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Annual Report 2007

member of group


Annual Report 2007


Annual Report 2007

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Table of content 1. Speech of the Chairman of the Board of Directors

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2. SSE – Energy for your life and business

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2.1 Basic Information about us 2.2 Subject of business 2.3 Structure of shareholders 2.4 Identification data 2.5 Companies with SSE capital involvement 2.6 Who was in charge of Stredoslovenská energetika, a. s., in 2007 2.7 Organizational Structure

3. Care in the past

8 8 8 9 9 10 12

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3.1 History of our company 3.2 What happened in 2007

14 14

4. Energy of today

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4.1 Investment planning 4.2. We increase quality of electrical supply 4.3 Main investments in 2007 4.4 Technical parameters of the distribution system 4.5 We care about the environment 4.6 We care about culture, health and sport

16 16 16 17 18 19

5. Clear view on energy market

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5.1 Market situation 5.2 Regulation

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6.1 We purchase electricity for you 6.2 We sell the electricity to major customers 6.3 We sell electricity to entrepreneurs, organizations and households 6.4 Finance and Internal Services - supporting efficient work 6.5 Marketing – we orientate on you and your values 6.6 Safety first – we care about our employees

22 23 23 23 24 25

7. We brighten up your world

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8. Saving energy

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9. Who are those to bring the light

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9.1 Motives and incentives 9.2 Professionalism development – the way to customer satisfaction 9.3 Ethical and social scope 9.4 Our employees are here for you

10. Energy of the future

Table of content

30 30 30 31

32

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Annual Report 2007

6. We lighten the path for you


1. Speech of the Chairman of the Board of Directors

Annual Report 2007

Dear customers and business partners, For our energy company SSE a. s., the year 2007 was again a very dynamic period, in which our company together with its managers and employees managed the main strategic challenge of the further liberalising the energy market environment, and prepared efficiently the future development of our company in the historical region of Central Slovakia. In 2007, our company has further prepared intensively the implementation of the so called “unbundling” of the company. This process of deep organisational change and legal separation of the regulated activities (distribution) from the non-regulated other activities (supply and services), which is a legal requirement of the EU Directive implemented also in Slovakia as new EU member state, involved a complete transformation of our company. Unbundling has been currently implemented in all liberalizing energy markets in Europe with the objective to secure a level playingfield for all market participants, in a transparent and non-discriminatory way. This process resulted in a fundamental change of the internal organisation of our company which has been progressively transformed from one single legal entity, SSE a.s. into a Group of companies (SSE Holding, SSE-Distribucia, SSE-Metrologia, EEM, SSE CZ) which all keep the strong identity of the SSE Group belonging. The process of establishing of our new subsidiary company SSE-Distribucia, owning all distribution network and regulated assets was approved unanimously by the General Meeting of the Company on May 30, 2007: practical implementation of unbundling process took place smoothly on 1st July 2007 without any turbulence and specific constraints caused to our customers. Thanks to the successful implementation of this unbundling process in compliance with the Slovak Energy Law, all electricity consumers of Central Slovakia can now choose freely their electricity supplier on the free market according to their offers and preferences. This completely new situation of the free liberalised market, even extended to households as of 1st July 2007, is obviously a new tremendous challenge for the SSE Group which has to face for the first time in its history a real competitive market. We are now committed to do our utmost in order to keep further the confidence of our historical customers in our region for the future, by providing them with improved offers and services, competitive with the starting competition on the market. As part of SSE strategy to contribute to further development of our region which is now experiencing a big economic boom, our company dramatically increased again its investments in 2007. Gross investments of the company in consolidated group of SSEarereaching more than SKK 1.8 billion, out of which the investment in distribution system reached the amount of SKK 1.4 billion. Investments were done in new connections, reinforcement and extension of the network. Special attention was paid to im-

provement of the quality of the network through refurbishment and renewal of electrical lines and substations, further automation and remote-control. Significant progress has been reached in this field in 2007, compared to the previous years, as measured by a new significant reduction of frequency and duration of failures. In order to further improve the services to our customers we commit ourselves to further increase our future investments in the network, in order to reach within a limited time frame the best electricity standards of quality in Europe. In 2007, by continuing to concentrate activities in its core-business, and also by further improving its level of efficiency and competitiveness, SSE has further strengthened again its financial situation, reduced its level of receivables and improved significantly its cash position even though we have increased our investment plan. We are obviously very satisfied with these results and thanks to this favourable situation we can look to future with confidence. We will strengthen the long-term partnership with our current customers and develop relations with new customers, even outside our natural territory of central Slovakia. We will continue in development and constant improvement of our competitiveness, quality of our services and relationships with our customers. Dear customers and business partners, on my behalf and on behalf of the Board of Directors, I would like to express my gratitude for the confidence you gave to us in 2007. At the same time I can assure you that we will further improve our competitiveness, our quality and our services, so that also in the future in the new Slovak liberalised electricity market, you will choose SSE as your preferred supplier for “Energy for life and business“ ! Patrick Luccioni Chairman of the Board of Directors CEO

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Speech of the Chairman of the Board of Directors


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Annual Report 2007

Speech of the Chairman of the Board of Directors


2. SSE – Energy for your life and business 2.1 Basic Information about us

• • •

Stredoslovenská energetika, a. s., (SSE) is an energy supply company operating in the Žilina, Banská Bystrica and a part of the Trenčín region, where it supplies and distributes electricity to approximately 700,000 customers – both business and households. The company provides its customers with a complex range of services in the field of electricity distribution (until June 30, 2007), supply and utilisation. Stredoslovenská energetika, a. s. was established on January 1, 2002. Its sole founder was the National Property Fund of the Slovak Republic. Based on Resolution of the Government of the Slovak Republic No. 538 of May 22, 2002, a 49-percent share in the company owned by the Slovak National Property Fund was acquired in a direct sale by Electricité de France International, which entered the company as a strategic investor on October 31, 2002.

In addition to the licensed business activities, Stredoslovenská energetika, a. s., performs the following business activities based on trade licenses: • metering, • meter calibration, • provision of energy services, • engineering.

2.3 Structure of shareholders The National Property Fund of the Slovak Republic, with the registered office at Drieňová 27, 821 01 Bratislava, ID: 17 333 768, registered with the Companies Registry of the District Court of Bratislava I, Section: Po, File No.: 30/B, is a shareholder owning 1,793,508 shares of the company with a nominal value of SKK 1,793,508,000 (51%). Electricité de France International, with the registered office

2.2 Subject of business Based on licenses granted pursuant to specific laws of the Slovak Republic, Stredoslovenská energetika, a. s. conducts its business in the following key areas: • electricity distribution (until June 30, 2007)

Annual Report 2007

electricity supply, purchase of electricity, maintenance and construction of electricity networks and facilities, electricity production.

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Energy for your life and business


Elektroenergetické montáže, a.s. - (EEM, a.s.) The company was established on July 2, 2003. Based on the outcomes of an extraordinary general assembly of Stredoslovenská energetika, a.s., a contract on the sale of its part – namely the Construction and Engineering Works Division – to a newly-established subsidiary Elektroenergetické montáže, a. s, (EEM) was approved. Stredoslovenská energetika, a.s. owns 100 % shares. Effective from September 1, 2004, a new legal entity appeared on the Slovak market whose primary objective involves the construction, restoration and development of electricity facilities supplying electricity to the customers of Stredoslovenská energetika, a.s. Metrológia EV, s.r.o. (MEV) The subsidiary Metrológia EV, spol. s r. o., was established on April 3, 2003. As from January 1, 2004. The company builds on the 50 years of experience of the Metrológia SSE company in the area of verification of electricity meters and has gradually extended its scope of business to include the verification of water meters as components of thermometers and the calibration of meters of electric parameters. Stredoslovenská energetika, a.s. owns 100 % share. As of January 1, 2008 the name of the company was changed to SSE Metrológia, s.r.o. and the company started to perform also activities Check of Electricity Supply Points and Invoice Metering.

at 20 Place de la Défense Tour EdF - 920 50 Paris La Défense, ID: 380 415 125, Nanterre Commecial Court Registry No. 2001B04800, is a shareholder owning 1,723,174 shares with a nominal value of SKK 1,723,174,000 (49%).

2.4 Identification data Stredoslovenská energetika, a. s. (joint stock company) Ulica republiky 5 010 47 Žilina ID: 36 403 008 VAT ID: SK 2020106682 Bank details: VÚB, a. s. Žilina, Account No.: 702 432 / 0200 The joint-stock company is registered with the Companies Registry of the Žilina District Court, Section Sa, File No.: 10328/L, Date of Registration January 1, 2002. Telephone number: 041/519 1111 Fax number: 041/519 2575 E-mail: sse@sse.sk Internet: www.sse.sk

SSE CZ, s.r.o. SSE CZ, s.r.o., was established on October 13, 2005. It focuses on the Czech electricity market and provides electricity purchases and sales between SSE and foreign partners in Czech republic. Stredoslovenská energetika, a.s., is the only shareholder of this company. Stredoslovenská energetika, a.s. owns 100 % share. SSE- PPS, s.r.o. in liquidation SSE-PPS, s.r.o., was established by SSE, a.s., on June 15, 2005 and it is to operate as a cross-border lines operator. Stredoslovenská energetika, a.s. is the only shareholder of this company. Stredoslovenská energetika, a.s. owns 100 % share. On August 28, 2007 the sole shareholder executing powers of the General Meeting of SSE-PPS, s.r.o. have decided about winding up the subsidiary company SSE-PPS, s. r. o.

2.5 Companies with SSE capital involvement Stredoslovenská energetika - Distribúcia, a.s. (SSE - D, a.s.) SSE-D, a.s., was established by SSE, a.s, on March 22, 2006. Stredoslovenská energetika - Distribúcia, a. s. is a distribution company. Operates in Žilina, Banská Bystrica and part of Trenčín region whereat it distributes electricity for almost 700 000 customers – entrepreneurs and households. To its customers company provides the activities related to distribution network operation. Stredoslovenská energetika, a.s. owns 100 % shares. The company started its activity as of July 1, 2007 after implementation of unbundling of the Distribution System Operator pursuant to Article 25, section 1 of the Energy Act by contribution of part of the company – division 7000 Distribution System Operator of SSE, a.s. – to the equity of subsidiary company Stredoslovenská energetika – Distribúcia, a. s.

ENERGOTEL, a.s. The company was established on February 7, 2000 for the purpose of providing data and telecommunication services. Stredoslovenská energetika, a. s. owns 16,67 % shares.

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Annual Report 2007

Energy for your life and business

SPX, spol. s.r.o. SPX was founded by three distribution companies: SSE, a.s., VSE, a.s., and ZSE, a.s. The company’s operations focus on the exchange of information relating to electricity exchange through an SPX internet portal. It was established on November 24, 2004 based on the Procurement and Sourcing and portfolio management Department’s initiative. Stredoslovenská energetika, a.s. owns 33 % share.


Annual Report 2007

2.6 Who was in charge of Stredoslovenská energetika, a. s., in 2007

Board of Directors • Patrick Antoine Gaston Luccioni, Chairman • Ing. Juraj Laurinc, Vice-Chairman until January 22, 2007 • Ing. Ján Ďuriš, Vice-Chairman from January 23, 2007 • Drs. Erik Gerard Regter, Member until July 31, 2007 • Jarosław Dybowski, Member from August 1, 2007 • Dr. Peter Weis, Member • Ing. Pavol Faktor, Member until January 22, 2007 • Ing. Dušan Petrík, Member from January 23, 2007 Supervisory Board • Ing. Peter Huňor, Chairman until January 22, 2007 • JUDr. Peter Šimko, Chairman from January 23, 2007 • Brice Francois Jean-Paul Alleman, Vice-Chairman • Ing. Zoltán Bán, Supervisory Board member until January 22, 2007 • Martin Hoffman, Supervisory Board member until January 22, 2007 • Ján Ondrejka, Supervisory Board member until January 22, 2007 • Ing. Ján Smatana, Supervisory Board member until January 22, 2007 • Ing. Pavol Mertus, Supervisory Board member from January 23, 2007

• • • • •

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Ing. Konštantín Kičura, Supervisory Board member from January 23, 2007 Ing. Eduard Rada, Supervisory Board member from January 23, 2007 Ing. Ján Hrušík, Supervisory Board member from January 23, 2007 Ing. Igor Pištík, Supervisory Board member, elected by employees Ing. Miroslav Martoník, Supervisory Board member, elected by employees Ing. Mikuláš Koščo, Supervisory Board member, elected by employees

Energy for your life and business


Energy for your life and business

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Annual Report 2007

Executive Board • Patrick Antoine Gaston Luccioni, Chief Executive Officer • Ing. Jaroslav Hanzel, Diector of Corporate and Shared Customer Services Division (as from June 1, 2007) • Ing. Jaroslav Hanzel, Director of Distribution Services Division (until May 31, 2007) • Ing. Ľubomír Kollárik, Director of Distribution System Operator Division (until May 31, 2007) • Ing. Ľubomír Kollárik, Director of Distribution Services (as from June 1, 2007) • Ing. Vladimír Valach, Director of Finance and Internal Services Division • Ing. Branislav Kadaš, Director of Commercial Division • Ing. Michal Špalek, Director of Shared Customer Services Division ( until May 31, 2007)


2.7 Organizational Structure Organizational Structure January 1, 2007

Company Board of Directors

Cabinet of the BoD Advisors

SSE, a.s. Chief Executive Officer

1000 Organizational Unit of CEO

2000 Distribution services Division director

4000 Finance and internal services Division director

5000 Commercial Division director

6000 Shared customer service Division director

7000 Distribution system operator Division director

1100 Marketing and Communication Independent department manager

2300 Network operation and maintenance Section director

4200 Accounting Section director

5100 Electricity sales Section director

6100 Operations Section director

7100 Asset management Section director

1200 Internal audit control and risk managment Independent department manager

2700 Distribution supportive services Section director

4300 Treasury Independent department manager

5200 Purchase and Portfolio Section director

6200 Call centre/mid market Section director

7200 Dispatching control Independent department manager

1300 Crisis managment, safety and environment Independent department manager

4400 Information technologies Section director

5300 Electricity sales to small-scale take off and households Independent department manager

6300 Contact offices/ Residences Independent department manager

7300 Distribution customer services Independent department manager

1400 Reg. Affairs, Strategy & Business development Section director

4500 Central Purchase Section director

1500 Human resources Section director

4600 Logistics and non-core business assets Section director

Annual Report 2007

1600 Controlling Independent department director

1700 Legal Section director

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Energy for your life and business


Organizational Structure December 31, 2007

Company Board of Directors

SSE, a.s. Chief Executive Officer

1000 Corporate and Shared customer services Division director

2000 Distribution services Division director

4000 Finance and internal services Division director

5000 Commercial Division director

1100 Marketing and Communication Independent department manager

2300 Network operation and maintenance Section director

4100 Operations Section director

5100 Electricity sales Section director

1400 Reg. Affairs, Strategy & Business development Section director

2700 Distribution supportive services Section director

4200 Accounting Section director

5200 Purchase and Portfolio Section director

1500 Human resources Section director

4300 Treasury Independent department manager

1700 Legal Section director

4400 Information technologies Section director

1800 Call centre / mid market Section director

4500 Central Purchase Section director

1900 Contact offices / Residences Independent department manager

4600 Logistics and non-core busin. assets Section director

Cabinet of the BoD Advisors

110 Internal audit control and risk managment Independent department

120 Controlling Independent department manager

130 Work safety Independent department manager

Legend Division D

Independent department I

Energy for your life and business

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Annual Report 2007

Section S


3. Care in the past 3.1 History of our company

The establishment and beginnings of the operation of Stredoslovenská energetika, a.s., dates back to the first half of the 20th century. Between 1920 – 1923, first electricity companies appeared in the territory of Central Slovakia, which were then referred to as “multi-beneficial”. The predecessors of Stredoslovenská energetika, a. s., were two companies: Stredoslovenské elektrárne, the first electricity shareholding company in Slovakia based in Banská Bystrica, and Spojené elektrárne severozápadného Slovenska, a shareholding company based in Žilina. These began their business operations on April 30, 1923. During their existence, both companies experienced a number of organisational changes in terms of legal form, independence, size and scope of operation. January 1961 can be seen as an important milestone in the history of Stredoslovenská energetika, when the two companies merged. On September 1, 1990, Stredoslovenské energetické závody, a state-owned company, was established. However, this company was terminated without liquidation by the government’s decision on the last day of December 2001. Its property, rights, obligations, and liabilities were taken over by SSE on January 1, 2002. In accordance with Resolution of the Government of the Slovak Republic No. 583 of May 22, 2002, a decision was issued on the privatisation of a 49% ownership share of the National Property Fund of the Slovak Republic in the business activities of SSE by means of a direct sale to Électricité de France International (E.D.F. INTERNATIONAL). On October 31, 2002, the general assembly approved the entry of the strategic partner into the company.

May 30, 2007 took place the Regular General Meeting of SSE, a.s. whereby was approved: ƒ with effect as of July 1, 2007 the division Distribution System Operator pursuant to the Article 25, sec. 1 of the Energy Act (unbundling) by contribution of part of the company – division 7000 Distribution System Operator – to the equity of subsidiary company Stredoslovenská energetika – Distribúcia, a. s., ƒ standalone individual financial statement of SSE, a. s. for 2006 ƒ in relation to unbundling approved the amendment of the Articles of Association of Stredoslovenská energetika and Stredoslovenská energetika-Distribúcia with effect as of 1 July 2007 ƒ distribution of the profit of SSE, a.s. for 2006,

3.2 What happened in 2007 January • January 22, 2007 took place the Extraordinary General Meeting of SSE, a.s. whereby shareholders approved personnel changes in the Board of Directors of SSE, a.s. and in the Supervisory Board of SSE, a.s. • January 31, 2007 signing of the 7th Amendment to the Company Collective Agreement for the years 2005-2007 February • February 1, 2007 SSE, a.s. opened refurbished Contact Offices in Banská Bystrica and Lučenec

Annual Report 2007

March • March 28, 2007 SSE, a.s. opened refurbished Contact Office in Žilina May • May 1, 2007 our company SSE, a.s. launched new electronic service WebSServis for its customers in household segment

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Care in the past


ƒ Consolidated Financial Statement of SSE, a.s. for the year 2006 ƒ granting of prior consent to the Board of Directors of SSE, a.s. to wind up the subsidiary company SSE-PPS, s. r. o.

July • July 1, 2007 meant for the company SSE, a.s. a historical milestone because the market was opened also for households. Full market liberalization. • July 17, 2007 SSE prepared a special consultancy action Truck Action Daikin as a free-of-charge advisory related to the selection of proper air conditioning in selected towns

June • June 13, 2007 the Board of Directors of SSE, a.s. approved the execution of organizational changes in SSE, a.s. as of July 1, 2007 – unbundling of the division 7000 Distribution System Operator which was approved by the Supervisory Board of SSE, a.s. dated on May 22, 2007 following the unbundling approval by the Regular General Meeting dated on May 30, 2007 • June 27, 2007 our company SSE, a.s. and FENICE POLAND SP. z o.o. concluded Memorandum of understanding in order to conduct common activities and mutual cooperation • June 30, 2007 - signing of SLA between SSE and SSE-D, a.s. with effect as from July 1, 2007

August • August 1, 2007 SSE, a.s. joined the Code of Ethics for euro adoption. Our company by joining this document declares the responsibility to follow the basic ethical principles in the process of new euro currency introduction in SR • new project “SSE comes to you” was launched in August. Main goal of this project was energy consultancy, providing useful information about the forms of energy savings and help for selected groups of citizens. October • October 16, 2007 SSE, a.s. handed over new accumulation heating furnaces to the Kindergarten Martinček in region Ružomberok • In October SSE, a.s. launched survey called Antidiscrimination Agreement. Target of this survey was to see objectively mutual relationships between SSE, a.s. and its employees and thereby to find out how the employees understands a discrimination of women in working environment November • November 20, 2007 the winners of competition “Play with Collection” were announced • In November was announced the theme of a month “Traffic Signs at Workplaces” within the project “Safety First” • November 30, 2007 the Office for Regulation in Network Industries of SR approved the integrated prices for electricity customers in households for 2008

Care in the past

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Annual Report 2007

December • December 18, 2007 took place a simulated training of fire evacuation of SSE Group employees


4. Energy of today A reliable distribution of the electric energy generates favorable conditions for economic and industrial development in whole region. Accordingly one of our main objectives also in 2007 is to provide reliable distribution of electricity to all customers and therefore to generate permanent conditions for their development and growth. As the result of unbundling, on July 1, 2007 our subsidiary company Stredoslovenská energetika-Distribúcia, a. s. has begun to operate actively as the distribution system operator. This entity formed originally from the Distribution System Operator division in 2006. The establishment was initiated by the responsibility of SSE, a.s to realize an unbundling connected with distribution system operation. The requirements of our customers are known well to us and we have our own visions that will ensure reliable function of distribution system in upcoming period as well. Annually we invest into restoration and development of distribution network considerable financial resources in order to ensure such visions and objectives In the course of year 2007, our main strategic investment objectives were: • connecting new customers to the distribution network • increasing the quality of electricity supply to our customers • decreasing outage times by using progressive components and working methods • strengthening the capacity of the network in areas experiencing under-voltage problems

4.1 Investment planning We invested SKK 1 406 million in distribution-related technological facilities in 2007. This amount includes investments of SSE-D, a.s. for the period of second half-year 2007 amounted to SKK 982 million. Total volume of gross investments of the companies in consolidated group of SSE have reached amount of SKK 1.838 million, which compared to 2006 represents investment growth of SKK 388 million.

stalled take-offs, whereas total number of take-off points has increased on all voltage levels in amount of 10 504.

4.3 Main investments in 2007 • •

4.2. We increase the quality of electricity supply

• •

Annual Report 2007

The projects that we have completed as part of our strategy of increasing the quality of electricity supply to our customers contribute to overall improvements in SAIDI and SAIFI indicators. Those are projects mainly from the field of remote switching elements and substitutes of old technologies for modern practices. Evaluation of SAIDI and SAIFI indicators shows the table below: Year

SAIDIU

SAIDIP

SAIFIU

SAIFIP

2007

143 min

149 min.

3,12

0,47

finalization of TS Zvolen Union control reconstruction, exchange of disconnectors and switchers in transformer station 110/22 kV Žilina by Žilinská teplárenská, a.s. refurbishment of transformer station 110/22 kV Lisková exchange of control boxes and of the air-pressure system drives of disconnectors for electrical drives in substation 110 kV Bystričany

Additional important activities where we annually invest tens of millions are to improve services of Call Centre, introduction of new maintenance technologies with minimal under-voltage period (life line works), development of data technologies and last but not least precautionary measures for the protection of environment before potential negative impacts resulting from the activity character of our SSE Group.

From new connections viewpoint the year 2007 has brought increase of reserved output in amount of 314 MW of new in-

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Energy of today


Structure and amount of investment in the field of electricity distribution The following table provides an overview of the structure and amount of investments the field of electricity distribution in 2007.

New connections

530

Electricity supply quality

507

Other types of investment (development projects, IT..)

369

Electricity system length

1)

32 192

HV

km

2 636

MV

km

10 047

LV

km

19 509

Number

7 342

HV substations at VHV/HV stations

Number

4

HV/MV transformer stations

Number

48

MV/LV transformer and switch stations

Number

15

MV/LV distribution transformer stations

Number

7275

Transformer stations, substations, distribution transformer stations Of which

1)

This amount includes investments of SSE-D, a.s. for the periodof second half-year 2007 amounted to SKK 982 million

4.4 Technical parameters of the distribution system The below table shows the scope of installed distribution system facilities by means of which SSE, a.s. and SSE-D, a.s. supplied or distributed electricity in 2007:

Energy of today

km

Of which

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Annual Report 2007

Reality (SKK million)

2007


4.5 We care about the environment

Annual Report 2007

We live for the present though we also look to the future and we strive that yours would be bright. In 2007 one of our strategic objectives was the care and protection of the environment that contributes to the good feeling of customers.

Within the soil conservation and protection of underground waters we realized hydro-geological monitoring of potential contamination at 110/22 kV Zvolen Lieskovec transformer station.

In 2007 the Waste management concept originated from objectives of our Waste management Program. We fulfill the basic principles of waste management by implementation of actual activities: • By preventing the waste origination we limited its production and preferred the material evaluation of waste before its disposal; • In preference we concentrated on evaluation dangerous waste types, for example waste oils, used toners, batteries and etc; • We spent more than SKK 4,5 million for disposal of dangerous and other wastes as well including removal of captured rainfall waters in emergency tanks at transformer stations;

In the field of the protection of surface and underground waters we minimized the risk of potential contamination of the environment by investing in technical assurance of the operating facilities: • In 2007 we invested SKK 55,3 million in the purchase of distribution transformer stations with capacity of ecological suitable filling; • We minimize the risk of breakdowns generation and by that the contamination of surface and underground waters through realization of environmentally suitable measures to secure the operation of our facilities within the environment protection regulations;

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Energy of today


In the field of the protection of nature in good faith we have showed activities traditionally toward avifauna protection in collaboration with the State Nature Conservancy (Štátna ochrana prírody) and non-profit protection associations. For the prevention of birdlife death it assembled plastic enhancements of plane bracket on 22 kV lines, so called comb barriers. The year 2007 was another realization year of international liabilities in accordance with the NATURA 2000 project, according to which Slovak Republic has obliged within EU to declare Special Protection Areas. We support legislative responsibilities resulting from the operating of distribution equipments in collaboration with State Nature Conservancy (Štátna ochrana prírody).

In the field of air protection we have ensured: • responsibilities of the operators of small sources; • announcement and payment obligation according to legal regulations • a monitoring of quantity of installed equipments with gas SF6 contents in accordance with Kyoto protocol. Monitoring of the observation of lawful orders and practices of our company in the field of environmental protection were executed under our own control activity. In December 2007 our special employees in the field of ecology have obtained certificate of graduation of internal auditors training pursuant to STN EN ISO 14 001.

4.6 We care about culture, health and sport Activities in the field of culture and sport are a manifestation of a man’s energy. The energy released from an individual in order to enrich whole society. We feel the great feedback of the mission of our company with this human endeavor. Therefore annually we help in the field of development of culture and sport in central Slovakia. Our region we present as an attractive place to live and do business, we take care of allsocial interests and we build firm relations with regional and communal organizations.

Energy of today

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Annual Report 2007

We sponsor various activities centered on sport and culture in central Slovakia. In 2007 among others we financed Volleyball club in Žilina, Hospital in Žilina, Non governmental organization Náruč, Sport club for the Disabled in Bytča, Považie regional museum, Non governmental organization Chránené dielne (Protected Workshops), Krajina harmónie foundation (Harmony Country) and others.


5. Clear view on energy market Only a clear view and knowledge of market environment can bring real bright thoughts. It belongs to them mainly contribution of more superior quality services for a reasonable price for our customers and only this way can the company stand its ground in the forthcoming competition in the electricity market.

5.1 Market situation •

The electricity market is fully liberalized. Beside standard participants as traditional suppliers and customers are taking part also independent suppliers and electricity sellers. A liquidation of short term electricity market is quite on a high level. During 2007 were set the last missing pieces into compound of standard electricity market: • 7-days commerce – a possibility to monitor, or to adjust contract schemes during seven days of the week; • 15-minutes billing of the deviation that contributed to decrease of multi-costs; • cancelation of restrictions of transmission responsibility for the deviation on other subjects of billing • to define inner-day commerce; • to shorten the change of supplier on 40 calendar days and removal of small shortcomings. Unfavorable evaluation however has brought application of so-called export fee that every electricity exporter from Slovakia must pay. In July also households were affiliated to eligible consumers, therefor every electricity consumer has got the right to change the supplier.

5.2 Regulation Year 2007 has been challenging for SSE due to significant changes in the regulatory environment. Changes in business, legal and regulatory environment came as a consequence of the EU legislation and of the commitment of the Slovak Republic to play a more active role in forming the energy policy of the country. All these changes have had an impact on the conditions for performance of our core business operations on the Slovak electricity market:

Annual Report 2007

National Council of the Slovak Republic approved the Act 110/2007 on amendment of Regulatory Act 276/2001 (Regulatory Act) and Energy Act 656/2004 (Energy Act). Major changes related to the reorganization of the Regulatory Office for Network Industries SR (RONI), a new Board for Regulation was constituted as body responsible for strategic level, i.e. formulation of regulatory policy, and the control and approval of the work of RONI. Based on the Act Ministry of Economy SR became a direct participant in the approval of Regulatory Policy and of the price proceedings of regulated entities. The Act further

20

constituted the competence of RONI to regulate the price of electricity supply for households after the date of full market opening. The newly appointed Board for Regulation presented a new Regulatory Policy, basically confirming the principles stated in the Regulatory policy 2006, except for the length of regulatory period, which was shortened to one year. Government of the Slovak Republic approved legal unbundling of the distribution system operation of Stredoslovenská energetika, a. s., Vychodoslovenska energetika, a.s., and Zapadoslovenská energetika, a.s. by its resolution No. 455/2007 of May 23, 2007, thus enabling the implementation of the requirement on legal unbundling of the Distribution System Operators in line with the EU Directive 2003/54/EC. On June 13, RONI issued the license no. 2007E0260 for the Distribution System Operator Stredoslovenská energetika – Distribúcia, a.s. (SSE-D) and amended the license for SSE. The existing price decisions issued by RONI for vertically integrated entities were transferred to price decisions for unbundled DSOs, whereas the Board for Regulation approved Decision No. 0220/2007/E of June 19, 2007, on distribution prices for customers except for households. Further, with regard to the impeding opening of market for households as of July 1st, the Board for Regulation approved the new Decision No. 0221/2007/E of June 19, 2007, on distribution prices for households. On July 4th, 2007, the Government of the Slovak Republic approved the Ordinance 317/2007 setting the rules for functioning of the electricity market (Market Rules), which fundamentally redefined the rights and obligations of market participants to fit the change in the status of the distribution system operators stemming from the legal unbundling. Board for Regulation approved RONI Decree No. 2/2007 of August 21, 2007, which laid down the scope of price regulation in the electricity sector and the method of its implementation. As for the distribution pricing, the principles laid down in the RONI Decree 2/2006, i.e. the escalation of the reference 2006 prices by inflation less factor X were applied. With regard to the pricing of supply for households, the decree constitutes the mechanism of maximum prices, which are approved for reference regional suppliers. All suppliers are obliged to follow the product structure of the reference supplier and may not exceed the price of the individual products. At the end of the year the Government of the Slovak Republic submitted to National Council of the Slovak Republic a draft amendment to the Energy Act and the Regulation Act, adopting the rights and duties of market participants to reflect the unbundled world.

Clear view on energy market


21

Annual Report 2007

Clear view on energy market


6. We lighten the path for you To stand one’s ground on the market with a great potential in increase of competition environment and keep its leading position in our region is for us a clear challenge. Therefore we want to build our company as a modern, customer oriented company achieving to meet our customers with maximal scope. The right sources of new and better services bring bright thoughts that can light every particular customer and lead him to us.

se to 300 MW. Temperature change by one Celsius degree causes a performance gap of several MW. Only good prediction based on independent weather forecasts will ensure effective optimization of purchasing chart. Thanks to quite good liquidity of short-term market with electricity and possibility to import or export electricity into Czech Republic by means of our subsidiary SSE CZ we accomplished to successfully stop all unexpected swings of purchasing chart of SSE. Our close and professional relations with all members of EDF Group enable us to optimize our long-term position within the group. Number of business partners we have the possibility to diversify long-term purchase of electricity and to attain the optimal purchasing prices of electricity.

6.1 We purchase electricity for you

Annual Report 2007

The circle of electricity purchase starts with quality prediction of total performance of distributed of electricity. During the winter peak this performance has reached attributes of almost 900 MW and during summer nights has dropped clo-

22

We lighten the path to you


6.2 We sell the electricity to major customers

have observed a gentle decrease in rates of electrical heating on the score of above-average temperatures during winter months. In 2007 we successfully implemented a strategy of generation of long-term, mutually convenient partnership between SSE and consumers. The result was conclusion of multi-year contracts with selected parts of the customers from the segment of entrepreneurs and organizations.

During electricity sales in year 2007 we applied a new method for the first time, including software to calculate prices of end customers. Development of competition in 2007 expressly was showing a formation of the producers as suppliers to end customers. To confront such competition it is extremely complicated and the only way to keep our position on the market is the way of high added value. Beyond all the year 2007 was for SSE, a.s. successful and it gave clear signals for important strategic changes in the electricity sales.

6.4 Finance and Internal Services - supporting efficient work

6.3 We sell electricity to entrepreneurs, organizations and households We offer integrated package of competitive prices, customer care and supplementary services to our customers. The electricity supply for households, entrepreneurs and organizations segments was compared with the previous year. We

We have implemented the unbundling principles in the customer system. The previous system serving the need of inte-

We lighten the path to you

23

Annual Report 2007

We optimize cash flow by application of annual deduction and annual invoicing for the customer category of the Smallscale take off entrepreneurs with integrated pricelist of Small installed works into customer’s system in process of invoicing, collecting and management of debt for the sales and electricity distribution fees. In 2007 we continued in the expansion of centralizing the finance means system of the SSE group in order to achieve higher effectiveness of the managing the finance means. System „Cash-pooling“ has brought savings in the field of the cash administration and has allowed to accomplish better conditions of the operating finance in SSE and its subsidiaries. Following the preparation of introduction of common European euro currency in Slovak Republic starting from January 1, 2009, already, in 2007 we have actively prepared for this change. Companies related to the SSE Group have become the signatories of the Code of Ethics for introduction of euro with major objective is to minimize negative impacts on inhabitants and to smooth the adaptation on a new common currency for the customers. In 2007 we have continued in succession of the tendency of intensive development of IT. Especially in the field of technical infrastructure we can speak about the actual revolution. We have realized backup connection into the INTERNET on level 100 Mbit/s in the field of telecommunication. We have supplemented the telecommunication infrastructure of the level 100 Mbit/s and the aggregate cabling in the location of major administration centers. Beside we have also realized an installation of transmission CWDM and DWDM systems with the purpose to markedly increase the capacity of optical data paths. Our IT section has participated with an important measure on realization of optical path R. Sobota - Tornaľa - Hranica with the VSE and in collaboration with colleagues from the Control Technology department has implemented managing information system for 110 kV transformer station in heating plant Žilina based on IEC-61850 standard. We also realized important projects in the field of applications, with the purpose to react namely for ongoing unbundling.


grated society we have separated it on two independent systems (one for Sales, and the other for Distribution) together collaborating while observing of all legislative conditions determined by the unbundling concept. Within this project it was proposed the technical specification for exchange of the data on the electricity market with acceptance of the VSE and the ZSE partners. After its implementation the system has fulfilled the criteria of non-discriminative data access and it has been in accordance with the unbundling conception.

aspiration is to bring to the market a new view in using energy and the attractive offer of the services helping society to confront its customers in better light. We have set the path of personal, individual, relation marketing, path of building the business and personal relations with our consumers in 2007. Although it is challenging path our consumers can recognize the care and individual approach. The result is mutual loyalty so important in the strong competitive environment. Our strategy for upcoming period is to deepen the relation marketing and its consecutive application into added value. The SSE has begun to profile as a modern, flexible supplier of the electricity in the customers’ care in the entrepreneurs and population segment.

Annual Report 2007

6.5 Marketing – we orientate on you and your values A good motivation toward the enhancement of services for us is the total liberalization of the market with electricity. Our

24

We lighten the path to you


The Marketing communication is focusing on bright sides and the benefits of SSE, and we are offering it to the customers in three major fields: • savings, increase of electrical effectiveness and the optimization of the electricity costs on the customer’s side • customer care comfort, • regional and environmental responsibility

6.6 Safety first – we care about our employees In 2007 we continued in applied tendency of constant improvement of safety level and health protection at work. Our company SSE, a.s. in the scope of Act on safety and health protection at work has concluded a contract with work health service. Markedly we increase the safety of our employees

We lighten the path to you

25

Annual Report 2007

at risk works by this service, by the analysis of possible risks and consecutive application of measures to its removal in place of its origin. Project Safety first is one of our well known projects. It reaches to all employees and all executing activities. The major ambition of the project is to increase the work safety culture on a high level in our company. The ratio of confidence regarding to importance and contribution of the Safety first project is increasing with greater interest of all SSE employees.


7. We brighten up your world Our mission is to bring energy, heat and light into the world of our customers. Whether it is thousand of households, whereabouts we bring primarily well-being and comfort, or bigger entrepreneurs and companies to exchange the energy for their success and growth of their employees. We realize that all this depend on us, the quality and variety of our services. Therefore we do everything so they can always look at us in the best light.

successfully attained the satisfaction of our customers great availability which is one of the most important indicator of good work organization of every call centre. In 2007 we continued in effective managing of business relations by the system of customer segmentation established on the base of amount of the electricity consumption by customer. Environment of the Contact Offices interior has been adapted to this division by its standardizing and refurbishing.

We continue in individual an approach to the particular customers in the segment of the major customers.

We have introduced a new free electronic Web SSErvis service for the customers in the households segment. Thanks to it our customers can communicate with us from the convenience of their houses 24 hrs daily through the whole year. WebSSErvis has brought a possibility to obtain information regarding the consumption point, use history, payment consultancy, has the possibility to keep a meter-reading journal, or to send claim. We have continued successfully in the Collection project. We have accomplished an increase of almost 8000 customers using this form of settlement by support of information and simplification of the establishment process. Comfortable communication is a part of our offer to the customers. Therefore a support of telephone contact use and development of electronic communication are our priorities.

We have continued in the creation of specific approaches in price making, customer care and communication based on existing segmentation based on the size of the energy consumption and partially according to voltage level in the segment of entrepreneurs and organizations up to 500 MWh. The existing segmentation has allowed us also differentiation of the conditions of the contract relation. Total customer orientation

Annual Report 2007

In 2007 our Call Center had served almost 400 thousand customers addressing their mail, e-mails and telephone requirements. During the whole year the accessibility of telephone centre had been ensured to 93% that means 9 of 10 customers got through. The year 2007 and the previous one had showed that we

26

We brighten up your world


27

Annual Report 2007

We brighten up your world


8. Saving energy

Annual Report 2007

We save energy (save energy project, storage heating, heat pumps, air-conditioning). In saving energy we see our bright future. The key product oriented on effective electricity use in accordance with long-term strategy has remained also this year the product for the support of storage heating. The project objective is the motivation of the customers from households segment to use this kind of electrical heating and to remove the barriers, especially in the form of higher investment costs. In 2007 we achieved the first achievements when we registered an increase of 12% in the storage heating tariff thereout half of consumers had previously used the calorific heating directly. We have continued with the activities supporting of energy effective technologies – heat pumps, air-conditioning and water supplies accumulation by collaborating with external partners we offer advantageous conditions.

We are a modern company and are committed on effective electricity use. Therefore we have established team of workers of contact places (contact offices in Žilina, Banská Bystrica, Lučenec and Call Center) regularly trained in the field of energies saving. They can advice professionally and recommend to the customers simple or more complex solutions with the aim of decrease of all energy losses. Our new product is a mobile consultant team „SSE comes to you“ which realized in 2007 eight drives to the Liptov region with the aim to inform about the possibilities of energies saving in the households.

28

Saving energy


Saving energy

Annual Report 2007

29


9. Who are those to bring the light Satisfaction of our customers and all our results, economical and social, are consisting in the work of our employees that they stand in the light of our successes. They are the greatest source of energy and only thanks to them we can bring warmth and light.

9.1 Motives and incentives We are laying difficult objectives, great strategic tasks and intents. To fulfill its achievement we need experienced people to understand these tasks and know how to identify them and competent employees that strive to come with new alternative solutions for our customers. These workers will become our advantage in competitive environment on the free market with electric energy. Our company entered in previous years in setting the rules and evaluation of working behavior of the employees according to general and specific qualification in competitive model of the society, to create a development area and release of human potential for the fulfillment of the given objectives.

Annual Report 2007

9.2 Professionalism development – the way to customer satisfaction In evaluated year we have surveyed the activities in the field of development of our employees first of all on deepening the necessary acquirements and skills of the behavior to our customers, attaining new attainments in special disciplines, deepening skills for safety and quality work and effective managing of the employees. It is difficult to find, attain, and keep qualified employees at the present on the work market. Even though we increase demands, accordingly to the needs, at the selection of new employees. We also increase demands in training processes for a work in new conditions oriented on customer orientation, safety, quality and performance. In the evaluated year we have finished multi-year project of education under the name “Management academy”. In two levels of I. and II. severity graduated the academy 190 managers of all managing stages. The project had contained trainings including „Assessment Centre“ of managing qualifications a skills from the field of: Communication and presenting skills, Conflicts solution, Team work, Strategic and project management, Motivation and evaluation of subordinates, Coaching, Economy of the entrepreneur, Legal minimum and others. Although the major intent of the project was to increase the level of soft skills and selected accomplishments of the managers, with time lapse we see also other contribution of deepening the team spirit by the age and duty various managers.

tomer in energy supply is the decreasing of outages period, a stage of minimal failure rate and planning of disconnecting necessary for obligatory maintenance of force equipments. We gradually distinguish the number of groups working on our MV equipments, MV under voltage, without interruption of the electricity supply to the customers in our strategic intent. In 2007 we have continued in trainings of new electro-installers and in regular retraining with necessary part of equipment for professional handling of the performance in this not quite standard work progress in power engineering.

9.3 Ethical and social scope Area of recognized values, ethics and moral manners of our

One of the important changes in our approach to the cus-

30

Who are those to bring the light


Our next project supporting sustainable development is “Agreement on social responsibility” organized from EDF centre in collaboration with social partners of particular counties. Distribution and sales of electricity are the conditions of economic and human development. These activities can not be executed without deep sense for social responsibility. The agreement was processed in the action plan for 2007 and it contained these priorities: • Ability to adopt of the employees and their professional path: education, mobility • Dialogue between employees and managers • Safety of the entrepreneur operation from an environmental viewpoint • Participating in the programs of economic and social development Summary of the basic ethical standards of behavior and conduct in labour – legal relationships is defined in the Code of Ethics of SSE, a.s.

9.4 Our employees are here for you

employees as extension of working manners is the field where we want to enter on the traditions and experience of EDF. Therefore management of SSE supported responsibility in the project Phare by signing the Act “Antidiscrimination agreement – important step toward equation of openings”. An objective of this agreement is to create conditions for avoiding and will precede the generation of any form of discrimination with major fixation on discrimination based on sex. Antidiscrimination committee processed “Action plan” supported by survey in the Company and realized first steps toward change of present conditions. We have arranged the project into the EDF contest of “Sustainable development” and it was chosen into the second round of awarded projects.

Who are those to bring the light

31

Annual Report 2007

„Our people are the most valued what we have got” – this well known sentence is applicable in the business doubly. We are suppliers of the relation character and our relations with consumers are good as are our sellers. We provide electricity on the market with the electricity that it is extremely complicated and serious for professionalism. Many important decisions are executed in stress, the reason of outside effects and it is impossible to eliminate completely. To be successful in such environment it is possible only with good and professional team. And we are successful. Achievements of our team we have achieved especially by constant education, training and gaining the experiences. We build on that our employment strategy – to provide education to the people, space for professional growth and to establish for them sophisticated working environment, to be able fulfill the tasks required from them.


10. Energy of the future In 2006 Slovakia was still an exporter of electrical energy. After the shut-down of the first block of nuclear power plant the situation is quite balanced. Though the situation is complicating shortage of electricity in Hungary and in the Balkan where electricity transit is heading. This transit takes great part of imported capacities, whereby the price level is increasing in Slovakia. Dependence of our country on electrical energy importing from abroad will increase after shut-down of the second block of nuclear power plant in JaslovskĂŠ Bohunice. It will increase also from the reason of constant electricity consumption in accordance with economic growth in Slovakia and the standard of living growth of its inhabitants.

ergy generation and to create new possibilities for import of electrical energy form surrounding states. First of all we have concentrated on smaller flexible sources of electricity adapting to the needs of given location. Some projects are once again concentrated on electric energy generation form the renewable sources. In this way SSE, a.s. the energy supplier for your live and business, wants to evolve its care about environment and the customer’s satisfaction. Our great effort is to contribute also to maintenance of rational price level of the electric energy in Slovakia.

Annual Report 2007

The possibilities of the electrical energy import are quite delimited. Concerns are growing also on border with Czech Republic which was free for electricity import untill now. Cross border capacity has been charged whereby it is increasing also the price in Slovakia. Because of these reasons we have started to initiatively prepare a few projects for electrical en-

32

Energy of the future


33

Annual Report 2007

Energy of the future


Financial part


Table of content (financial part) 1. 2007 SSE Economic Performance and Business Report 1.1 Economic results 1.2 Financial indicators 1.3 Receivables and payables

36 36 37 39

2. Report on the activities of the Supervisory Board for the year 2007

40

3. Proposal for distribution of 2007 profit

41

4. Report on the fulfilment of the SSE, a. s. Compliance Program

42

5. Post balance sheet events

43

6. Expenses for activity in the sphere of research and development

43

7. Acquirement of own shares, temporary stocks and commercial contributions

43

8. Organizational entity of the accounting entity abroad

43

10. Financial Statements as at December 31, 2007 and the Independent Auditor’s Report

46

11. Notes to the Financial Statements

52

Table of content (financial part)

35

Annual Report 2007

9. Statement of position of the Supervisory Board of StredoslovenskĂĄ energetika, a.s. on the regular individual financial statements as of December 31, 2007 and on the proposal for 2007 profit distribution 44


1. 2007 SSE Economic Performance and Business Report 1.1 Economic results

to meter and charge electricity consumption on yearly basis instead of previous half-year metering and statement. The 2007 Individual Financial Statement of Stredoslovenská energetika, a. s. had been worked out according to the International Financial Reporting Standards (IFRS) valid in the European Union. In 2007, SSE achieved a profit after taxation in the amount of SKK 21,263,683 thousands. Company booked the result of the transaction of a part of the company the Distribution System Operator into independent subsidiary company SSE-D, a. s. as of July 1, 2007 within the process of Unbundling totally amounted to SKK 19,411,650 thousand which is stated in presented results. The stated result of the transaction represents profit which has no cash support created. The positive result of business performance was mainly determined by the level of the sales margin from the sale and distribution of electricity, whereas the core business of the company is electricity sale and distribution mainly in Central Slovakia region. This fact is confirmed also by the following figures: in 2007 the revenues from the sale and distribution of electricity were in the amount of 91% of the operating revenues (without including the result from transaction within the Unbundling process), and expenses of the purchase and transmission of electricity reached in 2007 the amount of 85% of the operating revenues. Detailed classification of revenues and costs in 2007 compared to 2006 is stated in the following overview.

Annual Report 2007

The main priority in the field of economy and finance is to secure the liquidity and financial stability of the company. Keeping good financial situation in the company Stredoslovenská energetika, a. s. and decreasing the impacts of potential negative development in the financial markets required systematic monitoring of financial flows in the company. SSE has regularly monitored and evaluated flow of financial means on bank accounts, receivables maturity at customers, has elaborated expected future financial flows with the objective to settle all its liabilities including taxes. In SSE the emphasis has always been put to the solution of a question of receivables at customers. In 2007 provisions had been created and released towards doubtful receivables based on their age structure in compliance with precaution principles, time and subject relation of the costs with the booking period. In the course of the year a maximum effort had been invested on all managerial levels towards effective cost consumption management. Consumption of cost has been directly influenced by the individual organizational units, i.e. controllable costs consumption has been regularly monitored and evaluated. The needs and request of units have been operatively revaluated and operatively it was decided about new accrued costs. The company went in 2007 through various changes. Significant change in 2007 were the realization of legal unbundling of regulated distribution activities from other activities of the company as at July 1, 2007 and establishment of subsidiary company Stredoslovenská energetika – Distribúcia, a.s. (SSE-D, a. s.). In the course of 2006 and 2007 the invoicing period at small consumers – households and small businesses went through changes. At these customers we have started

36

2007 SSE Economic Performance and Business Report


1.2 Financial indicators Reality 2007

Reality 2006

Electricity sale and distribution

23 816 778

20 354 458

Electricity purchase and transmission

20 328 696

14 888 480

Gross margin in SKK thousand

3 488 082

5 465 978

Transmission network maintenance and operation

27 259

49 226

Revenues from construction and installation works

8 990

8 615

Income from assigned receivables Profit from sale of assets Profit from sale of material Revenues from services provided to SSE-D CAPEX for subsidiary company SSE-D, a.s. Profit from unbundling of distribution activities Release of bad debt provision Foreign exchange gains Other income

8 600

495

19 308

19 915

23 688

12 376

1 140 056

x

757 452

x

19 411 650

x

104 782

164 325

90 058

34 433

155 816

122 095

Material and other inputs

277 900

291 928

Repairs and maintenance

127 460

230 186

Assigned receivables Personal costs

6 365

1 649

883 163

970 650

Creation/(release) of provision to assets and stock

16 116

74 612

Exchange losses

91 264

46 277

87 588

x

657 931

x

Provision for onerous contracts Costs on CAPEX for SSE-D, a.s. Other costs EBITDA - earnings before depreciation, interest, taxes

906 781

646 129

22 181 173

3 616 027

537 158

714 136

21 644 015

2 901 891

170 039

102 491

Interest expense

90 151

73 501

Other financial + revenues / - expenses

83 006

3 415

Depreciation and amortization of non-current tangible and intangible assets EBIT - earnings before interest and taxes Interest income

Earnings from financial operations EBT - earnings before tax Income tax Earnings after tax

2007 SSE Economic Performance and Business Report

37

162 894

32 405

21 806 909

2 934 296

543 226

542 974

21 263 683

2 391 322

Annual Report 2007

Indicators in thousand SKK as at December 31 of a particular year


Balance sheet Part of the Company related to electricity distribution was unbundled as at July 1, 2007 to the subsidiary company SSEDistribúcia, a.s. in compliance with valid Slovak and EU legislation (“unbundling of a part of the company”) Company SSE contributed distribution activity to its subsidiary company SSE-D. Out of the total value of net assets from unbundled distribution activities amounted to

Balance Sheet

SKK 5,087,257 thousand, biggest item represented the fixed assets amounted to SKK 6,166,333 thousand. Fair value of investment amounted to SKK 24,498,907 thousand and profit from unbundling of distribution activities to SSE-D reached amount SKK 19,411,650 thousand. Stated transaction had the most significant impact on year-on-year decrease of long-term assets, increase of financial investments and increase of equity.

2007 in SKK mill.

2006 in SKK mill.

33 871

11 692

1 590

7 462

Assets Non-current tangible and intangible assets

26 865

678

Inventory and receivables

2 790

1 318

Cash and cash equivalents

2 626

2 235

Liabilities

33 871

11 692

Equity

26 419

7 057

Financial investments

263

282

Payables

5 205

2 182

Bank loans

1 984

1 872

0

299

Provisions

Accruals and estimate items

Structure of assets and its coverage as at December 31. 2007 in SKK mil. Non-current tangible and intangible assets

1 590

Equity Financial investments 26 865

26 419

Provisions 263 Inventory and receivables

Annual Report 2007

Cash and cash equivalents

5 205

Payables

2 790 2 626

1 984

Bank loans

38

2007 SSE Economic Performance and Business Report


1.3 Receivables and payables

accounted for SKK 193,315 thousand and released and used provisions totalled SKK 523,081 thousand. Highest amount of provisions (71%) was created by the company towards the receivables in bankruptcy, 16% comprise provisions towards receivables enforced by court and rest comprise specific provisions towards receivables after maturity period. Total gross amount of receivables after maturity period reached as at the date of financial statement the volume SKK 1,177,278 thousand. The amount of 361 days overdue receivables dropped significantly when compared to the previous year. Double growth of receivables (net) and payables of the company SSE, a.s. compared to the last year is related to unbundling of distribution part of the subsidiary company SSEDistribĂşcia, a.s. Growth of receivables towards third parties was caused mainly by increase in electricity prices, reduction of provisions, increase of tax receivables (deferred and also due income tax). Slight decrease in the field of payables towards third parties occurred due to decrease of tax duties (deferred and also due income tax).

As at December 31, 2007, SSE reported total net receivables and advances in the amount of SKK 2,684,570 thousand including tax receivables, whereas the short-term receivables with a maturity period shorter than one year accounted for SKK 2,657,753 thousand, while receivables with maturity period over one year reached the amount of SKK 26,817 thousand. As at December 31, 2007 the company recorded overall payables in amount of SKK 5,204,566 thousand including shortterm financial payables, in full amount of short-term with maturity period up to one year. The company created general provisions to receivables broken down by their age structure. Provisions covering their 100% value are created for over 180 days overdue receivables, 75% provisions for over 90 days overdue and 10% provisions for less than 90 days overdue receivables; the provisions to receivables subject to bankruptcy procedure, enforced by court and to specific receivables are created in the amount of 100%. As at December 31, 2007, the total provisions amounted to SKK 955,528 thousand with the newly-created provisions

Age structure of receivables and payables Receivables in thousand SKK Indicator

Year 2007

Year 2006

2 462 820

1 111 065

Overdue receivables

1 177 278

1 405 436

Receivables – gross

3 640 098

2 516 501

Due receivables

-955 528

-1 285 294

Total receivables - net

2 684 570

1 231 207

- from that receivables towards subsidiary companies

1 243 137

74 331

Provisions

Payables in thousand SKK Year 2007 5 179 752

Overdue payables Total payables - from that payables towards subsidiary companies

2007 SSE Economic Performance and Business Report

39

Year 2006 2 146 521

24 814

35 148

5 204 566

2 181 669

3 339 516

216 773

Annual Report 2007

Indicator Due payables


2. Report on the activities of the Supervisory Board for the year 2007 In course in the whole year, the supervisory board worked in the following composition: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

JUDr. Peter Šimko – Chairman of the Supervisory Board (since 23.01.2007) Brice Francois Jean-Paul Alleman – Vice-Chairman of the Supervisory Board Ing. Mikuláš Koščo Ing. Miroslav Martoník Ing. Igor Pištík Ing. Eduard Rada (since 23.01.2007) Ing. Konštantín Kičura (since 23.01.2007) Ing. Pavol Mertus (since 23.01.2007) Ing. Ján Hrušík (since 23.01.2007) Ing. Peter Huňor – Chairman of the Supervisory Board (till 22.01.2007) p. Martin Hoffman (till 22.01.2007) p. Ján Ondrejka (till 22.01.2007) Ing. Ján Smatana (till 22.01.2007) Ing. Zoltán Bán (till 22.01.2007)

• •

• •

b. noted: • Declarations on word of honour of the newly elected members of the Board of Directors and the Supervisory Board of SSE, a. s. • Information on basic objectives of business management of the Company as well as on expected development of assets, finance and revenues of the Company in accordance with Article 193 of the Commercial Code • Report on Fulfilment of Strategic Business Plan of SSE, a.s. for the years 2006 – 2008 • Related parties agreements reports for the respective quarters 2006 - 2007 • Economic results of SSE, a.s. for the year 2006 – proposal of the regular individual statements of finances of SSE, a.s. for the year 2006 including the Auditor’s Report and Proposal on Divison of Profits of SSE, a.s. for the year 2006 • The Consolidated audited financial statements elaborated as at 31.12.2006 according to the IFRS standards • Information on “Dante” project • Final Report on fatal accident in the subsidiary company Elektroenergetické montáže, a. s. dated on 11.04.2007 • Information on “Act 2007” project • sending of letter ZO SOZE No. ZO SOZE/31/2007 to the Ministry of Economy of SR, Legislation Section • Economic results, SSE. a. s. for 1. – 6. 2007

In the year 2007, the Supervisory Board convened four times at its meetings.

Date of meeting 15.02.2007 26.04.2007

Number of Absent members SB 9 Ing. Eduard Rada – excused 9

Brice Alleman – excused Ing. Igor Pištík – excused Ing. Miroslav Martoník - excused

22.05.2007

9

all Members present

25.07.2007

9

Brice Alleman – excused

11.10.2007

9

Ing. Eduard Rada – excused

In the scope of its powers and in accordance with the Articles of Association and the Commercial Code, the Supervisory Board:

Annual Report 2007

doslovenská energetika, a.s. to the audited consolidated financial statements elaborated as at 31.12.2006 according to the IFRS standards Proposal on Appointment of the Auditor of the SSE, a.s. for the years 2007 - 2008 Proposal of legal unbundling of a part of the business of SSE, a. s. to the affiliate company SSE – Distribúcia, a. s. – parts to be under decision of the Supervisory Board Business decision regarding “Dante” project Transfer of activities from SSE, a.s to affiliate Metrologia EV, s.r.o.

a. approved: • Report on Activities of the Supervisory Board in 2006 • Position of the Supervisory Board of the SSE, a.s. to the proposal of regular individual statement of finances SSE, a.s. for the year 2006 and to the proposal on distribution of the profit of the SSE, a.s. for the year 2006 • Proposals of variable parts of remunerations of the Board of Directors members • The position of the Supervisory Board of the Stre-

In course of the year 2007, the Supervisory Board did not ask the Board of Directors of the Company to convene an Extraordinary General Meeting. In course of the year 2007, there was no increase or decrease of the registered capital in the Company.

40

Report on the activities of the Supervisory Board for the year 2007


CONCLUSION: In the course of the whole period, the Supervisory Board properly fulfilled its controlling function pursuant to the Articles of Association of the company and Article 197 and following of the Commercial Code. The Supervisory Board has not discovered any breach of the Articles of Association or valid legal provisions by the Board of Directors by performing the business activities of the Company. This report was approved by the Supervisory Board of SSE, a.s. on its meeting held on 29.04.2008. Bratislava, 29.04.2008

k JUDr. Peter Ĺ i Ĺ imko Chairman of the Supervisory Board of SSE, a.s.

3. Proposal for distribution of 2007 profit thousand SKK 21,263,683

Audited net profits for the year 2007 Allocation in to Social Fund

9,630

Special bonuses (tantiemy) for the members of the Board of Directors and Supervisory Borad

4,000

Part of the profit kept in equity on the account of Retained earnings as the economic result of the previous periods

19,495,053

Net profit available for distribution of dividends to the shareholders

1,755,000

dividends for the shareholder FNM SR 51%

895,050

dividends for the shareholder EDFI

859,950

3. Proposal for distribution of 2007 profit

49%

41

Annual Report 2007

out of this for the individual shareholders as follows


4. Report on the fulfilment of the SSE, a. s. Compliance Program Report on fulfillment of Compliance Program of Stredoslovenská energetika, a.s. and Stredoslovenská energetika – Distribúcia, a.s. in 2007 According to Article 24 sec. 4 of the Act No. 656/2004 Coll. on energy sector and to amend certain acts as subsequently amended (hereinafter referred to as the Energy Act), the operator of the distribution system is obliged to elaborate the Compliance Program which is to define measures to be taken to ensure the non-discriminatory behavior of integrated businesses. This program sets particular duties of employees aimed at eliminating potential discriminatory behavior of integrated businesses. Pursuant to that, Article 24 sec. 5 of the Energy Act sets the duty for the operator of a distribution system to elaborate the annual report on taking measures specified in the Compliance Program. The Compliance Report is an integral part of the Annual Report submitted by the distribution system operator to the respective Authority and it is published together with the Annual Report.

in order to update it under new conditions of the industry. Revision activity resulted at the end of 2007 in preparation of new compliance program. New compliance program follows the procedural changes implemented in the past and legal independence of naturally monopoly activity from electricity supply.

Aim of the original compliance program in SSE, a.s. adopted in 2005 was to set up the mutual interaction between DSO which at that time was an integrate part of SSE, a.s. and individual organizational units at execution of related processes as well as creation of responsible institutional ground (constituting the position of Compliance Officer) with the purpose to secure non-discriminatory approach of DSO. Over 200 measures concerning this program have been executed since 2005, whereas the finalization came in first half-year 2007.

Within the described context of vertically integrated companies SSE, a.s. and SSE-D, a.s. were done following activities of compliance program in 2007: • • •

• •

finalizing of measures in realization of Compliance Program from 2005, continual training for new employees (and employees return from maternity or parental leave) , information provided to the employees about separation of DSO and supplier in form of Compliance Codex, ad hoc solution to open questions related to information unbundling from Compliance Officer, revision of Compliance Program from 2005, preparation of new Compliance Program 2008+.

Stated activities were done under close participation of persons responsible for Compliance Program, Compliance Officer.

Annual Report 2007

As of July 1, 2007 legal unbundling of distribution system operator of SSE took place whereas rights and obligations of DSO have been transferred to the company Stredoslovenská energetika – Distribúcia, a. s. (hereinafter referred to as „SSE-D“). SSE-D after unbundling conducts business in liberalized market with electricity as an independent entity providing access to distribution system and electricity distribution to all market participants which meets the business and technical conditions of DSO. In regard to these significant changes of organizational and institutional framework for execution of DSO activities during 2007, the legally independent distribution system operator proceed to the revision of the original compliance program

42

Report on the fulfilment of the SSE Compliance Program


5. Post balance sheet events After December 31 2007 no significant events have occured, that would require recognition or disclosure in this Financial Statement for the year 2007.

6. Expenses for activity in the sphere of research and development The company Stredoslovenskรก energetika, a.s. had no expenses for activity in the sphere of research and development in the year 2007.

7. Acquirement of own shares, temporary stocks and commercial contributions The company Stredoslovenskรก energetika, a.s. in 2007 did not acquire any of its own shares, temporary stocks, neither commercial contributions.

8. Organizational entity of the accounting entity abroad

5., 6., 7., 8.

43

Annual Report 2007

The company Stredoslovenskรก energetika, a.s. has no organizational units abroad.


9. Statement of position of the Supervisory Board of Stredoslovenská energetika, a.s. on the regular individual financial statements as of December 31, 2007 and on the proposal for 2007 profit distribution At its meeting on 29 April 2008, the Supervisory Board of Stredoslovenská energetika, a. s. examined the regular individual financial statements of the company as of 31 December 2007 including the independent auditor‘s report and the Board of Directors‘ proposal of profit distribution for the year 2007.

and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

The Auditor PricewaterhouseCoopers Slovensko, s. r. o., license SKAU No. 161 states in its report dated on March 11, 2008 the following: To the shareholders, Supervisory Board and Board of Directors of Stredoslovenská energetika, a.s.: We have audited the accompanying separate financial statements of Stredoslovenská energetika, a.s. (“the Company“), which comprise the balance sheet as of December 31, 2007, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Statutory Body’s Responsibility for the Financial Statements The Board of Directors is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Opinion In our opinion, the separate financial statements present fairly, in all material respects the financial position of Stredoslovenská energetika, a. s. as of 31 December 2007, its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Based on the above mentioned, the Supervisory Board of the company Stredoslovenská energetika, a. s. has recommended to the Regular General Meeting of the company Stredoslovenská energetika, a. s.:

Annual Report 2007

Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements

1. to approve the regular individual financial statements of the company Stredoslovenská energetika, a. s. as at December 31, 2007

44

Statement of position of the Supervisory Board of Stredoslovenská energetika


2. to approve the proposal of profit distribution of the company Stredoslovenská energetika, a. s. for the year 2007 as follows: thousand SKK 21,263,683

Audited net profits for the year 2007 Allocation into Social Fund

9,630

Special bonuses (tantiemy) for the members of the Board of Directors and Supervisory Borad

4,000

Part of the profit kept in equity on the account of Retained earnings as the economic result of the previous periods

19,495,053

Net profit available for distribution of dividends to the shareholders

1,755,000

out of this for the individual shareholders as follows dividends for the shareholder FNM SR 51%

895,050

dividends for the shareholder EDFI

859,950

49%

At the same time the Supervisory Board of the company Stredoslovenská energetika, a. s. has recommended to the Regular General Meeting of the company Stredoslovenská energetika, a. s. to approve to pay out the dividends to the shareholders in two payments as follows: 1. within 30 days after the Regular General Meeting 900,000 thousand SKK 2. as at 01.10. 2008 855,000 thousand SKK

At the same time the Supervisory Board of the company Stredoslovenská energetika, a. s. has recommended to the Regular General Meeting of the company Stredoslovenská energetika, a. s. to approve the proposal that specific amounts of special bonuses (tantiémy) for individual members of the Board of Directors and the Supervisory Board are determined by the Chairman of the Board of Directors and the Chairman of the Supervisory Board. In Bratislava on 29. 04. 2008

Statement of position of the Supervisory Board of Stredoslovenská energetika

45

Annual Report 2007

Dr. Peter Šimko JUDr. hairman of the Supervisory Board Chairman Stredoslovenská energetika, a.s.


10. Financial Statements as at December 31, 2007 and the Independent Auditor’s Report prepared under IFRS standards valid in EU

PricewaterhouseCoopers Slovensko, s.r.o. Námestie 1. mája 18 815 32 Bratislava Slovak Republic Telephone +421 (0) 2 59350 111 Facsimile +421 (0) 2 59350 222

INDEPENDENT AUDITOR’S REPORT To the Shareholders, Supervisory Board and Board of Directors of Stredoslovenská energetika, a.s.: We have audited the accompanying separate financial statements of Stredoslovenská energetika, a.s. (“the Company“), which comprise the balance sheet as at 31 December 2007, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Statutory Body’s Responsibility for the Financial Statements The Board of Directors is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility

Annual Report 2007

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. The company’s ID (IČO) No. 35739347. Tax Identification No. of PricewaterhouseCoopers Slovensko, s.r.o. (DIČ) 2020270021. VAT Reg. No. of PricewaterhouseCoopers Slovensko, s.r.o. (IČ DPH) SK2020270021. Spoločnosť je zapísaná v Obchodnom registri Okresného súdu Bratislava 1, pod vložkou č. 16611/B, oddiel: Sro. The company is registered in the Commercial Register of Bratislava 1 District Court, ref. No. 16611/B, Section: Sro.

46

Financial Statements as at December 31, 2007 and the Independent Auditor’s Report


Opinion In our opinion, the separate financial statements present fairly, in all material respects the financial position of Stredoslovenská energetika, a.s. as of 31 December 2007, its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

PricewaterhouseCoopers Pric Pr icewat ewat ew ate errh ho ou ous usse eC C Coo oo o op pe errss Slovensko, Slo ovve en nssko ko, s.r.o. ss..rr..o o.. SKAU licence No. 161

Ing. Ing ng. Mária ng Márriia Frühwaldová Má Mári Frü Fr üh hw waald ald dov ová No. 047 SSKAU KA K AU llilicence ice cenc en ncce N No o. 0 04 47

The company’s ID (IČO) No. 35739347. Tax Identification No. of PricewaterhouseCoopers Slovensko, s.r.o. (DIČ) 2020270021. VAT Reg. No. of PricewaterhouseCoopers Slovensko, s.r.o. (IČ DPH) SK2020270021. Spoločnosť je zapísaná v Obchodnom registri Okresného súdu Bratislava 1, pod vložkou č. 16611/B, oddiel: Sro. The company is registered in the Commercial Register of Bratislava 1 District Court, ref. No. 16611/B, Section: Sro.

Financial Statements as at December 31, 2007 and the Independent Auditor’s Report

47

Annual Report 2007

11 March 2008


As of 31 December Note

2007

2006

Property, plant and equipment

11.6

1,434,743

7,306,798

Intangible assets

11.7

155,061

154,955

Non-current financial assets

11.9

1,703,398

492,122

Investments in subsidiaries

11.8

24,684,369

185,462

Deferred income tax

11.21

26,817

-

28,004,388

8,139,337

ASSETS Non-current assets

Current assets 11.11

105,032

86,362

Trade and other receivables

11.13

2,623,862

1,231,207

Current financial assets

11.9

477,322

-

33,891

-

11.15

2,626,038

2,235,115

Inventories

Current income tax asset Cash and cash equivalents Total assets

5,866,145

3,552,684

33,870,533

11,692,021

EQUITY Share capital and reserves attributable to equity holders of the Company Share capital

11.16

3,516,682

3,516,682

Legal reserve fund

11.16

703,336

703,336

Other funds

11.16

68,895

77,812

Retained earnings

11.16

22,130,085

2,759,571

26,418,998

7,057,401

Total equity LIABILITIES Non-current liabilities Non-current bank loans and other borrowings

11.19

1,738,082

1,547,691

Non-current provisions for liabilities

11.22

84,023

111,523

Non-current part of deferred revenues

11.17

-

299,136

Deferred tax liability

11.21

-

97,403

1,822,105

2,055,753

246,209

324,324

Current liabilities Current bank loans and other borrowings

11.19

Trade and other payables

11.18

2,412,418

1,789,751

Current financial liabilities

11.20

2,792,148

187,869

-

106,646

11.22

178,655

170,277

Current income tax liability Provisions for current liabilities Total liabilities

Annual Report 2007

Total equity and liabilities

48

5,629,430

2,578,867

7,451,535

4,634,620

33,870,533

11,692,021

Financial Statements as at December 31, 2007 and the Independent Auditor’s Report


2007

2006

Revenues

11.23

23,878,163

20,429,216

Purchases of electricity and related fees, distribution fees

11.24

(20,338,073)

(14,888,480)

11.25

(883,163)

(970,650)

11.6, 11.7

(537,158)

(714,136)

Staff costs Depreciation and amortization Other operating income

11.27

2,274,624

336,722

Gain on disposal of distribution operations

11.5

19,411,650

-

Other operating expenses

11.26

(2,162,028)

(1,290,781)

21,644,015

2,901,891

Operating profit Interest income

11.28

170,039

102,491

Interest expense

11.28

(90,151)

(73,501)

Foreign exchange gains

11.28

35,587

25,630

Foreign exchange losses

11.28

(18,029)

(21,310)

Other finance income

11.28

84,079

1,781

Other finance expense

11.28

(18,631)

(2,686)

162,894

32,405

21,806,909

2,934,296

(543,226)

(542,974)

21,263,683

2,391,322

20,502,413

1,814,223

Finance income, net Profit before income tax Income tax expense

11.29

Profit for the year Less profit after tax from discontinued operations and gain on disposal

11.5

Profit for the year from continuing operations

11.5

Profit for the year

Financial Statements as at December 31, 2007 and the Independent Auditor’s Report

49

761,270

577,099

21,263,683

2,391,322

Annual Report 2007

Year ended 31 December Note


Balance at 1 January 2006

Legal reserve Fund

Other funds

Retained earnings

Total equity

3,516,682

703,336

68,913

2,008,947

6,297,878

Net profit for the year 2006

-

-

-

2,391,322

2,391,322

Other

-

-

8,899

-

8,899

Total recognized income for 2006

-

-

8,899

2,391,322

2,400,221

Dividends paid (Note 11.16)

-

-

-

(1,718,594)

(1,718,594)

-

-

-

77,896

77,896

Balance at 31 December 2006

3,516,682

703,336

77,812

2,759,571

7,057,401

Balance at 1 January 2007

Other

3,516,682

703,336

77,812

2,759,571

7,057,401

Net profit for the year 2007

-

-

-

21,263,683

21,263,683

Cash flow hedges – revaluation

-

-

(1,364)

-

(1,364)

-

-

(9,644) 2,091

-

(9,644) 2,091

Cash flow hedges – amount recycled to revenues in the income statement Income tax recorded in equity Other

-

-

-

-

-

Total recognized income for 2007

-

-

(8,917)

21,263,683

21,254,766

Dividends paid (Note 11.16)

-

-

-

(1,899,123)

(1,899,123)

Share based payments (Note 11.16)

-

-

-

5,954

5,954

Other

-

-

-

-

-

3,516,682

703,336

68,895

22,130,085

26,418,998

Balance at 31 December 2007

Annual Report 2007

Share capital

50

Financial Statements as at December 31, 2007 and the Independent Auditor’s Report


Year ended 31 December Note

2007

2006

11.32

3,360,536

3,806,411

131,202

79,921

(88,175)

(71,666)

83,698

-

Cash flows from operating activities Cash generated from operations Interest received Interest paid Dividend received

11.28

Income tax paid

(633,105)

(381,932)

Net cash generated from operating activities

2,854,156

3,432,734

(832,243) 66,364

(1,457,774) 23,533

Cash flows from investing activities Purchase of property, equipment and intangible assets Proceeds from sale of property and equipment

11.32

Purchase of investments

11.8

-

(1,200)

Income from investment

11.28

22,570

23,325

Repayment of loans to subsidiaries

11.9

25,000

-

(718,309)

(1,412,116)

474,860

827,327

Net cash used in investing activities

Repayments of borrowings Dividends paid

11.16

Net cash used in financing activities

(320,661)

(664,874)

(1,899,123)

(1,718,594)

(1,744,924)

(1,556,141)

390,923

464,477

Cash and cash equivalents at beginning of the year

11.15

2,235,115

1,770,638

Cash and cash equivalents at end of the year

11.15

2,626,038

2,235,115

Net increase/(decrease) in cash and cash equivalents

Financial Statements as at December 31, 2007 and the Independent Auditor’s Report

51

Annual Report 2007

Cash flows from financing activities Proceeds from borrowings


11. Notes to the Financial Statements 11.1 General Information Stredoslovenská energetika, a.s. (“SSE” or “Company”), in its current legal form as a joint stock company, was established on 17 December 2001 and incorporated in the Commercial Register on 1 January 2002 (Commercial Register of the District Court Žilina in Žilina, Section Sa, Insert No. 10328/L). The Company is one of the legal successors of Stredoslovenské energetické závody, a state owned entity. At 31 December 2001, this state enterprise was wound up without liquidation based on the resolution No. 686/2001 of the Slovak Minister of Economy. One day later, its assets and liabilities were transferred to the National Property Fund (“NPF”) of the Slovak Republic in accordance with the privatization project.

Ownership interest and voting rights %

National Property Fund (NPF) E.D.F. INTERNATIONAL

1,793,508 1,723,174

51% 49%

Total

3,516,682

100%

E.D.F. INTERNATIONAL (“EDFI”), based in Paris, 20 Place de la Défense Tour EDF, owns a 49% shareholding in the registered capital. E.D.F. INTERNATIONAL, is a subsidiary of Electricité de France (“EDF”), based in Paris, 22-30 avenue de Wagram which has a 100% shareholding in the registered capital of EDFI. The National Property Fund of the Slovak Republic, based in Bratislava, Drieňová 27 owns a 51% shareholding in SSE’s registered capital.

The assets and liabilities were recorded by the Company at historic carrying amounts as reported by Stredoslovenské energetické závody as at 31 December 2001.

The Company is included in the consolidated financial statements of EDF by full consolidation. These consolidated financial statements of EDF are available at the registered address of Electricité de France stated above.

On 31 October 2002 the National Property Fund of the Slovak Republic sold 49% of the total share capital of SSE to E.D.F. INTERNATIONAL (EDFI), France.

As part of the sale of 49% of shares to EDFI, the National Property Fund of Slovakia and EDFI have entered into a shareholders’ agreement which sets out the areas of responsibility and decision making for the Board of Directors and for the Supervisory Board of the Company as well as the rules for nomination of members of the boards. The Chairman and two members of the Board of Directors are nominated by E.D.F. INTERNATIONAL. The National Property Fund of the Slovak Republic is represented by the Vice Chairman and one member of the Board of Directors. One Vice Chairman of the Supervisory Board is nominated by E.D.F. INTERNATIONAL. The National Property Fund of the Slovak Republic is represented by the Chairman and four members of the Supervisory Board. The employees of the Company are represented by three members of the Supervisory Board.

Until 1 July 2007 the Company provided electricity distribution and supply services primarily in Central Slovakia. As at 1 July 2007 the electricity distribution business have been transferred into the subsidiary SSE-Distribúcia, a.s. to comply with the Slovak and EU legal requirements (“unbundling”). Company’s operations are governed by the terms of its license granted under the Energy Law (“the Energy License”). The Regulatory Office of Network Industries of the Slovak Republic (ÚRSO) regulates certain aspects of the Company’s relationships with its customers, including the pricing of electricity and services provided to certain of the Company’s customers. Since 1 July 2007 based on above mentioned license the Company conducts its business mainly in the area of electricity supply and purchase, maintenance and construction of electricity network and electricity production.

Competencies of the Board of Directors: •

In addition to its licensed activities, SSE also conducts its business in other areas, based on Trade Licenses, such as metering, meter calibration, provision of power engineering services and engineering.

Annual Report 2007

Absolute amount in SKK thousand

The structure of the Company’s shareholders at 31 December 2007 was as follows:

52

The Board manages the Company on a daily basis and can approve and commit the Company to transactions other than those that are within the competency of the Supervisory Board as described below, The Board submits to the General Meeting for its approval the ordinary and extraordinary separate financial statements and the consolidated financial statements and proposal for the profit distribution or loss settlement, The Board produces “Related Parties Agreements Report” quarterly and provides a copy of the Report to the Su-

Notes to the Financial Statements


pervisory Board and each shareholder within one month following the end of relevant quarter, The Board submits the Strategic Business Plan for a period of the next 3 financial years to the Supervisory Board for approval, The Board submits proposals of decisions concerning the subsidiaries, that are subject to prior consent of the General Meeting, to the Supervisory Board for approval, The Board nominates Company’s representatives into the statutory bodies of the subsidiaries.

Competencies of the Supervisory Board: • •

The Supervisory Board is the supreme controlling body of the Company, The Supervisory Board approves: ƒ The Strategic Business Plan, ƒ Appointment, removal or replacement of the Company’s auditors, ƒ Substantial reorganization or change in the nature or scope of the Company’s business,

ƒ Any business decisions not included in the Strategic Business Plan having value of EUR 10,000,000 or more or decisions expressly provided for in the Strategic Business Plan but their value exceeding amounts specified in the Strategic Business Plan by EUR 10,000,000. According to the Articles of Association of the Company the management elaborates the strategic business plan and submits to the Board of Directors for notification. Subsequently the proposal of the strategic business plan is submitted to the Supervisory board for approval. The strategic business plan is elaborated for three-year period. The plan sets the main targets, objectives to be reached during this period. The Strategic business plan for the period 2006 – 2008 was approved by the Supervisory board of the company during the meeting held on 23 November 2005.

The Company is not a shareholder with unlimited liability in other entities..

The members of the statutory bodies during the year ended 31 December 2007 were as follows: Board of Directors

Supervisory Board

Chairman:

Patrick Antoine Gaston Luccioni

Ing. Peter Huňor - till 22.1.2007

Vice Chairman:

Ing. Juraj Laurinc - till 22.1.2007

JUDr. Peter Šimko - since 23.1.2007 Brice Francois Jean - Paul Alleman

Ing. Ján Ďuriš - since 23. 1. 2007 Members:

Ing. Pavol Faktor - till 22.1.2007

Ing. Igor Pištík

Ing. Dušan Petrík - since 23.1.2007

Ing. Mikuláš Koščo

Drs. Erik Gerard Regter - till 31.7.2007

Ing. Miroslav Martoník

Dr. Peter Weis

Martin Hoffman - till 22.1.2007

Jaroslaw Dybowski - since 1.8.2007

Ing. Ján Smatana - till 22.1.2007 Ing. Zoltán Bán - till 22.1.2007 Ján Ondrejka - till 22.1.2007 Ing. Eduard Rada - since 23.1.2007 Ing. Konštantín Kičura - since 23.1.2007 Ing. Pavol Mertus - since 23.1.2007

Poznámky Notes to thek účtovným Financial Statements výkazom

53

VýročnáReport Annual správa 2007

Ing. Ján Hrušík - since 23.1.2007


The Company employed 1,414 staff on average during 2007 (2006: 1,593), 166 of which were management (2006: 183).

basis and under the going concern principle. These separate Financial statements can not be amended after their authorisation. In accordance with § 16 Sec. 9 - 11 of the Accounting Act, closed accounting books can not be re-opened after the Financial statements had been prepared and authorised by the General Meeting.

Registered address and identification number The registered address of the Company is: Ulica republiky 5 010 47 Žilina Slovak Republic

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 11.4.

Identification number (IČO) of the Company is: 36403008 Tax identification number (IČ DPH) of the Company is: SK 2020106682 Unbundling

These Financial statements are prepared in thousands of Slovak crowns (“SKK”).

As at 1 July 2007, the distribution part of business of the Company was unbundled to a fully owned subsidiary Stredoslovenská energetika – Distribúcia, a.s. The requirement to legally unbundle the distribution business from other commercial activities of integrated electricity companies has been established by the European directive 2003/54 on common rules for internal market with electricity. The directive has been transposed into Slovak legislation by the Act on energy (656/2004) issued in 2004 (Note 11.5).

Certain comparatives of the previous years have been reclassified to conform to current year presentation. The Company applies all IFRS and interpretations issued by International Accounting Standards Board (hereinafter “IASB”), as amended by the European Union, which were in force as of 31 December 2007. These separate Financial statements relate to the consolidated financial statements of the Group Stredoslovenská energetika, a.s.

11.2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these separate Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Adoption of New or Revised Standards and Interpretations

11.2.1 Basis for preparation

Certain new IFRSs became effective for the Company from 1 January 2007. Listed below are those new or amended standards or interpretations which are or in the future could be relevant to the Company’s operations and the nature of their impact on the Company’s accounting policies. All changes in accounting policies were applied retrospectively with adjustments made to retained earnings at 1 January 2006, unless otherwise described below.

Legal reason for preparing the financial statements: The Company’s financial statements at 31 December 2007 have been prepared as ordinary financial statements under § 17 Sec. 6 of the Slovak Act No. 431/ 2002 Coll. (“Accounting Act”) for the accounting period from 1 January 2007 to 31 December 2007.

Annual Report 2007

The Accounting Act requires the Company to prepare separate financial statements for the year ended 31 December 2007 in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”).

IFRS 7, Financial Instruments: Disclosures and a complementary Amendment to IAS 1 Presentation of Financial Statements - Capital Disclosures (effective from 1 January 2007). The IFRS introduced new disclosures to improve the information about financial instruments, including information about quantitative aspects of risk exposures and the methods of risk management. The new quantitative disclosures provide information about the extent of exposure to risk, based on information provided internally to the entity’s key management personnel.

These separate Financial Statements have been prepared in accordance with IFRS as adopted by the European Union (EU). The separate Financial statements have been prepared under the historical cost measurement basis as modified by the revaluation of derivatives which are stated at fair value. The separate Financial statements were prepared on accrual

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Notes to the Financial Statements


Other new standards or interpretations The Company has adopted the following interpretations which became effective from 1 January 2007: IFRIC 7, Applying the Restatement Approach under IAS 29 (effective for periods beginning on or after 1 March 2006); IFRIC 8, Scope of IFRS 2 (effective for periods beginning on or after 1 May 2006); IFRIC 9, Reassessment of Embedded Derivatives (effective for annual periods beginning on or after 1 June 2006); IFRIC 10, Interim Financial Reporting and Impairment (effective for annual periods beginning on or after 1 November 2006). Effect of Adoption The new IFRIC interpretations 7 to 10 did not significantly affect the Company’s financial statements. The Company made certain reclassifications of assets and liabilities primarily as a result of adopting IFRS 7. The reclassifications are summarised in Note 11.2.24.

IAS 27, Consolidated and Separate Financial Statements (revised January 2008; effective for annual periods beginning on or after 1 July 2009). The amendment has not yet been endorsed by the European Union. The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously minority interests) even if this results in the noncontrolling interests having a deficit balance. The current standard requires excess losses to be allocated to the owners of the parent, except to the extent that the non-controlling interests have a binding obligation and are able to make an additional investment to cover the losses. The revised standard also specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. Any investment retained in the former subsidiary will have to be measured at its fair value at the date when control is lost. The current standard requires the carrying amount of an investment retained in the former subsidiary to be regarded as its cost on initial measurement of the financial asset in accordance with IAS 39, Financial Instruments: Recognition and Measurement. The Company is currently assessing the impact of the amended standard on its separate financial statements.

New Accounting Pronouncements Certain new standards and interpretations have been published that are mandatory for the Company’s accounting periods beginning on or after 1 January 2008 or later periods and which the Company has not early adopted: IFRS 8, Operating Segments (effective for annual periods beginning on or after 1 January 2009). The standard applies to entities whose debt or equity instruments are traded in a public market or that file, or are in the process of filing, their financial statements with a regulatory organisation for the purpose of issuing any class of instruments in a public market. IFRS 8 requires an entity to report financial and descriptive information about its operating segments and specifies how an entity should report such information. Management is currently assessing what impact, if any, the standard will have on disclosures in the Company’s financial statements. IAS 23, Borrowing Costs (revised March 2007; effective for annual periods beginning on or after 1 January 2009). The revised IAS 23 was issued in March 2007 and has not yet been endorsed by the European Union. The main change to IAS 23

Poznámky Notes to thek účtovným Financial Statements výkazom

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is the removal of the option of immediately recognising as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. An entity is, therefore, required to capitalise such borrowing costs as part of the cost of the asset. The revised standard applies prospectively to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009. The Company is currently expensing all borrowing costs as incurred and therefore the new accounting standard is expected to change measurement of acquired qualifying assets. IAS 1, Presentation of Financial Statements (revised September 2007; effective for annual periods beginning on or after 1 January 2009). The amendment has not yet been endorsed by the European Union. The main change in IAS 1 is the replacement of the income statement by a statement of comprehensive income which will also include all non-owner changes in equity, such as the revaluation of available-forsale financial assets. Alternatively, entities will be allowed to present two statements: a separate income statement and a statement of comprehensive income. The revised IAS 1 also introduces a requirement to present a statement of financial position (balance sheet) at the beginning of the earliest comparative period whenever the entity restates comparatives due to reclassifications, changes in accounting policies, or corrections of errors. The Company expects the revised IAS 1 to affect the presentation of its separate financial statements but to have no impact on the recognition or measurement of specific transactions and balances.

Qualitative and quantitative disclosures cover exposure to credit risk, liquidity risk and market risk including sensitivity analysis to market risk. IFRS 7 replaced IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and some of the requirements in IAS 32, Financial Instruments: Disclosure and Presentation. The Amendment to IAS 1 introduced disclosures about the level of an entity’s capital and how it manages capital. The new disclosures are made in these separate Financial statements.


relevant to the Company’s operations because none of the Company’s companies operate any loyalty programmes.

IFRS 3, Business Combinations (revised January 2008; effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The revised standard has not yet been endorsed by the European Union. The revised IFRS 3 will allow entities to choose to measure non-controlling interests using the existing IFRS 3 method (proportionate share of the acquiree’s identifiable net assets) or on the same basis as US GAAP (at fair value). The revised IFRS 3 is more detailed in providing guidance on the application of the purchase method to business combinations. The requirement to measure at fair value every asset and liability at each step in a step acquisition for the purposes of calculating a portion of goodwill has been removed. Instead, goodwill will be measured as the difference at acquisition date between the fair value of any investment in the business held before the acquisition, the consideration transferred and the net assets acquired. Acquisition-related costs will be accounted for separately from the business combination and therefore recognised as expenses rather than included in goodwill.

Other new standards or interpretations The Company has not early adopted the following other new standards or interpretations: IFRIC 11, IFRS 2 - Company and Treasury Share Transactions (effective for annual periods beginning on or after 1 March 2007); IFRIC 12, Service Concession Arrangements (effective for annual periods beginning on or after 1 January 2008); IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for annual periods beginning on or after 1 January 2008). The new IFRIC interpretations 12 and 14 have not yet been endorsed by the European Union. Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the Company’s financial statements.

An acquirer will have to recognise at the acquisition date a liability for contingent purchase consideration. Changes in the value of that liability after the acquisition date will be recognised in accordance with other applicable IFRSs, as appropriate, rather than by adjusting goodwill. The disclosures required to be made in relation to contingent consideration will be enhanced. The revised IFRS 3 brings in its scope business combinations involving only mutual entities and business combinations achieved by contract alone. The Company is currently assessing the impact of the amended standard on its separate financial statements.

11.2.2 Consolidation Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Company has power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity.

Annual Report 2007

Amendment to IFRS 2 Share-based Payment (issued in January 2008; effective for annual periods beginning on or after 1 January 2008). The amendment has not yet been endorsed by the European Union. The amendment clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. The amendment specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Company is currently assessing the impact of the amended standard on its separate financial statements.

Investments in subsidiaries are carried at cost in these separate financial statements. The cost is represented by the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire the subsidiaries at the time of their acquisition (Note 11.4 vi). Impairment losses are recognized using the present value of estimated future cash flows model. Associates and joint ventures

IFRIC 13, ‘Customer loyalty programmes’ (issued in June 2007; effective for annual periods beginning on or after 1 July 2008). The interpretation has not yet been endorsed by the European Union. IFRIC 13 clarifies that where goods or services are sold together with customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not

Associates are all entities over which the Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Jointly controlled entities (“joint ventures”) are those in which the Company shares control of the operations with its joint venture partners, based on joint venture agreements. Investments in associates and joint ventures are carried at cost in these separate financial statements. The cost is repre-

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Notes to the Financial Statements


Depreciation

sented by the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire the associates and joint ventures at the time of their acquisition (Note 11.4 vi). Impairment losses are recognized using the present value of estimated future cash flows model.

The depreciation of property, plant and equipment starts in the month when the property, plant and equipment are available for use. Property, plant and equipment is depreciated in line with the approved depreciation plan using the straightline method. Monthly depreciation charge is determined as the difference between acquisition costs and residual value, divided by estimated useful life of the property, plant and equipment. The estimated useful lives of individual groups of assets are as follows:

11.2.3 Foreign currency transactions and translation Functional and presentation currency Items included in these separate Financial statements are measured in SKK which is the currency of the primary economic environment in which the entity operates (‘the functional currency’). The financial statements are presented in Slovak crowns, rounded to thousands.

Buildings, halls, network and constructions

Transactions and balances

15 - 40 years 4 – 15 years

Other assets

8 – 15 years

Land and assets under construction are not depreciated.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement.

The residual value of an asset is the estimated amount that the Company would currently obtain from disposal of the asset less the estimated costs of disposal, if the assets were already of the age and in the conditions expected at the end of its useful life. The residual value of an asset is nil or its scrap value if the Company expects to use the asset until the end of its physical life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

11.2.4 Property, plant and equipment All property and equipment is carried at cost less accumulated depreciation less accumulated impairment losses.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 11.2.6 and 11.6).

Cost Cost includes all costs directly attributable to the acquisition of the items. Borrowing costs are not capitalized and are expensed as incurred.

Items that are retired or otherwise disposed of are eliminated from the balance sheet, along with the corresponding accumulated depreciation. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Intangible assets are initially measured at cost. Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the asset will flow to the Company, and the cost of the asset can be measured reliably. After initial recognition, the intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Borrowing costs are not capitalized and are expensed as incurred. The Company does not have intangible assets with indefinite useful lives. Intangible assets are amortized on the straight-line basis over their useful lives, not exceeding a period of 4 years.

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11.2.5 Intangible assets

The most significant part of property, plant and equipment owned before 1 July 2007 was represented by the network. Network included mainly power lines, pylons and switching stations. Useful life of network assets varied between 15 and 40 years. The network has been subject to unbundling and was, effective 1 July 2007 transferred to SSE-Distribúcia, the Company’s whollz owned subsidiary. After 1 July 2007, the most significant part of property, plant and equipment is represented by software, office buildings, car fleet and low value fixed assets.

Poznámky Notes to thek účtovným Financial Statements výkazom

Machines, equipment and vehicles


The depreciation of an intangible asset starts in the month when the intangible asset is put in use. Intangible assets are depreciated in line with the approved depreciation plan using the straight-line method. Monthly depreciation charge is determined as the difference between acquisition costs and residual value, divided by estimated useful life of the intangible assets.

Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classified as current assets.

Residual value of intangible assets is assumed to be zero unless (a) there is a commitment by a third party to purchase the asset at the end of its useful life, or (b) there is an active market for the asset and residual value can be determined by the reference to that market and it is probable that such a market will exist at the end of the asset’s useful life. Expenditure to acquire software licenses and to customize the software for Company’s needs are capitalized and amortized using the straight-line method over their useful lives, not exceeding a period of 4 years.

Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets quoted in an active market with fixed or determinable payments and fixed maturities that the Company’s management has the positive intention and ability to hold to maturity.

Subsequent expenditure that meets criteria for recognizing it as an intangible asset according to IAS 38 is recognized as a capital improvement and added to the original cost of the software.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.

11.2.6 Impairment of non-financial assets Assets that have an indefinite useful life (e.g. goodwill), if any, and intangible assets not yet in use are not subject to amortization and are tested for impairment annually. Land, construction in progress and assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.

Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are individually identifiable cash flows (cashgenerating units). Non-financial assets other than goodwill that were impaired are reviewed for possible reversal of the impairment at each balance sheet date.

Regular purchases and sales of financial assets are recognized on trade-date – the date on which the Company commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit and loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement.

Annual Report 2007

11.2.7 Financial assets The Company classifies its investments according to IAS 39 “Financial Instruments: Recognition and Measurement” in the following categories: financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables. The classification depends on the purpose for which the investments were acquired, whether they are quoted in an active market and on management intentions.

The Company derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) the Company has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control. Control is retained if the counterparty does not

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Notes to the Financial Statements


Gains or losses arising from changes in the fair value of the “available for sale financial assets” are recognised in equity in the period in which they arise and are recycled to the income statement upon disposal or impairment.

The effective part of profit or loss from cash-flow hedging is recognized directly in equity. The ineffective part of profit or loss from cash-flow hedging is presented in income statement within other financial income and expense. The profit or loss recognized in equity is recycled to income statement in the period when the hedged item influences the current year profit, i.e. when the electricity is sold. This profit or loss is recognized in income statement within purchases of electricity and related fees. The fair values of various derivative instruments used for hedging purposes are disclosed in Note 11.10. Movements on the hedging reserve in shareholders’ equity are described in Note 11.16. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is due more than 12 months after the balance sheet date, and as a current asset or liability when the remaining maturity of the hedged item is due less than 12 months after the balance sheet date. Trading derivatives are classified as a current asset or liability.

11.2.8 Investments in subsidiaries

11.2.10 Financial liabilities

Investment in subsidiaries are measured at cost in these separate Financial statements in accordance with IAS 27 Consolidated and Separate Financial Statements. The cost is represented by the amount of cash or cash equivalents paid and the fair value of the consideration given at the date of acquisition.

The Company classifies its Financial liabilities to subsidiaries according to IAS 39 “Financial Instruments: Recognition and Measurement” as other financial liabilities held at amortised costs. The classification depends on the contractual provisions of the instrument and the intentions with which management entered into the contract.

11.2.9 Derivative financial instruments and hedging activities

Management determines the classification of its financial liabilities at initial recognition and re-evaluates this designation at every reporting date.

have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are presented in the income statement in the period in which they arise.

In 2007 the Company has purchased derivative financial instruments designated according to IAS 39 as cash-flow hedging transactions in order to hedge against the foreign currency risk arising from the contracts for purchase and sale of electricity in 2008.

When a financial liability is recognised initially, the Company measures it at its fair value plus transaction costs that are directly attributable to the acquisition of the financial liability. After initial recognition, the Company measures all financial liabilities at amortised cost using the effective interest method.

Derivative financial instruments designated as cash-flow hedging are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value, that is determined by forward market rate of SKK/EUR for the related derivative financial instruments and related period as at the balance sheet date.

The gain or loss from financial liabilities is recognised in the income statement when the financial liability is derecognised and through the amortisation process. Financial liability (or a part of a financial liability) is removed from the Company’s balance sheet when, and only when it is extinguished - i.e. when the obligation specified in the contract is discharged or cancelled or expires.

The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The assessment of effectiveness of the hedge was made by applying of principle 80% - 125% in accordance with IAS 39.

IAS 17 defines a lease as being an agreement whereby the lessor conveys to the lessee in return for a payment, or series of payments, the right to use the asset for an agreed period of time.

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Poznámky Notes to thek účtovným Financial Statements výkazom

11.2.11 Leases


The Company is a lessee of certain property, plant and equipment. Leases of property, plant and equipment where the Company has substantially all the risks and rewards of the ownership of the asset are classified as finance leases. Finance leases are recognized as assets and liability in the Company’s balance sheet at amount equal to the lower of the fair value of the leased asset and the present value of the minimum lease payments, each determined at the inception of the lease.

Variations in contract work, claims and incentive payments are included in contract revenue to the extent that may have been agreed with the customer and are capable of being reliably measured. The Company uses the ‘percentage-of-completion method’ to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the balance sheet date as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion.

Each lease payment is split into the liability and finance charges in order to achieve a constant periodic rate of interest on the remaining balance of the liability. The corresponding rental obligations, net of future finance charges, are included in non-current and current bank loans and other borrowings. Finance charges are included in interest expense in the income statement.

The Company presents as an asset the gross amount due from customers for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceed progress billings. Progress billings not yet paid by customers and retentions are included within ‘trade and other receivables’.

If there is reasonable certainty that the lessee will obtain ownership of the asset by the end of the lease term, the period of expected use is the useful life of the asset and the asset is depreciated accordingly; otherwise the asset is depreciated over the shorter of the lease term and its useful life.

The Company presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).

Leases in which a significant portion of the risks and rewards of the ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

11.2.14 Trade and other receivables Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, net of provision for impairment. Revenue recognition policy is described in the Note 11. 2.21.

11.2.12 Inventories

A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all the amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flow discounted by the original effective interest rate.

Inventories are stated at the lower of cost and net realisable value. Cost is determined using weighted average cost method. The acquisition costs include all costs associated with the acquisition of the inventories such as customs duties or transportation costs. Net realisable value is the estimated selling price in the ordinary course of business, less cost of completion and selling expenses. 11.2.13 Construction contracts

Annual Report 2007

Contract costs are recognised when incurred.

Impairment of trade receivables is recognized through an allowance account. Impairment losses and their reversals, if any, are recognized in the income statement within other operating expenses or income. Trade receivables that cannot be collected are written off.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognised over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Trade receivables that were written off and are subsequently repaid by the debtors are recognized in the income statement within other operating income.

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Notes to the Financial Statements


Grants and contributions were recognized at their fair value where there was a reasonable certainty that the grant or contribution would be received and the Company would comply with all attached conditions. Grants and contributions relating to acquisition of property and equipment were accounted by setting up the grant as deferred income, which was recognized as other income over the life of depreciable asset. Both fixed assets and grants were recorded at fair values at acquisition. As at 1 July 2007, all assets and deferred income related to grants and donations were transferred to SSE-D.

11.2.15 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at amortised cost. 11.2.16 Current and deferred income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Since 1 July 2005, as a result of a new energy legislation, connection fees are billed to the customers. They are initially recorded as deferred income in the balance sheet and they are released to revenues in the income statement over the average duration of customer relationship.

Deferred income tax is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income tax is not accounted for, if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

11.2.18 Borrowings Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost using the effective interest method; any difference between the amount at initial recognition and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. 11.2.19 Provisions / Contingent liabilities / Trade payables

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Dividend income is generally not subject to income taxes in the Slovak Republic.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax-rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase of the provision due to passage of time is recognized as interest expense. Contingent liabilities are not recognized in the financial statements. They are disclosed in the notes, unless the possibility of an outflow of resources embodying the economic benefits is remote.

The Company offsets deferred tax assets and deferred tax liabilities where the Company has a legally enforceable right to set off tax assets against tax liabilities and these relate to income taxes levied by the same taxation authority. 11.2.17 Grants and contributions related to acquisition of property and equipment The Company and its predecessor have over time received grants and contributions for construction of the electricity distribution network, in particular for new municipal connections and networks. Also certain customers of the Company contributed towards the cost of their connection.

Poznámky Notes to thek účtovným Financial Statements výkazom

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Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are not recognized for future operating losses. Where the Company expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.


defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date, together with adjustments for unrecognised actuarial gains/losses and past service cost (except for life and work jubilee benefits for which the past service costs and actuarial gains/losses are expensed immediately when incurred).

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using effective interest method. 11.2.20 Employee benefits The Company has both defined benefit and defined contribution plans.

The defined benefit obligation is calculated annually by independent actuaries using the Projected Unit Credit Method. The present value of the defined benefit obligation is determined (a) by discounting the estimated future cash outflows using interest rates of government bonds which have terms to maturity approximating the terms of the related pension liability and (b) then attributing the calculated present value to the periods of service based on the plan’s benefit formula.

Pension plans The Company has both defined benefit and defined contribution plans. Pension plans A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets, if any, or 10% of the defined benefit obligation are charged or credited to income over the employees’ expected average remaining working lives. Past-service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period.

Unfunded defined benefit pension plan According to the Corporate Collective Agreement for the years 2008-2010 the Company is obliged, based on the number of years in service, to pay its employees on retirement or disability the following multiples of their average monthly salary:

Defined contribution pension plans The Company contributes to the government and private defined contribution pension plans. The Company makes contributions to the government health, retirement benefit, accidental and guarantee insurance and unemployment schemes at the statutory rates in force during the year, based on gross salary payments.

2008 - 2010 up to 5 years

2

5-10

3

10-15

4

15-20

5

20-25

6

over 25

7

Throughout the year, the Company made contributions amounting to 35.2% (2006: 35.2%) of gross salaries up to a monthly salary ceiling, which is defined by the relevant law (SKK 28,142 to SKK 56,284 depending on the type of scheme), to such schemes, together with contributions by employees of a further 13.4% (2006: 13.4%). The cost of these payments is charged to the income statement in the same period as the related salary cost. In addition, with respect to employees who have chosen to participate in a supplementary pension scheme, the Company makes contributions to the supplementary scheme, between 2% and 6% from the total of monthly tariff wages.

The minimum requirement of the Labour Code of onemonth average salary payment on retirement and disability is included in the above multiples.

Annual Report 2007

Other benefits The Company also pays the following life and work jubilee benefits: • one monthly salary on 25th work anniversary; • from 40% to 110% of employee’s monthly salary depending on the number of years worked for the Company when the employee reaches the age of 50 years. The liability recognised in the balance sheet in respect of

Termination benefits Termination benefits are payable whenever an employee’s employment is terminated by the employer before the normal retirement date or whenever an employee accepts

62

Notes to the Financial Statements


voluntary redundancy in exchange for these benefits. The Company recognises termination benefits when it is demonstrably committed to either: (a) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or (b) providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.

Revenue is shown, net of value-added tax, estimated returns, rebates and discounts. The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Company and specific criteria will be met for each of the Company’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Company bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Profit sharing and bonus plans Liability for any employee benefits in the form of profit sharing and bonus plans is recognized as other payables when there is no realistic alternative but to settle the liability and at least one of the following conditions is met:

there is a formal plan and the amounts to be paid are determinable before the financial statements are authorised for issue; or the past practice created a valid expectation of employees that they will receive a profit sharing or other bonus and the amount can be determined before the financial statements are authorised for issue.

Liabilities for profit sharing and bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. Share-based compensation

Revenue from sale of electricity on the spot market, settlement of deviations in consumption and cross - border profile recharges represent mainly revenues from sale of electricity purchased on short-term market for regular customers due to unexpected short-term deviation in their consumption diagrams and revenue from settlement of deviations with the transmission grid regulatory body for deviating from the planned consumption curve. These revenues are usually realised on a spot market or from sale abroad. Revenue from intermediation represents fee for transferred electricity where the final customer is not a customer of the Company. Revenue from sale of electricity to subsidiary SSE-D represent sold electricity to cover losses and own consumption of distribution network which SSE-D cannot cover from its own resources. All these revenues are recognized when the electricity is delivered or the contract is fulfilled.

Electricité de France awarded shares as compensation to the Company’s employees as approved by the Supervisory Board of EdF on 30 August 2007 (grant date). The share award is subject to the following non-market vesting conditions, as defined in IFRS 2, Share-based payment: (a) two year service vesting condition, and (b) a minimum increase in the EdF group’s EBITDA at 3% p.a. over two years. The grant date fair value of the shares is expensed on a straight line basis over the two year vesting period for those awards for which the Company expects the vesting conditions to be met with a corresponding adjustment to equity. The vesting conditions are included in assumptions about the number of shares that are expected to vest. At each balance sheet date, the entity revises its estimates of the number of shares that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. 11.2.21 Revenue recognition

The Company received contribution from customers to connect them to the electricity network until 30 June 2007. Revenue from such contributions was recognized as deferred revenue and was released to revenues over the average customer relationship.

Revenue comprises the fair value of the consideration received or receivable for the sale of electricity, goods and services in the ordinary course of the Company’s activities.

Sales of services are recognized in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual

Poznámky Notes to thek účtovným Financial Statements výkazom

63

VýročnáReport Annual správa 2007

Revenue from sales of electricity is recognized when the electricity is delivered to the customer. Consumption of wholesale customers is metered and billed on monthly basis. Billing cycle of retail customers – households and retail customers – small businesses changed gradually during 2006 and 2007 so that these customers will be metered and billed on an annual basis as opposed to semi-annual measurement. For calculation of the total supply to the retail customers the Company uses an estimate of network losses, which are incurred in the distribution system, regularly measured amounts of overall electricity purchases, sales to the Company’s wholesale customers and its own consumption. Network losses were included in the costs for purchased electricity. Since 1 July 2007 network losses represent costs of sale of SSE-D.


service provided as a proportion of the total services to be provided. Dividend income is recognized when the right to receive the payment is established and inflow of economic benefits is probable. Interest income is recognized in the period when it is earned on a time proportion basis using the effective interest method. 11.2.22 Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders. 11.2.23 Discontinued operations A discontinued operation is a component of the Company that either has been disposed of, or that is classified as held for sale, and: (a) represents a separate major line of business or geographical area of operations; (b) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or (c) is a subsidiary acquired exclusively with a view to resale. Earnings and cash flows of discontinued operations, if any, are disclosed separately from continuing operations with comparatives being re-presented. 11.2.24 Comparatives Following comparatives of the previous years have been reclassified to conform current year presentation: Year ended 31 December Income Statement

2006 before reclassification 20,549,216

Revenues

(120,000)

2006 after reclassification 20,429,216

(14,815,673)

14,815,673

-

Purchases of electricity and related fees

-

(14,888,480)

(14,888,480)

Staff costs

-

(970,650)

(970,650)

Depreciation and amortisation

-

(714,136)

(714,136)

692,501

(355,779)

336,722

(3,436,982)

2,146,201

(1,290,781)

79,921

22,570

102,491

Interest expense

(70,985)

(2,516)

(73,501)

Other financial income and expense

(63,702)

63,702

-

Cost of sales

Other operating income Other operating expense Interest income

Annual Report 2007

Adjustments

Other finance income

-

1,781

1,781

Other finance expense

-

(2,686)

(2,686)

Foreign exchange gain

-

25,630

25,630

Foreign exchange losses

-

(21,310)

(21,310)

64

Notes to the Financial Statements


Year ended 31 December 2006 before reclassification

Investments Investments in subsidiaries Non-current financial assets Non-current provisions for liabilities

Adjustments

2006 after reclassification

677,584

(677,584)

-

-

185,462

185,462

-

492,122

492,122

258,340

(146,817)

111,523

23,460

146,817

170,277

Trade and other payables

1,977,620 -

(1,977,620) 1,789,751

1,789,751

Current financial liabilities

-

187,869

187,869

Provisions for current liabilities Trade, other payables and deferred revenues

11.3 Financial Risk Management

ed receivables denominated in foreign currency and from loans denominated in EUR, the Company uses forward contracts, managed by the treasury department.

11.3.1 Financial risk factors The Company’s activities are exposing it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk, price risk), credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance. The Company uses derivative financial instruments to hedge certain risk exposures.

The Company treasury’s risk management policy is to economically hedge between 75% and 100% of anticipated cash flows (revenue) in EUR for the subsequent 12 months. Hedging is performed by (a) natural hedging and (b) by financial hedging contracts. Approximately 30% (2006: 20%) of projected sales in EUR are hedged by financial hedging contracts to which the Company applies cash-hedge accounting provisions of IAS 39. The hedged sales qualify as ‘highly probable’ forecast transactions.

Risk management is carried out by a central treasury department under policies approved by the Board of Directors. The central treasury department identifies, evaluates and hedges financial risks in cooperation with the Company’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments.

At 31 December 2007, if the SKK had weakened/strengthened by 10% against the EUR with all other variables held constant, post-tax profit for the year would have been SKK 59,203 thousand (2006: SKK 55,721 thousand) lower/higher, mainly as a result of foreign exchange gains/losses on translation of EUR-denominated trade receivables and foreign exchange losses/gains on translation of EUR -denominated borrowings. Profit is more sensitive to movement in SKK/EUR exchange rates in 2007 than 2006 because of the increased amount of EUR denominated borrowings. At 31 December 2007, if the SKK had weakened/strengthened by 10% against the CZK with all other variables held constant, post-tax profit for the year would have been SKK 22,977 thousand (2006: SKK 2,155 thousand) higher/lower, mainly as a result of foreign exchange gains/losses on translation of CZK-denominated receivables from cash-pooling. Profit is more sensitive to movement in SKK/CZK exchange rates in 2007 than 2006 because of the increased amount of CZK receivables from cash-pooling.

Market risk a) Foreign exchange risk The Company is exposed to foreign exchange risk arising from various currency exposures, primarily with the respect to the EUR and CZK. Foreign exchange risk arises from uncollected receivables denominated in EUR and CZK from sale of electricity to some customers and from loans denominated in EUR. Foreign exchange risk is considered when the contracts for sale of electricity are negotiated. This process is performed usually once per year balancing the total position of purchase contracts and foreign exchange exposure for the next year. Based on this information the appropriate portion of future foreign currency income is hedged by financial hedging contracts in order to minimize the foreign exchange risk. To manage the foreign exchange risk arising from uncollect-

Poznámky Notes to thek účtovným Financial Statements výkazom

b) Price risk The Company has subsidiaries which are carried at cost according to IAS 27 as it is described in Note 11.2.8. IFRS 7 does not mandate price risk, including sensitivity disclosures, relating to subsidiaries carried at cost.

65

VýročnáReport Annual správa 2007

Balance sheet


EUR interest rates would not have any impact on the Company’s profit or loss.

c) Cash flow and fair value interest rate risk The Company’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the Company to fair value interest rate risk. Company policy is to maintain at least 50% (2006: 50%) of its borrowings at fixed rates.

Credit risk

The Company analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions and alternative financing. Based on these scenarios, the Company calculates the impact on profit and loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions.

Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. As for the banks and financial institutions, Company has relationships only with those ones that have high independent rating assessment. If wholesale customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors.

At 31 December 2007, if interest rates on SKK-denominated borrowings had been 50 basis points higher/lower with all other variables held constant, post-tax profit for the year would have been SKK 2,248 thousand (2006: SKK 2,926 thousand) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings.

The Company does not set individual risk limits for counterparties. As for the trade receivables, the Company does not have a significant concentration of credit risk mainly due to a large number of diverse customers. The Company uses a system of reminders, which may culminate in a service disconnection, as the prevailing contract enforcement method.

At 31 December 2007, all EUR-denominated borrowings are at fixed interest rates and are carried at amortised cost. As a result, at 31 December 2007, a reasonably possible shift in

The table below shows the balances of due from banks at the balance sheet date:

Balance at 31 December Internal Rating2

Counterparty

2007

2006

1

Banks rated

Všeobecná úverová banka, a.s

A

838,762

612,298

A

246,062

181,852

Tatra banka, a.s.

A

1,252,974

484,546

CALYON BANK S.A., pobočka zahraničnej banky

A

9,579

8,212

ČSOB, a.s.

A

232,704

939,081

Dexia banka Slovensko, a.s.

A

27,619

2,476

A

18,021

6,688

317

(38)

2,626,038

2,235,115

UniCredit Bank Slovakia, a.s.

*

Slovenská sporiteľňa, a.s., Other

n/a

Total

*The balance of UniCredit Bank Slovakia, a.s. in 2006 includes also balance of HVB Bank Slovakia, a.s, (merger realized during year 2007). 1

The amount of cash and short-term deposits at banks as at 31 December 2007 amounts to SKK 2,625,721 thousand (31 December 2006: 2,235,153 thousand). Furthermore, the Company has agreed with those banks on credit lines on current accounts totalling SKK 153,753 thousand (31 December 2006: SKK 117,000 thousand), which were not utilised. The Company has bank borrowings at 31 December 2007 of SKK 1,984,291 thousand (at 31 December 2006: SKK 1,848,600 thousand) and these credit lines were utilized.

Annual Report 2007

2

The Company uses the Internal Rating scale of A-E for the assessment of the credit quality of the individual banks. The internal rating A represents the highest rating.

66

Notes to the Financial Statements


Liquidity risk

Expected cash flow is prepared as follows:

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Company aims to maintain flexibility in funding by keeping committed credit lines available.

1. expected future cash inflows from main operation of the Company; and 2. expected future cash outflows securing operation of the Company and leading to settlement of all liabilities of the Company, including tax payables. A cash flow forecast is prepared monthly. It identifies the immediate need for cash and, if funds are available, it enables the Company to make term deposits and other investments.

The Company manages liquidity risk by utilizing bank overdrafts, which should cover an immediate shortage of cash. These means of financing are used only in exceptional cases. The Company regularly monitors its liquidity position and uses overdrafts minimally. The Company also uses the advantages of commercial terms between the Company and its suppliers to secure sufficient financing funds to cover its needs. The maturity of supplier’s invoices is between 14 to 60 days, on average. The Company monitors movements of financial resources on its bank accounts on a regular basis.

Management monitors rolling forecasts of the Company’s liquidity reserve (comprises un-drawn borrowing facility (Note 11.19) and cash and cash equivalents (Note 11.15)) on the basis of expected cash flow.

2008

2009-2012

2,779,791

Opening balance for the period* Operating proceeds Operating cash outflows Cash outflow for investments Change in liability from cash-pooling Income from investment – dividends received Proceeds from sale of investments Payments of debts and dividends

1,932,041

18,385,000

75,396,977

(17,577,000) (492,000)

(72,083,365) (1,426,000)

(800,000) 800,000

4,000,000

-

150,000

(1,178,000)

(3,590,000)

(17,235)

(47,449)

Commitment of new credit lines

31,485

30,000

Closing balance for the period

1,932,041

4,362,204

Expiration of committed credit lines

Poznámky Notes to thek účtovným Financial Statements výkazom

67

VýročnáReport Annual správa 2007

* incl. un-drawn credit lines


The table below analyses the Company’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual un-

discounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

Less than 1 year

Between 1 and 2 years

Between 2 and 5 years

Over 5 years

At 31 December 2007 335,893

319,553

740,294

1,027,605

Finance lease (incl. future finance costs) Non-current and current financial liabilities

2,792,148

-

-

-

Trade and other payables excluding liabilities not falling under IFRS 7 Total

2,289,834 5,417,875

319,553

740,294

1,027,605

Bank loans (principal incl. future interest charges)

396,240

272,667

796,828

753,519

Finance lease (incl. future finance costs) Non-current and current financial liabilities

6,475 187,869

22,556 -

-

-

1,650,398 2,240,982

295,223

796,828

753,519

Bank loans (principal incl. future interest charges)

At 31 December 2006

Trade and other payables excluding liabilities not falling under IFRS 7 Total

The table below analyses the Company’s derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The

amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

Less than 1 year

Between 1 and 2 years

Between 2 and 5 years

Over 5 years

At 31 December 2007 Forward foreign exchange contracts - cash flow hedges Outflow Inflow

(502,814)

-

-

-

501,450

-

-

-

(1,009,684)

-

-

-

1,019,329

-

-

-

At 31 December 2006 Forward foreign exchange contracts - cash flow hedges Outflow

Annual Report 2007

Inflow

68

Notes to the Financial Statements


11.4 Critical accounting estimates and judgements

11.3.2 Capital risk management The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company’s management manages shareholders’ capital reported under IFRS amounting to, as at 31 December 2007, SKK 26,418,998 thousand (31 December 2006: SKK 7,057,401 thousand).

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Critical estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Consistent with others in the industry, the Company monitors capital on the basis of the gearing ratio. This ratio is calculated as total debt divided by total liabilities and equity. Debt is calculated as total borrowings (including current and non-current borrowings’ as shown in the balance sheet).

Unbilled electricity is an accounting estimate, which is based on the estimate of the electricity supply in technical units (GWh) at low voltage level. The estimate of the electricity supply at this voltage level is based on: • the inputs for Company’s networks (measured amount • the supplies at high and very high voltage levels (measured amount) • the estimate of the network losses • the estimate of the supply at low voltage level

Unbilled electricity

During 2007, the Company’s strategy, which was unchanged from 2006, was to maintain the gearing ratio below 60% limit stated in the Company’s loan agreements. During the years 2007 and 2006, the Company complied with externally imposed capital requirements, to which it is subject (Note 11.19).

The Company used methodology for the estimate of network losses that is consistent with the methodology used during year 2006. Based on this methodology the amount of network losses in the year 2007 is estimated as 7.9% (2006: 7.4%) from purchases. The percentage of network losses is derived from the estimate of supply at the low voltage level based on past experience. If the estimate of supply at the low voltage level was higher by 1%, the percentage of network losses would be 7.59% (2006: 7.2%), and the amount of unbilled electricity in the balance sheet would be changed by SKK 90,260 thousand (2006: SKK 104,675 thousand) and recorded as revenue and an increase of trade receivables.

11.3.3 Fair value estimation The fair value of financial instruments traded in active markets (such as held-to-maturity securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Company is the current bid price. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments.

Estimated useful life of network Since 1 July 2007, the distribution network assets have been carved-out to subsidiary SSE-Distribúcia, a.s. Until the unbundling date, the useful life of network assets was based on accounting estimates described in Note 11.2.4 (ii). If the estimated useful life of network assets had been shorter by 10% than management’s estimates at 31 December 2007, the Company would have recognized an additional depreciation of network assets of SKK 42,012 thousand (2006: SKK 82,882 thousand).

The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the balance sheet date.

Poznámky Notes to thek účtovným Financial Statements výkazom

Specific bad debt provision is calculated for individual receivables with indicators of impairment. Bad debt provision is calculated in the amount of 100% of the value of individual receivables from companies in bankruptcy and receivables subject to court proceedings.

69

VýročnáReport Annual správa 2007

Bad debt provision

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Company for similar financial instruments.


Assessment of management is critical in determining the signs of impairment of receivables other than those in bankruptcy and receivables subject to court proceedings. Bad debt provision for other receivables is calculated based on ageing analysis of individual receivables and the type of the customer. If the ageing of un-provided receivables worsen by 1 day, the bad debt provision would increase by SKK 1,438 thousand (2006: SKK 548 thousand).

If the class of held-to-maturity investments is tainted, the fair value would increase by SKK 10,190 thousand (2006: SKK 22,815 thousand), with a corresponding entry in the fair value reserve in shareholders’ equity. Cost of investment in subsidiary SSE-D According to IAS 27 „Consolidated and Separate Financial Statements”, paragraph 37, investments in subsidiaries, jointly controlled entities and associates shall be accounted for in the separate financial statements either at cost, or in accordance with IAS 39 “Financial Instruments: Recognition and Measurement”.

Bad debt provision is released/reversed only when provided receivable is written-off or collected. Pension benefits The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

Investment in subsidiary SSE-D is measured at cost in these separate Financial Statements. From the perspective of the parent as separate reporting entity, the unbundling transaction is an exchange of non-monetary asset (the distribution business) for another non-monetary asset (equity investment in the subsidiary). Exchanges of non-monetary assets (including groups of monetary and non-monetary assets) are addressed in IAS 16.24-25 and IAS 38.45-46 referring to the commercial substance of the transaction. The cost of the non-monetary asset acquired through the exchange transaction is measured at fair value unless the transaction lacks commercial substance.

The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Company considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

The configuration of relevant cash flows differs before and after the exchange transaction, therefore the unbundling transaction has commercial substance and accordingly the fair value of the distribution business transferred to the subsidiary was set as historical cost as cash or cash equivalents paid (consideration of SKK 1,200 thousand paid for share capital issued at incorporation) and the fair value of other consideration given (SKK 24,498,907 thousand). The gain on disposal of the net assets arising from the difference of the fair value of consideration given and the carrying amount of the disposed net assets is recorded in the income statement.

Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 11.22 (a). Were the discount rates used to differ by 1% from management’s estimates, the carrying amount of pension obligations would be an estimated SKK 11,656 thousand lower or SKK 13,842 thousand higher (2006: SKK 7,893 thousand lower or SKK 9,374 thousand higher).

In determining the fair value of consideration given, the assets and liabilities of SSE-D were revalued to their fair value as at the date of unbundling.

Held-to-maturity investments

Annual Report 2007

The Company follows the IAS 39 guidance on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the Company evaluates its intention and ability to hold such investments to maturity. If the Company fails to keep these investments to maturity other than for specific circumstances explained in IAS 39, it will be required to reclassify the whole class as available-forsale. The investments would therefore be measured at fair value not amortised cost.

70

Notes to the Financial Statements


11.5 Discontinued operations The requirement to legally unbundle the distribution business from other commercial activities of integrated electricity companies has been established by the European directive 2003/54 on common rules for internal market with electricity. The directive has been transposed into Slovak legislation by the Act on energy (656/2004) issued in 2004. The Act prescribed legal unbundling by 30 June 2007 the latest.

SSE has also chosen the “semi-lean” model of new distribution business subsidiary, what resulted into transfer of all core activities of distribution to SSE-D, but left at the Company all activities that can be or could be in near future competitively sourced. By 30 June 2007 the implementation has been successfully completed. As a part of process organizational and accounting carve-out of the distribution business of SSE was performed as of 1 January 2007. Since then separate accounting books for this part of business have been kept. As of 30 June 2007 assets and liabilities of the distribution part of business were revaluated by independent valuator to their fair value using depreciated replacement cost method.

SSE has started preparatory works for unbundling already in early 2005. At the beginning of 2006 a detailed evaluation of possible unbundling models has been performed based on the following major criteria: 1) full compliance with legislation, 2) minimum disruption to customers, 3) minimum costs to SSE, 4) minimum disruption to SSE business. Based on these criteria, contribution as a part of the business has been evaluated as optimal.

Analysis of the result of discontinued operations, and the result recognised on the re-measurement of assets or disposal group, is as follows:

Year ended 31 December

Revenues

6 months 2007 until disposal 4,685,566

Expenses

(3,338,945)

(5,953,494)

1,346,621

2,187,440

Profit before tax of discontinued operations

12 months 2006 8,140,934

Income tax

(255,858)

(373,217)

Profit after tax of discontinued operations

1,090,763

1,814,223

Pre-tax gain recognised on disposal of the distribution business by contribution to SSE-D

19,411,650

-

Income tax After tax gain recognised on disposal of the distribution business by contribution to SSE-D Profit for the year from discontinued operations

-

-

19,411,650

-

20,502,413

1,814,223

Cash generated from discontinued operating activities

6 months 2007 until disposal 1,428,055

2006 2,771,388

Cash generated from discontinued investing activities

(495,716)

(1,373,330)

Cash generated from discontinued financing activities

(385,953)

(1,155,348)

546,386

242,710

Total cash flows

Poznámky Notes to thek účtovným Financial Statements výkazom

71

VýročnáReport Annual správa 2007

Year ended 31 December


The Company contributed its distribution business to its subsidiary, SSE-D. The details of the assets and liabilities disposed and disposal consideration are as follows:

Note ASSETS

7,784,448

Non-current assets

6,166,333 6,144,986

Property, plant and equipment Land

11.6

123,303

Buildings

11.6

3,406,985

Machinery, equipment, vehicles and other assets

11.6

1,810,372

Capital work in progress including advances (CIP)

11.6

804,326 21,347

Intangible assets Computer software

11.7

16,878

Capital work in progress including advances

11.7

2,926

Other

11.7

1,543

Current assets

1,618,115

Trade and other receivables

1,617,995 120

Other assets LIABILITIES

2,697,191

Non-current liabilities

2,255,778

Non-current provisions for liabilities

11.22

19,641 355,772

Non-current part of deferred revenues Non-current payables and deferred tax liability

183,553

Non-current bank loans and other borrowings

1,696,812

Current liabilities

441,413

Trade and other payables

353,705

Current provisions

11.22

87,708 5,087,257

Net assets of disposed distribution business Total disposal consideration – fair value of investment in SSE-D

11.8

24,498,907 19,411,650

Gain on disposal of distribution business to SSE-D

Annual Report 2007

At 1 July 2007

72

Notes to the Financial Statements


11.6 Property, plant and equipment

Buildings

Machinery, equipment, vehicles and other assets

191,853

7,872,181

5,995,383

Land

Capital work in progress including advances (CIP)

Total

At 1 January 2006 Cost Accumulated depreciation and impairment charges

502,549

14,561,966

-

(4,198,685)

(3,689,618)

(4,128)

(7,892,431)

191,853

3,673,496

2,305,765

498,421

6,669,535

191,853

3,673,496

2,305,765

498,421

6,669,535

-

-

-

1,381,666

1,381,666

Transfers

7,627

553,390

684,003

(1,245,020)

-

Disposals

(1,097)

(3,052)

(281)

(149)

(4,579)

-

(217,175)

(451,146)

-

(668,321)

(74,754)

(24)

-

(74,778)

Net book value Year ended 31 December 2006 Opening net book value Additions

Depreciation charge Impairment (charge) Impairment release Closing net book value

-

3,126

-

149

3,275

198,383

3,935,031

2,538,317

635,067

7,306,798

198,383

8,420,944

6,555,055

639,046

15,813,428

At 31 December 2006 Cost Accumulated depreciation and impairment charges Net book value

-

(4,485,913)

(4,016,738)

(3,979)

(8,506,630)

198,383

3,935,031

2,538,317

635,067

7,306,798

198,383

3,935,031

2,538,317

635,067

7,306,798

Year ended 31 December 2007 Opening net book value

-

396

-

827,939

828,335

4,635

217,145

246,206

(467,986)

-

(123,303)

(3,406,985)

(1,810,372)

(804,326)

(6,144,986)

(890)

(48,741)

(2,270)

-

(51,901)

Depreciation charge

-

(128,968)

(353,087)

-

(482,055)

Impairment (charge)

-

(52,936)

-

-

(52,936)

Impairment release

-

30,071

8

1,409

31,488

78,825

545,013

618,802

192,103

1,434,743

78,825

1,030,218

1,721,644

194,673

3,025,360

-

(485,205)

(1,102,842)

(2,570)

(1,590,617)

78,825

545,013

618,802

192,103

1,434,743

Additions Transfers Contribution to SSE-D Disposals

Closing net book value At 31 December 2007 Cost Accumulated depreciation and impairment charges Net book value

Poznámky Notes to thek účtovným Financial Statements výkazom

73

VýročnáReport Annual správa 2007

In accordance with accounting policies of the Company, interest costs are not capitalized and therefore interest is not part of the acquisition cost of non-current assets.


The net carrying amount of Machinery and Vehicles held under finance leases: At 31 December 2007

2006

Technologies – turbogenerators

-

27,397

Vehicles

-

747

Total

-

28,144

During year 2006 and 2007 the Company did not receive any material non-current assets free of charge or didn’t receive financial contribution (grants) to finance acquisition of non-current assets. As at 1 July 2007, fixed assets financed through grants and free of charge transfers were transferred to SSE-D at costs SKK 354,104 thousand and net book value SKK 162,222 thousand. Balances held as at 31 December 2006: costs SKK 354,104 thousand and net book value SKK 168,743 thousand. Impairment provisions relate to buildings (recreation building, flats, unused assets) due to temporary decrease of their value. There are no restrictions of ownership relating to property, plant and equipment. No property, plant and equipment are pledged. The Company shows in its books and uses no significant real estate, the legal title to which has not yet been registered in the Cadastral Register at the balance sheet date. Type and amount of insurance of non-current intangible and tangible assets The Company has insured its assets against the following risks: Insured amount as at 31 December 2007 Insurance of machines

-

400,065

Buildings, halls, and structures

-

400,065

Insurance against natural disaster

8,171,310

21,453,547

Buildings, halls, and structures

6,644,976

10,730,062

1,378,474 22,860

10,533,380 25,105

100,000

100,000

Other costs

15,000 10,000

5,000 60,000

Insurance in case of robbery and breaking

20,000

25,981

Machines, devices, and equipment Other movable assets Inventories Cost of removing ruins

Annual Report 2007

2006

74

Notes to the Financial Statements


11.7 Intangible assets

Computer software

Intangible assets not yet in use including advances

Other

Total

At 1 January 2006 Cost Accumulated amortisation and impairment charges

512,329

27,216

(419,100) 93,229 93,229

Net book value

9,705

549,250

(10,260)

-

(429,360)

16,956

9,705

119,890

16,956

9,705

119,890

Year ended 31 December 2006 Opening net book amount

-

-

80,880

80,880

59,978

-

(59,978)

-

Amortisation charge

(39,093)

(6,722)

-

(45,815)

Closing net book value

114,114

10,234

30,607

154,955

Additions Transfers

At 31 December 2006 Cost Accumulated amortisation and impairment charges Net book value

455,768

26,887

30,607

513,262

(341,654)

(16,653)

-

(358,307)

114,114

10,234

30,607

154,955

114,114

10,234

30,607

154,955

-

-

76,556

76,556

Year ended 31 December 2007 Opening net book amount Additions

85,584

-

(85,584)

-

Contribution to SSE-D

(16,878)

(1,543)

(2,926)

(21,347)

Amortisation charge

(49,528)

(5,575)

-

(55,103)

Closing net book value

133,292

3,116

18,653

155,061

Transfers

At 31 December 2007 Cost Accumulated amortisation and impairment charges Net book value

447,433

18,657

18,653

484,743

(314,141)

(15,541)

-

(329,682)

133,292

3,116

18,653

155,061

Internally generated intangible assets are not material.

Poznámky Notes to thek účtovným Financial Statements výkazom

75

VýročnáReport Annual správa 2007

There are no restrictions of ownership relating to intangible assets. No intangible assets are pledged.


11.8 Investments in subsidiaries 2007

2006

185,462

184,262

Additions

24,498,907

1,200

Disposals

-

-

24,684,369

185,462

At the beginning of the year

At the end of the year

Details of investments are given below:

Amount of investment at 31 December

Name

Country of incorporation

% Ownership interest and voting rights held

Elektroenergetické montáže, a.s. (“EEM”)

Slovak Republic

100%

Construction

141,100

141,100

Metrológia, spol. s r.o.

Slovak Republic

100%

Meters calibration

30,700

30,700

Operation of cross-border lines

200

200

262

262

24,500,107 12,000

1,200 12,000

24,684,369

185,462

SSE – PPS, spol. s r.o.

Slovak Republic

100%

SSE CZ, spol. s r.o.

Czech Republic

100%

Stredoslovenská energetika – Distribúcia, a.s. („SSE-D“) Other

Slovak Republic

100%

Activities

Purchase and sale of electricity Distribution of electricity

Total Assets

Liabilities

Revenues

Profit/(Loss)

% Interest held

542,302

154,258

996,230

155,824

100%

54,588

6,593

56,022

5,360

100%

57

5

-

(58)

100%

267,871

243,241

1,586,641

18,497

100%

2007* EEM Metrológia, spol. s r.o. SSE – PPS, spol. s r.o. SSE CZ, spol. s r.o. SSE-D

27,559,856

6,627,686

4,708,055

3,091,018

100%

Total

28,424,674

7,031,783

7,346,948

3,270,641

X

418,299

141,288

657,466

44,464

100%

48,663

6,030

56,094

3,679

100%

2006 EEM Metrológia, spol. s r.o. SSE – PPS, spol. s r.o. SSE CZ, spol. s r.o.

131

20

5

(47)

100%

72,292

66,902

437,689

5,414

100% 100%

SSE-D

1,199

44

-

(47)

Total

540,584

214,284

1,151,254

53,463

X

Annual Report 2007

* - as at the date of authorisation of these separate Financial statements for issue, the audited financial statements of subsidiaries for the year ended 31 December 2007 were not available. The table is prepared based on preliminary non-audited financial statements for the year then ended.

76

Notes to the Financial Statements


11.9 Financial assets

Loans to subsidiaries

Government bonds

At the beginning of the year Additions Change in accrued coupon and unamortised premium/ discount At end of the year

2007

2006

25,000

25,000

2007

2006

467,122

467,588

Additions

1,928,847

-

-

-

Disposals

(239,780)

-

At the end of the year

1,714,067

25,000

Less non-current portion of Loans to subsidiaries

1,236,745

25,000

477,322

-

(469) 466,653

At the beginning of the year

(466) 467,122

Current portion of Loans to subsidiaries

The balance represents Slovak government bonds denominated in SKK. The bonds in nominal amount of SKK 450,000 thousand were acquired in 2004 in 3 trenches for acquisition costs including fees of SKK 453,350 thousand and accrued interest income of SKK 8,778 thousand. The maturity of bonds is between 2009 and 2019. The bonds are deposited at VUB, a. s.

The balance at 31 December 2006 represented long-term loan to a fully owned subsidiary Elektroenergetické montáže, a.s. The long-term loan was originally due latest on 31 August 2009. Upon approval of the Board of Directors of Elektroenergetické montáže, a.s., the loan was pre-maturely repaid in August 2007. The balance as at 31 December 2007 represented outstanding long-term loans drawn for development of distribution networks before 30 June 2007 which were subject to unbundling to SSE-D, a.s. and as at 31 December 2007 totalled to SKK 1,482,060 thousand (2006: nil) and receivables arising from cash pooling SKK 232,007 thousand. Out of the total balance of unpaid loans to subsidiaries, the amount of 1,236,745 is receivable after more than 12 months after the balance sheet date. Cash pooling system is the tool of cash management centralizing all disposable daily cash balances of involved bank accounts of subsidiaries in one master bank account of the parent company enabling more efficient cash management. The cash pooling system of SSE is realized by Všeobecná úverová banka, a.s. for subsidiaries SSE-D, a.s., EEM, a.s., Metrológia, s.r.o., and by ČSOB bank for subsidiary SSE CZ, s.r.o.

There are no restrictions of ownership relating to held-tomaturity financial assets. No held-to-maturity financial assets are pledged. The Company has not reclassified any financial assets measured at amortised cost rather than at fair value during the year (2006: nil). There were no disposals or impairment provisions on heldto-maturity financial assets in 2007 or 2006. The fair value of the state bonds amounts to SKK 460,133 thousand (2006: SKK 474,195 thousand) and is based on quoted market bid prices. The average interest rate of these bonds was 5.00% with set fixed interest coupon and no repricing period. SKK 150,000 thousand is due between 1 and 5 years. The remaining amount is due after 5 years.

The fair value of the long-term loan was calculated based on cash flow discounted using a discount rate BRIBOR + 0.7%. The fair value approximated the carrying value of the loan. The maximum exposure to credit risk was limited by the carrying value of loan.

The maximum exposure to credit risk at the reporting date is the fair value of the debt securities classified as held-tomaturity. None of the financial assets is either past due or impaired. The credit rating of the Slovak government is A1.

Poznámky Notes to thek účtovným Financial Statements výkazom

77

VýročnáReport Annual správa 2007

.


None of the loans to subsidiaries is either past due or impaired. The subsidiary SSE-D does not have an external credit

rating. Analysis by credit quality of the receivables based on gearing is as follows:

2007

2006

Gearing from 0 % to 20 % Gearing from 20 % to 50 %

Metrológia, spol. s r.o.; SSE – PPS, spol. s r.o.; EEM, a.s.; SSE-D, a.s.

Metrológia, spol. s r.o.; SSE – PPS, spol. s r.o.; SSE-D, a.s.; EEM, a.s.

Gearing from 50 % to 80 %

SSE CZ, spol. s r.o.;

SSE CZ, spol. s r.o.;

11.10 Financial instruments by category The reconciliation of classes of financial instruments with measurement categories under IAS 39 is as follows:

As at 31 December 2007 Assets as per balance sheet

Loans and receivables

Derivatives used for hedging

Held-tomaturity

Total

-

-

466,653

466,653

Loans to subsidiaries

1,714,067

-

-

1,714,067

Trade receivables (before impairment provision) (Note 11.13) Cash and cash equivalents

3,227,297 2,626,038

-

-

3,227,297 2,626,038

Total

7,567,402

-

466,653

8,034,055

Derivatives used for hedging

Other financial liabilities – carried at amortised cost

Total

Government bonds

As at 31 December 2007

Annual Report 2007

Liabilities as per balance sheet Trade payables

-

2,289,834

2,289,834

Loans from subsidiaries – unbilled distribution fees Loans from subsidiaries – cash pooling

-

1,587,820 1,204,328

1,587,820 1,204,328

Bank loans

-

1,984,291

1,984,291

Foreign exchange forward contracts

1,364

-

1,364

Total

1,364

7,066,273

7,067,637

78

Notes to the Financial Statements


Loans and receivables

As at 31 December 2006 Assets as per balance sheet

Derivatives used for hedging

-

Government bonds

-

Held-tomaturity

Total

467,122

467,122

25,000

-

-

25,000

-

14,658

-

14,658

Trade receivables (before impairment provision) (Note 11.13) Cash and cash equivalents

2,372,196 2,235,115

-

-

2,372,196 2,235,115

Total

4,632,311

14,658

467,122

5,114,091

Derivatives used for hedging

Other financial liabilities – carried at amortised cost

Loans to subsidiaries Foreign exchange forward contracts

As at 31 December 2006 Liabilities as per balance sheet

Total

Finance lease liabilities

-

23,415

23,415

Trade payables

-

1,650,398

1,650,398

Loans from subsidiaries – cash pooling

-

187,869

187,869

Bank loans

-

1,848,600

1,848,600

Foreign exchange forward contracts

5,014

-

5,014

Total

5,014

3,710,282

3,715,296

11.11 Inventories As at 31 December 2007 Materials and spare parts

2006

105,032

86,362

105,032

86,362

There are no restrictions of ownership relating to inventories. No inventories are pledged.

Poznámky Notes to thek účtovným Financial Statements výkazom

79

VýročnáReport Annual správa 2007

The cost of inventories recognised as expense and included in ‘other operating expenses’ amounted to SKK 131,464 thousand (2006: SKK 122,875 thousand).


11.12 Amounts due from / due to customers for contract work

Since 1 July 2007 SSE started to provide construction contract works to its subsidiary SSE-D. The contract revenue recognised as revenue in the year ended 31 December 2007 amounted to SKK 924,806 thousand (2006: nil).

As at 31 December 2007 The aggregate costs incurred and recognised profits (less recognised losses) to date Less: Progress billings Total

2006

606,370 (599,115)

-

7,255

-

8,698

-

(1,443) 7,255

-

Amounts due from customers for contract work (Note 11.13)

Amounts due to customers for contract work (Note 11.18) Total

11.13 Trade and other receivables As at 31 December 2007

2006

Current receivables and prepayments: Neither past due nor impaired trade receivables Past due but not impaired trade receivables

966,760

115,436

-

1,061,842

1,405,436

3,227,297

2,372,196

Less: Provision for impairment of receivables

(955,528)

(1,285,294)

Trade receivables – net

2,271,769

1,086,902

Individually impaired trade receivables Trade receivables (before provision for impairment)

-

14,658

8,698

-

VAT receivable

169,735

107,549

Prepayments

132,548

-

41,112

22,098

2,623,862

1,231,207

Foreign exchange forward contracts (Note 11.14) Amounts due from customers for contract work (Note 11.12)

Other receivables including accrued income

Annual Report 2007

2,050,019

80

Notes to the Financial Statements


The structure of trade receivables by the remaining period to maturity is shown in the following table:

As of 31 December 2007, trade receivables of SKK 1,061,842 thousand (2006: SKK 1,405,436 thousand) were impaired and provided for. The amount of the provision was SKK 955,528 thousand as of 31 December 2007 (2006: SKK 1,285,294 thousand). The individually impaired receivables mainly relate to wholesale and retail customers, which are in unexpectedly difficult economic situations. Management assessed that a portion of the receivables is expected to be recovered. The ageing of these receivables is as follows:

As at 31 December 2007

2006

Receivables within due date

2,050,019

966,760

Overdue receivables

1,177,278

1,405,436

3,227,297

2,372,196

Total

The analysis of trade receivables that are neither past due nor impaired by their credit quality is as follows:

1 to 90 days 91 to 181 days 181 to 360 days

As at 31 December

Over 361 days

2007

2006

106,590

173,172

91,866

45,869

Wholesale - large businesses Other customers

468,279 1,383,284

449,889 297,830

- from that Trade receivables from subsidiaries

1,130,328

29,485

Retail – individuals Retail – small businesses

Neither past due nor impaired trade receivables

Total individually impaired receivables

2006

127,517

144,922

19,333

17,460

31,251

24,032

883,741

1,219,022

1,061,842

1,405,436

The movements in the provision for impairment of trade receivables are recognized in income statement in Other operating (expenses) / income. Movements are presented below: 2007

2006

1,285,294

1,552,668

193,315

124,968

Unused amounts reversed

(302,483)

(289,293)

Receivables written off during the year as uncollectible At end of the year

(220,598) 955,528

(103,049) 1,285,294

At the beginning of the year 2,050,019

2007

Additional provision for receivables impairment

966,760

As of 31 December 2007, trade receivables of SKK 115,436 thousand (2006: SKK nil thousand) were past due but not impaired. These receivables represent amounts due from the Company’s subsidiaries and their ageing analysis is as follows: As at 31 December 1 to 90 days

115,436

-

Total past due but not impaired trade receivables

115,436

-

Poznámky Notes to thek účtovným Financial Statements výkazom

The release of bad debt provisions was caused by unexpected subsequent collection of certain receivables that were originally provided for or written-off. Bad debt provision is calculated in the amount of 100% of the value of individual receivables from companies in bankruptcy and receivables subject to court proceedings. Bad debt provision for other receivables is calculated based on ageing analysis of individual receivables and the type of the customer.

2006

81

VýročnáReport Annual správa 2007

2007


pany has a large number of customers. The Company does not hold any collateral as security of the receivables.

The carrying amounts of the Company’s trade and other receivables are denominated in the following currencies: 2007

No receivables have been pledged as collateral. The Company has not a restricted right to deal with receivables.

2006

SKK

2,169,784

868,534

EUR

366,485

334,257

CZK

87,585

28,416

Other

8

-

Total

2,623,862

1,231,207

Prepayments include gross-settled commodity options purchased by the Company in order to reduce the risk of unfavourable price change of purchased electricity that will be delivered to final customers during the year 2008. The options matured in 2007 and the option premium will be recognised in the income statement in year 2008 proportionally with the supply of electricity to customers.

The carrying amounts of trade and other receivables as of 31 December 2007 are not substantially different from their fair value. The maximum exposure to credit risk is limited by the carrying value of receivables. There is no concentration of credit risk with respect to trade receivables as the Com-

11.14 Derivative financial instruments 2007 Assets

Assets

Liabilities

Forward foreign exchange contracts – cash flow hedges

-

1,364

14,658

5,014

Current portion

-

1,364

14,658

5,014

The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.

cognised in the income statement in the period or periods during which the hedged forecast sales transaction affects the income statement. This is generally within 12 months from the balance sheet date. In the course of its operating activities (electricity sales denominated in EUR) the Company is exposed to exchange rate risk which might result in significant future cash flow fluctuations. It is the Company’s policy to eliminate or limit this risk by systematic risk management. For this purpose the Company uses derivatives which means that forward foreign exchange contracts are entered into to hedge this risk. Hedge accounting in accordance with IAS 39 is applied to highly probable sales denominated in EUR to cover the risk of foreign exchange rate fluctuation. Cash-flows covered by the hedging derivatives will occur evenly throughout the year 2008.

The ineffective portion recognised in the profit or loss that arises from cash flow hedges amounts to nil (2006: nil). The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the balance sheet. Forward foreign exchange contracts The notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2007 were SKK 501,450 thousand (2006: SKK 1,019,329 thousand). The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next 12 months. Gains and losses recognised in the hedging reserve in equity (Note 11.16) on forward foreign exchange contracts as of 31 December 2007 are re-

Annual Report 2007

2006 Liabilities

There are no forecast transaction for which hedge accounting had previously been used, but which are no longer expected to occur. During 2006 and 2007 the hedges were 100% effective.

82

Notes to the Financial Statements


11.15 Cash and cash equivalents

Code and it defines that the Company is obliged to create legal reserve fund in the amount of 10% of its share capital at the time of the incorporation of the Company. This amount must be increased annually by at least 10% from net profit, until the Legal reserve fund achieves 20% of the share capital. Use of this fund is restricted under the Commercial Code only to cover losses of the Company and it is not a distributable reserve. Legal reserve fund amounted to SKK 703,336 thousand as at 31 December 2007 (as at 31 December 2006: SKK 703,336 thousand).

As at 31 December 2006

Cash at bank and in hand

831,038

319,639

Short-term bank deposits

1,795,000 2,626,038

1,915,476 2,235,115

The effective interest rate on short term bank deposits is 3.8% (in the year ended 31 December 2006: 3.8%) and these deposits have an average maturity of 7 days (in 2006: 6 days). At 31 December 2007 cash and cash equivalents were fully available for the Company’s use.

Other funds include mainly a fund for execution of planned investments of SKK 70,000 thousand and differences from revaluation of hedging derivatives of SKK (1,105) thousand (as at 31 December 2006: SKK 7,812 thousand). The Company agreed to sell EUR 15,000 thousand (gross) for SKK under the forward agreements which were designated as cash flow hedges of the Company’s highly probable future sales. All of these trades will mature in 2008. Fund for realisation of planned investments has been set up based on the agreement of Company’s Shareholders. The usage of this fund is limited to the defined purposes.

For the purposes of the cash flow statement, the cash and cash equivalents comprise the following: As at 31 December

Cash and bank balances and deposits with original maturities of less than three months

2007

2006

2,626,038 2,626,038

2,235,115 2,235,115

The General Meeting held on 30 May 2007 approved the statutory financial statements for 2006 and decided to pay dividends to the shareholders for 2006 in the amount of SKK 1,899,123 thousand. Dividend per share represents SKK 540.

The carrying amounts of cash and cash equivalents as of 31 December 2007 are not substantially different from their fair value. The maximum exposure to credit risk is limited by the carrying value of cash and cash equivalents.

The 2006 book profit of SKK 2,391,322 thousand was distributed as follows:

The analysis by credit quality is reported in Note 11.3.1 (ii).

968,552

Dividends paid – EDFI

930,571

Appropriation to the social fund

11.16 Shareholder’s Equity

Royalties

The total authorized number of ordinary shares as at 31 December 2007 is 3,516,682 (at 31 December 2006: 3,516,682), with a par value of SKK 1 thousand per share. All authorized shares are issued and fully paid in.

Transfer to retained earnings Total

13,419 4,000 474,780 2,391,322

The retained earnings of the Company at 31 December 2007 amounted to SKK 22,130,085 thousand (31 December 2006: SKK 2,759,571 thousand).

No changes in share capital of the Company occurred during the year 2007 and year 2006. The Company does not have any equity subscribed but not recorded in the Commercial Register.

As at the date of authorisation of these separate Financial statements for issue, the statutory body has not yet proposed the distribution of the 2007 profit.

As at 31 December 2007 the total number of 1,793,508 shares (51%) is owned by the National Property Fund of the Slovak Republic and 1,723,174 shares (49%) are owned by E.D.F. INTERNATIONAL, France.

Electricité de France awarded 14,664 shares to the Company’s employees as compensation, subject to vesting conditions as described in Note 11.2.20. The price per share was SKK 2,436 / share. The Company recognised an expense of SKK 5,954 thousand with a corresponding credit in equity.

Legal reserve fund is obligatorily created from profit of the Company in accordance with the Slovak Commercial Code, paragraph 67. The minimum prescribed creation of the Legal reserve fund is specified in paragraph 217 of the Commercial

Poznámky Notes to thek účtovným Financial Statements výkazom

Dividends paid – National Property Fund

83

VýročnáReport Annual správa 2007

2007


11.17 Deferred revenues As at 31 December 2007

2006

Deferred revenues Capital expenditure grants – long-term portion (a)

155,699

-

13,044

Transformer substations – long-term portion (b)

-

87,258

– current portion (b)

-

5,986

-

54,195

– current portion (a)

Connection fees – long term portion (c) – current portion (c) Relocation of energy devices – long-term portion (d) – current portion (d) Other

a.

b.

Annual Report 2007

-

– current portion

Capital expenditure grants are paid primarily by customers for capital expenditures made on their behalf, and access network assets transferred to the Company by its customers free of charge. The grants are non-refundable and are recognized in other operating income based upon depreciable lives of the related assets. Fixed assets with unknown owner acquired by the administrator of these assets (by the Company) for free in compliance with existing legislation are recognised initially at their fair values with a corresponding entry to deferred revenues. Deferred revenues are amortised to the income statement to offset depreciation of the related assets.

84

-

3,024

-

1,984

-

89

-

1,146

-

322,425

c.

Connection fees represent mainly fees paid by new customers for connecting them to the existing electricity network.

d.

Fees for network relocation are accounted for similarly as transformer substations acquired by means as described in (b), so collected fees for network relocation are accounted for as deferred revenue and are amortised to the income statement to offset depreciation of the related assets.

Notes to the Financial Statements


11.18 Trade and other payables As at 31 December 2006 Trade payables Amounts due to customers for contract work

2,259,565

1,510,982

1,443

-

-

23,289

55,529

43,785

Deferred revenues (Note 11.17) Payables to employees Social security

20,198

24,590

Accrued personnel expenses

42,000

40,484

Liabilities from derivative financial instruments (Note 11.10)

1,364

5,014

Social fund

2,050

2,191

Other payables Total

At 31 December 2007, the foreign exchange forward contracts were with banks Všeobecná úverová banka, a.s., of SKK 501,450 thousand (2006: SKK 315,007 thousand), Tatrabanka, a.s., nil (2006: SKK 279,882 thousand) and ČSOB, a.s., Bratislava nil (2006: SKK 424,440 thousand), which have internal credit rating “A” equal to high investment credit rating set by external credit rating agencies. The amounts receivable from derivative contracts (Note 11.13) were neither past due nor impaired.

30,269

139,416

2,412,418

1,789,751

Social fund Appropriations to and withdrawals from the social fund during the accounting period are shown in the following table: As at 31 December 2007 Opening balance at 1 January Appropriations expensed

The fair value of trade and other payables is not significantly different from their carrying amount. No payables are secured by a lien or other collateral.

2006

2,191 21,258

4,048 19,911

Usage

(20,999)

(21,768)

Other

(400)

-

2,050

2,191

Closing balance at 31 December

The structure of payables by the remaining period to maturity is as follows:

2006

Payables not yet due

2,387,604

1,754,603

Overdue payables Total

24,814 2,412,418

35,148 1,789,751

Poznámky Notes to thek účtovným Financial Statements výkazom

85

VýročnáReport Annual správa 2007

As at 31 December 2007


11.19 Bank loans and other borrowings As at 31 December 2007

2006

Non-current -

Long term finance lease liabilities (a) Long term portion of bank loans (b)

19,036

1,738,082

1,528,655

1,738,082

1,547,691

Current Short term finance lease liabilities (a)

-

4,379

Short term portion of bank loans (b)

246,209

319,945

246,209

324,324

(a)

Finance lease liabilities Present value of minimum lease payments

Minimum lease payments

Within 1 year

31 December 2007 -

31 December 2006 6,475 22,556

31 December 2007 -

31 December 2006 4,379

1 to 5 years

-

19,036

Over 5 years

-

-

-

-

-

29,031

-

23,415

Less: future finance charges

-

(5,616)

-

-

Present value of finance lease liabilities

-

23,415

-

23,415

Less: current liability

-

-

-

(4,379)

Non-current liability

-

-

-

19,036

Annual Report 2007

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

86

Notes to the Financial Statements


(b) Bank loans The maturity of bank loans (excluding finance lease liabilities) is as follows:

As at 31 December Maturity

2007

2006

Short term portion of bank loans

246,209

319,945

824,136

870,179

Long term portion of bank loans 1-5 years Over 5 years Total

913,946

658,476

1,984,291

1,848,600

The carrying amounts and fair value of the non-current borrowings are as follows: The fair value of current borrowings and finance lease liabilities approximates their carrying amount, as the impact of discounting is not significant. The fair values are based on cash flows discounted using a rate based on the borrowing rate of 4.40% (2006: 4.35%). The Company has the following un-drawn borrowing facilities:

As at 31 December 2007

2007

Floating rate - Expiring within one year

57,000

117,000

- Expiring beyond one year

96,753

-

-

-

153,753

117,000

Fixed rate - Expiring within one year Total

Poznámky Notes to thek účtovným Financial Statements výkazom

87

VýročnáReport Annual správa 2007

nancial statements of the Company. The Company complied with these covenants at the reporting date of these separate Financial statements.

Loans from VÚB, ČSOB and Calyon Bank include certain financial covenants related to limits on indebtedness, liquidity, profitability, cash receipts, interest cover, and debt to operating profit ratios calculated on the basis of the separate fi-


Structure of bank loans is as follows: Amount in thousands of foreign currency Bank/Creditor

Currency

2007

2006

2007

2006

Investment

EUR

5,210

5,645

175,072

195,165

Investment

SKK

-

-

176,000

198,000

Investment

SKK

-

-

-

120,000

Investment

EUR

10,500

-

352,831

-

Investment

SKK

-

-

240,000

270,000

Investment

SKK

-

-

80,000

112,000

Investment

SKK

-

-

194,590

200,000

Investment

EUR

3,650

-

122,651

-

Investment

EUR

11,250

12,500

378,034

432,162

Investment

SKK

-

-

92,300

115,380

Investment

SKK

-

-

38,400

57,600

Investment

SKK

-

-

-

10,000

CALYON BANK S.A., pobočka zahraničnej banky Total

Investment X

EUR X

4,000 34,610

4,000 22,145

134,413 1,984,291

138,293 1,848,600

Bank/Creditor

Interest rate % p. a.

Part due in next 12 months in thousands SKK

Všeobecná úverová banka, a.s

Tatra banka, a.s. ČSOB, a.s. UniCredit Bank Slovakia, a.s.

Všeobecná úverová banka, a.s

Tatra banka, a.s.

ČSOB, a.s. UniCredit Bank Slovakia, a.s.

CALYON BANK S.A., pobočka zahraničnej banky Total

Annual Report 2007

Type

Amount in thousands of SKK

Part due after 12 months in thousand SKK

Maturity

Collateral

Fixed 3.88% + 0.3%

30.6.2019

-

14,617

160,455

Fixed 3.85 %

1.12.2015

-

22,000

154,000

6M BR + 0.55 %

14.8.2007

Blank bill of exchange

-

-

Fixed 4.80 %

1.12.2019

Blank bill of exchange

29,403

323,428

Fixed 4.08 %

31.12.2015

-

30,000

210,000

3M BR + 0.50 %

30.6.2010

Blank bill of exchange

32,000

48,000

3M BR + 0.30 %

31.12.2016

-

21,640

172,950

Fixed 4.80 %

1.12.2019

-

12,265

110,386

Fixed 4.06%

14.9.2016

-

42,004

336,030

6M BR + 0.40%

25.12.2011

Blank bill of exchange

23,080

69,220

3M BR + 0.75 %

20.12.2009

Blank bill of exchange

19,200

19,200

3M BR + 0.75 %

15.8.2007

Blank bill of exchange

-

-

Fixed 3.96 % X

14.12.2015 X

X

246,209

134,413 1,738,082

88

Notes to the Financial Statements


11. 20 Financial liabilities

The fair value of the cash-pooling liability in Československá obchodní banka, Praha was calculated based on cash flow discounted using a discount rate (PRIBID – 0,3%) p.a. in 2007.

Loans from subsidiaries 2006

187,869

-

Additions

2,792,148

187,869

Disposals

(187,869)

At the end of the year

2,792,148

187,869

-

-

2,792,148

187,869

Less non-current portion of financial liabilities Current portion of financial liabilities

The fair value approximated the carrying value of the loans. The maximum exposure to credit risk was limited by the carrying value of loans. The balance as at 31 December 2007 represented portion of unbilled distribution fees as of 1 January 2007 which was subject to unbundling to SSE-D, a.s, and was not repaid as at the balance sheet date at SKK 1,587,820 thousand (2006: nil) and payables arising from cash pooling with subsidiaries at SKK 1,204,328 thousand (2006: 187,869 thousand).

The fair value of the cash-pooling liability in Všeobecná úverová banka was calculated based on cash flow discounted using a discount rate (BRIBID - 0.2%) p.a. in 2007 and (BRIBID – 0.2%) p.a. in 2006 respectively.

11.21 Deferred income tax

there is a legally enforceable right to offset current asset against current liabilities and when the deferred income taxes relate to the same fiscal authority.

Deferred income taxes are calculated on temporary differences under the balance sheet liability method using a principal tax rate of 19%. Deferred income tax assets and liabilities are offset when

As at 1 January 2007 Accelerated tax depreciation

(175,397)

The movements in the deferred tax assets and liabilities were as follows:

Unbundled as at 1 July 2007 177,870

(Charged)/ credited to the Income statement (28,565)

(Charged)/ credited to the Equity -

As at 31 December 2007 (26,092)

Pension liability and similar provisions

25,647

(4,173)

(4,261)

-

17,213

Provisions against bad debts Inventory provision

21,114 1,808

(187) -

(2,230) (1,808)

-

18,697 -

Other

29,425

(11,400)

(3,117)

2,091

16,999

(97,403)

162,110

(39,981)

2,091

26,817

(Charged)/ credited to the Income statement (54,033)

(Charged)/ credited to the Equity -

As at 31 December 2006 (175,397)

Accelerated tax depreciation

As at 1 January 2006 (121,364)

Pension liability and similar provisions

18,223

7,424

-

25,647

Provisions against bad debts Inventory provision

49,939 1,217

(28,825) 591

-

21,114 1,808

Other

Poznámky Notes to thek účtovným Financial Statements výkazom

20,516

28,374

(19,465)

29,425

(31,469)

(46,469)

(19,465)

(97,403)

89

VýročnáReport Annual správa 2007

2007 At the beginning of the year


11.22 Provisions for liabilities

At 1 January 2007

Pensions benefits (a) 74,523

Termi-nation benefits (b) 60,460

Legal claims (c) 146,817

Onerous contract (d) -

Other -

13,693

18,462

14,704

87,588

13,075

147,522

Provisions used

(16,527)

(13,141)

-

-

-

(29,668)

Provisions unbundled

(10,761)

(11,203)

(85,385)

-

-

(107,349)

-

(24,913)

(4,714)

-

-

(29,627)

60,928

29,665

71,422

87,588

13,075

262,678

Additional provisions

Reversals of unused provision At 31 December 2007

Movements in the present value of defined benefit obligation are:

As at 31 December Analysis of total provisions

2007

2006

84,023

111,523

Current

178,655

170,277

Total

262,678

281,800

Non-current

As at 31 December 2007 Present value of unfunded retirement obligations at beginning of the year Current service cost

(a) Pension benefits The following amounts have been recognised with respect of the defined benefit pension plan and other long-term benefits:

Interest expense

(i) post employment benefits

Other

Unbundled portion of provision Paid

2007 Present value of unfunded retirement obligations

2006

91,282

59,569

Unrecognised actuarial gains/ (losses)

(49,118)

-

Liability in the balance sheet

42,164

59,569

59,569 6,171

57,323 2,210

2,921

2,686

(8,518) (15,214)

(2,650)

(2,765)

-

49,118

-

Present value of unfunded retirement obligations at the end of the year

91,282

59,569

(ii) other long-term benefits (jubilees and loyalties) As at 31 December 2007

The amounts recognised in the income statement are as follows: As at 31 December 2007

2006

Current service cost

6,171

2,210

Interest expense

2,921

2,686

Total (credit) / charge, included in staff costs

9,092

4,896

2006

Actuarial (gains)/ losses As at 31 December

Annual Report 2007

Total 281,800

90

2006

Present value of unfunded obligations

18,764

14,954

Liability in the balance sheet

18,764

14,954

Notes to the Financial Statements


The amounts recognised in the income statement are as follows: As at 31 December 2007

2006

Current service cost

1,195

553

Recognised actuarial gains/loss

5,013

-

565

671

6,773

1,224

Interest expense Total (credit) / charge, included in staff costs

Average number of employees at 31 December 2006

1,554

Percentage of employees, who will terminate their employment with SSE prior to retirement (withdrawal rate)

Approximately 4% p.a., differing with age and sex

Expected salary increases - long-term - short-term Discount rate

2.2% p. a. 2.5% p. a. 5.0% p. a.

(b) Termination benefits Movements in the present value of defined benefit obligation are: `

As at 31 December 2007

Present value of unfunded retirement obligations at beginning of the year Current service cost Interest expense Unbundled portion of provision Paid Other Actuarial gains/(losses) Present value of unfunded retirement obligations at the end of the year

The termination benefits represent an estimate of the payment to employees as a result of the approved and communicated restructuring process which is expected to be completed by 2010. It is expected that the payments in accordance with relevant detailed plan of positions accompanying the restructuring process will be made as follows:

2006

14,954 1,195

14,390 553

565

671

(1,649) (1,314)

(660)

5,013

-

18,764

14,954

As at 31 December Termination benefits

2007

2006 -

23,460

Expected payment in 2008

6,570

18,500

Expected payment in 2009

11,470

18,500

Expected payment in 2010

11,625 29,665

60,460

Expected payment in 2007

The principal actuarial assumptions to determine the pension liability were as follows: Average number of employees at 31 December 2007

1,350

Percentage of employees, who will terminate their employment with SSE prior to retirement (withdrawal rate)

Approximately 0.9 % p.a., differing with age and sex

Poznámky Notes to thek účtovným Financial Statements výkazom

3.7% p. a. 3.6% p. a. 4.33 – 5.03% p. a.

91

VýročnáReport Annual správa 2007

Expected salary increases - long - term - short - term Discount rate


(c) Provision for legal claims

as the best estimate of the liability. The Company considered alternative outcomes of the legal disputes and in the opinion of management no other outcomes are reasonably possible that could result in a materially higher or lower settlement amount. The possible uncertainties and risks were taken into account in reaching the best estimate of the provision and are represented by fact that the legal cases are specific to the Company and there are no precedents. The balance as at 31 December 2007 is expected to be utilised by December 2008.

The Company recorded liabilities for claims from third parties amounting to SKK 71,422 thousand which are subject to legal dispute. Provision is created for those legal claims where it is probable, at the balance sheet date, that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. In the opinion of the Company’s management, after taking appropriate legal advice, the outcome of these legal claims will not give rise to any significant loss beyond the amounts provided.

(d) Provision for onerous contract

The balance includes mainly provisions for cases related to breaking the conditions of a mandatory contract for collection of company’s receivables. The amount recognised as a provision represents the best estimate of the expenditure required to settle the present obligation at the balance sheet date, i.e. the amount that the Company would rationally pay to settle the obligation. The estimate is determined by the judgement of the management and the Company’s lawyers. The provision represents the individual most likely outcome

The Company has entered into an annual electricity sales contract with one of its major customers. At the balance sheet date, the expected sales are covered by matching purchase agreements. The Company assessed its obligations under the contracts with this customer and created a provision for unavoidable losses arising from its contractual commitments. The provision will be fully utilised by the end of 2008.

11.23 Revenues Revenues include the following: 2007

2006

14,585,767

13,016,719

Sales of electricity – households

6,119,133

6,221,829

Sales of electricity – long-term contracts, spot contracts, intermediation, deviation, crossborder profile Sale of electricity to SSE-D for covering of their network losses and own consumption

2,741,029 370,849

1,115,910 -

27,259

49,226

8,990

8,615

Revenues for electricity supply and distribution: Sales of electricity to industrial customers (wholesale) and commercial customers (retail)

Other revenue: Maintenance and operation of the transmission grid Revenues for small construction works Other revenue Total

Annual Report 2007

Company’s industrial customers (wholesale) and commercial customers (retail) are eligible to acquire electricity in an open market. Until 30 June 2007 the Company provided access to the distribution network at a fee that was subject to regulation. Slovakia is currently in the process of full implementation of the European Union electricity market direc-

25,136

16,917

23,878,163

20,429,216

tive, which resulted in a phased complete liberalisation of the market, whereby all customers including households became eligible to acquire electricity in an open market from July 2007. Since this date providing of regulated distribution services has been transferred to SSE-D.

92

Notes to the Financial Statements


11.24 Purchase of electricity and related fees, distribution fees The following items have been included in purchase of electricity and related fees: 2007

2006

Purchases of electricity from: 11,008,022

8,995,916

2,044,323

1,445,889

Imports from abroad

889,353

688,767

Heating plants

227,865

99,003

Other

115,504

189,884

4,362,149

-

1,690,857 20,338,073

3,469,021 14,888,480

2007

2006

637,380

644,614

56,336

136,402

173,582

183,514

Long-term contracts Spot agreements and costs of deviation settlement

Fees paid to SSE-D for access to the distribution network Fees paid to the operator of the transmission network (system service fees, fees for network operation, fees for access to the distribution network) Total

11. 25 Staff costs Wages and salaries Other staff costs Pension costs – defined contribution plans Current service costs

7,366

2,763

Interest income on pension and similar liabilities

3,486

3,357

Recognised actuarial (gains)/ losses Total

5,013

-

883,163

970,650

2007

2006

Repairs and maintenance

127,460

230,186

Material and consumables used

277,900

291,928

Metering of consumed electricity

20,582

44,384

Consultancy costs

93,979

61,228

Post and telecommunication costs

82,852

87,541

Insurance costs

24,040

26,630

Forrest cutting

25,796

48,973

118,351

107,777

29,127

50,075

IT services Metrological services Set-up/(reversal) of provision for fixed assets and inventories

16,116

74,612

Taxes and other fees

20,768

19,585

6,365

1,649

42,271

38,553

Foreign exchange losses

91,264

46,277

Provision for onerous contracts (Note 11.22d)

87,588

-

885,576

-

Ceased receivables Operating leasing

Subcontracted construction works Other operating expense Total

Poznámky Notes to thek účtovným Financial Statements výkazom

93

211,993

161,383

2,162,028

1,290,781

VýročnáReport Annual správa 2007

11. 26 Other operating expenses


11. 27 Other operating income 2007 19,308

Gain from sale of fixed assets

2006 19,915

Gain from sale of material

23,688

12,376

Telecommunication services and IT

48,084

25,361

SLA agreements

956,049

-

Construction works

924,806

-

Release of bad debt provision

104,782

164,325

Foreign exchange gains

90,058

34,433

Services of transport

24,808

873

Other

83,041

79,439

Total

2,274,624

336,722

11.28 Finance income, net 2007

2006

Interest income 110,530

78,813

- Interest income – held-to-maturity investments

22,570

22,570

- Interest income – loans to related parties

35,276

1,108

1,663

-

(75,999)

(67,664)

(1,100)

(2,516)

- Interest income – short-term bank deposits and current accounts

- Interest income – Cash pooling Interest expense - Interest expense – bank loans - Interest expense – finance lease charges

(13,052)

(3,321)

Foreign exchange gains

35,587

25,630

Foreign exchange losses

(18,029)

(21,310)

83,698

825

- Interest expense – Cash pooling

Dividends income

381

956

Other financial expense

(18,631)

(2,686)

Net finance income

162,894

32,405

Other financial income

Annual Report 2007

Dividends income includes income from dividends received from subsidiary Elektroenergetické montáže, a.s. of SKK 83,698 thousand.

94

Notes to the Financial Statements


11.29 Income tax expense Reconciliation from the theoretical to the reported income tax charge is presented in following table: Year ended 31 December 2007 Profit before tax Theoretical income tax related to current period at 19% - One-off gain on disposal of distribution operations not subject to tax (permanent) * - Other income not subject to tax (permanent) - Non-deductible expenses (permanent) - Non-deductible expenses (permanent) - unbundling - Deferred tax asset written-off

2006

21,806,909

2,934,296

4,143,312

557,516

(3,688,214)

-

(15,902)

(11,757)

3,375

-

73,340

-

8,249

-

8,389

-

10,677

(2,785)

543,226

542,974

39,981

46,469

- Tax charge in respect of current period from continuing operations

236,710

126,073

- Tax charge in respect of current period from discontinued operations (Note 11.5)

255,858

373,217

- Income taxed in current year but booked in previous periods (penalty interests received) - Income tax related to prior periods

Income tax expense for the period The tax charge for the period comprises: - Deferred tax charge / (credit) (Note 11.21)

- Income tax related to prior periods

10,677

(2,785)

543,226

542,974

* In accordance with Note 11.2.16 the deferred tax liability arising from the revalued assets and liabilities transferred to subsidiary SSE-D was not recognised because dividend income is generally not subject to income taxes in the Slovak Republic.

The Slovak corporate tax rate valid for 2007 is 19%. The Company did not have any tax relieves.

11. 30 Contingencies Taxation

Poznámky Notes to thek účtovným Financial Statements výkazom

95

VýročnáReport Annual správa 2007

Due to the fact that Slovak tax law contains certain provisions allowing for more than one interpretation, as well as the practice, developed in the generally unstable environment by the tax authorities of making arbitrary judgements on business activities, Management’s interpretation of the Company’s business activities may not coincide with the interpretation of these activities by the tax authorities. The fiscal years from 2001 to 2003 were subject to complex inspections from tax authorities and subsequent years to 2006 remain open to tax inspection. Management believes that its interpretation of tax legislation is appropriate and, therefore, no provisions were recorded in these financial statements.


11. 31 Commitments

The Company leases various plant and machinery under cancellable operating lease agreements. The Company is required to give an annual notice for the termination of these agreements.

(a) Capital commitments Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows: 2007

The lease expenditure charged to the income statement during the year is disclosed in Note 11.26.

2006

Property, plant and equipment Intangible assets

157,903 6,660

48,620 2,051

Total

164,563

50,671

The future aggregate minimum lease payments under noncancellable operating leases (i.e. annual charge of leases with annual notice for termination) are as follows: 2007

(b) Operating lease commitments - Company as lessee

No later than 1 year

The Company does not lease any assets under non-cancellable operating lease agreements.

Later than 1 year and no later than 5 years Later than 5 years Total

2006

40,722

35,727

-

-

40,722

35,727

11.32 Cash generated from operations

Year ended 31 December Note Profit before income tax

2007

2006

21,806,909

2,934,296

Adjustments for: Depreciation

11.6

482,055

668,321

Amortisation

11.7

55,103

45,815

16,117

74,612

Increase in retirement benefit obligations

11.22

13,693

7,591

Gain/loss on disposal of property, plant and equipment

11.27

Changes in provisions for non-current assets and inventories

Foreign exchange gain from revaluation of loan

(19,308)

(19,915)

(20,480)

(16,880)

(170,039)

(102,491)

Interest income

11.28

Interest expense

11.28

90,151

73,501

Income from investment

11.28

(83,698)

-

Movements in provision for impairment of receivables

11.13

(109,168)

(164,325)

Net movements in provisions

11.22

104,202

45,124

One-off profit from unbundling

11.5

(19,411,650)

-

(8,465)

-

Other non-cash movements Changes in working capital:

(13,338)

(22,169)

(1,316,134)

(48,849)

Trade and other payables, deferred revenues

1,944,586

331,780

Cash generated from operations

3,360,536

3,806,411

Inventories (gross)

Annual Report 2007

Trade and other receivables

96

Notes to the Financial Statements


In the cash flow statement, proceeds from sale of property, plant and equipment comprise: Year ended 31 December 2007

2006

Net book amount

47,056

3,618

Profit/(loss) on disposal of property, plant and equipment

19,308

19,915

Proceeds from disposal of property, plant and equipment

66,364

23,533

11.33 Related party transactions

c.

subsidiaries ƒ EEM, a.s., Žilina ƒ Metrológia EV, spol. s r.o., Žilina ƒ SSE CZ, s.r.o., Praha ƒ SSE – D, a.s., Žilina ƒ SSE – PPS, s.r.o.

d.

joint ventures in which the entity is a venturer ƒ Energotel, a.s. Bratislava ƒ SPX, s.r.o. Žilina

e.

key management personnel of the entity or its parent ƒ Members of the Board of Directors ƒ Members of the Supervisory Board ƒ Divisional directors

f.

state-controlled entities

Parties related to the Company include: the parent and ultimate parent ƒ EDF International ƒ Electricité de France

b.

entities under common control of EDF Group ƒ EDF Trading Limited, branch office ƒ EDF International distribution ƒ EDF Serect ƒ EnBW Service GmbH ƒ Entrade Slovakia, s.r.o. ƒ D-Energia Kereskedelmi KFT ƒ Energie Baden Wurttemberg, branch office ƒ Dalkia ČR, a.s. ƒ Everen SP.Z O.O. ƒ Démasz, AG. Szeged ƒ EDF Trading Limited London ƒ Atel Slovensko, s.r.o. Bratislava ƒ EDF Polska SP.Z O.O. Warszawa ƒ EDF – GDF DPRS-DSS-SMART ƒ EDF Centre Expertise Ré Seaux Sud Oue ƒ Emasz Miskolc

Poznámky Notes to thek účtovným Financial Statements výkazom

Price policy with related parties The significant transactions with related parties have been carried out based on contracts and under the arm’s length principle (usual business terms and conditions).

97

VýročnáReport Annual správa 2007

a.


Transactions and balances with related parties

cant transactions or had significant balances outstanding at 31 December 2007 are detailed below. At 31 December 2007, the outstanding balances with related parties were as follows:

The nature of the related party relationships for those related parties with whom the Company entered into signifi-

a

b

c

d

-

72,847

1,243,137

2,722

- loan to SSE-D

-

-

1,465,719

-

- cash-pooling receivable

-

-

232,007

-

- interests

-

-

16,341

-

- cash-pooling payable

-

-

(1,204,328)

-

- current financial liabilities

-

-

(1,587,820)

-

Trade and other payables

-

(64,331)

(547,368)

(48,993)

Sales of electricity

-

835,280

863,469

-

Revenue from services rendered

-

9

1,994,047

22,330

Rental income

-

217

5,979

2,069

Other revenue

-

-

201

-

Sale of raw material

-

-

475,585

-

Sale of property

-

-

37

-

Purchase of electricity

-

(632,093)

(172,419)

-

Purchase of raw materials and consumables

-

-

(10)

-

Services

-

(524)

(5,007,570)

(60,147)

Other costs

-

-

(1,542)

-

Interest income

-

-

35,920

-

Interest expense

-

-

(13,052)

-

-

83,698

-

Gross amount of trade receivables Gross amount of other receivables

Borrowings

The income and expense items with related parties for the year ended 31 December 2007 were as follows: a

b

Dividends income

The nature of the related party relationships for those related parties with whom the Company entered into significant transactions or had significant balances outstanding at 31

c

d

December 2006 are detailed below. At 31 December 2006, the outstanding balances with related parties were as follows:

a Gross amount of trade receivables

b

c

d

-

13,799

74,331

3,612

-

-

25,000

Gross amount of other receivables - loan to EEM

Annual Report 2007

Borrowings - cash-pooling payable

-

-

(187,869)

-

Trade and other payables

-

(39,693)

(28,904)

(334)

98

Notes to the Financial Statements


The income and expense items with related parties for the year ended 31 December 2006 were as follows: a

b

Sales of electricity

-

Revenue from services rendered Rental income

c

d

149,678

60,509

-

-

174

7,789

18,023

-

766

3,201

2,025

Other revenue

-

-

147

-

Sale of raw material

-

-

239,131

-

57

-

Purchase of electricity

-

(625,023)

(63,842)

-

Services

-

(1,755)

(195,651)

(19,956)

Interest income

-

-

1,108

-

Interest expense

-

-

(3,321)

-

Dividends income

-

-

-

825

Sale of property

The Government of the Slovak Republic has significant influence over the Company and is therefore its related party. Currently the Government of the Slovak Republic does not provide to the general public or entities under its influence a complete list of the entities which are owned or controlled directly or indirectly by the State. Under these circumstances the Management of the Company disclosed only information that its current internal management accounting system allows to present in relation to operations with statecontrolled entities and where the Management believes such entities could be considered as state-controlled based on its best knowledge.

to state-controlled entities, Management analysed the Company’s transactions with its largest customers and extracted balances and results of operations in relation to the following groups of entities which were included in the tables below: 1) 100% State subsidiaries and government bodies and 2) largest entities where the State controls over 50% of their share capital. These separate Financial statements disclose those transactions meeting the above criteria, where the annual turnover exceeds SKK 30 million or the open balances at year end exceed SKK 10 million. Transactions with government bodies and state-controlled entities are entered into in the normal course of business and priced at market rates. At 31 December 2007 and 31 December 2006, the outstanding balances with state-controlled entities and government bodies were as follows:

These separate Financial statements disclose operations with government bodies and entities, in which the government directly owns more than 50% of the share capital. In relation

31 December 2007

31 December 2006

Gross amount of trade receivables - SE and SEPS

81,634

16,339

- other companies

60,192

36,369

- government bonds

466,653

467,122

Impairment provisions for trade and other receivables at 31 December

(6,296)

(17,373)

(551,026)

(492,423)

-

-

Other receivables

- SE and SEPS - other companies

Poznámky Notes to thek účtovným Financial Statements výkazom

99

VýročnáReport Annual správa 2007

Trade and other payables


The income and expense items with state-controlled entities and government bodies were as follows: 2007

2006

717,281

101,970

1,593,006

1,429,357

Purchase of electricity and related fees - SE

(6,308,951)

(7,515,229)

- SEPS

(1,693,562)

(3,436,010)

-

-

22,500

22,500

Sales of electricity and related services - SE and SEPS - other companies

- other companies

Interest income from state bonds

SEPS a.s. (Slovak transit grid operator) is under common control by the Slovak Republic represented by the Ministry of Economy and National Property Fund. Slovak Republic (through Ministry of Economy National Property Fund) owns a 34% share on share capital and voting rights in General Meeting of SE (SlovenskĂŠ elektrĂĄrne, a.s.), the main Slovak electricity producer.

Key management compensation The structure of remuneration received by the directors and other members of statutory bodies in 2007 and in 2006:

Year ended 31 December Board of Directors and other key management

2007

Salaries and short-term employee benefits Royalties

2006

27,685

29,633

1,600

1,000

Post-employment benefits

-

-

Termination benefits

-

-

Other non-monetary income

1,314

1,120

Loans and advances received

-

-

-

-

30,599

31,753

Guaranties given Total

Year ended 31 December Supervisory Board

2007 5,970

13,337

Royalties

1,940

2,130

-

-

Post-employment benefits

-

-

Other non-monetary income

202

289

Loans and advances received

-

-

Guaranties given

-

-

8,112

15,756

Termination benefits

Annual Report 2007

2006

Salaries and short-term employee benefits

Total

100

Notes to the Financial Statements


101

VýročnáReport Annual správa 2007

Poznámky Notes to thek účtovným Financial Statements výkazom


SSE Anual Report 2007  

anual report

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