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2B, Ion Ionescu de la Brad Blvd., Floor 1, District 1, 013813 Bucharest
Fax: 0212 692 566E-mail: [email protected]
CEZ ROMANIA GROUP
CEZ Romania GroupAnnual Report 2007
CONTENTS
IntRoduCtIon - CEZ GRoup pREsEntAtIon 3
KEy FIGuREs 7
ImpoRtAnt EvEnts In 2007 9
Awards 10
Corporate social Responsibilty & sponsorships 11
CountRy mAnAGER’s LEttER to thE shAREshoLdERs 13
dIRECtoRs & oFFICERs 15
FInAnCIAL pERFoRmAnCE 23
Revenue, costs and earnings 23
the structure of the Assets 24
Liabilities and Equitiy 24
politicy of financial risk management 24
Litigations 25
the domestic electricity market 26
CompAnIEs’ pREsEntAtIon wIthIn CEZ RomAnIA GRoup 31
CEZ România 31
CEZ distribuţie 32
operation of distribution network 32
priorities in the distribution Activity 32
Capital Investments 32
Environment protection 33
structure of the shareholding 34
human Resources and social policy 34
CEZ vânzare 36
CEZ servicii 37
FInAnCIAL stAtEmEnts oF CEZ dIstRIbuţIE 39
Independet auditor report 39
Assets 40
shareholders’ equity and liabilities 40
Income statement 41
statement of Changes in Equity 42
Cash Flow statement 43
Corporate Information 44
significant Accounting policies 45
property, plant and Equipment 55
Intangible Assets 58
other Fnancial Assests 59
Inventories & trade Receivables 59
Receivablees from related parties 60
other Current & Financial Assests 60
Cash and Cash Equivalents 61
Equity 61
deferred Income 64
trade payables 64
short term Liabilities to Related parties 65
other Current Liabilities 65
provisions 66
sale and distribution of Electricity 68
other operating Revenues 68
purchased Electricity 69
materials and supplies 69
Repairs and maintenance 69
salaries, wages and other Employee benefits 70
depreciation, Amortization and Impairment Charge 70
Financial Income, net 70
other operational Expenses 71
Income taxes 71
Related parties 73
Key management personnel 75
number of Employees 76
Financial Risk management objectives and policies 76
Commitments and Contingencies 78
subsequent Events 79
oRGAnIZAtIon ChARts 80
GLossARy oF tERms And AbbREvIAtIons 83
mEthod usEd to CALCuLAtE KEy FIGuREs 83
InFoRmAtIon FoR shAREhoLdERs And InvEstoRs 84
pERsons REsponsIbLE FoR thE AnnuAL REpoRt 84
PREZENTARE CEZ VÂNZARE
markets with CEZ Group assets
CEZ Group presence
trading license
target markets
thE LEAdER In thE powER mARKEt oF CEntRAL And southEAstERn EuRopE
CEZ Group is a dynamic, integrated electricity conglomerate
based in the Czech Republic and with operations in a number
of countries of Central and Southeastern Europe. Its principal
businesses encompass generation, distribution, and sale of
electricity and heat as well as coal mining. The shares of the
parent company ČEZ, a.s. are traded in Prague and Warsaw,
and form a significant part of the stock exchange indexes
there. In the NTX index of the best Central European stocks,
compiled by the Vienna Stock Exchange and Erste Bank, the
shares of ČEZ, a.s. have the highest weighting. With its market
capitalization of CZK 738 billion, ČEZ, a.s. has become the
largest corporation in the entire region. The Czech Republic
continues to be the company’s largest shareholder with a 66%
stake as of 31 December 2007.
A critical part of CEZ Group’s mission is to maximize returns
and ensure long-term growth in shareholder value. To this
end, CEZ Group focuses its efforts on fulfilling the vision of
becoming the leader in the power market of Central and
Southeastern Europe.
opERAtIonAL ExCELLEnCE
In May 2007, CEZ Group officially completed VIZE 2008 - the
project that became the most extensive and most demanding
corporate transformation yet in the Czech Republic. The pro-
ject, whose goal was to separate, or “unbundle“, electricity
sales from electricity distribution and, at the same time, trans-
form CEZ Group into an integrated, process-driven player, was
completed earlier, with higher financial benefits and a broader
scope of operational improvements than was originally plan-
ned. The project’s cumulative benefits in the 2004-2007 pe-
riod compared to the reference year 2003 amount to nearly
CZK 12 billion.
A new Operational Excellence program was announced in
March 2007. It will build on the now-completed integration in
the first pillar of the CEZ Group strategic temple.
The aim of the program is to increase performance and impro-
ve the cost effectiveness of key processes in order to make
CEZ Group one of the most efficient players in the European
power industry by 2012. In order to flesh out the new program,
in 2007 we selected over 20 initiatives and launched seven
strategic projects focusing on key processes in electricity ge-
neration and distribution both in the Czech Republic and ab-
road - i.e., processes related to customer service and principal
ancillary processes. The overall benefits from the newly laun-
ched initiatives are expected to reach CZK 19 billion per year
compared to the reference year 2007, starting in 2012. More
initiatives will be added to the program as time goes on.
IntERnAtIonAL ExpAnsIon
Another part of the CEZ Group vision is to develop operations
beyond the borders of the Czech Republic. CEZ Group’s priority
focus is on markets in Central and Southeastern Europe, where
we can best employ our unique experience in managing an elec-
tricity conglomerate during a period of transition to a liberalized
01iNTrOduCTiON
3
power market and with achieving operational excellence.
Successful acquisitions in Poland, Bulgaria, and Romania have
opened up new markets for CEZ Group. The Group’s subsidi-
aries in Hungary, Serbia, and Slovakia have gained a solid fo-
othold in their respective markets. A joint venture engaged in
upgrading and expanding a generating plant has been started
in Republika Srpska in Bosnia and Herzegovina. ČEZ, a.s. is in-
tegrating new companies into the Group and implementing best
practices in both core and ancillary processes. We would like to
play a role in building the Cernavodă Nuclear Power Station in
Romania and we are participating in a tender being organized
next door in Bulgaria to find a strategic partner for construction
and operation of the Belene Nuclear Power Station. In late 2007,
ČEZ, a.s. and Hungary-based MOL agreed to set up a joint ven-
ture whose mission will be to build and operate combined cycle
power plants in oil refineries in Hungary and Slovakia. Both part-
ners will reap significant synergies from the cooperation. CEZ
Group is also actively seeking opportunities to leverage environ-
mental energy sources by building wind power plants.
pLAnt poRtFoLIo REnEwAL
The third pillar for achieving CEZ Group’s ambitious goal is
the renewal of our existing coal-fired power stations. Plant re-
newal commenced on 2 June 2007 with the launch of a com-
plete retrofit of the brown coal-fired Tušimice II Power Station
in the Czech Republic. A second project, the complete retrofit
of the Prunéřov II Power Station, has also been launched. In
addition, work is now underway in a third project - a new 660
MW brown coal-fired plant in the Ledvice Power Station - to
prepare the power station grounds for construction of what
will be the first supercritical unit in the Czech Republic.
Thanks to their increased efficiency, the retrofitted and new
coal-fired power stations will bring fuel savings of 15-25%
compared to the plants currently in use and contribute sub-
stantially to reducing CO2 emissions. CEZ Group has decided
to build new low-emission gas-fired power plants in the Czech
Republic as well. The preferred sites are Počerady and Úžín.
Plant renewal will also take place, in the form of a joint venture,
in the Republika Srpska in Bosnia and Herzegovina, and we
are also considering plants in Poland. CEZ Group is interested
in developing similar activities in the target territory of Central
and Southeastern Europe and is participating in tenders to-
ward this end. ČEZ, a.s. placed a bid in a tender for a strate-
gic partner for the planned construction of a new power plant
in Borzeşti as well as a tender to upgrade an existing power
plant and potentially build a new one in Galaţi, Romania.
CoRpoRAtE CuLtuRE
If CEZ Group is to continue to successfully fulfill its vision and
achieve its demanding goals, it will be important to reinforce a
corporate culture based on performance. That corporate cul-
ture is defined by seven principles - core values to be shared
by all employees of CEZ Group:
1. creating value safely - our highest priority is to create
value, while maintaining safety standards at all times,
2. responsibility for results - we are all personally responsi-
ble for the results achieved,
3. playing as one team - the actions of each of us must
bring benefit to the Group as a whole,
4. developing our potential - we work continually to im-
prove ourselves in both our professional and personal
lives,
5. growing beyond borders - we are engaged in building
an international organization,
6. seeking new solutions - we are open to change and we
accept better solutions,
7. playing fair - we are honest and loyal to our principles
and to society.
INTRODUCTION
CoRpoRAtE CItIZEnshIp And EnvIRonmEntAL pRotECtIon
CEZ Group’s business is governed by strict ethical standards
that include behaving responsibly toward society and the envi-
ronment. CEZ Group is a major supporter of a number of non-
profit organizations and public-benefit projects. In addition to
continually reducing the environmental impact of coal mining
and electricity generation and distribution, in March 2007 CEZ
Group announced its CO2 Reduction Action Plan, containing
among other initiatives a pledge to increase generation from
renewable sources of energy. CEZ Group is also actively se-
eking opportunities to invest in CO2 emission reduction pro-
jects in developing countries through the so-called “flexible
mechanisms” of the Kyoto Protocol.
AntICIpAtEd CommERCIAL And FInAnCIAL
sItuAtIon In 2008
CEZ Group anticipates the active measures in the Operational
Excellence program and ongoing growth in electricity demand
and prices in Central Europe will lead to further improvements
in performance.
Consolidated net income is expected to reach CZK 46.6 billion
(i.e. up 18% from 2007 - before adjusting for extraordinary
impacts), income before other income (expenses) and income
taxes, depreciation and amortization (EBITDA) is to be CZK
85.5 billion (up 16%), and EBIT is anticipated at CZK 63.5
billion (up 23%).
5
PREZENTARE CEZ VÂNZARE
02KEy figurES
CEZ ROMANIA GROUP
Indicator UM 2005 2006 2007
Employees headcount
as of December 31 Number 2,969 2,971 3,246
Revenues thousand RON 1,292,436 1,352,421 1,388,831
out of that: sold energy thousand RON 1,126,885 1,132,983 1,366,388
EBITDA thousand RON 166,949 246,047 245,951
EBIT thousand RON 65,582 143,130 141,486
net profit thousand RON 69,422 95,353 134,300
Return on the invested capital % 3.63 8.61 8.16
Total assets thousand RON 2,078,250 2,198,293 2,367,618
Equity thousand RON 1,599,117 1,728,721 1,863,003
Loans thousand RON 11,635 0 0
Loans, equity % 0,73 0 0
Investments thousand RON 103,265 208,792 220,479
Operating cash flow thousand RON 129,708 109,599 110,008
Selling area km2 41,828 41,828 41,828
Electricity sale GWh 4,145 3,852 4,306
Electricity distributed GWh 8,466 8,569 8,698
Total distribution services in region GWh 11,407 10,850 11,114
Eligible consumers GWh 53 397 695
Captive consumers GWh 4,023 3,048 2,939
Commercial GWh 2,945 2,274 2,479
Households GWh 1,077 1,171 1,155
Indicator UM 2005 2006 2007
Other sales GWh 69 407 672
Number of consumption points Number 1,394,321 1,369,873 1,365,661
Eligible consumers Number 392 135 492
Captive consumers Number 1,393,929 1,369,738 1,365,169
Commercial Number 96,301 83,368 81,096
Households Number 1,297,628 1,286,505 1,284,565
Peak load MW 992 1,292 972
Grid extention length km 50,321 50,792 50,301
of which: high voltage km 3,506 3,535 3,524
medium voltage km 19,640 19,624 19,652
low voltage km 27,175 27,633 27,125
Number of transformation points Number 9,985 10,089 10,043
of which: own Number 9,985 10,089 10,043
owned by third parties Number 0 0 0
Return on the invested capital (ROIC) % 3.63 8.61 8.16
Economic value added (EVA) thousand RON -56,800 -63,433 -35,802
Return on equity (ROE) % 5.17 5.73 7.48
Return on assets (ROA) % 3.76 4.46 5.88
EBIT margin % 5.07 10.58 10.19
Loans/ Equity % 0.73 0.00 0.00
Loans / EBITDA % 6.97 0.00 0.00
Current ratio % 224.08 258.90 282.99
Operating cash flow
to liabilities ratio % 27.07
23.3421.80
Turnover to total assets ratio 1 0.62 0.62 0.59
Coverage of non-current assets % 126.18 126.99 128.22
Extent of depreciation % 7.18 6.74 6.34
7
PREZENTARE CEZ VÂNZARE
yEAR 2007
JAnuARy
n IMO Concept is implemented and LIFE Project is
defined;
n IMO-LIFE Project is launched, having as main object
an assembly of restructuring measures in order to
increase the efficiency of CEZ Romania Group activity.
mARCh
n The unbundling (separation of distribution and supply
activities) is approved in the Shareholders Assembly of
Electrica Oltenia;
n On March 15, 2007, CEZ Distribuţie and CEZ Vânzare,
successors of DFEE Electrica Oltenia S.A., are
founded and registered at the Trade Registry;
n CEZ Vânzare became operational;
n CEZ România Group defines its business model;
n Meter Reading Department is insourced in CEZ
Romania.
mAy
n Performance Boost Initiative project is launched;
n CEZ Servicii company is founded on May 16, 2007.
JuLy
n Support services externalization is approved in the
Shareholders Assembly of CEZ Distribuţie: Financial,
Human Resources, Customer Care, Communication,
IT, Quality, Logistics, Purchasing, Transportation;
n The employees working within the above-mentioned
activities are transferred to CEZ Servicii and CEZ
România;
n GO LIFE for SAP-ERP system.
sEptEmbER
n The project of reorganization of CEZ Distribuţie is
launched. Starting 2008, it becomes PROGRES IV
project and will be approved through the Decision of
the Board of Directors no. 3/11.02.2008;
n The project proposes to deeply transform the structure
of the company, by changing the organizational model
at county level to an organizational model at region
level, with three regions: Oltenia North, Oltenia East
and Oltenia West. It will also bring a new approach of
the responsibilities repartition within the operational
divisions;
n The project will be finalized on December 31, 2009.
Its main objectives are: increasing the profitability of
the company, fulfilling the performance standards,
increasing the organizational efficiency and labor
productivity, standardization of procedures;
n CEZ Vânzare obtains the certification for Integration
Management System-Quality-Environment-Work,
Health and Safety
9
03impOrTaNT EvENTS
2007 - 2008
CEZ ROMANIA GROUP
novEmbER
n The restructuring process of Customer Care Division
in CEZ Servicii starts.
dECEmbER
n CEZ Distribuţie obtains the certification for Integration
Management System-Quality-Environment-Work
Health and Safety;
n PROGRES IV Project is defined. It will lead the entire
reorganization process of CEZ Distribuţie.
yEAR 2008
ApRIL
n CEZ Servicii optimizes the structure of Customer Care
Centers.
mAy
n CEZ Distribuţie implements the new organizational
structure starting with Asset Management department
REmARKAbLE suCCEssEs In 2007
wIthIn CEZ RomAnIA GRoup
1. Over 700 employees were transferred (almost 25%);
2. Almost 200 employees were insourced;
3. Three newly founded companies are relating within
CEZ Romania Group;
4. We were the first distribution company finalizing in
time the unbundling (separation of distribution and
supply activities);
5. All transferred activities became fully operational;
6. New SAP system was put into function in record time;
7. Over 5 million RON were registered as savings.
AwARds oF thE yEAR 2007
1. Excellency Distinction for placing in the Companies’
Top for three consecutive years- granted by the Cham-
ber of Commerce Oltenia - CEZ Distribuţie.
2. First Prize in the category of very big enterprises of
Companies’ Top 2006 - granted by the Chamber of
Commerce and Industry Oltenia - CEZ Distribuţie.
3. 32nd place in the Top of the biggest 100 companies
from Romania- granted by Fin Media and Economical
Shaping Romanian Center - CEZ Distribuţie.
ImPORTANT EVENTs
CEZ RomAnIA GRoup - spRonsoRshIps & CsR In 2007 Corporate social Responsibility
InvEstInG FoR thE FutuRE
1. UNITER sponsorship contract (Theatre Union in Romania)
Sustaining the printing in 1000 copies of Dragoş
Buhagiar exhibition catalogue - “Dreaming with
Open Eyes - The Surrealist Face of the World”. This
catalogue represented Romania at the 11th edition
of scenography and theatre architecture Quadrennial
from Prague. CEZ Romania was the main sponsor
together with the Ministry of Culture and Cults.
2. “Tudor Vladimirescu” University Association in Craiova
sponsorship contract
Sustaining the manifestation held with the occasion of
celebrating 60 years of existence of University in Craiova.
3. CEZ LIGHT DESIGN Award
CEZ Romania sponsors and juries the scenography
contest organized by UNITER and grants a special
award named CEZ LIGHT DESIGN, within an internati-
onal cultural competition.
CEZ - youR Good nEIGhbouR
4. Partnership between CEZ Romania Group and Piteşti
City Hall (local authority)
Grid extension for helping a family without electricity
network access. Subsequently to the extension, more
families will have the possibility of connecting to the
network.
ChAmpIons bREEd ChAmpIons
5. WASHI Children Karate Club in Craiova sponsorship
The Karate Club trains in a sport hall belonging to
CEZ Distribuţie. CEZ Romania Group sponsored the
members’ participation to the Finals of Karate National
Championship from Cluj.
REspECtFuL to nAtuRE, ConsIdERAtE to pEopLE
6. CEZ Tree - recycling in schools
It’s an educational program in Ramnicu Valcea. There
are some pilot schools where the children will recycle
the paper. The amounts obtained by selling this paper
will be used to plant trees in every school courtyard.
7. Recycling paper in CEZ Romania Group offices
All the employees of CEZ Romania Group will separa-
te the paper form the regular garbage and this paper
will be sold to recycling companies. The money will go
to a special found meant to help colleagues in need.
11
PREZENTARE CEZ VÂNZARE
dEAR shAREhoLdERs,
Hereby we present you the Annual Report which brings summary
of operational and financial performance of CEZ Romania Group
in year 2007. The results achieved could build your confidence
that our ambition to become a leader in electricity market of Sou-
theastern Europe is realistic and achievable. Romania is only one
piece of whole puzzle but CEZ Romania Group has contributed
well to the best CEZ Group results in the last 15 years ever.
Our effort in year 2007 was focused on three main targets:
economical performance, unbundling and integration, process
reengineering.
We have demonstrated a good economical performance by
posting EBITDA of 246 million RON and net profit of 134.3
million RON and thus made it by almost 2% better then budget
expectation for EBITDA and by 5% better then it was targeted
for the net profit in the budget.
We showed a good performance in distribution services and boo-
ked operating revenues of RON 1.6 billion and exceeded budget
by 18%. The sustained high level of economical performance al-
lowed us to continue with our ambitious program for investments
and we are ready to keep same philosophy for next coming years.
Very important trial for CEZ was the unbundling process driven
by EU Directive 54/2003 and Governmental Decision 890/2003
putting deadline on July 1st, 2007 for legal, accounting and
functional separation of regulated and non regulated business.
We satisfied all requirements prior to deadline and were men-
tioned as benchmark for this process. CEZ Distribuţie became
a successor of Electrica Oltenia S.A.; two new companies were
created, CEZ Vânzare as supply company and CEZ Servicii as
company providing selected shared services for all companies
within the group. CEZ Romania kept its role of holding and pro-
vider of corporate services for all holding business units. We
concentrated the best people of our group within the structure
of Project Life. Its main objective was to integrate all existing
and newly created activities aiming to limit harmful impact to
daily operational business on maximum. It would not be fair to
start to list all the achievements in last year because complete
list would require fair space. Nevertheless, successful unbun-
dling process, SAP implementation to its functional mode, pro-
gram of savings and process reengineering were the main hits
that we must be proud of. It’s a great deal of pleasure for me to
thank all our employees for their effort and very good orientation
and acceptance of new group order. My thanks belong also
to those shareholders who helped us bring company Electrica
Oltenia over this stage needed for our way to become respected
and successful company in Balkan.We have vision, we have
know-how, we have good dedicated people and we want to
have things realized. These factors are giving me the freedom
to promise you, dear shareholders, another interesting year of
2008 for CEZ Romania Group.
JAn vEšKRnA
Country manager of CEZ Romania
and Chairman of the board of directors
of CEZ România and CEZ distribuţie
13
04LETTEr Of mr. JaN vESKrNa
CEZ ROMANIA GROUP
PREZENTARE CEZ VÂNZARE
05dirECTOrS aNd OffiCErS
CEZ ROMANIA GROUP
15
JAn vEsKRnA (*1965)
president of CEZ Romania
president of the board of directors of CEZ Romania and CEZ distribuţie
In 1988, he graduated The University of Electricity in Brno, Microelectronic specializati-
on. After graduation and after carrying out the military training, in 1989 he started to work
as an engineer designer within the company CHEPOS Engineering & NBS in Brno, wi-
thin the group of design organization for the automation of the management processes
systems technology. In 1990 he completed the post graduation in France (EN Nancy SIC)
in chemical engineering (Diplôme degénie chemical).
During 1990 - 1995 he participated as an engineer designer, in building the following
“key” projects Central Refinery Iraq, Vacuum Distillation Unit Egypt Suez, Alumina Plant
Project of IRAN, Hydro treater Charge Heater Syria Homs, as well as an entire series of
investments in Czech Republic on energetic and petrochemical fields.
In 1996, as deputy technical director, he accepted the offer from ABB Comapany and
became general manager of the company ABB Power Plant Control, which will act under
the major shareholder, KWL Mannheim Company.
The activity of the company focused exclusively on the energy field, more precisely, has
provided systems command assembly for the power equipments and low energy, for the
internal and external markets- Iran, India, Germany, Austria, Poland, Russia, Netherlands,
Great Britain, Slovakia.
In 1999, Mr. Veškrna took over the position of commercial manager of the company DA-
LKIA, dealing with the marketing electricity, heat agent and service system.
As a former member of the strategic planning team, as well as member within the State
committee, in 2003 he took over the position of commercial manager and also became
member of the Administration Committee of Severomoravská energetika (North Moravia
Energetica S.A.), company that is part of CEZ Group. In 2004 he became the President
of the Administrative Board and General Manager of Středočeská energetická, (Czech
Central Energy S.A.), part of CEZ Group. In 2005 he started his activity at ČEZ, a.s. Coun-
try Manager for Romania.
DIRECTORs AND OFFICERs
LEon vRsKA (*1972)
Chief Financial officer of CEZ Romania
In 1995 he graduated the Faculty of Electrical Engineering within the
Technical University of Brno, Czech Republic, and in 1996 he graduated
the Faculty of Business at the same university. In 1996 he started his
career as a Auditor at Delloitte & Touche, Prague and since 1999 he
held the position of Financial Director at Dental. In 2001 worked as
Financial Director of the company Carborundum Electrite where he
managed the finance, human resources and IT departments. In 2007 he
came to Romania and became the Chief Financial Officer of CEZ
Romania.
mARtIn pACovsKý (* 1973)
Chief operational officer of CEZ Romania
He studied the Economic School in Prague, then graduated the
Faculty of Finance and Accounting in Prague; after that he received
the MBA (Master of Business Administration) at Rochester Institute of
Technology. Previous experience: Finance Manager for Eastern Europe
at LAUFEN CZ (sanitary tools production) and at DELTAS SYSTEMS,
then Finance Manager for the Czech Republic at NKT CABLES
(cables production). In March 2005 he joined CEZ Group for
the restructuring of Electrica Oltenia and held position of Chief
Financial Officer until 2007, when he became IMO Manager. In
2008 he was appointed Chief Operational Officer of CEZ Romania.
17
GAbRIEL nEGRILĂ (*1955)
General manager of CEZ distribuţie
In 1981, he graduated the Electro technical Faculty within the University of Timisoara, Energy
specialization. After graduation, he started as an engineer at Electric Networks Tirgu-Jiu, within the
Distribution Department of Targu-Jiu District. During 1983-1987 he held the position of Head of the
Operation Department and during 1987-1998 Head of the Supply Department. He worked within
the two most important activities of the company: the distribution and supply of electricity. During
this period he participated to professional training activities for the optimum repair department
(1984), but also to management training (1984, 1988, 1992, 1994, and 1999). During 1998-1999
he worked as a chief development engineer and in 1999 he became the chief of the distribution
department at SDFEE Târgu-Jiu, until 2001, when he was appointed within the leading team of
FDFEE Electrica Oltenia, as manager of the Technical Development Department. In 2003 he
was the manager of the implementation system of the integrated system SAP R/3 within Oltenia
branch. From May 23, 2005 to October 31, 2005 he returned to the position held within Targu Jiu
Branch, and on November 1, 2005 he became the General Manager of CEZ Distribuţie.
ŞtEFAn GhEoRGhE (*1955)
General manager of CEZ servicii
He graduated Bucharest Polytechnics, The Faculty of Energetic, and Electro-energetic
specialization, in 1981. In 1994 he receives the Doctor degree in Electro-energetic at
Bucharest Polytechnics; in 2004 he graduated the Master of Business Administration
within the University OPEN Business School in England. After graduation, he started his
activity as probation engineer within Electrical Networks Entreprise in Ploiesti. During
1997-2000 he held the position of manager for the Distribution and Supply branch in
Targoviste and then the Commercial Manager of Electrica Bucharest. During 2001-2004
he is the General Manager of Electrica Muntenia S.A. During 2004-2006 he was the
Manager of the National Project for implementing the new commercial administration
system of the clients for 5 branches of Electrica. After the implementation was finished,
in 2006 he came to CEZ Romania and, starting with 2007 he becomes the General
Manager of CEZ Servicii.
DIRECTORs AND OFFICERs
FRAntIsEK RERuChA (*1953)
the president of the board of directors of CEZ servicii
He graduated the Technical Mechanic Engineering University in Brno in 1981 and
right after that he started his activity at the Nuclear Power Station Dukovany. For
8 years he held the position of Assistant Manager for the Services and Human
Resources Department. He received the MBA certificate at The International Busi-
ness School in Prague. He held the position of Manager of the Board of Directors
within companies like: Energetika Vitkovice, ENPRO, etc. In 2007 he came to
Romania and became The Manager of the Shared Services Department within
CEZ Romania.
mIRELA dImA (1962)
General manager of CEZ vânzare
In 1986 she graduated Polytechnic University, Bucharest and received the Management
Certificate at Open University Business School - CODECS (Challenge management, Financial
Management, Public Relations Management, Human Resources Management). Along the
years she received the Management Degree- Open University Business School - CODECS
(the management of performance, the management of Change and project). Now she attends
the classes of the Open University Business School - MBA (Master Business Affairs). Starting
with March 17, 2007 she holds the position of General Manager for CEZ Vânzare. Until now,
Mirela Dima held the position of Project Manager SAP CIS for CEZ Romania, senior councilor
for the electricity supply at FDFEE Electrica Muntenia Sud, and from April 2005 until May 05,
2006 held the position of Chief of the Customer Care and Supply Department at FDFEE Elec-
trica Muntenia Sud, Chief of the Customer Care and Supply Department at SDFEE Bucureşti,
Chief Delivery Engineer at Electrica Muntenia Sud - Bucharest branch.
19
ALEs dAmm (*1966)
the president of the board of directors of CEZ vânzare
In 1988 he graduated the Economic University in Prague, The Faculty of Business Administration,
specialization Foreign Trade. From 1994 until 1996 he graduated the courses: Weekend Executive
MBA at the Management Czech Centre (affiliated to the University in Pittsburgh), Čelákovice, Total
Quality Awareness, PA Consulting, Marketing and Sales Motorola University, Executive Program
Management at Katz Graduate School of Business at University of Pittsburgh.
In April 2005 he started his activity on the electricity field at Středočeská energetická. Starting with
December 2005, he held the position of Energy Sales Manager at CEZ Romania, responsible with
all the commercial operations in CEZ acquisitions on the Romanian market. He is the member of
the Romanian team of CEZ, responsible for the sales and acquisitions within Electrica Oltenia, as
well as for the transformation of the energy delivery of the company in order to open the unbundling
market. From March 2007 until now he is the president of the Board of Directors of CEZ Vânzare.
othER mEmbERs oF bod:
vALEntIn dobREboard member CEZ distribuţie
dAn moREGAboard member CEZ vânzare
pAvEL duChonboard member CEZ servicii
CRIstI sAnduLEsCuboard member CEZ servicii
RAdu EnEboard member CEZ servicii
CoRnELIu stAnboard member CEZ servicii
DIRECTORs AND OFFICERs
AuRoRA ŞARbAnboard member CEZ servicii
Ion LunGuboard member CEZ vânzare
AdRIAn boRotEAboard member CEZ distribuţie
pEtRE pâRCĂLĂboIuboard member CEZ vânzare
doRu voICuboard member CEZ Româniaboard member CEZ vânzare
tudoR ŞERbAnboard member CEZ distribuţie
21
PREZENTARE CEZ VÂNZARE
REvEnuE, Costs And EARnInGs
In the year 2007, the companies within CEZ Romania had a
net profit of 134,300 thousand RON, growing compared to
the year 2006, when the net profit on group level was 95,353
thousand RON (95 203 thousand RON profit registered
by Electrica Oltenia and 150 thousand RON registered by
CEZ Romania). For the year 2007 was planned a net profit
amounted to 127,618 thousand RON for the companies in
Romania within CEZ Group.
Operational revenue increased in 2007, reaching 1,388,831
thousand RON, compared to the amount recorded in 2006,
namely 1,352,421 thousand RON, due to the revenues from
the sale and distribution of energy of CEZ Distribuţie and CEZ
Vânzare.
The operational costs have also increased in the year 2007
reaching 1,247,345 thousand RON, compared to the year
2006, valued at 1,209,291 thousand RON, mainly due to the
spending for the staff restructuring that took place in almost all
companies within CEZ Group, as well as due to the expenses
increasing for electricity purchase. Operating profit without
amortization (EBITDA) was higher than planned by 1,41%.
bRIEF FInAnCIAL InFoRmAtIon FoR thE yEARs 2006 - 2007
UM 2006 2007
total assets thousand Ron 2,198,293 2,367,618
Fixed assets thousand RON 1,526,937 1,647,757
Current assets thousand RON 671,356 719,861
total liabili-
ties
thousand Ron 2,198,293 2,367,618
Shareholder’s
equity
thousand RON 1,728,721 1,863,003
Total debts thousand RON 469,572 504,616
Operating
revenues
thousand RON 1,352,421 1,388,831
Operating
expenditures
thousand RON 1,209,291 1,247,345
Operating
results
thousand RON 143,130 141,486
Financial
result
thousand RON -5,499 13,092
Gross profit thousand RON 137,632 154,578
Income taxes thousand RON 42,279 20,278
Net profit thousand RON 95,353 134,300
Note: CEZ Trade Romania is not part of the consolidated Group
23
06fiNaNCiaL pErfOrmaNCE
CEZ ROMANIA GROUP
thE stRuCtuRE oF thE AssEts
At the end of 2007 the total assets was 2,367,618 thousand
RON, growing against the previous year - 2,198,293 thousand
RON (2,190,132 thousand RON, the value of the assets of
Electrica Oltenia and 8,161 thousand RON, the value of the
assets of CEZ Romania).
The tangible and intangible assets on group level increased in
2007 compared to the year 2006 by approximately 8%, in 2007
value reaching 1,647,592 thousand RON. A part of the assets in
CEZ Distribuţie were transferred to CEZ Vânzare on March 15,
2007, at the same time when the company was founded, and
others were sold to CEZ Servicii during September 2007.
In 2007, the value of the current assets was 719,861 thousand
RON, compared to 671,356 thousand RON in 2006, (664,256
thousand RON value recorded by CEZ Distribuţie and 7,100
thousand RON recorded by CEZ Romania). The debt grew
in 2007 in the detriment of cash and cash in bank which
have decreased in 2007 to 364,893 thousand RON, against
423,280 thousand RON. Main reason for increase are unpaid
receivables from CFR.
UM 2006 2007
Tangible and
intangible assetsthousand RON 1,523,383 1,647,592
Financial assets thousand RON 3,554 165
Current assets thousand RON 671,356 719,861
totAL 2,198,293 2,367,618
LIAbILItIEs And EQuIty
In 2007 the share capital of the company CEZ Distribuţie has
changed, due to transfer of the capital to the newly founded
company CEZ Vânzare. Thus, the share capital of the com-
pany CEZ Distribuţie was 799,033 thousand RON in 2006,
and 754,310 thousand RON at the end of 2007, registering a
44,723 thousand RON decrease.
In 2007 the share capital at group level increased to 805,633
thousand RON, compared to 799,533 thousand RON in 2006
(799,033 thousand RON, the share capital of CEZ Distribuţie
and 500 thousand RON, the share capital of CEZ Romania),
growth registered due to the establishment of the newly foun-
ded company CEZ Servicii.
UM 2006 2007
Share capital Th RON 799,533 805,633
Reserve and retained
earnings
Th RON 929,188 1,057,370
Liabilities and
deferred tax
Th RON 318,188 314,273
Provisions and
accruals
Th RON 151,384 190,343
total Th RON 2,198,293 2,367,618
mAnAGEmEnt poLICIEs oF thE FInAnCIAL RIsK
In 2007 the company completed the projects regarding the cen-
tralization and division of the financial services, as well as imple-
menting the new ERP and ISU software. For these projects, the
company was provided with the services of auditors and consul-
tants, most of them well known at the international level.
The financial debts of the company, other than derivatives,
comprise mainly the commercial debt. The company has nu-
merous financial assets such as trade receivables, cash and
cash equivalent and short-term deposits.
Other risks that significantly affect the results of the Company
are foreign exchange risk, credit risk, litigation and severance
payments for the dismissals of the employees.
The financial risk management policy is a major part of the
strategic management of the company. Its main objective is
to identify the risks and solve the problems related to financial
activities of the company, focusing on preventing and elimina-
ting any harmful influences.
the risk of currency exchange
Regarding the currency exchange risk, the company is addres-
sing the most suitable financial strategies, as the followings:
1. Passive approach: the level of certainty regarding the an-
ticipation of currency exchange rate is low and therefore
company may decide not to take any measure for a protec-
tion against this risk.
2. Active approach: the level of certainty regarding the antici-
pation of currency exchange rate is high and the company
decided to take measures in order to protect against cur-
rency exchange risk, as follows:
a) Anticipated Establishment of the rate exchange - the
FINANCIAL PERFORmANCE
25
company has the opportunity to establish in advance
the exchange rate that will be taken into consideration
for the exchange, both for sale and purchase.
b) The option of choosing the exchange rate - the com-
pany has the opportunity to acquire the entire or par-
tial protection against an unfavorable evolution of the
exchange rate and, at the same time, keep the oppor-
tunity to benefit from a favorable exchange rate.
The company is currently exposed to the risk of currency
exchange transactions through its transactions and its policy
is not to take measures to protect against this risk.
Credit Risk
The company is obliged to provide new consumers with elec-
tricity distribution services without checking their financial
situation. Against that risk, the company recorded provisions
according to the debts term. Regarding the corporate clients,
for whom there is a no clear evidence of paying its debts, the
bank guarantee is necessary.
For the eligible customers, the credit risk is assessed before
signing the contract. Uncertain clients are compensated by re-
gulating authority, which takes these costs into account when
setting the tarrifs.
Maximum exposure to credit risk is equal to the balance of
accounts receivables on December 31, 2007.
The cash is placed in financial institutions which are conside-
red to have the lowest risk level at the time of the deposit pro-
cess. The maximum exposure is equal to the amounts held in
these instruments.
the risk of liquidity
The policy of the company regarding the risk of liquidity is to
maintain liquidities in order to honor the obligations on due
date. The company monitors liquidity through regular budge-
tary process.
severance payments
According to the Collective Labor Agreement between the
trade unions and the company, the companies within CEZ
Group are obliged to severance payments to the dismissed
personnel pending, depending on the seniority, different from
one company to another.
For this reason, provisions were created.
LItIGAtIons
At the end of 2007, within the three companies of CEZ Gro-
up (CEZ Distribuţie, CEZ Vânzare si CEZ Servicii) there was
a number of approximately 2000 lawsuits litigations on legal
proceedings or execution.
CEZ Distribuţie won most of the litigations, having a number
of 1,900 briefs. CEZ Vânzare and CEZ Servicii own a smaller
number of litigations. CEZ Vânzare approximately 50 and CEZ
Servicii 10.
On the litigations that involve CEZ Distribuţie, the company is
both plaintiff and defendant.
The litigations that involve CEZ Distribuţie as defendant count
few hundreds and have as main object the demands for movi-
ng the pillars or transformers of CEZ Distribuţie located on the
grounds of different individuals or legal persons.
It is important to mention 3 important litigations due to the lar-
ge amount of money that is being required by the plaintiff,
namely the ones that involve, as plaintiff: S.C. Zaharul Calafat
S.A., S.C. Valnefer co S.A. and Preda Vasile.
For the litigations having as main object the recovering of the
claims for the delivery of electricity, the plaintiff is CEZ Distribu-
ţie. Individuals or legal persons hold the position of defendant.
It is important to mention that the largest debtor of CEZ Distri-
buţie for unpaid electricity invoices is S.N. CFR S.A. According
to the Governmental Decision no. 1007/2004 regarding the ap-
proval of the Electricity Supply Regulation, the company cannot
be disconnected even if it does not pay the invoices, because
is one of the consumers excepted from disconnection.
CEZ Vânzare has litigations with main object the recovery of
the claims for electricity supply after March 15, 2007 when
Electrica Oltenia was unbundled.
thE domEstIC ELECtRICIty mARKEt
Regulations in force:
The regulatory framework has been developed and harmoni-
zed in line with the EU legislation:
Energy Law no. 13/2007
ANRE Order no. 24/2004 - The Commercial Code of the who-
lesale electric power market;
ANRE Order no. 30/2005 regarding the functioning of the
wholesale electric power market;
ANRE Order no. 36/2005 regarding the functioning of the
wholesale electric power market;
ANRE Order no.11/2005 Methodology for establishment of the
regulated tariffs at the captive consumers of electric power;
ANRE Order no. 24/2005 Methodology for establishment of
prices and quantities of electric power sold by producers by
regulated contracts and of prices at thermal power supplied
from power stations with co-generation units, as modified by
Order 13/2006;
ANRE Order no. 25/2005 Regulations regarding the acquisi-
tion of electric power afferent to the own technological con-
sumption, in transport and distribution networks
Government Decision no. 958/2005 for establishment of the
system to promote electric power generated from renewable
sources of energy;
Government Decision no. 644/2005 regarding the opening of
the energy market;
ANRE Order no. 44/2005 - limitation of prices on the balan-
cing market;
ANRE Decision no. 1007/2006 procedure for adjustment of
quantities regulated by contracts concluded between produ-
cers and suppliers for captive consumers;
ANRE Order no. 61/2005 regarding the functioning rules ap-
plied to the wholesale electric power market;
ANRE Order 42/2005 Approval of Rules regarding the or-
ganized framework for trading bilateral contracts of electric
power;
ANRE Order no. 22/2006 Organization and functioning rules
for the green certificates’ market;
ANRE Order no. 37/2006 Adjustment of the obligatory quota
of green certificates acquisition by suppliers of electric power
for the year 2006;
ANRE Order 23/2006 - limitation of prices on the balancing
market;
ANRE Order 33/2006 - limitation of prices on the balancing
market;
ANRE Order no. 14/2007 Order for approval of Regulations
regarding the last resort supply of electric power
ANRE Order no. 15/2007 Order for appointment of last resort
suppliers of electric power for the period July 1st 2007-June
30th 2008
ANRE Order no. 19/2007 Approval of Methodology for establi-
shment, implementation and use of the technological service
of spare capacity system
ANRE Order no.. 20/2007 Approval of the Methodology for
establishment of tariffs for the system service
ANRE Order no. 21/2007 Approval of the framework Con-
tract for sale/purchase of technological system services be-
tween [The Supplier of technological system services] and the
transport and system operator
ANRE Order no. 28/2007 regarding approval of Performance
Standard for the electric power distribution service
ANRE Order no. 39/2007 Methodology for establishment of
tariffs at the electric power distribution service
ANRE Order no. 41/2007 Framework-Contract for running
the service of electric power transit from/to the countries wi-
thin the region through SEN, between [The transport and sys-
tem Operator] and [The Client]
ANRE Order no. 43/2007 Framework Contract for running the
service of electric power transit from/to the countries within
the region through SEN between [The transport and system
Operator] and [The Client]
ANRE Order no. 44/2007 Order regarding the establishment
of the way in which the electric power generated from renewa-
ble sources in production units qualified for priority producti-
on is traded.
ANRE Order no. 60/2007 for approval of the Methodology re-
garding the establishment of tariffs for the electric power trans-
port service. (it abrogates Order no. 42/2006)
ANRE Order no. 63/2007 regarding the adjustment of the
obligatory quota for acquisition of green certificates by suppli-
ers of electric power, for year 2007;
ANRE Order no. 61/2007 for approval of specific tariffs at the
electric power distribution service run by the main distribution
operators;
FINANCIAL PERFORmANCE
27
ANRE Order no. 64/2007 for approval of the average tariff for
the transport service, of the tariff for the system service, of the
tariff for the services run by the centralized markets’ operator
for the participants to the markets administered by it and of the
regional tariffs afferent to the transport system, practiced by
the economic operators within the electric power sector.;
ANRE Order no. 70/2007 for approval of the regulated tariffs
at the electric power supplied by the implicit suppliers and by
the suppliers of last resort to the captive consumers, others
than the household consumers and those assimilated to the
household consumers, and of tariffs for reactive energy;
ANRE Order no. 71/2007 Order made by ANRE President
no.. 71/2007 for approval of regulated tariffs at electric power
supplied by the implicit suppliers and by the suppliers of last
option to the household consumers and to those assimilated
to the household consumers.
REGuLAtoRy bodIEs In thE EnERGy sECtoR
The National Regulatory Authority in the Energy Sector (ANRE);
The National Regulatory Authority in the Communal Services
Sector (ANRSC);
The Ministry of Economy and Commerce/The Ministry of Eco-
nomy and Finances;
The Competition Council.
pARtICIpAnts to thE whoLEsALE mARKEt oF ELECtRIC powER
Producers of electric power
Suppliers of electric power
Distributors of electric power
The transport, system services and measurement operator -
C.N. Transelectrica S.A.
The electric power market operator - OPCOM S.A.
stRuCtuRE oF thE whoLEsALE mARKEt oF ELECtRIC powER
The electric power market of Romania is structured as per the
following specific markets:
The market of bilateral, regulated or negotiated market - ow-
ners of licenses are free to enter bilateral contracts for trading
electric power;
The Day-Ahead Market (PZU) is an organized market where
contracts are traded on daily basis, for each trading period
of the corresponding day of supply, based on the offers sent
by the participants; this market is administered by the market
operator, OPCOM;
The balancing market (PE) is a centralized market obligatory
for the electric power producers where the transport and sys-
tem operator buys and sells active electric power from and to
the participants on the market, to compensate the scheduled
deviations between the energy production and consumption;
The market of technological system services - is a centrali-
zed market using market mechanisms - tenders on specific
periods and/or bilateral contracts - just enough as to secure
the volume of technological system services available for the
transport system and distribution operator ;
The centralized market for allocation of international inter-lin-
king capacities - is a voluntary market organized by OTS; al-
location is done based on tenders, separately for the imports
done for periods of up to one year and separately for the tran-
sactions on the Day-Ahead Market.
The Green Certificates Market - a centralized market organi-
zed by OPCOM for trading the certificates issued to promote
the electric power generated from renewable sources.
The centralized market of bilateral contracts (PCCB), awarded
based on public tender - is a voluntary market, organized by
the market operator, where there are traded the contracts with
physical delivery of electric power, among the participants to
the market, based on some specific rules. Staring from 2007,
OPCOM has also organized a new platform PCCB - NC (con-
tracts on term).
stRuCtuRE oF ELECtRIC powER pRoduCtIon In RomAnIA And stRuCtuRE oF ELECtRIC powER ACQuIsItIon
Based on statistic data supplied by ANRE, CEZ Vanzare draws
the Electric Power Label representing the structure of electric
power purchased during the respective year:
ELECtRICIty LAbELsupplier: S.C. CEZ Vânzare S.A.phone: 0251 405454web site: www.cez.ro
Electricity supplyed to end users of s.C. CEZ vânZARE s.A. in 2007
Energy source s.C. CEZ vânzare s.A. Electricity production in Romania
Coal 54.26% 41.69%Nuclear 24.31% 13.10%Gas 7.02% 17.42%Oil 0.54% 1.11%
Other conventional sources 4.95% 0.89%
Renewable: 8.92% 25.80%Hydro 8.92% 25.80%Wind 0.00% 0.00%Biomass 0.00% 0.00%Solar 0.00% 0.00%Other 0.00% 0.00%
0 % of electicity sold by S.C. CEZ Vânzare S.A. is importedEmissions of Co2 and nuclear waste
Coal54.26%
Nuclear 24.31%
Gas7.02%
Oil 0.54%
Otherconventional
sources 4.95%Renewable
8.92%
Electricity supplied in 2007 was produced in the following sources
100%=average level for Romania
Emmisions of CO2 (700 g/kWh)
Environment impact above country average
Radioactive waste (0.0048621 g/kWh)
environment impact under country average
Norm EN - European Directive 2003/54/EC
HG 1007/2004 - Supply Regulation
24,31 123,61
FINANCIAL PERFORmANCE
29
pARtICIpAtIon oF ELECtRICA oLtEnIA And Its suCCEssoRs (CEZ dIstRIbutIE And CEZ vAnZARE) to thE EnERGy mARKEt
Electrica Oltenia participated to the wholesale electric power
market on the basis of its license for distribution and supply of
electric power, specifically the license nr. 457/29.04.2002 for
distribution of electric power and license nr.458/29.04.2002
for supply of electric power, awarded by A.N.R.E., respecting
the conditions set therein.
To be able to participate in the day-ahead market (PZU),
Electrica Oltenia registered itself at OPCOM starting with
01.07.2005, with participation bargain no. 5912/27.06.2005.
Participation of Electrica Oltenia S.A. to the centralized mar-
ket of bilateral contracts (PCCB), is accepted by Participati-
on Bargain no. 895/19.01.2006.
Participation to Green Certificate Market (PCCV) is accepted
by Participation Bargain no. 6074/05.05.2006.
Starting from 01.07.2005, the date of beginning transactions on
the Balancing Market, Electrica Oltenia S.A. has transferred the
responsibility of balancing to Electrica S.A. - Agent on Equilibra-
tion Market (PRE - part responsible with balancing).
Starting with March 15th, 2007, as result of the unbundling
process, the company was legally divided into CEZ Distri-
butie and CEZ Vanzare and the licenses were changed
accordingly: no. 457/2005 for distribution and no.
776/15.03.2007 for supply.
By ANRE Order no. 15/2007, CEZ Vanzare was assigned as
Supplier of Last Resort (SoLR) for the period 1 of July 2007
to 30 June 2008 for the consumers in the geographical area
of CEZ Distributie.
PREZENTARE CEZ VÂNZARE
31
07COmpaNiES prESENTaTiON
CEZ ROMANIA GROUP
shAREhoLdERs stRuCtuRE
ČEZ, a.s. Fondul
Proprietatea S.A. Electrica S.A
CEZ Distribuţie 51,0062159 30,0000004 18,9937837
CEZ Vânzare 51,0062159 30,0000004 18,9937837
CEZ Servicii 51 12 37
CEZ Romania 100 - -
CEZ Trade 100 - -
CEZ RomAnIA
CEZ Romania is the company that coordinates, in the name of
CEZ from Czech Republic, all the other companies within the
group in Romania: CEZ Distribuţie, CEZ Vânzare, CEZ Servicii
and CEZ Trade.
Starting with July 1, 2007, CEZ Romania incorporates the ser-
vices: Communication, Office Management, Corporate Affairs,
Business Development, Transport, IT and Shared Services.
Starting with November 1, it incorporated the services: Acquisi-
tions, Facility Management and Logistics. The implementation
of these services within the company CEZ Romania provided
many benefits such as: guarantee for the respect of the corpo-
rative identity, of the governing and offers specific instruments
to the ongoing corporative process.
CEZ Romania guarantees the vertical management. A distinct
management entity - CEZ Romania - means a consistent ap-
proach of the policies and strategies of CEZ Romania Group.
thE opERAtIon oF thE dIstRIbutIon nEtwoRK
In 2007, through the distribution network of CEZ Distribuţie there
has been transferred a volume of 12,344,810 MWh of electricity,
compared with the year 2006, 12,028,135 MWh. The peak load
was achieved on January 17, 2007 at 7 o’clock pm.
During August - November 2007, the operation of the distribu-
tion network under optimal conditions was affected by special
atmospheric phenomena which have led to numerous inci-
dents and faults within the network. Most of these incidents
and faults have been recorded (decreasing) in the networks of
20 kV and 0.4 kV to the Zonal Centres in Rm. Vâlcea, Drobeta
Turnu Severin, Alexandria, Slatina, Craiova, Piteşti, Târgu Jiu
(strong winds, floods and land sliding that produced destructi-
on of pillars, broken conductors and insulators.)
Weekly peak load diagram,
in CEZ Distributie distribution network (MWh/week)
The percentage loss in the network represents the difference
between the energy entered in the system (outline) and the
total energy distributed, measured as a percentage of energy
entered in outline.
The most important objective of the distribution activities are in-
creasing the safety in the electricity supply according to the con-
tracted parameters and reducing the tehnical network losses.
pRIoRItIEs In thE dIstRIbutIon ACtIvIty:
n Connecting new customers to the network;
n The transition from 6 kV power to 20kV;
n Elimination of double transformation;
n Reducing time interruption in the medium voltage
network (MV);
n Setting up remote control separators;
n Start realizing SCADA and developing SAD;
n Setting up the wire defectometers on medium voltage
cables (MV);
n Setting up numerical protection in the transformation
stations;
n Replacing the storage batteries in transformation stati-
ons with reduced maintenance storage batteries;
n Replacing the ceramic insulations from 110kV transfor-
mation stations bars with composite insulations;
n Replacing the VKLF(S) insulations with composite
insulations on 110kV aerial electric lines and ITFS and
ISNS on 20kV aerial electric network;
n Replacing horn arresters with metallic oxide made
arresters;
n Diagnosing the power transformers from transformati-
on stations;
n Expanding the tele-management system.
CApItAL InvEstmEnts
In 2007, CEZ Distribuţie had an investments program for
the distribution activity, financed from its own source, worth
208,819 thousand RON and putting in function 208,237
thousand RON.
n The investment achievements on 31.12.2007- 187,349
thousand RON
n Putting into function - 197,268 thousand RON
The main directions financed by these funds:
n The modernization of the electric network of low volta-
ge, 1195.8 km long and 48,967 connections
n The improvement of the voltage level of the
electric network of low voltage through setting 75
COmPANIEs PREsENTATION
CEZ Distribuţie - commercial outline
0
20.000
40.000
60.000
80.000
100.000
120.000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
[MW
h]
Weeks
33
new transformation posts, 7 of them for compact
transformation in outer cover.
n The modernization of the networks of medium voltage
for about 198,6 km of network and the installation of
15 reconnections and 13 remote control separators.
n the modernization of the network of high voltage,
201,3 km long.
n the modernization of 2 transformation stations, 13
supply points and 45 transformation posts.
In 2007 there has been put into function 355 works worth
193,695 thousand RON and endowments worth 3,574
thousand RON.
The main technical investments achieved and put into functi-
on in 2007 at CEZ Distribuţie have been:
1. The modernization of LEA 110kV Huşnicioara Motru,
Mehedinţi District - 2,026 thousand RON.
2. The modernization of PTA, network of low voltage and
subsequent connections PTA1, PTA2, PTA3, Gârla
Mare, Mehedinţi District - 1,790 thousand RON.
3. The modernization of Comani network of low voltage and
connections, Olt District - 1,774 thousand RON.
4. The modernization of Rusăneşti network of low voltage
and connections, Olt District - 2,134 thousand RON.
5. The modernization of PA GĂVANA - Hospital, Piteşti,
Argeş District - 1,126 thousand RON
6. The modernization of PA6 NORD, Piteşti, Argeş District
- 1,314 thousand RON.
Evolution of investments within distribution network
during the period 2005 - 2007
thE pRotECtIon oF thE EnvIRonmEnt
The policy regarding the protection of the environment is an
important part of the entire policy of the company, in line with
the provisions of a long lasting development and aims to:
n on short and medium term- reducing the negative im-
pact on environment for all the activities, according to
the legal demands in practice;
n on long term- achieving the higher standards regar-
ding the protection of the environment according to
the international demands.
n In order to achieve our objectives, in 2007 our activities
were focused on:
n forming, perfecting and stiring up the responsibility of
the employees regarding the knowledge, application
and fulfillment of the legal provisions and other rela-
ted demands regarding the environment;
n perfecting the management of the waste material
through its responsible sorting, removal under safe
conditions;
n identifying the operational intervention measures for
prevention or/and limitation of the negative effects on
the environment in case of incident, damage or disas-
ters;
n informing and training the employees in order to cre-
ate a culture of the environment, with a priority on
saving the natural resources: water, gas, electricity,
thermal energy, fuels.
The above mentioned actions have been reflected the annual
programs for management of environment. The inventory of
the condensers with PCB has been finalized. Until now, there
has been achieved the elimination of 19%, the rest following
to be eliminated until 2010.
The generated waste material in the company has been iden-
tified according to the provisions of the law in practice. It has
been collected and sorted on categories. The recycling or eli-
mination has been made by authorized companies, according
to the legal provisions in practice.
The construction/ fit up of the platforms for selective deposit
of the waste have been continued.
In 2007, the replacement of the opened batteries with capsu-
lated batteries has been continued.
The retention tanks of the transformers with oil leaks have
been repaired, and this action will continue permanently.
The replacement of the insulation has been made in order to
protect the birds.
In order to reduce the visual impact, the equipments and pil-
lars have been painted.
187,349
2005
2006
2007
181,469
91,059
COmPANIEs PREsENTATION
Because of the natural phenomena, there have been made
certain consolidation works on water borders on the electrical
course where sliding has been noticed, as well as the recovery
of the pillars bases, of the courses and equipments, recon-
struction and recuperation of the grounds.
CEZ Distribuţie pays great attention to conserving the flora
and fauna.
The monitor and construction of stork nests, the deforesting
where electrical lines are installed have been continued, in or-
der to prevent forest fire; the ground around the station has
been arranged.
The actions for stirring up the responsibility of the employees
have been intensified.
In order to limit the impact of the accidents or damage on
the environment, simulation and training exercises have been
made for the entire personnel.
In order to stir up the responsibility of the employees of CEZ
regarding a good administration of the natural resources - wa-
ter, gas, electricity etc, training and specific programs of mea-
sures have been achieved.
Therefore, the transports, the maintenance of the water or ener-
gy equipment, the increase of the thermal isolation level have
been optimized and the action will continue in the future.
In 2007, as a proof of a good functioning of the environmental
management system, the contract as a SRAC company has
been renewed.
There has been no accidental pollution and no special proble-
ms regarding the protection of the environment happened.
The references and notifications from the Agencies for envi-
ronment protection and the National Administration of Water
will be received for projects.
One of our goals is to follow and achieve the plan of replacing
the roofs made of asbestos, in order to completely eliminate
the danger of accidental pollution.
The opened batteries will be completely replaced with the
capsulated batteries.
The reservoirs will be permanently checked, they will be repla-
ced if needed, or they will be removed through connecting to
the sewerage system.
thE stRuCtuRE oF thE shAREhoLdInG
At the beginning of 2007, CEZ Distribuţie had a share capital
subscribed and deposited, worth 799,033 thousand RON and
71,523,469 shares.
During the year 2007, the value of the share capital has been
modified after finishing the unbundling process and after the
founding of the two companies, CEZ Distribuţie and CEZ
Vânzare. The company CEZ Distribuţie got a share capital of
675,181.55 RON for the same number of shares.
Regarding the structure of the shareholding, it has been mo-
dified through the transfer of 12.874.225 shares by Electrica in
June 2007 to The Propriety Fund according to OUG 81/2007
and through the fusion of the shareholders Zapadoceska Ene-
regetika, a.s, Severomoravska Eneregetika, a.s. and Vychodo-
ceska Eneregetika, a.s. within CEZ.
Following these transformations, the structure of the share-
holding of CEZ Distribuţie on December 31, 2007 is the fol-
lowing (the value of the share capital is calculated according
to the bookkeeping standards in Romania and with the Trade
Register)
Shareholder Shares %value
(thousand RON)
ČEZ, a.s. 36,481,415 51% 384,745
Electrica S.A. 13,585,013 19% 143,272
Fondul Proprietatea S.A.
21,457,041 30% 226,293
total 71,523,469 100% 754,310
humAn REsouRCEs And soCIAL poLICy
the culture of the company -
principles and achievements
CEZ Distribuţie, as a member of CEZ Group, has an organiza-
tional culture focused on high achievements, as the main con-
dition for all the initiatives of the company and it is based on
the following principles: the creation of the value represents a
priority; encourage the individual responsibility in achieving
notable results; the development of the human resources; em-
brace a continuous process of change.
Comments regarding the working activities
and the social policy
According to the provisions of CLA (Collective Labor Agree-
ment) applicable at the level of CEZ Distribuţie, registered to
The Work and Social Solidarity and Family Authority in Dolj no.
35
144/13882/28.09.2005, the applied tariff rate is time excise.
The income rights of the employees refers to a monthly wage
according to the income graphic (years of seniority, years of
seniority within Electrica, isolation conditions, work provided
during spare days, stand by system, night shifts, systematic
working after hours, supplementary position, leading the wor-
king team, indemnity for leading position).
In 2007, CEZ Distribuţie separated the regulated and unregu-
lated activities on the energetic market, process imposed by
the European Union, followed by the separation of the services
that determined changes regarding the number and structure
of the employees.
Therefore, on March 15, 2007, when Electrica Oltenia became
CEZ Distribuţie and at the same time CEZ Vânzare was foun-
ded, 25 employees were transferred from CEZ Distribuţie to
CEZ Vânzare; at the end of the year 2007, the number of em-
ployees that have been transferred to CEZ Vânzare reached a
number of 33 persons.
Starting with 01.06.2007, a number of 576 employees ceased
their activity for CEZ Distribuţie and moved to CEZ Servicii,
and 95 to CEZ Romania.
In 2007, other 97 persons have been employed, 65 of them
with working contract, and the others on working contract for
a determined period during April within the customer service
department. At that time the Customer Service Department
was a part of CEZ Distribuţie.
In order to diminish the social consequences of reducing the
number of the employees, the measures taken into conside-
ration are developed in the future: the severance payment for
the employees according to CLA; additional payments besi-
des the ones provided by CLA;
In conclusion, CEZ Distribuţie provides the fact that the admi-
nistration will achieve these changes, paying attention to the
individual situations of the employees. CEZ Distribuţie will to-
tally respect the CLA and the Romanian law in force.
In 2007 there have been expenses for the social cultural and
sports activities worth 1,126 thousand RON; according to the
law in practice, in 2007 the employees were offered food vou-
chers worth 4,206 thousand RON. In order to spend their an-
nual holidays as pleasant as possible, in 2007, the employees
of CEZ Distribuţie were provided with bonuses worth 6,754
thousand RON.
Regarding the professional training of the employees of CEZ
Distribuţie, the main targets of the professional training policy
are the following: to allow the employees to adapt to the chan-
ges determined by privatization; to facilitate the assimilation of
the demands on the new job within the company: knowledge,
behavior, abilities, aptitudes, the improvement of the commu-
nication skills, preparing the changes.
CEZ Distribuţie will support the employees to establish toge-
ther the individual plans for professional development in order
to increase the individual high standards, as well as for increa-
sing the entire value of the company.
the educational program within the company
The increase of the efficiency on activity, as well as of the qua-
lity of services in distributing the electric energy can be achie-
ved through the education and training of the employees, thro-
ugh changing their attitude, their mentality and their behavior.
the relation with the trade unions
Within CEZ Distribuţie there are 8 basic organizations of the
trade unions, all of them affiliated to The National Univers Fe-
deration and to the Federation energy of the third millennium.
Over 95% of the employees are members of the trade uni-
ons.
The trade unions have the duty
to negotiate with CEZ Distribuţie:
n the wages and other material rights of the employees
n the working hours and holidays
n the working conditions and protection
n professional training
n provisions of CLA
n other rights and obligations regarding the working relations.
COmPANIEs PREsENTATION
CEZ Vânzare, member of CEZ Romania Group, is a company
with a mixt capital that works within the electric energy supply
field. The company is the result of the unbundling of SCDFEE
Electrica Oltenia S.A. (the largest national company for electric
energy distribution and supply, according to the number of
the clients served, that became private in 2005, after the ta-
king over of the majority shares by the energetic holding CEZ
Group) on March 15, 2007.
CEZ Vânzare has a determined goal in Romania - to become
the leader on the supply market. The mission of the company
is to completely meet the clients’ demands by selling energe-
tic products and services on a high basis.
In order to achieve that, CEZ Vânzare team focuses on identi-
fying the concepts of the clients’ value and on efficient delivery
of suitable offers for increasing the profit.
One of the main characteristics of the company is the flexi-
bility. This allows a good concentration on the client and its
demands. CEZ Vânzare is proud to have a team of professi-
onals. The entire personnel is highly qualified and has great
experience in solving the electricity supply problems, as well
as in completing analyses and assisting any issue regarding
the electric field.
CEZ Vânzare:
n anticipates the demands of the customers and treats
them properly in order to provide maximum satisfaction.
n it is involved in providing services and products that conti-
nuously offer valuable balance between price and quality
n provides support and assistance on the energetic field
n secures the increase of the energetic efficiency.
That is why this year too we intend to be present wherever
there are consumers need high quality energetic services.
CEZ Vânzare offers a package of services in order to make
the activity of its partners as efficient as possible.
Here are only few of the advantages that we offer:
n Key account managers are established for individuals
consumers, with a 24 hours and seven days a week avai-
lability to discuss all the demands of the customers.
n CEZ Vânzare combines the tradition of Electrica Oltenia
and CEZ experience on the liberalized markets.
n The client is in the center of our attention; we identify its
demands and respond with the most valuable techno-
logical solutions.
CEZ Vânzare provides its clients with:
n information regarding the measuring data of the suppli-
ed electricity
n presents the recordings regarding the prognosis and
the expenditure of (electric) energy
n invoices the supplied electricity
n access to the distribution/ transport electric network,
solving the steps for obtaining it.
n follows the evolution of the expenditure of electric ener-
gy of its clients in order to achieve an efficient activity
on energetic assistance.
Starting with September 2007, the new data system (SAP - Uti-
lity Integrated System) administrates all these activities. This
system provides fast information and flexibility according to
the highest European standards.
Therefore, CEZ Vânzare is a serious partner; with experience
and power on the European level that can provide the services
that the client really needs so that for the electric energy would
not become incertitude within the development.
The turnover for the year 2007 was 995,880 thousand RON.
Timisoara
Arad
Oradea
Satu Mare
Alba lulia
Bistrita
Tîrgu Jiu
Deva
Drobeta -Turnu
Seve rin
Suceava
Botosani
Iasi
Vaslui
Sibiu
Zalau
Miercurea Ciuc
Rîmnicu Vîlcea
Brasov
Pitesti
Sfîntu Gheorghe
Slatina
Focsani
Galati
Buzau
Ploiesti
Slobozia
Calarasi
Giurgiu
Alexandria
Braila
Tirgoviste
Tulcea
Tîrgu Mures
Piatra Neamt
Bacau
Resita
Baia Mare
Cluj -Napoca
ConstantaCraiova
Bucuresti
37
CEZ Servicii was established on May 17, 2007 and it is the
newest company within CEZ Romania Group. The company
became fully operational starting with July 1, 2007.
The shareholding of the company has the following structure: ČEZ,
a.s. 51%, Electrica S.A. 37% and the Property Fund 12%. At founding,
the share capital of the company was 6,100,000 RON. According to
the European Directive 2003/54/EC, founded as a consequence
of implementing the concept of unbundling, the activities registered
in 2007 within CEZ Servicii from CEZ Distribuţie were the following:
shared services (for CEZ Romania, CEZ Distribuţie, CEZ Vânzare,
CEZ Trade Romania) - human resources; finance, processing boo-
kkeeping data, controlling; IT, telecommunication - customer ser-
vices (for CEZ Distribuţie and CEZ Vânzare).
the relations among the companies within
CEZ Romania Group - Customer services
the relations among the companies within
CEZ Romania Group - support services
The year 2007 has been the year of the establishment of CEZ
Servicii, but also the year when the employees participated to
the implementation of the projects for transforming the com-
panies within CEZ Romania Group into profitable companies.
Through transferring the activities to CEZ Servicii the demands
of the European Directive have been achieved and the functio-
ning of the activities became possible. The corporate activities
have been centralized, and the activities for client service have
been restructured, invoice and claim department have been
centralized and Customer Relationship Centre have been
optimized, after implementing the management data systems-
SAP ERP and SAP ISU. Through these measures, the produc-
tivity of the company has been increased.
The setting on the straight line with the approved operational
types, the increase of the quality of the services provided to
the companies within CEZ Romania Group and the achieve-
ment of the higher activity standards represented the most
important objectives of the year 2007.
The consolidation of CEZ Servicii in the years that follow and
significant contributions to the consolidated profit of the com-
panies within CEZ Romania Group represent the major objec-
tives of the management on short and medium term.
The human resource of the companies of CEZ Romania Gro-
up, their most important asset, is administrated by CEZ Ser-
vicii.
Personnel Administration Department provides services for
more than 3000 employees.
Career Management Department assures the development of
the employees’ knowledge in order to prepare them for the
changes taking place in the companies.
The payroll activity for the employees of all the companies is
provided by a sole department from CEZ Servicii, using SAP
HR system already implemented.
The employees from the Human Resources Division in CEZ
Servicii are actively taking part in the implementation of all the
transformations /restructuring / reorganization projects.
CEZ Servicii, through the Financial Division provides data
processing, taxes, treasury and controlling services for all the
companies of CEZ Romania Group.
The shared financial services, organized by the model of the
international best practices and using the integrated system
SAP offers quality services based on unitary procedures, in ac-
cordance with the Romanian legislation, thus giving the sha-
reholders the possibility to use the resources for achieving the
strategic objectives. The ICT – End Users activities unrolled in
CEZ Servicii are aligned to the group’s strategy and are based
on the acquisition of infrastructure access services, system
and telephone exchanges from CEZ Romania and on ICT-End
User activities (ICT equipment installation, ICT maintenance)
for all the companies of CEZ Romania Group.
ICT – End User activity unrolled in CEZ Servicii, uses the fol-
lowing equipments’ structure:
Total amount of ICT equipment is 5.231.639 RON. 13% of this
equipment is new. Total amount of ICT equipment includes
50% PC & Laptop`s and 11 % printers.
Responsabiliăţi rezultate din licenţă şi metodologia de Servicii clienţi; Servicii pentru toţi clienţii mari şi eligibili.
Operatorul Sistemului de Distribuţie Distribuţia de electricitate - tuturor consumatorilor Servicii de exploatare şi întreruperi Montări şi demontări de contoare Conectări, deconectări, consumatori frauduloase
În numele companiei CEZ Distribuţie: Citirea contoarelor pentru toţi
consumatorii protejaţi
CEZVânzare
Grupul CEZRomânia
ClientCEZ ServiciiServiciul Clienţi
Pe cont propriuPe numele altora
CEZDistribuţie
CEZVânzare
CEZTrade
Grupul CEZRomânia
CEZ ServiciiServiciul Clienţi
CEZDistribuţie
Pe cont propriuContractul de Management
IT (nonSAP) Management Centru date Administrare reţea IT Servicii suport IT
Servicii Financiar & Contabilitate Contabilitate Trezorerie Control
Servicii Resurse Umane-Salarizare Administrare personal Managementul carierei Salariazare
PERFORmANŢE FINANCIARE
08fiNaNCiaL STaTEmENTS
to thE shAREhoLdERs oF CEZ
We have audited the accompanying financial statements of
CEZ Distribuţie (“the Company”), which comprise the balance
sheet as at December 31, 2007 and the income statement,
statement of changes in equity and cash flow statement for the
period then ended, and a summary of significant accounting
policies and other explanatory notes.
mAnAGEmEnt’s REsponsIbILIty FoR thE FInAnCIAL stAtEmEnts
Management is responsible for the preparation and fair pre-
sentation of these financial statements in accordance with In-
ternational Financial Reporting Standards. This responsibility
includes: designing, implementing and maintaining internal
control relevant to the preparation and fair presentation of fi-
nancial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appro-
priate accounting policies; and making accounting estimates
that are reasonable in the circumstances.
AudItoRs’ REsponsIbILIty
Our responsibility is to express an opinion on these financi-
al 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 assuran-
ce whether the financial statements are free from material mis-
statement.
An audit involves performing procedures to obtain audit evi-
dence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors’
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 consi-
ders internal control relevant to the entity’s preparation and
fair presentation of the financial statements in order to design
audit procedures that are appropriate for the circumstances,
but not for the purpose of expressing an opinion on the effec-
tiveness 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 ma-
nagement, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is suffici-
ent and appropriate to provide a basis for our audit opinion.
opInIon
In our opinion the financial statements present fairly, in all
material respects, the financial position of the Company as of
December 31, 2007, and of its financial performance and its
cash flows for the period then ended in accordance with Inter-
national Financial Reporting Standards.
May 26, 2008, Bucharest, Romania
Ernst & Young S.R.L.
39
Notes December
31, 2007
December
31, 2006
AssEts
non-current Assets
Property, plant and equipment 3 1,639,304 1,517,977
Intangible assets 4 2,029 4,345
Other financial assets 5 154 3,554
total non-Current Assets 1,641,487 1,525,876
Current Assets
Inventories 6 5,619 3,992
Trade receivables 7 58,329 233,116
Receivables from related parties 8, 28 308,355 5,249
Other current assets 9 9,403 7,237
Other financial assets 10 2,898 5,471
Cash and cash equivalents 11 253,636 411,850
total Current Assets 638,240 666,915
totAL AssEts 2,279,727 2,192,791
shAREhoLdERs’ EQuIty And LIAbILItIEs
shareholders’ Equity
Share capital 12 754,310 799,033
Share premium 12 114,095 114,095
Contributions for share capital increase 929 929
Revaluation reserve 12 563,368 571,216
Retained earnings 12 379,062 201,541
Other reserves 12 18,515 41,273
total shareholders’ Equity 1,830,279 1,728,087
Notes December
31, 2007
December
31, 2006
Liabilities
non-current Liabilities
Deferred income 13 182,833 151,384
Deferred income tax liability 27 23,970 28,722
Other non-current liabilities - 2,530
Provisions for retirement benefits - non-current 17 35,643 27,629
Total Non-current Liabilities 242,446 210,265
Current Liabilities
Trade payables 14 51,718 138,340
Short term liabilities to related parties 15, 28 89,675 25,135
Current income tax liability 4,617 10,674
Other current liabilities 16 15,352 19,827
Provisions for retirement benefits - current 17 2,237 4,841
Other provisions 17 43,403 55,622
total Current Liabilities 207,002 254,439
totAL LIAbILItIEs 449,448 464,704
totAL shAREhoLdER’s EQuIty
And LIAbILItIEs
2,279,727 2,192,791
FINANCIAL sTATEmENTs
Notes December
31, 2007
December
31, 2006
Revenues
Sales and distribution of electricity 18 873,419 1,285,641
Other operating revenues 19 69,970 63,264
total revenues 943,389 1,348,905
Expenses
Electricity purchased 20 388,239 793,134
Materials and supplies 21 6,572 10,511
Repairs and maintenance 22 74,124 102,692
Salaries, wages and other employee benefits 23 96,270 93,394
Depreciation, amortization and impairment charge 24 103,139 102,681
Financial income, net 25 (7,666) 5,609
Other operational expenses 26 116,973 103,468
total expenses 777,651 1,211,489
profit before income tax 165,738 137,416
Income tax expense / (income) 27 17,373 42,213
profit for the year 148,365 95,203
These financial statements have been authorized for issue on May 26, 2008.
The accompanying notes are an integral part of these financial statements.
iNCOmE STaTEmENT
Gabriel negrilă
General Manager
41
Share
capital
Share
premium
Contribution
for share
capital
increase
Revaluation
reserve
Other
reserves
Retained
earnings
Total
balance as at January 1, 2006 (note 12) 799,033 114,095 929 542,410 30,893 111,757 1,599,117
Increase of the legal reserve (Note 12) - - - - 6,171 (6,171) -
Reversal of reserve for investments (Note 12) - - - - (26,846) 26,846 -
Reserve for investments for 2006 (Note 12) 31,055 (31,055) -
Reversal of revaluation surplus (Notes 3, 12) - - - (4,961) - 4,961 -
Deferred income tax impact on revaluation reserves (Notes 12, 27) - - - 33,767 - - 33,767
Profit for the year - - - - - 95,203 95,203
balance as at december 31, 2006 799,033 114,095 929 571,216 41,273 201,541 1,728,087
Share capital decrease (Note 12) (44,723) 4,670 (40,053)
Increase of the legal reserve (Note 12) 8,297 (8,297) -
Reserve for investments for 2006 (Note 12) (31,055) 31,055 -
Reversal of revaluation surplus (Notes 3, 12) (1,728) 1,728 -
Deferred income tax impact on revaluation reserves (Notes 12, 27) (6,120) (6,120)
Profit for the year 148,365 148,365
balance as at december 31, 2007 754,310 114,095 929 563,368 18,515 379,062 1,830,279
The accompanying notes are an integral part of these financial statements.
STaTEmENT Of CHaNgES iN EQuiTy
FINANCIAL sTATEmENTs
Notes December 31, 2007
December 31, 2006
Cash flows from operating activities
Profit before income tax 165,738 137,416
Adjustments to reconcile profit before income tax to net cash provided by operating activities:
Depreciation, amortization and impairment 24 103,139 102,681
Loss on disposal of property, plant and equipment
26 (1,637) 1,357
Income from subsidies 19 (7,429) (4,855)
Allowance for doubtful debtors 27,710 34,604
Write down of other current assets (10) 83
Provisions for risks and charges (6,809) 12,477
Interest revenue, net 25 (14,421) (19,352)
100,543 126,995
working capital adjustments:
Decrease / (Increase) in other financial assets 5,972 (4,527)
Increase in inventories (1,627) (607)
Decrease/(Increase) in receivables 147,077 (73,726)
Increase in receivables from related parties (303,106) (4,643)
Increase in other assets (2,156) (2,034)
(Decrease)/Increase in trade payables (86,622) 52,739
(Decrease)/Increase in liabilities to related parties
64,540 (83,264)
Decrease in other liabilities (7,005) (16,325)
Cash generated from operations 83,354 132,024
Notes December 31, 2007
December 31, 2006
Interest paid 25 - (327)
Income tax paid (34,301) (24,129)
net cash provided by operating activities 49,053 107,568
Cash flows from investing activities
Acquisition of property, plant and equipment, net
(220,304) (218,221)
Acquisition of intangible assets, net (207) (1,588)
Interest received 25 14,421 19,679
net cash used in investing activities (206,090) (200,130)
Cash flows from financing activities
Proceeds from issue of shares - -
Share capital decrease 12 (40,053) -
Subsidies received 38,876 40,626
net cash provided by financing activities (1,177) 40,626
net increase in cash and cash equivalents (158,214) (51,936)
Cash and cash equivalents at beginning of period
11 411,850 463,786
Cash and cash equivalents at end of period 11 253,636 411,850
CaSH fLOW STaTEmENT
43
CEZ Distribuţie (“the Company”), formerly Filiala de Distribu-
ţie și Furnizare a Energiei Electrice Electrica Oltenia S.A., is
a joint stock company domiciled in Romania. The principal
place of business is Brestei Street no. 2, Craiova, Romania.
The Company’s registered address is Brestei Street no. 44,
Craiova, Romania.
The Company is the main distributor of electricity in Olt, Dolj,
Gorj, Valcea, Arges, Mehedinti and Teleorman counties ope-
rating with 232 conversion stations 10,043 transformation po-
ints and electric lines (0.4 kV and 110 kV) having a total length
of 54 thousand kilometres.
The Company’s activities are regulated by the National Autho-
rity for Electricity Sector Regulation (“ANRE”). The acquisition
price paid to the electricity producers, which are owned by
the State, for the electricity received from the National Elec-
tricity System, as well as the electricity distribution tariffs and
the electricity supply tariffs are not exclusively influenced by
Company’s decisions, but they are regulated by ANRE.
Before September 30, 2005, Electrica S.A. was a State owned
company, and the State was 100% shareholder of the Com-
pany. Since September 30, 2005, ČEZ, a.s. became the ma-
jority shareholder (51%) of the Company, and Electrica S.A.
retained 49%.
As a subsidiary of ČEZ, a.s., a company domiciled in the Cze-
ch Republic with registered address at Duhová 2/1444, Praha
4, 140 53, Czech Republic. The Company is consolidated into
ČEZ, a.s. since October 1, 2005.
As a result of the Shareholder’s General Assembly Decision
dated September 7, 2006, the shareholding structure chan-
ged and ČEZ, a.s. sold to ZAPADOCESKA ENERGETIKA a.s,
SEVEROMORAVSKA ENERGETIKA a.s., and VYCHODOCES-
KA ENERGETIKA a.s. 3 shares, one share to each entity.
According to Law 247/2005, in October 2006 12% (8,582,816)
of the Company’s shares, currently held by Electrica S.A., were
transferred to Fondul Proprietatea S.A.
During 2007, ZAPADOCESKA ENERGETIKA a.s, SEVE-
ROMORAVSKA ENERGETIKA a.s. and VYCHODOCESKA
ENERGETIKA a.s were absorbed by CEZ as.
According to Government Ordinance 81/2007, in June 29,
2007, Electrica S.A. assigned 12,874,225 shares to Fondul
Proprietatea S.A.
In order to comply with the requirements of unbundling in
electricity imposed by the European Directive 2003/54/EC,
which had to be implemented in Romania by July 1, 2007, on
15 March 2007, a new Company, CEZ Vânzare was set up, to
which the electricity supply activity was transferred. CEZ Vân-
zare has the same shareholders as the Company and has as
activity the provision of electricity supply services.
Complying with the regulations of the industry in relation to
the transparency of services offered by CEZ Distribuţie to CEZ
Vânzare and vice versa, in June 2007 CEZ Servicii was set
up, which provides controlling, treasury, data processing, in-
formation technology, human resources, and Customer care
services to CEZ Distribuţie and CEZ Vânzare.
1. COrpOraTE iNfOrmaTiON
FINANCIAL sTATEmENTs
bAsIs oF pREpARAtIon
The attached financial statements are presented in Romanian
RON (“RON”), rounded to the nearest thousand. The financial
statements have been prepared under the historical cost con-
vention, modified to include tangible assets revaluation and
adjusted as required by IAS 29 (“Financial Reporting in Hype-
rinflationary Economies”) until December 31, 2003. Starting
from January 1, 2004, the Romanian economy is not conside-
red a hyperinflationary economy. The Company stopped the
application of IAS 29 from that date.
IAS 29, “Financial Reporting in Hyperinflationary Economies”,
requires that financial statements of enterprises that report in
the currency of a hyperinflationary economy should be stated
in terms of the measuring unit current at the balance sheet
date and that corresponding figures should be restated on the
same terms.
statement of Compliance
The Company is required to maintain its books and records in
accordance with accounting principles and practices manda-
ted by the Romanian Law on Accounting.
The accompanying financial statements of the Company are
prepared in accordance with International Financial Reporting
Standards (IFRS), which comprise standards and interpre-
tations approved by the International Accounting Standards
Board and International Accounting Standards and Standing
Interpretations Committee, respectively, that remain in effect
and as adopted by the European Union.
ChAnGEs In ACCountInG poLICIEs
The accounting policies adopted are consistent with those of
the previous financial year except as follows:
The Company has adopted the following new and amended
IFRS and IFRIC interpretations during the year. Adoption of
these revised standards and interpretations did not have any
effect on the financial statements of the Company. They did
however give rise to additional disclosures:
n IFRS 7 Financial Instruments: Disclosures
n IAS 1 Amendment - Presentation of Financial
Statements
n IFRIC 8 Scope of IFRS 2
n IFRIC 9 Reassessment of Embedded Derivatives
n IFRIC 10 Interim Financial Reporting and
Impairment
IFRs 7, Financial Instruments: disclosures (effective for fi-
nancial years beginning on or after 1 January 2007)
This standard requires disclosures that enable users of
the financial statements to evaluate the significance of the
Company’s financial instruments and the nature and extent of
risks arising from those financial instruments. The new disclo-
sures are included throughout the financial statements. While
there has been no effect on the financial position or results,
comparative information has been revised where needed.
IAs 1 presentation of Financial statements
This amendment requires the Company to make new disclo-
sures to enable users of the financial statements to evaluate
the Company’s objectives, policies and processes for managi-
ng capital. These new disclosures are presented in Note 31.
IFRIC 8, scope of IFRs 2 (effective for financial years begin-
ning on or after 1 May 2006).
This interpretation requires IFRS 2 to be applied to any arran-
gements in which the entity cannot identify specifically some
or all of the goods received, in particular where equity instru-
ments are issued for consideration which appears to be less
than fair value. As equity instruments are not issued by the
Company, the interpretation had no impact on the financial
position or performance of the Company.
IFRIC 8 is not relevant to the Company’s operations.
IFRIC 9, Reassessment of Embedded derivatives (effecti-
ve for financial years beginning on or after 1 June 2006)
IFRIC 9 requires an entity to assess whether a contract con-
tains an embedded derivative at the date an entity first beco-
mes a party to the contract and prohibits reassessment unless
there is a change to the contract that significantly modifies the
cash flows.
2. SigNifiCaNT aCCOuNTiNg pOLiCiES
45
As the Company has no embedded derivatives, the interpre-
tation had no impact on the financial position or performance
of the Company.
IFRIC 9 not relevant for the company.
IFRIC 10, Interim Financial Reporting and Impairment
(effective for financial years beginning on or after 1 November
2006).
This Interpretation may impact the financial statements should
any impairment losses be recognized in the interim financial
statements in relation to available for sale equity investments,
unquoted equity instruments carried at cost and goodwill as
these may not be reversed in later interim periods or when
preparing the annual financial statements.
As the Company had no impairment losses previously rever-
sed, the interpretation had no impact on the financial position
or performance of the Company.
sIGnIFICAnt EstImAtEs And AssumptIons
The preparation of financial statements in conformity with
International Financial Reporting Standards requires mana-
gement to make judgments, estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosu-
re of contingent assets and liabilities at the date of the finan-
cial statements, and the reported amounts of revenues and
expenses during the reporting period. However, uncertainty
about these assumptions and estimates could result in outco-
mes that could require a material adjustment to the carrying
amount of the asset and liability affected in the future.
Judgments
In the process of applying the Company’s accounting policies,
management has made the following significant judgment,
apart form those involving estimations, which has the most
significant effect on the amounts recognised in the financial
statements.
Going concern
The accompanying financial statements have been prepared
based on the going concern principle, which assumes that
the Company will continue to operate in the foreseeable futu-
re. In order to assess the reasonability of this assumption, the
management reviews the forecasts of the future cash inflows
and outflows.
Based on these reviews, the management believes that the
Company will be able to continue to operate as a going con-
cern in the foreseeable future and, therefore, this principle
should be applied in the preparation of these financial state-
ments.
Estimates and assumptions
The key assumptions and other key sources of estimation
concerning future uncertainty at the balance sheet date that
have a significant risk of causing material adjustments to the
carrying amount of assets or liabilities within the next financial
year is as follows:
post employment benefits
The cost of post employment benefits is determined using actu-
arial estimation techniques. The actuarial valuation involves ma-
king assumptions about discount rates, expected rates of staff
turnover and future salary increases. Due to the long term natu-
re of such benefits, these estimations are subject to significant
uncertainty. The value of the provision for retirement benefits is
RON 37 880 thousand at December 31, 2007 (2006: RON 32
470 thousand). Further details are provided in Note 17.
summARy oF sIGnIFICAnt ACCountInG poLICIEs
property, plant and equipment
Following initial recognition at cost, property, plant and equip-
ment are carried at a revalued amount, which is the fair value
at the date of the revaluation, less any subsequent accumula-
ted depreciation (except for land) and subsequent accumula-
ted impairment losses.
The carrying values of property, plant and equipment are re-
viewed for impairment when events or changes in circumstan-
ces indicate that the carrying value may not be recoverable.
Valuations are performed frequently enough to ensure that the
fair value of revalued asset does not differ materially from its
carrying amount.
Any revaluation surplus is credited to the revaluation reserve
FINANCIAL sTATEmENTs
included in the equity section of the balance sheet except to
the extent that it reverses a revaluation decrease of the same
asset previously recognised in profit and loss, in which case
the increase is recognised in profit and loss. A revaluation defi-
cit is recognised in profit or loss except that a deficit offsetting
a previous surplus on the same asset is directly offset against
the surplus in the asset revaluation reserve.
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are ex-
pected from its use or disposal. Any gain or loss arising from
the derecognition of the asset is included in the income state-
ment in the year in which the asset is derecognised.
subsequent repairs and maintenance expenditure
Expenditure on repairs and maintenance of property, plant
and equipment, made to restore or to maintain the value of
these assets, are recognized in the income statement when
incurred, while expenditures made in order to improve tech-
nical performance are capitalized and depreciated over the
remaining useful life of that fixed asset.
depreciation
Depreciation is calculated on a straight-line basis over the use-
ful life of the assets.
The estimated useful lives (in years) used in the calculation of
depreciation of property, plant and equipment are as follows:
Category Useful lives
Buildings 53
Lines 24
Technological Equipment 18
Measurement instruments 3
Transportation means 8
Furniture 8
Meters 11
The useful lives and depreciation method are reviewed peri-
odically to ensure that they are consistent with the expected
pattern of economic benefits derived from the assets.
Intangible assets
The intangible assets are stated at their restated cost, as a re-
sult of the adjustments made up to December 31, 2003 to ac-
count for the effects of inflation as per the provisions of IAS 29
(“Financial Reporting in Hyperinflationary Economies”), less
any accumulated amortization and accumulated impairment
losses. All intangible assets have finite lives. The amortization
is recognized in the income statement on a straight-line basis
over the estimated useful lives of the intangible assets. Intan-
gible assets consist mainly of customized software. These are
amortized on a straight-line basis over 5 years.
Foreign currency transactions
Transactions in foreign currencies are translated into RON by
applying the exchange rates prevailing at the time of the tran-
saction. Assets and liabilities denominated in foreign curren-
cies at year-end are translated to RON at the exchange rates
prevailing on that date. Realized and unrealized exchange
gains and losses are charged to the income statement. The
exchange rate of RON/USD as at December 31, 2007 and
2006 was RON 2.4564 / USD 1, and RON 2.5676 / USD 1,
respectively. The exchange rate of RON/EURO as at Decem-
ber 31, 2007 and 2006 was RON 3.6102 / EURO 1, and RON
3.3817 / EURO 1, respectively.
trade receivables
Trade receivables include invoices issued at the balance
sheet date for the supply and distribution of electricity, late-
payment interest, as well as the estimated amount receivable
for electricity supplied at year-end but invoiced in the period
subsequent to the year-end. Receivables are stated at their
nominal value reduced to the estimated recoverable amount
through the allowance for doubtful receivables.
The general allowance for doubtful collection for trade recei-
vables at December 31, 2007 were recorded in accordance
with the CEZ group policy. The allowance for doubtful collec-
tion are established depending on the ageing of uncollected
invoices at December 31, 2007 as follows:
47
Past due Percent
1-3 month 5 %
3-6 month 20 %
6-12 month 50 %
Over 1 year 100 %
The Company also makes a full allowance for the balances
for which legal proceedings for their collection have been
initiated, or if there are reasons to doubt the collection of a
receivable.
The Company does not record provisions for the following tra-
de receivables:
n Radio and TV fee
n Penalties for radio and TV fee
n Electricity for retired employees that worked
in the energy field
n Group customers
Inventories
Inventories consist of consumables, spare parts and other in-
ventories, which include mainly maintenance materials for the
distribution network. These materials are recorded under in-
ventories when purchased and then expensed or capitalized,
as appropriate, when consumed. The cost of inventories com-
prises the purchase cost and other costs incurred in bringing
the inventories to their present location and condition.
Inventories are stated at the lower of cost and net realizable
value. Cost is determined mainly on a weighted average basis.
Where necessary, a write down of the carrying value of inven-
tories is made for excess, obsolete and defective inventories.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, current ac-
counts and bank deposits with an original maturity of three
months or less. Cash denominated in foreign currency is
translated at period-end exchange rates.
Cash restricted in its use
Restricted balances of cash shown under other current finan-
cial assets as restricted funds (see Notes 5, 10 and 11) relate
to cash deposits held as collateral for the issuance of gua-
rantees and letters of credit. The non-current classification is
based on the expected timing of the release of the funds to
the Company.
Impairment of non - financial assets
The Company assesses at each reporting date whether there
is an indication that an asset may be impaired. If any such
indication exists, or when annual impairment testing for an as-
set is required, the asset’s recoverable amount is estimated.
An impairment loss is recognized in the income statement or
in shareholders’ equity whenever the carrying amount of an
asset exceeds its recoverable amount.
An asset’s recoverable amount is the higher of an asset’s or
cash generating unit’s fair value less costs to sell and its value
in use and is determined for an individual asset, unless the
asset does not generate cash inflows that are largely indepen-
dent of those from other assets or groups of assets. Where the
carrying amount of an asset exceeds its recoverable amount,
the asset is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
Impairment losses of continuing operations are recognized in
the income statement in those expense categories consistent
with the function of the impaired asset.
trade payables and accruals
Trade payables to suppliers are recorded at invoiced values
and include amounts payable for the acquisition of electricity,
contracted work and services. Accruals are reported at expec-
ted settlement values.
Long term debt
Borrowings are initially recognized at the amount of the proce-
eds received, net of transaction costs. They are subsequently
carried at amortized cost using the effective interest rate me-
thod, the difference between net proceeds and redemption
value being recognized in the net income over the life of the
FINANCIAL sTATEmENTs
borrowings as interest expense.
Transaction costs include fees and commissions paid to
agents, advisers, brokers and dealers, levies by regulatory
agencies and securities exchanges.
Income and deferred taxes
Income tax on the profit or loss for the year comprises current
and deferred income tax. Current tax is the expected tax paid
or payable on the taxable income for the year or amounts ex-
pected to be recovered from tax authorities, using tax rates
and tax laws enacted or substantially enacted at the balance
sheet date, and any adjustment to tax payable in respect of
previous years.
Deferred income tax is provided using the balance sheet liabi-
lity method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial repor-
ting purposes and the amounts used for taxation purposes.
The amount of deferred income tax provided is based on the
expected manner of realization or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or
substantially enacted at the balance sheet date.
Deferred income tax assets and liabilities are recognized re-
gardless of when the temporary difference is likely to reverse.
Deferred income tax assets and liabilities are not discounted.
Deferred income tax assets are recognized when it is probable
that sufficient taxable profits will be available against which the
deferred income tax assets can be utilized. A deferred income
tax liability is recognized for all taxable temporary differences.
Current income tax and deferred income tax are charged or
credited directly to equity if the tax relates to items that are
credited or charged, in the same or a different period, directly
to equity.
value Added tax (vAt)
Revenues, expenses and assets are recognised net of the
amount of VAT except:
n where the VAT incurred on a purchase of assets or ser-
vices is not recoverable from the taxation authority, in
which case the VAT is recognised as part of the cost of
acquisition of the asset or as part of the expense item
as applicable; and
n receivables and payables that are stated with the amount
of VAT included.
The net amount of VAT recoverable from, or payable to, the ta-
xation authority is included as part of receivables or payables
in the balance sheet.
Financial instruments
Financial assets and financial liabilities carried on the accom-
panying balance sheet include cash and cash equivalents, tra-
de and other accounts receivable and payable, and long term
liabilities to related parties (including loans). The accounting
policies on recognition and measurement of these items are
disclosed in the respective accounting policies. Management
believes that the estimated fair values of these instruments ap-
proximate their carrying amounts.
Financial instruments are classified as liabilities or equity in
accordance with the substance of the contractual arrange-
ment. Interest, dividends, gains and losses relating to a finan-
cial instrument classified as liabilities are reported as expense
or income as incurred. Distributions to holders of financial
instruments classified as equity are charged directly to equi-
ty. Financial instruments are offset when the Company has a
legally enforceable right to offset and intends to settle either
on a net basis or to realize the asset and settle the liability
simultaneously.
Financial assets are derecognised when the rights to receive
cash flow from the asset has expired. Financial liabilities are
derecognised when the obligation under the liability is dis-
charged, cancelled or expires.
Employee benefits
short-term employee benefits
Short-term employee benefits include wages, salaries and so-
49
cial security contributions. Short-term employee benefits are
recognized as expenses as services are rendered.
post-employment benefits
The Company accounts for employee present, retirement and
post retirement benefits in accordance with IAS 19 “Employee
Benefits”. Retirement and post retirement benefits are estima-
ted on the basis of an actuarial evaluation. As of December 31,
2007, the related liability for current (accrued entitlement) and
retired employees was quantified by an independent, qualified
actuary.
Both the Company and its employees are legally obliged to
make defined contributions (included in the social security
contributions) to the National Pension Fund, managed by the
Romanian State Social Security (a defined contribution plan
financed on a pay-as-you-earn basis). As such, the Company
has no legal or constructive obligation to pay future benefits.
Its only obligation is to pay the contributions as they fall due.
If the Company ceases to employ members of the Romani-
an State Social Security plan, it will have no obligation to pay
the benefits earned by its own employees in previous years.
The Company’s contributions relating to defined contribution
plans are charged to income in the year to which they relate.
In accordance with the Collective Labour Agreement in force as
of December 31, 2007 the Company’s employees were entitled
to receive the following retirement and post retirement benefits:
n 1-3 base monthly salaries upon retirement, depending
on the number of years of employment with the Com-
pany;
n 1-3 base monthly salaries, payable in the month of reti-
rement as a loyalty bonus, depending of the number of
years of employment with Company;
n Free consumption of electricity of 1 150 KWh per an-
num, which also extends to the employees’ spouses
under certain conditions.
n Aid in case of death of an employee by causes other
then work accident or professional illness, of RON
1,773;
n Aid in case of death of an employee caused by work
accident or professional illness, of 12 basic monthly sa-
laries; and
n Aid in case of death of an employee’s family member,
of RON 926, plus RON 552 (or the difference from the
social security benefits in case of death, if they are gran-
ted, until the above mentioned level, provided that the
employee’s parent has a monthly salary below RON
552).
Revenue recognition
Revenue is recognized when it is probable that the econo-
mic benefits associated with the transaction will flow to the
enterprise and the amount of the revenue can be measured
reliably. Revenues, including interest for late payments, com-
prise primarily the value of electricity supplied. Revenues from
services are recognized when earned.
development tax
In accordance with the requirements of Government Ordi-
nance no. 26/1999, the Company has to invoice and collect
development tax, computed as 9% of the value of electricity
delivered to customers. The development tax collected has
to be transferred to the Ministry of Economy and Commer-
ce (“MEC”), the former Ministry of Industry and Resources
(“MIR”), together with related penalties, if any.
Before December 31, 2002, these funds were considered as
contributions to share capital at the moment when the corres-
ponding investment projects in progress were finished. Star-
ting from January 1, 2003, the amounts of the development
tax utilized are recorded as government subsidies in accor-
dance with IAS 20 “Accounting for Government Grants and
Disclosure of Government Assistance”.
Up to December 31, 2004, MEC allocated the development
tax collected to the companies operating in the electricity sec-
tor (including the Company), in order to be used for the deve-
lopment of the electricity network, on an investment project
basis.
FINANCIAL sTATEmENTs
Starting from January 1, 2005, according to Government Ordi-
nance 89/2004 approved by Law 529/2004, the development
tax is no longer transferred to the State Budget. The Company
records such reserves at the lower of 6% of revenues from the
sale of electricity and the level of profit for the year.
These reserves are used for financing in-house investments re-
garding the modernization and development of the electricity
network in accordance with the permitted use of these funds,
as per the relevant provisions contained within Government
Ordinance 89/2004. The provisions of Government Ordinan-
ce 89/2004 outlined above were in force until December 31,
2006.
subsidies
Subsidies are accounted for as deferred income and recog-
nized as income at the moment of recognition of the related
costs.
Connection fees
The value of new connections to the national electricity ne-
twork is invoiced to the consumers through the connection
fee (in accordance with Government’s Decision no. 2/1992)
and is recorded as deferred income. Regarding recognition
as income the policy was changed in August 2007. As per
the old policy, recognition was at the moment of recording
the depreciation of the related assets. Due to the changes in
useful life of related fix assets, Company implemented group
policy, section no. 2.5: “Revenues from connection fees recei-
ved from customers are deferred and recognized in income
over the expected term of the customer relationship, which is
currently estimated to be 20 years”.
In the case of legal entities, except for public institutions, the
connection fee also includes a fixed amount to be used for
the future development of the electricity network. The new
connections to the electricity network are the property of the
Company.
A financial guarantee contract is a contract that requires the
issuer to make specified payments to reimburse the holder for
a loss it incurs because a specified debtor fails to make pay-
ment when due in accordance with the original or modified
terms of a debt instrument.
Financial guarantees are initially recognised at fair value plus
any transaction costs that are directly attributable to the acqui-
sition or issue of the financial asset or financial liability.
After initial recognition the financial guarantee shall be mea-
sured at the higher of the amount initially recognized and the
amount determined in accordance with IAS 37 “Provisions,
Contingent Liabilities and Contingent Assets”.
provisions
A provision is recognized when, and only when, the enterprise
has a present obligation (legal or constructive) as a result of
a past event and it is probable (i.e. it is more likely than not
to occur) 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. Where
the effect of the time value of money is material, the amount of
a provision is the present value of the expenditures expected
to be required to settle the obligation.
Contingencies
The Company recognizes in its financial statements contin-
gent liabilities only if the possibility of an outflow of resources
that represent economic benefits is probable (i.e. it is more li-
kely than not to occur). The Company discloses in its financial
statements contingent liabilities if the possibility of an outflow
of resources that represent economic benefits is possible (i.e.
it is less likely than not to occur).
The Company discloses in its financial statements contingent
assets only if the possibility of an inflow of economic benefits
is probable.
Geographical segments
The Company’s activities (electricity supply and distribution
activity) are conducted in several locations in Romania. Ma-
51
nagement considers the entire operations as one business
segment.
Functional Currency
Based on the economic substance of the underlying events
and circumstances relevant to the Company, the functional
currency of the Company has been determined to be the Ro-
manian Leu (RON).
Comparative information
Comparative information is disclosed in respect of the previo-
us period for all numerical information in the financial stateme-
nts. Comparative information is also included for narrative and
descriptive information when is relevant to an understanding
of the current period’s financial statements.
Fair value of financial instruments
Fair value is the amount for which a financial instrument could
be exchanged between knowledgeable and willing parties in
an arm’s length transaction.
Financial instruments carried on the balance sheet include
cash and bank balances, receivables, trade and other paya-
bles and borrowings. The particular recognition methods ad-
opted are disclosed in the individual policy statements associ-
ated with each item.
The carrying amounts of cash and cash equivalents, receiva-
bles, trade and other payables and borrowings, approximate
their fair values.
The Company does not utilize financial instruments to hedge
its exposure to fluctuation in interest and foreign exchange
rates on loans and trade payables.
derecognition of financial assets and liabilities instru-
ments
The derecognition of a financial instrument takes place when
the Company no longer controls the contractual rights that
comprise the financial instrument, which is normally the case
when the instrument is sold, or all the cash flows attributable
to the instrument are passed through to an independent third
party.
derivative financial instruments and hedging
The Company didn’t use any derivative financial instruments,
but developed hedging activities.
Related parties
Parties are considered related when one party, either through
ownership, contractual rights, family relationship or otherwise,
has the ability to directly or indirectly control or significantly
influence the other party. Related parties also include individu-
als that are principal owners, management and members of
the Board of Directors and members of their families, parties
with joint control over the Company’s joint ventures in which
the Company is a venturer, post-employment benefit plans for
the benefit of employees of the Company or any entity that
is a related party to the Company’s entities. To the best of
management’s knowledge all the transactions with the related
parties are conducted on an arm’s length basis.
FutuRE ChAnGEs In ACCountInG poLICIEs
Certain new standards, amendments and interpretations to
existing standards have been published that are mandatory
for accounting periods beginning on or after January 1, 2008
or later periods which the Company has not early adopted,
are as follows:
IFRs 8, operating segments
(effective for financial years beginning on or after 1 January
2009)
IFRS 8 replaces IAS 14 Segment Reporting and adopts a ma-
nagement approach to segment reporting.
The information reported would be that which management
uses internally for evaluating the performance of operating
segments and allocating resources to those segments. This
information may be different from that reported in the balance
sheet and income statement and entities will need to provide
FINANCIAL sTATEmENTs
explanations and reconciliations of the differences.
IAs 23 (revised), borrowing Costs
(effective for financial years beginning on or after 1 January
2009)
The benchmark treatment in the existing standard of expen-
sing all borrowing costs to the income statement is eliminated
in the case of qualifying assets. All borrowing costs that are
directly attributable to the acquisition or construction of a qua-
lifying asset must be capitalised. A qualifying asset is an asset
that necessarily takes a substantial period of time to get ready
for its intended use or sale. In accordance with the transitional
requirements of the Standard, the Company will adopt this as
a prospective change.
Accordingly, borrowing costs will be capitalised on qualifying
assets with a commencement date after January1, 2009. No
changes will be made for borrowing costs incurred to this date
that have been expensed.
IFRIC 11, IFRs 2-Group and treasury share transactions
(effective for financial years beginning on or after 1 March
2007)
This Interpretation requires arrangements whereby an emplo-
yee is granted rights to an entity’s equity instruments to be
accounted for as an equity-settled scheme by an entity even
if the entity chooses or is required to buy those equity instru-
ments from another party, or the shareholders of the entity
provide the equity instruments needed. The Interpretation also
extends to the way in which subsidiaries, in their separate fi-
nancial statements, account for schemes when their employe-
es receive rights to equity instruments of the parent.
This Interpretation applies to the way the Group’s subsidiaries
account, in their individual financial statements, for options
granted to their employees to buy equity shares of the Com-
pany.
IFRIC 11 is not currently applicable to the Company’s opera-
tions.
IFRIC 12, service Concession Arrangements
(effective for financial years beginning on or after 1 January
2008)
IFRIC 12 outlines an approach to account for contractual (ser-
vice concession) arrangements arising from entities providing
public services. It provides that the operator should not ac-
count for the infrastructure as property, plant and equipment,
but recognise a financial asset and/or an intangible asset.
IFRIC 12 is not currently applicable to the Company’s opera-
tions.
IFRIC 13, Customer Loyalty programs
(effective for financial years beginning on or after 1 July
2008)
IFRIC 13 requires customer loyalty award credits to be ac-
counted for as a separate component of the sales transaction
in which they are granted and therefore part of the fair value
of the consideration received is allocated to the award credits
and deferred over the period that the award credits are fulfil-
led.
IFRIC 13 is not currently applicable to the Company’s opera-
tions.
IFRIC 14, IAs 19 - the Limit on a defined benefit Asset,
minimum Funding Requirements and their Interaction
(effective for financial years beginning on or after 1 January
2008)
IFRIC 14 provides guidance on how to assess the limit on the
amount of surplus in a defined benefit scheme that can be re-
cognised as an asset under IAS 19 Employee Benefits. It also
explains how this limit, also referred to as the “asset ceiling
test”, may be influenced by a minimum funding requirement
and aims to standardize current practice.
The Company expects that this Interpretation will have no im-
pact on its financial statements.
IAs 1 ‘presentation of Financial statements’
(effective for annual periods beginning on or after 1 January
2009)
IAS 1 has been revised to enhance the usefulness of informati-
on presented in the financial statements. Of the main revisions
are the requirement that the statement of changes in equity in-
53
cludes only transactions with shareholders; the introduction of
a new statement of comprehensive income that combines all
items of income and expense recognised in profit or loss toge-
ther with “other comprehensive income”; and the requirement
to present restatements of financial statements or retrospecti-
ve application of a new accounting policy as at the beginning
of the earliest comparative period, i.e. a third column on the
balance sheet.
The Company will make the necessary changes to the presen-
tation of its financial statements in 2009, as applicable.
IFRs 2 ‘share based payment’ - vesting Conditions and
Cancellations (effective for annual periods beginning on or
after 1 January 2009)
The amendment clarifies two issues: The definition of “ves-
ting condition”, introducing the term “nonvesting condition”
for conditions other than service conditions and performance
conditions. It also clarifies that the same accounting treatment
applies to awards that are effectively cancelled by either the
entity or the counterparty.
The Company expects that this Interpretation will have no im-
pact on its financial statements.
IFRs 3 ‘business Combinations’ and IAs 27 ‘Consolida-
ted and separate Financial statements’(effective for annual
periods beginning on or after 1 July 2009)
A revised version of IFRS 3 Business Combinations and an
amended version of IAS 27 Consolidated and Separate Finan-
cial Statements were issued by IASB on January 10, 2008.
IFRS 3R introduces a number of changes in the accounting
for business combinations which will impact the amount of
goodwill recognized, the reported results in the period that an
acquisition occurs, and future reported results. Such changes
include the expensing of acquisition-related costs and recog-
nizing subsequent changes in fair value of contingent consi-
deration in the profit or loss (rather than by adjusting goodwill).
IAS 27 revised requires that a change in ownership interest of
a subsidiary is accounted for as an equity transaction.
Therefore such a change will have no impact on goodwill, nor
will it give raise to a gain or loss.
Furthermore the amended standard changes the accounting
for losses incurred by the subsidiary as well as the loss of con-
trol of a subsidiary.
The changes introduced by IFRS 3 revised and IAS 27 revised
must be applied prospectively and will affect future acquisiti-
ons and transactions with minority interests.
IAs 32 and IAs 1 puttable Financial Instruments (effective
for annual periods beginning on or after 1 January 2009).
The amendment to IAS 32 requires certain puttable financial
instruments and obligations arising on liquidation to be classi-
fied as equity if certain criteria are met. The amendment to IAS
1 requires disclosure of certain information relating to puttable
instruments classified as equity.
The Company does not expect these amendments to impact
the financial statements.
FINANCIAL sTATEmENTs
The movement in the carrying value of property plant and equipment during the year ended December 31, 2007 is as follows:
Land Buildings Plant and
equipment
Other fixed
assets
In progress Total
Cost or valuation
balance as at January 1, 2007 18,147 1,234,797 421,017 3,026 39,474 1,716,461
Additions - 188,111 45,829 76 216,994 451,010
Disposals - (78) (6,038) (453) (225,583) (232,152)
balance as at december 31, 2007 18,147 1,422,830 460,808 2,649 30,885 1,935,319
Accumulated depreciation
balance as at January 1, 2007 - (114,484) (67,032) (901) - (182,417)
Depreciation expense - (63,296) (37,397) (450) - (101,143)
Accumulated depreciation of disposals - 24 3252 227 - 3,503
balance as at december 31, 2007 - (177,756) (101,177) (1,124) - (280,057)
Accumulated impairment
balance as at January 1, 2007 - (7,000) (2,903) (2) (6,493) (16,398)
Increase in impairment provision - (85) (110) - (172) (367)
Decrease in impairment provision - 281 195 - - 476
balance as at december 31, 2007 - (6,804) (2,818) (2) (6,665) (16,289)
net book value after impairment loss, before revaluation surplus at de-
cember 31, 2007
18,147 1,238,270 356,813 1,523 24,220 1,638,973
Accumulated revaluation surplus
Balance as at January 1, 2007 and December 31, 2007 - 330 - 1 - 331
Carrying amount
balance at december 31, 2007 18,147 1,238,600 356,813 1,524 24,220 1,639,304
balance as at January 1, 2007 18,147 1,113,643 351,082 2,124 32,981 1,517,977
3. prOpErTy, pLaNT aNd EQuipmENT
55
The movement in the carrying value of property plant and equipment during the year ended December 31, 2006 was as follows:
Land Buildings Plant and
equipment
Other fixed
assets
In progress Total
Cost or valuation
balance as at January 1, 2006 18,147 1,089,183 353,760 2,616 36,798 1,500,504
Additions - 147,838 68,210 416 189,653 406,117
Disposals - (2,224) (953) (6) (186,977) (190,160)
balance as at december 31, 2006 18,147 1,234,797 421,017 3,026 39,474 1,716,461
Accumulated depreciation
balance as at January 1, 2006 - (56,945) (30,478) (455) - (87,878)
Depreciation expense - (58,190) (36,922) (449) - (95,561)
Accumulated depreciation of disposals - 651 368 3 - 1,022
balance as at december 31, 2006 - (114,484) (67,032) (901) - (182,417)
Accumulated impairment
balance as at January 1, 2006 - (3,611) (1,354) (2) (6,493) (11,460)
Increase in impairment provision - (3,389) (1,549) (4,938)
balance as at december 31, 2006 - (7,000) (2,903), (2) (6,493) (16,398)
net book value after impairment loss, before revaluation surplus at decem-
ber 31, 2006
18,147 1,113,313 351,082 2,123 32,981 1,517,646
Accumulated revaluation surplus
balance as at January 1, 2006 and december 31, 2006 - 330 - 1 - 331
Carrying amount
balance at december 31, 2006 18,147 1,113,643 351,082 2,124 32,981 1,517,977
balance as at January 1, 2006 18,147 1,028,957 321,928 2,160 30,305 1,401,497
FINANCIAL sTATEmENTs
As of December 31, 2003 and September 30, 2005, the
Company’s property, plant and equipment were valued by an
independent valuator at their fair value. The fair value of the
property, plant and equipment, estimated in accordance with
the International Accounting Standards 16 “Property, Plant
and Equipment” and 36 “Impairment of Assets”, is their mar-
ket value. When there is no evidence of market value because
of the specialized nature of the plant and equipment and be-
cause these items are rarely sold, except as part of a continu-
ing business, they are valued at their depreciated replacement
cost. These values have been adjusted in accordance with IAS
36 “Impairment of Assets” in order to reflect the recoverable
amount.
In order to value property, plant and equipment as of Septem-
ber 30, 2005, these have been split by the independent valua-
tor into two groups, according to their contribution to the two
main activities of the Company, i.e. the distribution and supply
activities, and also into three further groups formed, according
to the valuation method employed, in order to derive their fair
value, as follows:
n Assets valued at market value;
n Assets valued at replacement cost new using informati-
on collected from the market, and depreciated by phy-
sical, functional and economic obsolescence, where
applicable; and
n Assets valued by indexing their historical value using an
appropriate index.
Revaluation differences were recorded for each property,
plant and equipment item.
For buildings used for special purposes (sub-station buildings,
transfer stations, etc), the reconstruction/replacement cost
method was applied. In the case of administrative buildings,
residential property and some of the warehouses, one mar-
ket-oriented method was applied, namely, the rental income
capitalisation approach or market comparison approach.
Lines, cables and other technical equipment were valued
using the depreciated replacement cost (DRC) method, ta-
king into account the particular nature of these fixed assets
that may not be sold separately but as part of the business, or
that may be sold in extremely rare situations and only within a
power distribution entity that generates revenues.
Other fixed assets, including vehicles and office furniture and
equipment were revalued based mainly on second-hand pri-
ces obtained from the market.
The Company does not have temporarily idle plant and equip-
ment as of December 31, 2007.
There are no pledged buildings in patrimony.
The basis of calculation for the impairment charges in 2007
and 2006 was the valuation exercise carried out by the inde-
pendent valuator as of September 30, 2005.
The Company received RON 4,979 thousand for tangibles
sold in 2007 (2006: RON 800 thousand).
Impairment losses for property, plant and equipment are dis-
closed under “Depreciation, amortisation and impairment
charges” in the income statement.
The Company has commitments to purchase property plant
and equipment of RON
34,420 thousand as of December 31, 2007 (2006: RON 36
277 thousand).
The Company has not disclosed information on what the car-
rying value of its property, plant and equipment would have
been had it stated these at cost instead of at valuation, as this
would have resulted in undue cost to estimate such amounts
in comparison to the benefit that may be derived by the users
of these financial statements from providing such disclosure.
57
The movement in the carrying value of intangible assets during the year ended December 31,
2007 is as follows:
Software Rights and
other
Intangible
assets in
progress
Total
Cost
At January 1, 2007 9,651 - 27 9,678
Additions 509 - 227 736
Retirements (869) - - (869)
Transfers - - (254) (254)
At december 31, 2007 9,291 - - 9,291
Accumulated amortisation
At January 1, 2007 (5,333) - - (5,333)
Amortization charge for the year (2,524) - - (2,524)
Transfers 595 - - 595
At december 31, 2007 (7,262) - - (7,262)
net carrying amount -
At december 31, 2007 2,029 - - 2,029
At January 1, 2007 4,318 - 27 4,345
The remaining useful life of software at December 31, 2007 is 25 months.
The movement in the carrying value of intangible assets during the year ended December 31,
2006 was as follows:
Software Rights and
other
Intangible
assets in
progress
Total
Cost
At January 1, 2006 8,034 56 - 8,090
Additions 1,561 - 27 1,588
Retirements - - - -
Transfers 56 (56) - -
At december 31, 2006 9,651 - 27 9,678
Accumulated amortisation
At January 1, 2006 (3,001) (35) - (3,036)
Amortization charge for the year (2,297) - - (2,297)
Transfers (35) 35 - -
At december 31, 2006 (5,333) - - (5,333)
net carrying amount
At december 31, 2006 4,318 - 27 4,345
At January 1, 2006 5,033 21 - 5,054
Software licenses, rights and other intangible assets are amortized using the straight line me-
thod over a period of 5 years.
Amortization of intangibles is disclosed under ‘Depreciation, amortisation and impairment char-
ges’ in the income statement.
The Company has commitments to purchase intangibles of RON 647 thousand as of Decem-
ber 31, 2007 (no contractual commitments to purchase intangibles existed as of December 31,
2006).
4. iNTaNgiBLE aSSETS
FINANCIAL sTATEmENTs
The composition of other financial assets at December 31,
2007 and 2006, included under non-current assets, is as fol-
lows:
31.12.2007 31.12.2006
Guarantee letter - 2,898
Administrators’ and others
guarantees
58 560
Other financial assets 96 96
total 154 3,554
The Guarantee letter at December 31 2006 relates to a real
estate guarantee without dispossession over a collateral de-
posit account of RON 2,898 thousand for the period from
November 25, 2005 to January 31, 2008. The applicable in-
terest rate is 5.25%, based on the Guarantee Agreement no
192/35185.
Administrators’ guarantees at December 31, 2007 and 2006
relates to guarantees provided by the Company’s warehouses
Administrators.
Other financial assets of RON 96 thousand relates to ACUE
(Association of Companies for Energy Utilities ) shares (RON
34 thousand) and guarantees for good performance (RON 62
thousand).
The composition of inventories at December 31, 2007 and
2006 is as follows:
31.12.2007 31.12.2006
Raw materials and consu-
mables
5,551 4,176
Finished goods and mer-
chandises
379 -
Advances to inventory sup-
pliers
- 21
Allowance for slow moving
and obsolete inventories
(311) (205)
total 5,619 3,992
The composition of trade receivables at December 31, 2007
and 2006 is as follows:
31.12.2007 31.12.2006
Receivables from sale of
electricity
96,552 250,733
Receivables from others
services rendered
34,732 42,868
Allowance for receivables:
Allowance for doubtful ac-
counts receivable from the
sale of electricity
(70,459) (54,704)
Allowance for receivables
from other services rende-
red
(2,496) (5,781)
total 58,329 233,116
Trade receivables are non-interest bearing and are generally
on 30-60 days’ payment term. No guarantees have been provi-
ded for any receivables and they are unsecured.
5. OTHEr fiNaNCiaL aSSETS 6. iNvENTOriES 7. TradE rECEivaBLES
59
The composition of receivables from related parties at Decem-
ber 31, 2007 and 2006 is as follows:
31.12.2007 31.12.2006
Electrica S.A. 92 1,962
E.on Moldova S.A. - 23
ENEL Electrica Dobrogea
S.A.
- 44
ENEL Energie S.R.L. 476 -
Electrica Muntenia Sud
S.A.
141 166
ENEL Electrica Banat S.A. - 89
Electrica Transilvania Nord
S.A.
- 20
Electrica Transilvania Sud
S.A.
- 84
SISEE si AISEE Oltenia 81 199
SISEE si AISEE Banat - 1
CEZ Romania S.R.L. 3,539 2,659
CEZ Vânzare S.A. 303,919 -
CEZ Servicii S.A. 105 -
CEZ Sluzby s.r.o. 2 -
CEZ Data s.r.o. - 2
total 308,355 5,249
For details on the related parties referred to above see Note
28.
The composition of other current assets at December 31,
2007 and 2006 is as follows:
31.12.2007 31.12.2006
VAT payable - 3,361
VAT under settlement 4,167 781
Other employee - related
claims
44 -
Contribution for medical le-
ave
57 57
Excise 4 -
Development tax 1,747 1,747
Other claims receivable
from Treasury
74 -
Sundry debtors 17,552 -
Allowances for sundry deb-
tors
(15,240)
Prepaid expenses 131 10
Amounts under settlement 79 -
Accrued interest receivable 788 1,281
total 9,403 7,237
The composition of other financial assets at December 31,
2007 and 2006, included under current assets, is as follows:
31.12.2007 31.12.2006
Guarantee letter 2,898 5,471
total 2,898 5,471
The Guarantee letter at December 31, 2007 relates to a real
estate guarantee without dispossession over a collateral de-
posit account of RON 2,898 thousand for the period from
November 25, 2005 to January 31, 2008. The applicable in-
terest rate is 5.25%, based on the Guarantee Agreement no
192/35185.
8. rECEivaBLES frOm rELaTEd parTiES
9. OTHEr CurrENT aSSETS 10. OTHEr fiNaNCiaL aSSETS
FINANCIAL sTATEmENTs
The composition of cash and cash equivalents at December
31, 2007 and 2006 is as follows:
31.12.2007 31.12.2006
Cash on hand and current
accounts with banks
31,983 6,901
Cash equivalents 11 -
Short-term deposits 221,642 404,949
total 253,636 411,850
At December 31, 2007, cash and cash equivalents included
foreign currency deposits of RON 56,934 thousand and RON
164,708 thousand, respectively, earning interest at a rate of
6.56% (2006: 6.01%).
share capital
The Company’s share capital consists of 71,523,469 autho-
rised, issued and fully paid shares with a nominal value as
included in the registration documents is RON 9.44 each.
As at December 31, 2007 the share capital structure is as fal-
lows:
Numbers of
shares
Percentage
of holding
Amount
ČEZ, a.s. 36,481,415 51% 384,745
Electrica S.A. 13,585,013 19% 143,272
Fondul Pro-
prietatea S.A.
21,457,041 30% 226,293
total 71,523,469 100% 754,310
As at December 31, 2006, the share capital structure and split
of the inflation restated value of share capital presented in the
balance sheet is as follows:
Numbers of
shares
Percentage
of holding
Amount
ČEZ, a.s. 36,481,412 51% 407,507.80
ZAPADOCES-
KA ENERGE-
TIKA a.s
1 0% 0.01
SEVERO-
MORAVSKA
ENERGETIKA
a.s.
1 0% 0.01
VYCHO-
DOCESKA
ENERGETIKA
a.s.
1 0% 0.01
Electrica S.A. 26,459,238 37% 295,630.05
Fondul Pro-
prietatea S.A.
8,582,816 12% 95,896.13
Total 71,523,469 100% 799,033.00
11. CaSH aNd CaSH EQuivaLENTS
12. SHarEHOLdErS’ EQuiTy
61
The movement in number and value of shares during the years
ended December 31, 2007 and 2006 is presented below:
Number of
Shares
Amount
As at January 1, 2006 71,523,469 799,033
Issued in 2006 - -
As at December 31, 2006 71,523,469 799,033
Decrease nominal value
2007
- (44,723)
As at december 31, 2007 71,523,469 754,310
Following an international tender process, on April 5, 2005,
a privatization agreement was concluded between Electrica
S.A. (the “Seller”) and ČEZ, a.s. (the “Purchaser”). The Gene-
ral Shareholder’s Meeting held on September 30, 2005 ap-
proved the transfer of 11 445 150 shares from the Seller to the
Purchaser and the increase of share capital by the issuance
of 25 036 265 new shares to ČEZ, a.s., which were settled in
cash.
The value of the registered share capital in accordance with
the Romanian Statutory accounting records and trade registry
of RON 675 182 thousand as of December 31, 2007 and of
RON 715 235 thousand as of December 2006. The difference
between the value of share capital per the Romanian Statutory
accounting records and the value presented in these financial
statements relates to the adjustment made in these financial
statements in accordance with the provisions of IAS 29 (“Fi-
nancial Reporting in Hyperinflationary Economies”), which
are not applied under the applicable Romanian Accounting
Regulations.
As a result of Shareholder’s General Assembly Decision, da-
ted September 7, 2006, the shareholders structure changed
and ČEZ, a.s. sold to ZAPADOCESKA ENERGETIKA a.s,
SEVEROMORAVSKA ENERGETIKA a.s., VYCHODOCESKA
ENERGETIKA a.s. 3 shares, one share to each entity.
According to Law 247/2005, in October 2006 12% (8,582,816)
of the Company’s shares, that were held by Electrica S.A.,
were transferred to Fondul Proprietatea S.A.
As of March 15, 2007, a new company was set up, CEZ Vân-
zare, to which the electricity supply activity was transferred
from the Company. CEZ Vânzare has the same shareholding
structure as the Company. After CEZ Vânzare was set up, the
share capital of the Company decreased by RON 44,723 tho-
usand (RON 40,053 thousand historic value).
In June 29, 2007, 12,874,225 shares held by Electrica S.A.
were assigned to Fondul Proprietatea S.A. in accordance with
Government Ordinance 81/2007.
share premium
The balance of the share premium account at January 1,
2006, December 31, 2006 and December 31, 2007 was RON
114,095 and represents the difference between the nominal
value of shares acquired by ČEZ, a.s. (RON equivalent of
EURO 71 million) and total cash paid by ČEZ, a.s. for its sha-
res in the Company.
Revaluation reserve
The movement in the revaluation reserve during the years en-
ded December 31, 2007 and 2006 is presented below:
Balance
balance as at January 1, 2006 542,410
Reversal of revaluation surplus (4,961)
Deferred income tax impact on fixed assets
and revaluation reserve (Note 27)
33,767
balance as at december 31, 2006 571,216
Reversal of revaluation surplus (1,728)
Deferred income tax impact on fixed assets
and revaluation reserve (Note 27)
(6,120)
balance as at december 31, 2007 563,368
As of December 31, 2007, the Company has tax qualifying
revaluation reserves of approximately RON 13,750 thousand
arising out of the revaluation of its tangible fixed assets as of
12. SHarEHOLdErS’ EQuiTy (continued)
FINANCIAL sTATEmENTs
December 31, 2003.
The tax qualifying revaluation reserve becomes taxable if
amounts are intended for or distributed to shareholders and
in certain other cases, including use to offset statutory accoun-
ting losses.
The amount of the income tax liability that would arise in the
event of the utilisation of the revaluation reserve in future,
using the current income tax rate of 16%, was approximately
RON 2,200 thousand.
The revaluation reserve related to fixed assets disposed or
sold during year 2007, of RON 1,728 thousand, was transfer-
red to retained earnings.
Retained earnings
The movement in retained earnings during the years ended
December 31, 2007 and 2006 is presented below:
Amount
balance as at January 1, 2006 111,757
Reversal of reserve for investments 26,846
Reserve for investments (31,055)
Legal reserve (6,171)
Reversal of revaluation surplus 4,961
Profit for the year 95,203
balance as at december 31, 2006 201,541
Reversal of reserve for investments 31,055
Adjustment on share capital transferred to
CEZ Vânzare S.A.
4,670
Legal reserve (8,297)
Reversal of revaluation surplus 1,728
Profit for the year 148,365
balance as at december 31, 2007 379,062
The retained earnings per the Romanian Statutory accounting
records as of December 31, 2007, which are available for dis-
tribution were RON 102,371 thousand (2006: RON nil). The
profit for the year based on Romanian Statutory accounting
records as of December 31, 2007 is RON 137,696 thousand
(2006: RON 104,113 thousand), while the figure stated under
IFRS is RON 148,365 thousand.
other reserves
The movement in other reserves during the years ended De-
cember 31, 2007 and 2006 is presented below:
Amount
At January 1, 2006 30,893
Reversal of reserve for investments (26,846)
Legal reserve 6,171
Reserve for investments 31,055
At december 31, 2006 41,273
Reversal of reserve for investments (31,055)
Legal reserve 8,297
At december 31, 2007 18,515
Included under other reserves as of December 31, 2007 are
legal reserves of RON 18,515 thousand restricted from distri-
bution under Statutory requirements.
As of December 31, 2007 the Company distributed from the
result for the year 2007, legal reserves of RON 8,297 thou-
sand, as per the provisions of the Romanian Company Law.
The legal reserve is deductible within the limit of 5% of the
accounting profit, before the determination of the profit tax,
from which non-taxable income is deducted and to which
expenses related to such non-taxable income are added,
until the reserve fund equals one-fifth of the subscribed and
63
paid-in share capital, as the case may be, according to laws
of organization and operation. In the case where this is used
to cover losses or is distributed in any form, the subsequent
reconstitution of the reserve is no longer deductible in com-
puting taxable profit. As an exception, the reserve constituted
by legal persons that furnish utilities to companies that are un-
dergoing restructuring, reorganization or privatization may be
used to cover the losses of value of share packages obtained
further to the procedure of conversion of receivables and the
amounts intended for subsequent reconstitution are deducti-
ble in computing taxable profit.
Deferred income as of December 31, 2007 and 2006 consists
of the following:
31.12.2007 31.12.2006
Connection fees subsidies 182,833 151,048
Rental income - 336
total 182,833 151,384
Connection fees subsidies include the unamortized portion
of capitalized connection fees received from customers upon
their connection to the national electricity network.
Trade payables as of December 31, 2007 and 2006 consist of
the following:
31.12.2007 31.12.2006
Domestic suppliers - purc-
hases of electricity
28,355 72,378
Domestic suppliers - other
supplies and services
2,218 15,295
Fixed asset suppliers 15,383 28,356
Accruals for supplier’s invoi-
ces not received
5,762 22,311
total 51,718 138,340
Trade payables are non interest bearing and are normally
settled on 30-day terms, except for amounts payable to fixed
asset suppliers which are normally settled on 60-day terms.
12. SHarEHOLdErS’ EQuiTy 13. dEfErrEd iNCOmE 14. TradE payaBLES
FINANCIAL sTATEmENTs
Short-term liabilities to related parties as of December 31,
2007 and 2006 consist of the following:
31.12.2007 31.12.2006
Services, energy and mana-
gement fee performed by
CEZ Romania S.R.L.
24,649 2,565
Energy acquisitions from
Electrica S.A.
4,833 4,465
Repairs and maintenance
services performed by SISE
and AISEE Muntenia Sud
33 -
Repairs and maintenance
services performed by
SISEE and AISEE Oltenia
9,256 17,287
Repairs and maintenance
services performed by SISE
and AISEE BANAT
- 31
Guarantee for auction
participation from ČEZ
Logistika s.r.o
747 787
Energy acquisitions from
CEZ Vânzare S.A.
43,948 -
Services rendered by CEZ
Servicii S.A.
6,209 -
total 89,675 25,135
For details on the related parties referred to above see Note 28.
Other current liabilities at December 31, 2007 and 2006 are
as follows:
31.12.2007 31.12.2006
Payables to employees 2,645 2,917
Social security payable 3,609 3,895
VAT payable 3,569 5,925
Salary tax and other taxes 1,079 400
TV Tax payable to Romani-
an Television Company
- 863
Radio Tax payable to Roma-
nian Television Company
- 1,613
Other payables 4,450 4,214
total 15,352 19,827
15. SHOrT TErm LiaBiLiTiES TO rELaTEd parTiES
16. OTHEr CurrENT LiaBiLiTiES
65
Other current liabilities at December 31, 2006 and 2007 are
as follows:
31.12.2006 IncreasesDecreases
31.12.2007Utilized Reversed
Provision for penalties and cost of replacement of old meters in accordance with Law 178/2003 24,790 1,758 - 11,303 15,245
Provision for retirement benefits 32,470 5,796 - 386 37,880
Provision for green certificates not acquired by the Company for energy supplied 241 113 354 - -
Provision for environmental obligations related to the cost of disposal of roof tiles containing asbestos and ob-
solete condensers
1,000 - - - 1,000
Provision for penalties payable to SISEE Oltenia (2003-2005) 1,597 - - 1,597 -
Provision for restructuring 11,197 16,974 3,432 11,132 13,607
Provision for holiday indemnity - 1,056 1,056 - -
Provision for salary increase - 6,845 - - 6,845
Litigation provision - Pitesti 127 7,455 - 6,939 643
Litigation provision - Pitesti, land 3,384 - - 3,384 -
Provision for litigation - Craiova Zaharul Calafat 6,941 - - 3,000 3,941
Provision for litigation - Valnefer company 150 350 - - 500
Provision for restructuring of the finance, controlling, accounting, IT, HR, and customer care functions 1,501 (854) 647 - -
Provision for payments from profit to employees 2,654 - 895 1,759 -
Provisions for staff bonuses for the unbundling and financial service support projects, 1,866 (58) 868 710 230
Others litigation 174 1,326 33 75 1,392
total 88,092 40,761 7,285 40,285 81,283
17. prOviSiONS
FINANCIAL sTATEmENTs
The Company recorded a provision of RON 15,245 thousand
for penalties that may be levied and the cost of replacing old
meters in accordance with Law 178/1003. The Company fol-
lows a continuous program for the replacement of old meters
and intends to release and / or increase the provision made
in proportion with the number of old meters replaced, or the
number of additional old meters categorized as such in each
financial year, respectively. Due to the fact that in previous
years there were no significant penalties paid, the Company
decided to change the estimate for penalties from 90% to
10%.
Retirement and post retirement benefits are estimated on the
basis of an actuarial evaluation performed by an independent,
qualified actuary.
The key assumptions used in the actuarial evaluation are as
follows:
n 7.25% for discount rate for 2008 and thereafter decrea-
sing to 3.53% in 2051.
n 32.5 % increase in the level of salaries in 2007; the in-
crease in the salaries level is reduced to 2% in 2051.
n 1% turnover of the number of employees
n 17.6 % decrease of the number of employees.
n All employees will retire when they reach retirement
age.
The provision for environmental obligations related to the cost
of replacement of roof tiles containing asbestos and disposal
of obsolete condensers relate to the cost of disposal of roof
tiles containing asbestos and obsolete condensers and repre-
sents the estimated cost of complying with the Government
Decision 124/2003 dealing with the disposal of construction
materials containing asbestos and the costs of complying with
Government Decision 173/2000, as modified by Government
Decision 291/2005, dealing with waste management and en-
vironmental protection. The level of the provision represents
Management’s best estimate, based on information provided
by the Company’s technical experts in the case of the dispo-
sal of roof tiles containing asbestos and based on a contract
signed with a company specializing in the disposal of obsole-
te condensers in the case of the condensers. The Company
follows a continuous program for the replacement of roof tiles
containing asbestos and disposal of obsolete condensers and
intends to release the provision made in proportion with the
percentage of completion of the related programme in each
financial year.
The provision for restructuring of RON 13,607 thousand in-
cludes the estimated cost for compensatory payments to em-
ployees participating in the restructuring process of the Com-
pany.
The prior year provision for restructuring of the finance, con-
trolling, accounting, IT, HR, and customer care functions rela-
ted to the costs for the implementation of the shared services
centre for the respective functions of the Company, which
commenced in year 2006 and was finalized during the cur-
rent year.
The provision for salary increase refers to salaries increase as
per Contract Labour for period April 2007 - December 2007.
The payment was made in April 2008.
The provision for discretionary employee bonuses relates to
an accrual for discretionary performance bonuses, which the
Management decided to award to certain employees involved
in special projects. These bonuses will be paid to employees
during the year 2008.
Prior year provision for payments from profit to employees re-
lates to an accrual for the payment of bonuses to employees
based on the relative level of salaries costs for the year 2005
for the respective employees, and the level of profit for the
current year.
The provision for Zaharul Calafat is for a litigation were the
plaintiff claims damages related to the cost of damaged pro-
duction as a result of a fault in the voltage of electricity sup-
plied to their factory (RON 3,941 thousand). The timing of the
67
related cash outflows is uncertain and would depend on the
timing of the conclusion of the legal proceedings.
The provision for litigation with Valnefer company relates to
the claim initiated by this company for the cost of repairing
its timber warehouse which was damaged as a result of fire,
which was allegedly caused by the electricity meter. The Com-
pany anticipates that the litigation proceedings will be conclu-
ded during the year 2008. During 2007 the value of the pro-
vision was increased as per lawyer estimates and the plaintiff
complaints.
The composition of sales and distribution of electricity for the
years ended December 31, 2007 and 2006 is as follows:
2007 2006
Corporate customers 164,271 672,081
Reactive electrical energy 41,978 23,127
Households 65,965 357,788
Retired employees of the
Company
690 2,885
Other electricity distribution
companies
35,166 64,567
Sales from distribution of
electricity
565,349 165,193
total 873,419 1,285,641
Other operating revenues for the years ended December 31,
2007 and 2006 consist of the following:
2007 2006
Services rendered 1,807 1,177
Rental revenues 18,704 15,767
Sales of merchandise 1,895 2,002
Revenues from activity - lo-
cal households
15 30
IT services rendered 180 495
Revenues from sundry acti-
vities
19,758 8,703
Revenues from inventories
movement
226 -
Operating subsidies 23 45
Fines, penalties and dama-
ges
19,445 26,990
Subsidies received for in-
vestments made
7,429 4,855
Other operating revenues 488 3,200
total 69,970 63,264
18. SaLE aNd diSTriBuTiON Of ELECTriCiTy
19. OTHEr OpEraTiNg rEvENuES
FINANCIAL sTATEmENTs
Electricity purchased during the years ended December 31,
2007 and 2006 consist of the following:
2007 2006
Energy purchased from the
transmission system
388,239 782,381
Energy purchased from
third parties
- 10,753
total 388,239 793,134
Materials and supplies during the years ended December 31,
2007 and 2006 consist of the following:
2007 2006
Purchases of auxiliary ma-
terials
1,218 1,694
Expenses regarding the non
technological fuel used
108 180
Expenses regarding spare
parts used
1,155 2,342
Expenses regarding materi-
als used for protection and
security
1,299 2,634
Expenses regarding the
protection equipments
817 1,572
Expenses regarding other
consumables
1,075 1,029
Electricity, heating and wa-
ter
900 1,060
total 6,572 10,511
Repairs and maintenance during the years ended December
31, 2007 and 2006 consist of the following:
2007 2006
Maintenance works 63,223 79,331
Maintenance services recei-
ved from related parties
10,901 23,361
total 74,124 102,692
21. maTEriaLS aNd SuppLiES20. ELECTriCiTy purCHaSEd 22. rEpairS aNd maiNTENaNCE
69
Salaries, wages and other employee benefits during the years
ended December 31, 2007 and 2006 consist of the following:
2007 2006
Salaries (including bonu-
ses)
70,232 66,650
Company’s contribution to
social security funds
20,706 21,002
Other employees’ expenses 1,126 1,147
Meal tickets 4,206 4,595
total 96,270 93,394
Depreciation, amortization and impairment charge for the years
ended December 31, 2007 and 2006 is analysed as follows:
2007 2006
Depreciation of property,
plant and equipment
101,143 95,561
Amortization of intangible
assets
2,524 2,297
Impairment charge (528) 4,823
total 103,139 102,681
Expenses with depreciation for years 2007 ad 2006 is related
to the loss from depreciation recognized in the profit and loss
account as result of the physical inventory of company`s fixed
assets.
Financial income, net, for the years ended December 31, 2007
and 2006 consists of the following:
2007 2006
Interest revenue 14,421 19,679
Foreign exchange gains 24,328 10,279
Other financial costs 544 1,129
Interest expenses - (327)
Foreign exchange losses (31,627) (36,369)
total income / (expense) 7,666 (5,609)
The income generated from the interest collected resulted
from the financial investments made in the Romanian money
market. The financial investments consisted of time deposits
and Treasury Bills issued by Finance Ministry, with regular ma-
turities of one month. In 2007 Company has no contracted
loans.
The net foreign exchange losses of RON 7,299 thousand
resulted mainly from foreign currencies sold on a lower ex-
change rate comparing with December 2006, and also from
exchange rate fluctuation during 2007.
24. dEprECiaTiON, amOrTiZa-TiON aNd impairmENT CHargE
23. SaLariES, WagES aNd OTHEr EmpLOyEE BENEfiTS
25. fiNaNCiaL iNCOmE, NET
FINANCIAL sTATEmENTs
Other operational expenses during the years ended Decem-
ber 31, 2007 and 2006 consist of the following:
2007 2006
Expenses regarding other non-storable materials
539 226
Cost of merchandise sold 867 1,900
Packaging costs 1 5
Rental expenses 4,404 5,075
Insurance expenses 3 -
Cost of services rendered by individuals 311 356
Commissions and fees 118 40
Protocol expenses 58 40
Advertising and promotion expenses 126 166
Transport of goods and personnel expenses
8,469 48
Travelling expenses 1,605 1,200
Postal expenses 5,394 4,803
Bank commissions and similar charges 8,390 607
Others services received 63,108 35,860
Other Taxes 2,111 1,977
Write off of bad debts - 83
Damages payments 60 177
Fines and penalties 164 7
Net additional provisions / (release) of provisions
21,007 47,282
Loss on disposal of property, plant and equipment
(1,637) 1,357
Other operational expenses 1,875 2,259
total 116,973 103,468
Income tax Legislation
Corporate income tax is calculated in accordance with Roma-
nian tax regulations at the rate of 16% for 2007 and 2006.
The legal and fiscal environment in Romania and its imple-
mentation into practice changes frequently and is subject to
different interpretations by various Ministries of the Govern-
ment. The Romanian government has a number of agencies
that are authorized to conduct audits (“controls”) of Romanian
companies as well as foreign companies doing business in
Romania. These controls are similar in nature to tax audits per-
formed by tax authorities in many countries, but may extend
not only to tax matters but to other legal or regulatory matters
in which the applicable agency may be interested. In addition,
the agencies conducting these controls may be subject to sig-
nificantly less regulation and the company under review may
have significantly less practical safeguards than is customary
in many countries.
Income tax returns are subject to review and correction by the
tax authorities for a period of five years subsequent to their fi-
ling. Management believes that it has adequately provided for
tax liabilities in the accompanying financial statements; howe-
ver, the risk remains that tax authorities could take differing
positions with regards to the interpretation of these issues and
the effect could be significant.
As at December 31, 2007 and 2006, the income tax expense
is analysed as follows:
31.12.2007 31.12.2006
Current income tax 28,245 34,947
Deferred income tax (10,872) 7,266
Total 17,373 42,213
2007 2006
Profit before tax 165,738 137,416
Statutory income tax rate 16% 16%
"Expected" Income tax expense 26,518 21,987
Add (deduct) tax effect of:
Deductible depreciation (963) 3,207
Deductible legal reserve (1,328) (1,079)
Other deductible items - (1,574)
Non-taxable income (14,208) (15,046)
Fixed assets (depreciation, amor-tization and deferred income tax effect on revaluation of land)
- -
Non deductible provisions and reserves
17,739 21,530
Other non-deductible items (10,385) 13,187
Income taxes 17,373 42,213
Effective tax rate 10% 31%
27. iNCOmE TaXES26. OTHEr OpEraTiONaL EXpENSES
71
As at December 31, 2007 and 2006, the net deferred income
tax liability on temporary differences is analysed as follows:
Balance sheet Income statement
31.12.07 31.12.06 2007 2006
Deferred
income
2,529 2,502 (27) 253
Property
Plant &
Equipment
(39,613) (33,493) - -
Intangible
assets
(6) (35) (29) (34)
Other assets 50 729 679 (955)
Liabilities 13,070 1,575 (11,495) 8,002
total (23,970) (28,722) (10,872) 7,266
The movement in the deferred income tax liability on property,
plant and equipment during the years ended December 31,
2007 and 2006 has been credited / debited into the revalua-
tion reserve account within equity, respectively. Similarly, the
movement in the deferred income tax liability on the revalu-
ation reserve during the year ended December 31, 2007 has
also been credited into the revaluation reserve account within
equity.
The reconciliation of deferred income tax liability movements in
the years ended December 31, 2007 and 2006 is as follows:
2007 2006
opening deferred income
tax liability as of January 1
28,722 55,223
Deferred income tax liability
charged / (credited) directly
to equity
6,120 (33,767)
deferred income tax char-
ge / (income) for the year
(10,872) 7,266
Closing deferred income tax
liability as of December 31
23,970 28,722
27. iNCOmE TaXES (continued)
FINANCIAL sTATEmENTs
Receivables and payables from / to related parties as of December 31, 2007 and 2006 are presented in the following table:
Amounts payable to Electrica S.A. consist mainly of payables related to the repairs and maintenance and other services.
Receivable from Payable to 31.12.07 31.12.06 31.12.07 31.12.06
Electrica S.A. 92 1,962 4,833 4,465E.on Moldova S.A. - 23 - -ENEL Electrica Dobrogea S.A. - 44 - -ENEL Energie S.R.L. 476 - -Electrica Muntenia Nord S.A. - - - -Electrica Muntenia Sud S.A. 141 166 - -ENEL Electrica Banat S.A. - 89 - -Electrica Transilvania Nord S.A. - 20 - -Electrica Transilvania Sud S.A. - 84 - -SISEE si AISEE Oltenia 81 199 9,256 17,287SISEE si AISEE Banat - 1 - 31SISEE si AISEE Muntenia Sud - - 33 -CEZ Romania S.R.L. 3,539 2,659 24,649 2,565CEZ Vânzare S.A. 303,919 - 43,948 -CEZ Servicii S.A. 105 - 6,209 -CEZ Sluzby s.r.o. 2 - - -CEZ Logistika s.r.o. - - 747 787CEZ Data s.r.o. - 2 - -Total 308,355 5,249 89,675 25,135 Presented under:Current assets 308,355 5,249 -Non-current liabilities - - -Current liabilities - - 89,675 25,135total 308,355 5,249 89,675 25,135
28. rELaTEd parTiES
73
Transactions with products and services between related parti-
es during 2007 and 2006 are presented in the following table:
Sales /
Revenues
in 2007
Sales /
Revenues
in 2006
Purchases /
expenses
in 2007
Purchases /
expenses
in 2006
Electrica S.A. 6,976 27,352 18,161 103,369
E.on Moldova S.A. 791 529 28,216 131
ENEL Distribuţie Dobrogea S.A. 125 294 23 59
Electrica Distribuţie Muntenia Nord S.A. 117 566 36 24
Electrica Muntenia Sud S.A. 1,227 2,044 50 75
ENEL Distribuţie Banat S.A. 1,127 676 75 229
ENEL Energie S.R.L. 1,067 - - -
Electrica Distribuţie Transilvania Nord S.A. 3,035 877 - 52
Electrica Distribuţie Transilvania Sud S.A. 1,040 2,238 98 160
SISEE si AISEE Oltenia 1,100 2,995 81,670 145,727
SISEE si AISEE Muntenia Nord - - - 1
SISEE si AISEE Muntenia Sud - 1 28 -
SISEE si AISEE Banat - 7 57 669
SISEE si AISEE Moldova - - - -
CEZ Romania S.R.L. 2,778 2,733 16,763 15,378
CEZ Vânzare S.A. 504,856 - 60,199 -
CEZ Servicii S.A. 712 - 14,057 -
ČEZ Logistika s.r.o. - - 8,335 787
ČEZ Data s.r.o. - 2 - -
ČEZ, a.s. - 44 - -
total 524,951 40,358 227,768 266,661
Transactions with assets between related parties during 2007
and 2006 are presented in the following table:
Sales /
Revenues
in 2007
CEZ Romania S.R.L. 342
CEZ Servicii S.A. 3,427
total 3,769
Transactions with management fee between related parties
during 2007 and 2006 are presented in the following table:
Purchases /
expenses
in 2007
Purchases /
expenses
in 2006
CEZ Romania S.R.L. 17,953 11,932
total 17,953 11,932
Transactions with related parties relate mainly to the cross-
selling of electricity among the members of the electricity
market in Romania. The only exception being the transactions
with Electrica S.A. where certain other services were provided
to the Company and SISEE, the maintenance services provider
within the Electrica S.A. group. All related party transactions
are concluded on an arms’ length basis. All balances are
28. rELaTEd parTiES (continued)
FINANCIAL sTATEmENTs
unsecured and no guarantees have been provided or received
for related party receivables or payables.
Electrica S.A. is a shareholder of the Company, holding 19%
of its share capital as of December 31, 2007 (December 31,
2006: held 37% of the share capital). Electrica Distribuţie
Muntenia Nord S.A., Electrica Distribuţie Muntenia Sud S.A.,
Electrica Distribuţie Transilvania Nord S.A. and Electrica
Distribuţie Transilvania Sud S.A. are subsidiaries of Electrica
S.A., engaged in the supply and distribution of electricity in
their respective regions of coverage.
In 2007 as a result of privatization of E.on Moldova S.A., ENEL
Distribuţie Dobrogea S.A. and ENEL Distribuţie Banat S.A.,
which were previously subsidiaries of Electrica S.A., continued
to be considered as related parties with the Company, as
Electrica S.A. maintained a minority shareholding in these
entities following the completion of the privatisation process
in 2006.
SISEE Oltenia, SISEE Muntenia Nord, SISEE Muntenia Sud,
SISEE Banat and SISEE Moldova are branches of Electrica
S.A. engaged mainly in the maintenance of the electricity
distribution networks in their respective regions of coverage.
Each SISEE branch includes a number of Agencies of
Maintenance and Energy Services (AISEE).
28. rELaTEd parTiES (continued) 29. KEy maNagEmENT pErSONNEL (as of 31.12.2007)
CEZ Romania, CEZ Trade Romania, CEZ Vânzare, ČEZ
Logistika s.r.o., ČEZ Data s.r.o., ČEZ Sluzby s.r.o are wholly
owned subsidiaries of ČEZ, a.s., the Company’s ultimate
parent company.
Transactions with CEZ Romania relate to the provision of
various management services by this entity to the Company.
Transactions with ČEZ Logistika s.r.o. relate to the acquisition
of meters.
Transactions with CEZ Vânzare relate mainly to distribution
of electricity and with CEZ Servicii to IT services, customer
services, HR and data processing.
The short term employee benefits of the key management
personnel of the Company for 2007 were RON 592 thousand
(2006: RON 367 thousand). Other employee benefits to key
management personnel are the same as those offered to
other employees, including termination, retirement and post
retirement benefits (see Note 2.3).
The short term employee benefits of the Board of Directors
members of the Company for 2007 was RON 300 thousand
(2006: RON 300 thousand). No other benefits are granted to
Board of Directors members.
Key management personnel on 31.12.2007:
n Gabriel NEGRILĂ - General Manager CEZ Distributie
n Emi MITROFAN - Financial Director
n Vicenţiu ALEXANDRU - Technical & Development Director
board of directors members (as of 31.12.2007)
The Company’s Board of Directors members are the following:
n Jan VEŠKRNA - Chairman
n Martin PACOVSKÝ - Member
n Adrian BOROTEA - Member
n Tudor SERBAN - Member
n Valentin DOBRE - Member
75
The average number of employees for the years ended Decem-
ber 31, 2007 and 2006 was as follows:
2007 % 2006 %
Workers 1,519 58% 1,949 66%
Other
categories
1,110 42% 1,022 34%
total 2,629 100% 2,971 100%
During the year 2007 the Company finalized reorganization pro-
jects related to the unbundling, financial services centralization
and new ERP software implementation. For all these projects,
the Company used advisors and consultants, most of them with
international recognition.
The Company’s principal financial liabilities, other then derivati-
ves, comprise mainly trade payable. The Company has various
financial assets such as trade receivable and cash and cash
equivalents including short term deposits.
Other risks which significantly affect the results of the Company
are foreign exchange risk, credit risk, litigation and lay-off in-
demnities.
The Risk Management Policy is a central part of the Company’s
strategic management. Its main objective is to identify and treat
the risks related to the financial activities of the Company, being
focused on the prevention and elimination of potential harmful
influences.
Foreign exchange risk
Regarding the foreign exchange risk, the Company has in view
the embracing of the most suitable financial strategy, out of the
major scenarios:
1. The passive approach: the certainty degree related to the
exchange rate prediction is too low and the Company mi-
ght decide to not take any steps for the protection against
this risk;
2. The active approach: the certainty degree related to
the exchange rate prediction is high and the Company
decides to take steps for the protection purpose against
the exchange risk, as follows:
a) Exchange rate anticipated settlement - the Company
has the opportunity to set in advance the level of the
exchange rate that will be considered for the currency
trade, both selling and buying.
b) Option on exchange rate: - the Company has the op-
portunity to purchase total or partial protection against
an unfavourable evolution of the rate and, in the same
time, keeps the chance to take advantage from the fa-
vourable movement of the rate.
Currently the Company is exposed to foreign exchange rate risk
through its purchase transactions and its policy is not to hedge
this risk.
The following table demonstrates the sensitivity to a reasonably
possible change in Euro exchange rate, with all other variables
held constant, of the Company’s profit before tax (due to the
changes in the fair value of the monetary assets and liabilities):
30. NumBEr Of EmpLOyEES 31. fiNaNCiaL riSK maNagEmENT OBJECTivES aNd pOLiCiES
FINANCIAL sTATEmENTs
2007 Increase/
decrease in
EURO exchan-
ge rate
Effect on profit before
tax
In thousand RON EURO
EuRo 5% 2,820 781
EuRo -5% (2,820) (781)
2006 Increase/
decrease in
EURO exchan-
ge rate
Effect on profit before
tax
In thousand RON EURO
EuRo 5% 12,691 3,753
EuRo -5% (12,691) (3,753)
Credit risk
The Company is obliged by the law to provide electricity distri-
bution services to new customers without performing a credit
check. For this risk the Company adjusts the carrying value of
receivables based on an aging analysis. For corporate custo-
mers investigations are undertaken for those that may have a
history of late payment and for these the Company requests a
bank guarantee.
For eligible customers the credit risk is assessed before signing
up. Bad debts are compensated by the regulatory authority, re-
cognizing the related costs in tariffs.
The maximum credit risk exposure is equal to the trade receiva-
bles balance at December 31, 2007.
Cash is placed in financial institutions, which are considered at
the time of deposit to have minimal risk of default. Maximum ex-
posure is equal to the carrying amounts of these instruments.
Categories of financial instruments and fair values of financial
instruments
Fair value is the amount at which the instrument could be ex-
changed in a current transaction between knowledgeable wil-
ling parties in an arm’s length transaction, other than in forced
or liquidation sale.
Liquidity risk
The Company’s policy on liquidity is to maintain sufficient liquid
resources to meet its obligations as they fall due. The Company
monitors liquidity through a regular budgeting process.
The table below summarises the maturity profile of the
Company’s financial liabilities at 31 December 2007 and 31 De-
cember 2006 based on contractual undiscounted payments.
31.12.2007 Trade and other
payables
On demand - -
Less than 3 months 156,745 156,745
3 to 12
months
- -
1 to 5 years - -
>5 years - -
total 156,745 156,745
31.12.2006 Trade and other
payables
On demand - -
Less than 3 months 183,302 183,302
3 to 12
months
- -
1 to 5 years - -
>5 years - -
total 183,302 183,302
77
Capital management
The primary objective of the Company’s capital management
is to ensure that it maintains a strong credit rating and healthy
capital ratios in order to support its business and maximise sha-
reholder value.
The Company manages its capital structure and makes adjust-
ments to it, in light of changes in economic conditions.
Litigation
The Company is involved in a series of lawsuits related to ow-
nership title deeds for land on which electricity and distribution
networks lie. For all these litigation the Company sets up provi-
sions depending on the claimants’ demands.
The receivables recovery procedure stipulates the deadline by
which the Company should bring an action against the custo-
mer if he cannot (or does not) pay.
As of December 31, 2007 and 2006, the Company had commit-
ted to the following capital investment program for distribution
activity:
31.12.2007 Financed from
Own resources Total
Investments on installations 33,614 33,614
Project works 647 647
Equipment and other invest-
ment expenses
806 806
total 35,067 35,067
31.12.2006 Financed from
Own resources Total
Investments on installations 39,120 39,120
Production centre /
units development
44 44
Equipment and other invest-
ment expenses
813 813
total 39,977 39,977
These capital expenditure projects are reviewed periodically.
Consequently the actual figures may be different from those
estimated above.
The Company has no operating lease commitments.
Environmental matters
During 2007 the Company developed its program aimed at
monitoring and reducing the pollution level of its installati-
ons. The environment protection expenses incurred by the
Company in 2007 and 2006 were approximately RON 224
thousand (2006: RON 69 thousand). The main expenses
were made for the prevention of water and soil pollution and
for the recovery and protection of land. The accompanying
financial statements do not include any provision for contin-
gent environmental liabilities.
ownership titles for land
According to the Company’s policy, the financial statements
include only the value of land for which title deeds were obtai-
ned as at the date of issuance of these financial statements.
According to Law 99/1999, in case the Company obtains
the title deeds to land after the privatisation, the land will be
considered as contribution in kind of the State or local au-
thorities. In this respect, the Company will increase the share
capital in line with the value of the land, and the beneficiary of
this increase will be the State or local authorities.
According to Law 318/2003, the land on which transformer
stations, electricity distribution networks are located, until
the date of this law being effective in use (August 16, 2003),
32. COmmiTmENTS aNd CONTiNgENCiES
FINANCIAL sTATEmENTs
are and remain in the State ownership. Moreover, licenses
holders for exploiting the capacities of production, distributi-
on and transport of electricity will obtain the right to use and
to have access to public facilities in relation with the land,
public or private ownership, located in the neighbourhood of
energetic capacities.
The Law does not prohibit the Company from obtaining title
deeds for land on which conversion stations or electricity dis-
tribution networks are located.
The Company is involved in a series of lawsuits related to ow-
nership title deeds for land on which electricity and distribu-
tion networks lie (lawsuits in progress when Law 318/2003
was effective). The final outcome of these legal actions could
not be estimated as of the date of issuance of these financial
statements.
Lay-off staff indemnities
According to the Collective Labour Agreement between the
Company and the Trade Unions, the Company is obliged to
pay lay-off indemnities to the employees made redundant
based on the number of years of employment with the Com-
pany, as follows:
33. SuBSEQuENT EvENTS
Number of years No. of gross salaries
1 - 5 years 4
5 -10 years 6
10 - 20 years 7
over 20 years 10
other contingencies
The Company is and may become party to certain lawsuits
or governmental actions before various courts and govern-
mental agencies arising from the course of normal business
and involving contractual matters, income and value added
taxes and other matters. These lawsuits or actions may have
a material impact upon the Company’s financial position or
results of operations.
In 2008 the implementation of PROGRES IV project was initi-
ated. Progres IV is a project of company restructuring and has
as a goal structural transformation of the Company not only
through passing from county organization to 3 districts orga-
nization (Oltenia Nord, Oltenia Vest and Oltenia Est), but also
through a new approach on tasks distribution in operational
divisions.
The goals of those transformations are: an increase of the
Company’s profitability, security in customers supplier; fulfil-
ment of performance standards; social responsibility in under
- privileged geographical area; and organizational efficiency
and work performance.
During 2008 the Company has received 441 voluntary termi-
nation requests from the employees, of which 393 requests
were accepted by the Company, 33 requests were rejected
and 15 request are still under consideration. The gross value
of compensatory payments for the 393 employees with accep-
ted requests for voluntary termination from the company were
estimated to be RON 17, 206 thousand, and will be paid in
2008.
For the implementation of the project, after the registration of
the voluntary termination leave request, a 91 employees will
be included in the procedure of collective dismissal and also
there will be 90 available positions, with possibility that, some
of those dismissed may be transferred to other available po-
sitions.
79
ORGANIZATIONAL sTRUCTURE
General meeting CEZ Romania
bod CEZ Romania
CEo
Communication & PRCorporate affairsProject OfficeFinance Office Management
Distribution NetworkManagement
Shared ServicesProcurementand Logistics
BusinessDevelopment
CEZ RomânIA
OrgaNiZaTiONaL STruCTurE
81
General meeting vânzare
bod CEZ vânzare
CEo
Administrative& Financial
Support ServicesStrategy
& Marketing Sales
New marketsdevelopment
Craiova Area
Vâlcea Area
Piteşti Area
CEZ dIstRIbuţIE
CEZ vânZARE
OrgaNiZaTiONaL STruCTurE
General meeting CEZ distribuţie
bod CEZ distribuţie
CEo
Administration& Finance
Network Planning& Management
Network Operations& Maintenance
Strategy &Asset Development
Metering
ORGANIZATIONAL sTRUCTURE
General Meeting CEZ Servicii
CEO
Bod CEZ Servicii
Company Administration& Departments reporting directly to CEOHuman Resources DIRECTIONFinancial DIRECTION Customer Services DIRECTIONIT & Telecom. DIRECTION
User Support Manager
Telco Manager
Payroll & Motiv. Coordinator
Customer Relations Center Manager
Billing Manager Personal Admin. Coordinator
Career Mgmt Coordinator
Debts ManagerKey Account Manager
(1=CEZ R, 1=CEZ D, 1=CEZ V)
Quality & Environment +Safety & Fire Protection Officer
Office Manager
Internal Audit Officer
CEO's Assistant
Legal Officer
Interpreter
Treasury Senior Manager
Controlling Senior Manager
Accounting Senior Manager
CEZ sERvICII
83
term description
sIsE, sIsEE Maintenance and Energy Services Branch
of S.C. Electrica Serv. S.A.
AnRE The National Authority for Energy
Regulation
bmp Measurement and Protection Unit
CCm Collective Labor Contract
CEt Thermal Power Plant
CFR Romanian Railroad Company
CLA Collective Labour Agreement
Cn National Company
Cpt Own Technological Consumption
EbIt Earnings Before Interests and Taxes
EbItdA Earnings Before Interests, Taxes,
Depreciations and Amortization
EvA Economic Value Added
hG Governmental Decision
IAs International Accounting Standards
IFRs International Financial Reporting Standards
Int Improvement of Voltage Level
IQnet International Quality Network
IRE Electrical Networks Enterprise
Iso The International Standards Organization
kvA kilo Volt Ampere
LEA Aerial Electric Power Grid
LEs Underground Electric Power Grid
mhC Small Hydro Power Plant
mmGA The Ministry for Environment and
Water Management
ohsAs Occupational Health and Safety
Assessment Series
oJt County Office for Tourism
opCom The Romanian Electricity Market Operator
ots Transmission System Operator
ouG Emergency Government Ordinance
pCb Poly Chlorine Biphenyl
pRAm TC Protections, Relays and Measurement
Devices - Telecommunications
pt Transformer Point
ptA Aerial Transformer Point
pZu The Day-Ahead Market
RoA Return on Assets
RoE Return on Equity
RoIC Return on Invested Capital
sEn The National Power System
sIm The Integrated Management System
sn CFR Romanian National Railway Company
sR En Iso Romanian Quality Standards in Compliance
with ISO Standards
sRAC National Committee for Quality Assurance
gLOSSary Of TErmS aNd aBBrEviaTiONS
Key Figures method used to Calculate Key Figures
Return on Invested Capital (ROIC)
Adjusted EBIT x (1-corporate inco-me tax) / Average invested capital
Return on Equity (ROE)
Net Profit after tax / Average shareholders’ equity
Return on Assets (ROA)
Net Profit after tax / Average total assets
EBIT margin EBIT Turnover
Debt / Equity Debt / Shareholders’ equity
Total indebtedness (provisions excluded)
(Liabilities + Other liabilities - Provisions) / Total liabilities and equity
Long-term indebtedness
Long-term borrowings / Total liabilities and equity
Current ratio Current assets / Current liabilities
Operating cash flow to liabilities ratio
Operating cash flow / Liabilities
Assets turnover Total revenues / Total assets
Coverage of non-current assets
(Shareholders’ equity + Long-term liabilities) / Fixed Assets
Extent of depreciation Depreciation / Total fixed assets
mETHOd uSEd TO CaLCuLaTE KEy figurES
iNfOrmaTiON fOr SHarEHOLdErS aNd iNvESTOrSContacts
General manager
Gabriel NEGRILĂ
Tel.: +40 251 40 50 00
e-mail: [email protected]
Financial director
Daniel RĂDUţ
Tel.: +40 251 40 54 00
e-mail: [email protected]
Communication and public Relation director
Maria ANDREI
e-mail: [email protected]
Statutory Declaration:
I hereby declare that the information presented in the Annu-
al Report is factual and that no material circumstances have
been omitted or distorted.
Gabriel nEGRILĂ
General manager
CEZ distribuţie s.A.
pErSONS rESpONSiBLE fOr THE aNNuaL rEpOrT