Annual Report 2018 dev: Table of Contents Table of Contents Operating environment and strategy Governance 5 Contents of the annual report and reporting 121 Board of Directors principles 123 Executive management group 6 Fingrid in brief 126 Foremost uncertainty factors and risks 8 Review by the President & CEO 131 Corporate Governance Statement 10 Operating environment 1. General 13 Mission and business model 2. Description of Fingrid's administrative Materiality assessment bodies 17 Stakeholder engagement 3. General meeting 19 Strategy 4. Board of Directors Fingrid’s strategic targets and indicators 5. Board committees Management system 6. President & CEO 7. Company management 8. Advisory committee Business operations 9. Internal control and risk management 33 Customers 10. Financial audit and internal audit Customer committees and Advisory 11. Related party transactions Committee 12. Main procedures relating to insider 46 Finance and treasury administration 50 Power system Remuneration statement 58 Electricity market 153 Stock exchange releases 2018 62 Grid development and maintenance 72 Research and development Annual review and financial statements Responsibility 155 1 Report of the board of directors 73 Corporate responsibility 1.1 Financial result 78 Personnel 1.2 Financing 84 Environment 1.3 Capital expenditure 89 Corporate responsibility GRI disclosures 1.4 Power system 117 Independent assurance statement 1.5 Electricity market 1.6 Share capital This PDF has been generated from Online Annual Report and only contains the parts specified and downloaded by the user. 2 Please visit annualreport.fingrid.fi/EN for the full online report. Annual Report 2018 dev: Table of Contents 1.7 Personnel and remuneration systems 4.6 Inventories 1.8 Board of Directors and corporate 4.7 Management of commodity risks management 4.8 Personnel - the cornerstone of our 1.9 Fingrid's business model operations 1.10 Internal control and risk management 4.9 Taxes 1.11 Foremost risks and uncertainty factors 216 5 Long-term Investor for society and Fingrid 5.1 Grid assets 1.12 Corporate responsibility 5.2 Tangible and intangible assets 1.13 Environmental matters 5.3 Lease agreements 1.14 Legal proceedings and proceedings by 229 6 Strong Financial Position authorities 6.1 Capital management 1.15 Events after the review period and estimate of future outlook 6.2 The aims and organisation of financing activities and the principles for financial 1.16 Board of Directors’ proposal for the risk management distribution of profit 6.3 Financial liabilities, financial osc ts and 1.17 Annual General Meeting 2019 managing the financial risks of liabilities 180 2 Consolidated Key Figures 6.4 Cash and cash equivalents and other 183 3 Consolidated Financial Statements (IFRS) financial assets 3.1 Income statement 6.5 Equity and dividend distribution 3.2 Consolidated balance sheet 6.6 Summary of financial assets, financial 3.3 Consolidated statement of changes in liabilities and derivatives equity 260 7 Other Information 3.4 Consolidated cash flow statement 7.1 Group companies and related parties 194 4 Benchmark for TSO Operations 7.2 Other notes 4.1 General information about the Group 268 8 Parent company financial ts atements (FAS) and general accounting principles 8.1 Parent company income statement 4.2 The company's general risk 8.2 Parent company balance sheet management processes and policies 8.3 Parent company cash flow statement 4.3 Formation of turnover and financial result 8.4 Notes to the financial ts atements of parent company 4.4 Revenue-related receivables and credit risk management 302 9 Signatures for the Annual Review and for the Financial Statements 4.5 Operating expenses, liabilities and credit risk management for purchases This PDF has been generated from Online Annual Report and only contains the parts specified and downloaded by the user. 3 Please visit annualreport.fingrid.fi/EN for the full online report. Annual Report 2018 dev: Operating environment and strategy Operating environment and strategy This PDF has been generated from Online Annual Report and only contains the parts specified and downloaded by the user. 4 Please visit annualreport.fingrid.fi/EN for the full online report. Annual Report 2018 dev: Contents of the annual report and reporting principles Contents of the annual report and reporting principles Fingrid’s annual report for 2018 will be published in electronic format on the company’s website. The annual report also includes Fingrid’s corporate responsibility reporting and the corporate governance statement. Fingrid draws up the consolidated financial ts atements and the half-year report in accordance with IFRS reporting standards accepted by the European Union and in accordance with the Finnish Securities Market Act. The consolidated financial ts atements include the parent company Fingrid Oyj and its wholly owned subsidiaries Finextra Oy and Fingrid Datahub Oy. The consolidated associated companies are Nord Pool AS (ownership 18.8%) and eSett Oy (ownership 33.3%). The annual review and the financial ts atements of the Group’s parent company and its subsidiaries are prepared in accordance with the Finnish Accounting Act and the guidelines and statements of the Finnish Accounting Standards Board. The information on personnel is based on the calculation systems used by human resources management, and the calculation of the relevant information is in compliance with the general guidelines of the Finnish Accounting Standards Board concerning the preparation of annual reviews. The environmental data is collected from the information reported to the authorities and from Fingrid’s own data collection systems. An external emissions trading verifier has erifiev d the company’s carbon dioxide emission report. Corporate responsibility reporting focusses on the main economic, social and environmental impacts of Fingrid Group’s operations. The reporting applies integrated reporting principles, is in compliance with the Global Reporting Initiative (GRI) guidelines (Core requirements) and has been verified by an independent third party. The boundaries of the social and environmental data do not include the associated companies. Requirements for corporate responsibility reporting by state-owned companies and environmental, social and governance (ESG) reporting guidance for stock exchanges are also taken into account. The annual report stands for a Communication on Progress (COP) report in compliance with the UN’s Global Compact initiative. This PDF has been generated from Online Annual Report and only contains the parts specified and downloaded by the user. 5 Please visit annualreport.fingrid.fi/EN for the full online report. Annual Report 2018 dev: Fingrid in brief Fingrid in brief Fingrid Oyj is a Finnish public limited company responsible for electricity transmission in the high-voltage transmission system in Finland. The company was established on 29 November 1996. Operations started on 1 September 1997. Turnover amounts to EUR 852.8 (672) million. The balance sheet total is EUR 2.1 (2.1) billion. Fingrid’s nationwide grid is an integral part of the power system in Finland. The main grid is the high-voltage trunk network that covers all of Finland. Major power plants, industrial plants and electricity distribution networks are connected to the grid. Fingrid guarantees a disturbance-free electricity supply in Finland. Fingrid ensures that the generation and consumption of electricity are always in balance Between 2018 and 2027, some 1,600 kilometres of new transmission lines and 20 substations will be built. Fingrid’s customers include grid companies, electricity producers, major electricity consumers and electricity market parties. The services the company offers its customers are electricity transmission, balance services, guarantee-of-origin certificates, electricity market information and retail market information exchange. The Finnish power system is part of the common Nordic power system. The Nordic system is connected to the system in Central Europe via high-voltage direct current (HVDC) transmission links. Finland also has HVDC links with Russia and Estonia. The transmission system owned by Fingrid encompasses approx. 14,300 kilometres of 400-, 220- and 110-kilovolt transmission lines, plus 114 substations, four HVDC connections and 10 of the company’s own reserve power plants. Fingrid’s statutory tasks include developing the electricity market. Fingrid also actively participates in the activities of the ENTSO-E, the European Network of Transmission System Operators of Electricity. Fingrid furthermore engages in regional TSO co-operation in the Nordic countries and in the Baltic Sea area. TSO co-operation takes place for grid planning, grid operations and electricity market development alike. Fingrid Datahub Oy selected the supplier for the Datahub system in June. The procurement is valued at EUR 41.9 million. The Finnish Government proposed a bill to Parliament on 20 September 2018 concerning amending the Electricity Market Act and related legislation. The Datahub is a centralised information exchange system for retail markets that stores data from all of Finland’s 3.5 million places of electricity consumption. The Datahub will go live in 2021. Fingrid is owned by the State of Finland (direct holding 28.2%), the National Emergency Supply Agency This PDF has been generated from Online Annual Report and only contains the parts specified and downloaded by the user. 6 Please visit annualreport.fingrid.fi/EN for the full online