Litgrid Ab Consolidated and the Company's Financial
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LITGRID AB CONSOLIDATED AND THE COMPANY’S FINANCIAL STATEMENTS, CONSOLIDATED ANNUAL REPORT AND INDEPENDENT AUDITOR’S REPORT FOR THE PERIOD ENDED 31 DECEMBER 2019 CONFIRMATION OF RESPONSIBLE PERSONS March 20, 2020 Vilnius Following the Law on Securities of the Republic of Lithuania and the Rules on Information Disclosure approved by the Bank of Lithuania, we, Daivis Virbickas, Chief Executive Officer of LITGRID AB, Vytautas Tauras, Director of Finance Department of LITGRID AB and Božena Vitaitė, Head of Accounting Division of LITGRID AB, hereby confirm that, to the best of our knowledge, the attached LITGRID AB Consolidated and the Company’s financial statements prepared in accordance with the International Financial Reporting Standards adopted by the European Union, for the 2019 year, give a true and fair view of the LITGRID AB and consolidated group assets, liabilities, financial position, profit and cash flows; Consolidated Annual Report for the 2019 year includes a fair review of the development and performance of the business, consolidated group financial position and undertakings in relation to the description of the main risks and contingencies faced thereby. Daivis Virbickas Chief Executive Officer Vytautas Tauras Director of Finance Department Božena Vitaitė Head of Accounting Division 2 TABLE OF CONTENTS “This version of the accompanying documents is a translation from the original, which was prepared in Lithuanian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of the accompanying documents takes precedence over this translation.” INDEPENDENT AUDITOR’S REPORT 4 CONSOLIDATED ANNUAL REPORT 9 CONSOLIDATED AND COMPANY‘S STATEMENTS OF FINANCIAL POSITION 81 CONSOLIDATED AND COMPANY‘S STATEMENTS OF COMPREHENSIVE INCOME 82 CONSOLIDATED AND COMPANY‘S STATEMENTS OF CHANGES IN EQUITY 83 CONSOLIDATED AND COMPANY‘S STATEMENTS OF CASH FLOWS 84 NOTES TO THE CONSOLIDATED AND COMPANY‘S FINANCIAL STATEMENTS 85 The financial statements were approved on 20 March 2020. Daivis Virbickas Vytautas Tauras Božena Vitaitė Chief Executive Officer Director of Finance Department Head of Accounting Division 3 UAB „Deloitte Lietuva“ Jogailos g. 4 LT-01116 Vilnius Lietuva Juridinio asmens k.: 111525235 PVM mok. k.: LT115252314 Duomenys kaupiami ir saugomi Juridinių asmenų registre Tel.: +370 5 255 3000 Faks.: +370 5 212 6844 www.deloitte.lt INDEPENDENT AUDITOR’S REPORT To the Shareholders of Litgrid AB: Report on the Audit of the Financial Statements Opinion We have audited the separate financial statements of Litgrid AB (the Company) and consolidated financial statements (together with the separate financials statements – the Financial Statements) of the Company and its subsidiaries (the Group), which comprise the statements of financial position of the Company and the Group as at 31 December 2019, and the statements of comprehensive income, changes in equity and cash flow for the year then ended, and notes to the Financial Statements, including a summary of significant accounting policies. In our opinion, the accompanying Financial Statements present fairly, in all material respects, of the financial position of the Company and the Group as at 31 December 2019, and their financial performance and their cash flows for the year then ended in accordance with the International Financial Reporting Standards as adopted by the European Union. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the requirements of the Law on Audit of Financial Statements of the Republic of Lithuania that are relevant to audit in the Republic of Lithuania, and we have fulfilled our other ethical responsibilities in accordance with the Law on Audit of Financial Statements of the Republic of Lithuania and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Statements of the current period. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How our audit addressed the Key Audit Matter Valuation of property, plant and equipment Refer to Note 5 of the notes to the Financial Statements The Company accounts for property, plant and We assessed design and implementation of key equipment (‘PPE’) at revalued amounts. During controls management has established over the the year ended 31 December 2019, the Company PPE revaluation process, including the following performed a valuation of its PPE and did not areas: identify material differences from its carrying - validation of assumptions, value, which as at 31 December 2019 amounted - budgeting, to EUR 322,579 thousand. - segregation of duties, - determination of key inputs in the valuation model, and Deloitte yra vadinamos Deloitte Touche Tohmatsu Limited, Jungtinės Karalystės ribotos atsakomybės bendrovės, ir grupei priklausančios bendrovės narės („DTTL“). Kiekviena DTTL narė yra atskiras ir nepriklausomas juridinis asmuo. Daugiau informacijos apie DTTL ir jos bendroves nares galite rasti čia http://www2.deloitte.com/lt/lt/pages/about-deloitte/articles/about-deloitte.html Member of Deloitte Touche Tohmatsu Limited The Company’s management determines value of - review, challenge and approval of the PPE using the income approach, which forecasts valuation results performed by future cash flows from Company’s activities and management and those charged with discounts them using the appropriate discount governance. rate. This requires management to apply significant level of judgement in evaluating the We involved our internal valuation specialists to following critical areas: support us in forming an independent view on the - required levels of capital expenditure to PPE valuation performed by the management. We maintain the existing electricity grid jointly performed the following procedures: levels, - assessed appropriateness of selected PPE - current level and future regulatory valuation methodology, as well as its development of return on investment application, approved by the regulator (National - evaluated key assumptions and inputs Energy Regulatory Council, ‘NERC’), used in the valuation of PPE, - determination of the discount rate, which concentrating on the critical areas, such is the Company’s weighted average cost as tariffs and operating margins, capital of capital, expenditures, discount rate, terminal - determination and application of the value, annual growth rate to perpetuity, and - reviewed mathematical accuracy of the - evaluation of present regulatory model, and environment as well as anticipated - discussed with management certain changes in this area – in particular, aspects of the valuation methodology as practical application of the Long Run well as future developments of the Average Incremental Cost (‘LRAIC’) regulatory environment. In particular, regulatory model for the forecasting of significant judgement area was the level electricity transmission tariffs. of capital expenditure needed to achieve convergence of historical and LRAIC The Company performed the valuation internally, regulatory asset bases, as well as the without the support from external valuation timeline this convergence should take experts. place. We consider valuation of PPE to be a key audit We used our independent view as a basis to matter due to the size of the valued balance and assess whether there are any indications of error the significant judgment involved regarding or management bias in management’s estimate of assumptions and estimates used in the valuation PPE value. by the management. We also assessed sensitivity of the valuation exercise together with related disclosures presented in the Financial Statements. First time adoption of IFRS 16 for leases Refer to Note 2.1(a) and Notes 6 and 21 of the notes to the Financial Statements The Group and the Company adopted IFRS 16 Our audit approach consisted in assessing the Leases as at 1 January 2019. appropriateness of the methodology and the compliance with applicable IFRS 16 guidance IFRS 16 introduced a new lease accounting regarding the determination of the main model, where lessees are required to recognize a assumptions. Our work also consisted of: right-of-use asset and a lease liability arising from a lease on its balance sheet. The Group and the - Understanding the Group’s and Company adopted IFRS 16 using the modified Company’s process in identifying lease retrospective approach with no restatement of contracts, or contracts which contained comparative information. As a result, as at leases; 1 January 2019, the Company recognized right of - Assessing the completeness of the lease use assets of EUR 5,312 thousand (the Group – databases; EUR 5,867 thousand) and related lease liabilities. - Corroborating by performing