair the damage despite the harsh conditions. It was the dropped far below our expectations in 2014 due to power surpluses, while the costs associated with quick and selfless actions of our employees that allowed us to electricity trading increased. Our margins on electricity consequently decreased significantly as well. restore power to our customers as quickly as possible despite the As we were not fully prepared for these events, our subsidiary Elektro energija, d. o. o., closed the great extent of damage to the network. Please allow me to take financial year with a loss for the first time since its establishment. We have taken measures and are this opportunity to once again thank each and every one of our planning additional measures with which we expect to improve the area of electricity trading in 2015 employees for their hard work and the responsibility they showed and prevent any reocurrence of such high negative impacts on the company’s performance. We will in addressing the situation. primarily focus our future efforts on end users by ensuring the reliability and quality of our services while offering competitive prices. However, the natural disaster, which spanned from the Gorenjska, across the Notranjska and towards the Primorska region, also Our subsidiary Elektro Ljubljana OVE, d.o.o., was also met with a great business challenge in 2015. highlighted the advantages of the territorial organisation of With the revision of the national support scheme for the construction of solar power plants, the distribution companies. This territorial organisation was one investment cycle in this segment of renewable sources was discontinued overnight, as the subsidy

10 of the factors that enabled a quick and effective response, as for solar energy was halved and the investment lost all commercial appeal. The loss of revenue from 11 distribution companies were able to take immediate action to simultaneously repair the damage in the previously thriving segment was compensated with the sale of commercial services, specifically different regions of Slovenia with the help of local official and civic associations and their excellent the construction of natural gas cogeneration plants for a foreign investor. A significant part was also knowledge of the local terrain. This showed that the territorial organisation of distribution companies contributed to the company’s good performance by the favourable hydrographic situation, as the is effective and meets its primary purpose in accordance with the law, i.e. ensuring the uninterrupted increase in the volume of electricity produced by small hydro power plants resulted in a profit despite supply of electricity throughout the territory of the Republic of Slovenia. Our collaboration with local the somewhat lower market prices. The company was thus able to maintain its level of revenue and official and civic associations also proved very effective. The quick and effective repair of the damage profit. could not have been possible without the help of the civil defence service, municipal civil defence headquarters, local fire brigades, the Slovenian Armed Forces and the Ministry of the Interior. Elektro Ljubljana OVE is committed to maintaining the highest environmental standards and sustainable development and will continue to seek business opportunities in green technologies. The company took Another factor that had a significant impact on the Elektro Ljubljana Group’s performance was the advantage of the opportunity presented by the introduction of mandatory energy audits and trained electricity market. The unprecedented drop in electricity prices in European electricity markets was its staff and obtained the permits required to carry out energy audits and issue energy performance unexpected, as it came after a three-year period of constant growth. The impact of renewable energy certificates. We plan to expand the subsidiary’s activities, especially in the area of energy efficiency, sources, as well as the power surplus resulting, among other factors, from the very good weather so that our business partners are provided with a comprehensive range of services – from auditing, conditions, was underestimated and will have to be taken into proper consideration in the future, as design and construction services to the issue of energy performance certificates. electricity prices are not expected to jump back up in the short term. Meeting the highest standards across all of our operations has always been and will continue to The Elektro Ljubljana Group thus ended the year below expectations. However, despite the natural be our main objective. In the past year, we successfully accomplished all our goals and updated all disaster at the beginning of the year and the very difficult retail and wholesale electricity market our ISO, environmental protection, information system, family-friendly company and other certificates conditions, we closed the 2014 financial year with a net profit of 5 million EUR, which is only half the that demonstrate our company’s commitment to operational excellence. amount of profit realised in the previous year. Operating in compliance with the law, increasing our operational stability and financial efficiency and The 2014 financial year was a successful one for Elektro Ljubljana, d. d. Although the extreme weather ensuring the reliable and uninterrupted supply of electricity remain our top priorities. forced us to revise our business plan during the year, the plan was actually exceeded in every respect. The revised plan provided for an increase in investment activities, as the previous estimate was no longer Sincerely yours, adequate for the reconstruction of our existing network and the repair of the damage caused by the Andrej Ribič weather. Nearly 31 million EUR was thus invested in the network in 2014. We achieved an EBITDA of 40.8 President of the Management Board million EUR, 11% more than in the previous year, and generated a net profit of 11.6 million EUR, exceeding the profit in the previous year by 43% and the planned profit by as much as 77%. We continued our 1.1 Letter from the President of Management Board 1.1 Letter from the President of Management Board Contents

1.2 Report of The Supervisory more detail and with greater focus. At its 13th regular meeting in December 2014, the Supervisory Board gave its approval to the Management Board to sign a contract to insure Elektro Ljubljana’s assets for the Board period of 2015 to 2017. The Supervisory Board was regularly apprised of the operating conditions on the basis of monthly reports The Supervisory Board oversaw the operations of Elektro Ljubljana, prepared by the Management Board. The Management Board executed all the decisions adopted by the d. d. (hereinafter “Elektro Ljubljana”) in 2014 in accordance with Supervisory Board in 2014. All the members of the Supervisory Board participated in the discussion of the powers conferred on it by the applicable regulations and the matters prior to the adoption of decisions and monitored the execution of the adopted decisions.

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP company’s articles of association and carried out other activities ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP falling within its competence. The members of the Supervisory Board attended professional meetings and workshops to expand their skills and knowledge. The President of the Management Board and the Chairman of the Supervisory The board comprised the following members in 2014: Andrej Board also communicated and consulted directly with each other at the meetings of the Supervisory Šušteršič, MSc, as the Chairman, Žan Jan Oplotnik, PhD, as Board. The Supervisory Board successfully monitored and achieved the goal of increasing the company’s the Deputy Chairman, David Valentinčič, Janez Zakonjšek, and value added. In accordance with good corporate practice, the Supervisory Board carried out a self- employee representatives Egon Hoda and Mitja Fabjan. The assessment with the aim of improving the quality of its work. Supervisory Board held 9 regular meetings and 2 meetings by correspondence. The Supervisory Board considered the following matters and adopted the following decisions at its 9 regular meetings and 2 meetings by correspondence: The Supervisory Board has also established the following • at its meeting on 20 February 2014, the Supervisory Board took note of the estimated damage caused committees: the Audit Committee, the Human Resources and to the electrical infrastructure of Elektro Ljubljana by glaze ice and snow and the activities being done Training Committee, the Medium-Term Business Plan Monitoring to address it; and Risk Management Committee and the Supervisory Board Assessment Committee. The Audit committee, which comprises • at its meeting on 27 February 2014, the Supervisory Board renewed Andrej Ribič’s appointment as Žan Jan Oplotnik, PhD, as the Chairman, David Valentinčič as the the President of the Management Board of Elektro Ljubljana for an additional four-year term of office Deputy Chairman, and the external member Saša Jerman, held 5 starting from 22 March 2014; regular meetings. The Human Resources and Training Committee, • at its meeting on 29 May 2014, the Supervisory Board reviewed and approved the Elektro Ljubljana which comprises Andrej Šušteršič, MSc, as the Chairman, Žan Jan Group’s consolidated and audited annual report for 2013 and Elektro Ljubljana’s audited annual report 12 Oplotnik, PhD, as the Deputy Chairman, and Mitja Fabjan, held 2 regular meetings. The Medium-Term 13 for 2013 and approved Elektro energija’s audited annual report and Elektro Ljubljana OVE’s annual Business Plan Monitoring and Risk Management Committee, which comprises Janez Zakonjšek as the report for 2013, a proposal for the appropriation of accumulated profit, and the allocation of net profit Chairman, Egon Hoda as the Deputy Chairman, and Andrej Šušteršič, MSc, held 3 regular meetings. The in both subsidiaries. The board also considered Elektro Ljubljana’s reorganisation and the issue of the Supervisory Board Assessment Committee comprised Mitja Fabjan as the Chairman, David Valentinčič as relations between the Elektro Ljubljana Group and Informatika, d. d.; the Deputy Chairman, and Andrej Šušteršič, MSc. The meetings of the Supervisory Board were attended by all of its members. The board monitored the company’s operational and financial performance, • at its meeting on 3 July 2014, the Supervisory Board reviewed the materials and draft decisions for the focusing on the achievement of its general strategic and business objectives. General Meeting of Elektro Ljubljana and considered Elektro Ljubljana’s revised business plan for 2014 with projections for 2015 and 2016; At its 5th regular meeting in February 2014, the Supervisory Board took note of the damage caused to Elektro Ljubljana’s electrical infrastructure by glaze ice and snow and the activities being done to • at its 2nd meeting by correspondence, the Supervisory Board gave its approval to the founder to address it. At its 6th regular meeting on 27 February 2014, the board renewed Andrej Ribič’s appointment appoint Bojan Kumer, MSc, as Elektro energija’s new CEO; as the President of the Management Board of Elektro Ljubljana for a new four-year term of office starting from 22 March 2014. The Supervisory Board also took note of the recommendations of the manager • at its session on 4 December 2014, the board approved Elektro Ljubljana’s business plan for 2015 with of the direct and indirect capital assets of the Republic of Slovenia and considered the reports on the projections for 2016 and 2017 and gave its approval to the founder for the adoption of Elektro Ljubljana operations of the Elektro Ljubljana Group and its monthly liquidity reports. The Supervisory Board was OVE’s business plan for 2015 with projections for 2016 and 2017, adopted several decisions on Elektro kept informed about the operations of Elektro energija, d. o. o. (hereinafter “Elektro energija”), by its Ljubljana’s borrowing and approved the signature of a new company-level collective agreement for founder and gave its approval to the founder for the adoption of Elektro energija’s revised business plan the Elektro Ljubljana Group and a plan for the reorganisation of Elektro Ljubljana; for 2014. The board supported the founder in its endeavours to remedy the negative trends recorded • at its session on 18 December 2014, the Supervisory Board approved the adoption of Elektro energija’s by the company and tasked it with preparing a new business strategy, which was presented to the business plan, took note of Elektro energija’s new business strategy and approved the signature of a Supervisory Board in December 2014. In July 2014, the Supervisory Board also gave its approval to the contract for the insurance of Elektro Ljubljana’s assets. founder to appoint Bojan Kumer, MSc, as Elektro energija’s new CEO. At its 12th session on 4 December 2014, the board approved Elektro Ljubljana’s business plan for 2015 with projections for 2016 and 2017 The Supervisory Board successfully oversaw all the important aspects of the company’s operations and gave its approval to the founder for the adoption of the 2015 business plan of Elektro Ljubljana OVE, through the continuous monitoring of the performance of business plans and current results. d. o. o. (hereinafter “Elektro Ljubljana OVE”). The Supervisory Board approved the adoption of Elektro energija’s business plan for 2015 with projections for 2016 and 2017 at its 13th regular meeting on 18 December 2014. The Supervisory Board adopted several decisions in relation to Elektro Ljubljana’s Andrej Šušteršič, MSc, borrowing. The board also considered and approved a new company-level collective agreement for the Chairman of the Supervisory Board Elektro Ljubljana Group and a plan for the reorganisation of Elektro Ljubljana. The Supervisory Board also regularly monitored the operations of its committees. During the year, the board tasked the Audit Committee with auditing certain business events and areas of the company’s operations. Through the work of its committees, the Supervisory Board was able to address specific business-related issues in 1.2 Report of The Supervisory Board 1.2 Report of The Supervisory Board Contents

1.3 Group Profile COMPANY DETAILS

1.3.1 Composition of the Elektro Ljubljana Group ELEKTRO LJUBLJANA Company name: ELEKTRO LJUBLJANA, podjetje za distribucijo električne energije, d. d. Registered office: Slovenska cesta 58, SI-1516 Ljubljana The Elektro Ljubljana Group comprises the parent company, Elektro Ljubljana, and its two subsidiaries, Core activity: 35.130 Distribution of electricity Elektro energija and Elektro Ljubljana OVE, which are 100% owned by the parent company. Presidentof the Management Board: Andrej Ribič ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Chairman of the Supervisory Board: Andrej Šušteršič, MSc Elektro Ljubljana manages the largest electricity distribution network in the Republic of Slovenia, Phone number: +386 (0)1 230 40 00 2 which spans a total of 6,166 km across the central region of Slovenia (30% of Slovenia’s total surface Fax number: +386 (0)1 231 25 42 area) and supplies power to more than 333,000 users. The company distributed 3,874,370 MWh of E-mail: [email protected] electricity to its users in 2014, which constitutes 37.5% of the total electricity distributed in Slovenia. Website: www.elektro-ljubljana.si VAT identification number: SI49977725 Supply and distribution area Registration number: 5227992000 Date of entry in the companies register: 21 December 1990 of Elektro Ljubljana Share capital: EUR 163,412,977.80 Number of no par value shares: 39,160,286 Form of organisation: Public limited company Number of employees: 858 (31 December 2014)

ELEKTRO ENERGIJA Elektro energija, podjetje za prodajo elektrike in drugih energentov, Company name: svetovanje in storitve, d. o. o. Registered office: Slovenska cesta 58, SI-1000 Ljubljana 14 Core activity: 35.140 Trade of electricity 15 Management: Bojan Kumer, MSc, CEO Phone number: +386 (0)1 320 64 00 Fax number: +386 (0)1 320 64 01 E-mail: [email protected] Website: www.elektro-energija.si VAT identification number: SI19950853 Registration number: 3974316000 Date of entry in the companies register: 16 May 2011 Share capital: EUR 3,000,000.00 Elektro energija is engaged in the purchase and sale of electricity and energy products in the retail Form of organisation: Private limited company and wholesale markets. In 2013, the company established three subsidiaries to carry out wholesale Number of employees: 82 (31 December 2014) activities: Elektro energija Adria, d. o. o., in Croatia, Elektro energija, BH, d. o. o., in Bosnia and Herzegovina and Elektro energija SRB, d. o. o., in Serbia. All three companies are 100% owned by Elektro energija. ELEKTRO LJUBLJANA OVE Company name: Elektro Ljubljana OVE, inženiring s področja obnovljivih virov energije, d. o. o. Elektro Ljubljana OVE’s core activity is the development of the use of renewable energy Registered office: Slovenska cesta 56, SI-1000 Ljubljana sources, with a special focus on the production of electricity from 100% renewable sources. Core activity: 35.111 Production of electricity from hydro power The company produced 15,682,602 kWh of electricity in 2014, 95.9% of which was generated by Management: Matjaž Glavič, MSc, CEO Phone number: +386 (0)1 56 57 500 small hydro power plants, 4% by solar power plants and 0.1% by cogeneration units. E-mail: [email protected] Website: www.el-ove.si Structure of the Elektro Ljubljana Group VAT identification number: SI46895728 Elektro energija Registration number: 1702203000 100% SRB, d. o. o. Date of entry in the companies register: 14 March 2002 Share capital: EUR 59,669.00 Elektro Elektro energija Form of organisation: Private limited company 100% energija, d. o. o. 100% BH, d. o. o. Number of employees: 7 (31 December 2014) Elektro Ljubljana, d. d.

Elektro Ljubljana Elektro energija 100% OVE, d. o. o. 100% Adria, d. o. o. 1.3 Group Profile 1.3 Group Profile Contents

1.3.2 Management and corporate governance in the Elektro Membership of members of the management and supervisory bodies of group companies in the management or supervisory bodies of related and unrelated Ljubljana Group companies Andrej Ribič, President of the Management Board of Elektro Ljubljana, d. d. The Elektro Ljubljana Group comprises the parent company, Elektro Ljubljana, and its two subsidiaries, • Chairman of the Supervisory Board of Geoplin, d. o. o., Cesta Ljubljanske brigade 11, Elektro energija and Elektro Ljubljana OVE, which are 100% owned by the parent company. SI-1000 Ljubljana All three companies operate in accordance with the Companies Act, while the specific powers and • Deputy Chairman of the Supervisory Board of Stelkom, d. o. o., Špruha 19, SI-1236 Trzin ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP responsibilities in relation to management and governance are set out in their respective acts of association, i.e. the Articles of Association of the Elektro Ljubljana Public Limited Company for the parent company and the Articles of Association of the Elektro Energija Private Limited Company and 1.3.3 Ownership structure of group companies the Articles of Association of the Elektro Ljubljana OVE Private Limited Company for the subsidiaries.

In addition to the General Meeting, Elektro Ljubljana’s management structure also includes the Elektro Ljubljana, d. d. Supervisory Board and the Management Board. At the General Meeting, the company’s shareholders exercise their rights, decide on the approval of annual reports, the appropriation of undistributed Elektro Ljubljana has a share capital of EUR 163,412,977.80 divided into 39,160,286 freely transferable profit, the appointment and dismissal of members of the Supervisory Board and amendments to the registered no par value shares. Each share represents an equal stake in the share capital and articles of association, and carry out other activities in accordance with the law. The primary function corresponds to an equal amount thereof. of the Supervisory Board is the supervision of the company’s operations, which gives it the right to The book value per share equalled EUR 7.21 as of 31 December 2014, which is 3.3% higher than in request reports from the Management Board on matters stipulated by the law and any other matters 2013. considered relevant by the Supervisory Board. The two primary functions and responsibilities of the Management Board are representing the company and managing its operations. The company is At the end of the year, Elektro Ljubljana had a total of 1,213 shareholders, 59 of whom were legal internally and externally audited on a regular basis. entities and 1,154 were natural persons. The number of shareholders decreased by 3 in 2014 compared to the previous year. The subsidiaries are managed by Elektro Ljubljana, as the founder, and their respective management. 16 As the sole shareholder, the founder supervises the management of the companies and adopts core The company’s largest shareholder is the Republic of Slovenia with a 79.5% share, and its 5 largest 17 business policies at the proposal of their management. Both subsidiaries are managed by a single- shareholders owned a combined total 90% of the total shares. member management. Elektro Ljubljana OVE is managed by its CEO, whereas Elektro energija was managed by a representative appointed in the absence of a CEO in accordance with its articles of association until 1 August 2014, when a new CEO was appointed. The management represents the Ownership structure of Elektro Ljubljana, d. d., companies and manages their operations in accordance with the annual plan and the adopted core as of 31 December 2014 business policies.

Republic of Slovenia 79.50 % Management of group companies Elektro Ljubljana, d. d. KD kapital, d.o.o. 4.95 % Andrej Ribič, President of the Management Board Triglav Mutual Funds – Equity 2.72 % Elektro energija, d. o. o. 79,5 % G.I. Dakota Investments Limited 1.65 % Igor Podbelšek, MSc, until 31 July 2014; Bojan Kumer, MSc, as the CEO since 1 August 2014 Adriatic Slovenica, d.d. 0.79 % Elektro Ljubljana OVE, d. o. o. Matjaž Glavič, MSc, CEO Other legal entities 8.20 %

Supervisory Board of Elektro Ljubljana, d. d. Natural persons 2.18 % Shareholder representatives Andrej Šušteršič, MSc, Chairman Žan Jan Oplotnik, PhD, Deputy Chairman Janez Zakonjšek David Valentinčič Employee representatives Mitja Fabjan Egon Hoda 1.3 Group Profile 1.3 Group Profile Contents

Elektro energija, d. o. o. 1.4 Major Events In 2014 Elektro Ljubljana’s share capital in the amount of EUR 3,000,000 was fully contributed by the sole shareholder Elektro Ljubljana. • Early in 2014, the country was hit by an ice storm that damaged approximately 2.5% or more In 2013, Elektro energija established three subsidiaries: than 400 km of our network. The main priority in 2014 was thus the reconstruction of the facilities damaged or destroyed by the glaze ice. Other key investment projects included the construction of • Elektro energija Adria, d. o. o., with a share capital of HRK 750,000, in Croatia; a 110/20 DTS in Mengeš, the construction of a 110-kV line bay for the Mengeš OTL at the Domžale • Elektro energija BH, d. o. o., with a share capital of KM 1,000,000, in Bosnia and Herzegovina; DTS, resonant neutral grounding (RNG) at the Domžale and Črnuče DTSs, the construction of a ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP • Elektro energija SRB, d. o. o., with a share capital of RSD 20,000,000, in Serbia. 20-kV double-circuit underground line between the Grosuplje DTS and the Škofljica DS and the ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP construction of a 20-kV underground line between the Kozarje DS and the Gmajnice TS. Since All three companies are 100% owned by Elektro energija. 49% of Elektro Ljubljana’s total investments in 2014 went towards the repair of the distribution network after the ice storm, there was mainly an increase in investments in medium-voltage (MV) Elektro Ljubljana OVE, d. o. o. and low-voltage (LV) lines and a decrease in investments in transformer stations. The physical Elektro Ljubljana OVE has a share capital of EUR 59,669. Elektro Ljubljana OVE was established as a realisation for LV and MV facilities thus comprised a total of 394 km of newly constructed and subsidiary of and is fully owned by Elektro Ljubljana. reconstructed LV and MV lines, 22 new transformer stations and 14 km of cable ducts. • Andrej Ribič’s appointment as the President of Elektro Ljubljana Management Board was renewed for an additional four-year term of office in March 2014. • In March 2014, the new Energy Act (EZ-1) entered into force and regulations governing public procurement were amended to simplify and expedite the public procurement process. • The reorganisation of Elektro Ljubljana with 1 January 2015 was approved. The reorganisation included the integration of processes distributed among different organisational units (purchasing, warehousing, maintenance, etc.) and the consolidation of duplicate processes. The departments of the Technical Support OE were merged into the Shared Services OE, except for the Information Services Department and the Telecommunications Services Departments, 18 which were transferred to the responsibility of the Management Board. The Management 19 Board’s support departments now also include the Corporate Communications Department and the Internal Audit Department. • A new company-level collective agreement was signed in the autumn and entered into effect on 1 January 2015. The new company-level collective agreement is in line with the new labour legislation and the collective agreement for the electricity sector and is partially the product of negotiations between the social partners, as certain solutions were coordinated between the social partners. • A new information system, eIS, was implemented, introducing an overhauled electricity and network charge billing system and customer life cycle support. • In 2014, the Distribution Call Centre and the Network Fault Reporting Centre were merged into the Central Call Centre, which resulted in a decrease in the number of unanswered calls and an improvement in the level of service provided by Elektro Ljubljana’s call centres. • In November 2014, Elektro Ljubljana obtained the highest credit rating, AAA.

ELEKTRO LJUBLJANA d.d.

Matična št.: 5227992 2014 Bisnode d.o.o., 24.11.2014

• Lower prices and margins were realised in wholesale markets in 2014, mainly due to the increasing proportion of renewable resources in the production structure. Elektro energija also achieved a lower gross margin due to the very harsh conditions in the wholesale and retail electricity markets, the low prices of energy products and prior purchases of electricity for a certain segment of consumers at prices higher than the current market prices. We thus began to prepare and carry out measures to ensure the normalisation and continued good performance 1.3 Group Profile 1.4 Major Events In 2014 Contents

of the company, which included risk management and cost reduction measures, preparations 1.5 Corporate Governance Statement for the reorganisation, a new job classification and the optimisation of internal processes. We also continued our search for a suitable strategic partner to enter Elektro energija’s ownership structure. The companies of the Elektro Ljubljana Group operate in compliance with the provisions of the Code of Management of Equity Investments of the Republic of Slovenia, adopted by SOD, d. d., on 15 May • We increased our retail market share from 17.3% to 18.2% compared to the previous year, retaining 2013 and the Corporate Governance Code for Companies with Capital Assets of the State, adopted second place in market share among the electricity suppliers in the Slovenian retail market. by the Management Board of the Slovenian Sovereign Holding (SSH) on 17 December 2014 and Although our market share in the residential electricity market dropped from 25.5% to 24.7% approved by the Supervisory Board of the SSH on 19 December 2014, upon the entry of which into

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP compared to 2013, we are still in first place among electricity suppliers in this segment. At the ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP force the Code of Management of Equity Investments of the Republic of Slovenia of 15 May 2013 end of 2014, the Slovenian Consumers’ Association carried out an auction for the group purchase ceased to apply. of electricity and gas, which will result in a decrease in our market share. We successfully began to market smart power consumption management services as a power aggregator in the retail The companies of the Elektro Ljubljana Group operated in accordance with the Slovenian Sovereign market. Holding’s Recommendations and Expectations of 8 December 2014. • In the area of wholesale trade, we upgraded our information support for short-term trading, Elektro Ljubljana has established a comprehensive risk management system. Risk management is which involves a number of activities performed on a daily basis, enabling the further optimisation carried out in accordance with the company’s Risk Management Act, which defines all the risks and automation of internal and external communications and reporting. The introduction of (business, information, occupational safety and health, environmental and corruption) and sets standardised reports further improved the daily monitoring of the portfolio and simplified the out the responsibilities of the company’s employees in this respect. The company has revised its procedures for reporting to the competent institutions in the region. We expanded our partner management responsibility policy, which provides the foundation for the prevention of the risk of network in general in 2014 so that Elektro energija is currently present in a total of 9 markets. In corruption by precisely setting out the powers and responsibilities of the management. The clearly South-East Europe, where we have a well-established trading infrastructure, we strengthened outlined reporting lines within the company ensure a comprehensive corporate integrity system. our bilateral trading relations through our responsiveness and reliability and improved our participation in public auctions for the purchase and sale of electricity to national electricity The companies within the group also ensure corporate integrity by means of a system of announced companies (Serbia and Bosnia and Herzegovina). and unannounced internal audits. The internal audit activities, which are aimed at identifying • Elektro Ljubljana OVE, d. o. o. provided comprehensive turnkey engineering services in the irregularities to ensure the continuous improvement of work processes, are based on the obtained areas of Celje, Krško and Slovenj Gradec and reconstructed existing boiler houses, installing quality management system certificates. 20 21 20-kWe cogeneration units in addition to 200-kWt wall-mounted gas-fired heating boilers. We Elektro energija’s risk monitoring procedures were revised in 2014, mainly in the area of wholesale carried out a turnkey boiler house reconstruction for Metalka, which included the replacement trading. The aim of the overhaul was to improve the prevention of breaches of corporate integrity of gas-fired boilers and heaters and the installation of a cogeneration unit, and installed a 50-kW and conflicts of interest. The company began a process of reorganisation in 2014 whose aims cogeneration unit in Plutal 2000’s existing boiler house. include the establishment of responsibility and thus internal control. These changes will serve as a • We performed a heating plant upgrade for Iskra, d. d., by separating the primary and secondary basis for further activities in relation to the positive motivation of employees and the improvement heating circuits, which improved the efficiency of the heating system, enabling the annual of corporate integrity. production of over 2,000 MWh of heat, which is enough to cover the company’s heating needs. The entire system is fully automated, computerised and remotely controlled directly by us, Elektro Ljubljana OVE, d. o. o. has signed an agreement with the parent company that sets out ensuring continuous operation. Over the two years of the system’s operation, this investment the principles of risk management and management responsibility, establishing clearly defined has proved economically efficient, achieving the expected rate of return. reporting lines within the subsidiary, which ensures a comprehensive corporate integrity system.

• We upgraded our own control system in 2014 and successfully marketed it to our customers for The corporate governance statement is published on the company’s website. the maintenance of their solar power plants. The control system, which was partially funded by a grant, enables the control of the operation of solar power plants, the preparation of data for monthly billing, and the inspection of all solar power plant elements. The control system was expanded to enable the control of the operation of other cogeneration plants, which is especially important for the production units of our customers, as it enables the provision of complete Andrej Ribič, maintenance information. • Elektro Ljubljana OVE, d. o. o. was authorised by the Ministry of Infrastructure to carry out energy President of the Management Board audits and issue energy performance certificates. An energy performance certificate is an official document containing data on a building’s energy efficiency and recommendations for its improvement. It is intended for buyers and lessees of real estate and must be obtained by the seller or lessor in order to sell a building or part thereof or lease it for a period of one year or longer. Ljubljana, April 30 2015 • The Chamber of Commerce and Industry of Slovenia awarded Elektro Ljubljana OVE, d. o. o. an Excellent SME certificate. 1.4 Major Events In 2014 1.5 Corporate Governance Statement Contents We are networking with positive energy.

Energy that connects you. ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP

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2 Business Report Contents

2.1 Mission, Vision And Values Of The Group 2.2 General Operating Conditions

Mission 2.2.1 Macroeconomic environment We maintain a reliable, safe, high-quality and sustainable electric power system through a combination of cutting-edge electricity supply services. We bring together the needs of our The macroeconomic situation in Slovenia is improving and economic growth is on the rise as well. customers, owners and employees. The highest growth in gross domestic product (GDP) since the onset of the crisis was recorded in ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 2014, as GDP increased by 2.6% compared to the previous year, mainly due to the strong growth ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Vision in exports. Investments also increased significantly. Public investment in infrastructure was up By providing effective, innovative and comprehensive solutions for the sustainable supply of due to the accelerated absorption of EU funds, while amid higher activity and more stable lending electricity and renewable resource engineering, we maintain our position as a central partner conditions, positive trends were also observed in private investment. Employment also rose for in energy development at the national and local levels and a leading manager of state-of-the- the first time since the beginning of the crisis. The improvement in labour market conditions and art energy infrastructure networks that provides an excellent return for our shareholders and a a concurrent increase in earnings and other household receipts led to modest growth in private stimulating environment for our employees. We are aware of the challenges posed by the market consumption. and our competitors and thus follow the needs of our customers with a vision of excellence at all Solvency improved in 2014 according to the majority of the available indicators9. The solvency of levels. legal entities and sole proprietors improved in both the number of non-payers and the amounts due. Long-term outstanding liabilities nevertheless remained high, accounting for 67% of all Values outstanding liabilities, although they dropped slightly relative to the preceding year. The number of Dialogue bankruptcy cases initiated against legal entities and sole proprietors and the number of personal We encourage and maintain an open dialogue with our employees, owners, project partners and bankruptcy proceedings increased in 2014. In 2014, there were 662 or 9% fewer legal entities with the wider community. We develop optimal solutions that ensure maximum long-term benefits for all outstanding liabilities than in the preceding year, while the average daily amounts owed were down stakeholders. 12%. The number of non-payers declined in most sectors, the most in real estate, construction and manufacturing activities. 24 Excellence 25 We overcome and capitalise on risks and opportunities through ancillary services (solutions), According to the forecasts of the Institute of Macroeconomic Analysis and Development,10 GDP superior quality and added value. will grow by 2.4% in 2015, again mainly due to strong growth in exports and investment activity. Public investment will again rise in 2015 owing to the absorption of EU funds. Private investment Learning in machinery and equipment will also expand; amid higher capacity utilisation, private investment We combine tradition with innovation and knowledge with curiosity. We engage in environmentally funding will be possible due to better business results, especially in the export-oriented part of responsible technological development. the economy, while further deleveraging will open up possibilities for borrowing from the highly Employee safety liquid banking sector A further increase in employment, a decline in unemployment, and higher The safety of our employees is the top priority and responsibility of each and every one of us. disposable income will boost consumer confidence. Expenditure on government consumption will decline as fiscal consolidation continues. Quality We hold our business processes to the highest environmental, safety and information standards. Forecast of selected macroeconomic aggregates for Slovenia 2014 2015 2016 2017 Strategy Spring forecast The Elektro Ljubljana Group’s strategy is focused on the profitable performance of activities GDP, real growth in % 2.6 2.4 2.0 2.1 in relation to the distribution and marketing of electricity and renewable resource engineering, Exports of goods and services, real growth in % 6.3 5.6 6.2 5.0 revenue growth, cost efficiency, the optimisation of the volume and structure of our investments, Domestic consumption, real growth in % 0.8 1.8 0.5 1.9 Employment, real growth in % 0.7 0.8 0.6 0.7 and the maintenance of our electrical infrastructure. This strategy is based on our core mission, Earnings per employee, real growth in % 0.9 1.1 0.8 0.9 which will be achieved through functional and strategic projects that will allow us to achieve our Labour productivity, real growth in % 2.0 1.5 1.5 1.4 strategic objectives and realise our vision. Inflation (annual average) 0.2 -0.2 1.0 1.4 Source: Spring Forecast of Economic Trends 2015, IMAD

9 Economic Mirror, IMAD, January 2015 10 Spring Forecast of Economic Trends 2015, IMAD, March 2015 2.1 Mission, Vision And Values Of The Group And Values 2.1 Mission, Vision 2.2 General Operating Conditions Contents

2.2.2 Energy environment is feasible for its implementation. The purpose of the introduction of an advanced metering system is to enable the active participation of users in the electricity market, charging according to actual usage, the use of new charging methods adapted to market supply and demand and the provision of 2.2.2.1 Regulatory framework services by providers in the market. The agency carried out an analysis in 2014 that showed that the Since 2007, the public service of operating the electricity distribution network in the Republic of long-term benefits of the introduction of an advanced metering system would exceed the long-term Slovenia has been provided by SODO, d. o. o., while electricity is distributed by distribution companies costs. A government decree on the measures and procedures for the implementation and connectivity in SODO’s name on the basis of contracts for the lease of electricity distribution infrastructure and of advanced electricity metering systems in the Republic of Slovenia is also in preparation that will the provision of services for the electricity distribution system operator. ensure the equipment of at least 80% of end users with intelligent meters by the end of 2020 and the ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP inclusion of all end users in the Republic of Slovenia in the system by 2025. Elektro Ljubljana is one of the five distribution companies in Slovenia that lease their electricity distribution infrastructure to the system operator (SODO) and provides the operator with In accordance with the Energy Act, the Energy Agency also issued the Act on the Methodology for the services in relation to infrastructure maintenance, electricity distribution network management Preparation and Evaluation of an Investment Plan of the Electricity Distribution System Operator13, and operation, electrical infrastructure development, design and investment, supply quality which sets out the methodology for the preparation of a three-year investment plan by the electricity monitoring, electricity metering and distribution network access and other user services. The distribution system operator and the review and evaluation of the investment plan by the Energy contract prices for the lease of electrical infrastructure and the services provided are based on Agency. the eligible costs for the regulatory period (currently 2013–2015) as determined by the Energy Agency for the respective section of the distribution network in accordance with the Act Early in 2014, the country was hit by an ice storm that caused extensive damage to Elektro Ljubljana’s Determining the Methodology for Charging for the Network Charge, the Methodology for Setting network. With the Act Regulating Measures for the Recovery from Ice Damage which Affected the 14 the Network Charge, and the Criteria for Establishing Eligible Costs for Electricity Networks11. Republic of Slovenia between January 30 and February 10, 2014 , the Government of the Republic of Slovenia set out the emergency intervention, remedial and preventive measures for recovery from the A new Energy Act12 was adopted in February 2014 that sets out the energy policy principles, the rules ice damage and the procedures for their implementation and monitoring. The activities for the repair for the energy market, the manner and methods of the implementation of public services in the area of the damage caused by the ice storm were partially funded by the state budget and partially by the of energy, the principles and measures for ensuring reliable supply, improving energy efficiency EU Solidarity Fund. and savings and increasing the use of renewable energy, the conditions for the operation of energy The system for the operation of the electricity distribution network, the provision of electricity facilities, the powers and responsibilities, organisation and operation of the Energy Agency and the 26 distribution services and ancillary services, the operation and development of the distribution network 27 powers and responsibilities of other authorities performing tasks under the act. The purpose of the and the technical requirements for connection to the distribution network are laid down in the Rules act is to ensure the competitive, safe, reliable and accessible supply of energy and energy services on the System Operation of Electricity Distribution Network15, which are issued by SODO on the basis in accordance with the principles of sustainable development. of the approval of the government and the prior consent of the Energy Agency.

The new Energy Act also provides a legal basis for the adoption of national strategic documents that The Decree on Maintenance Works for the Public Benefit in the Energy Sector16 stipulates the types will determine the long-term policies for the use and supply of energy in the future. The fundamental of maintenance works for energy facilities, equipment and networks for the public benefit and the development document planned to be prepared is the Energy Concept of Slovenia (ECS), which will requirements and methodology for the performance of maintenance works. provide a basis for the preparation of the National Energy Development Plan (NEDP), a framework plan outlining the main energy infrastructure investments. In accordance with the NEDP, the transmission The General Conditions for the Supply and Consumption of Electricity from the Distribution Network17 network operator and the distribution network operator must prepare a ten-year network development lay down the relations between SODO and users, between SODO and electricity suppliers, relations plan every two years and submit it to the ministry in charge of energy for approval. between users and electricity suppliers, the rules for connection to the electricity distribution network, the supply and consumption of electricity, electricity measuring methods and measuring The new law also contains provisions defining the relations between the distribution network operator equipment, metering point records, the calculation, charging and payment of network charges and and the owners of the network as well as the role and powers of the Energy Agency as the regulator the requirements with regard to the quality of the services of the system operator. with respect to the owners. The legislative regulations in the area of energy also set out the framework for the receipt of support for A government decree defining the demarcation between the distribution and the transmission the production of electricity from renewable energy sources (RES) and high-efficiency cogeneration system is also planned. The decree will determine which parts of the 110-kV network belong of heat and power (CHP). Support can be obtained for both RES and CHP units. CHP units with a to the transmission network and which parts belong to the distribution network on the basis of capacity below 1 MW and RES units with a capacity below 5 MW offer a choice between guaranteed their characteristics. The determination will primarily be made with consideration of the actual purchase and an operating premium, whereas only an operating premium can be obtained for larger functionality of lines and switchyards, the existing situation, the minimisation of ownership transfers units. If the claimant chooses to receive an operating premium, a contract is signed for the sale of the and payments and the consolidation of the ownership of individual loops. The companies that own electricity produced. If they opt for guaranteed purchase, they are included in the balance group of the high-voltage 110-kV transmission network will have to transfer their ownership and other rights Borzen’s Centre for RES/CHP, which ensures the purchase of electricity at the guaranteed purchase over the network in return for consideration within three years of the entry of the law into force. price.

The law also stipulates that the agency must carry out an economic assessment to determine which

form of advanced metering is the most economically viable and cost-effective and what time frame 13 OG RS No. 97/2014 14 OG RS No. 17/2014 15 OG RS Nos. 41/2011 and 17/2014-EZ-1 11 OG RS Nos. 81/2012, 47/2013, 112/2013 and 7/2014 16 OG RS Nos. 125/2004, 71/2009, 22/2010-EZ-D and 17/2014-EZ-1 12 OG RS No. 17/2014 17 OG RS Nos. 126/2007, 37/2011 – Constitutional Court Decision and 17/2014-EZ-1 2.2 General Operating Conditions 2.2 General Operating Conditions Contents

The Elektro Ljubljana Group receives an operating premium from the Centre for electricity produced The reduction in the price of electricity in the German market in 2014, which is extremely important by solar power plants in accordance with the Decree on Support for Electricity Generated from for Slovenia, is predominantly attributable to the increased installed capacity of wind and solar High-Efficiency Cogeneration of Heat and Electricity18. power plants. In addition to the lower prices in purchase markets, the reduction in electricity prices in Slovenia also resulted from lower consumption and the higher production of electricity Guarantees of origin19 enable producers and suppliers to demonstrate that the electricity they compared to the previous year. The lower prices in the purchase markets are attributable to the have produced or supplied was produced from high-efficiency cogeneration or renewable energy high availability of wind and sunlight as well as the favourable hydrological conditions in South- sources. Electronic guarantees of origin are issued by the Energy Agency, while the power market East Europe and Italy. operator takes care of the technical management and maintenance of the guarantee of origin

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP registry through the Centre for RES/CHP. The registry includes data on the electricity produced by The average price of electricity in the Slovenian power exchange (BSP) in 2014 was EUR 40.43/ ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP individual plants, including data on the country in which guarantees were issued, any transfers of MWh, or EUR 2.75/MWh less than in 2013 on average, while the average price of electricity in the guarantees and the use of guarantees to demonstrate the origin of electricity. German power exchange (EPEX) was EUR 32.77/MWh, or EUR 5.02/MWh less than in 2013. The difference between the Slovenian and the German market increased from EUR 5.40/MWh in 2013 to 2.2.2.2 Energy balance as much as EUR 7.67/MWh in 2014. The additional daily costs of cross-border transmission capacities need to be taken into account in Every year, in accordance with the Energy Act, the ministry in charge of energy submits an annual the import of electricity to Slovenia. The price of electricity imported from Germany was the lowest energy balance to the government for adoption. The energy balance forecasts the total annual on average, EUR 0.27/MWh lower than the price in the Slovenian power exchange. The highest consumption of individual energy resources and the energy supply methods used in the country. price in Slovenia was achieved in October, when it grew to EUR 52.78/MWh (in the Slovenian power The annual balances are prepared to the maximum extent possible by the direct providers of energy exchange), raising the average annual price by approximately EUR 2/MWh. services in accordance with the applicable legislation governing their area of operation. The Energy Balance of the Republic of Slovenia (EBRS) for 201420 was adopted by the Government of the Despite the overall decrease in prices in Slovenia, certain unexpected events resulted in an increase Republic of Slovenia on 3 September 2014. in prices in individual months. There was a decrease in the available production capacities in April and October due to overhauls throughout the region and a drop in import due to a decrease in According to the EBRS, supply from domestic energy sources was again expected to be mainly the available cross-border transmission capacities. In May, there was a decrease in the available based on lignite, hydro power, wood biomass and nuclear power in 2014. Since Slovenia’s energy production capacities due to flooding in Serbia and Bosnia and Herzegovina, which affected a needs exceed our domestic production capacities, Slovenia was expected to cover slightly less than number of power plants and mines. 28 half of its total energy needs using exported sources in 2014. 29

The most relevant to the Elektro Ljubljana Group are the electricity and natural gas balances. The Situation in the retail market total final consumption of electricity in 2014 was forecast to amount to 12,693 GWh, or 0.4% less than There were minor changes in market shares in the commercial customer segment in 2014 compared in 2013, 47% of which was expected to be consumed by the industrial sector, 25.1% by households, to 2013, which indicates that competitive pressures are still strong. Suppliers wish to retain their 1.2% by transport, 0.9% by the energy sector and 25.9% by other users. The largest share of available market shares, which is causing a proper price war. No power supply company was in a dominant electricity was forecast to be contributed by thermal power plants and heating plants (23.8%), position in 2014, as no single supplier’s market share exceeded 40%. Elektro energija increased its followed by the nuclear power plant (22.2%), hydro power plants (21.4%) and solar power plants market share by 0.8 percentage point in 2014, drawing closer still to the top electricity supplier. The (1.2%). Imported electricity was expected to make up 31.4% of the total available electricity. competition has been increasing throughout the past four years, and the same can be expected for The total final consumption of natural gas was forecast to amount to 650 million Sm3, or 2% less 2015 and 2016. Whereas the prices dropped in 2012 and 2013, they were more or less stable in 2014, than in the previous year, 58.5% of which was expected to be consumed by the industrial sector, which stiffened the competition between suppliers even further. 16.5% by the residential sector and 25% by other users. The Republic of Slovenia imports most of its In September 2014, the Slovenian Consumers‘ Association launched a special campaign entitled natural gas, as the total annual quantity of natural gas produced domestically only covers 0.35% of “Switch and Save”, whose primary aim was to bring together as many consumers as possible who the country’s total needs. were interested in switching their electricity provider. A total of 40,000 residential users participated in the first group purchase of electricity and natural gas. 2.2.2.3 Electricity market Situation in the wholesale market The market prices of long-term and short-term products in wholesale markets are affected by the available electricity production capacities for individual generation sources, the consumption of electricity and the available cross-border transmission capacities in individual markets. The growing share of renewable resources in the production structure has resulted in a significant reduction in electricity prices.

18 OG RS Nos. 37/2009, 53/2009, 68/2009, 76/2009, 17/2010, 94/2010, 43/2011, 105/2011, 43/2012, 90/2012 and 17/2014 19 Decree on Issuing Declarations for Generation Units and Guarantees of Electricity Origin, OG RS Nos.8/09, 45/12 and 17/14-EZ-1 20 http://www.energetika-portal.si/dokumenti/statisticne-publikacije/letna-energetska-bilanca/ 2.2 General Operating Conditions 2.2 General Operating Conditions Contents

2.3 Performance Analysis The costs of materials and goods sold amounted to EUR 490,986.4 thousand in 2014 and were EUR 51,952.5 thousand or 11.8% higher than in 2013, mainly due to an increase in expenses for the purchase of electricity. The Elektro Ljubljana Group closed the 2014 financial year with a net profit of EUR 4,997.8 thousand, reaching only half the profit realised in the previous year, mainly due to the lower gross margin The costs of services, which amounted to EUR 18,803.3 thousand in 2014, were EUR 798.6 thousand achieved in the sale of electricity. or 4.4% higher than in the previous year. The increase in the costs of services is mainly attributable to the engagement of external electrical installation service providers for the repair of the damage (in EUR) index to the network caused by the natural disaster at the beginning of the year, and an increase in the ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 2014 2013 2014/2013 costs of services provided to others. ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Operating profit or loss 9,790,354 14,281,831 68.6 Net cash flow -2,578,015 -2,689,153 95.9 The labour costs amounted to EUR 33,256 thousand in 2014 and were EUR 1,063.4 thousand lower Profit or loss from other op. act. -64,273 -54,351 118.3 compared to the previous year owing to the fact that provisions had been established for severance Profit before tax 7,148,066 11,538,327 62.0 pay in 2013 in accordance with the company-level collective agreement. NET PROFIT OR LOSS 4,997,833 10,039,426 49.8 Amortisation and depreciation amounted to EUR 25,535.7 thousand in 2014, which is 0.7% higher than in the previous year. We incurred a total of EUR 2,502.6 thousand in revaluation operating 2.3.1 Revenue expenses, which is EUR 1,190.7 thousand or 90.8% more than in the previous year. The increase is mainly attributable to write-offs of distribution network equipment destroyed by the natural disaster, (in EUR) index and a significant write-off of trade receivables due from buyers of electricity.

2014 2013 2014/2013 Our financial expenses amounted to EUR 3,126.2 thousand and were primarily EUR 269.3 thousand Net sales 561,075,470 518,577,489 108.2 Capitalised own products 13,795,268 10,145,805 136.0 lower than in 2013 due to impairments of financial assets. Other operating revenue 6,411,819 4,092,408 156.7 Financial revenue 548,209 706,385 77.6 Other revenue 12,438 24,899 50.0 Structure of operating revenue and expenses in 2014 TOTAL REVENUE 581,843,204 533,546,986 109.1 1.9 % 30 3.3 % 2.3 % 31 11.8 % The net sales revenue realised in 2014, which amounted to EUR 561,075.5 thousand, was EUR 42,498 5.8 % thousand or 8.2% higher compared to the previous year. The revenue growth is mainly attributable to 1.5 % 4.9 % 2.4 % the higher volume of short-term wholesale trade. 0.1 % 1.1 % The group’s revenue arising from the lease of electricity distribution infrastructure and services provided for SODO grew by EUR 1,525.6 thousand or 2.3% compared to the previous year, mainly due to the natural disaster in February 2014 and the repair of the damage it caused to the network. We also recorded a revenue decrease of EUR 397.2 thousand arising from the final settlement of rent and services for SODO for 2013, while a revenue increase of EUR 268.4 thousand was realised from 81.3 % 83.6 % settlements for previous years in 2013.

A total of EUR 13,795.3 thousand was generated in revenue arising from our own investments, which is EUR 3,649.5 thousand or 36% more than in the previous year. Revenue from the sale of electricity Costs of the purchase of electricity for sale and losses and supply by SODO Our other operating revenue, which amounted to EUR 6,411.8 thousand, was EUR 2,319.4 thousand or Revenue from the coverage of losses of electricity 56.7% higher compared to the previous year, mainly due to the insurance payments received for the and supply by SODO Other costs of materials Revenue from the lease of infrastructure Costs of services ice damage in February. and services for SODO (incl. settlement) Other sales revenue Labour costs 2.3.2 Expenses Capitalised own products and services Write-downs in value Other operating revenue Other operating expenses (in EUR) index 2014 2013 2014/2013 Costs of materials and goods sold 490,986,439 439,033,980 111.8 Costs of services 18,803,304 18,004,697 104.4 Labour costs 33,256,024 34,319,399 96.9 Write-downs in value 28,038,289 26,662,018 105.2 Other operating expenses 408,147 513,777 79.4 Financial expenses 3,126,224 3,395,538 92.1 Other expenses 76,711 79,250 96.8 TOTAL EXPENSES 574,695,138 522,008,659 110.1 2.3 Performance Analysis 2.3 Performance Analysis Contents

2.3.3 Assets 2.3.4 Equity and liabilities

(in EUR) index (in EUR) index 2014 SHARE 2013 SHARE 2014/2013 2014 SHARE 2013 SHARE 2014/2013 Long-term assets 427,820,557 81.4 % 421,869,869 79.4 % 101.4 Equity 285,796,355 54.4 % 283,266,520 53.3 % 100.9 Plant, property and equipment 419,638,837 79.9 % 414,082,043 77.9 % 101.3 Long-term liabilities 134,484,671 25.6 % 143,532,914 27.0 % 93.7 Int. ass. and long-term def. exp. and acc. 4,370,322 0.8 % 3,931,981 0.7% 111.1 Short-term liabilities 105,091,261 20.0 % 104,489,697 19.7 % 100.6

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Financial assets 1,903,027 0.4 % 1,831,955 0.3% 103.9 TOTAL EQUITY AND LIABILITIES 525,372,287 100.0 % 531,289,131 100.0 % 98.9 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Other 1,908,371 0.4 % 2,023,890 0.4% 94.3 Short-term assets 97,551,730 18.6 % 109,419,262 20.6% 89.2 The Elektro Ljubljana Group’s equity increased by EUR 2,529.8 thousand or 0.9% due to the realisation Inventories 1,620,739 0.3 % 1,169,370 0.2% 138.6 of EUR 4,997.8 thousand in profit and the revaluation of financial assets in the amount of EUR 84.4 Receivables 83,198,236 15.8 % 96,148,817 18.1% 86.5 thousand, and decreased by EUR 2,349.6 thousand due to the payment of dividends and by EUR 202.8 Cash 9,298,691 1.8 % 10,597,624 2.0% 87.7 thousand due to actuarial losses. Other 3,434,064 0.7 % 1,503,451 0.3% 228.4 TOTAL ASSETS 525,372,287 100.0 % 531,289,131 100.0 % 98.9 Provisions amounted to EUR 9,048.5 thousand, increasing by EUR 514.1 thousand or 6% due to provisions for long-service bonuses and severance pay upon retirement. Our long-term deferrals and At the end of 2014, the total value of the Elektro Ljubljana Group’s assets equalled EUR 525,372.3 accruals in the amount of EUR 42,704.6 thousand mainly comprised assets acquired free of charge thousand, decreasing by EUR 5,916.8 thousand or 1.1% compared to the end of the previous year, and funds collected for connection to the network by 1 July 2007 and were EUR 519.7 thousand or primarily due to a decrease in short-term operating receivables. 1.2% lower compared to the end of 2013. Plant, property and equipment, which represented 79.9% of the company’s total assets, increased Our remaining long-term liabilities mainly comprise long-term financial liabilities, which amounted by EUR 5,556.8 thousand or 1.3% compared to the previous year, while its share in the total assets to EUR 82,646.6 thousand at the end of 2014 and were EUR 9,081.2 thousand or 9.9% lower compared increased by 1.9 percentage point. to 2013. Our intangible assets and long-term deferred expenses and accrued revenue increased by 11.1% Our short-term financial liabilities amounted to EUR 24,130.9 thousand, increasing by EUR 1,317.2 compared to the end of 2013. thousand or 5.8% compared to 2013. Our short-term operating liabilities, which amounted to 32 33 The Elektro Ljubljana Group’s long-term financial assets increased by 3.9% due to the revaluation of EUR 79,091.8 thousand at the end of 2014, were 3.2% higher than in the previous year. our investment in Zavarovalnica Triglav, d. d. Our short-term accrued expenses and deferred revenue decreased by EUR 3,178.2 thousand or 63% The group’s remaining long-term assets comprise long-term operating receivables and deferred tax compared to the end of 2013, mainly due to the settlement of liabilities arising from the preliminary assets and were 5.7% lower than in 2013 due to a decrease in long-term trade receivables. settlement with SODO.

Our short-term operating receivables were EUR 12,950.6 thousand or 13.5% lower than at the end of the previous year, mainly due to a decrease in trade receivables due from buyers of electricity and receivables due from SODO.

Our inventories were 38.6% higher at the end of 2014. Despite the significant increase in inventories following the natural disaster in February, we were able to reduce them to EUR 1,620.7 thousand through careful management.

Our cash balance was at EUR 9,298.7 thousand at 31 December 2014, which is 12.3% lower than in the previous year.

The majority of our remaining short-term assets comprises short-term deferred expenses and accrued revenue, which increased by EUR 2,334.4 thousand or 215%, mainly due to the settlement of rent and services for SODO. 2.3 Performance Analysis 2.3 Performance Analysis Contents

2.3.5 Performance ratios Financing ratios • The equity financing ratio reflects the extent to which the group’s assets are financed through INVESTMENT RATIOS 2014 2013 2012 2011 2010 equity, i.e. its level of financial independence and thus financial security. At the end of 2014, 54.4% Operating fixed assets ratio 0.803 0.783 0.788 0.799 0.838 of the group’s total assets were financed through equity, its equity financing ratio increasing by 1.1 = fixed assets (at carrying amount) / assets percentage point compared to the previous year. Investment assets ratio = long-term and short-term financial assets + investment 0.004 0.004 0.003 0.002 0.006 • The long-term assets ratio shows that the group financed 80% of its assets through long-term property / assets liabilities and 20% through short-term liabilities. The share of long-term liabilities in total liabilities ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Long-term assets ratio decreased by 0.3 percentage points compared to the previous year. ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP = fixed assets + long-term deferred expenses and accrued revenue 0.814 0.794 0.799 0.807 0.846 (at carrying amount) + long-term financial assets + investment Horizontal financial structure ratios property + long-term operating receivables / assets FINANCING RATIOS 2014 2013 2012 2011 2010 • The equity to fixed assets ratio, which measures the extent to which the group’s fixed assets are Equity financing ratio 0.544 0.533 0.525 0.522 0.540 financed through equity, was 67.7% in 2014, decreasing by 0.4 percentage points compared to the = equity / liabilities previous year. Long-term assets ratio = equity + long-term liabilities + long-term provisions + long-term 0.800 0.803 0.796 0.797 0.827 • The long-term financing to long-term assets ratio reflects the long-term financing of the group’s accrued expenses and deferred revenue / liabilities long-term assets, which was at 98.2% at the end of 2014, decreasing by 3 percentage points HORIZONTAL FINANCIAL STRUCTURE RATIOS 2014 2013 2012 2011 2010 compared to 2013. Equity to fixed assets ratio 0.677 0.681 0.667 0.654 0.645 = equity / fixed assets (at carrying amount) • The acid test ratio measures the group’s ability to settle its short-term liabilities with its liquid assets. Long-term financing to long-term assets ratio At the end of 2014, the group would have been able to settle 9% of its short-term liabilities using its = equity + long-term liabilities + long-term provisions + long-term 0.982 1.012 0.997 0.988 0.978 cash and cash equivalents. accrued expenses and deferred revenue / long-term assets Acid test ratio • The quick ratio reflects the group’s ability to cover its short-term liabilities using its cash and 0.090 0.107 0.109 0.089 0.003 = liquid assets / short-term liabilities cash equivalents and short-term receivables. At the end of the year, 89.6% of the group’s current Quick ratio 0.896 1.073 1.043 0.937 0.763 liabilities were covered by short-term receivables and liquid assets, constituting a decrease of 17.7 = liquid assets + short-term receivables / short-term liabilities percentage points compared to the previous year, which is mainly attributable to the lower trade Current ratio 34 0.912 1.089 1.056 0.956 0.802 35 = short-term assets / short-term liabilities receivables and higher short-term liabilities. OPERATING EFFICIENCY RATIOS 2014 2013 2012 2011 2010 • The current ratio measures the group’s ability to settle its short-term debt with its cash and other Operating efficiency ratio 1.017 1.028 1.020 1.023 1.018 current assets, including inventories. Due to a decrease in short-term assets and an increase in = operating revenue / operating expenses short-term liabilities, the group’s current ratio was 17.7 percentage points lower than in the previous Total efficiency ratio 1.012 1.022 1.016 1.019 1.006 = revenue / expenses year. PROFITABILITY RATIOS 2014 2013 2012 2011 2010 Return on assets (ROA) Operating efficiency ratios 0.009 0.019 0.017 0.013 - = net profit or loss / average assets • The operating efficiency ratio, i.e. the ratio between operating revenue and operating expenses, Return on equity (ROE) = net profit or loss for the accounting period / average equity 0.018 0.037 0.033 0.024 - reflects the efficiency of the group’s operating activities, as it excludes financial revenue and (excluding net profit or loss for the accounting period) expenses and other revenue and expenses. Our operating revenue exceeded our operating Dividends to share capital ratio 0.014 0.015 0.013 0.004 - expenses by 1.7% in 2014 and our operating efficiency decreased by 1.1 percentage point compared = total dividends paid for the financial year / average share capital to the previous year. • The total efficiency ratio is the ratio between total revenue and expenses. Our total efficiency Investment ratios decreased by 1 percentage point compared to 2013. • The operating fixed assets ratio reflects the share of intangible long-term assets and plant, property and equipment in total assets, which equalled 80.3% at the end of 2014. The share Profitability ratios of fixed assets increased by 2 percentage points compared to the previous year due to an • Return on assets (ROA) measures how well the group generates profits with its own assets and increase in the group’s fixed assets and a decrease in its total assets. The high operating reflects how successful the management was in managing the group’s assets. We achieved an fixed assets ratio was to be expected, as one of the group’s activities is very technologically ROA of 0.9% in 2014, which constitutes a decrease of 1 percentage point compared to the previous intensive. year. • The investment assets ratio tells us the share of the group’s assets contributing to the generation • Return on equity (ROE) measures the amount of net profit generated with the average equity invested of financial revenue. Short-term and long-term financial assets comprised 0.4% of the group’s in the group. Return on equity is one of the most important financial ratios from the perspective of total assets at the end of 2014, the same as at the end of 2013. shareholders, as it reflects how successful the group’s management was in managing shareholders’ • The long-term assets ratio, which shows the share of long-term assets in total assets, equalled funds. We achieved an ROE of 1.8% in 2014, which constitutes a decrease of 1,9 percentage point 81.4% at the end of 2014, increasing by 2 percentage points compared to the end of the previous compared to the previous year. year. • Our dividends to share capital ratio, which measures the amount of share capital constituted by dividends, was 0.014 in 2014, decreasing by 0.1 percentage points compared to the previous year. 2.3 Performance Analysis 2.3 Performance Analysis Contents

2.4 Distribution of Electricity Load on Elektro Ljubljana’s network in the period of 2010–2014

2.4.1 Scope of the network 2014 4,067.4 -0.4 % 2013 4,084.2 +1.2 % Elektro Ljubljana operates distribution transformer stations (DTSs) of different levels and voltage 2012 4,033.8 -2.0 % ratios: three 110/35-kV DTSs, twenty-four 110/20/10-kV DTSs and one 35/20/10-kV DTS. Distribution 2011 4,115.8 -1.3 % ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP is also carried out using 25 distribution stations (DSs) to ensure reliable supply to users. 2010 4,169.0

Our network is connected to the transmission network at the following supply points: the Beričevo Load in GWh 400/220/110-kV DTS, the Kleče 220/110-kV DTS, the Trbovlje TPP 110/35-kV DTS and the Hudo 110-kV DS. Change compared to the previous Year

We operate a total of 17,604 km of power lines spanning a surface area of 6,166 km2 and supply A total of 3,874.4 GWh of electricity was distributed to end users in Elektro Ljubljana’s distribution power to 333,264 users through 5,416 MV/0.42 kV transformer stations (TSs). area, which is 0.5% less than in the previous year. Residential users consumed 27.8% of the total distributed electricity, while commercial users consumed 72.2%. Out of the total commercial Scope of the network by voltage level in 2014 consumption, 64.5% is attributable to medium voltage and 35.5% to low voltage consumption. VOLTAGE LEVEL 110 kV 35 kV 20 kV 10 kV 1-0.4-0.2 kV TOTAL Electrical losses in the distribution network amounted to 176.7 GWh in 2014, which corresponds to Length in km 310.1 92.2 4,491.0 953.6 11,757.2 17,604.1 4.3% of the total load. In 2013, the network losses had amounted to 184 GWh or 4.5% of the total load. The number of distribution facilities has seen continuous growth throughout the years, reflecting the rapid development of our network. The only exception is the 35-kV network, which is gradually Supply of electricity from Elektro Ljubljana’s distribution being phased out and replaced by 110- or 20-kV networks. network to end users in 2014 by supplier

Scope of the network by voltage level 56.1 % Elektro energija, d.o.o. 56.8 % 36 in the period of 1980–2014 (km) 37 25.9 % 0.2 kV do 20 kV 35 kV , 110 kV GEN-I, d.o.o. 28.2 % 14,000 350 6.8 % Petrol, d.d. 4.7 % 3.6 % 12,000 300 Elektro Celje Energija, d.o.o. 4.8 % 110 kV 1 - 0.4 - 0.2 kV 3.5 % Elektro Maribor Energija plus, d.o.o. 1.1 % 10,000 250 2.0 % Elektro Gorenjska Prodaja, d.o.o. 2.4 % 8,000 200 2014 2.2 % 35 kV Other suppliers 2.0 % 2013

6,000 150 The maximum peak load of 641.7 MW on the supply side in 2014 was recorded in January. The maximum peak load was 0.6% higher compared to the previous year. 4,000 100 20 kV Maximum peak load on the network in the period of 2010–2014 2,000 50 (in MW) 10 kV 2014 641.7 0 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2014 Year 2013 637.9 2.4.2 Power flows 2012 660.0 2011 637.8 The total load supplied to Elektro Ljubljana’s distribution network from the transmission network 2010 657.5 (ELES) and distribution companies (Elektro Celje and Elektro Gorenjska) and directly connected electricity producers totalled 4,067.4 GWh in 2014, decreasing by 0.4% compared to the previous year. 2.4 Distribution of Electricity 2.4 Distribution of Electricity Contents

2.4.3 Network access Number of new generation sources to Elektro Ljubljana’s distribution network and their installed capacity in the period of 2010–2014 In addition to the execution of access contracts, the distribution network access business process also involves the process of charging for network use and other contributions, switching suppliers, Number of new generation sources Installed capacity of new generation distribution area energy balance management, supply by SODO and procedures for the suspension sources (in kW) of electricity distribution and the collection of receivables. It is a continuous process involving the 2014 53 2014 5,197

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP management of the entire set of data on metering points in Elektro Ljubljana’s distribution network ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP and the processes directly related to it. 2013 69 2013 7,615

2.4.3.1 Network users 2012 315 2012 26,450 A total of 334,144 users were connected to Elektro Ljubljana’s distribution network as at the end of 2011 177 2011 21,038 2014, of whom 333,264 were consumers (299,872 residential and 33,392 commercial consumers) and 880 were producers of electricity. 2010 125 2010 12,675

Structure of electricity generation sources Number of consumers connected to Elektro Ljubljana’s network as connected to Elektro Ljubljana’s distribution network of 31 December as of 31 December 2014 avg. CONSUMER GROUP 2010 2011 2012 2013 2014 2014/2013 2014/2010 1 10 1 LV 1-35 kV 454 464 468 469 485 +3.4 % +1.7 % LV without power metering 28,355 28,368 28,356 28,222 28,398 +0.6 % +0.0 % Photovoltaic power plants (PVPP) LV power metering 4,166 4,252 4,311 4,451 4,509 +1.3 % +2.0 % 97 38 Households 293,545 294,605 296,487 297,829 299,872 +0.7 % +0.5 % Hydro power plants (HPP) 39 TOTAL NUMBER OF CONSUMERS 326,520 327,689 329,622 330,971 333,264 +0.7 % +0.5 % Combined heat and 88 power plants (CHPP) Number of consumers Biomass power plants (BPP) Growth in relation with the previous year Wind farms (WF)

2014 333,264 +0.7 % 684 2013 330,971 +0.4 % 2012 329,622 +0.6 % 2011 327,689 +0.4 % 2010 326,520

The activity of investors in the construction and connection of new generation sources to the distribution network continued to decrease in 2014. The number of newly connected sources decreased by 23% compared to 2013, from 69 to a mere 53. 2.4 Distribution of Electricity 2.4 Distribution of Electricity Contents

A total of 11,105 users, or 3.3% of the total network users, switched suppliers in 2014. The number 2.4.3.3 Suspension of electricity distribution of supplier switches decreased by nearly 35% compared to the previous year. The downward trend in the number of switches recorded in 2013 thus continued in 2014. The electricity disconnection procedure is carried out in accordance with Article 115 of the Energy Act. The main reasons for disconnection are: Number of supplier switches by users and proportion • unpaid liabilities for network charges and contributions, and of switches according to the number of connected • the termination of supply contracts by suppliers. network users in the period of 2010–2014 A total of 63,052 disconnection notices were issued in 2014, which is 7.9% more than in 2013, ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Number of supplier switches 7.2 % ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Number of switches (consumers) (in %) 6.1 % and 2,119 disconnections were carried out, which constitutes a decrease of 5.1% compared to 5.1 % the previous year. Although the number of disconnections due to unpaid network charges and contributions increased by 36%, disconnections due to unpaid network charges still made up only 3.3 % 1.6% of the total disconnections. 1.9 %

2.4.3.4 Supply by SODO In accordance with our contract, we issued 115 bills for supply by SODO for a total amount of

6,191 20,107 23,743 16,940 11,105 EUR 70 thousand on behalf of SODO and for its account. The bills for SODO are used to bill for: 2010 2011 2012 2013 2014 1. corrections for meter errors if the errors pertain to a period when the current supplier did not supply electricity to the metering point or if the existing supplier does not wish to settle the 2.4.3.2 Billing for the network charge and contributions errors with the user; The network charge and contributions are billed via separate bills or via combined bills using the so- 2. last resort supply provided by SODO to users connected to distribution networks under its called annex A (a standardised set of data for network charge and contribution billing for suppliers). responsibility if their supply contract lapses due to the insolvency or illiquidity of the supplier or The billing method for the network charge and contributions depends on the user’s contract with upon request by residential and small commercial users; 40 the supplier. 41 3. unauthorised consumption, which takes place in accordance with the General Conditions for A total of 4,545,561 bills for network charges and contributions were issued in 2014, which is 1.4% the Supply and Consumption of Electricity from the Distribution Network when: more than in the previous year. The number of separate network charge and contribution bills • user is connected to the network without a valid access or supply contract and does not increased by 19.8% compared to 2013; however, separate bills still only constituted 2.7% of the total meet the requirements for last resort or emergency supply; number of bills in 2014. • a user consumes electricity without using the required or agreed metering equipment or by In terms of value, the total network charges and contributions billed via separate bills amounted to circumventing it or prevents the proper recording of metering data; 31.1%, increasing by 0.5 percentage points compared to the previous year. • a user removes the safety seal from their metering equipment; • a user establishes a connection to the network without authorisation; Structure of network charges and contributions billed • a user provides inaccurate data for determining their consumption group; by billing method 4. the emergency supply of vulnerable consumers if a suspension of supply or a reduction of Annex A supply below the quantity or power required under the circumstances (time of year, living

Separate bill conditions, place of residence, financial situation, health situation, etc.) would endanger the life or health of the consumer and those residing with them. 31.1 % Structure of supply by SODO charged in 2014 -36 €

Corrections for meter errors 68.9 % Last resort supply Unauthorised consumption 19,139 €

50,887 € 2.4 Distribution of Electricity 2.4 Distribution of Electricity Contents

2.4.4 Electricity metering 2.4.4.3 Maintenance of metering equipment at metering points A total of 11,965 regular replacements of meters with a connected load below 43 kW were carried 2.4.4.1 Advanced metering infrastructure out in 2014 due to the expiry of the metrological certificates for the meters. An additional 3,289 We continued installing advanced metering infrastructure (AMI) and installed 6,894 electric meters replacements were carried out due to failures or defects. A total of 442 electric meters with a and 130 data concentrators with bulk meters at the Kamnik supervisory unit. In the second half of 2014, connected load above 43 kW were also replaced during the year. we continued installing AMI in the area of the Bršljin DTS, in the Novo mesto DU, where we installed Regular electric meter replacements a total of 3,520 electric meters. A total of 75 TSs are equipped with data concentrators. AMI was also ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP installed in the area of the Ljubljana City DU, where we installed a total of 1,500 smart electric meters. Number of replacements - Number of replacements - 43 kW or less more than 43 kW We thus equipped an additional 11,914 metering points with AMI in 2014. A total of 91,579 metering points were thus included in Elektro Ljubljana’s advanced metering system as at the end of Elektro Ljubljana, which constitutes 27.5% of the total number of metering points. 2014 11,965 2014 442 We will need to significantly increase our activities in the installation of advanced metering 2013 16,660 2013 406 infrastructure in the future if we are to meet the objectives laid down by the European directive. 2012 2012 The key criteria for the installation of smart meters are consumer criticality, metering point 23,007 127 inaccessibility, the provision of metering data from meters for other energy products, and low RF 2011 35,294 2011 43 signal strength. We are currently far behind in the installation of advanced metering infrastructure according to the network development plan (NDP), which was prepared in accordance with the 2010 30,478 2010 37 guidelines of the European directive. The statistical sampling of electronic active energy meters continued in 2014. This advanced Installation of advanced metering infrastructure approach will improve the level of control over individual populations of measuring equipment in in the area of Elektro Ljubljana the long-term while reducing the costs of regular inspections of entire homogeneous electric meter populations. The statistical sampling was performed on three samples of meters, all of which 42 successfully passed the tests. 43 45,000

40,000 2.4.4.4 Metering point inspections 35,000 A total of 459 metering point faults were discovered in 2014, 41 of which occurred due to tampering. 30,000 A total of 900 MWh of additional electricity was charged. All metering point inspections were IT- 25,000 supported via handheld terminals and the MOW software.

20,000 We inspected 130 metering points with a connected load below 43 kW, 124 metering points with 16,026 a connected load above 43 kW and 7 metering points with a connected load above 1 MW. The

15,000 13,740 13,400 12,228 11,914 inspections were carried out in accordance with Article 75 of the Rules on the System Operation 10,208 10,000 of Electricity Distribution Network. Where possible, inspections were coordinated with works on 6,400 5,000 TSs so that users of the distribution network were inconvenienced as little as possible. Any defects

0 were remedied as quickly as possible. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Intensive activities for the establishment of energy flow control in areas equipped with advanced Year Newly installed AMI meters NDP metering infrastructure continued in 2014. The SOIPE software used for controlling energy flows in the distribution network and monitoring electricity production was adapted. We carried out intensive activities for the correction of incorrectly paired metering points, which is essential to

2.4.4.2. Acquisitions and connections proper balance control at the level of individual transformer stations, on the basis of data provided by our advanced metering infrastructure. In 2014, we: So-called U/I checks were also carried out on a monthly basis to check the voltages and currents • acquired 1,887 new metering points (13% less than in 2013), at all metering points above 43 kW. If an irregularity was discovered in the voltage or current at a • acquired 1,162 existing metering points due to changes in connection approvals, and metering point, an inspection was carried out during the month. All checks were carried out using handheld terminals and the MOW software. • connected 371 construction site metering points, We regularly carried out acceptance tests prior to accepting electric meters in 2014 to reduce the risk for a total of 3,420 acquisitions. The acquisitions included 882 connections, 73.5% of which we of deliveries of metering equipment that had sustained damage during manufacture or transport that carried out ourselves. affected its proper operation. 2.4 Distribution of Electricity 2.4 Distribution of Electricity Contents

2.4.4.5 Meter reading 2.4.5 Network maintenance New consumption groups and reading frequencies were introduced with the new information system. The original groups, annual consumption and indirect consumption, which was further Network maintenance has a direct impact on the long-term quality of electricity supply, whose divided into low consumption and high consumption, were reorganised into household consumption, main indicators are presented in section 2.4.6 below. Network maintenance is either preventive consumption without power metering and consumption according to operating hours (T < 2,500 hours or corrective (repair of defects) and includes maintenance management, planning, preparation, and T ≥ 2,500 hours). supervision and reporting and the keeping of records on the electrical infrastructure.

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Manual consumption reading is divided into two groups according to the reading frequency – Due to the ice storm in February, a great deal of focus was placed on repairing the damage and ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP annual and monthly reading. restoring normal operation. A total of 11 km of 110-kV lines, 276 km of 20-kV lines, 131 km of low- A total of 241,008 manual readings were taken for users whose electricity usage was settled on the voltage lines and 117 transformer stations were damaged. Several thousand line supports were also basis of a single annual reading and 7,653 readings were taken for users whose usage was settled destroyed or damaged. Although a majority of the damage has been repaired, mainly through capital on a monthly basis. This number decreased by 14% compared to 2013 due to the establishment of investments, part of the damage has yet to be repaired in the coming years, as approvals will have remote communication with these metering points and the formation of new consumption groups, to be obtained in certain cases due to partial changes in routes and technologies. Approximately as certain metering points were transferred to different groups. 70% of the damaged network and facilities have been fully restored.

The intensive installation of advanced metering infrastructure has resulted in a reduction in meter The key destroyed 110-kV lines, the 110-kV OTL between Kleče and Logatec and the 110-kV OTL reading costs but also in an increased workload in other segments, mainly in the control and between Vrhnika and Logatec, were already restored in 2014. We have yet to restore the 20-kV OTL monitoring of the operation of metering points. between Logatec and Žiri, which will actually involve the full reconstruction of 18 km of completely destroyed overhead transmission lines. New design documentation will have to be prepared to The proportion of commercial consumers with a connected load of under 43 kW with quarter-hourly implement the required reinforcements, and easement rights will have to be obtained for the line metering and remote meter reading increased to a total of 10,427 metering points. This significant supports. increase is attributable to the introduction of the new information system and the reorganisation of consumption groups. The remaining sections of the LV and MV networks that still require repairs are mainly located in the most heavily affected areas of the Logatec, Cerknica, Žiri and Vrhnika supervisory units, and to

44 The proportion of residential consumers with quarter-hourly metering and remote meter reading a lesser extent in the areas of the Kamnik and Domžale supervisory units. 45 increased from 65,788 to 77,471 metering points, which constitutes 24.8% of the total residential consumers. The restoration of the ice damage is described in more detail section 2.8 – Capital investments. We also carried out regular maintenance and organised the preparation, coordination and 2.4.4.6 Improvements in electricity metering monitoring of the plan for the maintenance of electrical equipment and plants from the 110-kV level to the LV level in accordance with our contract with SODO, d. o. o. A great deal of attention was devoted to working on and providing support in the use of handheld terminals in the field. Certain terminals already enable the user to create service orders or obtain We monitor the progress of maintenance works and the keeping of records on the EI using various updated data on metering points from the information system using a data SIM card. This will be applications based on the technical database (TDB). Intensive activities were carried out in 2014 for of great help to our staff in the field, as the data will be synchronised with the database and the the upgrade and improvement of the Elektro Ljubljana Spatial Information System (ELSIS), which is number of errors will decrease (e.g. in fuse replacement). We have received positive feedback from used for managing the TDB and for various queries in relation to the electrical distribution network. users testing the handheld terminals and will continue to equip additional handheld terminals with An upgrade was completed that included mapping the topology of the network (the preparation SIM cards in the future. The handheld terminals were upgraded to enable the reading of meters of circuit diagrams of DTSs, DSs and TSs), recording data in the TDB and implementing a design and load curves using an optical probe. With the use of handheld terminals and the MOW software, application. We commenced a project in which fixed assets will be linked to the data in the TDB work procedures at metering points will gradually become completely paperless, which will enable at the level of the LV network by developing a suitable application in the ELSIS. The project will the optimal organisation and recording of procedures and improve overall efficiency. continue in 2015.

With the introduction of the new eIS information system, certain work processes at metering points We keep constant track of returns and irregularities in equipment, procedures and maintenance were also partially modified. Due to changes in the structure of data, it was necessary to adapt the systems and propose suitable solutions. We always ensure that all our electrical network elements applications used for conducting metering point inspections and various network analyses. The and systems are type-approved and suitable technical guidelines are prepared. billing data transmission system had to be adapted as well. Towards the end of the year, we initiated We have also established a Learning and Training Centre to provide our employees with the best the integration of the new eiS system with the system for the capture and transmission of data from possible training, develop their competencies and ensure that knowledge and good practices are remote electric meters. The data preparation system and the transmission of data for billing will transferred between our employees and implemented in practice. Through the effective training thus be updated and upgraded. of our employees using internal resources, we ensure the transfer of know-how between our We also rationalised the procedure for the connection and acquisition of metering points. The new employees and thus the sustainable growth and competitive advantage of the company as a procedure has significantly reduced the number of visits to metering points, as connections and whole as well as a higher quality of electricity supply for our end users. We carried out a total of 8 acquisitions can be carried out in a single visit if the metering point meets the technical requirements. training courses for our electrical technicians, group managers, department managers and design engineers at our Learning and Training Centre in 2014. 2.4 Distribution of Electricity 2.4 Distribution of Electricity Contents

2.4.6 Quality of electricity supply We monitor the continuity of power supply in accordance with the methodology prescribed by the Energy Agency and using the SAIFI (System Average Interruption Frequency Index) and SAIDI (System Average Interruption Duration Index) reliability indicators. We ensure high-quality and uninterrupted supply to our users through the reliable management and operation of the network and adequate planning and maintenance and by carrying out regular Reliability of electricity supply in the period of 2010–2014 power quality measurements at supply points and consumers’ premises and ensuring the regular SAIFI - number of interruptions per consumer maintenance of metering, protective and telecommunications equipment. 2.53 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP A total of 1,759 unplanned events, i.e. long-lasting failures that required repairs, were recorded in ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP the network operated by Elektro Ljubljana. In addition to failures, there were 2,151 interruptions (up to 3 minutes). The significant increase in unplanned events and interruptions in the network 0.14 0.53 is attributable to the massive ice damage caused in February in the wider area of the Notranjska 0.44 0.40 0.10 region. 0.20

0.14 1.35 0.15 0.23 Number of failures and short electricity supply interruptions 1.30 0.95 in the period of 2010–2014 0.90 0.86 Unplanned events – force 2014 1759 2151 0.72 Unplanned events – third 0.69 0.65 0.64 0.64 Unplanned events – own 2013 709 1030 Planned 2012 766 1259 2010 2011 2012 2013 2014

2011 533 1124

2010 557 1025 SAIDI - minutes of interruptions per consumer

1185 46 Failures Interruptions 47

Number of failures and short electricity supply interruptions 49 33 12 42 by month in 2014 8 3 6 4 12 58 59 50 197 41 1026 1103 44 Unplanned events – force 98 Unplanned events – third 88 92 93 94 Unplanned events – own Planned 2010 2011 2012 2013 2014

A decrease in the SAIFI and SAIDI indices for events caused through our own fault was recorded in 2014, which suggests an improvement in the quality of the supply of electricity to our consumers.

The force majeure index deviates significantly from the average due to the natural disaster in February. The 110-kV OTL between Kleče and Logatec and the 110-kV OTL between Vrhnika and

189 Logatec were also damaged, interrupting power supply to consumers throughout the Notranjska 161 124 128 137 114 82 69 57 78 70 55 59 45 76 62 51 region. It took more than 10 days to restore power supply to consumers, which is reflected most 51 38 54 51 30 prominently in the SAIDI index. The SAIFI index also increased, mainly due to a number of failures

1 2 3 4 5 6 7 8 9 10 11 12 in the temporarily restored network after the initial ice damage. Month Interruptions Failures Power quality is measured, analysed and reported in accordance with the SIST EN 50160. We monitor power quality continuously at certain points in the electrical network and carry out periodic checks as required for network analyses or at the request of the users of the distribution network. At the request of network users, we issue declarations of conformity that demonstrate power quality on the basis of quality measurements. 2.4 Distribution of Electricity 2.4 Distribution of Electricity Contents

In accordance with the requirements of the General Conditions for the Supply and Consumption of 2.4.7 Development of the distribution network and advanced Electricity from the Distribution Network, all facilities at boundaries between the distribution and the transmission network and boundaries with neighbouring distribution companies and system services generators are equipped with instruments enabling the continuous monitoring of power quality Elektro Ljubljana’s distribution network development process includes: • the monitoring and analysis of energy and other spatial data, The following voltage quality indices have been established to ensure a comprehensive overview of voltage quality: • the establishment of distribution network planning criteria, • the performance of electric power analyses for the restoration and development of DTSs, DSs

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP PQI-HV/PQI-MV as an index of overall voltage quality at the HV and MV levels, and TSs, ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP PLTI-HV/PLTI-MV as an index of flicker at the HV and MV levels, • the performance of electric power analyses for the development of the HV, MV and LV distribution networks, HI-HV/HI-MV as an index of harmonic voltage at the HV and MV levels, and • the coordination of proposed solutions for electric power facilities with the preparation of spatial UI-HV/UI-MV as an index of supply voltage at the HV and MV levels. and development plans, • the issuance of guidelines, opinions, design conditions and approvals for the placement of The indices show the percentage of compliant weeks for all metering points recorded as part of the structures for other organisations planning construction in the area of Elektro Ljubljana’s continuous monitoring of power quality according to individual voltage levels and various voltage electricity distribution network, quality parameters. • the preparation of design conditions and approvals for design solutions for higher power for Voltage quality index trends more demanding consumers at the MV level and information for electricity generators, (compliance in %) • the issuance of connection approvals and the preparation of connection contracts for electricity 100% consumers and generators. We collaborated with SODO in the preparation of connection instructions and the Rules on the System Operation of Electricity Distribution Network, prepared a ten-year plan for the development of our distribution network and started the preparation of a three-year investment plan in accordance with the Act on the Methodology for the Preparation and Evaluation of an Investment Plan of the Electricity Distribution 48 49 System Operator. 90% We look for optimal technical solutions for the development of our distribution network with consideration of the planning criteria in order to: • enable the connection of new distribution network users and increase the supply of power to existing distribution network users,

80% • ensure optimal time use in the construction or restoration of the distribution network, 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 PQI-HV PQI-MV HI-HV PLTI-MV PLTI-HV UI-MV UI-HV HI-MV • reduce electrical losses in the distribution network, and

As evident from the trend of the overall voltage quality index, the average voltage quality is improving • optimise the distribution network construction costs. and is at a high level. A total of 17 electrical reports were prepared as part of the planning of the restoration and development of Elektro Ljubljana’s electric power system to check whether new consumers can be connected to the distribution network, and 72 network analyses were carried out for the purpose of connecting generators of electricity from renewable energy sources (RES) and combined heat and power (CHP) generators to the distribution network.

In 2014, we issued: • 116 guidelines and opinions for spatial plans,

• 1,573 design conditions,

• 3,944 approvals for connection to the distribution network,

• 3,817 connection contracts, and

• 2,979 design solution approvals. 2.4 Distribution of Electricity 2.4 Distribution of Electricity Contents

We are constantly working to improve commercial quality in the issuance of approvals, which is Management of Loads and Dispersed Sources in Distribution Networks (the Hybrid – VPP4DSO reflected in the reduction of the time required to process distribution network users’ applications project) for the Austrian e!MISSION.at research programme in collaboration with our Austrian and the time used to issue approvals as well as in the satisfaction of distribution network users. partners in 2013. We carried out various activities related to the project in 2014, such as selecting the sections of the network to be studied in detail as part of the project, selecting the consumers The start of the recession in 2008 and the associated reduction in economic activity resulted in a to be included in the tests and conducting a survey to study consumers’ activities, the nature of decrease in demand for additional power. The number of approvals (administrative documents) their operations, their use of electricity and whether it would be possible for them to adapt their issued, and therefore the number of approvals realised, thus dropped with the deepening of the consumption of electricity. economic crisis.

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP We were also intensively involved in SmartV2G, ICT4EVEU and MOBINCITY international research ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Number of realized connection approvals and development projects. The first of the three-year projects ended in June 2014, while the in the period of 2010–2014 remaining two are scheduled to end in 2015 and 2016, respectively. Although working on the three projects simultaneously has been demanding, it presents a great opportunity for the company, as 2014 2,377 international collaboration has given us a chance to broaden our horizons and prepare for the expected increase in the number of electric vehicles, which will have a significant impact on the 2013 2,545 distribution network. 2012 2,790 2011 2,865 2010 2,997

The number of connection possibility information notices and approvals for the connection of generators of electricity from renewable energy sources (RES) and combined heat and power (CHP) generators issued halved in 2014 compared to the previous year. This is attributable to a decrease 50 in the interest of investors in the construction of photovoltaic power plants (the number of inquiries 51 only reached 15% of the number of inquiries received in 2013), the state subsidies for which were substantially reduced in December 2012 and are being reduced even further each month. There has been increased interest, however, in the construction and connection of combined heat and power plants, the subsidies for which have not decreased significantly.

Number of issued connection approvals for RES and CHP generators in the period of 2010–2014 2010 2011 2012 2013 2014 sHPP 3 2 3 3 5 sPVPP 141 239 361 61 11 Biomass 4 1 1 4 0 Wind - - - 2 2 CHP 6 14 25 28 48 TOTAL 154 256 390 98 66

Elektro Ljubljana’s activities in the development of advanced services also includes participation in international projects. Elektro Ljubljana has participated in the eBADGE international research and development project with its virtual power plant for two years now. The project has produced various potential technical solutions for connecting virtual power plants with consumers’ household appliances, as well as several business models. Elektro Ljubljana’s team presented the results of the research conducted as part of the eBADGE project to the European Commission’s evaluators, who gave their work a positive evaluation, which is important for all the partners participating in the project.

Our efforts have also resulted in the approval of a new research and development project that will also involve our virtual power plant. We prepared the proposal for the new project entitled Active 2.4 Distribution of Electricity 2.4 Distribution of Electricity Contents

2.5 Sales of Energy Products through two partners, with which we have concluded several contracts for delivery at a fixed and indexed price. In 2014, the wholesale price of gas mostly decreased. Since 2012, gas consumption has been declining in Slovenia. 2.5.1 Trade in energy products on international markets In 2014, the first annual auction was carried out. It was then followed by monthly auctions of Slovenian entry-exit capacities on the PRISMA platform, which is already in use throughout Electricity Western Europe. In the past year, the time-measuring method for a gas day was changed from the In 2014, Elektro energija actively expanded operations in foreign wholesale markets with the aim of portfolio Russian system from 8:00 to 8:00 the next day to the Western European system from 6:00 to 6:00 the

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 3 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP optimization and spreading electricity purchases to different markets. The largest share of electricity trading next day. Currently, the transition of gas metering and billing from standard cubic meters Sm to is represented by the volume of trading on the Slovenian, German and Hungarian markets. The Slovenian kWh is under way. This system has advantages for suppliers as it will now take into account heating and Hungarian markets are strongly linked in terms of price. On the other hand, the connection between values in the domain of network operators. the Slovenian and the German market is diminishing, mainly due to the effect of increased production from The trading infrastructure of the Elektro energija Group currently consists of 9 markets, including renewable energy sources in Germany. Montenegro with established border trade infrastructure. In 2014, the German market was largely used for price hedging of the sales portfolio in the region. In the past, it was used to analyse trends in electricity prices in the region as well because of its liquidity and Presence of Elektro energija on the European map transparency, since the movement was sufficiently consistent due to a rather good mutual correlation. With further decline in prices over the past year, this correlation was disrupted, which significantly impaired the quality of hedging an existing portfolio. Because the prices in the region did not drop as much as the prices Parent company (customers) in Germany, the loss arising from purchases for portfolio hedging was significantly higher than the return Subsidiaries on sales portfolio due to the sheer drop in prices. The biggest negative impact on the realized gross margin because of an uneven drop in prices occurred in April, when the price difference amounted to Registered balance responsibility EUR 8.8/MWh, and in October, when the difference amounted to EUR 17.55/MWh.

Natural gas 52 53 The wholesale natural gas market is characterized by the fact that Slovenia produces less than 1% of the total national natural gas consumption. This means that almost all natural gas is imported. Elektro energija purchases gas for its customers on the Austrian-Slovenian border (Murfeld) and imports it through the Ceršak entry point. The entry capacities that we provide are purchased at

annual and monthly auctions, as well as bilaterally. The gas supply is arranged contractually EPEX Spot

Slovenian gas pipeline network HUPX with entry and exit points (Source: Plinovodi) BSP SouthPool Ceršak Murfeld GME Gestore Mercati Energetici Austria / Slovenia (Gas Connect Austria)

KP Kidričevo

In the field of expanding the partner network, a major step forward has been made in 2014. In Rogatec that year, we had a total of over 50 partners, which include companies with which we concluded Slovenia / Croatia contracts for trading, power exchanges, system operators and OTC brokers. KP Ajdovščina (Plinacro)

M1 area Šempeter Gorica M2 area Italy / Slovenia (Snam Rete Gas) M3 area

M4 area 2.5 Sales of Energy Products 2.5 Sales of Energy Products Contents

2.5.2 Retail sales of energy products We retained the Savings on (Vklopi prihranek) and Savings on and Pay-As-You-Go (Vklopi prihranek in plačaj po sprotni porabi) products in our service portfolio in 2014. Both services provide household customers up to 40% lower cost of electricity at least twice a week for at least a two-hour interval. Electricity retail sales As a contract aggregate of available electrical power in the retail market, we started marketing Throughout 2014, we offered stable and competitive conditions of electricity supply to business and the services of controlled power management, i.e. the Virtual Power Station, which was very household customers. We enabled direct access to the wholesale market to the largest customers successful. This allows our partners to adapt their consumption over time and save on the final within the quantities intended for their own consumption. We were constantly strengthening price of electricity because they are compensated for this adaptation.

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP partnerships with key customers and improving services in the fields of consulting, responsiveness ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP and complaint resolution. We are pleased that we have retained the most important customers. For the second time, we have successfully participated in the tender for providing power capacity to implement tertiary frequency regulation by off-take and dispersed generation management. We In 2014, we conducted tenders in the field of retail trade in 2014 in cooperation with the Eco Fund of managed to increase the available capacity by 3 MW (to 15 MW), with which we were able to offer the Republic of Slovenia to obtain financial incentive grants for investments in measures for energy the available power to other providers that were not able to join the project in 2013 due to a lack of efficiency increase for business investors in the amount of EUR 1,069 thousand. The distributed available capacity. funds amounted to EUR 133 thousand or 12.42%. When compared with 2013, Elektro energija increased its market share from 17.3% to 18.2% in 2014 Industrial and large business customers have a mainly active role in electricity purchasing and and retained the second largest market share among electricity suppliers in the Slovenian retail conclude fixed-term contracts. On the basis of professional consulting, these clients can choose market. The market share fell from 25.5% to 24.7% when compared with 2013 only in the market the time for electricity purchase themselves. We are developing partnerships with them and of electricity supply to household customers, but we still hold the largest market share among maintaining an active approach by informing them and fulfilling their needs. In 2014, we have electricity suppliers in this segment. The market share in the household customers segment was provided the option to purchase electricity in different markets and under different condition to this significantly affected at the end of 2014 and at the beginning of 2015 by the Slovenian Consumers’ segment of customers. Because of prices that had a slight downward trend in 2014, we have been Association campaign for group purchase of electricity and gas for household customers. Our bid developing additional products for our customers as well. These products are highly flexible, which in the campaign was not competitive because of extremely low prices that were offered in the is why the customers who selected them are keeping up with the current favourable wholesale tender by the competition. prices and can protect themselves against sudden adverse price movements. We acquired new partners as well and this is how we managed to maintain our market share in this segment of 54 Retail sale of natural gas 55 customers. In 2014, we mainly supplied natural gas to small business and household customers. We have Business customers with medium consumption generally enter into fixed-term contracts for gained the most customers among our existing electricity customers. In the last quarter of the electricity purchases with a fixed price for the duration of the contract. Because of a large number year, we have also prepared a special campaign with additional discounts for purchasing both of customers in this segment, we still managed it mainly with regular marketing activities, but we energy products. On the www.zanesljivo.si web portal, we provided a very simplified conclusion started paying them more and more individual attention. of contracts for natural gas to all customers, as well as for the joint supply of natural gas and electricity. According to the new legislation, the segment of small business customers includes all customers with a 41 kW connected load who mainly conclude contractual relationships for indefinite periods Our competitive advantages in retail sales of time. We prepared a new price list for this segment in the first quarter of 2014, offering our customers guaranteed prices that will not change until termination of agreement. The price list is The basic competitive advantage of Elektro energija is a stable portfolio of household and small adapted to the connecting load or to the customer consumption. In this segment, we managed to business customers, the largest in the Slovenian market. In order to understand the importance of retain most existing customers. We were also able to attract new small business customers with good user experience, we pay much attention to understanding the needs and desires of customers. competitive prices. Any complaints, dissatisfaction or other negative experiences are looked at as good opportunities to improve business areas where we still have to achieve excellence. In the past year, Elektro energija introduced a new concept of supplying electricity to household customers. We offered them the basic price until cancellation, as well as customized products with In 2014, we offered our customers the option of paying via a joint electricity and natural gas account a guaranteed price for a fixed period of time, irrespective of the duration of the calendar year. At the with only one payment order, regardless of the number of measuring points held by the customer. end of the year, we prepared a special offer for all major household electricity consumers and not We are bound by 120 years of experience in reliable supply of energy, which helps us to continuously only for heat pump owners. We rewarded the more active household customers for going paperless adapt to the needs of end customers. It is crucial to have professional and qualified staff and paying their bills via direct debit. We provided them lower prices of electricity and natural gas in streamlined operations, as well as good organization and a constant desire to improve relationship partner cooperation with a telecommunications service provider. We rewarded customer loyalty with our customers. with special benefits that they could use with our business partners throughout the year.

Throughout 2014, we have been upgrading the www.zanesljivo.si web portal where customers can order individual energy products in just two steps. We will continue to improve and renovate the website, which was awarded third place in the category of on-line stores among 103 websites in the WEBSI competition for the best Slovenian digital projects – Web Champions 2013, so that it will be available for the most demanding customers. 2.5 Sales of Energy Products 2.5 Sales of Energy Products Contents

2.6 Electricity Production 2.7 Other Marketing Activities

In 2014, the Elektro Ljubljana Group generated 15,682,602 kWh of electricity from renewable sources, In the market segment, the Elektro Ljubljana Group – among others – provides services and which is 7% more when compared with 2013 when production amounted to 14,653,325 kWh. products in the field of design, consultancy, construction and maintenance as well as optimization Favourable hydrological conditions and optimization of operation of production facilities of electricity distribution and consumer electricity networks. Therefore, it provides the following contributed to the record production in 2014. services in the distribution network and facilities on the free market: • designing and related technical consultancy, ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP In 2014, the electricity production in the ten small hydro power plants (sHPP) owned by the group ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP amounted to 15,038,899 kWh, and increased by 7.1% when compared with 2013. Due to favourable • implementation of low voltage (LV) connections, hydrological conditions, all plants operated throughout the year. The Sava Brod sHPP, which is our largest power plant (980 kW), operated the entire year at full power in 2014, which is a result • implementation of distribution networks and facilities (fully equipped transformer stations, of power plant underdimensioning in regard to the watercourse. In 2014, major inspections of medium voltage (MV) and 110 kV overhead transmission lines, middle voltage (MV) and 110 kV machinery and equipment at the Zala, Belica and Črni Potok sHPPs were carried out. cable conduits, extensive LV networks),

Solar power plant electricity production (SPP) from generation units owned by the group amounted • implementation of other services (maintenance of electricity installations, implementation of to 631,899 kWh in 2014 and increased by 3.8% when compared with 2013. comprehensive surge protection, measurements on electrical installations, etc.),

In November 2014, a cogeneration unit (CHP) began to operate in OU Novo mesto, which generated • option of carrying out full engineering for the above services. 11,804 kWh of electricity. These services mainly depend on the construction industry and activities, as well as on the financial situation and capital investments made by private investors and the public sector. Electricity production of the Elektro Ljubljana Group In comparison with the previous year, we noticed an increase in construction of wastewater (in MWh) treatment plants and associated infrastructure throughout Slovenia in 2014. Construction of 2014 15,039 632 12 electrical infrastructure, i.e. substations with accompanying equipment and network required for connection or operation of wastewater treatment plants, represents an overlapping point with our 56 57 2013 14,044 609 marketing activity.

2012 12,628 740 Moreover, we noted in the past year that in the industry or economy – especially in the case of financially successful, mainly export-oriented companies – there was an increased interest in new 2011 11,470 571 development or renovation of existing electrical infrastructure, especially concerning transformer 2010 14,236 116 stations and associated MV-connection and LV-distribution networks. Companies have certainly established that a quality and reliable electrical infrastructure is also necessary for successful sHPP SPP CHP operation and expansion of operations. Thus, even in the case of electrical facilities and grids, they think in terms of energy efficiency and cost reduction.

Replacement of existing electricity plants and equipment or construction of new electrical infrastructure are services, with which our company is the most competitive on the market. We actively connect with various manufacturers and suppliers of electrical plants and equipment to ensure long-term cooperation, as well as cooperation in individual investments or projects. 2.6 Electricity Production 2.7 Other Marketing Activities Contents

line bays were reconstructed. In parallel with this, a reconstruction of all four sectors of the 20 kV 2.8 Capital Investments switchyard was carried out.

Construction of the Sora Fužine DS was carried out in 2013 and 2014. Among others, 20 kV cells, In 2014, investments of the Elektro Ljubljana Group totalled EUR 31,514.8 thousand and were higher equipment for own use, protection, metering and remote control were supplied and integrated. by 19.4% when compared with the previous year. The increase in investments was necessary to In 2014, electrical installation works were carried out, including the implementation of 20 kV alleviate the damage or collapse of the distribution network caused by ice damage. recouplings in the new 20 kV switchyard.

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Investments by the Elektro Ljubljana Group In June 2014, redevelopment of the 110 kV Kleče-Logatec 1 OTL was completed, which was demolished ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP over the 2010–2014 period by ice damage in February. Nine (9) new transmission line towers were constructed and equipped Investments in EUR mio with new suspension equipment, new conductors were installed as well. The transmission line has Investment structure in % been operating again since mid-June 2014.

2010 62 22 7 9 25.0 Redevelopment of the second 110 kV Vrhnika-Logatec OTL, which also collapsed due to ice damage

2011 72 17 2 9 22.3 in 2014, was completed in December. Sixteen (16) new towers equipped with new suspension equipment were constructed and new conductors and OPGW overhead earth wire with fibre optics 2012 71 15 2 12 24.4 was installed. The transmission line has been operating since the end of December 2014.

2013 78 10 3 9 26.4 Guiding equipment at the Črnuče DTS was worn out and replaced with new equipment. New equipment was purchased and installed in 2014. 2014 80 14 0,3 6 31.5 In 2013, the entire primary and secondary equipment was supplied for the installation of resonance Other investments Production units Distribution machiner Distribution network chokes for earthing of the neutral point (RENP) in the Domžale, Kamnik, Žiri and Črnuče DTSs; construction and electrical installation works were carried out as well. By the end of 2014, the two resonance chokes in the Črnuče and Domžale DTSs were connected to the network, while the chokes Investments in the distribution network in the Kamnik and Žiri DTSs will be connected in 2015. New resonance chokes for the Logatec and 58 Investments in the distribution network are divided into investments into high voltage facilities and Cerknica DTSs were delivered and will be installed in 2015. 59 investments into medium-voltage and low-voltage facilities. In 2014, investments in facilities, which were destroyed or collapsed during ice damage, were carried In 2014, the following projects were realized within the scope of high-voltage facilities: out as a priority on the MV and LV distribution network. Redevelopment was carried out by way of • construction of the 110/20 kV Mengeš DTS including the construction of the 110 kV Mengeš renovation or reconstruction of existing facilities, as well as in form of replacement constructions transmission line bay towards the Domžale DTS, for new facilities in certain cases. With replacement constructions, the emphasis was mainly on • completion of the extension and reconstruction project for the 110 kV switchyard of the replacing the demolished existing overhead transmission lines with underground transmission lines. Cerknica DTS, The remaining smaller part of the realized facilities consists of facilities increasing the available power at individual points in the network, connecting new customers and improving voltage conditions • construction of the 20 kV Sora Fužine DS, or ensuring electricity supply for customers in accordance with the standards and regulations. • construction of the collapsed 110 kV Kleče-Logatec 1 OTL, which collapsed due to ice damage, We included constructions of basic MV transmission lines between power supply areas and their and of the 110 kV Vrhnika-Logatec OTL, reconstruction as well. • replacement of the Črnuče DTS operational equipment, In the framework of MV and LV facilities, the physical realization of investments included the following: • implementation of resonant earthing of the neutral point (RENP) in the Domžale, Kamnik, Žiri, Črnuče, Logatec and Cerknica DTSs. • 22 new transformer stations, The construction work on the Mengeš DTS facility started in August 2012 and was fully completed by • 6 reconstructed transformer stations, July 2013. Primary and secondary technological equipment, including 31.5 MVA power transformers • 45 integrated transformers with 14,840 kVA rated power, was delivered in 2013 and 2014. The electrical installation works on the 110 kV, 20 kV switchyard and • 270 km of constructed and reconstructed MV transmission lines in form of overhead transmission secondary equipment were carried out in 2014 and were completed by the end of the year. In 2014, lines or underground cables, a 110 kV DTS facility was integrated into the existing 110 kV grid. • 124 km of constructed and reconstructed LV networks, The primary and secondary equipment for the construction of the 110 kV Mengeš OTL towards Domžale DTS was delivered in 2013, while the construction and electrical installation works on the • 14 km of constructed underground cable lines. facility have been carried out and completed in 2014. As a direct result of the rehabilitation of the destroyed or damaged network caused by ice damage, Implementation of the extension and reconstruction of the 110 kV switchyard for Cerknica DTS an increase in output of MV and LV transmission lines is indicated when comparing capital started at the end of 2011. Because the facility remained in operation at the time of work, the work investments by individual parts of the distribution network in 2014 with the previous years, while the was carried out in stages until the beginning of 2014. During this period, the 110 kV TR3 and Logatec realization of transformer stations was reduced. 1 transmission line bays were upgraded and the 110 kV fields of TR2 and Logatec 2 transmission 2.8 Capital Investments 2.8 Capital Investments Contents

By the end of 2014, the following financially and physically large-scale independent investments Investments in distribution equipment and documentation were realized or under construction in the context of MV and LV facilities: In the context of metering devices, investments were executed in the metering system and metering • construction of 20 kV cable lines replacing the overhead transmission lines destroyed due to ice devices through the purchase of metering equipment for consumer and industrial customers, a damage on routes Ribjek–Osilnica–Bezgovica–Šajbnik–Dragarji, Mala Gora–Rapljevo, Lazec– functional adjustment of metering points and the purchase of equipment for transformer stations Stari Kot–Novi Kot (town), Rakitnica–Grčarice, Grivac–Gladloka, Žurge–Črni Potok–Vurhi– meeting the Advanced Meter Management needs. Podplanina, Globel–Gora, Visoko (holiday houses)–Rogatec and Ugar–Dane on the Kočevje DU; One of the major items under investments in distribution facilities and documentation was the • 20 kV cable lines on routes Črnuče DTS–Fish farm TS, Police Academy TS–Tacen TS–Ciril investment-technical documentation comprising investment-technical documentation for HV, MV ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Kosmač TP, Stanežice FS TS–Bormes TS and partial cabling for the Belink transmission line as a and LV distribution facilities, which are not yet included in the current investment plan. Realised compensation for the lines demolished due to ice damage, continued construction of the Polje– amounts include direct costs of obtaining the necessary approvals to obtain administrative Vevče DTS cable ducts, the Dunajska–Sava Bridge cable line and along Maretičeva Ulica and authorizations, including the costs of easements and possible purchasing of land for distribution Ulica Dušana Kraigherja, cable lines for the 20 kV Zalog PUC (Spar) cable conduit, the Mladinska facilities. Cesta–Asphalt Base route and the construction of Mladinska TS in the Ljubljana city DU; Further investments were also made in the purchases of spare parts and equipment of HV and MV • construction of 20 kV cable conduits to replace the transmission lines destroyed due to ice switching equipment, rectifiers, inverters and batteries for regular and emergency replacement in damage in the area of Logatec, a 20 kV cable conduit to the Velika planina ski lifts, the 20 kV existing facilities. Sovodenj cable conduit and the 20 kV Ledine cable conduit, rehabilitation of damaged MV and LV network by the Logatec, Vrhnika, Cerknica, Žiri, Kamnik, Domžale, Grosuplje and Litija Investments in electricity generation units supervisory units, the final stage of the first construction phase for the 20 kV double-circuit Grosuplje DTS–Škofljica DS cable conduit, construction of the 20 kV Kozarje DS–Gmajnice TS In 2014, the purchase of the Novo mesto CHP DU cogeneration unit was carried out, as well as the and Črnuče DTS–Črnuče Petrol DS cable conduits and construction of the Pristava pri Višnji Gori purchase of a control device in the Belica and Črni Potok sHPP. The turbine shaft in the Zala sHPP TS with connection cable and LV load shedding in the Ljubljana region DU; was replaced. • construction of the Golušnik TS with connection cable and LV load shedding, and NGC (Alternative Other investments Economic Zone) TS on Straška Cesta with a connection cable to the Novo mesto DU, In the context of the remaining investments in 2014, the largest amount is represented by investments 60 61 • construction of the Ljubež TS and the Čreta 2 TS with connection cables and LV load shedding in IT support, automation, means of transport and office buildings. to the Trbovlje DU. In the context of investments in IT, Elektro Ljubljana, d.d., modernized desktop computer equipment All MV and LV facilities were constructed by our own operating teams in 2014, just like in all the and purchased a disk library for the data centre computer equipment. The Elektro Ljubljana Spatial last few years, while construction works were outsourced through public procurement to external Information System (ELSIS) upgrade project was completed successfully. Testing of the Electronic contractors. The only exception was made in the case of network rehabilitation due to ice damage. Technical Catalogue (ETC) application was completed and handed over for use in production. Because of the extremely high number of destroyed and damaged networks, the rehabilitation Transfers and harmonization of data using the Cognos TM1 and Cognos BI tools were carried out. initially included outsourced contractors for electrical installation works. Data structure for reporting fixed assets data was established with the Cognos BI tool. Due to legal requirements for issuing e-invoices to budget users, an upgrade of the Blist application was carried In 2014, expansion of the workplace for the Elektro Ljubljana distribution management centre (DMC) out. Furthermore, modern electronic recording of IT system authorizations was established. As a was carried out in the context of energy distribution assemblies. Some hardware was replaced, result of an IT system renovation project, the eIS system in 2014 entered into production operation. namely the SCU workstations for remote monitoring of the Logatec, Črnomelj and Šiška DTSs. The Business Connect document management IT system was established to support the liquidation The realization of MV network management and automation comprises installation of a fault current process of incoming invoices. indicators and supply of automatic switches for replacement of equipment that was damaged by However, the major part of the Elektro energija, d. o. o. investments represents investments in ice. the renovation of the eIS IT System (EIS), investments in the upgrade of the Allegro system for In the context of telecommunications (TC) infrastructure, the realization covers TC connections with energy trading and risk management, and investments in the IT system for natural gas settlement the realization of the Litija DTS–Ivančna Gorica TS and Kočevje DTS–Dvor TS optical connections, calculation. access lines including IP telecommunications system, SDH/FHX telecommunications system, radio system, radio stations and telephones. 2.8 Capital Investments 2.8 Capital Investments Contents

2.9 Purchasing Goods, Materials And Services 2.10 Information Technology

In accordance with the Act Regulating Public Procurement in Water, Energy, Transport and Postal The year of 2014 was very special for the companies of the Elektro Ljubljana Group, whose basic Services (ZJNVETPS)21, the Elektro Ljubljana Group is subject to purchasing goods, constructions information-communication technological (ICT) solution is still represented by an integrated and services under this Act, namely relating to purchasing for provision or operation of fixed information system (IIS), which is managed by Informatika, d.d. A modern on-line application eIS, networks intended to provide a public service, and relating to electricity supply for such networks. which supports the billing and customer lifecycle processes, was separated from the ICT solution. The first production bills were issued for October 2014. Until the end of the year, we have also

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP With the majority of material suppliers (raw materials) and service providers (in particular ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP redirected users to submit their comments and suggestions for improvement of the ICT application construction, surveying, maintenance, clearing works), we concluded annual or multi-annual through a single Service Desk , which is provided by Informatika, d. d., as part of the Maximo contracts on the basis of public tenders with suitable response times for individual deliveries or solution. The eIS solution deviated from what was expected in the start, but Informatika, d. d., is implementation of services in order to smoothly carry out the activities of electricity distribution. trying to rectify deviations promptly and in a quality manner. Many systems within the electrical During the year, we carry out public procurement procedures in accordance with the ZJNVETPS distribution adapted to the eIS system. Data on metered electric consumption is ultimately provided and internal regulations for user needs of goods or services that are not covered by contracts. by the metering systems, which are also supported by IT technology, and further developments are In February 2014, the calamity with glazed ice represented a special challenge when procuring planned in this field – namely, smart grids. With the eIS application, the ICT solution has moved into materials and services. The material needs for network reconstruction were enormous, but we the production of works that are required by CRM solution. This is why Elektro energija replaced have managed to provide most of the material and equipment from contractual suppliers, with whom the technology infrastructure and linked the customer solution through web services with the we have long-term contracts. We have obtained material from other providers only in exceptional renovated billing system and other support systems. cases. The IT support for the Elektro Ljubljana Group operates through signed Service Level Purchase of materials and services that are necessary to execute works for foreign clients is Agreements where the parent company (Elektro Ljubljana, d. d.) provides the subsidiary not subject to public procurement legislation and is carried out by means of direct inquiries and (Elektro energija, d. o. o.) both services on the server and network level (TC-infrastructure), as negotiations. well as on the level of user solutions. In addition to IT support, the parent company also provides services in the field of accounting. An important area of providing an adequate level of service is a For the smoothest supply possible, we stock material in the central warehouse and in warehouses call centre, where the parent company provides hardware and software, which is independently 62 across distribution units and supervisory units. Particular attention is paid to maintaining optimum managed by the subsidiary. Because the ICT activity is subject to change, the Service Level 63 stock levels of strategic and other materials, depending on the contractual delivery deadlines and Agreement was renewed in 2014 – it included telecommunication support for the processes of planned works. Despite a significant increase in material inventories after the onset of the February Elektro energija. In 2015, we want to upgrade cooperation by determining processes, critical for calamity, we managed to lower the inventories through careful management. As of 31 December business in the ICT department. 2014, the value of the material inventory amounted to EUR 1,620.70 thousand and was 38.6% higher than at the end of 2013. Through careful management of inventories in and between warehouses, In addition, Elektro energija upgraded its Energy Trading and Risk Management system – Allegro we will continue to devote a lot of attention to reducing the total stock. – with the option of entering financial transactions and setting the views and reports for risk management. Automatic daily reporting was set up. The in-house ETRM system is now adapted For the purchase of electricity to cover losses and supply by the system operator of distribution to the needs of retail trade, which provides the company with a comprehensive overview of the network (SODO), i.e. emergency and urgent supply, unjustified off-take and improperly registered position, exposure and risks of the company in one place. measurement data, SODO, d. o. o., conducts auctions, on the basis of which a provider is selected. The electricity distribution company shall then on its own behalf and for its own account conclude Elektro Ljubljana OVE, d. o. o., uses its own control system for monitoring operation of small hydro a contract for electricity purchases and sales to cover the SODO losses and supply. For 2014 and solar power plants and cogeneration (CHP). In 2014, an energy efficiency (EE) project was and 2015, Elektro energija, d. o. o., was selected on the auction for the territory of the Elektro carried out in accordance with the methodology of the Jožef Štefan Institute, Ljubljana. Within the Ljubljana, d. d., electricity distribution network. framework of this project, a system for management of ten small hydro power plants owned by the company was created and integrated.

The ICT department represents the nervous system of the group. The exchanged data does not turn into information until we can usefully apply it, thus adding value to it. At the same time, the increasingly interconnected (integrated) systems represent a challenge to the ICT employees in terms of monitoring and upgrading. Therefore, it is necessary to keep accurate inventory of the systems and their links, and update them on technological and paper level, which is the basis for a high-quality level of service.

21 Official Gazette of the Republic of Slovenia, No. 72/2011 – official consolidated text, 43/2012 – Constitutional Court decision, 90/2012, 19/2014, 90/2014-SAA-1 2.9 Purchasing Goods, Materials And Services 2.10 Information Technology Contents

2.11 Quality Management System arrangement of archives in the company is implemented within the framework of this certificate. A detailed analysis of information assets and risk assessment was carried out. In 2014, an action plan was prepared for transition to the new ISO 27001:2013 standard. In the context of the Elektro Ljubljana Group, the parent company (Elektro Ljubljana, d.d.) is certified in accordance with the ISO standards and holds the following approved certificates: Environmental management system ISO 9001 – Quality Management System, Environmental management is becoming more and more important for all companies. The ISO 14001 ISO 14001 – Environmental Management System, standard and the legislation require business systems to continuously reduce their environmental ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP OHSAS 18001 – Occupational Health and Safety Management System, impact, while the limits imposed in the field of the environment are constantly becoming harsher. ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Frequent inspections are constantly carried out to check if the company’s operations in the field of ISO 27001 – Information Management System. environmental management are in accordance with the legislation. Environmental programmes are The subsidiary (Elektro energija, d.o.o.) holds the following approved certificates: ISO 9001 – Quality consistently implemented, while additional resources to reduce the impact on the environment are Management System and ISO 27001 – Information Management System. being invested. Environmental policy does not only represent a cost to the company, but also an opportunity to generate revenue from waste management. In addition to ISO certificates, both companies also hold the fullFamily-Friendly Company Certificate.

All certificates together comprise a management system, which integrates best practices and represents a process that is constantly reviewed and perfected. It follows marketing, legal and internal procedural requirements. The operation of individual systems is combined under the Quality Management System Council, which combines individual segments and areas. The persons responsible for individual areas are promoters of the integration process for individual practices, recommendations or legal obligations. Nowadays, this no longer represents just a convenient tool but an essential part of the company, which is evident from market pressures and regulatory provisions.

The SIQ external audit in 2014 showed progress towards procedural perception of quality and did not 64 recognize the inconsistencies in the certified systems of companies. The Quality Council convened 65 regularly in 2014 and discussed the audit’s recommendations. The external audit for Elektro energija showed improvement in the management of the quality management system, which means that recommendations were taken into consideration and realized.

Quality management system In today’s harsh competitive situation, an umbrella ISO 9001 standard is becoming a prerequisite for successful business operation of each company. Defined and regulated processes and their constant improvement are therefore key for existence and further development of all business systems. Because of this, we are making a list of all processes in Elektro Ljubljana and carrying out complete renovation. In parallel, a list of all business processes in Elektro energija is being prepared and will be redefined.

Occupational health and safety management system OHSAS 18001 is the most practical standard, which is the most important for the employees. In this area, the legislation is the most strict and provides heavy fines for violators. Training and monitoring is carried out in accordance with the legislation and standard requirements. In addition to existing programs to reduce the risks for work at height, the risks arising from the formation of arc flash at electrical facilities, the risk for work near equipment under voltage and the risk due to presence in road transport, special attention is given to the programme for inspection of fixed assets and supervision of work in the field.

Information management system The 27001 standard requires very precise control over information assets, risk analysis, etc. The certificate represents a competitive advantage both in terms of information risks management as well as process management of the company. A programme for review and comprehensive 2.11 Quality Management System 2.11 Quality Management System Contents

2.12 Risk Management on, are managed by participating in the procedures for adoption of legislation, participating in the preparation of spatial plans in local communities and obtaining the necessary approvals for construction permits early. 2.12.1 Risk management at Elektro Ljubljana, d. d. Comprehensive organizational regulation in the field of capital investments, which will be adopted by mid- 2015, covers the economic criteria for decision-making, internal controls, procedures from procurement Elektro Ljubljana has a comprehensive risk management system. There is an established risk to professional inspection of performed work and control. Every proposed investment is procedurally register with associated administrators, and assessments of integrated and final risk with measures connected through the following phases: ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP and controls. The purpose of risk management is to establish a system for monitoring of specific IPID – investment project identification document, risks that are graded high and can significantly affect annual objectives of the company, as well as CBA – cost benefit analysis, the three-year strategic objectives. There is an established system administration tool for securing business plans and objectives and risk management. Integrated risk management contributes NDP – network development plan, to process control and helps to steer the company in the right direction, which increases the TIP – three-year investment plan, likelihood of achieving better business outcomes and limits the likelihood of creating business AIP – annual investment plan, losses or other damages. With risk management, we also maintain and add value to the company QO IP – quarterly operational investment plan. reputation as a whole. This also represents support of the company in achieving the objectives by providing consistency and planning of future activities, supports business decision-making, All the steps and responsibilities are accurately identified in all phases. We started from the fact that contributes to a more efficient allocation of resources and capital, enables development, provides the economic models and analyses are prepared by the staff that is not the promoter in the first phase support to employees and company knowledge, and ensures optimization of business activities. and does not provide an independent view on the issue of economic indicators in the final phase. Final A comprehensive risk management system is a tool used by the management board and broader decision-making of the management board will be better and will contain less risk with additional management when monitoring goal realization and quick reaction in case of exposure to specific available information. risks arising from the identified causes. At the same time, it systematically identifies weak points that require new and additional risk management measures. Owner orientation Strategy or management risks belong to a wider group of strategic risks. A strategy with poorly set 66 goals and a weak response to the changes that come from the environment represents a risk to 67 With a comprehensive and timely risk detection and its efficient management, the objective of the the company. Implementation of the strategy must be supported in such a manner that strategic company is primarily the following: goals are aligned with the goals of human and technological potential and that they are adequately • achievement of strategic and business objectives, communicated within the company.

• faster response to changes, The company is state-owned in major part, therefore it adheres to high standards of transparency in • reduction of the impact of negative or exceptional incidents, accordance with the principles of corporate governance, publishes material information on all matters • optimization of the relation between risk and return. referred to by the principles and focuses on areas that are important for the state as the owner and for the general public. Risks related to management are associated with the adopted ownership policy that Below, we highlight key risks by individual business areas, which we estimate that the company affects the provision of a transparent and responsible management of companies with the necessary will be exposed to in the future. degree of professionalism and efficiency.

The risks are classified into three groups: The purpose and – at the same time – the objective of risk management in the field of strategy is to establish and maintain a successful and cost-effective system of internal controls that will ensure risk • strategic risks, maintenance at an acceptable level in terms of both financial performance and company’s reputation. • operational risks, • financial risks. Personnel risks The company pays special attention to human resource risks. Among the key human resource risks, we 2.12.1.1 Strategic risks include age structure of older employees in the field, lack of comprehensive information on employee Investment risks workplace satisfaction and the risk of providing professional qualifications to employees. Investment risks in the company represent risks of untimely investment implementation to ensure The risk of old age structure is managed by bringing younger personnel to the field. We have also sufficient capacity of the electricity network, long-term performance of investment and failure to strengthened cooperation with educational institutions in the field of electrical engineering by enabling achieve the planned economics of investments. secondary school pupils and students to take part in practical training, during which we get to know them and ensure that some of them will work in the company in the future. Risks in investment planning and evaluation, equipment purchasing and execution of works are managed by the established system of investment planning, the selection of contractors, prompt Good relationships are the foundation of workplace satisfaction, therefore we will manage the risk control of eligibility of changes in investments, the impact of changes on planned costs, and of a lack of comprehensive information on employee workplace satisfaction by regular assessments achieving the planned realization. External risk factors, which the company has no direct influence of organizational climate and employee satisfaction. We will also implement Code of Company 2.12 Risk Management 2.12 Risk Management Contents

Ethics, which will enforce the fundamental values in personal, professional and business functions that suppliers do not deliver materials due to changes in commodity prices, which can mean that within and outside of the company. To ensure health and satisfaction of employees, the company we would be unable to supply materials at already coordinated contract prices due to supplier actively supports activities under the Family-Friendly Company certificate. financial losses. To reduce the impact of this risk, we can only carry out activities such as real-time order monitoring and implementation of measures in the event of any critical events (search for Risks related to the provision of professional qualifications to employees are reduced by providing alternative options for material delivery, adaptation delivery date). continuous education, training and advanced retraining to the employees. However, we will also strengthen the activities of the Domžale Educational and Training Centre. This way, we ensure Business process risks – employees qualified and motivated employees, with whom the company can reach and exceed the strategic

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP goals of the business plan. The aim here is to reduce losses, intentionally or unintentionally caused by employees, and other ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP losses that include employees. Under this item, we include any intentional or unintentional errors and Market risks misuse by employees (quality of work execution, compliance with contractual provisions, control and monitoring of works), unavailability of employees (planning), processes for handling employees and Market risks in the company consist of risks of reduction in investor investment activities and associated ensuring safety at work (compliance with regulations and instructions). The risk is managed through dismissals, optimization and change of construction work schedules (projects). The risk is managed by appropriate planning, implementation and fulfilment of contractual provisions and requirements of streamlining operations, taking advantage of internal reserves and implementing marketing activities. ISO standards and through verification of quotes and concluded operations (projects) throughout the The external environment risks consist of events in the environment that affect the company’s business entire life cycle. This risk may be affected by events that are the result of improper employee handling operations. However, the company has no influence over them. On one hand, it is important that the due to lower, partial or total suspension of the internal control system – management, planning and company can predict them as far as this is possible, and on the other hand to prepare for them with monitoring of work, failure to comply with contractual provisions and provisions of ISO standards, appropriate organization. safety at work. It would be possible to reduce this risk with further checking of prepared quotes The purpose of managing or accepting the business risk of market activity is to provide flexibility or (offer checklist) prior to implementation, control and market transaction monitoring throughout the life adjusting and optimizing schedules or occupancy of workgroups either due to omission or rationalization cycle, and with timely detection, alerting and subsequent action in case of any critical events. of individual projects by contracting authorities or investors. At certain moments, this is reflected in the form of either excessive demand for execution of work in a certain period (congestion or peak) or as lack Risks in operation of metering and communication equipment of work in other periods of market activity. We primarily accept risks with the help of flexible planning and In the process of acquiring new metering and communication equipment on the market and coordination of working groups schedules on a quarterly, monthly or weekly basis, where regulated and 68 handover of new metering and communication equipment, a system testing was developed in 69 market activities mix. We also accept risks in terms of being attached to construction, within which the accordance with the Rules on system operation of electricity distribution network (SONDO) and process of executing electrical installation services is performed in most cases. We also accept the risk Instructions for classification of metering equipment in equipment set in accordance with SONDO. of more affordable and flexible competition as an indispensable part of every commercial activity. The risks can be further decreased with early detection of critical moments and consequent timely actions Control of metering points is carried out in accordance with Articles 72 and 75 of SONDO and (planning), as well as with increased commercial engagement and by advertising or marketing existing statistical sampling of electronic meters for operation energy is performed. This progressive and potential new market services. approach will improve long-term quality control over individual populations of metering equipment in use and reduce the cost of regular metrological control over entire uniform populations of electricity meters. 2.12.1.2 Operational risks Monitoring of electricity flows was established in addition to other monitoring of metering and Risk of loss of company assets communication equipment in areas where advanced metering infrastructure was installed. Software for controlling electricity flow in the distribution network was adapted. Measurement data from The objective of risk management in the field of insurance is to ensure or maintain value of company’s advanced metering infrastructure enables continuous monitoring of metering and communication assets using certain activities and procedures. By concluding the insurance contract, the risk devices, so that errors and defects at metering points can be eliminated as soon as possible. of potential assessed danger for an unexpected and unforeseen loss event is partly transferred from the company (the insured party) to other market participants (insurance companies). We are protecting the company’s assets from unauthorized access and approaches, by transferring liability Risks of failure of ICT equipment in the metering centre to secure assets to contractors (contracts with security companies). Transfer of indirect risk to We conducted an analysis of vulnerabilities and threats to ICT equipment in the metering centre. others is carried out by entering into a contract on a fixed price for a particular product or service. ICT equipment in the metering centre was assessed to have a high degree of risk according to ISO 27001. Based on the analysis, a programme to develop and implement information security with Purchasing risks planned measures to reduce threats and vulnerabilities was prepared. In 2014, the ICT infrastructure was established in accordance with the programme and provides the following: The purpose of risk management is to ensure timely, required or ordered and price-coordinated delivery of materials or services. The cost of risk is managed by contracts and their provisions, • smooth functioning of processes from metering to billing, contract monitoring and implementing measures in case of any critical events. • smooth scalability by increasing the number of remote metering points, • adequate reliability and availability of the system, The risks can be mainly affected by untimely delivery of necessary materials or services by suppliers or contractors, which are needed for executing the transaction, and can consequently lead to • system requirements for implementation of security policies in accordance with ISO 27001. failure to comply with contractual obligations on our part. However, there is also the possibility 2.12 Risk Management 2.12 Risk Management Contents

Information technology risks covering significant risks. Treatment and elimination of potential events is crucial; in 2014, three such potential events were recognized. Implementation of business processes depends greatly on horizontal management functions of business information services. For the sake of easier management, IT risks are divided into several Reduction of risks to health, safety at work and fire safety will be gradually achieved, mainly by subgroups. We have identified risks of common IT infrastructure, common central building blocks, raising the general level of health and safety culture of all employees, from workers and superiors application systems, including the interface, and risks at the level of service implementation. Risk and up to the top management. assessment of all identified information assets in the company is the base for everything. Analysis and management of information risks is conducted in accordance with the established organizational Risks relating to environmental management

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP regulation, which includes a description of the process, an information asset assessment method, ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Risks associated with environmental management are represented by risks of financial loss due to an assessment of vulnerability and threats, and determination and calculation of risks. incorrect waste management, environmental pollution due to oil spillage, etc. This risk is managed Risks are managed by means of annual action programs. The established and the most recognized with activities under the ISO 14001 standard, especially with the adopted plan of waste management, measures are an adopted and validated continuous operation plan, annual analysis of information efficient separation and recording of waste, environmental risk assessment and environmental system security or an ethical planned breach of the IT system, effective management of security programmes adopted on this basis, as well as with continuous supplementation and verification of incidents, multi-tier anti-virus protection, continuous active surveillance system to prevent abuse, organisational regulation implementation regarding the environment. implementation of security policies, an established and controlled system of authentication and The register of environmental aspects has been renewed and adopted in May 2014 and three new authorization allocation, and more. We are constantly keeping up with the technological trends and aspects were identified. Environmental programmes are specified for all important environmental introducing new technological solutions, taking the available funds into account. Preventive care aspects with higher estimates, in accordance with the adopted methodology. In addition to for cyclical replacement of IT equipment is provided, where we take into account technological financial loss, which is measurable, environmental incidents, represent a risk of loss or decrease obsolescence, as well as the economical intended use of the asset. of the company’s reputation, which is committed to meet the highest environmental standards. In 2014, we realized the recommendation of a regular external audit SIQ 2014 for the 27001 standard Nowadays, care for the environment represents a key social category, which the company manages in addition to regular implementation of measures. Within the framework of common interest of with ISO 14001 standard and with a system for monitoring and implementing both local and national electricity distribution companies and Informatika, d. d., which carries out information services for legislation in the business process. No inspection was performed in 2014, nor did authorities detect these companies, common security policies were implemented. In 2014, the company still kept any irregularities. The SIQ 2014 external audit in the environmental field was very successful in up with the technological trends, introduced new technological solutions and adequately trained terms of preventive action. No discrepancies were identified; however, five recommendations were 70 71 co-workers and users. issued, which are currently successfully implemented.

Legal risks 2.12.1.3 Financial risks Legal risk in the company is comprised of the risk of financial and business losses due to violation or Active risk management in Elektro Ljubljana follows the objective of timely recognition and improper adherence to laws, regulations, collective agreements and internal regulations, adopting response to potential threats by developing appropriate measures for protecting the company improper legal decisions, and non-responsiveness or late response (e.g. missed deadlines for against detected risks or reduced risk exposure. filing lawsuits and providing answers to lawsuits, missed deadlines for lodging an appeal against decisions of state authorities or failure to do so, missed deadlines for issuing a decision in the Due to changeable environment, financial risk management is an important and necessary part administrative procedure, failure to request a review), all of which can lead to complaints, claims, of the overall company strategy. Through active management and financial risk management, legal proceedings, penalisation and other material or moral damage. companies minimize costs and maximize revenues with the aim of achieving planned business results and increasing company value. We are managing risks by constant education and prompt informing of employees about changes in the legislation and internal regulations, by adopting internal acts that cover business processes The company systematically monitors, analyses and controls financial risks to which it is exposed in and current legal content (personal data protection, archiving, real estate arrangements etc.), business operations, estimates their impact on business operations and sets appropriate financial with proper mutual communication (consultation with internal or external experts prior to making procedures and methods for monitoring risk exposure. Furthermore, exposure to individual kinds business decisions), with timely inclusion of lawyers in project teams or in general legal issues, by of financial risks and measures for protection against them are carried out and assessed by the ensuring that authorized persons in the company initialize all contracts and correspondence, which company on the basis of effects of financial and monetary flows. reduces the likelihood of adverse consequences or prevents conduct that might cause them.

Risks relating to occupational safety Risks to health, safety at work and fire safety are reflected on the economic level as losses due to sick leave, recourse claims, staff disability, suspension of work due to work-related accidents and poor work organization. On the non-economic level, they are reflected in the form of employee dissatisfaction. Risks are managed using technical and organizational measures, which is reflected in the adopted safety statement with risk assessment, in the health risk assessment for individual workplaces, in the adopted fire safety policy and in activities within the framework of the OHSAS 18001 standard. Ten programmes for risk reduction operate as part of the OHSAS 18001 standard, 2.12 Risk Management 2.12 Risk Management Contents

Credit risk The policy for liquidity management in the company includes the following: Credit risk or the risk of failure to fulfil contractual obligations by business partners (customers) as • ongoing monitoring of company solvency, a consequence of insolvency is one of the most significant financial risks to which the company is • monitoring of appropriate measures for reduction of causes for insolvency, exposed. • planning future cash commitments and cash inflows that provide coverage for the former, The company mainly manages the credit risk and the risk of payment defaults with the following • adequate loan refinancing and loan conditions. measures: Interest rate risk • regular supervision and monitoring of creditworthiness of new and existing business partners, ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP • exercising control over defaults (non-payers), Due to short-term and long-term loans from domestic and foreign banks, the company is exposed to the risk of changes in reference interest rates, which affect the cost of financing. Because of this, • relevant provisions in commercial contracts (adequate financial guarantees and economic the company promptly monitors interest rate risk exposure and takes steps to reduce it. capacity of tenderers, references, etc.), • insurance of trade receivables by bank guarantees, bills of exchange, surety insurance, enforcement Due to the intervention of the European Central Bank, which lowered its key interest rate seven drafts, advance payments and withheld funds, times in the period from November 2011 to September 2014, both short and long-term euro interest • implementation of bilateral and multilateral compensations, assignments of claims and cessions, rates were lowered on international financial markets, which led to a reduction in the value of the euro against the US dollar and the Swiss Franc. The fall of reference interest rates for the Euro and • systematic and active receivables recovery control process, the surplus funds on the Slovenian banking market due to capital increases of banks contributed to • investing in the quality of mutual business cooperation. the implementation of measures to reduce exposure to interest rate risk. The improvement of our rating in the banking sector, which ensures higher rating of banks in the bank loan portfolio, allowed The company continually monitors outstanding receivables, absolute exposure and their structure, us access to cheaper bank loans with longer maturities of borrowing. We were able to reduce and executes control and recovery of overdue receivables. interest rates on existing loans and gain new maturity and best-priced bank loans in the company through negotiations with bank creditors. The company has successfully reduced financial liability Following the adoption of the amendment for the Financial Operations, Insolvency Proceedings and and thus the interest rate risk exposure with financial restructuring and deleveraging process. Compulsory Dissolution Act (ZFPPIPP)22, the number of initiated bankruptcy proceedings against legal Interest rate risk is reduced through diversification of the loan portfolio through a combination of entities and entrepreneurs and the number of personal bankruptcies increased in the first half of loans between variable and fixed interest rates. 72 2014. A greater number of personal bankruptcies is a result of legal changes, whereby all proposers 73 of personal bankruptcy were exempted from advance payment. This is now covered by the budget of Currency risk the court that conducts personal bankruptcy proceedings. The company is until 2017 partly exposed to currency risk from the credit transaction concluded in The company actively controls the increased number of bankruptcies due to changes in bankruptcy Swiss francs. Change in the EUR/CHF exchange rate can result in a loss or profit and thus impact the legislation through the process of recovery. At the same time, it manages them through performance company cash flow and accounting profit. Given the relatively small amount of credit in the context criteria of recovery effectiveness. of the total debt, we estimate that the exceptional growth rate of the Swiss franc against the euro Risk management in the field of receivables is an area to which the company will pay a lot of attention did not have a significant impact on company solvency. In the event of a substantial increase in in 2015 despite improvements in economic growth and macroeconomic conditions. foreign currency risk, the company will decide on further measures, otherwise the adopted strategy is to borrow European monetary currency. Liquidity risk Capital adequacy Liquidity risk includes the risk of a mismatch between the maturity of assets and enterprise liabilities, which can lead to liquidity problems, i.e. lack of cash to settle liabilities. The Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act (ZFPPIPP) stipulates that the company must ensure that it always has enough capital in relation to the volume The company actively manages its liquidity risk and ensures that sufficient cash resources are available and type of transactions, undertaken in the pursuit of its activities, and in relation to the risks it is at all times to promptly settle the obligations and maintain normal business operations. It is not only exposed to in performing these transactions. The law also stipulates that the company must be good business practice that forces us towards caring for our liquidity, but also the law. In accordance solvent in the long term, i.e. the extent of its long-term sources of financing are sufficient in terms of to Article 31 of the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act volume and type of transactions that they perform and the risks they are exposed to in performing (ZFPPIPP), it is stipulated that the company must regularly meet its outstanding liabilities and manage those operations. its assets and liabilities, so that it can settle all outstanding obligations at any time. The concept of capital adequacy is focused on risk management in relation to company solvency The company carries out the procedures for obtaining short-term and long-term resources in accordance and is based on the principle that the company should be able to settle its due obligations by the with the Decree on the terms and conditions and methods of borrowing for legal entities referred to in deadline and has to adapt its financial policy accordingly. Article 87 of the Public Finance Act23. In the past year, we also paid a lot of attention to this risk and actively approached refinancing of existing debt and liability restructuring with new, cost-effective concessional loans with favourable maturity to achieve additional liquidity relief of the company.

22 Official Gazette of the Republic of Slovenia, No. 13/2014, 10/2015 23 Official Gazette of the Republic of Slovenia, No. 112/2009 2.12 Risk Management 2.12 Risk Management Contents

The company’s risk management measures in the field of capital adequacy are the following: 2.12.2.1 Market Risks • long-term financial planning, Market risks include the risks to which an energy product supplier is exposed to due to changes in • regular monitoring of long-term solvency, commodity prices, interest rates and currency exchange rates. • verifying and improving capital adequacy. Price risk is most affected by changes in the structure of production resources, limitations of cross- In 2014, the company has successfully reduced the risk of capital inadequacy with financial border transmission capacities, current availability of transmission capacities and the weather. restructuring and the process of deleveraging and cost rationalization. On the purchase side, price risks are managed by forecasting prices, tying purchases to liquid

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP markets and with previously prepared strategies for closing open positions. On the sales side, price ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 2.12.2 Risk management in Elektro energija, d. o. o. risks are, however, managed by binding sales prices for customers to the liquid market, by offering appropriate insurance and by tying the prices for quantitative deviation billing of customers to the Risk management is a systematic process of risk identification, analysis and evaluation, and liquid market. adoption of measures for protection against them. Constant communication with stakeholders and monitoring and inspection of the entire process are necessary to achieve effective risk management. Interest rate risk arises from borrowing tied to the EURIBOR reference interest rate. All long- Risk acceptance presents threats to the group business and offers business opportunities that term loan agreements are concluded on the basis of variable interest rates, but all loans have a enable realization of higher yields. This is why the group uses a risk management system to balance satisfactory level of fixed mark-ups. Risk that could arise due to changing market interest rates is potential benefits and losses. primarily related to the possibility of unexpected increase in the costs of financing the company. The loan portfolio, which may be affected by changes in interest rates, is regularly monitored, while Risks are divided into external and internal, according to their source. External risk arises from we at the same time actively analyse and monitor the movement of interest rates. Loans whose changes in the environment in which the company operates (political, economic, technological and interest rate deviates from the average are managed by requesting reduced interest rates or a social changes). Internal risk, however, arises from the process or mode of company operation and change in type of interest rate from commercial banks. management. Risk arising from processes arises when processes are not adapted to the group’s strategy, when they are inefficiently or incorrectly implemented and whenever they do not increase In the financial year of 2014, Elektro energija, d.o.o., traded in foreign currencies as well, therefore the satisfaction of business partners. We encounter risks in all business processes in the company. we are partly exposed to foreign exchange risk, particularly on the Hungarian market. Subsidiaries Therefore we are regularly identifying them and are trying to manage them within reasonable limits. traded with electricity in Croatia, Bosnia and Herzegovina and Serbia. Because minor transactions were concluded, the foreign exchange risk is limited primarily by monitoring and analysing the 74 In 2014, we started to regularly use the Allegro ETRM system in our risk management procedures. movements in currency values. Most of the settlements are carried out by tying the prices to the 75 With the introduction of this system, the operational risks have been mainly reduced because euro, therewith neutralising the currency risk. transaction entries are more transparent, which additionally simplifies identification of errors. With the introduction of the ETRM system, it is also easier to monitor individual traders and identify Market risks potential misuse of authorizations. The largest added value of the ETRM system in the field of risk DESCRIPTION METHOD management is monitoring price risks in the purchase and sale of energy products. Now we can AREA OF RISK OF RISK OF GOVERNANCE EXPOSURE obtain MTM (Mark to market), PnL (Profit and loss) and VaR (Value at risk) calculations directly Pricing risk the difference between stop loss moderate from the ETRM system at the transaction, partner, region, portfolio and overall level, allowing us the purchase price and to make decisions about the risks more effectively. Using the ETRM system, we also upgraded the sales price of energy products reporting with daily reports to the management regarding the PnL portfolio status. At the end of Pricing risk the difference between the quality analytics, tying moderate 2014, we established a workgroup for price risk management that took over this responsibility from realized price chart and the prices to a liquid market the wholesale trade manager. projected price chart Interest rate risk great repricing period actively monitoring and small The company divides the risk into the following four categories: analysing changes in interest rates, participation 1. market risks, with several banks, the right 2. business risks, to early loan repayment, the option to change a variable 3. credit risks and interest rate to a fixed 4. operational risks. interest rate Currency risk major change in exchange transaction in euros, small rates actively monitoring and analysing the movement of currency values 2.12 Risk Management 2.12 Risk Management Contents

2.12.2.2 Business risks 2.12.2.3 Credit risks Business risks include quantifiable, liquidity and regulatory risks. All these types of risks are Credit risk arising from a default, bankruptcy or compulsory composition of partners from the associated with the performance of the core business activity. wholesale or the retail market, non-compliance with the contractual terms of business partners, credit quality and ratings. In addition to the use of external ratings, the company uses its own credit Quantity risk caused by uncertainty of energy product off-take is very important for the supplier. ratings for the purpose of credit risk management, taking into consideration known formal and This is most often due to economic conditions, the impact of weather, the difference between the informal information. To reduce the credit risk, much attention is devoted to debtor monitoring and wholesale and the retail market products, changes in the off-take volume due to changes in the receivables management. The credit risk with customers in the retail market is controlled by pre- ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP number of customers in the sales portfolio and random failures of equipment or infrastructure payment or collateral, by limiting payment periods and by introducing penalties and damages upon ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP interventions of network operators. On the purchase side, quantity risk is managed through early termination of the contract. When dealing in the wholesale market, the credit risk is limited quantitative restrictions and financial exposure in the purchase and sale of energy, and with by checking the creditworthiness of the partner, by setting credit limits, by eligible collateral and by forecasts of required quantities. In the framework of sales contracts regarding energy products, monitoring of all other available information. the quantity risk is managed by determining the possible off-take tolerance zones for customers and calculating premiums for them, as well as with contractual provisions for compulsory forecast The risk of non-compliance with contractual provisions of business partners has a negative of daily and annual volumes. impact on earnings of the company before interest and tax, therefore its management is necessary. To reduce the risk of non-compliance with contractual provisions of business partners, we used The next significant business risk is liquidity risk, which arises from the lack of depth of the energy standardized EFET umbrella contracts in trading on the wholesale market, which govern the entire product market. Liquidity risk arises from the structure of markets, outages of production units process from contract to delivery/acceptance of energy source and procedures in the event of or transmission capacities, and exceptional weather conditions. We try to bridge poor liquidity in infringement, which include ways of compensation for damage. To minimize the risk involved in wholesale markets by selecting appropriate partners and with time diversification of purchase the sale to end customers, we used the contractual articles in purchase contracts, which define transactions. contractual penalties and compensation in the event of infringement. Regulatory risk refers to the non-market factors, such as legal complications, changes and vagueness of regulations and political decisions. Protection against regulatory risk is provided Credit risks by contractual provisions to secure against changes in legislation, regulated prices and taxes. AREA OF RISK DESCRIPTION METHOD EXPOSURE Regulatory risk is limited by prompt monitoring of legislation and with participation in public OF RISK OF GOVERNANCE 76 consultations. Risk of bankruptcies financial loss due active monitoring moderate 77 and compositions to bankruptcies and of business partners, compositions of business acquisition and preparation Business risks partners of credit ratings, setting DESCRIPTION METHOD and monitoring credit limits, AREA OF RISK EXPOSURE usage of a variety OF RISK OF GOVERNANCE of collateral Quantity risk the difference between active monitoring moderate Risk of non-compliance financial loss due to agreements with regulated moderate the contracted and of quantitative exposure, with contractual non-compliance with the procedures in the event collected/supplied amount quality forecast volumes, provisions contractual provisions of infringements of an energy product diversification of the by business partners end customer portfolio Liquidity risk low energy market depth, greater number of moderate illiquidity of individual partners and markets, time products dispersion of transactions Regulatory risk the risk of changes cooperation with regulatory moderate in legislation or bodies in the process of subordinate legislation preparing acts, systematic environmental monitoring and timely response 2.12 Risk Management 2.12 Risk Management Contents

2.12.2.4 Operational Risks (HR And IT Risks) Operational risk includes potential losses resulting from inadequate IT systems, incorrectly selected models, incorrect or inadequate management and control, fraud, human error and loss of key personnel. We can protect against this risk with constant supervision of the development and operation of IT systems, procedures for process and model checking as well as by determining the responsibilities of individual employees.

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP To reduce the risk of improper functioning of IT systems, we use well-established business ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP information systems, which are continuously monitored. In doing so, we use our own knowledge and in-house assistance.

The risk of wrong or inadequate management and supervision was limited with procedures and processes for verification, determination of responsibilities and limitations of individual traders and sales staff in doing business. The Company’s exposure is checked each day by reviewing all trades and open positions.

The human resources risk represents one of the most significant risks for the company in its growth and increasing business volume. The development and success of the company depends on its employees, which is why we encourage personal growth of each individual in their field of expertise. Initiative, expertise, flexibility, awareness of quality and responsible work, and above all, good relationships are the foundations on which the company can build its future. Loss of key employees may represent one of the largest risks for the company. Operational risks DESCRIPTION METHOD 78 AREA OF RISK OF RISK OF GOVERNANCE EXPOSURE 79 IT risk financial loss resulting continuous control over the small from inadequate systems development and operation of IT system, model analysis and algorithms Risks of wrong or financial loss due to the procedures and small inadequate management lack of management, processes for verification, and control control and fraud determination of competence and limitations of approval in concluding transactions Human resource risk loss of key employees promoting personal and moderate professional growth of employees, a positive climate in the company 2.12 Risk Management Contents ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP

80 81

Energy that works for you.

3 Sustainable Development We are networking with positive energy. Contents

3.1 Responsibility To Employees Average structure of employees in the Elektro Ljubljana Group by education in 2014 Business performance, company reputation and its recognisability are a reflection of our employees. Awards and prizes are not awarded to the company, but to the employees who are 2.0 % 0.2 % in fact the creators of company success. The Elektro Ljubljana Group is aware of this. Employees 1.7 % 2.4 % in the Elektro Ljubljana Group represent the largest capital, therefore we must carefully develop, adequately manage and motivate them in order to stay in the company as long as possible and

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP PhD ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP continually increase the added value. MSc 20.2 % 19.6 % The year of 2014 was definitely a year of change in the field of human resources. We have adopted University ed. a new collective agreement, which is in accordance with the new labour legislation and sectoral Higher ed. collective agreement in the electric power industry. The new agreement was coordinated between Secondary ed. the social partners, since individual solutions are a result of consensus between them. Qualified 18.7 % We ensure performance of companies in the group through continual improvement of our internal Semi-qualified 35.3 % processes. The year of 2014 was marked by numerous changes in systematization and internal Unqualified organization of the parent company Elektro Ljubljana, d. d., and also in the subsidiary Elektro

energija, d. o. o., whose goal was to improve organizational efficiency. The educational structure of employees in the Elektro Ljubljana Group shows that 59.2% of all Special attention is given to cooperation with secondary school pupils and university students to employees have secondary or lower education, 18.7% of employees have higher education, 19.6% provide them an opportunity for practical training through work. The experience they acquire is have an university education and 2.6% of employees have a master’s degree or a PhD. very important for their future career path. In average, employees in the Elektro Ljubljana Group are 43 years old, which is the same as in the Number and structure of employees previous year.

82 As of 31 December 2014, the Elektro Ljubljana Group employed 947 workers. In comparison with the Employee training and development 83 previous year, the group employed 8 employees less, mainly due to the reduction in the number of Education, training and advanced courses are the most effective means to improve productivity employees in the subsidiary Elektro energija, d.o.o., in which the number of employees decreased and business outcomes. Of course, knowledge is not created by itself. It is transferred to employees by 8% – 7 employees. On average, the Elektro Ljubljana Group employed 953 employees in 2014. during education and training and produced and supplemented by self-education and a regular exchange of information, experience and good practices. Employee fluctuations in the Elektro Ljubljana Group on the last day of the year Training in the Elektro Ljubljana Group was implemented in accordance with the adopted education plans in 2014, which were coordinated with the heads of individual organizational units and business objectives of the company. Much attention is devoted to the analysis of educational needs, within which we identify deficits and thereby specify our educational needs in terms of improving working efficiency. Education is a driving force of progress and the key to continuous improvement. The skills and knowledge of our employees are required for them to be able to work. 947 Our employees have upgraded their knowledge in the fields of electrical engineering, health and

983 979 1004 1027 1028 984 964 956 955 safety at work, communication and leadership skills. They also attended various conferences and technical seminars.

By investing in education and training, we provide employees with an opportunity for personal and professional development, while ensuring a great future and a good name for our companies.

In 2013, Elektro Ljubljana ranked among the most reputable companies in Slovenia and was named 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 the best employer in the electrical and energy industry. The company ranked first in the energy sector and received the Reputable Employer award, which is awarded by the Moje delo, d.o.o., employment portal. The Employer Reputation (Ugled delodajalca) survey is conducted by the Moje delo employer portal and has been carried out on the Slovenian labour market every two years from 2007 onwards. This award makes us very happy, while at the same time bringing responsibility and commitment to work in the future. 3.1 Responsibility To Employees 3.1 Responsibility To Employees 3.1 Responsibility To Contents

Employee- and family-friendly company 3.2 Responsibility Towards Investors The Elektro Ljubljana Group is a proud holder of a full Family-Friendly Company certificate. We have and Financial Institutional Stakeholders adopted a series of measures to facilitate harmonization of work and family life. Just like every year, we conducted a number of activities in the field of health promotion in the workplace in 2014. We are aware that investing in employee health is undoubtedly an important asset of companies in The Elektro Ljubljana Group strives towards a sustainable and steady development, which provides our group. Therefore, we expanded the range of sports activities in 2014 and organized a number a reasonable return to the owners while fulfilling its core mission – to provide reliable, safe, high- of guided exercises and swimming for our employees in addition to fitness centre membership. We quality and sustainable electricity distribution system combined with cutting-edge services in the

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP organized preventive breast screening exams for our colleagues. We sent our internal newsletter field of electricity supply. ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP to the employees who have been absent for a long time to provide them with knowledge about key The group operates profitably, safely and transparently, while following the Corporate Governance developments in the company. Code for Companies with Capital Assets of the State. We enable our employees to spend quality leisure time in our holiday facilities, where they can In order to achieve business objectives, good communication with existing and potential spend carefree vacations together with their families. In 2014 we, have continued to introduce shareholders and financial institutions is very important. When communicating with them, we aim innovations in this area, ensuring our employees even more attractive offers. In the fall of 2014, for promptness, openness and consistency. The information we supply to them mostly relates to we also organized the traditional Company day in Radeče. One of the highlights of the day was achieved and planned business results of the company. competition of distribution units in pole climbing. At the end of the year, the children had a pleasure to meet Grandfather Frost. As is fitting for the pre-holiday time, we remained faithful to tradition With regard to legislation and regulations, we regularly and openly communicate with government in 2014 and organized a charity campaign for socially deprived children where employees out did institutions, i.e. with the Ministry of Energy, the Energy Agency, the manager of state property the – themselves with contributions and gifts to children. the Slovenian national holding company (SDH) – and with SODO, d.o.o.

Health and safety at work We promptly publish all relevant information for investors and other stakeholders online. Training In 2014, 452 employees in the Elektro Ljubljana Group and 18 students and secondary school pupils, who perform practical work in our companies, took part in the internal training for health, safety at work and 84 fire safety. Within the framework of other functional knowledge, 8 candidates participated refreshing the 85 knowledge of carrying out work under voltage, 298 employees participated in training to work safely with a chainsaw, 282 employees took part in training to work safely at height, 4 people participated in training to work safely with a construction crane and 1 for safe work with servicing ladders.

Medical examinations of employees and health care In accordance with the schedule, medical check-ups were attended by 327 employees in the Elektro Ljubljana Group in 2014. In addition to regular health check-ups, all employees can still take advantage of free eye examinations at the optician. In the spring, preventive vaccination against TBE was carried out, which was attended by 91 employees.

Occupational accidents In 2014, we detected 19 accidents at work. Most of the accidents included light machinery and one accident was related to electricity. In 2014, 3 accidents more occurred than in 2013.

Only three light work-related accidents during the February ice storms undoubtedly reflect high employee awareness about health and safety at the workplace. The causes of these accidents were accidental slips on an icy slope and a sprained muscle. Work footwear and clothing of our employees was soaked, since there was not enough space to dry them, which is why company management decided to purchase drying systems. To this end, a program was prepared under the OHSAS 18001 standard.

Other We ensured annual checks of work assets, climbers, extinguishing agents and elements of active fire protection and arranged for the annual deratisation. During the summer, field groups were provided with drinking water on the sites. Because medical supplies in portable cases and kits for treating burns expired, they were replaced. An analysis of sick leave for a period of five years was prepared, as well as a review of safety statement with risk assessment. An audit of internal documents was carried out. 3.1 Responsibility To Employees 3.1 Responsibility To Investors and Financial Institutional Stakeholders 3.2 Responsibility Towards Contents

3.3 Responsibility to Customers Number of answered calls in the DCC (Distribution Call Centre) and Network Fault Reporting Centre (NFRC) With reliable, efficient and safe operation, we provide uninterrupted electricity supply to customers. or the new CCC (Central Call Centre) in 2014 In cooperation with other partners in the integrated electrical system, we provide a reliable supply of electricity in rural and urban areas. We provide new networking capabilities to customers in commercial zones, shopping centres and individuals. In our development plans, we include all the

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP needs that is communicated from the local environment and we realize them within our capabilities. ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 2,242 2,187 1,999 1,907 4,589 We are aware that today, there is no life as we know it without electricity, which is why our social 1,893 1,645 1,578 1,576 1,594 1,457 1,402 1,405 1,370 1,337 responsibility is high. We abide by the following principles: fair and equal treatment of customers, 1,334 1,228 1,186 1,171 1,175 1,140 1,105 1,115 responsible environmental management, ethical and fair business and a friendly environment for 1,071 employees. Special attention is given to large customers and customers that use substances and materials that may impact the environment within the scope of their activities. 1 32 4 5 6 7 8 9 10 11 12 Any intervention in the environment and the network is carefully planned and coordinated with DCC NFRC Month customers, local communities and other interested stakeholders in the process. Only then can we fix the new transparent objects in the area with minimal impact on local residents and the environment. The level of DCC and NFRC or new CCC service in 2014 We mostly use existing facilities or try to connect with the existing public infrastructure. We report our plans on websites, in public media, in meetings with the local community and on the personal level.

We regularly communicate with other stakeholders in the process, i.e. industry, local communities, municipalities, the Energy Agency, the SODO and relevant ministries. To ensure the best possible services, our employees attend trainings and courses abroad, which transfers successful practices

86 from abroad to our network (work under voltage, network automation etc.). In accordance with 87 the needs to improve the quality of electricity supply, we regularly install new materials, test our products and regularly report and inform about them.

In the structure of contacts with users, we noticed a significant growth in the use of call centre 1 32 4 5 6 7 8 9 10 11 12 services, web portal and email, while the use of older traditional communication methods that DCC NFRC Month require personal contact (information offices) is in decline. The number of answered calls (the DCC segment) and a substantial increase in the service level In accordance with Article 150 of the Energy Act, we carried out a rational process of informing users indicators for both numbers of the CCC in the last quarter of 2014 reflected a very positive effect of of the distribution network when replacing the electricity meter. We have defined the integration of creating a central call centre. A larger team of operators automatically means a significant reduction two business applications, MOW and AONI. With that, we implemented a cost-effective and easy in the number of missed calls or an increase in the number of received calls, achieving an enviable way of notifying users, which are subscribed to the Elektro Ljubljana cost-free service. The user level of service level indicators for both CCC segments. receives an e-mail, text message, or their address is posted on the website. The service will be active for all users in early 2015. We took special care to raise customer awareness about energy efficiency and possibilities to obtain grants for energy efficiency improvement. On the World Energy Saving Day, we organized In order to ensure a higher level of services to users and to adapt to user preferences, we started promotional activities on efficient use of energy with practical demonstrations of measuring activities in 2014 to merge the Distribution Call Centre (DCC) at number 01 230 40 02 and the Network electricity consumption. The event was very well received. At the end of March, the company Fault Reporting Centre (NFRC) at number 01 230 40 02 to a Central Call Centre (CCC). To this end, announced the Energy-efficient with Elektro energija 2014 tender for non-refundable financial we have formed a new CCC team consisting of former DCC employees and MC dispatchers incentives to increase the efficiency of electricity use and the use of other types of energy for end who have previously worked in the NFRC segment. We carried out the necessary training and customers, totalling more than one million Euro. equipped workplaces of the future operators. In September 2014, experimental operation of CCC was established when all operators (6 employees) worked only in the mornings. During this time, Elektro energija provides a diversified system of communication channels for a well-informed they covered the DCC and NFRC processes and actively acquired missing specific knowledge. In two-way communication to its customers. The basic tools for communication with customers are October 2014, the CCC started operating fully in two shifts between 6:00 and 22:00 (weekdays). The the invoice backside, the call centre with a toll-free number, the [email protected], used incoming telephone numbers for users remained unchanged. [email protected] and [email protected] e-mail addresses, and the corporate website at www.elektro-energija.si. We also designed the www.zanesljivo.si product website In February of 2014, due to ice damage, the number of answered calls and the low level of NFRC especially for our customers. In 2015, both websites will be further updated and modernized in service deviates significantly from the remaining months. An enormous increase in calls because regard to content and design. Furthermore, we are planning an account update in 2015. In 2014, the of this event was virtually impossible to handle with the limited number of employees. company was present and active on select social networks. 3.3 Responsibility to Customers 3.3 Responsibility to Customers Contents

3.4 Social Responsibility 3.5 Responsibility to the Environment

In the area of social responsibility, we have been supporting projects of social, environmental Environmental management is becoming more and more important for all companies. The ISO 14001 values, cultural and artistic creators, projects of cultural and technical heritage, energy projects standard and the legislation require business systems to continuously reduce their environmental and Slovenian athletes for many years. We supported the “Be a Godparent” project (Botrstvo), the impact, while the limits imposed in the field of the environment are constantly becoming harsher. Rdeči noski Clowndoctors Association, the Friends of Youth Association etc. In the energy sector Frequent inspections are constantly carried out to check if the company’s operations in the field of field, we supported the conference of the Slovenian Electric Power Engineers Association CIGRE – environmental management are in accordance with the legislation. Environmental programmes are ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP CIRED. At the end of 2014, employees of Elektro Ljubljana Group responded in large numbers to the consistently implemented, while additional resources to reduce the impact on the environment are ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP charity campaign of festive gift-giving to the children who need help the most and dedicated the being invested. Environmental policy does not only represent a cost to the company, but also an resources for business gifts to socially vulnerable families. opportunity to generate revenue from waste management.

In 2014, communication focused on informing the owners, shareholders, experts, customers, network In 2014, we completed five environmental programmes because they were realized and became users, the general public and employees. Key communication topics in 2014 were associated with part of business processes. An external audit has established that we are mature enough for a disturbances in the distribution of electricity, mainly due to ice damage in the beginning of the year new step towards reducing environmental risks and in 2014, we started managing environmental and the summer storms that hit Slovenia. Among the main topics were the business results of the aspects in the process of design and adoption of technical guidelines. group. Care for the environment in terms of reducing the burden on the atmosphere, water and soil is In 2014, we informed our stakeholders through company newsletter and via an internal news realized by managing environmental aspects, i.e. elements, products, services and activities that can bulletin, as well as through other electronic company media (website, social networks). In 2014, interact with the environment, and by implementing corresponding environmental programmes. We we published four issues of the newsletter and seven editions of the e-newsletter, with which are aware that environmental protection is important, which is why our environmental orientation employees were regularly informed about operations and significant events in the Elektro Ljubljana is defined as part of the management and business policy. In 2014, we fully followed the written Group. Employees are regularly informed via e-mail, bulletin boards and intranet, as well as via environmental policy, comprising the intentions and principles and overall attitude towards the Elektro Ljubljana websites. environment. We adopted and renewed all waste management plans.

Environmental policy is defined by the following principles: 88 89 • prevention of environmental pollution and improvement of raw material and natural resources conservation; • regulated waste and hazardous substances management; • reduction of adverse environmental impacts; • preparedness and rapid response in case of accidents; • liabilities arising from the environmental policy are communicated to all who work for the company or on behalf of the company; • ensuring compliance with the applicable law; • raising environmental awareness among employees; • external and internal communication of information pertaining to the environmental management; • continuous improvement processes with regard to environmental management by using indicative and implementable environmental targets. Energy audits of own facilities and implementation of energy efficiency measures represents the basis for further development of services in this area.

In 2014, we conducted several campaigns to raise awareness of the interested public on energy efficiency and renewable sources of electricity. Much attention is paid to young people. We carry out a variety of presentations and lectures at elementary schools and kindergartens, as well as organise tours to certain electricity production sources, especially small hydro power plants operated by Elektro Ljubljana OVE, d. o. o. These visits are very well accepted among young people.

In companies within the group, employee awareness about the necessity of separate waste collection is continuously being raised. In 2014, we can see positive effect of the measure for separate waste collection and consistent adherence to the environmental policy. 3.4 Social Responsibility 3.5 Responsibility to the Environment Contents

Separately collected and processed waste in the Elektro Ljubljana Group in 2014

Construction waste and waste, related to construction (soil, rocks, concrete,bricks, etc.) 4,737,800 Separately collected waste (metal, alloys, wood, plastics, paper, etc.) 146,605 Municipal waste 49,573

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Electric and electronic equipment 21,272 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Packaging 124,804 Batteries 227 Waste motor and machine oil, lubricants 2,139 Other waste 65,741

The current environmental aspects were prepared in 2014. Significant environmental aspects were determined on the basis of the evaluation. For each environmental aspect, implementation objectives, time frames and responsible persons are assigned. Everything is defined in the programmes. Environmental impact of company operations is reduced through implementation of programs.

Environmental programs can be in implementation for several years. They are completed when implementation objectives are reached. Based on the analyses of environmental aspects, new environmental programs are constantly added. 90 91 In 2014, we implemented the following environmental programs: 1. Waste containing asbestos, 2. Efficient use of energy, 3. Transformers in sensitive areas, 4. Programme for distribution of transformers – insulation oil, 5. Economically efficient waste disposal, 6. Use of plant protection products.

Investment in environmental management in 2014 totalled EUR 1,540.2 thousand, and increased by 68.4% when compared with the previous year. Investments and revenues from environmental management (IN EUR) 2014 2013 ENVIRONMENTAL INVESTMENTS 1,540,218 914,387 1. Environmental investments 1,468,840 850,355 part of investments, resulting from environmental protection 1,441,913 806,098 studies of environmental impact 26,927 44,257 2. Costs24 71,378 64,032 municipal services (waste collection, sewerage collection) 65,800 55,775 waste removal (destruction) 2,742 2,342 maintenance of eco-containers 686 1,654 system management under ISO 14001 2,150 4,261 INCOME FROM ENVIRONMENTAL 79,058 44,870 MANAGEMENT income from sales of waste material 79,058 44,870

24 direct costs of material and services 3.5 Responsibility to the Environment Contents We are networking with positive energy.

Energy that entrances you. ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP

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4 Independent Auditor’s Report Contents

4 Independent Auditor’s Report ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP

94 95 3.5 Responsibility to the Environment Contents ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP

96 97

We are networking with positive energy.

Energy that you can smell.

5 Financial report Contents

Consolidated balance sheet as of 31 December 2014 in EUR in EUR Note 2014 2013 Note 2014 2013 A Long-term assets: 427,820,557 421,869,869 A Capital 10. 9. 285,796,355 283,266,520 I. Intangible assets and long-term deferred costs and accrued revenues 10. 1. 4,370,322 3,931,981 I. Called-up capital 163,412,978 163,412,978 1. Long-term property rights 2,240,211 1,834,556 1. Share capital 163,412,978 163,412,978 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 5. Other long-term deferred costs and accrued revenues 2,130,111 2,097,425 II. Capital reserves 81,725,014 81,725,014 II. Tangible fixed assets 10. 2. 419,638,837 414,082,043 III. Revenue reserves 25,379,929 23,301,870 1. Land and buildings 325,002,408 318,530,818 1. Statutory reserves 2,835,451 2,255,182 a) Land 13,333,994 13,284,092 2. Other revenue reserves 22,544,478 21,046,688 a) Buildings 311,668,414 305,246,726 IV. Revaluation surplus 23,880 142,259 2. Production equipment and machinery 79,943,370 78,823,609 V. Net profit (or loss) brought forward 10,836,990 8,897,369 3. Other plant and equipment 489,689 610,457 VI. Net profit (or loss) for the financial year 4,417,564 5,787,030 4. Tangible fixed assets being acquired 14,203,370 16,117,159 B Provisions and long-term accrued costs and deferred revenues 51,753,146 51,758,733 a) Tangible fixed assets under construction or in manufacture 13,987,678 16,117,109 1. Provisions for pensions and similar liabilities 10. 10. 8,419,041 7,869,301 b) Advance payments for the acquisition of tangible fixed assets 215,692 50 2. Other provisions 10. 10. 629,500 665,092 IV. Long-term financial investments 10. 3. 1,903,027 1,831,955 3. Long-term accrued costs and deferred revenues 10. 11. 42,704,605 43,224,340 1. Long-term financial investments, except loans 1,850,470 1,766,033 C Long-term liabilities 82,731,525 91,774,181 a) Shares and equity interests from group enterprises 794,289 794,289 I. Long-term financial liabilities 10. 12. 82,646,603 91,727,797 b) Shares and equity interests in associated companies 571,352 571,352 2. Long-term financial liabilities to banks 82,637,840 91,727,797 c) Other shares and equity interests 484,829 400,392 3. Other long-term financial liabilities 8,763 0 2. Long-term loans 52,557 65,922 II. Long-term operating liabilities 46,384 46,384

98 b) Long-term loans granted to others 52,557 65,922 3. Long-term operating liabilities from advance payments 46,384 46,384 99 V. Long-term operating receivables 10. 4. 178,593 322,423 III. Deferred tax liabilities 10. 5. 38,538 0 1. Long-term operating receivables due by buyers 2,593 322,423 Č Short-term liabilities 103,222,723 99,442,931 2. Long-term operating receivables due by others 176,000 0 II. Short-term financial liabilities 10. 12. 24,130,944 22,813,699 VI. Deferred tax assets 10. 5. 1,729,778 1,701,467 2. Short-term financial liabilities to banks 24,113,053 22,727,536 B Current assets: 94,132,764 108,334,707 4. Other short-term financial liabilities 17,891 86,163 II. Inventories 10. 6. 1,620,739 1,169,370 III. Short-term operating liabilities 10. 13. 79,091,779 76,629,232 1. Material 1,620,739 1,169,370 2. Short-term operating liabilities to suppliers 72,590,805 69,383,986 III. Short-term financial investments 10. 3. 15,098 418,896 5. Short-term operating liabilities from advance payments 1,401,893 1,397,295 2. Short-term loans 15,098 418,896 6. Other short-term operating liabilities 5,099,081 5,847,951 b) Short-term loans granted to others 15,098 418,896 D Short-term accrued costs and deferred revenues 10. 14. 1,868,538 5,046,766 IV. Short-term operating receivables 10. 4. 83,198,236 96,148,817 TOTAL LIABILITIES 525,372,287 531,289,131 2. Short-term operating receivables due by buyers 79,321,709 92,201,497 The notes to the financial statements form an integral part of the financial statements and should be read in 3. Short-term operating receivables due by others 3,876,527 3,947,320 conjunction with them. V. Cash and cash equivalents 10. 7. 9,298,691 10,597,624 C Short-term deferred costs and accrued revenues 10. 8. 3,418,966 1,084,555 TOTAL ASSETS 525,372,287 531,289,131 Financial statements Financial statements Contents

Consolidated comprehensive income statement Consolidated cash flow statement for the year ended as of 31 December 2014 for 2014

in EUR in EUR Note 13 2014 2013 Note 2014 2013 CASH FLOW FROM OPERATING ACTIVITIES 1. Net sales revenues 11. 1. 561,075,470 518,577,489 Inflows from the sale of products and services 813,087,180 747,357,464 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP a) on domestic market 561,025,072 518,524,709 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Other inflows from operating activities 1,545,372 1,240,046 b) on foreign market 50,398 52,780 Inflows from operating activities 814,632,552 748,597,510 3. Capitalised own products and services 11. 2. 13,795,268 10,145,805 Outflows for the purchase of materials and services (560,456,629) (497,644,624) 4. Other operating revenues 11. 1. 6,411,819 4,092,408 Outflows for wages and salaries, employees’ profit-sharing (16,035,657) (16,745,500) TOTAL REVENUES 581,282,557 532,815,702 Outflows for contributions and duties of all types (197,319,986) (197,345,545) 5. Costs of goods, material and services 11. 3. 509,789,743 457,038,677 Other outflows from operating activities (1,361,449) (1,054,206) a) purchase value of goods and material sold and costs of material used 490,986,439 439,033,980 Outflows from operating activities (775,173,721) (712,789,875) b) costs of services 18,803,304 18,004,697 Net cash from operating activities 39,458,831 35,807,635 6. Labour costs 11. 4. 33,256,024 34,319,399 CASH FLOW FROM INVESTMENT ACTIVITIES a) costs of wages and salaries 23,989,120 23,638,472 Inflows from interests and equity interests in other entities 87,768 136,021 Inflows from the disposal of tangible fixed assets 262,468 1,196,439 b) costs of supplementary pension insurance 3,243,674 3,196,515 Inflows from the disposal of long-term financial investments 18,888 32,291 c) social security costs 1,747,536 1,732,492 Inflows from the disposal of short-term financial investments 0 1,000,000 č) other labour costs 4,275,695 5,751,920 Inflows from investment activities 369,124 2,364,751 7. Write-downs 11. 5. 28,038,289 26,662,018 Outflows for acquisition of intangible fixed assets (1,326,535) (751,300) a) depreciation and amortisation 25,535,726 25,350,156 Outflows for acquisition of tangible fixed assets (26,465,974) (24,756,251) b) revaluation operating expenses for intangible and tangible fixed assets 1,396,334 507,672 Outflows for acquisition of long-term financial investments (1,736) (798,955) c) revaluation operating expenses associated with current assets 1,106,229 804,190 Outflows for acquisition of short-term financial investments 0 (1,400,000) 100 8. Other operating expenses 11. 6. 408,147 513,777 101 Outflows from investment activities (27,794,245) (27,706,506) OPERATING PROFIT (OR LOSS) 9,790,354 14,281,831 Net cash used in investment activities (27,425,121) (25,341,755) 9. Financial revenues from equity interests 11. 7. 124,091 36,712 CASH FLOW FROM FINANCING ACTIVITIES c) financial revenues from equity interests in other companies 31,205 36,712 Inflows from long-term loans raised 18,500,000 18,800,000 č) financial revenues from other investments 92,886 0 Inflows from short-term loans raised 85,141,284 35,339,847 10. Financial revenues from granted loans 11. 7. 44,485 181,911 Inflows from financing activities 103,641,284 54,139,847 b) financial revenues from loans granted to others 44,485 181,911 Outflows for interest paid (3,138,978) (3,172,109) 11. Financial revenues from operating receivables 11. 7. 379,633 487,762 Outflows for repayment of long-term financial activities (27,760,082) (17,583,762) a) financial revenues from operating receivables due to others 379,633 487,762 Outflows for repayment of short-term financial activities (83,643,840) (41,650,800) 12. Financial expenses from impairment and financial investment write-downs 11. 8. 0 290,753 Outflows for dividends paid and other participating interests (2,431,027) (2,355,838) 13. Financial expenses from financial liabilities 11. 8. 3,119,679 3,099,895 Outflows from financing activities (116,973,927) (64,762,509) a) financial expenses from received bank loans 3,119,308 3,099,759 Net cash of outflows in financing activities (13,332,643) (10,622,662) CLOSING BALANCE OF CASH AND CASH EQUIVALENTS 9,298,691 10,597,624 č) financial expenses from other financial liabilities 371 136 Financial result in the period (sum of net flows) (1,298,933) (156,782) 14. Financial expenses from operating liabilities 11. 8. 6,545 4,890 Opening balance of cash and cash equivalents 10,597,624 10,754,406 a) financial expenses from accounts payable 5,604 4,881 b) financial expenses from other operating liabilities 941 9 The notes to the financial statements form an integral part of the financial statements and should be read in 15. Other revenues 11. 9. 12,438 24,899 conjunction with them. 16. Other expenses 11. 10. 76,711 79,250 PROFIT (OR LOSS) BEFORE TAX 7,148,066 11,538,327 17. Tax on profit 11. 11. 2,140,006 1,778,231 18. Deferred taxes 10,227 279,330 19. NET PROFIT (OR LOSS) OF THE ACCOUNTING PERIOD 11. 12. 4,997,833 10,039,426

21. Changes in the revaluation surplus on available-for-sale financial assets 84,438 45,890

22. Other components of comprehensive income (202,816) 0 24. TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 11. 13. 4,879,455 10,085,316

The notes to the financial statements form an integral part of the financial statements and should be read in conjunction with them. Financial statements Financial statements Contents

Consolidated statement of changes in equity for 2014 Notes to the financial statements

in EUR for the year ended as of 31 December 2014 Other Net profit Net profit of Share Capital Statutory Revaluation Changes in equity revenue brought the financial Total equity capital reserves reserves surplus reserves forward year Balance as A 1 163,412,978 81,725,014 2,255,182 21,046,688 142,259 8,897,369 5,787,030 283,266,520 1. Basis of 31 December 2013 Changes in equity – transactions The consolidated financial statements in this Annual Report for the 2014 financial year, which corresponds B 1 (2,349,618) (2,349,618) with owners ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP to the calendar year, are drawn up pursuant to the provisions of the Companies Act (ZGD-1) and in ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP a) Dividends paid (2,349,618) (2,349,618) accordance with Slovenian Accounting Standards. Total comprehensive income B 2 (118,379) (4,997,833) 4,879,454 for the reporting period Entry of net profit/loss for the The group of companies is a corporate entity, rather than a legal entity and is not an independent holder a) 4,997,833 4,997,833 reporting period of rights and obligations. Changes in the revaluation surplus č) 84,438 84,438 of financial investments The financial statements are presented for the group of companies as if they were a single entity. Other components of d) comprehensive income for the (202,817) (202,817) They are drawn up from the original financial statements of the companies within the group taking into reporting period consideration the consolidation adjustments (demerger procedure). B 3 Changes in equity 580,269 1,497,790 4,289,240 (6,367,299) 0 Allocation of the remaining a) portion of net profit to other equity 5,787,030 (5,787,030) 0 components 2. Companies included in the consolidated financial Allocation of a portion of the net profit of the reporting period to statements b) other equity components according 580,269 (580,269) to the decision of the management Companies included in the Elektro Ljubljana Group and consolidated financial statements are: or supervisory body Allocation of a portion of the net • Elektro Ljubljana, d. d. profit for the creation of additional c) 1,497,790 (1,497,790) 0 reserves according to the decision • Elektro energija, d. o. o. passed by the General Meeting • Elektro Ljubljana OVE, d. o. o. BALANCE AS C 163,412,978 81,725,014 2,835,451 22,544,478 23,880 10,836,990 4,417,564 285,796,355 102 OF 31 DECEMBER 2014 103 3. Associated company not included in the consolidated Consolidated statement of changes on equity for 2013 financial statements Elektro Ljubljana, d. d., holds a 27.7% interest in the Informatika, d. d., however, it is not included in in EUR the consolidation because it does not hold the majority of voting rights and thus also does not have Other Net profit Net profit of Share Capital Statutory Revaluation Changes in equity revenue brought the financial Total equity controlling influence in the business operations of this company. The investment is not revealed under capital reserves reserves surplus reserves forward year the equity method due to its insignificance in the consolidated balance sheet. A 1 Balance as of 31 December 2012 163,412,978 81,725,014 1,850,191 17,198,990 96,369 5,118,336 6,175,934 275,577,812 Changes in equity – transactions B 1 (2,396,610) (2,396,610) with owners a) Dividends paid (2,396,610) (2,396,610) 4. Comprehensive consolidation Total comprehensive income B 2 45,890 10,039,426 10,085,316 The financial statements of the companies in the Elektro Ljubljana Group are consolidated in the Group’s for the reporting period Entry of net profit/loss for the financial statements on the basis of a comprehensive consolidation. The financial statements are a) 10,039,426 10,039,426 reporting period consolidated from item to item by adding up related items of assets, debts, equity, revenues and expenses. Changes in the revaluation surplus č) 45,890 45,890 of financial investments Due to the presentation of the group as an independent entity, we eliminated the following: B 3 Changes in equity 404,990 3,847,698 6,175,643 (10,428,331) 0 • Financial investments of controlling companies into controlled companies and corresponding Allocation of the remaining holdings of controlling companies in the equity of controlled companies, a) portion of net profit to other equity 6,175,934 (6,175,934) 0 components • Granted and raised loans of companies within the Group, Allocation of a portion of the net profit of the reporting period to • Intercompany receivables and liabilities, b) other equity components according 404,990 3,847,407 (4,252,397) 0 to the decision of the management • Revenues and expenses arising from supplies and services rendered within the Group. or supervisory body Allocation of a portion of the net Elektro Ljubljana, d. d., is a 100% owner of all controlled companies, therefore there are no minority profit for the creation of additional c) 291 (291) 0 owners and minority shares in the Group’s equity. reserves according to the decision passed by the General Meeting BALANCE AS C 163,412,978 81,725,014 2,255,182 21,046,688 142,259 8,897,369 5,787,030 283,266,520 OF 31 DECEMBER 2013 5. Activities of the Elektro Ljubljana Group The activities of the Group are: The notes to the financial statements form an integral part of the financial statements and should be read in • Distribution of electricity according to the Contract on the Lease of Electricity Distribution conjunction with them. Infrastructure and Performance of Services of the System Operator of the Elektro Ljubljana, d. d., Distribution Network concluded with SODO, d. o. o., Financial statements Notes to the financial statements Contents

• Purchase and sale of electricity, 7. Data on employees • Purchase and sale of gas, As of 31 December 2014, there were 947 employees in the company and 955 as of 31 December • Production of electricity, 2013. The average number of employees in the 2014 financial year was 953 and 961 in 2013. The • Other services. employee educational structure is provided in the business part of the Annual Report. 5.1. Business segments For reporting purposes by segments, the Elektro Ljubljana Group defined two segments considering 8. Exchange rates and methods of conversion to the ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP different sets of activities performed by the companies of the Group. The balance sheet and the ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP financial statement by business segments are presented in Chapters 14.4 and 14.5 of this report. national currency The Group converts all transactions done in foreign currencies by using the middle exchange rate Market prices shall apply with regard to the sale of goods, products and services between segments. of the Bank of Slovenia on the balance sheet date. The activity of business segments is the following: • Sale of electricity, which includes electricity trading, 9. Summary of accounting policies • Distribution and other activities, which include distribution of electricity according to the The financial statements of the Group are drawn up by considering the following quality Contract, production of electricity and other activities. characteristics of accounting: comprehensiveness, adequacy, reliability and comparability. 6. Data on companies within the group and on the The Group draws up the income statement according to Version I of the SAS 25. associated company Cash flows from operations, both as inflows and outflows, also disclose inflows and outflows from In 2011, Elektro Ljubljana, d.d., as the transferring company, undertook company restructuring by spin- operating activities which the group of companies performs on its own behalf and for the account off as one of the sub-forms of a demerger procedure pursuant to the provisions of Article 623 of the of SODO, d.o.o., according to the Contract on the Lease of Electricity Distribution Infrastructure applicable Companies Act (ZGD-1). In the spin-off procedure or transfer of assets, Elektro Ljubljana, d.d., and Performance of Services of the Distribution Network System Operator. These services, which transferred activities, employees, assets and debts, which are functionally connected to the purchase do not form a part of the company’s revenue are: billing of network charges with supplements to 104 and sale of electricity. At the spin-off, the interests of the new company were assured to the transferring electricity consumers, billing of average connection costs and above standard services according 105 company Elektro Ljubljana, d.d., who is the sole shareholder of the new controlled company Elektro to the SODO’s price list. energija, d.o.o., to which assets were transferred in the spin-off procedure. The company was entered into the Court Register with the Decision Srg. 2011/18421 on 16 May 2011. The business share amounts The Group draws up the income statement pursuant to the direct method according to Version I of to EUR 6,284,228. Total equity of Elektro energija, d.o.o., amounted to EUR 5,111,171 on 31 December 2014. the SAS 26.6. The revised net loss for 2014 amounted to EUR 6,867,178 and net profit EUR 1,550.084 for 2013. a) Intangible long-term assets, long-term deferred costs and accrued revenues and tangible fixed assets Pursuant to the Energy Act, the company established Male hidroelektrarne Elektro Ljubljana, Intangible assets comprise property rights for computer software. Purchase value means purchase proizvodnja električne energije, d.o.o., with headquarters at Slovenska cesta 56, Ljubljana, price. The assets’ lifetime is three and ten years, and from 30 to 100 years for easement. on 14 February 2002, which is 100% owned by the company. The company was entered into the Court Register in Ljubljana with the Decision no. Srg. 2002/01630. The share capital of the The long-term deferred costs and accrued revenues are mainly long-term chargeable costs of company amounts to EUR 59,669. On 3 January 2011, the company changed its name to Elektro information system development, pre-paid rents and statutory funds paid in the reserve fund for Ljubljana OVE, inženiring s področja obnovljivih virov energije, d. o. o., short name Elektro real estate owned by the company. The purchase value of long-term deferred costs and accrued Ljubljana OVE, d. o. o. According to ZGD-1, it is classified as a micro company. The total equity revenues signify the expenses from the moment of their acquisition. Long-term chargeable costs of Elektro Ljubljana OVE, d. o. o. on 31 December 2014 amounted to EUR 6,324,687. The net profit are written down at a 10% rate, and rents are transferred to costs of services of a single accounting for 2014 amounted to EUR 259,634 and EUR 389,539 for 2013. period in the part that refers to this period. Consolidated assets in the reserve fund are used on the Elektro energija d.o.o. is a 100% owner of three controlled companies, namely Elektro energija BH, d.o.o., basis of invoices issued by the building managers. Elektro energija SRB, d.o.o., and Elektro energija Adria, d.o.o. The Elektro Ljubljana Group assesses its fixed assets according to the purchase value model. With Basic information about the controlled companies is: their use, economic benefits are expected in the company. Share capital Total equity Profit (or loss) in 2014 Significant tangible fixed assets which have individual parts of assets with shorter lifetimes than Elektro energija BH, d. o. o. 511,292 587,009 22,714 were assessed for the total asset are divided into several parts with a shorter assessed lifetime. Elektro energija SRB, d. o. o. 165,346 262,150 34,325 The companies in the group do not calculate depreciation for costs of potential decommissioning Elektro energija Adria, d. o. o. 97,941 91,053 13,334 and removal, since such costs are not anticipated. The Group holds 27.7% or 4,524 shares of Informatika, informacijske storitve in inženiring, d.d., registered at The Group has no tangible fixed assets acquired by financial lease, nor have its assets been pledged Vetrinjska ulica 2, Maribor, and one seat in the company’s Supervisory Board. The company was entered by a mortgage. into the Court Register in Maribor with the Decision no. 1/00871/2000. Total equity of Informatika d.d. on 31 December 2014 was EUR 1,792,145. The shares are not listed on the stock exchange. The net profit of Informatika, d.d., for 2014 was EUR 137,276 and for 2013 was EUR 155,681. Notes to the financial statements Notes to the financial statements Contents

b) Depreciation and amortisation g) Provisions Depreciation is calculated according to the straight-line method of amortisation with regard to the The Group creates non-current provisions for unexpended leave and for employee bonuses and useful life of the cost value of a single fixed asset. severance payments received upon retirement as the current value of the employer’s liability towards the employee. The calculation of non-current provisions was performed by an authorised actuary. Amortisation rates applied in 2014 and 2013: h) Long-term accrued costs and deferred revenues Buildings 2.00% to 6.67% Among the long-term accrued costs and deferred revenues, the Group discloses in particular the following: Equipment 2.86% to 20.00% Vehicles 8.33% to 14.29% • free of charge obtained fixed assets which include free of charge acquired connections and ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Furniture 6.67% to 12.50% other parts of the network and equipment financed by legal entities and natural persons and are Computer equipment 33.33% included into the company’s distribution network, and Other investments 10% • fees paid for connections to the energy network until 1 July 2007. Easment 1% to 3.33% The amount used is credited to other operating revenues while taking into account the actual amount of depreciation calculated on fixed assets acquired free of charge, while the amount used Fixed assets under preparation are not depreciated until put into use. arising from fees paid is allocated to other operating revenues in the amount calculated using the c) Inventories depreciation rates of fixed assets, which are financed from assets obtained in this manner. The inventories are valued at their purchase price. The consumption of material inventories is valued i) Taxation according to the moving average price method. Thus, with each new purchase of material, a new average The companies in the Elektro Ljubljana Group are liable for the payment of corporate income tax. price of material in stock is calculated. The inventories are primarily composed of materials and spare parts for installation in own investments, for performing services on the market and for maintaining fixed assets. j) Cash and cash equivalents Cash and cash equivalents represent deposit money on transaction accounts and call deposits. d) Receivables The majority of operating receivables comprise accounts receivable during a normal course of business k) Short-term deferred (accrued) costs and accrued (deferred) revenues operation. Receivables are disclosed at their net values in the Group’s balance sheet, and decreased by Short-term deferred costs and accrued revenues include short-term accrued revenues which are the amount of value adjustments created in relation to disputed and doubtful receivables. In order to create reasonably considered as revenue in the income statement, however they have not been charged adjustments of operating receivables, the companies within the Group use the same accounting estimate yet by the time of their recognition. 106 107 according to which they create adjustments in a percentage created based on experience from previous years from the values of disputed and doubtful receivables and late payments. l) Equity The total equity of the Group is defined with amounts invested by the owner and amounts generated The company creates the value adjustments for receivables as follows: for receivables in bankruptcy from business operations that belong to the owners. It consists of share capital, capital reserves, proceedings not yet published in the Official Gazette of the Republic of Slovenia, together with receivables statutory reserves other reserves from profit, revaluation surplus, net profit (or loss) brought under litigation and receivables from compulsory settlement proceedings awaiting confirmation, in the forward and net profit (or loss) of the financial year. amount of 80%. In relation to other receivables due 90 days or more than 90 days ago, the value adjustment Capital reserves consist of amounts based on the elimination of the general revaluation adjustment is based on experience from previous years and expectations for the current financial year; namely, in of equity. the amount of 30% for receivables pertaining to the supply of network charges and services, and 50% in relation to default interest receivables. The amounts of write-downs are attributed to the revaluated m) Long-term and short-term financial liabilities operating expenses and in favour of the appropriate value adjustment. Long-term and short-term financial liabilities arise from the Group’s financing and represent liabilities towards creditors. e) Deferred tax assets On 31 December 2014, the Group created deferred tax assets from temporary tax differences based Upon initial recognition, they are recognised in the amount of received funds and are later reduced on the balance of created adjustments arising from disputed and doubtful receivables and based on by the amounts paid. They are measured at the amortised cost. the balance of temporary unrecognized tax expenses for the provisions formed in respect of employee bonuses and severance payments upon retirement. The amounts are created as the sum expected to be That portion of long-term financial liabilities which will become due within one year of the balance recovered by the tax administration, and according to the tax rates that will be applicable in the financial sheet date is disclosed under short-term liabilities. year when the receivables shall be recovered, i.e. 17%. On 31 December 2014, the Group recognized the Short-term operating liabilities are liabilities towards suppliers. At the beginning, they are assessed deferred tax liabilities. based on amounts from the corresponding documents which prove that the goods were received f) Financial investments and the services rendered. Investments include investments into equity capital of controlled companies (which are not consolidated), The book value of the long-term and short-term liabilities is equal to their amortised cost. insurance companies and other enterprises. All investments are valued at their historical cost and are allocated to available-for-sale investments, except investments in shares listed on the stock exchange n) Revenues and valued according to their fair value through equity. Revenues are increases in economic benefits within a financial year in the form of an increase in assets or a decrease in debts. They are recognised when it is reasonable to expect that they shall At least once a year, namely prior to the drawing up of the annual financial statements, the companies lead to incomes. within the Group check the adequacy of the presented size of a single financial investment. On the last day of the year, they also adjust the investments in the shares which are listed on the stock exchange. Operating revenues are revenues from sales and other revenues related to operating effects. Notes to the financial statements Notes to the financial statements Contents

Net revenue sales are composed of the sales values of services. They are calculated on the basis 10. Disclosure of balance sheet items of contractual values and sales prices stated on invoices, and decreased by the sum of potential discounts granted. 10.1 Changes in intangible assets and long-term deferred costs and accrued revenues Financial revenues represent income from investments. They arise from long-term and short-term financial investments, as well as long-term and short-term receivables. They derive especially from Long-term Total intangible Long-term deferred assets and long-term accrued interest. They are recognised upon calculation, regardless of inflow. Year 2014 Prepaid rents Reserve fund in EUR property rights operating deferred costs and Other revenues disclose revenues not classified as operating nor financial revenues. They are expenses accrued revenues ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 1 2 3 4 5 = 1 + 2 + 3 + 4 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP disclosed in the amounts in which they actually arise. Purchase value o) Expenses, costs Balance as of 1 January 2014 4,796,446 2,032,177 7,270 57,978 6,893,871 Expenses and costs are decreases in economic benefits within a financial year in the form of a decrease Increases 961,563 397,083 0 20,593 1,379,239 Decreases (12,648) (358,131) (7,270) (19,589) (397,638) in assets or an increase of debts. They are recognised when the decreases in economic benefits within Balance as of 31 December 2014 5,745,361 2,071,129 0 58,982 7,875,472 a financial year are related to decreases in the value of assets or increases of debt and these decreases Value adjustment or increases can be reliably quantified. Balance as of 1 January 2014 2,961,891 2,961,891 Amortisation (depreciation) 555,907 555,907 Operating expenses are equal to accrued costs in the accounting period. They disclose the purchase Decreases/write-downs (12,648) (12,648) value of sold goods, costs of materials, costs of services, labour costs and depreciation. Balance as of 31 December 2014 3,505,150 3,505,150 Other operating expenses include various other duties and provisions. Residual value Balance as of 1 January 2014 1,834,556 2,032,177 7,270 57,978 3,931,980 Revaluated operating expenses arise from tangible fixed assets and represent write-downs of tangible Balance as of 31 December 2014 2,240,211 2,071,129 0 58,982 4,370,322 fixed assets having a residual (non-written-off) book value. They also arise from the disposal of fixed assets when the book value exceeds the sales value and with current assets where the amounts of Long-term Total intangible Long-term deferred assets and long-term created value adjustments in respect of doubtful and disputed claims are disclosed. Year 2013 Prepaid rents Reserve fund in EUR property rights operating deferred costs and Financial expenses are expenses from financing and investing. They derive especially from accrued expenses accrued revenues 108 interest. They are recognised upon calculation, regardless of related payments. 1 2 3 4 5 = 1 + 2 + 3 + 4 109 Purchase value Other expenses disclose expenses not classified as operating nor financial expenses. They are disclosed Balance as of 1 January 2013 3,090,673 2,925,430 17,129 46,528 6,079,760 in the amounts in which they actually arise. Reclassif. 1 January 2013 822,199 (822,199) 0 Reclassif. 1 January 2013 157,982 157,982 Balance as of 1 January 2013 3,912,872 2,261,213 17,129 46,528 6,237,742 9.1. Business operations with SODO, d. o. o. Increases 1,335,528 236,652 19,612 1,591,792 On the basis of the signed Contract on the Lease of Electricity Distribution Infrastructure and Decreases (451,953) (465,690) (9,859) (8,162) (935,664) Performance of Services for the System Operator of the Electricity Distribution Network, Elektro Balance as of 31 December 2013 4,796,447 2,032,177 7,270 57,978 6,893,870 Ljubljana, d.d., calculated all of the corresponding revenues for 2014 in the profit and loss statement. Value adjustment Balance as of 1 January 2013 2,490,274 2,490,274 The profit and loss statement for 2014 thus includes the preliminary account settlement for the Reclassif. 1 January 2013 157,982 157,982 regulatory year 2014 in the amount of EUR 1,753,929 and the final account settlement for the regulatory Balance as of 1 January 2013 2,648,256 2,648,256 year 2013 in the amount of EUR 397,173 (as a reversal of income). For the amount of the final account Amortisation (depreciation) 314,509 314,509 adjustment for 2013, the company did not correct the comparable financial statements, because it Decreases/write-downs (874) (874) considers that the amount is not significant. Balance as of 31 December 2013 2,961,891 2,961,891 Residual value SODO d.o.o. will prepare the final account adjustment for the regulatory year 2014 according to Balance as of 1 January 2013 600,399 2,925,430 17,129 46,528 3,589,486 the Article 9 of Annex no. 2 to the Contract on the Lease of Electricity Distribution Infrastructure Reclassif. 1 January 2013 664,217 (664,217) 0 and Performance of Services for the System Operator of the Electricity Distribution Network, Balance as of 1 January 2013 1,264,616 2,261,213 17,129 46,528 3,589,486 based on the revised data of both companies. The account adjustment is expected to be prepared Balance as of 31 December 2013 1,834,556 2,032,177 7,270 57,978 3,931,981 in 2015. According to the Article 10 of Annex no. 2 to this contract, the Energy Agency of the Republic of Slovenia can issue a decision in accordance with Article 120 of the Energy Act in Intangible assets are represented by the property rights for computer software. Deferred costs which it establishes different surpluses or deficits than identified by SODO, d.o.o., and which both and accrued revenues comprise long-term chargeable costs for the development of software companies are obliged to comply with. Due to the uncertainty, which refers mostly to the amount for the purposes of sales of electricity, long-term deferred operating expenses, which comprise of the final account adjustment for the regulatory year 2014, there is a possibility that in the event investments in the spatial information system project, long-term leases and paid statutory funds to of a significant amount the account adjustment will have to be considered as an adjustment of the create reserve fund in accordance with the Housing Act. financial statements for 2014 and not as an expense or revenue of the period of the receipt of the adjustment, which will be known after the receipt of the adjustment. Notes to the financial statements Notes to the financial statements Contents

The depreciation rate of intangible fixed assets is 33.3%, long-term deferred costs and accrued 10.3. Financial investments revenues are allocated to expenses in the period of ten years. Changes in financial investments In the Elektro Ljubljana Group, there were no sales of intangible fixed assets and long-term deferred in EUR costs and accrued revenues. Shares and Shares and interest in interests in Other shares Long-term/ companies in the associated and interests short-term Total 10.2. Changes in tangible fixed assets Group companies loans to others Long-term financial investments Production Other Advance Investments Total tangible ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Year 2014 Land Buildings equipment and under Balance as ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP equipment payments fixed assets 794,289 571,352 400,392 65,922 1,831,955 in EUR machinery preparation of 31 December 2013 Purchase value Increases 0 0 84,437 1,736 86,173 Balance as 13,284,092 828,255,759 189,472,605 951,540 50 16,117,109 1,048,081,155 Decreases – write-downs 0 0 0 (15,101) (15,101) of 1 January 2014 BALANCE AS OF 31 DECEMBER 2014 794,289 571,352 484,829 52,557 1,850,470 Increases 58,957 24,631,459 9,188,375 96,961 252,772 30,452,263 64,680,787 Short-term financial investments Decreases (9,055) (10,629,680) (1,579,745) (141,334) (37,130) (32,581,694) (44,978,638) Balance as of 31 December 2013 418,896 418,896 BALANCE AS OF 13,333,994 842,257,538 197,081,235 907,167 215,692 13,987,678 1,067,783,304 31 DECEMBER 2014 Increases 18,726 18,726 Decreases (422,524) (422,524) Value adjustment BALANCE AS OF 31 DECEMBER 2014 15,098 15,098 Balance as 523,009,033 110,648,997 341,084 633,999,114 of 1 January 2014 In the procedure of consolidation, the amount of EUR 7,970,318 of long-term investments in the Amortisation companies in the Group was eliminated. 16,859,298 7,977,844 142,677 24,979,819 (depreciation) Decreases/write-downs (9,279,207) (1,488,975) (66,283) (10,834,465) Long-term investment in an associated company is valued at its purchase value, since valuation BALANCE AS OF with the equity method proves unimportant. 530,589,124 117,137,866 417,478 648,144,468 31 DECEMBER 2014 The fair value of financial investments is equal to the book value. Residual value Balance as 13,284,092 305,246,726 78,823,608 610,456 50 16,117,109 414,082,041 10.4. Operating receivables 110 of 1 January 2014 111 BALANCE AS OF 13,333,994 311,668,414 79,943,369 489,689 215,692 13,987,678 419,638,836 31 DECEMBER 2014 Short-term operating receivables in EUR Balance as of 31 December 2014 Balance as of 31 December 2013 Production Investments Year 2013 Other Advance Total tangible Operating receivables due by buyers 79,321,709 92,201,497 Land Buildings equipment and equipment payments under fixed assets in EUR machinery preparation Operating receivables due by others 3,876,527 3,947,320 Purchase value TOTAL SHORT-TERM RECEIVABLES 83,198,236 96,148,817 Balance as 13,237,775 812,661,168 187,306,919 640,357 216,642 15,734,612 1,029,797,473 of 1 January 2013 In the procedure of consolidation, short-term receivables due by the companies in the Group in the Increases 63,331 20,159,273 6,531,748 362,155 0 25,137,664 52,254,171 amount of EUR 1,655,850 were eliminated. Decreases (17,014) (4,564,686) (4,366,060) (50,972) (216,592) (24,755,167) (33,970,491) BALANCE AS OF Age structure of operating receivables due by buyers 13,284,092 828,255,755 189,472,607 951,540 50 16,117,109 1,048,081,153 31 DECEMBER 203 in EUR Value adjustment 31 December 2014 31 December 2013 Balance as Not due 64,320,570 75,100,827 509,967,643 106,736,941 309,949 617,014,533 of 1 January 2013 Overdue by up to 30 days 4,762,017 5,382,500 Amortisation Overdue from 31 to 60 days 884,599 1,818,128 16,828,526 8,116,483 90,636 25,035,645 (depreciation) Overdue from 61 to 90 days 178,898 484,639 Decreases/write-downs (3,787,140) (4,204,427) (59,501) (8,051,068) Overdue by more than 90 days 9,175,625 9,415,403 BALANCE AS OF TOTAL 79,321,709 92,201,497 523,009,029 110,648,997 341,084 633,999,110 31 DECEMBER 2013

Residual value Changes in value adjustments for receivables due by buyers Balance as in EUR 13,237,775 302,693,525 80,569,978 330,408 216,642 15,734,612 412,782,940 of 1 January 2013 Adjustment of Adjustment of Total created BALANCE AS OF original receivables default interest value adjustment 13,284,092 305,246,726 78,823,609 610,457 50 16,117,109 414,082,043 31 DECEMBER 2014 Value adjustment of receivables as of 31 December 2013 5,758,290 364,042 6,122,332 Additional adjustment of receivables 998,609 79,412 1,078,022 Tangible fixed assets represent the most important portion of the Elektro Ljubljana Group’s assets. Fixed assets comprise primarily infrastructural facilities and plants. Decrease – write-downs (885,336) (83,795) (969,131) FINAL BALANCE OF VALUE ADJUSTMENT 5,871,563 359,659 6,221,595 In 2014, there were no reasons for impairment of fixed assets. Write-downs of plants and equipment were FOR RECEIVABLES AS OF 31 DECEMBER 2014 performed due to required renovations and equipment wear and tear. The increase in the balance of value adjustment of receivables is a result of a substantial number of

Notes to the financial statements A detailed presentation of investments in fixed assets is provided in the business part of this Annual Report. bankruptcy proceedings, compulsory compositions, strike-offs and legal actions in 2014. Notes to the financial statements Contents

Accounts receivable in retail, except for households, are secured with blank bills of exchange and 10.9. Equity enforcement drafts according to credit rating. Accounts receivable in wholesale are secured with The value of Group’s share capital has not changed in 2014 compared to the year 2013. It is divided parent company guarantees, guarantees or other corresponding insurance instruments. into 39,160,286 no par value shares. Each share gives its owner the right to vote at the Shareholders’ Meeting and in profit-sharing. 10.5. Deferred tax assets and liabilities for deferred taxes Statutory and other reserves from profit increased in 2014 by the allocation of net profit from the Formation of deferred tax assets preceding year and from the reporting period. in EUR Retained profits brought forward have decreased due to the dividends paid out and formed other ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Balance as of 31 December 2014 Balance as of 31 December 2013 reserves from profit and increased by the Group’s profit in 2014. Temporary differences based on the formation 1,052,690 1,039,160 The net profit of the financial year which is recorded in the balance sheet in the amount of EUR of adjustments for accounts receivable 4,417,564 consists of net profit of the controlling company in the amount of EUR 11,605,377 and profit Temporary differences based on unrecognized and loss of controlled companies in the amount of EUR –6,607,544. amounts of provisions/for employee bonuses and 677,088 686,491 severance payments at retirement The equity of controlled companies is in the consolidation proceedings eliminated in the amount of Temporary differences from long-term financial 0 (24,184) EUR 7,970,318. investments TOTAL 1,729,778 1,701,467 The net profit of the financial year amounted to EUR 4,417,564. The weighted average number of ordinary shares outstanding in the financial year was 39,160,286. The basic net profit per share was Formation of deferred tax liabilities EUR 0.11. The adjusted net profit per share is equal to the basic net profit per share. in EUR Table of equity components Balance as of 31 December 2014 Balance as of 31 December 2013 in EUR Temporary differences from long-term financial 38,538 0 Balance as of 31 December 2014 Balance as of 31 December 2013 investments Share capital 163,412,978 163,412,978 TOTAL 38,538 0 Capital reserves 81,725,014 81,725,014 In accordance with the accounting precautionary principle, the Group did not create deferred tax Statutory reserves 2,835,451 2,255,182 Other revenue reserves 22,544,478 21,046,688 112 assets due to a tax loss in the amount of EUR 6,630,315. The Group estimates that it will have enough 113 Revaluation surplus 23,880 142,259 profit in the coming year to be able to take advantage of tax losses and tax reliefs carried forward Net profit (or loss) brought forward 10,836,990 8,897,369 from the 2014 business year. If the Group created a deferred tax asset already in 2014 due to an Net profit (or loss) for the financial year 4,417,564 5,787,030 unused tax loss carried forward, it would amount to EUR 1,127,154. CAPITAL 285,796,355 283,266,520

10.6. Inventories Changes with regard to equity in 2014 are disclosed in the statement of changes in equity on page 102 of this report. Surpluses in a total amount of EUR 3,234 and deficits in the total amount of EUR 3,226 were established at the stocktaking. The write-down of inventories in 2014 amounts to EUR 10,277. The 10.10. Provisions net realizable value of inventories is at least equal to the book value. Changes in provisions 10.7. Cash and cash equivalents in EUR Severance payments Loyalty bonuses Other provisions Total provisions Cash and cash equivalents of companies in the group consist of funds on transaction accounts and Balance as of 31 December 2013 4,079,872 3,789,429 665,092 8,534,393 call deposits at business banks. The undrawn revolving credit amounts to EUR 3,300,000 as of Utilised (251,357) (357,362) (36,895) (645,614) 31 December 2014. Formed 562,434 596,025 1,303 1,159,762 BALANCE AS OF 31 DECEMBER 2014 4,390,950 4,028,091 629,500 9,048,541 10.8. Short-term deferred costs and accrued revenues in EUR Provisions for severance payments and loyalty bonuses are formed according to the actuary calculation. 31 December 2014 31 December 2013 Short-term uncharged services to customers 82,254 42,214 10.11. Long-term accrued costs and deferred revenues Prepaid costs 584,423 34,480 Other accrued revenues 2,752,289 1,007,861 Changes in long-term accrued costs and deferred revenues TOTAL 3,418,966 1,084,555 in EUR Balance Balance Uncharged revenues are primarily revenues from the purchase of electricity, for which invoices 31 December Increases – Use – release 31 December 2013 acqusition 2014 shall be issued in 2015. Arising from fixed assets obtained free of charge 36,277,962 1,422,644 (1,626,870) 36,073,736 Arising from payments for connections to the prior There were EUR 750,447 of short-term deferred costs and accrued revenues eliminated in the 6,716,596 0 (289,936) 6,426,660 to 1 July 2007 procedure of consolidation. Arising from long-term leases and any other respect 229,782 10,549 (36,122) 204,209 TOTAL 43,224,340 1,433,193 (1,952,928) 42,704,605 Notes to the financial statements Notes to the financial statements Contents

10.12. Financial liabilities 10.14. Short-term accrued costs and deferred revenues Long-term and short-term financial liabilities comprise liabilities for loans received from banks. Changes in short -term accrued costs and deferred revenues The interest rates vary depending on the type of loan, maturity and time of raising such loans, in EUR 31 December 2013 Increase Decrease 31 December 2014 namely between 0.366% and 3.979%. The said loans also comprise loans which are due in a period Pre-calculated adjustment costs arising 3,870,816 577,775 (1,101,286) 652,813 longer than five years, by 2029 at the latest. from offsets Provisions for annual leaves 1,175,950 58,239 (1,627) 1,215,725 Long-term loans are primarily intended for financing tangible fixed assets, while short-term loans TOTAL 5,046,766 636,014 (1,102,913) 1,868,538 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP are intended for regular operations. Bills of exchange and in one of the loans, a letter of comfort by ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Elektro Ljubljana, d. d., were issued as an insurance instrument for credit insurance. Short-term accrued costs and deferred revenues consist of temporarily accrued costs, for which invoices shall be issued in 2015. The short-term part of long-term loans is disclosed in the consolidated balance sheet between short-term financial liabilities. The amount of long-term loans that is due in the period exceeding 5 years amounts to EUR 24,782,594. 11. Disclosure of consolidated comprehensive income statement items The loans are disclosed in detail in the annual reports of the companies in the Group. 11.1. Net sales revenues and other operating revenues All liabilities arising from loans are settled when due. Net sales revenues comprise revenues from the sale of electricity, revenues arising from the Balance of liabilities arising from long- and short-term loans Contract on the Lease of Electricity Distribution Infrastructure and Performance of Services for in EUR the System Operator of the Electricity Distribution Network, the production of electricity, and other 31 December 2014 31 December 2013 charged services rendered to customers. Long-term financial liabilities to domestic banks 74,725,256 82,315,213 Long-term financial liabilities to foreign banks 7,912,584 9,412,584 For the purposes of consolidation, the net profit from sales in the amount of EUR 12,174,774 and from Total long-term financial liabilities to banks 82,637,840 91,727,797 other operating revenues in the amount of EUR 4,232 was eliminated.

114 Short-term financial liabilities to domestic banks 5,500,000 4,002,146 Other operating revenues comprise primarily the amount arising from the use of long-term accrued 115 costs and deferred revenues in the amount of EUR 1,916,806. Short-term part of long-term financial liabilities to domestic banks 17,113,053 17,225,390 Short-term part of long-term financial liabilities to foreign banks 1,500,000 1,500,000 11.2. Capitalised own products and services Total short-term financial liabilities to banks 18,613,053 18,725,390 Revenues arising from capitalised own products and services comprise capitalised fixed assets, Short-term financial liabilities to banks 24,113,053 22,727,536 which are in accordance with the Slovene Accounting Standards valued at the costs directly associated with them, and on the basis of general construction and manufacturing costs which TOTAL FINANCIAL LIABILITIES TO BANKS 106,750,893 114,455,333 can be attributed to them.

10.13. Operating liabilities 11.3. Costs of goods, material and services Operating liabilities are primarily current operating liabilities to suppliers. On the balance sheet The costs of the purchase of electricity and material used for maintenance and construction date there were no due, unsettled liabilities to suppliers. represent the largest portion of the costs of goods and materials.

In the procedure of consolidation, the amount of EUR 1,657,389 of operating liabilities to suppliers In the procedure of consolidation, EUR 10,699,276 of costs for the purchase of electricity by the in the Group was eliminated. companies in the Group were eliminated.

Other operating liabilities include liabilities to employees for December salaries and current Costs of services mainly comprise costs arising from maintenance and operation of tangible fixed operating liabilities to the government and other institutions. assets, costs of the information system, insurance premiums, public utility services and other operating costs. Balance of short-term operating liabilities in EUR In the procedure of consolidation, EUR 1,479,730 of costs for the cost of services in the Group were 31 December 2014 31 December 2013 eliminated. Liabilities to suppliers 72,590,805 69,383,986 Liabilities arising from advance payments 1,401,893 1,397,295 11.4. Labour costs Other short-term operating liabilities 5,099,081 5,847,951 Labour costs include salaries and wages calculated in accordance with the company’s collective TOTAL 79,091,779 76,629,232 agreement and applicable regulations governing the calculation of salaries and wages.

Other labour costs comprise employee annual leave bonus, other employment earnings, reimbursement of travel-to-work costs and meal allowances, costs of voluntary employee accident insurance and social relief costs. Notes to the financial statements Notes to the financial statements Contents

11.5. Write-downs 11.12. Net profit or loss Depreciation was calculated from the purchase value of fixed assets. For the financial year 2014, the Elektro Ljubljana Group generated net profit in the amount of EUR 4,997,833. Revaluation operating expenses for fixed assets are a result of the elimination of fixed assets from use. Were the Elektro Ljubljana Group to perform a general equity revaluation, based on a calculation of Revaluation operating expenses for current assets represent formed adjustments of accounts the increase in the consumer price index, amounting to 0.2% in 2014, it would disclose net profit in receivable due by buyers arising from doubtful and disputed receivables. the amount of EUR 4,310,392. ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP 11.6. Other operating expenses 11.13. Total comprehensive income of the financial year Other operating expenses are fees for the use of the building plot, scholarships and payments to In 2014, the Elektro Ljubljana Group recorded a total comprehensive income of the financial year in secondary school students undergoing mandatory practice. the amount of EUR 4,879,455. It is lower than the net profit for the financial year 2014 by EUR 118,378, due to a revaluation of financial assets available for sale. 11.7. Financial revenues Financial revenues mostly refer to default interest for untimely payments and interest on given deposits. 12. Costs per functional groups 11.8. Financial expenses The majority of financial expenses refer to interest on loans received from banks. Review of costs per functional groups in EUR 11.9. Other revenues 2014 2013 Purchase value of goods sold or production costs Other revenues include uncommon items. 565,224,539 516,284,745 of quantities sold Sales costs 8,659,979 8,381,410 11.10. Other expenses Costs of ordinary activities 7,284,129 8,039,443 TOTAL 581,168,647 532,705,598 116 Other expenses include uncommon items. 117 11.11. Corporate income tax 13. Consolidated cash flow statement For 2014, two companies in the Group recorded liabilities arising from corporate income tax. The The consolidated cash flow statement discloses the changes in cash and cash equivalents of the calculated income tax for the financial year 2014 amounts to EUR 2,140,006 and EUR 1,778,231 group for financial year 2014, and compares them to the data recorded in 2013. for 2013. The deferred taxes of the companies in the Group were calculated in the amount of EUR 10,277, and in the amount of EUR 279,330 in 2013. The Group’s cash and cash equivalents represent deposit money on transaction accounts and call Table of corporate income tax calculation for 2014 deposits. in EUR In the consolidation procedure, the cash flows among the companies in the Group were eliminated. 31 December 2014 31 December 2013 Profit before tax 7,148,066 11,538,327 Cash flows Estimated tax 1,215,171 1,961,516 in EUR Estimated tax changes due to: Leto 2014 Leto 2013 unrecognized tax expenses 253,076 256,668 Cash flows from operating activities 39,458,831 35,807,635 revenues exempt from taxation (28,039) (8,456) Cash flows from investment activities (27,425,121) (25,341,755) increasing expenses, tax relief (479,422) (774,662) Cash flows from financing activities (13,332,643) (10,622,662) non-recognized deferred taxes for tax loss 1,127,153 0 CASH FLOW IN THE PERIOD (1,298,933) (156,782) tax rate changes 0 61,165 other 62,294 2,670 TAX 2,150,233 1,498,901 Effective tax rate 30 % 13 % Tax expense components for 2014 in EUR 31 December 2014 31 December 2013 Calculated tax 2,140,006 1,778,231 Deferred tax 10,227 (279,330) TAX EXPENSE 2,150,233 1,498,901 Notes to the financial statements Notes to the financial statements Contents

14. Other disclosures 14.3. Business events after the consolidated balance sheet date 14.1. Amounts used for audit No other events occurred in the Elektro Ljubljana Group after the consolidated balance sheet date until the date of the adoption of this report, i.e. 30 April 2015, which would affect the financial The costs of auditing Annual Reports of the companies in the Elektro Ljubljana Group totalled statements of the Group for 2014. EUR 19,800 excluding VAT. 14.4. Balance sheet by business segments 14.2. Income received by members of the management boards and employees in EUR ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP employed on the basis of individual contracts and members of the supervisory Sale of electricity Distribution and other Total Total ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ITEM boards 2014 2013 2014 2013 2014 2013 ASSETS Long-term assets A. 3,814,335 4,327,218 424,006,222 417,542,651 427,820,557 421,869,869 Gross income of the Management for 2014: (I.+II.+III.+IV.+V.+VI.) Intangible assets and long-term I. 1,186,768 1,194,305 3,183,554 2,737,676 4,370,322 3,931,981 in EUR def. costs and acc. reven. Reimbursement II. Tangible fixes assets 969,736 1,155,252 418,845,101 412,926,791 419,814,837 414,082,043 Salary Holiday pay Bonus Benefits Skupaj of costs Long-term financial IV. 794,289 794,289 1,108,738 1,037,666 1,903,027 1,831,955 investments President of the Management Board – 98,362 1,594 0 0 8,496 108,452 Long-term operating Andrej Ribič V. 2,593 322,423 0 0 2,593 322,423 receivables VI. Deferred tax assets 860,949 860,949 868,829 840,518 1,729,778 1,701,467 Current assets B. 71,588,821 79,844,623 22,543,943 28,490,084 94,132,764 108,334,707 Gross income of employees employed on the basis of individual (I.+II.+III.+IV.+V.) II. Inventories 0 0 1,620,739 1,169,370 1,620,739 1,169,370 contracts for 2014: Short-term financial III. 0 0 15,098 418,896 15,098 418,896 in EUR investments Short-term operating No. of employees 16 IV. 70,006,112 78,047,117 13,192,124 18,101,700 83,198,236 96,148,817 receivables Salaries 1,413,354 V. Cash and cash equivalents 1,582,709 1,797,506 7,715,982 8,800,118 9,298,691 10,597,624 Reimbursement of costs 27,800 Short-term deferred costs 118 C. 1,119,043 992,160 2,299,923 92,395 3,418,966 1,084,555 119 Holiday pay 13,152 and accrued revenues Benefits 59,836 Eliminated 1,218,507 1,343,568 9,158,108 9,280,466 10,376,615 10,624,034 Non-competition clause 11,483 TOTAL ASSETS (A + B + C) 77,740,706 86,507,569 458,008,196 455,405,596 514,995,672 520,665,097 Loyalty bonuses 3,060 Bonuses 18,000 LIABILITIES Severance payments 86,289 A. Equity (I.+II.+III.+IV.+V.+VI.) -8,173 6,477,302 285,823,801 276,789,218 285,815,628 283,266,520 Compensation 2,334 I. Called-in capital 0 0 163,412,978 163,412,978 163,412,978 163,412,978 Other income 789 II. Capital reserves 0 0 81,725,014 81,725,014 81,725,014 81,725,014 Total 1,636,097 III. Reserves from profit 0 0 30,502,606 23,301,870 30,502,606 23,301,870 IV. Revaluation surplus -8,173 0 32,053 142,259 23,880 142,259 Net profit (or loss) carried V. 0 4,927,218 4,378,963 3,970,151 4,378,963 8,897,369 forward Gross income of members of Supervisory Boards and Supervisory Net profit (or loss) for the VI. 0 1,550,084 5,772,187 4,236,946 5,772,187 5,787,030 Board Committees for 2014: financial year Provisions and long-term in EUR B. accrued costs and deferred 443,867 446,515 51,309,279 51,312,218 51,753,146 51,758,733 Allowance for revenues Allowance for performance C. Long-term liabilities (I.+II.+III.) 4,117,508 6,186,593 78,614,017 85,587,588 82,731,525 91,774,181 performance Reimbursement Name and surname of the member Meeting fees of function Total of function of costs I. Long-term financial liabilities 4,117,508 6,186,593 78,529,095 85,541,204 82,646,603 91,727,797 of SB of SB II. Long-term operating liabilities 0 0 46,384 46,384 46,384 46,384 Committees III. Deferred tax liabilities 0 0 38,538 0 38,538 0 Andrej Šušteršič, MSc 4,015 13,500 4,500 204 22,219 Short-term liabilities Č. 66,794,719 66,473,279 36,428,004 32,969,652 103,222,723 99,442,931 Žan Jan Oplotnik, PhD 4,455 9,900 4,500 1,243 20,098 (I. + II. + III.) Mitja Fabjan 3,355 9,000 4,500 0 16,855 II. Short-term financial liabilities 3,581,945 5,637,531 20,548,999 17,176,168 24,130,944 22,813,699 Egon Hoda 3,575 9,000 2,475 0 15,050 III. Short-term operating liabilities 63,212,774 60,835,748 15,879,005 15,793,484 79,091,779 76,629,232 Short-term accrued costs and Janez Zakonjšek 3,740 9,000 4,500 84 17,324 D. 132,788 129,964 1,716,476 4,916,802 1,849,264 5,046,766 David Valentinčič 3,740 9,000 4,500 1,103 18,343 deferred revenues Saša Jerman 660 0 2,250 0 2,910 Eliminated 6,259,997 6,793,916 4,116,619 3,830,118 10,376,615 10,624,034 TOTAL LIABILITIES 77,740,706 86,507,569 458,008,196 455,405,596 514,995,672 520,665,097 Lojze Zupanc 770 0 750 43 1,563 (A + B + C + Č + D) As of 31 December 2014, the company did not record any outstanding receivables, issued sureties or liabilities to the aforementioned groups of people.

Data on incomes are disclosed in the Annual Reports of the companies in the Group. Notes to the financial statements Notes to the financial statements Contents

14.5. Financial report by business segments in EUR ITEM Sale of electricity Distribution and other Total Total 2014 2013 2014 2013 2014 2013 Net sales revenues 475,060,278 431,828,683 86,015,192 86,748,806 561,075,470 518,577,489 Capitalised own products 0 0 13,795,268 10,145,805 13,795,268 10,145,805 and services Other operating revenues 221,211 488,621 6,190,608 3,603,787 6,411,819 4,092,408

ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP TOTAL REVENUES 475,281,489 432,317,304 106,001,068 100,498,398 581,282,557 532,815,702 ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP Cost of goods, material 485,304,308 436,125,350 24,485,435 20,913,327 509,789,743 457,038,677 and services Labour costs 3,460,068 3,528,857 29,795,956 30,790,542 33,256,024 34,319,399 Write-downs 1,227,403 912,502 26,810,886 25,749,516 28,038,289 26,662,018 Other operating expenses 24,840 108,987 383,307 404,790 408,147 513,777 OPERATING PROFIT (OR LOSS) -14,735,130 -8,358,392 24,525,484 22,640,223 9,790,354 14,281,831 Financial revenue 0 0 124,091 36,712 124,091 36,712 from equity interests Financial revenue 1,964 14,368 42,521 167,543 44,485 181,911 from loans granted Financial revenue from 298,628 387,145 81,005 100,617 379,633 487,762 operating receivables Financial expenses from impairment and fin. invest. 0 0 0 290,753 0 290,753 write-downs Financial expenses 446,576 373,049 2,673,103 2,726,846 3,119,679 3,099,895 from financial liabilities Financial expenses 5,580 1,814 965 3,076 6,545 4,890 from operating liabilities NET PROFIT (OR LOSS) FROM -14,886,694 -8,331,742 22,099,033 19,924,420 7,212,339 11,592,678 REGULAR OPERATIONS 120 Other revenue 1,264 79 11,174 24,820 12,438 24,899 121 Other expenses 31,354 32,112 45,357 47,138 76,711 79,250 OPERATING PROFIT (OR LOSS) -14,916,784 -8,363,775 22,064,850 19,902,102 7,148,066 11,538,327 BEFORE TAXATION Corporate income tax 0 248,178 2,140,006 1,530,053 2,140,006 1,778,231 Deferred taxes 0 -93,132 10,227 -186,198 10,227 -279,330 NET PROFIT (OR LOSS) FOR THE -14,916,784 -8,518,821 19,914,617 18,558,247 4,997,833 10,039,426 ACCOUNTING PERIOD Changes in revaluation surplus on 0 0 84,438 45,890 84,438 45,890 available-for-sale financial assets Other components of -8,173 0 -194,643 0 -202,816 0 comprehensive income TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR -14,924,957 -8,518,821 19,804,412 18,604,137 4,879,455 10,085,316 Notes to the financial statements Contents ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP

122 123

Energy that freshens you up.

6 Statement on Management’s Responsibilities We are networking with positive energy. 6 Statement on Management’s Responsibilities Contents 6 Statement on Management’s Responsibilities

The Management Board of Elektro Ljubljana, d. d. confirms the financial statements of the Elektro Ljubljana Group for the financial year, which ended on 31 December 2014. The Management Board hereby declares that the financial statements were compiled using appropriate accounting policies; the accounting estimates were prepared with consideration and due diligence and the annual report represents a true and fair picture of the financial position of the Group and its operating ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP performance for 2014. ANNUAL REPORT 2014 ELEKTRO LJUBLJANA GROUP

The Management Board of Elektro Ljubljana, d. d., is also responsible for proper accounting management, establishment, operation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, and for adopting suitable measures to secure assets and other resources. The Management Board confirms that the financial statements were prepared on the assumption of continued operations of group companies and in accordance with the applicable legislation and Slovenian Accounting Standards.

The Management Board of Elektro Ljubljana, d. d., is familiar with the contents of the components of the Annual Report of the Elektro Ljubljana Group for 2014 and thus the entire Annual Report, agrees with it and confirms it with their signature.

124 Andrej Ribič, 125 President of the Management Board

Ljubljana, 30 April 2015 6 Statement on Management’s Responsibilities 6 Statement on Management’s Contents

RCR – Ripple Control Receivers AMI – Advanced Metering Infrastructure LV – Low Voltage OU – Organisational Unit RER – Renewable Energy Resources Abbreviations SIS ELJ – Elektro Ljubljana Spatial Information System CA – Collective Agreement AMM – Advanced Meter Management FS – Fire Safety AONI – Automatic Notification on Planned Tripping DTS – Distribution Transformer Station TDB – Technical database DS – Distribution Station CRM – Customer Relationship Management SDMS – Spatial Data Management System DCM – Distribution Centre Management SPP – Solar Power Plants DU – Distribution Unit MV – Medium Voltage EDN – Electrical Distribution Network CHP – Cogeneration of Heat and Power EDS – Electrical Distribution System TC – Telecommunications OTL – Overhead Transmission Line TS – Transformer Station EPI – Electrical Power Infrastructure TR – Transformer CCC – Central Call Centre EEU – Efficient Energy Use ERP – Enterprise Resource Planning HV – High Voltage ETC – Electronic Technical Catalogue HSW – Health and Safety at Work ETRM – Energy Trading and Risk Management sPPP – Small Photovoltaic Power Plant IIS – Integrated IT System ICT – Information and Communication Technologies IP – Internet Protocol CC – Cable Conduit CD – Cable Duct sHPP – Small Hydro Power Plants MOW – Meter Office Work Annual Report Elektro Ljubljana Group for the year 2014 Publisher: Elektro Ljubljana d. d. Design: Futura DDB d.o.o. Photography: Shutterstock and archive Elektro Ljubljana d. d. June 2015 Slovenska cesta 58,1516Ljubljana,Slovenija Slovenska cesta 58,1516Ljubljana,Slovenija podjetje zadistribucijo električneenergije d.d. podjetje zadistribucijo električneenergije d.d. Elektro Ljubljana, Elektro Ljubljana, For exitFullScreenView presskey. LETNOANNUAL POROČILO REPORT 2014 2014 skuPINa ELEKTRO ELEkTRO LJUBLJANA LJuBLJaNa GROUP ESC