Latvenergo Group Consolidated
and Latvenergo AS Annual Report
2021
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Latvenergo Group Consolidated and Latvenergo AS Annual Report
Financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS)
Contents
3 Key Figures
5 Management Report
12 Financial Statements
12 Statement of Profit or Loss
12 Statement of Comprehensive Income
13 Statement of Financial Position
14 Statement of Changes in Equity
15 Statement of Cash Flows
16 Notes to the Financial Statements
65 Independent Auditors’ Report
Notes to the Financial Statements
16 No. 1. Corporate information
16 No. 2. Summary of significant accounting policies
21 No. 3. Financial risk management
24 No. 4. Critical accounting estimates and judgements
28 No. 5. Operating segment information
31 No. 6. Revenue
34 No. 7. Other income
34 No. 8. Raw materials and consumables
34 No. 9. Personnel expenses
35 No. 10. Other operating expenses
35 No. 11. Finance income and costs
35 No. 12. Income tax
36 No. 13. Intangible assets
37 No. 14.Property, plant and equipment
42 No. 15. Leases
44 No. 16. Non–current financial investments
45 No. 17. Inventories
46 No. 18. Receivables from contracts with customers and other receivables
48 No. 19. Cash and cash equivalents
48 No. 20. Share capital
49 No. 21. Reserves, dividends and earnings per share
50 No. 22. Other financial investments
50 No. 23. Borrowings
51 No. 24. Derivative financial instruments
53 No. 25. Fair values and fair value measurement
56 No. 26. Trade and other payables
56 No. 27. Provisions
58 No. 28. Deferred income
59 No. 29. Related party transactions
62 No. 30. Discontinued operation
63 No. 31. Changes in liabilities arising from financing activities
63 No. 32. Commitments and contingent liabilities
64 No. 33. Events after the reporting year
FINANCIAL CALENDAR
Interim Condensed Financial Statements:
For the 3 months of 2022 (unaudited) – 31.05.2022
For the 6 months of 2022 (unaudited) – 31.08.2022
For the 9 months of 2022 (unaudited) – 30.11.2022
22
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Key figures
In order to ensure an objective and comparable presentation of the financial results, Latvenergo Group and Latvenergo AS uses various financial figures and ratios that are derived from the financial statements.
Latvenergo Group
Operational figures 2021 2020 2019 2018 2017
Total electricity supply, incl.: GWh 9,260 8,854 9,259 9,984 10,371
- Retail* GWh 6,706 6,394 6,505 6,954 6,923
- Wholesale** GWh 2,554 2,460 2,754 3,030 3,448
Retail natural gas GWh 1,026 516 303 147 33
Electricity generated GWh 4,517 4,249 4,880 5,076 5,734
Thermal energy generated GWh 2,072 1,702 1,842 2,274 2,612
Number of employees 3,153 3,295 3,423 3,508 3,908
Moody’s credit rating Baa2 (stable) Baa2 (stable) Baa2 (stable) Baa2 (stable) Baa2 (stable)
EUR’000
Financial figures 2021 2020 2019 2018 2017
Revenue*** 1,065,219 773,391 841,636 838,805 881,212
EBITDA*** 198,813 277,894 243,526 281,947 497,731
Operating profit 81,890 121,350 100,365 81,983 214,462
Profit before tax 74,930 112,699 92,072 74,734 224,114
Profit for the year 71,623 116,309 94,359 75,955 322,021
Dividends paid to equity holder of the Parent Company 98,246 127,071 132,936 156,418 90,142
Assets 3,475,890 3,358,835 3,864,941 3,798,819 4,415,725
Non–current assets 2,894,502 2,976,192 2,798,712 3,364,534 3,343,404
Equity 2,123,448 2,118,242 2,265,487 2,320,065 2,846,891
Borrowings 795,029 743,199 882,671 814,343 826,757
Net debt***
1)
697,950 555,876 563,959 505,419 496,730
Net cash flows generated from operating activities 131,749 291,194 315,433 302,869 338,209
Adjusted funds from operations (FFO)
2)
219,534 269,479 271,593 209,732 364,632
Capital expenditure 126,728 168,855 229,427 220,607 243,811
Based on the most commonly used financial figures and ratios in the industry, the Latvenergo Group
Strategy for 2017-2022 and 2022-2026 (see also the Management Report – section Further development,
and Sustainability Report), as well as the binding financial covenants set in the Group’s loan agreements,
Latvenergo Group has set here and therefore uses the following financial figures and ratios:
y profitability measures – EBITDA; EBITDA margin; operating profit margin; profit before tax margin;
profit margin; return on assets (ROA); return on equity (ROE); adjusted ROE excluding distribution;
return on capital employed (ROCE)
y capital structure measures – net debt
1)
; adjusted FFO
2)
/net debt; equity–to–asset ratio; net
debt/EBITDA; net debt / equity; current ratio
y a dividend policy measure – dividend pay–out ratio
Starting from this year report, the financial figures and ratios have supplemented by the following: adjusted
FFO / net debt and adjusted ROE excluding distribution business. These ratios are included in the
Latvenergo Group Strategy for 2022-2026.
* Including operating consumption
** Including sale of energy purchased within the mandatory procurement on the Nord Pool
*** Figures and ratios for 2017 - 10 June 2020 are presented by excluding discontinuing operations (unbundling transmission system asset ownership), see
Note 30 of the Financial Statements
1) Net debt = borrowings at the end of the reporting year – cash and cash equivalents at the end of the reporting year
2) Adjusted funds from operations (FFO) = Net cash flows generated from operating activities – (changes in inventories + changes in receivables from contracts
with customers and other receivables) – changes in trade and other liabilities –compensation from the state-on-state support for the installed capacity of
CHPPs
Financial ratios 2021 2020 2019 2018 2017 Formulas
EBITDA margin 19% 36% 29% 34% 56% EBITDA / revenue
Operating profit margin 7.7% 15.7% 11.9% 9.8% 24.3% Operating profit / revenue
Profit before tax margin 7.0% 14.6% 10.9% 8.9% 25.4% Profit before tax / revenue
Profit margin 6.7% 15.0% 11.2% 9.1% 36.5% Profit for the year / revenue
Adjusted FFO / net debt 35% 48% 51% 42% 71% Adjusted FFO / ((net debt at the beginning of the reporting year + net debt at the end of the reporting year) /2)
Equity–to–asset ratio 61% 63% 59% 61% 64% Equity at the end of the reporting year / assets at the end of the reporting year
Net debt / EBITDA 3.2 2.0 2.2 1.8 1.0 (Net debt at the beginning of the reporting year + net debt at the end of the reporting year) / 2 / EBITDA
Net debt / equity 0.33 0.26 0.25 0.22 0.17 Net debt at the end of the reporting year / equity at the end of the reporting year
Current ratio 1.4 1.5 1.2 1.5 3.2 Current assets at the end of the reporting year / current liabilities at the end of the reporting year
Return on assets (ROA) 2.1% 3.2% 2.5% 1.8% 7.7% Profit for the year / ((assets at the beginning of the reporting year + assets at the end of the reporting year) / 2)
Return on equity (ROE) 3.4% 5.3% 4.1% 2.9% 12.2% Profit for the year / ((equity at the beginning of the reporting year + equity at the end of the reporting year) / 2)
Adjusted ROE excluding distribution 5.5% 7.7% 4.8% 2.6% 11.5%
(Group's profit for the year – Sadales tīkls AS profit for the year) / ((Group's equity at the beginning of the reporting year –
SadalestīklsAS equity at the beginning of the reporting year + Group's equity at the end of the reporting year – Sadales tīkls AS equity
at the end of the reporting year) / 2)
Return on capital employed (ROCE)*** 2.9% 4.2% 3.4% 2.5% 6.4%
Operating profit / ((equity at the beginning of the reporting year + equity at the end of the reporting year) / 2) + (borrowings at the
beginning of the reporting year + borrowings at the end of the reporting year) / 2)
Dividend pay–out ratio 63% 126% 62% 104% 66% Dividends paid to equity holder of the Parent Company / profit of the Parent Company in the previous year
33
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
* Including operating consumption
** Including sale of energy purchased within the mandatory procurement on the Nord Pool
*** Figures and ratios for 2017 - 10 June 2020 are presented by excluding discontinuing operations (unbundling transmission system asset ownership), see
Note 30 of the Financial Statements
1) Net debt = borrowings at the end of the reporting year – cash and cash equivalents at the end of the reporting year
Latvenergo AS
Operational figures 2021 2020 2019 2018 2017
Total electricity supply, incl.: GWh 5,304 5,318 5,502 5,826 6,265
- Retail* GWh 3,999 4,235 4,211 4,406 4,619
- Wholesale** GWh 1,305 1,083 1,290 1,419 1,645
Retail natural gas GWh 804 453 294 145 33
Electricity generated GWh 4,495 4,215 4,832 5,028 5,687
Thermal energy generated GWh 1,800 1,475 1,603 2,007 2,354
Number of employees at the end of the
reporting year 1,269 1,267 1,328 1,355 1,431
Moody’s credit rating Baa2 (stable) Baa2 (stable) Baa2 (stable) Baa2 (stable) Baa2 (stable)
EUR’000
Financial figures 2021 2020 2019 2018 2017
Revenue*** 592,785 385,612 437,529 435,199 498,580
EBITDA*** 85,275 197,889 112,651 160,927 387,100
Operating profit 52,367 111,630 45,108 33,803 177,416
Profit before tax 79,520 154,848 101,227 212,760 185,906
Profit for the year 79,520 154,848 101,227 212,733 150,891
Dividends paid to equity holder of the Parent Company 98,246 127,071 132,936 156,418 90,142
Assets 2,915,587 2,760,155 3,136,958 3,141,109 3,649,200
Non–current assets 2,215,793 2,307,985 2,615,113 2,661,307 2,546,014
Equity 1,761,070 1,746,436 1,949,287 1,993,823 2,382,638
Borrowings 782,322 733,392 872,899 802,268 814,772
Net debt***
1)
689,904 548,511 555,348 494,944 486,393
Net cash flows generated from operating activities 355,549 446,162 378,142 394,395 449,352
Capital expenditure 29,545 50,999 48,269 41,350 89,278
Financial ratios 2021 2020 2019 2018 2017 Formulas
EBITDA margin 14.4% 51.3% 25.7% 37.0% 77.6% EBITDA / revenue
Operating profit margin 8.8% 28.9% 10.3% 7.8% 35.6% Operating profit / revenue
Profit before tax margin 13.4% 40.2% 23.1% 48.9% 37.3% Profit before tax / revenue
Profit margin 13.4% 40.2% 23.1% 48.9% 30.3% Profit for the year / revenue
Equity–to–asset ratio 60% 63% 62% 63% 65% Equity at the end of the reporting year / assets at the end of the reporting year
Net debt / equity 0.39 0.31 0.29 0.25 0.24 Net debt at the end of the reporting year / equity at the end of the reporting year
Current ratio 1.8 2.3 1.8 2.0 4.3 Current assets at the end of the reporting year / current liabilities at the end of the reporting year
Return on assets (ROA) 2.8% 5.3% 3.2% 6.3% 4.4% Profit for the year / ((assets at the beginning of the reporting year + assets at the end of the reporting year) / 2)
Return on equity (ROE) 4.5% 8.4% 5.1% 9.7% 6.6% Profit for the year / ((equity at the beginning of the reporting year + equity at the end of the reporting year) / 2)
Return on capital employed (ROCE)*** 2.1% 4.4% 1.7% 1.2% 5.9%
Operating profit / ((equity at the beginning of the reporting year + equity at the end of the reporting year) / 2) + (borrowings at the
beginning of the reporting year + borrowings at the end of the reporting year) / 2)
Dividend pay–out ratio 63% 126% 62% 104% 66% Dividends paid to equity holder of the Parent Company / profit of the Parent Company in the previous year
44
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Management Report
Latvenergo Group (the Group) is one of the largest power suppliers and a leader in green energy generation
in the Baltics, operating in electricity and thermal energy generation and trade, natural gas trade, supply of
products and services related to electricity consumption and energy efficiency, and electricity distribution
services.
Latvenergo Group – one of the largest power suppliers in the Baltics
The parent company of Latvenergo Group is Latvenergo AS which is a power supply utility operating in
electricity and thermal energy generation and trade, natural gas trade, as well as supply of products and
services related to electricity consumption and energy efficiency in Latvia.
Operating Environment
In Europe, 2021 will go down in the history of the electricity market with the largest price records. In 2021,
the Nord Pool system price was almost six times higher than in 2020 (+472%), reaching 62.3 EUR/MWh.
Electricity spot prices in the Baltics were more than two and a half times higher than in 2020.
Record-high electricity and energy resource prices
Average Nordpool electricity market price, EUR/MWh
2021 2020 Δ, %
Latvia 88.8 34.0 161%
Estonia 86.7 33.7 157%
Lithuania 90.5 34.0 166%
Poland 86.7 40.8 113%
Sweden 57.9 19.0 205%
Finland 72.3 28.0 158%
Denmark 88.0 26.7 230%
Norway 56.9 9.3 512%
Germany 96.9 30.5 218%
France 109.2 32.2 239%
Great Britain 137.1 39.6 246%
The rapid rise in electricity prices in the Nord Pool region was affected by various factors: multiple increases
in gas prices and CO
2
emission allowances, 5% higher demand for electricity, and lower generation of
wind power plants in Europe. The price of natural gas at TTF (virtual trading point for natural gas), which
often determines the price of electricity in the Baltics during the peak hours, reached 115.8 EUR/MWh
in December 2021 (in December 2020 it was 16.2 EUR/MWh). Meanwhile, the price of CO
2
emission
allowances hit 80 EUR/t in December 2021, which is 2.6 times higher than in 2020. In 2021, the monthly
increase in electricity prices in Latvia marked new historical records for the average monthly price, reaching
207.4 EUR/MWh in December
In 2021, the price of natural gas in Europe was mainly impacted by higher consumption, lower supply
volumes and higher prices of other energy products. At the end of the reporting year, the natural gas
reserve fill rate in Europe’s gas storage facilities reached 54%, which is 20% lower than in the previous
year, and 26% below the 10–year average. In the reporting year, the price of natural gas at the TTF (Front
Month) reached 46.9 EUR/ MWh, which is almost five times higher than in 2020, when the average price
was 9.6 EUR/ MWh.
The average price of CO
2
emission allowances (EUA DEC.21) in 2021 was more than two times higher
than in the previous year, reaching 53.3 EUR / t. The rise in allowance prices was impacted by rising raw
material prices, a lower amount of emission allowances allocated to the market, and the reforms adopted
by the European Commission to reduce greenhouse gas emissions by 2030.
50
100
150
200
250
Jan 2020 Apr 2020 Jul 2020 Oct 2020 Jan 2021 Apr 2021 Jul 2021 Oct 2021
Energy resource prices
EUR/MWh, EUR/t
Electricity: Nord Pool Latvia Natural gas: TTF CO
2
emmission allowances
55
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Significant Events
Unbundling transmission system asset ownership
According to the Cabinet of Ministers of the Republic of Latvia (CM) decision on 8 October 2019,
transmission system assets in the amount of EUR 694.3 million were separated from Latvenergo Group
on 10 June 2020. The separation of the transmission system assets was carried out by reducing the share
capital of Latvenergo AS by EUR 222.7 million, which was the value of Latvijas elektriskie tīkliAS(LET)
shares. Along with the unbundling of LET, all LET liabilities were transferred to Augstsprieguma tīkls AS,
including the Latvenergo AS loan to LET in the amount of EUR 225 million. For more details, please
see the Group’s annual report for 2020. Along with the unbundling of transmission system assets, the
investment financing required by the Group decreased.
Changes in the Management Board of Latvenergo AS
On 16 November 2021, the Supervisory Board of Latvenergo AS elected a new Chairman of the
Management Board and members of the Management Board with a five–year term. Mārtiņš Čakste has
been appointed as the Chairman of the Management Board of Latvenergo AS, while Dmitrijs Juskovecs
and Harijs Teteris have been appointed as members of the Management Board. The new members of
the Management Board took office on 3 January 2022. Current board members Guntars Baļčūns and
Kaspars Cikmačs continue their work in the Management Board.
Impact of COVID–19 on Latvenergo Group operations
From 11 October 2021 to 28 February 2022, the Latvian government declared a state of emergency
in order to limit the spread of COVID–19. Latvenergo Group continuously evaluates the impact of the
spread of COVID–19, implements measures for customer and employee safety, and ensures appropriate
shift arrangements in the facilities of strategic importance: the Daugava HPPs, the Latvenergo AS
Combined Heat and Power Plants (CHPPs) and the facilities of Sadales tīkls AS.
In the reporting year, Latvenergo Group’s services were not significantly impacted by the spread of
the virus. The Group continued to ensure generation of electricity and thermal energy, as well as
uninterrupted and accessible trade and distribution of electricity and natural gas to all its customers.
State aid for the reduction of energy prices
Considering the extraordinary increase in energy prices in 2021, in accordance with CM Regulation
No.895 on 21December 2021, all end users of electricity from 1 December to 31 December2021
were granted state aid for the reduction of the electricity distribution system service fee by 50%,
which was compensated from the state budget. Meanwhile, after the end of the reporting year,
in January2022, the Saeima of the Republic of Latvia adopted a law on measures to reduce the
extraordinary rise in energy prices. The aim of this law is to reduce the negative socioeconomic impact
on the well–being of the population and economic growth, which is associated with an unprecedented
sharp rise in energy prices. The law provides for various types of support measures to legal and natural
persons to partially compensate the rising costs of energy resources for four months (from 1 January
to 30April2022). In total, four support measures are included to reduce the costs of electricity, heat,
and natural gas. The necessary financing for the implementation of the support measures specified by
law is EUR250million, which will be provided from the state budget programme “Contingency Funds”.
Various state support mechanisms for reducing energy prices have been established in Estonia and
Lithuania, too.
The CM supports the intention to establish a joint venture for the
development of wind farms in Latvia
After the reporting year, on 22 February 2022, the CM conceptually approved the proposal of the
Ministry of Economics, which urgently addresses the targets of the National Energy and Climate Plan
for 2021–2030 and strengthens the state’s energy independence. The state plans to build new wind
farms of strategic importance on state–owned land by entrusting the implementation of this project to
a joint venture established by Latvenergo AS and Latvijas valsts meži AS. For further progress of the
project, the Ministry of Economics must prepare the necessary amendments to regulatory enactments,
to promote the development of wind farms in Latvia, as well as obtain a permit from the CM for the
establishment of a joint venture between Latvenergo AS and Latvijas valsts meži AS for the development
of wind farm projects.
Russia’s invasion of Ukraine
On 24 February 2022, the Russian Federation has launched an invasion of the Republic of Ukraine.
Shortly after the invasion, the EU and rest of the world, including global bodies, imposed wide–ranging
set of restrictive measures against Russia, which is updated and expanded on a regular basis.
Until the date of authorisation of these financial statements, the restrictive measures imposed had no
significant impact on the Group’s performance, no operations had been suspended and no significant
direct losses related to the restrictive measures had been incurred at the date of the financial statements.
Latvenergo Group has not entered into any significant direct agreements with companies in Russia,
Belarus, or Ukraine, which could have a material negative impact on the Group’s operations in the
current situation.
Assessing the possible risks related to the Russia’s invasion of Ukraine and in accordance with the task
given by the government on 24 February 2022 to replenish gas reserves for national security purposes,
Latvenergo AS has swiftly procured approximately 2 terawatt hours (TWh) of gas for the security
of supply of production of the combined heat and power plants of Latvenergo AS. The concluded
agreements envisage liquefied natural gas supply to Klaipeda Terminal and injection of gas into Inčukalns
66
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
underground gas storage in April and May 2022. Natural gas will be supplied from Norway, the USA and
Qatar. The purchased amount of gas will ensure the production of electricity and heat at the planned
production regime of the combined heat and power plants of Latvenergo AS in 2022, at the same time
envisaging gas reserves in the event of a possible energy crisis.
Operating Results
Generation
Latvenergo Group is the largest green electricity producer in the Baltics. Latvenergo Group produced 29%
of the total electricity generated in the Baltics. The total amount generated by Latvenergo Group’s power
plants comprised 4,517 GWh of electricity and 2,072 GWh of thermal energy.
Latvenergo Group is a leader in green energy generation in the Baltics
In 2021, the amount of power generated at the Daugava HPPs increased by 4% compared to the
previous year, reaching 2,636 GWh. The share of electricity generated from renewable energy sources at
Latvenergo Group was 59% (2020: 60%).
The amount generated at the Latvenergo AS CHPPs increased by 10%, reaching 1,854 GWh. The
relatively larger amount of power generated at the CHPPs was impacted by lower output in 2020, when
there were warm weather conditions and lower electricity prices. The operation of the CHPPs is adjusted
to the conditions of the electricity market and heat demand.
The total amount of thermal energy generated by Latvenergo Group increased by 22% due to colder
weather conditions in the heating season. Data from the Central Statistical Bureau show that the average
air temperature in Riga in the reporting year was +1.8 C°, whereas in 2020 it was +5.1 C°.
Trade
Latvenergo Group is one of the largest energy traders in the Baltics, offering its customers electricity and
natural gas, as well as a wide range of related products and services, under the Elektrum brand.
Latvenergo – an energy company that operates in all segments of the market in Latvia,
Lithuania, and Estonia
In 2021, total electricity consumption in the Baltics increased by 4% compared to the previous year,
reaching 28.7 TWh. Electricity consumption increased by 3% in Latvia and Lithuania and by 6% in Estonia.
The increase in consumption in the Baltic region was affected by colder weather at the beginning and the
end of the reporting year, a hotter summer, and economic recovery after COVID–19 restrictions.
In 2021, the Group supplied 6.7 TWh of electricity to its customers in the Baltics, which is 5% more than in
the previous year. The increase in electricity sales was impacted by the increased sales in markets outside
Latvia, especially in the segments of large business customers and households in Lithuania as well as
the purchase of the Estonian customer portfolio from the electricity company Imatra Elekter. The overall
amount of retail electricity trade outside Latvia accounted for about 40% of the total. The electricity trade
volume in Latvia was 4.0 TWh, while in Lithuania it was 1.6 TWh and in Estonia it was 1.1TWh.
The total number of electricity customers comprised about 755 thousand, including more than 90thousand
foreign customers.
In August 2021, the Group’s company Elektrum Eesti acquired shares in three micro–network service
companies in Estonia and took over almost 20,000 customers in Estonia from the Finnish company Imatra
Elekter, thus significantly increasing Latvenergo Group’s competitiveness in the Estonian electricity and
related products and services market.
Latvenergo Group’s natural gas sales to retail customers almost doubled, exceeding 1 TWh.
In the reporting year, we continued to develop retail activities of other products and services related to
electricity consumption and energy efficiency. The number of contracts for the installation of solar panels
and trade of solar park components in the Baltics increased more than two times compared to 2020,
exceeding 1,300. The total installed solar panel capacity provided to Latvenergo Group’s retail customers
in the Baltics reached almost 11 MW; thus, Latvenergo Group is one of the leading providers of this
service in the Baltics. 3/4 of panels’ capacity are installed for customers outside Latvia.
Steady growth in the number of Elektrum Insured customers in the Baltics continued, reaching more than
104 thousand. We expanded the e-shop assortment and functionalities. The total number of purchases
reached more than 2,700 transactions in 2021. The most purchased products are Smart House Solutions,
Security and Lighting.
At the end of 2021, the Elektrum electric car charging network reached 90 charging ports. The number
of charges made at public charging stations by customers of the mobile application Elektrum increased
by50% compared to 2020, reaching more than 8,500 and comprising 160 MWh.
Distribution
Distribution segment provides electricity distribution services in Latvia. Sadales tīkls AS is the largest state
distribution system operator, covering approximately 99% of the territory of Latvia. Distribution system
tariffs are approved by the Public Utilities Commission (PUC).
Since 2017, Sadales tīkls AS has been implementing an efficiency programme, which comprises process
reviews, decreasing the number of employees and transportation units, and optimizing the number of
technical and support real estate bases. As of 31 December 2021, the number of employees at Sadales
tīkls AS has been reduced by almost 870. The amount of smart electricity meters installed by the company
comprised more than 970 thousand, which is about 90% of the total number of electricity meters of
customers of Sadales tīkls AS.
In 2021, the amount of electricity distributed was 6,470 GWh, which is 3% more than in 2020. It was
affected by economic recovery after Covid–19 restrictions.
77
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Investments in modernization of distribution assets have increased the quality of distribution services by
lowering System Average Interruption Frequency Index (SAIFI) and System Average Interruption Duration
Index (SAIDI) indicators. In 2021, SAIFI was 2.3 times, but SAIDI was 208 minutes. Over the last five years,
excluding mass damage situations, SAIFI has decreased by 17% and SAIDI has decreased by 21%.
The operating strategy of Sadales tīkls AS for 2022-2027 has been approved
In October 2021, the Supervisory Board of Sadales tīkls AS approved the operating strategy of Sadales
tīkls AS for 2022-2027. The strategy of the Company is integrated into the overall medium-term strategy
of Latvenergo Group.
The general long–term target of Sadales tīkls AS is to ensure a sustainable and economically viable
distribution service by managing the power grid efficiently and improving the security and quality of
electricity supply, which are important for the competitiveness and growth of the economy, while
contributing to the targets of climate neutrality. To achieve this, four targets have been set for the
next strategic period, 2022-2027: improvement of the quality and security of electricity supply; digital
transformation of the company; continuous improvement of the company and increase in its value;
ensuring sustainable development and climate neutrality.
Financial Results
In 2021, Latvenergo Group’s revenue reached EUR 1,065.2 million, which was EUR 291.8 million or
38%more than in the previous year. This was mainly impacted by:
y EUR 252.4 million higher energy sales revenues mainly due to higher electricity market prices and a
5% increase in retail sales volume
y EUR 30.8 million higher heat sales with 22% greater output due to colder weather conditions during
the heating season as well as the increase in the average sales price, which was impacted by the
higher market price of natural gas.
Group’s revenue increased by 38%
Latvenergo Group’s EBITDA decreased by EUR 79.1 million or 28% compared to 2020, reaching
EUR198.8 million. This was negatively impacted mainly by significantly higher electricity purchase prices
as well as higher natural gas and CO
2
emission allowance prices. The Group produces less electricity at its
plants than it is sold to the Group’s customers – the amount of electricity generated in the reporting year
corresponds to 67% of the electricity sold to retail customers. The missing part was bought on the market
at a higher price than fixed in our customer agreements, which had a negative impact on the EBITDA.
In 2021, the electricity spot price in Latvia was more than two and a half times higher compared to the
previous year. The price of natural gas was almost five times higher, and the average price of CO
2
emission
allowances was more than two times higher.
The Group’s profit for the reporting year reached EUR 71.6 million, which was EUR 44.7 million less than
in the previous year.
Lower profit affected the Group’s ROE, which reaches 3.4% in 2021. For information on financial
objectives, see the Sustainability Report section “Group Strategy”.
Investments
In 2021, the total amount of investment comprised EUR 126.7 million, which was EUR 42.1 million or
25% less than in the previous year. The decrease in the amount of investment was impacted mainly by the
unbundling of transmission system assets on 10 June 2020. In 2020, until the unbundling of transmission
system assets, the investment made in transmission assets comprised EUR 28.9 million.
Investment in power distribution network assets – approximately 2/3 of the total
To ensure high–quality power network service, technical parameters and operational safety, a significant
amount is invested in the modernisation of the power distribution network. In the reporting year, the
amount invested in power distribution network assets represented 67% of total investment.
Daugava HPPs reconstruction
Contributing to environmentally friendly projects, in 2021, EUR 11.7 million was invested in the Daugava
HPPs’ hydropower unit reconstruction and by the end of the reporting year, work completed within
the scope of the contract reached EUR 196.2 million. The hydropower unit reconstruction programme
for the Daugava HPPs provides for the reconstruction of 11 hydropower units in order to ensure
environmentally safe, sustainable, and competitive operations and efficient water resource management.
As of 31 December 2021, seven reconstructed hydropower units have been put into operation within the
programme. Latvenergo Group is proceeding with a gradual overhaul of four Daugava HPPs’ hydropower
units. The total reconstruction costs will exceed EUR 260 million. Reconstruction will ensure functionality
of the hydropower units for more than 40 years.
Daugava HPP reconstruction
MEUR
0 50 100 150 200 250 300
196.2 64.6
Invested as of 31.12.2021 Investments remaining
88
About Latvenergo Group
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Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Funding
Latvenergo Group finances its investments from its own resources and external long–term borrowings,
which are regularly sourced in financial and capital markets in a timely manner.
On 17 May 2021, Latvenergo AS issued seven–year green bonds with a total nominal value of
EUR 50 million, a maturity date of 17 May 2028 and a fixed annual interest rate (coupon) of 0.5%
(yield:0.543%). The bonds were issued under the third Latvenergo AS EUR 200 million programme,
and they are listed on Nasdaq Riga AS on 18 May 2021. The bonds were issued in the format of green
bonds, according to the Green Bond Framework of Latvenergo AS. The independent research centre
CICERO Shades of Green has rated the updated Latvenergo AS Green Bond Framework as Dark Green
(the highest category), indicating the compliance of the planned projects with long–term environmental
protection and climate change mitigation objectives, as well as good governance and transparency.
Moody’s reaffirmed the credit rating for Latvenergo AS: Baa2 (stable)
As of 31 December 2021, the Group’s borrowings amount to EUR 795.0 million (31 December 2020:
EUR 743.2 million), including long–term borrowings from financial institutions as well as issued debt
securities (green bonds) in the amount of EUR 150 million.
External funding sources are purposefully diversified in the long run, thus creating a balance between
lender categories in the total loan portfolio.
On 6 December 2021, Moody’s published the ESG score of Latvenergo AS, which is considered when
determining the credit rating of the company. The ESG score is neutral–to–low, or CIS–2, indicating that
the environmental, social and governance aspects of the company do not have a material effect on the
credit rating. The indicator reflects moderate environmental, social and governance risks.
After the reporting year, on 24 January 2022, Moody’s published an updated Credit Opinion of
LatvenergoAS. The rating of Latvenergo AS remains unchanged: Baa2 with a stable outlook. The credit
rating Baa2 for Latvenergo AS has been stable for seven years in a row, confirming the consistency of
operations and financial soundness of Latvenergo Group.
Corporate Governance
Along with the financial results of Latvenergo Group, also the Corporate Governance Report of
LatvenergoAS for 2021 is published. It is based on the Corporate Governance Code, which was published
in 2020 by the Corporate Governance Advisory Board established by the Ministry of Justice. Evaluating
both the governance system of the capital company and its compliance with the principles in 2021, the
Management Board considers that Latvenergo AS complies in all material aspects with all the principles
set out in the Code, except for the criterion of gender representation on the company’s Supervisory
Board. For detailed information see the Sustainability Report 2021.
Non-financial Report
Latvenergo Group has prepared a non–financial report in accordance with the Law on the Financial
Instruments Market (Article 56
4
).
Non-financial report is prepared in accordance with the GRI Standards
For detailed information on CSR activities, description of the policies and procedures in relation to those
matters, the outcome of the policies, risks and risk management, and non–financial key performance
indicators, please see the Sustainability Report 2021 which is available on the Latvenergo website:
http://www.latvenergo.lv. The report is prepared in accordance with the GRI Standards – Core option
requirements.
The sustainability report addresses such topics as corporate social responsibility, economic performance,
product responsibility, society, employees and the work environment, environmental protection, etc.
Latvenergo Group’s debt repayment schedule
Long-term borrowings as of 31 December 2021: 795.0 MEUR
MEUR
2025 2026 2027-2034
103.0
49.9
200.8
2021 20232022 2024
77.9
177.3
83.0
Loans Repaid in reporting yearGreen Bonds
180.9
99
About Latvenergo Group
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the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Further Development
In 2021, Latvenergo Group operated in accordance with the targets and objectives set in the medium-
term operational strategy for 2017-2022, which have been fulfilled. The fulfilment of the targets set in the
strategy provided an opportunity to evaluate the achievements in time and to set precise targets and
objectives for the new strategy period, also taking into consideration the dynamic changes in the external
environment. Accordingly, in 2021, Latvenergo Group’s medium-term strategy for 2022-2026, with new
strategic operational and financial targets, was developed, and approved by the Supervisory Board of
Latvenergo in March 2022. New strategic objectives comprise:
y expand and diversify the generation portfolio with green technologies
y strengthen the position of Elektrum as the most valuable energy trader in the Baltics
y develop electrification of the transport sector
y ensure a sustainable and economically viable distribution service and improve the security and quality
of electricity supply.
The new Group’s strategy takes into account current climate and energy policy settings
Along with the strategy approval, Latvenergo Group’s financial targets have been set. The targets are
divided into four groups – profitability, capital structure, dividend policy and other.
The financial targets are set to ensure:
y ambitious, yet achievable profitability, which is consistent with the average ratios of benchmark
companies in the European energy sector and provides for an adequate return on the business risk
y an optimal and industry–relevant capital structure that limits potential financial risks
y an adequate dividend policy that is consistent with the planned investment policy and capital structure
targets
y an investment grade credit rating to secure funding for the strategy’s ambitious investment programme.
Target group Ratio Year 2026
Profitability Return on equity (ROE) excluding Distribution (*) > 7%
Capital structure Adjusted FFO / Net Debt ratio > 25%
Dividend policy Dividend pay–out ratio > 64%
Other Moody's credit rating Maintain an investment grade credit rating
* The profitability of the regulated services provided by the Group is determined by the Public Utilities Commission. The most significant share in the Group’s
regulated services is the Distribution service. When evaluating the fulfilment of the ROE target, the Group’s return indicator will be assessed, excluding the
regulated return on the distribution service – ROE excluding Distribution
More information on the 2021 targets and the new strategy can be found in the Sustainability Report
2021.
Financial Risk Management
The activities of Latvenergo Group and Latvenergo AS are exposed to a variety of financial risks: market
risks, credit risk, and liquidity and cash flow risk. Latvenergo Group’s Financial Risk Management Policy
focuses on eliminating the potential adverse effects from such risks on financial performance. In the
framework of financial risk management, Latvenergo Group and Latvenergo AS use various financial risk
controls and hedging to reduce certain risk exposures.
a) Market risks
I) Price risk
Price risk might negatively affect the financial results of Latvenergo Group and Latvenergo AS due to
falling revenue from generation and a mismatch between electricity purchases at floating market prices
and retail sales at fixed prices.
The main sources of Latvenergo Group’s and Latvenergo AS exposure to price risk are the floating market
prices of electricity on the Nord Pool power exchange in Baltic bidding areas and the fuel price for CHPPs.
The financial results of the Group and the Parent Company may be negatively affected by the volatility of
the electricity market price, which depends on the weather conditions in the Nordic countries, global prices
of resources, and the influence of local factors (water availability and ambient air temperature) on electricity
generation opportunities. Movement in natural gas price due to changing demand–supply factors and
seasonal fluctuations may have a negative effect on the difference between fixed retail electricity prices in
contracts with customers and variable generation costs at CHPPs.
In order to hedge the price risk, the Latvenergo Group and Latvenergo AS enter into long–term fixed
price customer contracts for hedging electricity generation price risk, uses electricity and natural gas
financial derivatives, and enter into fixed price contracts for natural gas supply. The impact of price risk
on generation is hedged gradually – price has been fixed for 55%–60% of projected electricity output
prior to the upcoming year. Further hedging of risk is limited by the seasonal generation pattern of the
Daugava HPPs.
II) Interest rate risk
Latvenergo Group’s and Latvenergo AS interest rate risk mainly arises from non–current borrowings at
variable interest rates. They expose the Group and the Parent Company to the risk that finance costs
might increase significantly when the reference rate surges. The borrowings from financial institutions
have a variable interest rate, comprising 6–month EURIBOR and a margin. The Group’s Financial
Risk Management Policy stipulates maintaining more than 35% of its borrowings as fixed interest rate
borrowings (considering the effect of interest rate swaps and issued bonds) with a duration of 1–4 years.
Considering the effect of interest rate swaps and bonds with a fixed interest rate, 37% of the Group’s
and 38% of the Parent Company’s borrowings had a fixed interest rate with an average duration of
1,5years both for the Group and the parent Company as of 31 December 2021.
1010
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– Key Figures
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Statement of Profit or Loss
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Statement of Cash Flows
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– Independent Auditors’
Report
III) Currency risk
Foreign currency exchange risk arises when future transactions or recognised assets or liabilities are
denominated in a currency other than the functional currency, which is the EUR.
As of 31 December 2021, all borrowings of Latvenergo Group and Latvenergo AS are denominated in
euros, and during the reporting year, there was no substantial exposure to foreign currency risk as regards
the Group’s and the Parent Company’s investments in non–current or current assets.
To manage the foreign currency exchange risk, the Financial Risk Management Policy envisages use of
foreign exchange forward contracts.
b) Credit risk
Credit risk is managed at the Latvenergo Group level. Credit risk arises from cash and cash equivalents,
derivative financial instruments and deposits with banks, and receivables. Credit risk exposure of
receivables is limited due to the large number of Group customers as there is no significant concentration
of credit risk with any single counterparty or group of counterparties with similar characteristics.
Credit risk related to cash and deposits with banks is managed by balancing the placement of financial
assets in order to simultaneously choose the best offers and reduce the probability of incurrence of loss.
No credit limits were exceeded during the reporting year, and the management does not expect any
losses due to the occurrence of credit risk.
c) Liquidity risk and cash flow risk
Latvenergo Group’s liquidity and cash flow risk management policy is to maintain a sufficient amount of
cash and cash equivalents and the availability of long and short–term funding through an adequate amount
of committed credit facilities in order to meet existing and expected commitments and compensate for
fluctuations in cash flows due to the occurrence of a variety of financial risks. On 31 December 2021,
Latvenergo Group’s liquid assets (cash and cash equivalents – short–term deposits up to 3 months)
reached EUR 97.1 million (31 December 2020: EUR 100.7 million), while the Latvenergo AS liquid assets
reached EUR 92.4 million (31 December 2020: EUR 98.3 million).
The Group and the Parent Company continuously monitor cash flow and liquidity forecasts, which
comprise the undrawn borrowing facilities and cash and cash equivalents.
Events after the reporting period
After the reporting year, on 22 February 2022, the CM conceptually approved the proposal of the
Ministry of Economics, which urgently addresses the targets of the National Energy and Climate Plan for
2021-2030 and strengthens the state’s energy independence. The state plans to build new wind farms
of strategic importance on state–owned land by entrusting the implementation of this project to a joint
venture established by Latvenergo AS and Latvijas valsts meži AS. For further progress of the project, the
Ministry of Economics must prepare the necessary amendments to regulatory enactments, to promote
the development of wind farms in Latvia, as well as obtain a permit from the CM for the establishment
of a joint venture between Latvenergo AS and Latvijas valsts meži AS for the development of wind farm
projects.
All other significant events that would materially affect the financial position of the Latvenergo Group and
Latvenergo AS after the reporting year are disclosed in Note 33 of the Group’s and the Parent Company’s
Financial Statements.
Statement of management responsibility
Based on the information available to the Management Board of Latvenergo AS, the Latvenergo Group
Consolidated and Latvenergo AS Annual Report 2021, including the Management Report, have been
prepared in accordance with the International Financial Reporting Standards as adopted by the EU and in
all material aspects present a true and fair view of the assets, liabilities, financial position, profit and loss
and its cash flows of Latvenergo Group and Latvenergo AS. Information provided in the Management
Report is accurate.
Profit distribution
According to the Law “On the medium–term budgetary framework for 2022, 2023 and 2024” the expected
amount of dividends to be paid by Latvenergo AS for the use of state capital in 2022 (for the reporting
year 2021) amounts to 64% of profit for the reporting year and is not less than EUR70,2million. The
distribution of net profit and amount of dividends payable is subject to a resolution of the LatvenergoAS
Shareholders Meeting.
This document is signed with a secure digital signature and contains a time stamp
The Management Board of Latvenergo AS:
Mārtiņš Čakste Dmitrijs Juskovecs Guntars Baļčūns Kaspars Cikmačs Harijs Teteris
Chairman of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board
12 April 2022
1111
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Financial Statements
Statement of Profit or Loss
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
Revenue 6 1,065,219 773,391 592,785 385,612
Other income 7 29,428 28,732 27,746 63,177
Raw materials and consumables 8 (740,127 ) (369,261 ) (458,470 ) (173,884 )
Personnel expenses 9 (105,623 ) (105,971 ) (45,413 ) (45,657 )
Other operating expenses 10 (50,084 ) (48,997 ) (31,373 ) (31,359 )
EBITDA* 198,813 277,894 85,275 197,889
Depreciation, amortisation and impairment of intangible
assets, property, plant and equipment (PPE) and
right-of-use assets
13 a,14a,
15 (116,923 ) (156,544 ) (32,908 ) (86,259 )
Operating profit 81,890 121,350 52,367 111,630
Finance income 11 2,110 2,125 11,391 12,768
Finance costs 11 (9,070 ) (10,776 ) (9,216 ) (11,293 )
Dividends from subsidiaries 16 – – 24,978 41,743
Profit before tax 74,930 112,699 79,520 154,848
Income tax 12 (3,307 ) (6,234 ) – –
Profit for the year from continuing operations 71,623 106,465 79,520 154,848
Profit for the year from discontinued operations 30 – 9,844 – –
Profit for the year 71,623 116,309 79,520 154,848
Profit attributable to:
- Equity holder of the Parent Company 21 c 70,675 114,513 79,520 154,848
- Non-controlling interests 21 c 948 1,796 – –
Basic earnings per share (in euros) 21 c 0.089 0.144 0.101 0.195
Diluted earnings per share (in euros) 21 c 0.089 0.144 0.101 0.195
* EBITDA – operating profit before depreciation, amortisation and impairment of intangible assets, property, plant, and equipment and right-of-use assets
(Earnings Before Interest, Tax, Depreciation and Amortisation)
The notes on pages 16 to 64 are an integral part of these Financial Statements
Statement of Comprehensive Income
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
Profit for the year 71,623 116,309 79,520 154,848
Other comprehensive income / (loss) to be reclassified
to profit or loss in subsequent periods:
- gains / (losses) from change in hedge reserve 21 a, 24 33,219 (7,774 ) 33,219 (7,774 )
Net other comprehensive income / (loss) to be
reclassified to profit or loss in subsequent periods 33,219 (7,774 ) 33,219 (7,774 )
Other comprehensive income / (loss) not to be
reclassified to profit or loss in subsequent periods:
- gains on revaluation of non–current assets 14 a, 21 a – 96,264 – –
- gains/(losses) as a result of re–measurement on
defined post–employment benefit plan 21 a, 27 1,098 (476 ) 121 (176 )
Net other comprehensive income / (loss) not to be
reclassified to profit or loss in subsequent periods 1,098 95,788 121 (176 )
Other comprehensive income / (loss) for the year 34,317 88,014 33,340 (7,950 )
TOTAL comprehensive income for the year 105,940 204,323 112,860 146,898
Attributable to:
- Equity holder of the Parent Company 104,992 202,527 112,860 146,898
- Non–controlling interests 948 1,796 – –
The notes on pages 16 to 64 are an integral part of these Financial Statements
This document is signed with a secure digital signature and contains a time stamp
The Management Board of Latvenergo AS:
Mārtiņš Čakste Dmitrijs Juskovecs Guntars Baļčūns Kaspars Cikmačs Harijs Teteris
Chairman of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board
Liāna Ķeldere
Accounting director of Latvenergo AS
12 April 2022
1212
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Statement of Financial Position
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
ASSETS
Non-current assets
Intangible assets 13 a 53,557 50,028 17,406 16,193
Property, plant, and equipment 14 a 2,826,654 2,827,326 1,066,973 1,071,570
Right–of–use assets 15 8,312 8,253 5,143 4,486
Investment property 14 b 3,316 512 3,602 3,334
Non-current financial investments 16 40 40 645,218 645,218
Non–current loans to related parties 29 e – 86,620 477,010 563,783
Other non-current receivables 18 c 2,544 429 441 417
Deferred income tax assets 79 – – –
Derivative financial instruments 24 – 291 – 291
Other financial investments 22 – 2,693 – 2,693
Total non-current assets 2,894,502 2,976,192 2,215,793 2,307,985
Current assets
Inventories 17 192,132 68,754 171,287 50,471
Current intangible assets 13 b 24,266 3,157 24,266 3,157
Receivables from contracts with customers 18 a 181,136 108,178 110,638 75,856
Other current receivables 18 b, c 59,740 85,316 45,402 29,610
Deferred expenses 1,235 1,083 949 960
Current loans to related parties 29 e – – 229,368 178,446
Prepayment for income tax 65 43 – –
Derivative financial instruments 24 25,735 1,266 25,466 1,266
Other financial investments 22 – 14,143 – 14,143
Cash and cash equivalents 19 97,079 100,703 92,418 98,261
Total current assets 581,388 382,643 699,794 452,170
TOTAL ASSETS 3,475,890 3,358,835 2,915,587 2,760,155
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
EQUITY AND LIABILITIES
EQUITY
Share capital 20 790,368 790,348 790,368 790,348
Reserves 21 a 1,175,355 1,154,367 795,731 766,115
Retained earnings 151,430 165,672 174,971 189,973
Equity attributable to equity holder of the Parent Company 2,117,153 2,110,387 1,761,070 1,746,436
Non-controlling interests 6,295 7,855 – –
Total equity 2,123,448 2,118,242 1,761,070 1,746,436
LIABILITIES
Non-current liabilities
Borrowings 23 614,075 634,077 603,728 626,408
Lease liabilities 15 6,540 6,783 4,085 3,734
Deferred income tax liabilities 2,955 6,401 – –
Provisions 27 15,421 17,317 7,407 8,402
Derivative financial instruments 24 2,332 9,672 2,332 9,672
Deferred income from contracts with customers 28 I) a 137,019 139,613 802 863
Other deferred income 28 I) b, c 146,115 170,413 139,958 163,480
Total non-current liabilities 924,457 984,276 758,312 812,559
Current liabilities
Borrowings 23 180,954 109,122 178,594 106,984
Lease liabilities 15 1,888 1,561 1,141 806
Trade and other payables 26 189,018 100,912 176,061 63,704
Deferred income from contracts with customers 28 II) a 15,031 15,091 67 813
Other deferred income 28 II) b, c 24,906 24,799 24,154 24,021
Derivative financial instruments 24 16,188 4,832 16,188 4,832
Total current liabilities 427,985 256,317 396,205 201,160
Total liabilities 1,352,442 1,240,593 1,154,517 1,013,719
TOTAL EQUITY AND LIABILITIES 3,475,890 3,358,835 2,915,587 2,760,155
The notes on pages 16 to 64 are an integral part of these Financial Statements
This document is signed with a secure digital signature and contains a time stamp
The Management Board of Latvenergo AS:
Mārtiņš Čakste Dmitrijs Juskovecs Guntars Baļčūns Kaspars Cikmačs Harijs Teteris
Chairman of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board
Liāna Ķeldere
Accounting director of Latvenergo AS
12 April 2022
1313
About Latvenergo Group
Corporate Governance
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Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Statement of Changes in Equity
EUR’000
Group Parent Company
Attributable to equity holder of the Parent Company
Notes
Share
capital
Reserves Retained
earnings
Reserves
classified
as held for
distribution
Total Non-
controlling
interests
TOTAL Share
capital
Reserves Retained
earnings
TOTAL
As of 31 December 2019 834,883 1,075,235 318,555 28,936 2,257,609 7,878 2,265,487 834,883 778,162 336,242 1,949,287
Decrease of share capital 20 (222,678 ) – – – (222,678 ) – (222,678 ) (222,678 ) – – (222,678 )
Increase of share capital 20 178,143 – (178,143 ) – – – – 178,143 – (178,143 ) –
Dividends for 2019 21 b – – (127,071 ) – (127,071 ) (1,819 ) (128,890 ) – – (127,071 ) (127,071 )
Disposal of non–current assets revaluation reserve 21 a – (8,882 ) 8,882 – – – – – (4,097 ) 4,097 –
Discontinued operation 21 a, 30 – – 28,936 (28,936 ) – – – – – – –
Total transactions with owners and other changes in equity (44,535 ) (8,882 ) (267,396 ) (28,936 ) (349,749 ) (1,819 ) (351,568 ) (44,535 ) (4,097 ) (301,117 ) (349,749 )
Profit for the year – – 114,513 – 114,513 1,796 116,309 – – 154,848 154,848
Other comprehensive income / (loss) for the year 21 a – 88,014 – – 88,014 – 88,014 – (7,950 ) – (7,950 )
Total comprehensive income / (loss) for the year – 88,014 114,513 – 202,527 1,796 204,323 – (7,950 ) 154,848 146,898
As of 31 December 2020 790,348 1,154,367 165,672 – 2,110,387 7,855 2,118,242 790,348 766,115 189,973 1,746,436
Increase of share capital 20 20 – – – 20 – 20 20 – – 20
Dividends for 2020 21 b – – (98,246 ) – (98,246 ) (2,508 ) (100,754 ) – – (98,246 ) (98,246 )
Disposal of non–current assets revaluation reserve 21 a – (13,329 ) 13,329 – – – – – (3,724 ) 3,724 –
Total transactions with owners and other changes in equity 20 (13,329 ) (84,917 ) – (98,226 ) (2,508 ) (100,734 ) 20 (3,724 ) (94,522 ) (98,226 )
Profit for the year – – 70,675 – 70,675 948 71,623 – – 79,520 79,520
Other comprehensive income for the year 21 a – 34,317 – – 34,317 – 34,317 – 33,340 – 33,340
Total comprehensive income for the year – 34,317 70,675 – 104,992 948 105,940 – 33,340 79,520 112,860
As of 31 December 2021 790,368 1,175,355 151,430 – 2,117,153 6,295 2,123,448 790,368 795,731 174,971 1,761,070
The notes on pages 16 to 64 are an integral part of these Financial Statements
This document is signed with a secure digital signature and contains a time stamp
The Management Board of Latvenergo AS:
Mārtiņš Čakste Dmitrijs Juskovecs Guntars Baļčūns Kaspars Cikmačs Harijs Teteris
Chairman of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board
Liāna Ķeldere
Accounting director of Latvenergo AS
12 April 2022
1414
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Statement of Cash Flows
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
Cash flows from operating activities
Profit before tax 74,930 112,699 79,520 154,848
Profit before tax from discontinued operation 30 – 9,946 – –
Profit before tax, total 74,930 122,645 79,520 154,848
Adjustments:
- Depreciation, amortisation and impairment of intangible
assets, property, plant, and equipment (PPE) and
right-of-use assets
13 a, 14
a, 15 116,923 168,146 32,908 86,259
- Loss from disposal of non–current assets 47,637 22,284 42,650 17,007
- Interest expense 11 8,877 10,355 9,033 10,963
- Interest income 11 (1,558 ) (2,137 ) (10,840 ) (12,780 )
- Fair value loss / (income) on derivative financial
instruments 8 13,057 (1,242 ) 13,325 (1,242 )
- Dividends from subsidiaries 16 – – (24,978 ) (41,743 )
- Decrease in provisions 27 (2,334 ) (1,434 ) (991 ) (531 )
- Unrealised (income) / loss on currency translation
differences 11 (30 ) 105 (31 ) 105
- Gain from distribution of assets / non-current financial
investment of Parent Company – (5,001 ) – (36,246 )
Cash flows from operations before changes in working
capital 257,502 313,721 140,596 176,640
(Increase) / decrease in inventories (123,375 ) 36,205 (120,807 ) 39,061
(Increase) / decrease in receivables from contracts with
customers and other receivables (50,545 ) (31,821 ) (20,030 ) 69,643
Increase / (decrease) in trade and other liabilities 62,145 (6,659 ) 86,289 (28,311 )
Impact of non-cash offsetting of operating receivables
and liabilities from subsidiaries, net 29 e – – 276,415 200,140
Cash generated from operating activities 145,727 311,446 362,463 457,173
Interest paid (9,462 ) (11,517 ) (9,331 ) (12,195 )
Interest paid on leases 15 (81 ) (87 ) (15 ) (8 )
Interest received 2,432 2,118 2,432 1,192
Paid corporate income tax (6,867 ) (10,766 ) – –
Net cash flows generated from operating activities 131,749 291,194 355,549 446,162
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
Cash flows from investing activities
Loans issued to subsidiaries, net 29 e – – (327,164 ) (286,688 )
Repayment of loans to related parties 29 e 86,672 138,560 86,672 138,560
Purchase of intangible assets and PPE (189,749 ) (184,748 ) (92,055 ) (68,937 )
Dividends received from subsidiaries 16 – – 2,927 12,426
Proceeds from redemption of other financial investments 16,836 50 16,836 50
Net cash flows used in investing activities (86,241 ) (46,138 ) (312,784 ) (204,589 )
Cash flows from financing activities
Repayment of issued debt securities (bonds) 23 – (35,000 ) – (35,000 )
Proceeds on issued debt securities (bonds) 23 50,000 – 50,000 –
Proceeds on borrowings from financial institutions 23 79,997 39,500 75,000 35,000
Repayment of borrowings from financial institutions 23 (77,928 ) (143,176 ) (75,830 ) (138,692 )
Received financing from European Union 748 1,515 748 1,351
Lease payments 15 (1,195 ) (1,024 ) (280 ) (161 )
Dividends paid to non-controlling interests 21 b (2,508 ) (1,819 ) – –
Dividends paid to equity holder of the Parent Company 21 b (98,246 ) (127,071 ) (98,246 ) (127,071 )
Net cash flows used in financing activities (49,132 ) (267,075 ) (48,608 ) (264,573 )
Net decrease in cash and cash equivalents (3,624 ) (22,019 ) (5,843 ) (23,000 )
Cash and cash equivalents at the beginning of the year 19 100,703 122,722 98,261 121,261
Cash and cash equivalents at the end of the year 19 97,079 100,703 92,418 98,261
The notes on pages 16 to 64 are an integral part of these Financial Statements
This document is signed with a secure digital signature and contains a time stamp
The Management Board of Latvenergo AS:
Mārtiņš Čakste Dmitrijs Juskovecs Guntars Baļčūns Kaspars Cikmačs Harijs Teteris
Chairman of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board
Liāna Ķeldere
Accounting director of Latvenergo AS
12 April 2022
1515
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Notes to the Financial Statements
1. Corporate information
All shares of public limited company Latvenergo, parent company of Latvenergo Group (hereinafter–
is not subject to privatisation.
Latvenergo AS is power supply utility engaged in electricity and thermal energy generation, as well as
Latvenergo AS heads the Latvenergo Group (hereinafter – the Group) that includes the following
subsidiaries:
y Sadales tīkls AS (since 18 September 2006) with 100% interest held,
y Elektrum Eesti OÜ (since 27 June 2007) and its subsidiaries Elektrum Latvija SIA (since
18 September 2012), Energiaturu Võrguehitus OÜ (since 25 August 2021), Baltic Energy
SystemOÜ (since 25August2021) and SNL Energia 1 OÜ (since 25 August 2021) all with 100%
interest held,
y Elektrum Lietuva, UAB (since 7 January 2008) with 100% interest held,
y Liepājas enerģija SIA (since 6 July 2005) with 51% interest held,
y Enerģijas publiskais tirgotājs AS (since 25 February 2014, on 31 March 2021 reorganised into a
limited liability company (SIA)) with 100% interest held.
From 10 February 2011 till 10 June 2020 the Group included Latvijas elektriskie tīkli AS with
100%interest held in the company.
Latvenergo AS and its subsidiaries Sadales tīkls AS and Enerģijas publiskais tirgotājs SIA are also
shareholders with 48.15% interest held in company Pirmais Slēgtais Pensiju Fonds AS (LatvenergoAS
holds 46.30% of interest) that manages a defined–contribution corporate pension plan in Latvia.
Latvenergo AS shareholding in subsidiaries, associates and other non–current financial investments
are disclosed in Note 16.
The Management Board of Latvenergo AS:
y Since 6 November 2020 the Management Board of Latvenergo AS was comprised of the following
members: Guntars Baļčūns (Chairman of the Board), Kaspars Cikmačs and Arnis Kurgs,
y On 29 January 2021, Uldis Mucinieks was elected as Member of the Management Board and
since 1February 2021 the Management Board of Latvenergo AS was comprised of the following
members: Guntars Baļčūns (Chairman of the Board), Kaspars Cikmačs, Arnis Kurgs and Uldis
Mucinieks,
y Since 3 January 2022 the Management Board of Latvenergo AS was comprised of the following
members: Mārtiņš Čakste (Chairman of the Board), Dmitrijs Juskovecs, Guntars Baļčūns, Kaspars
Cikmačs, Harijs Teteris.
The Supervisory Board of Latvenergo AS:
y Since 11 June 2020 the Supervisory Board of Latvenergo AS was comprised of the following
members: Ivars Golsts (Chairman), Kaspars Rokens (Deputy Chairman), Toms Siliņš, Aigars Laizāns
and Gundars Ruža.
The Supervisory body – Audit Committee:
y Since 20 November 2020 Audit Committee was comprised of the following members: Torbens
Pedersens (Torben Pedersen), Svens Dinsdorfs, Toms Siliņš and Gundars Ruža,
y Since 3 February 2021 Audit Committee was comprised of the following members: Torbens
Pedersens (Torben Pedersen), Svens Dinsdorfs, Ilvija Grūba, Toms Siliņš and Gundars Ruža.
The Latvenergo Group’s and Latvenergo AS auditor is the certified audit company Ernst&YoungBalticSIA
(40003593454) (licence No. 17) and certified auditor in charge is Diāna Krišjāne, certificate No. 124.
The Management Board of Latvenergo AS has approved the Latvenergo Group and Latvenergo AS
Financial statements 2021 on 12 April 2022. The Financial Statements are subject to Shareholder’s
approval on the Shareholder’s Meeting.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these Financial Statements as a whole are
set out below, while remaining accounting policies are described in the notes to which they relate. These
policies have been consistently applied to all the years presented, unless otherwise stated.
The Financial Statements of the Latvenergo Group and Latvenergo AS are prepared in accordance with
the International Financial Reporting Standards as adopted for use in the European Union (IFRS). Due to
the European Union’s endorsement procedure, the standards and interpretations not approved for use in
the European Union are also presented in this note as they may have impact on the Financial Statements
in the following periods if endorsed.
The Financial Statements are prepared under the historical cost convention, except for some financial
assets and liabilities (including derivative financial instruments and non-current financial investments)
measured at fair value and certain property, plant and equipment carried at revalued amounts as disclosed
in the accounting policies presented below.
The Financial Statements for 2021 include the financial information in respect of the Latvenergo Group and
Latvenergo AS for the year ended 31 December 2021 and comparative information for 2020. Where it has
been necessary, comparatives for 2020 are reclassified using the same principles applied for preparation
of the Financial Statements for 2021.
The Latvenergo Group’s and Latvenergo AS Financial Statements have been prepared in euros (EUR)
currency and all amounts shown in these Financial Statements except non-monetary items are presented
in thousands of EUR (EUR’000).
All figures, unless stated otherwise are rounded to the nearest thousand. Certain monetary amounts,
percentages and other figures included in this report are subject to rounding adjustments. On occasion,
therefore, amounts shown in tables may not be the arithmetic accumulation of the figures that precede
them, and figures expressed as percentages in the text and in tables may not total 100 percent.
16
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
The preparation of the Financial Statements in conformity with IFRS requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Although these estimates are based on the Management’s best knowledge
of current events and actions, actual results ultimately may differ from those. The areas involving a higher
degree of judgement or complexity, or areas where assumptions and estimates are significant to the
Financial Statements are disclosed in Note 4.
Adoption of new and/or changed IFRS, International Accounting Standards (IAS) and
International Financial Reporting Interpretations Committee (IFRIC) interpretations
a) Standards issued and which became effective, and are relevant for the Company’s and the
Group’s operations
y Interest Rate Benchmark Reform – Phase 2 – IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
(Amendments)
In August 2020, the IASB published Interest Rate Benchmark Reform – Phase 2, Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16, completing its work in response to IBOR reform. The amendments
provide temporary reliefs which address the financial reporting effects when an interbank offered rate
(IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). In particular, the amendments
provide for a practical expedient when accounting for changes in the basis for determining the contractual
cash flows of financial assets and liabilities, to require the effective interest rate to be adjusted, equivalent
to a movement in a market rate of interest. Also, the amendments introduce reliefs from discontinuing
hedge relationships including a temporary relief from having to meet the separately identifiable requirement
when an RFR instrument is designated as a hedge of a risk component. There are also amendments to
IFRS 7 Financial Instruments: Disclosures to enable users of financial statements to understand the effect
of interest rate benchmark reform on an entity’s financial instruments and risk management strategy. While
application is retrospective, an entity is not required to restate prior periods. The amendments had no
impact on the financial statements of the Group and the Company.
y IFRS 16 Leases – Covid–19 Related Rent Concessions (Amendment)
The amendment applies, retrospectively, to annual reporting periods beginning on or after 1June2020.
Earlier application is permitted, including in financial statements not yet authorized for issue on
28May2020. IASB amended the standard to provide relief to lessees from applying IFRS 16 guidance
on lease modification accounting for rent concessions arising as a direct consequence of the covid-19
pandemic. The amendment provides a practical expedient for the lessee to account for any change
in lease payments resulting from the covid-19 related rent concession the same way it would account
for the change under IFRS 16, if the change was not a lease modification, only if all of the following
conditions are met:
y The change in lease payments results in revised consideration for the lease that is substantially the
same as, or less than, the consideration for the lease immediately preceding the change.
y Any reduction in lease payments affects only payments originally due on or before 30 June 2021.
y There is no substantive change to other terms and conditions of the lease.
The Group and the Company as a lessee have not used such reliefs and amendments had no impact
on the financial statements of the Group and the Company.
b) Standards and its amendments issued and not yet effective, but are relevant for the
Company’s and the Group’s operations
y IFRS 17: Insurance Contracts
The standard is effective for annual periods beginning on or after 1 January 2021 with earlier application
permitted if both IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments
have also been applied. In its March 2020 meeting the Board decided to defer the effective date to 2023.
IFRS 17 Insurance Contracts establishes principles for the recognition, measurement, presentation, and
disclosure of insurance contracts issued. It also requires similar principles to be applied to reinsurance
contracts held and investment contracts with discretionary participation features issued. The objective
is to ensure that entities provide relevant information in a way that faithfully represents those contracts.
This information gives a basis for users of financial statements to assess the effect that contracts within
the scope of IFRS 17 have on the financial position, financial performance, and cash flows of an entity.
The Group and the Company will assess the impact of this standard on their financial statements to
determine whether it may have a material effect on the Group’s and the Company’s financial statements
and additional information disclosures.
y IFRS 17: Insurance Contracts (Amendments)
The amendments to IFRS 17 are effective, retrospectively, for annual periods beginning on or after
1 January 2023, with earlier application permitted. The amendments aim at helping companies
implement the Standard. In particular, the amendments are designed to reduce costs by simplifying
some requirements in the Standard, make financial performance easier to explain and ease transition by
deferring the effective date of the Standard to 2023 and by providing additional relief to reduce the effort
required when applying IFRS 17 for the first time. The Group and the Company will assess the impact of
these amendments on their financial statements to determine whether they may have a material effect
on the Group’s and the Company’s financial statements and additional information disclosures.
y IFRS 17: Insurance contracts – Initial Application of IFRS 17 and IFRS 9 – Comparative
Information (Amendments)
The amendment is effective for annual reporting periods beginning on or after 1 January 2023, with
early application permitted respectively with IFRS 17. For entities that first apply IFRS 17 and IFRS
9 at the same time, the amendment adds a transition option for a “classification overlay”, relating to
comparative information of financial assets. An entity applying the classification overlay to a financial
asset shall present comparative information as if the classification and measurement requirements of
IFRS 9 had been applied to that financial asset. Also, in applying the classification overlay to a financial
asset, an entity is not required to apply the impairment requirements of IFRS 9. The amendment is aimed
at helping entities to avoid temporary accounting mismatches between financial assets and insurance
contract liabilities, and therefore improve the usefulness of comparative information for users of financial
statements. These amendments have not yet been endorsed by the EU. The Group and the Company
will assess the impact of these amendments on their financial statements to determine whether they may
have a material effect on the Group’s and the Company’s financial statements and additional information
disclosures.
17
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
y Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in
Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and
those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate
or joint venture. The main consequence of the amendments is that a full gain or loss is recognised
when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or
loss is recognised when a transaction involves assets that do not constitute a business, even if these
assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this
amendment indefinitely pending the outcome of its research project on the equity method of accounting.
The amendments have not yet been endorsed by the EU. The Group and the Company will assess the
impact of these amendments on their financial statements to determine whether they may have a material
effect on the Group’s and the Company’s financial statements and additional information disclosures.
y IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non–
current (Amendments)
The amendments were initially effective for annual reporting periods beginning on or after 1January2022
with earlier application permitted. However, in response to the Covid–19 pandemic, the Board has
deferred the effective date by one year, i.e. 1 January 2023, to provide companies with more time to
implement any classification changes resulting from the amendments. The amendments aim to promote
consistency in applying the requirements by helping companies determine whether, in the statement
of financial position, debt and other liabilities with an uncertain settlement date should be classified as
current or non-current. The amendments affect the presentation of liabilities in the statement of financial
position and do not change existing requirements around measurement or timing of recognition of any
asset, liability, income, or expenses, nor the information that entities disclose about those items. Also, the
amendments clarify the classification requirements for debt which may be settled by the company issuing
own equity instruments.
In November 2021, the Board issued an exposure draft (ED), which clarifies how to treat liabilities that are
subject to covenants to be complied with, at a date subsequent to the reporting period. In particular, the
Board proposes narrow scope amendments to IAS 1 which effectively reverse the 2020 amendments
requiring entities to classify as current, liabilities subject to covenants that must only be complied with
within the next twelve months after the reporting period if those covenants are not met at the end of
the reporting period. Instead, the proposals would require entities to present separately all non-current
liabilities subject to covenants to be complied with only within twelve months after the reporting period.
Furthermore, if entities do not comply with such future covenants at the end of the reporting period,
additional disclosures will be required. The proposals will become effective for annual reporting periods
beginning on or after 1 January 2024 and will need be applied retrospectively in accordance with IAS 8,
while early adoption is permitted. The Board has also proposed to delay the effective date of the 2020
amendments accordingly, such that entities will not be required to change current practice before the
proposed amendments come into effect. These Amendments, including ED proposals, have not yet been
endorsed by the EU. The Group and the Company will assess the impact of these amendments on their
liabilities and financial statements to determine whether they may have a material effect on the Group’s
and the Company’s financial position.
y IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions,
Contingent Liabilities and Contingent Assets as well as Annual Improvements 2018–2020
(Amendments)
The amendments are effective for annual periods beginning on or after 1 January 2022 with earlier
application permitted. The IASB has issued narrow-scope amendments to the IFRS Standards as follows:
y IFRS 3 Business Combinations (Amendments) update a reference in IFRS 3 to the Conceptual
Framework for Financial Reporting without changing the accounting requirements for business
combinations.
y IAS 16 Property, Plant and Equipment (Amendments) prohibit a company from deducting from
the cost of property, plant and equipment amounts received from selling items produced while the
company is preparing the asset for its intended use. Instead, a company will recognise such sales
proceeds and related cost in profit or loss.
y IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendments) specify which costs a
company includes in determining the cost of fulfilling a contract for the purpose of assessing whether
a contract is onerous.
y Annual Improvements 2018–2020 make minor amendments to IFRS 1 First-time Adoption of
International Financial Reporting Standards, IFRS 9 Financial Instruments, IAS 41 Agriculture and the
Illustrative Examples accompanying IFRS 16 Leases
The Group and the Company will assess the impact of these amendments on their financial statements to
determine whether they may have a material effect on the Group’s and the Company’s financial statements
and information disclosures.
y IFRS 16 Leases – Covid–19 Related Rent Concessions beyond 30 June 2021 (Amendment)
The Amendment applies to annual reporting periods beginning on or after 1 April 2021, with earlier
application permitted, including in financial statements not yet authorized for issue at the date the
amendment is issued. In March 2021, the Board amended the conditions of the practical expedient in
IFRS 16 that provides relief to lessees from applying the IFRS 16 guidance on lease modifications to rent
concessions arising as a direct consequence of the Covid–19 pandemic. Following the amendment, the
practical expedient now applies to rent concessions for which any reduction in lease payments affects
only payments originally due on or before 30 June 2022, provided the other conditions for applying the
practical expedient are met. The Group and the Company, as a lessee, does not intend to use such
concessions and the Company’s financial statements will not be impacted by this amendment.
y IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of
Accounting policies (Amendments)
The Amendments are effective for annual periods beginning on or after 1 January 2023 with earlier
application permitted. The amendments provide guidance on the application of materiality judgements
to accounting policy disclosures. In particular, the amendments to IAS 1 replace the requirement to
disclose ‘significant’ accounting policies with a requirement to disclose ‘material’ accounting policies.
Also, guidance and illustrative examples are added in the Practice Statement to assist in the application of
the materiality concept when making judgements about accounting policy disclosures. The Group and the
Company will assess the impact of these amendments on their financial statements to determine whether
they may have a material effect on the Group’s and the Company’s financial statements and information
disclosures.
18
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
y IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of
Accounting Estimates (Amendments)
The amendments become effective for annual reporting periods beginning on or after 1 January2023
with earlier application permitted and apply to changes in accounting policies and changes in accounting
estimates that occur on or after the start of that period. The amendments introduce a new definition
of accounting estimates, defined as monetary amounts in financial statements that are subject to
measurement uncertainty. Also, the amendments clarify what changes in accounting estimates are
and how these differ from changes in accounting policies and corrections of errors. The Group and
the Company will assess the impact of these amendments on their financial statements to determine
whether they may have a material effect on the Group’s and the Company’s financial statements and
information disclosures.
y IAS 12 Income taxes: Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments)
The amendments are effective for annual periods beginning on or after 1 January 2023 with earlier
application permitted. In May 2021, the Board issued amendments to IAS 12, which narrow the scope of
the initial recognition exception under IAS 12 and specify how companies should account for deferred tax on
transactions such as leases and decommissioning obligations. Under the amendments, the initial recognition
exception does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible
temporary differences. It only applies if the recognition of a lease asset and lease liability (or decommissioning
liability and decommissioning asset component) give rise to taxable and deductible temporary differences
that are not equal. The Amendments have not yet been endorsed by the EU. The Group and the Company
will assess the impact of these amendments on their financial statements to determine whether they may
have a material effect on the Group’s and the Company’s financial statements and information disclosures.
Consolidation
a) Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity where the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power to direct the activities of the entity.
Subsidiaries’ financial reports are consolidated from the date on which control is transferred to the Parent
Company and are no longer consolidated from the date when control ceases. General information about
entities included in consolidation and its primary business activities are disclosed in Note 16.
The acquisition method of accounting is used to account for the acquisition of subsidiaries. The cost of
an acquisition is measured, as the fair value of the assets given, equity instruments issued, and liabilities
incurred or assumed at the date of exchange. Costs directly attributable to the acquisition are expensed
to the Statement of Profit or Loss as incurred. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
Intercompany transactions, balances and unrealised gains on transactions between the Group’s entities
are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the
asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
b) Transactions with non–controlling interests and owners
The Group treats transactions with non–controlling interests as transactions with equity owners of the
economic entity. Changes in a Parent’s ownership interest in a subsidiary that do not result in the Parent
losing control over the subsidiary are equity transactions (i.e. transactions with owners in their capacity
as owners). For purchases from non–controlling interests, the difference between any consideration paid
and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in the
Group’s equity.
c) Distributions of non-cash assets to owners
The Parent Company recognises a liability for dividend payable to its owner when it declares a distribution
and has an obligation to distribute the assets concerned to its owner. A liability to distribute non-cash
assets as a dividend to its owner is measured at the fair value of the assets to be distributed. When
dividend payable is settled, the difference, if any, between the carrying amount of the assets distributed
and the carrying amount of the dividend payable is recognised in profit or loss.
Foreign currency translation
a) Functional and presentation currency
Items included in the Financial Statements are measured using the currency of the primary economic
environment in which the Group’s entity operates (“the functional currency”). The Financial Statements
have been prepared in euros (EUR), which is the Parent Company’s functional currency, and presented in
thousands of EUR. All figures, unless stated otherwise are rounded to the nearest thousand.
b) Transactions and balances
All transactions denominated in foreign currencies are translated into functional currency at the exchange
rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are translated into functional currency using the exchange rate at the last day of the reporting
year. The resulting gain or loss is charged to the Statement of Profit or Loss. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the exchange rates at the
dates of the initial transactions.
Financial assets and liabilities
Financial Assets
The Group and the Parent Company classify its financial assets under IFRS 9 in the following measurement
categories:
y those to be measured subsequently at fair value (either through other comprehensive income or
through profit or loss), and
y those to be measured at amortised cost.
The classification depends on the entity’s business model for managing the financial assets and the
contractual terms of the cash flows. Assets that are held for collection of contractual cash flows where
those cash flows represent solely payments of principal and interest are measured at amortised cost.
For assets measured at fair value, gains and losses is either recorded in profit or loss or in other
comprehensive income. For investments in equity instruments that are not held for trading, this depends
19
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
on whether the Group and the Parent Company have made an irrevocable election at the time of initial
recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).
The Group and the Parent Company reclassify debt investments when and only when its business model
for managing those assets changes.
All financial instruments are initially measured at fair value plus, in the case of a financial asset or financial
liability not at fair value through profit or loss, transaction costs.
Purchases or sales of financial assets that require delivery of assets within a time frame established by
regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e.,
the date when the Group and the Parent Company commits to purchase or sell the asset.
Debt instruments
Subsequent measurement of debt instruments depends on the Group’s and the Parent Company’s
business model for managing the asset and the cash flow characteristics of the asset. The Group and the
Parent Company classify all of their debt instruments:
y at Amortised cost: Assets that are held for collection of contractual cash flows where those cash
flows represent solely payments of principal and interest are measured at amortised cost. Any gain or
loss arising on de-recognition is recognised directly in profit or loss. Impairment losses are presented
as separate item in the statement of profit or loss position ‘Other operating expenses’.
Equity instruments
The Group and the Parent Company subsequently measure all equity investments at fair value. Where
the Group’s or the Parent Company’s management has elected to present fair value gains and losses on
equity investments in other comprehensive income (OCI), there is no subsequent reclassification of fair
value gains and losses to profit or loss following the de–recognition of the investment. Dividends from
such investments continue to be recognised in profit or loss when the Group’s and the Parent Company’s
right to receive payments is established.
Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI or
financial instruments at fair value through profit or loss (FVPL) are not reported separately from other
changes in fair value.
Financial Liabilities
Financial liabilities are classified as measured at amortised cost or FVPL. A financial liability is classified
as at FVPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial
recognition. Financial liabilities at FVPL are measured at fair value and net gains or losses, including any
interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at
amortised cost using the effective interest method. Interest expense and foreign exchange gains and
losses are recognised in profit or loss.
De-recognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial
assets) is derecognised when:
y the rights to receive cash flows from the asset have expired,
y the Group and the Parent Company have transferred its rights to receive cash flows from the asset
or has assumed an obligation to pay the received cash flows in full without material delay to a third
party under a ‘pass–through’ arrangement; and either (a) the Group and the Parent Company have
transferred substantially all the risks and rewards of the asset, or (b) the Group and the Parent
Company have neither transferred nor retained substantially all the risks and rewards of the asset,
but has transferred control of the asset.
The Group and the Parent Company derecognise a financial liability when its contractual obligations are
discharged or cancelled, or expire. The Group and the Parent Company also derecognise a financial liability
when its terms are modified and the cash flows of the modified liability are substantially different, in which
case a new financial liability based on the modified terms is recognised at fair value. On de-recognition of
a financial liability, the difference between the carrying amount extinguished and the consideration paid
(including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
Impairment
The Group and the Parent Company assess on a forward-looking basis the expected credit loss associated
with their debt instruments carried at amortised cost. The impairment methodology applied depends
on whether there has been a significant increase in credit risk. Rules for estimating and recognising
impairment losses are described in Note 4 b.
The Group and the Parent Company have applied two expected credit loss models: counterparty model
and portfolio model.
Counterparty model is used on individual contract basis for deposits, investments in State Treasury bonds,
loans to subsidiaries and cash and cash equivalents. The expected credit losses according to this model
for those are based on assessment of the individual counterparty’s risk of default based on Moody’s
12 months corporate default and recovery rates if no significant increase in credit risk is identified. The
circumstances indicating a significant increase in credit risk is significant increase in Moody’s default and
recovery rates (by 1 percentage point) and counterpart’s inability to meet payment terms (overdue 30
days or more, insolvency or bankruptcy, or initiated similar legal proceedings and other indications on
inability to pay). If significant increase in credit risk identified, calculated lifetime expected credit loss.
For estimation of expected credit loss for unsettled revenue on mandatory procurement public service
obligation (PSO) fee, individually significant other receivables and other receivables of energy industry
companies and related parties the Group and the Parent Company apply the simplified approach and
record lifetime expected losses based on corporate default and recovery rates.
Portfolio model is used for trade receivables by grouping together receivables with similar risk
characteristics and the days past due and defined for basic business activities. For trade receivables
grouped by portfolio model the Group and the Parent Company apply the simplified approach and record
lifetime expected losses on receivables based on historically observed default rates, adjusted for forward-
looking estimates, if any significant exists.
Derivative financial instruments
Derivative financial instruments are carried as financial assets when the fair value is positive and as
financial liabilities when the fair value is negative. The Group and the Parent Company have decided to
continue to apply hedge accounting requirements of IAS 39. Accounting principles for derivative financial
instruments are disclosed in Note 24.
20
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
3. Financial risk management
3.1. Financial risk factors
The Group’s and the Parent Company’s activities expose them to a variety of financial risks: market risk
(including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s and
the Parent Company’s overall risk management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the Group’s and the Parent Company’s
financial performance. The Group and the Parent Company use derivative financial instruments to hedge
certain risk exposures.
Risk management (except for price risk) is carried out by the Parent Company’s Treasury department (the
Group Treasury) according to the Financial Risk Management Policy approved by the Parent Company’s
Management Board. The Group Treasury identifies, evaluates and hedges financial risks in close co–
operation with the Group’s operating units / subsidiaries. The Parent Company’s Management Board by
approving the Financial Risk Management Policy provides written principles for overall risk management,
as well as written policies covering specific areas, such as interest rate risk, foreign exchange risk, liquidity
risk, and credit risk, use of financial instruments and investment of excess liquidity. Price risk management
is carried out by the Parent Company’s Electricity Trading department according to Electricity Wholesale
Regulation approved by the Parent Company’s Management Board.
Financial assets and financial liabilities that are exposed to financial risks disclosed in the table below by measurement categories
EUR’000
Notes
Group Parent Company
Financial assets
at amortised cost
Derivatives used for hedging Financial instruments at fair
value through profit or loss
Financial assets
at amortised cost
Derivatives used for hedging Financial instruments at fair
value through profit or loss
Financial assets as of 31 December 2021
Receivables from contracts with customers 18 a 181,136 – – 110,638 – –
Other current financial receivables 18 b 57,498 – – 43,212 – –
Loans to related parties 29 e – – – 706,378 – –
Derivative financial instruments 24 I – 25,735 – – 25,466 –
Other financial investments 22 – – – – – –
Cash and cash equivalents 19 97,079 – – 92,418 – –
335,713 25,735 – 952,646 25,466 –
Financial assets as of 31 December 2020
Receivables from contracts with customers 18 a 108,178 – – 75,856 – –
Other current financial receivables 18 b 84,864 – – 29,328 – –
Loans to related parties 29 e 86,620 – – 742,229 – –
Derivative financial instruments 24 I – 503 1,054 – 503 1,054
Other financial investments 22 16,836 – – 16,836 – –
Cash and cash equivalents 19 100,703 – – 98,261 – –
397,201 503 1,054 962,510 503 1,054
EUR’000
Notes
Group Parent Company
Financial liabilities
at amortised cost
Derivatives used for hedging Financial instruments at fair
value through profit or loss
Financial liabilities
at amortised cost
Derivatives used for hedging Financial instruments at fair
value through profit or loss
Financial liabilities as of 31 December 2021
Borrowings 23 795,029 – – 782,322 – –
Derivative financial instruments 24 I – 18,520 – – 18,520 –
Lease liabilities 15 8,428 – – 5,226 – –
Trade and other financial current payables 26 163,950 – – 166,517 – –
967,407 18,520 – 954,065 18,520 –
Financial liabilities as of 31 December 2020
Borrowings 23 743,199 – – 733,392 – –
Derivative financial instruments 24 I – 14,504 – – 14,504 –
Lease liabilities 15 8,344 – – 4,540 – –
Trade and other financial current payables 26 76,429 – – 51,664 – –
827,972 14,504 – 789,596 14,504 –
21
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
a) Market risk
I) Foreign currencies exchange risk
As of 31 December 2021 and 31 December 2020 the Group and the Parent Company had borrowings
denominated only in euros (Note 23). Their revenues and most of the financial assets and liabilities
were denominated in euros. Accordingly, neither the Group nor the Parent Company were subject to a
significant foreign currencies exchange risk.
Foreign currencies exchange risk arises when future transactions or recognised assets or liabilities are
denominated in a currency that is not the Group’s and the Parent Company’s functional currency.
The Group’s Treasury Financial Risk Management Policy is to hedge all anticipated cash flows (capital
expenditure and purchase of inventory) in each major foreign currency that might create significant
currency risk. During 2021 and 2020 the Group and the Parent Company had no capital expenditure
project where expected transactions would create significant currency risk.
II) Interest rate risk
As the Group and the Parent Company have significant floating interest–bearing assets and liabilities
exposed to interest rate risk, the Group’s, and the Parent Company’s financial income and operating cash
flows are substantially dependent on changes in market interest rates.
During 2021 if euro interest rates had been 50 basis points higher with all other variables held constant,
the Group’s income from the cash reserves held at bank for the year would have been EUR 750 thousand
higher (2020: EUR 488 thousand) and the Parent Company’s income from the cash reserves held at bank
for the year would have been EUR 739 thousand higher (2020: EUR 476 thousand).
The Group’s and the Parent Company’s cash flow interest rate risk mainly arises from long–term borrowings
at variable rates. They expose the Group and the Parent Company to a risk that finance costs might
increase significantly when interest rates rise up. The Group’s policy is to maintain more than 35% of its
borrowings as fixed interest rates borrowings (considering the effect of interest rate swaps) with duration
between 1–4 years.
The Group and the Parent Company analyse their interest rate risk exposure on a dynamic basis. Various
scenarios are simulated taking into consideration refinancing, renewal of existing positions and hedging.
Based on these scenarios, the Group and the Parent Company calculate the impact on profit and loss as
well as on cash flows of a defined interest rate shift.
Generally, the Group and the Parent Company raise long–term borrowings from financial institutions at
floating rates and based on the various scenarios, the Group and the Parent Company manage their
cash flow interest rate risk by using floating–to–fixed interest rate swaps. Such interest rate swaps have
the economic effect of converting borrowings from floating rates to fixed rates. Thereby fixed rates are
obtained that are lower than those available if the Group and the Parent Company borrowed at fixed rates
directly. Under the interest rate swaps, the Group and the Parent Company agree with other parties to
exchange, at specified intervals (primarily semi–annually), the difference between fixed contract rates and
floating–rate interest amounts calculated by reference to the agreed notional amounts.
To hedge cash flow interest rate risk, the Group and the Parent Company have entered into interest rate
swap agreements with total notional amount of EUR 169 million (2020: EUR 193.8 million) (Note24II).
37%of the total Group’s and 38% the Parent Company’s borrowings as of 31 December 2021 (31/12/2020:
38% and 39% respectively) had fixed interest rate (considering the effect of the interest rate swaps) and
average fixed rate duration was 1.5 years for the Group and the Parent Company (2020: 1.6years for the
Group and the Parent Company).
If interest rates on euro denominated borrowings at floating base interest rate (after considering hedging
effect) had been 50 basis points higher with all other variables held constant over the period until the
next annual report, the Group’s profit for the year would have been EUR 633 thousand lower (over
the next 12months period after 31/12/2020: EUR 661 thousand), the Parent Company’s profit for the
year would have been EUR 631 thousand lower (over the next 12 months period after 31/12/2020:
EUR654thousand).
As of 31 December 2021, if short–term and long–term euro interest rates had been 50 basis points higher
with all other variables held constant fair value of interest rate swaps would have been EUR2,688thousand
higher (31/12/2020: EUR 3,698 thousand higher), which would have been attributable to the Statement
of Comprehensive Income as hedge accounting item. However, if short–term and long–term euro interest
rates had been 50 basis points lower with all other variables held constant fair value of interest rate swaps
would have been EUR 2,778 thousand lower (31/12/2020: EUR 3,832 thousand lower), which would
have been attributable to the Statement of Comprehensive Income as hedge accounting item and an
ineffective portion recognised in the Statement of Profit or Loss.
III) Price risk
Price risk is the risk that the fair value and cash flows of financial instruments will fluctuate in the future due
to reasons other than changes in the market prices resulting from interest rate risk or foreign exchange
risk. The purchase and sale of goods produced, and the services provided by the Group and the Parent
Company under the free market conditions, as well as the purchases of resources used in production is
impacted by the price risk.
The most significant price risk is related to purchase of electricity and natural gas. To hedge the risk
related to changes in the price of electricity and natural gas the Parent Company during 2021 and 2020
has purchased electricity forward and future contracts and natural gas forward contracts (Note 24 III, IV).
b) Credit risk
Credit risk is managed at the Group level. Credit risk arises from cash and cash equivalents, derivative
financial instruments at fair value through profit or loss (FVPL), other financial assets carried at amortised
cost, including outstanding receivables. Credit risk concentration in connection with receivables is
limited due to broad range of the Group’s and the Parent Company’s customers. The Group and the
Parent Company have no significant concentration of credit risk with any single counterparty or group
of counterparties having similar characteristics, except receivables from state for unsettled revenue
on mandatory procurement PSO fee, loans to and receivables from subsidiaries and receivables from
transmission system operator (Augstsprieguma tīkls AS). When assessing the credit risk for the loans to
subsidiaries the Parent Company considers that Latvenergo AS has granted loans to subsidiaries in which
it holds all the shares, and accordingly monitors the operations and financial situation of the subsidiaries
(borrowers). Impairment loss has been deducted from gross amounts.
The maximum credit risk exposure related to financial assets (see table below) comprises of carrying
amounts of cash and cash equivalents (Note 19), receivables from contracts with customers and other
receivables (Note 18), derivative financial instruments (Note 24), other financial investments (Note 22) and
loans to related parties (Note 29 e).
22
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Assessment of maximum possible exposure to credit risk
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Receivables from contracts with customers 18 a 181,136 108,178 110,638 75,856
Other current financial receivables 18 b 57,498 84,864 43,212 29,328
Loans to related parties 29 e – 86,620 706,378 742,229
Cash and cash equivalents 19 97,079 100,703 92,418 98,261
Derivative financial instruments 24 25,735 1,557 25,466 1,557
Other financial investments 22 – 16,836 – 16,836
361,448 398,758 978,112 964,067
Under IFRS 9 the Group and the Parent Company measure the probability of default upon initial recognition
of a receivable and at each balance sheet date consider whether there has been a significant increase of
credit risk since the initial recognition (see Notes 2 and 18)
For banks and financial institutions, independently rated parties with own or parent bank’s minimum rating
of investment grade are accepted. Otherwise, if there is no independent rating, management performs
risk control to assess the credit quality of the financial counterparty, considering its financial position,
past co–operation experience and other factors. After performed assessment individual credit limits are
set based on internal ratings in accordance with principles set by the Financial Risk Management Policy.
Depending on set credit limits, the cash held in one bank or financial institution cannot exceed fifty percent
of total balance of cash. The basis for estimating the credit quality of individually significant financial
assets not past due is credit ratings assigned by the rating agencies or, in their absence, the earlier credit
behaviour of clients and other parties to the contract.
Credit risk related to cash and short–term deposits with banks is managed by balancing the placement
of financial assets in order to maintain the possibility to choose the best offers and to reduce probability
to incur losses. Credit risk assessment related to receivables from contracts with customers and other
financial receivables is described in Notes 4 b and 18.
The table below shows the balance of cash and cash equivalents by financial counterparties at the end
of the reporting period:
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Investment level credit rating* 97,079 100,703 92,418 98,261
97,079 100,703 92,418 98,261
* Investment level credit rating assigned to the parent companies of banks
The table represents exposure to banks and financial counterparties broken down per rating class
according to Moody’s rating scale. The expected credit losses are not significant (below 1%) as the majority
of cash and cash equivalents are held at banks and financial institutions belonging to financial groups with
investment level credit rating and financial assets are considered to have good credit worthiness.
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Aa2 – 22,289 – 20,882
Aa3 47,149 33,836 44,111 33,049
Baa1 37,085 35,106 36,030 34,860
Baa2 12,361 373 12,277 373
Baa3 484 9,099 – 9,097
97,079 100,703 92,418 98,261
Set limits of credit exposure to the financial counterparties were not exceeded during the reporting period,
and the Group’s and the Parent Company’s management do not expect any losses arising from a potential
default of financial counterparty, as assessed that financial counterparties’ credit risk are in Stage 1.
The Group and the Parent Company invest only in listed debt instruments with very low probability of
default (State Treasury bonds).
c) Liquidity risk
Latvenergo Group’s liquidity and cash flow risk management policy is to maintain sufficient amount
of cash and cash equivalents (Note 19) and the availability of long and short-term funding through an
adequate amount of committed credit facilities in order to meet existing and expected commitments and
compensate for fluctuations in cash flows due to the occurrence of a variety of financial risks.
The table below analyses the Group’s and the Parent Company’s financial liabilities into relevant maturity
groupings based on the settlement terms. The amounts disclosed in the table are the contractual
undiscounted cash flows. Contractual undiscounted cash flows originated by the borrowings are
calculated considering the actual interest rates at the end of the reporting period.
23
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Liquidity analysis (contractual undiscounted gross cash flows)
EUR’000
Notes
Group Parent Company
Less than
1 year
From 1 to
2 years
From 3 to
5 years
Over 5 years TOTAL
Less than
1 year
From 1 to
2 years
From 3 to
5 years
Over 5 years TOTAL
As of 31 December 2021
Borrowings from financial institutions 82,164 179,927 241,707 154,564 658,362 79,723 175,468 238,351 151,638 645,180
Issued debt securities (bonds) 102,205 250 750 50,366 153,571 102,205 250 750 50,366 153,571
Derivative financial instruments 17,604 1,451 1,681 421 21,157 17,604 1,451 1,681 421 21,157
Lease liabilities* 2,085 1,635 3,765 1,237 8,722 1,214 972 2,457 813 5,456
Trade and other current financial payables 26 163,950 – – – 163,950 166,517 – – – 166,517
368,008 183,263 247,903 206,588 1,005,762 367,263 178,141 243,239 203,238 991,881
As of 31 December 2020
Borrowings from financial institutions 111,778 52,815 325,072 169,886 659,551 109,564 50,625 321,690 167,427 649,306
Issued debt securities (bonds) 1,900 102,079 – – 103,979 1,900 102,079 – – 103,979
Derivative financial instruments 7,248 4,926 3,424 1,237 16,835 7,248 4,926 3,424 1,237 16,835
Lease liabilities* 1,755 1,675 3,522 2,137 9,089 871 871 2,111 930 4,783
Trade and other current financial payables 26 76,429 – – – 76,429 51,664 – – – 51,664
199,110 161,495 332,018 173,260 865,883 171,247 158,501 327,225 169,594 826,567
* The carrying amount of the lease (discounted) for the Group is EUR 8,428 thousand and for the Parent Company EUR 5,226 thousand (31 December 2020: Group – EUR 8,344 thousand, Parent Company – EUR 4,540 thousand) (Note 15))
3.2. Capital management
The Group’s and the Parent Company’s objectives when managing capital are to safeguard the Group’s
and the Parent Company’s ability to continue as a going concern as well as to ensure necessary financing
for investment program and to avoid breaches of covenants (no breaches in 2021 nor 2020), which are
linked to capital structure and are stipulated in the majority of loan agreements.
In order to maintain or adjust the capital structure, the Group and the Parent Company may evaluate
the amount and timing of raising new debt due to investment programs or initiate new investments in
the share capital by shareholder. To comply with loan covenants, the Group and the Parent Company
monitor capital on the basis of the capital ratio.
This ratio is calculated by dividing the equity by the sum of total assets. According to the Group’s
strategy and defined loan covenants as per loan agreements the capital ratio shall be maintained at least
at 30% level.
The capital ratio figures were as follows
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Total equity 2,123,448 2,118,242 1,761,070 1,746,436
Total assets 3,475,890 3,358,835 2,915,587 2,760,155
Capital Ratio 61% 63% 60% 63%
4. Critical accounting estimates and judgements
Estimates and judgments are regularly evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. The
Group and the Parent Company make estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual results.
The Management of the Group and the Parent Company has assessed the situation at the end of the
reporting period and has determined that the spread of Covid–19 and related restrictions have not created
a significant negative impact on the Group’s and the Parent Company’s financial results, considering the
nature and continuity of services provided by the Group and the Parent Company. As disclosed in the
Management Report, the Group and the Parent Company continued to ensure generation of electricity
and thermal energy, as well as uninterrupted and accessible trade and distribution of electricity and natural
gas to all its customers.
The Group’s and the Parent Company’s operations were not significantly disrupted during Covid–19 in
2021, and the Management of the Group and the Parent Company does not expect significant disruptions
in the future performance that could impact the Group’s and the Parent Company’s ability to continue as
a going concern and the measurement of assets and liabilities.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are discussed below:
a) Estimates concerning property, plant and equipment
I) Useful lives of property, plant and equipment
The Group and the Parent Company make estimates concerning the expected useful lives and residual
values of property, plant and equipment. These are reviewed at the end of each reporting period and
are based on the past experience as well as industry practice. For the assets that are planned to be
24
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
reconstructed, the remaining useful life is determined to be till the date of reconstruction. Previous
experience has shown that the actual useful lives have sometimes been longer than the estimates. Values
of fully depreciated property, plant and equipment are disclosed in Note 14 a. Quantifying an impact of
potential changes in the useful lives is deemed impracticable therefore sensitivity analysis is not disclosed.
II) Recoverable amount of property, plant and equipment
The Group and the Parent Company perform impairment tests for items of property, plant and equipment
when the events and circumstances indicate a potential impairment. For the items of PPE are defined
separate cash–generating units. According to these tests’ assets are written down to their recoverable
amounts, if necessary. When carrying out impairment tests management uses various estimates for the
cash flows arising from the use of the assets, sales, maintenance and repairs of the assets, as well as
in respect of the inflation and discount rates. The estimates are based on the forecasts of the general
economic environment, consumption and the estimated sales price of electricity. If the situation changes
in the future, either additional impairment could be recognised, or the previously recognised impairment
could be partially or fully reversed. Such factors as high maintenance and reconstruction costs, low load
of several auxiliaries, comparatively substantial maintenance expense, limited facilities to sell property,
plant and equipment in the market and other essential factors have an impact of decreasing of the
recoverable amounts. Impairment charges recognised during the current reporting year are disclosed
in Note14d.
III) Revaluation
Revaluation for part of the Group’s and the Parent Company’s property, plant and equipment are
performed by independent, external and certified valuation experts by applying the depreciated
replacement cost model or income method. Valuation has been performed according to international
standards on property valuation, based on current use of property, plant and equipment that is estimated
as the most effective and best use of these assets. As a result of valuation, depreciated replacement
cost was determined for each asset. Depreciated replacement cost is the difference between the cost
of replacement or renewal of similar asset at the time of revaluation and the accumulated loss of an
asset’s value that encompasses physical deterioration, functional (technological) obsolescence and
economic (external) obsolescence. Physical depreciation was determined proportionally to the age of
the property, plant and equipment item. In assessment of property, plant and equipment items for
which a reconstruction is planned in the near future additional functional depreciation was determined.
Remaining useful lives of property, plant and equipment items after revaluation were revised according
to estimated total depreciation. Income method is based on the identification and analysis of generation
capacity, forecasting of electricity trade prices, analysis of historical generation and operating expenses
and forecast of future costs, capital expenditure, net cash flows, as well calculation of discount and
capitalisation rates, based on market data.
PPE are revalued regularly but not less frequently than every five years. Revaluation may be performed
more frequently if there is a significant and sustained increase in the civil engineering construction costs.
The revaluation process is initiated if the increase in the civil engineering construction costs exceeds
10% for two consecutive quarters since the previous revaluation, according to data of the Central
Statistical Bureau, and is expected long lasting increase in the costs.
For detailed most recent revaluation results see Note 14 c.
b) Impairment of financial assets
The Group and the Parent Company have the following types of financial assets that are subject to the
expected credit loss model:
y non–current and current loans to related parties
y other non–current receivables
y other financial investments
y receivables from contracts with customers
y other current receivables
y cash and cash equivalents.
The loss allowances for financial assets are based on assumptions about risk of default and expected
loss rates. The Group and the Parent Company use judgement in making these assumptions and
selecting the inputs to the calculation of expected credit losses, based on the Group’s and the Parent
Company’s past history, existing market conditions as well as forward looking estimates at the end of
each reporting period.
The Group and the Parent Company apply two expected credit loss models: portfolio model and
counterparty model (Note 2 and 18).
Using the portfolio model the Group and the Parent Company apply the IFRS 9 simplified approach to
measuring expected credit losses which uses a lifetime expected loss allowance for trade receivables
of basic business activities (electricity, natural gas and heat and supporting services sales, IT and
telecommunication services sales). To measure expected credit losses these receivables have been
grouped based on shared credit risk characteristics and the days past due. The Group and the Parent
Company therefore have concluded that the expected loss rates for these receivables are a reasonable
approximation of the credit risk exposure. The expected loss rates are based on the payment profiles
of sales and the corresponding historical credit losses experienced. There are no adjustments made to
the historical loss rates that would reflect current and forward–looking information on macroeconomic
factors affecting the ability of the customers to settle the receivables, as the Group and the Parent
Company has assumed that macro–economic situation and its future projections do not have significant
impact on expected credit loss.
Counterparty model is used on individual contract basis for non–current and current loans to related
parties, other financial investments and cash and cash equivalents. If no significant increase in credit
risk is identified, the expected credit losses according to this model are based on assessment of the
individual counterparty’s or counterparty’s industry risk of default and recovery rate assigned by Moody’s
credit rating agency for 12 months expected losses rates. The circumstances indicating a significant
increase in credit risk is significant increase in Moody’s default and recovery rates (by 1 percentage
point) and counterparty’s inability to meet payment terms (overdue 30 days or more, insolvency or
bankruptcy, or initiated similar legal proceedings and other indications on inability to pay). If significant
increase in credit risk is identified, lifetime expected credit loss is calculated.
Counterparty model is also used for other non–current and current financial receivables, individually
significant receivables, receivables of energy industry companies and related parties by calculating
lifetime expected losses based on corporate default and recovery rates.
None of the Group’s and the Parent Company’s other financial investments measured at amortised
cost (investments in State Treasury bonds) have significant increase in credit risk and therefore are
25
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
considered to have low credit risk (Moody’s credit rating – A3) and are in Stage 1, the loss allowance
therefore was immaterial and wasn’t recognised.
While cash and cash equivalents are also subject to the expected credit loss requirements of IFRS 9,
the identified expected credit loss was immaterial, also considering fact that almost all of cash and cash
equivalents are held in financial institutions with the credit rating grade of the institution or its parent
bank at investment grade credit rating (mostly ‘A level’ credit rating) (Stage 1).
c) Estimates concerning revenue recognition from contracts with customers
I) Recognition of mandatory procurement PSO fees
The Group and the Parent Company have applied significant judgement for use of agent principle for
recognition of mandatory procurement PSO fee (see also Note 6).
Management has considered the following indicators that the Group and the Parent Company are acting
as agents because:
y do not have control over the mandatory procurement PSO fee before transferring to the customer,
y have duty for including the mandatory procurement PSO fee in invoices issued to the end customers
but are not entitled for revenues from mandatory procurement PSO fee. These fees are determined
by state support mechanism and are covered by all electricity end-users in proportion to their
electricity consumption,
y have no discretion in establishing mandatory procurement PSO fees price, either directly or indirectly.
II) Recognition of distribution system services and transmission system services (Parent
Company)
Management has evaluated that it does not have influence and control over distribution system services
and transmission system services, therefore the Parent Company acts as an agent. In particular,
Management has considered the following indicators that the Parent Company is acting as an agent
because:
y does not control provision of distribution system and transmission system services,
y includes the distribution system and transmission system services in invoices issued to the customers
on behalf of distribution system operator or transmission system operator and receives payment,
but is not entitled to the respective revenues,
y has no discretion in distribution system or transmission system services price, either directly or
indirectly (see also Note 6).
III) Recognition of connection service fees to distribution system (Group)
Connection fees to distribution system are not considered as separate (distinct) performance obligations,
as are not distinct individually or within the context of the contract. Sales of distribution services are
provided after customers have paid for the network connection, therefore network connection fees and
sales of distribution services are highly interdependent and interrelated.
Income from connection and other income for reconstruction of distribution system assets on demand
of clients are deferred as an ongoing service is identified as part of agreement to provide distribution
system services with customers and accounted as deferred income (contract liabilities) from contracts
with customers under IFRS 15 (see Note 6 and 28). Connection fees are recognised as income over
the estimated customer relationship period. Based on Management estimate, 20 years is the estimated
customer relationship period, which is estimated as period after which requested power output for
connection object could significantly change due to technological reasons.
Thus period over which revenue is recognised is based on Management estimate, as it is reasonably
certain that assets, whose costs are partly reimbursed by connection service fees, will be used to
provide distribution system services for a longer period than the term stated in agreement with the
customer (Note 6).
d) Recognition and reassessment of provisions
As of 31 December 2021, the Group had set up provisions for post–employment benefits and
termination benefits totalling EUR 15.7 million (31/12/2020: EUR 19.2 million) and the Parent Company
in amount of EUR 7.5 million (31/12/2020: EUR 8.7 million) (Note 27). The amount and timing of the
settlement of these obligations is uncertain. A number of assumptions and estimates have been used
to determine the present value of provisions, including the amount of future expenditure, inflation
rates, and the timing of settlement of the expenditure. The actual expenditure may also differ from the
provisions recognised as a result of possible changes in legislative norms, technology available in the
future to restore environmental damages, and expenditure covered by third parties. For revaluation of
provisions for post–employment obligations probabilities of retirement in different employees’ aging
groups as well as variable demographic factors and financial factors (including expected remuneration
increase and determined changes in benefit amounts) have been estimated. The probabilities and
other factors are determined on the basis of previous experience. According to defined development
directions per Strategy of Latvenergo Group for the period 2017–2022, management of the Parent
Company approved the Strategic Development and Efficiency Programme. Provisions for employees’
termination benefits are recognised on a basis of Strategic Development and Efficiency Programme of
Latvenergo Group for the period in which it is planned to implement the efficiency program (including
LatvenergoAS and Sadales tīkls AS efficiency activities), by which it is intended to reduce gradually
the number of employees by the year 2022. The key assumptions made to determine the amount of
provisions are provided in Note 27.
e) Evaluation of effectiveness of hedging instruments
The Group and the Parent Company have concluded significant number of forward and future contracts
and swap agreements to hedge the risk of the changes in prices of electricity and natural gas as well as
interest rate fluctuations to which cash flow risk hedge accounting is applied and the gains and losses
from changes in the fair value of the effective hedging instruments and items secured against risk are
included in respective equity reserve. The evaluation of the effectiveness of the hedging is based on
Management’s estimates with regard to future purchase transactions of electricity and natural gas and
signed variable interest loan agreements. When hedging instruments turn out to be ineffective, gains/
losses from the changes in the fair value are recognised in the Statement of Profit or Loss (Note 25).
f) Recognition of connection service fees to transmission system (IFRS 16) (discontinued
operation)
Connection fees to transmission system are recognised as income over the estimated lease period. The
estimated lease period is based on the Management estimate.
Income from connection to transmission system and other service fees is deferred as an ongoing
service is identified as part of the agreement with the lessee. Operating lease agreement term is 5 years,
the period over which revenue from connection fees is recognised is longer, as it is reasonably certain
26
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
that assets, whose costs are partly reimbursed by connection fees will be leased for a longer period
than defined original lease term.
g) Recognition of one-off compensation in relation to cogeneration power plants
In October 2017, the Parent Company applied for a one-off compensation from the state, at the same
time opting out of the receipt of 75% of the guaranteed annual payments for installed electrical capacity
in combined heat and power plant CHPP–1 and CHPP–2. The one-off compensation was calculated
as 75% of the discounted future guaranteed payments for installed electrical capacity. Conditional grant
part recognised as deferred income in the Group’s and the Parent Company’s statement of financial
position (Note 28) and to be allocated to income on a straight–line basis until fulfilling obligation till the
end of the support period – 23 September 2028 (Note 7).
h) Deferred tax recognition
The untaxed profits of the subsidiaries are subject to deferred tax charge in the Consolidated Financial
Statements to the extent that the Parent Company as a shareholder will decide in a foreseeable future
on distribution of this profit through dividends which will be taxed on distribution with tax rate 20/80 of
net expense (Note 12). Management of the Parent Company has made judgement on the expected
timing and extent of the distribution profits of subsidiaries and recognised in the Group’s Consolidated
Financial Statements deferred tax liability related to profit of its subsidiaries to be distributed.
i) Recognition of financial security for participating in commodities exchange
Management of the Parent Company had initially estimated the financial collateral for securing the
operations in Nasdaq Commodities exchange as a liquid asset, but with a restriction (restricted cash
and cash equivalents) that could be fully recoverable without penalties over a 3–months period after
termination of participation in exchange.
As of 31 December 2021 the management of the Parent Company revised its judgements (estimates)
and considering that the Parent Company has no intention to discontinue trade operations in Nasdaq
Commodities exchange, considering that electricity and natural gas financial transactions are part of the
Parent Company’s activities, and therefore these assets should not be estimated as liquid and should
be recognised as non–current or current financial receivables (Note 18).
j) Fair values
The fair value of the financial assets and liabilities is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair values are estimated based on market prices and discounted cash flow models as appropriate.
The fair value of financial instruments traded in active markets is based on quoted market prices at the
end of reporting period. The quoted market prices used for financial assets held by the Group and the
Parent Company are the actual closing prices. The fair value of financial instruments that are not traded
in active market is determined by using valuation techniques. The Group and the Parent Company use
a variety of methods and make assumptions that are based on market conditions existing at end of
reporting period. Estimated discounted cash flows are used to determine fair value for the remaining
financial instruments.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorised within fair value hierarchy, described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
y Level 1: fair value of assets is based on quoted prices (unadjusted) in active markets for identical
assets or liabilities
y Level 2: fair value of assets is based on other observable market data, directly or indirectly
y Level 3: fair value of assets is based on non–observable market data.
The following methods and assumptions were used to estimate the fair values:
a) the fair values of revalued property, plant and equipment are equal to revalued amounts, that are
based on periodic valuations by external independent valuers or by the Group’s or the Parent Company’s
management, less subsequent accumulated depreciation, and subsequent accumulated impairment
losses (Level 3),
b) The management of the Group and the Parent Company assessed that cash and short–term
deposits, receivables, trade payables, bank overdrafts and other current liabilities approximate their
carrying amounts largely due to the short–term maturities of these instruments (Level 3),
c) Non-current financial investments in Pirmais Slēgtais Pensiju Fonds AS are valued at acquisition
cost not at fair value because the Group and the Parent Company are only a nominal shareholder in
the Pension Fund that is a non–profit company, and all risks and benefits arising from Pension Fund
activities and investments in the pension plan are taken and accrued by the members of the Pension
Fund pension plan (Level 3),
d) The fair values of borrowings with floating interest rates approximate their carrying amount, as their
actual floating interest rates approximate the market price of similar financial instruments available to
the Group and the Parent Company, i.e., the floating part of the interest rate corresponds to the money
market price while the added part of the interest rate corresponds to the risk premium the lenders in
financial and capital markets require from companies of similar credit rating level (Level 2),
e) The fair value of loans to subsidiaries with fixed rates calculations are based on discounted cash
flows using discount factor of respective maturity EUR swap rates increased by average market margin
of short–term financing (Level 2),
f) The Group and the Parent Company enter into derivative financial instruments with various
counterparties, financial institutions, and energy utility company, with investment grade credit ratings.
The derivative financial instruments are determined by using various valuation methods and models
with market observable inputs. The models incorporate the credit quality of counterparties, foreign
exchange spot and forward rates. The fair values of interest rate swaps are obtained from corresponding
bank’s revaluation reports and in financial statements fair values of financial instruments as specified
by banks are disclosed. To make sure the fair values of interest rate swaps are accurate in any material
aspect, the Group and the Parent Company makes its own interest rate swaps fair value calculations
by discounting financial instruments future contractual cash flows using 6 months Euribor swap rate
curve. The fair value of electricity forward and future contracts and natural gas swap contracts is
calculated as discounted difference between actual market and settlement prices for the volume set in
the agreements. If counterparty is a bank, calculated fair values of financial instruments are compared
to bank’s revaluation reports and the bank’s calculated fair values of the financial instruments are used in
the financial reports; In case of electricity forward and future contracts and natural gas swap contracts
are concluded with counterparties, fair values as calculated by the Group and the Parent Company are
disclosed in Financial Statements (Level 2),
27
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
g) The fair value of the bonds issued are calculated by discounting their future cash flows using the market
quoted yield to maturity rates of the respective bonds as of the end of the reporting year as discount factor
(Level 2),
h) The fair value of investment properties is determined using the income method, by discounting
expected future cash flows. In 2021, the nominal pre–tax discount rate used to determine the fair value
of investments is 4,37% (2020: 4.40%) as included in the electricity distribution and transmission system
service tariff calculation methodology (Level 3).
5. Operating segment information
For segment reporting purposes, the division into operating segments is based on internal management
structure, which is the basis for the reporting system, performance assessment and the allocation of
resources by the operating segment decision maker – management of the Group’s company operating
in each of segments. The Management Board of the Parent Company reviews financial results of
operating segments.
The profit measure monitored by the chief operating decision maker primarily is EBITDA, but it also
monitors operating profit. In separate financial statements operating profit excludes the dividend
income and interest income from subsidiaries. The subsidiaries operate independently from the Parent
Company under the requirements of EU and Latvian legislation and their businesses are different from
that of the Parent Company. Therefore, the Parent Company’s chief operating decision maker monitors
the performance of the Parent Company and makes decisions regarding allocation of resources based
on the operating results of the Parent Company.
The Group divides its operations into three main operating segments – generation and trade, distribution,
and lease of transmission system assets. The Parent Company divides its operations into one main
operating segment – generation and trade.
In addition, corporate functions, that cover administration and other support services, are presented in
the Group and the Parent Company as separate segment.
Corporate functions provide management services to subsidiaries as well as provides IT and
telecommunication, rental services to external customers.
Generation and trade comprise the Group’s electricity and thermal energy generation operations,
which are organised into the legal entities: Latvenergo AS and Liepājas enerģija SIA; electricity
and natural gas trade (including electricity and natural gas wholesale) in the Baltics carried out by
Latvenergo AS, Elektrum Eesti OÜ (including its subsidiaries – Energiaturu Võrguehitus OÜ, Baltic
Energy SystemOÜ and SNL Energia 1 OÜ) and Elektrum Lietuva, UAB, as well as administration of the
mandatory procurement process provided by Enerģijas publiskais tirgotājs SIA.
The operations of the distribution operating segment relate to the provision of electricity distribution
services in Latvia and is managed by the subsidiary Sadales tīkls AS (the largest distribution system
operator in Latvia).
The operations of the lease of transmission system (till 10 June 2020) assets operating
segment are managed by Latvijas elektriskie tīkli AS – the owner of transmission system assets
(330kV and 110kV transmission lines, substations, and distribution points), which provides financing
of investments in these assets. In the financial statements this operating segment is classified as
discontinued operation (Note 30).
28
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
EUR'000
Group Parent Company
Generation
and trade
Distribution Lease of
transmission
system assets*
Corporate
functions
TOTAL
segments
Adjustments
and
eliminations
TOTAL
Group
Generation
and trade
Corporate
functions
TOTAL
segments
Adjustments
and
eliminations
TOTAL
Parent
Company
2021
Revenue
External customers 754,357 303,289 – 7,573 1,065,219 – 1,065,219 562,765 30,020 592,785 – 592,785
Inter-segment 1,068 1,175 – 46,422 48,665 (48,665) – 1,044 25,226 26,270 (26,270) –
TOTAL revenue 755,425 304,464 – 53,995 1,113,884 (48,665) 1,065,219 563,809 55,246 619,055 (26,270) 592,785
Results
EBITDA 80,386 105,732 – 12,695 198,813 – 198,813 70,968 14,307 85,275 – 85,275
Depreciation, amortisation and impairment
of intangible assets, property, plant and
equipment and right-of-use assets (25,169) (80,841) – (10,913) (116,923) – (116,923) (21,773) (11,135) (32,908) – (32,908)
Segment profit before tax 55,217 24,891 – 1,782 81,890 (6,960) 74,930 49,195 3,172 52,367 27,153 79,520
Segment assets at the end of the year 1,473,344 1,801,062 – 104,221 3,378,627 97,263 3,475,890 1,341,057 130,516 1,471,573 1,444,014 2,915,587
Segment liabilities at the end of the year 299,658 190,597 – 19,027 509,282 843,160 1,352,442 329,381 20,196 349,577 804,940 1,154,517
Capital expenditure 32,545 84,786 – 9,397 126,728 – 126,728 20,123 9,422 29,545 – 29,545
2020
Revenue
External customers 471,247 294,927 15,967 7,217 789,358 – 789,358 354,686 30,926 385,612 – 385,612
Inter-segment 984 1,380 1,594 45,856 49,814 (49,814) – 535 24,341 24,876 (24,876) –
TOTAL revenue 472,231 296,307 17,561 53,073 839,172 (49,814) 789,358 355,221 55,267 410,488 (24,876) 385,612
Results
EBITDA 159,120 105,870 16,554 12,904 294,448 – 294,448 148,180 49,709 197,889 – 197,889
Depreciation, amortisation and impairment
of intangible assets, property, plant and
equipment and right-of-use assets (77,751) (67,623) (11,602) (11,170) (168,146) – (168,146) (74,681) (11,578) (86,259) – (86,259)
Segment profit before tax 81,369 38,247 4,952 1,734 126,302 (8,658) 117,644 73,499 38,131 111,630 43,218 154,848
Segment assets at the end of the year 1,263,651 1,795,034 – 95,907 3,154,592 204,243 3,358,835 1,131,977 125,634 1,257,611 1,502,544 2,760,155
Segment liabilities at the end of the year 231,837 190,086 – 15,567 437,490 803,103 1,240,593 232,318 16,765 249,083 764,636 1,013,719
Capital expenditure 40,560 87,431 28,796 12,144 168,931 (76) 168,855 38,851 12,148 50,999 – 50,999
* In the financial statements operating segment of lease of transmission system assets is classified as discontinued operation (Note 30)
The following table presents revenue, financial results and profit information and segment assets and
liabilities of the Group’s and the Parent Company’s operating segments. Inter–segment revenue is eliminated
on consolidation and reflected in the ‘adjustments and eliminations’ column. All transactions between
segments are made based on the regulated tariffs, where applicable, or on an arm’s length principle.
29
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
The Group’s and the Parent Company’s revenue from external customers (Note 6)
EUR'000
Group Parent Company
Generation
and trade
Distribution Lease of
transmission
system assets*
Corporate
functions
TOTAL
segments
TOTAL
Group
Generation
and trade
Corporate
functions
TOTAL
segments
TOTAL
Parent
Company
2021
Revenue from contracts with customers recognised over time:
Trade of energy and related supply services 666,966 3,228 – – 670,194 670,194 490,614 – 490,614 490,614
Distribution system services 1 282,949 – – 282,950 282,950 – – – –
Heat sales 84,123 91 – 10 84,224 84,224 71,215 10 71,225 71,225
Other revenue 3,267 16,949 – 5,636 25,852 25,852 936 26,600 27,536 27,536
Total revenue from contracts with customers 754,357 303,217 – 5,646 1,063,220 1,063,220 562,765 26,610 589,375 589,375
Other revenue:
Other revenue – 72 – 1,927 1,999 1,999 – 3,410 3,410 3,410
Total other revenue – 72 – 1,927 1,999 1,999 – 3,410 3,410 3,410
TOTAL revenue, including 754,357 303,289 – 7,573 1,065,219 1,065,219 562,765 30,020 592,785 592,785
Latvia 416,545 303,288 – 7,289 727,122 727,122 399,513 28,392 427,905 427,905
Outside Latvia 337,812 1 – 284 338,097 338,097 163,252 1,628 164,880 164,880
2020
Revenue from contracts with customers recognised over time:
Trade of energy and related supply services 414,617 3,150 – 14 417,781 417,781 310,839 14 310,853 310,853
Distribution system services 1 275,586 – – 275,587 275,587 – – – –
Heat sales 53,349 67 – 12 53,428 53,428 42,623 12 42,635 42,635
Other revenue 3,280 16,029 – 5,647 24,956 24,956 1,414 26,789 28,203 28,203
Total revenue from contracts with customers 471,247 294,832 – 5,673 771,752 771,752 354,876 26,815 381,691 381,691
Other revenue:
Lease of transmission system assets – – 15,631 – 15,631 15,631 – – – –
Lease of other assets – 95 – 1,544 1,639 1,639 – 3,921 3,921 3,921
Other revenue – – 336 – 336 336 – – – –
Total other revenue – 95 15,967 1,544 17,606 17,606 – 3,921 3,921 3,921
TOTAL revenue, including 471,247 294,927 15,967 7,217 789,358 789,358 354,876 30,736 385,612 385,612
Latvia 319,542 294,926 15,967 6,917 637,352 637,352 303,461 29,330 332,791 332,791
Outside Latvia 151,705 1 – 300 152,006 152,006 51,415 1,406 52,821 52,821
* In the financial statements operating segment of lease of transmission system assets is classified as discontinued operation (Note 30)
30
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Adjustments and eliminations
Finance income and expenses, fair value gains and losses on financial assets, interest rate swaps
(derivative financial instruments) and deferred taxes are not allocated to individual segments as the
underlying instruments are managed on a group basis. Taxes and certain financial assets and liabilities,
including loans and borrowings are not allocated to those segments as they are also managed on a group
basis.
Capital expenditure consists of additions of property, plant and equipment, intangible assets and
investment properties including assets from the acquisition of subsidiaries.
Reconciliation of profit before tax
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
EBITDA 198,813 294,448 85,275 197,889
Depreciation, amortisation and impairment of intangible
assets, PPE and right-of-use assets (116,923) (168,146) (32,908) (86,259)
Segment profit before tax 81,890 126,302 52,367 111,630
Finance income 11 2,110 2,125 11,391 12,768
Finance costs 11 (9,070) (10,783) (9,216) (11,293)
Dividends received from subsidiaries 16 – – 24,978 41,743
Profit before tax 74,930 117,644 79,520 154,848
Reconciliation of assets
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Segment operating assets 3,378,627 3,154,592 1,471,573 1,257,611
Non-current financial investments 16 40 40 645,218 645,218
Loans to related parties 29 e – 86,620 706,378 742,229
Other financial investments 22 – 16,836 – 16,836
Prepayment for income and other taxes 144 44 – –
Cash and cash equivalents 19 97,079 100,703 92,418 98,261
Total assets 3,475,890 3,358,835 2,915,587 2,760,155
Reconciliation of liabilities
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Segment operating liabilities 509,282 437,490 349,577 249,083
Deferred income tax liabilities 2,955 6,401 – –
Borrowings 23 795,029 743,199 782,322 733,392
Derivative financial instruments 24 4,312 9,504 4,312 9,504
Provisions and other payables 40,864 43,999 18,306 21,740
Total liabilities 1,352,442 1,240,593 1,154,517 1,013,719
Non–current assets that consist of intangible assets, property, plant and equipment and investment
properties are located in the Group’s country of domicile – Latvia.
Revenue from major customer in 2021 for the Group amounted to EUR 71,406 thousand and for the
Parent Company EUR 71,388 thousand (2020: EUR 51,089 thousand and EUR 50,857 thousand) arising
from sales by the generation and trade segment.
6. Revenue
Accounting policy
Revenue from contracts with customers (IFRS 15)
Revenue from contracts with customers in scope for IFRS 15 encompasses sold goods or services provided
as output of the entity’s ordinary activities. The Group and Parent Company use the following criteria to identify
contracts with customers:
y the parties to the contract have approved the contract (in writing, orally or in accordance with other customary
business practices) and are committed to perform their respective obligations,
y each party’s rights regarding the goods or services to be transferred can be identified,
y the payment terms for the goods or services to be transferred can be identified,
y the contract has commercial substance (i.e. the risk, timing or amount of the entity’s future cash flows is
expected to change as a result of the contract),
y it is probable that the company will collect the consideration to which it will be entitled in exchange for the goods
or services that will be transferred to the customer.
In evaluating whether collectability of an amount of consideration is probable, the Group and the Parent Company
use portfolio approach practical expedient for all energy and related supply services, distribution system services and
heat sales customers. Group and the Parent Company reasonably expect that the effects on the financial statements
from applying these requirements to the portfolio would not differ materially from applying the requirements to the
individual contracts within the portfolio. Collectability is assessed individually for other customers.
The Group and the Parent Company consider only the customer’s ability and intention to pay that amount of
consideration when it is due.
Performance obligations are promises in the contracts (either explicitly stated or implied) with Group’s and the
Parent Company’s customers to transfer to the customers either distinct goods or services, or series of distinct
goods or services that are substantially the same and that have the same pattern of transfer to the customer.
Promised goods or services represent separate performance obligations if the goods or services are distinct. A
promised good or service is considered distinct if the customer can benefit from the good or service on its own or
with other readily available resources (i.e. distinct individually) and the good or service is separately identifiable from
other promises in the contract (distinct within the context of the contract). Both of these criteria must be met to
conclude that the good or service is distinct.
Major distinct performance obligations identified in the contracts with customers by the Group and the Parent
Company include sale of energy and related supply services, provision of distribution system services and sale of
heat. The Group has assessed that connecting a customer to the distribution network as a separate performance
obligation is not distinct within the context of the contract due to being highly interrelated to sales of distribution
services (Note 4 c III).
Where contracts with customers include variable consideration, the Group and the Parent Company estimate at
contract inception the variable consideration expected over the life of the respective contracts and update that
estimate each reporting period. A constrained variable consideration is identified in relation to sales of distribution
system services.
The Group and the Parent Company recognise revenue when (or as) it satisfies a performance obligation to transfer
a promised good or service to a customer. Revenue is recognised when customer obtains control of the respective
good or service.
31
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
The Group and the Parent Company use output method to measure progress towards complete satisfaction of
a performance obligations. Revenue from sale of energy and related supply services, provision of distribution
system services and sale of heat are recognised over time as a continuous delivery of these goods and services
is made over the term of the respective contracts.
Revenue from satisfied performance obligations under such contracts is recognised over time, if one of the
following criteria is met:
y customer simultaneously receives and consumes the benefits,
y customer controls the asset as it is created or enhanced,
y the Group’s and Parent Company’s performance does not create an asset with an alternative use and the
Group and Parent Company has a right to payment for performance completed.
Revenue from satisfaction of performance obligations is recognised based on identified transaction price.
Transaction price reflects the amount to which the Group and the Parent Company expect to be entitled to in
exchange for goods and services. It is allocated to the distinct performance obligations based on standalone
selling prices of the goods or services promised in the contract. The Group and the Parent Company allocate
transaction price to the distinct performance obligations in proportion to their observable stand-alone selling
prices and recognises revenue as those performance obligations are satisfied.
Payment terms for goods or services transferred to customers according to contract terms are within 20 to
45days from the provision of services or sale of goods. Invoices are mostly issued monthly.
Trade of energy and related supply services
Revenue from electricity and natural gas sales are recognised on the basis of meter readings. Revenue from
other energy and related supply services are recognised on the basis of goods delivered or provided services and
prices included in contracts with customers. Revenues from trade of electricity in Nord Pool power exchange are
based on the calculated market prices in accordance with contract terms, therefore ‘right to invoice’ practical
expedient is used to recognise revenue from such contracts as the amount corresponds directly with the value
of the performance completed to date.
Sales of distribution system services (the Group)
Revenues from electricity distribution services are based on regulated tariffs that are subject to approval by the
Public Utilities Commission and regulations by Cabinet of Ministers of the Republic of Latvia ‘Regulations on
electricity trade and usage’. The Group recognises revenue from sales of distribution system services at the end
of each month based on the automatically made meter readings or customers’ reported meter readings, on the
period in which the services are rendered. Revenue is recognised in the amount for which the Group has right to
invoice.
From 1 December till 31 December 2021, in accordance with Regulations of the Cabinet of Ministers of the
Republic of Latvia No. 50 ‘Regulations regarding the trade and use of electricity’, the government granted support
for electricity distribution fee to all end-users in the amount of 50%, which is reimbursed from the state budget. The
compensation mechanism for electricity end-users provides for a reduction of the electricity distribution system
service fee by 50% of the service fee to the end-user, while not changing the distribution system tariffs.
Regulations of Cabinet of Ministers of the Republic of Latvia No. 50 ‘Regulations regarding the trade and use
of electricity’ do not change agreement on the scope of provided services and do not change the approved
distribution system tariffs, respectively does not change the Company’s revenue recognition principles, but the
reception of the transaction fee and the payer for the services. The Company has the right to invoice for the full fee
for the provided services: from customer at a reduced price within the specified period of time and the payment
for the reduction in price has been received from the state.
Heat sales
Revenue from sales of thermal energy is recognised at the end of each month based on the meter readings and
corresponds to the invoiced amount.
Sales of IT & telecommunication services
Other revenue mainly includes revenues derived from information technology services (internet connection services,
data communication services), open electronic communication network and telecommunication services to
customers. Revenues are recognised upon usage of services listed in telecommunications billing system. Revenue
is recognised in the amount for which the Group and the Parent Company have right to invoice.
EUR’000
IFRS
applied
Group Parent Company
2021 2020 2021 2020
Revenue from contracts with customers
recognised over time:
Trade of energy and related supply services IFRS 15 670,194 417,781 490,614 310,853
Distribution system services IFRS 15 282,950 275,587 – –
Heat sales IFRS 15 84,224 53,428 71,225 42,635
Other revenue IFRS 15 25,852 24,956 27,536 28,203
TOTAL revenue from contracts with customers 1,063,220 771,752 589,375 381,691
Other revenue:
Lease of other assets IFRS 16 1,999 1,639 3,410 3,921
TOTAL other revenue 1,999 1,639 3.410 3,921
TOTAL revenue 1,065,219 773,391 592,785 385,612
From 1 December till 31 December 2021, in accordance with Regulations of the Cabinet of Ministers of the
Republic of Latvia No.50 ‘Regulations regarding the trade and use of electricity’, the government granted
support for electricity distribution fee to all end-users in the amount of 50% or EUR13,008thousand,
which is reimbursed from the state budget and recognised as revenue from distribution system services
(Note 2.9.). The compensation mechanism for electricity end-users provides for a reduction of the
electricity distribution system service fee by 50% of the service fee to the end-user, while not changing
the distribution system tariffs.
The Group and the Parent Company derive revenue from contracts with customers from Latvia and
outside Latvia – Estonia, Lithuania, Nordic countries.
EUR’000
Group Parent Company
2021 2020 2021 2020
Latvia 725,123 619,746 424,553 328,870
Outside Latvia 338,097 152,006 164,822 52,821
TOTAL revenue from contracts with customers 1,063,220 771,752 589,375 381,691
Accounting policy
The Group and the Parent Company have assessed that in providing Mandatory procurement PSO fees it is acting
as an agent due to lack of control over PSO fee (Note 4 c I). The Parent Company has also concluded that it is acting
as an agent in the provision of distribution system services and transmission system services because the Parent
Company has no control over these services (Note 4 c II).
Mandatory procurement PSO fees
Revenue from mandatory procurement PSO fees in the Group is recognised on net (agent) basis. PSO fee is
managed within the context of mandatory procurement process by subsidiary Enerģijas publiskais tirgotājsSIA
(hereinafter – EPT) and is the difference (residual) between the revenue from the sale of electricity in NordPool
32
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
power exchange by market price, received mandatory procurement PSO fee, received government grant for
compensating the increase of mandatory procurement costs and the related costs – costs of purchased electricity
under the mandatory procurement from electricity producers, as well as guaranteed fees for installed electrical
capacity in cogeneration plants. EPT is acting as an agent in administration of the mandatory procurement process
and receives revenue from mandatory procurement administration services (agent fee), which is recognised over
time in the Group’s Statement of Profit or Loss as other revenue from contracts with customers.
PSO fees are included in invoices issued by trader (Parent Company – Latvenergo AS) and by distribution system
operator (Sadales tīkls AS) and are paid by customers together with unite invoice for electricity and distribution or
transmission system services. System operators have the obligation to collect revenues of PSO fees from customers
or traders and further to transfer these revenues to EPT. PSO fees are based on regulated tariffs that are subject to
approval by the Public Utilities Commission. Due to lack of influence and control over PSO fees, the Group and the
Parent Company consider themselves an agent in these transactions. Therefore, PSO fees received from electricity
end-users and transferred to EPT are recognised in the Statement of Profit or Loss in net amount by applying the
agent accounting principles.
Distribution system and transmission system services (Parent Company)
The Parent Company on behalf of distribution system operator (DSO) and transmission system operator (TSO)
issues unite invoice including the fees for the distribution system or transmission system services and transfers
these fees to DSO or TSO accordingly.
Distribution system services and transmission system services are based on regulated tariffs that are subject to
approval by the Public Utilities Commission. The Parent Company considers itself an agent in these transactions,
therefore, the fees for distribution system and transmission system services received from customers and transferred
to DSO and TSO are recognised in the Statement of Profit or Loss in net amount by applying the agent accounting
principles.
Gross amounts invoiced to customers by applying agent accounting principle,
recognised on net basis under trade of energy and related supply services
EUR’000
Group Parent Company
2021 2020 2021 2020
Mandatory procurement PSO fees 62,603 84,665 64,537 88,177
Distribution system services 23,478 12,641 171,200 184,915
Transmission system services 1,744 1,654 1,758 1,686
Insurance intermediation 579 – 578 –
TOTAL revenue recognised applying agent accounting principle 88,404 98,960 238,073 274,778
Net effect in revenue from applying agent accounting principle is 0.
Accounting policy
Revenue from contracts with customers
Connection fees to distribution system (the Group)
Connection fees to distribution system are non-refundable upfront fees paid by customers to secure connection to
the distribution network, such fees are not distinct performance obligations as are highly interrelated with distribution
system services. Connection fees partly reimburse for the cost of infrastructure to be built needed to connect the
respective customer to the network. Connection fees to distribution system fee is calculated in accordance with
Latvian regulatory authority (Public Utilities Commission) stated methodology.
Revenue from connection fees to distribution system are initially recognised as deferred income (contract liabilities)
and recognised over the estimated customer relationship period of 20 years (Note 4 c III).
Revenue from other sources
Lease of transmission system assets until 10 June 2020 (IFRS 16) (Group, discontinued
operation (Note 30))
Revenues from lease of transmission system assets are recognised on the basis of lease payment amount which
are calculated for transmission system operator accordingly to determined fee per lease agreement and recognised
on a straight–line basis over term of the lease. Concluded agreements on the lease of transmission system assets
meet IFRS 16 ‘Leases’ criteria that is used for revenue recognition from lease.
Connection fees to transmission system until 10 June 2020 (IFRS 16) (Group, discontinued
operation (Note 30))
Revenue from connection fees to transmission system are received as upfront payments from lessee under lease
agreement and are carried in the Statement of Financial Position as deferred income and amortised to Statement of
Profit or Loss on a straight–line over basis estimated lease period (Note 4 f).
Electricity connection fees to transmission system are recognised by the Group based on the necessity for a
connection to the transmission network based on the request of lessee, which acts on behalf of users. For
each connection fee a separate arrangement within the base lease agreement is concluded. Connection fee
to transmission system partly reimburses the cost of infrastructure to be built and is needed for connection of
transmission system user to the network. Connection service fee to transmission system is calculated in accordance
with Latvian regulatory authority (Public Utilities Commission) stated methodology.
Deferred income from contracts with customers
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Non–current deferred income from connection fees 28 I, a 136,217 138,750 – –
Current deferred income from connection fees 28 II, a 14,794 14,167 – –
Non-current other deferred income 28 I, a 802 863 802 863
Current other deferred income 28 II, a 237 924 67 813
TOTAL liabilities 152,050 154,704 869 1,676
Movement in deferred connection fees – from contracts with customers for the
Group (non–current and current part)
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 154,704 157,094 1,676 940
Received connection fees for connection to distribution system 28 12,556 10,749 – –
Received advance payments for contracts with customers 28 – 808 – 808
Credited to the Statement of Profit or Loss (15,210) (13,947) (807) (72)
At the end of the year 152,050 154,704 869 1,676
33
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
7. Other income
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
Compensation from the state on state support for the
installed capacity of CHPPs 4 g 23,990 23,990 23,990 23,990
Profit from distribution of non–current financial investments 16 – – – 36,246
Fines and penalties 2,536 2,060 1,803 1,483
Net gain on sale of assets held for sale and property, plant
and equipment 1,167 1,123 1,321 1,026
Compensations and insurance claims 779 535 503 238
Other operating income 956 1,024 129 194
TOTAL other income 29,428 28,732 27,746 63,177
8. Raw materials and consumables
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
Energy costs:
Electricity and costs of related supply services 369,388 154,667 180,864 50,433
Electricity transmission services costs 29 a 73,747 71,054 3,053 957
Natural gas and other energy resources costs 259,160 117,185 248,699 111,151
Losses / (gains) on fair value changes on energy futures,
forwards, and swaps 24 I 13,373 (1,242) 13,642 (1,242)
715,668 341,664 446,258 161,299
Raw materials, spare parts and maintenance costs 24,459 27,597 12,212 12,585
TOTAL raw materials and consumables used 740,127 369,261 458,470 173,884
Significant increase impacted mainly by significantly higher electricity purchase prices as well as higher
natural gas and CO
2
emission allowance prices. The Group and the Parent Company produce less
electricity at its plants than it is sold to the Group’s and the Parent Company’s customers. The missing
part was bought on the market at a higher price than fixed in our customer agreements, which had a
negative impact on the energy costs. In 2021, the electricity spot price in Latvia was more than two and
a half times higher compared to the previous year. The price of natural gas was almost five times higher,
and the average price of CO
2
emission allowances was more than two times higher.
9. Personnel expenses
EUR’000
Group Parent Company
2021 2020 2021 2020
Wages and salaries 78,564 79,457 34,359 34,603
State social insurance contributions 17,918 18,733 7,952 8,182
Expenditure of employment termination 3,719 1,783 392 275
Pension costs – defined contribution plan 4,739 3,612 2,014 1,571
Other benefits defined in the Collective Agreement 1,121 1,040 462 370
Life insurance costs 553 1,613 234 656
Capitalised personnel expenses (991) (267) – –
TOTAL personnel expenses, including remuneration to the
management of continuing operations 105,623 105,971 45,413 45,657
Remuneration to the management including discontinued
operation:
Wages and salaries 2,347 2,153 855 861
State social insurance contributions 547 516 201 208
Expenditure of employment termination 5 90 – 90
Pension costs– defined contribution plan 18 25 10 13
Life insurance costs 14 17 – 1
TOTAL remuneration to the management* 2,931 2,801 1,066 1,173
* Remuneration to the Group’s management includes remuneration to the members of the Management Boards of the Group entities, the Supervisory Board,
and the Supervisory body (Audit Committee) of the Parent Company (including remuneration to management of discontinued operation in 2020 in the amount
of EUR 160 thousand). Remuneration to the Parent Company’s management includes remuneration to the members of the Parent Company’s Management
Board, the Supervisory Board, and the Supervisory body (Audit Committee).
The Group and the Parent Company make monthly contributions to a closed defined contribution pension
plan on behalf of their employees. The plan is managed by the non–profit public limited company Pirmais
Slēgtais Pensiju Fonds, with the participation of the Group companies amounting for 48.15% (Parent
Company – 46.30%) of its share capital. A defined contribution plan is a pension plan under which the
Group and the Parent Company pay contributions into the plan. The Group and the Parent Company have
no legal or constructive obligations to pay further contributions if the plan does not hold sufficient assets to
pay all employees benefits relating to employee service in the current and prior periods. The contributions
amount to 5% of each pension plan member’s salary. The Group and the Parent Company recognise the
contributions to the defined contribution plan as an expense when an employee has rendered services in
exchange for those contributions.
Number of employees
Group Parent Company
2021 2020 2021 2020
Number of employees at the end of the year 3,153 3,295 1,269 1,267
Average number of employees during the year 3,233 3,362 1,273 1,281
34
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
10. Other operating expenses
EUR’000
Group Parent Company
2021 2020 2021 2020
Selling expenses and customer services 35,649 7,526 31,267 5,444
Information technology maintenance 5,693 5,667 5,359 5,338
Transportation expenses 5,308 5,022 1,710 1,643
Environment protection and work safety 8,424 9,394 7,284 8,223
Real estate maintenance and utilities expenses 5,368 4,967 3,887 4,143
Lease of real estate and fixed assets 84 201 54 137
Telecommunications services 2,592 2,289 2,221 2,284
Real estate tax 980 979 699 964
Public utilities regulation fee 1,714 1,710 781 761
Audit fee 93 93 46 45
Changes in impairment losses on financial assets (27,382) (2,796) (27,129) (2,502)
Net losses from sale of assets held for sale and PPE 2,951 4,503 (349) 379
Other expenses 8,610 9,442 5,543 4,500
TOTAL other operating expenses 50,084 48,997 31,373 31,359
In addition to audit services, in 2021 auditors did not provide any other services (2020: for the Group in
the amount of EUR 3 thousand, Parent Company EUR 2 thousand, the costs of which are included in the
position ‘Other expenses’).
11. Finance income and costs
a) Finance income
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
Interest income 564 2,032 564 1,097
Interest income on loans to related parties 994 – 10,276 11,578
Gains on fair value changes on interest rate swaps 24 316 – 316 –
Net gain on issued debt securities (bonds) 111 93 111 93
Net gain on redemption of other financial investments 94 – 94 –
Net gain on currency exchange rate fluctuations 31 – 30 –
TOTAL finance income 2,110 2,125 11,391 12,768
b) Finance costs
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
Interest expense on borrowings from financial institutions 7,029 8,421 7,247 9,031
Interest expense on issued debt securities (bonds) 2,041 2,273 2,041 2,273
Interest expense on assets lease 138 131 83 69
Capitalised borrowing costs 14 a (331) (479) (331) (479)
Net losses on redemption of other financial investments – 50 – 50
Net losses on currency exchange rate fluctuations – 105 – 105
Other finance costs 193 275 176 244
TOTAL finance costs 9,070 10,776 9,216 11,293
12. Income tax
Accounting policy
Corporate income tax
Latvia
Corporate income tax is paid on distributed profits which has been generated as of 1 January 2018 and not
previously taxed (less dividends received from subsidiaries) and deemed profit distributions. Both distributed profits
and deemed profit distributions are subject to the tax rate of 20% of their gross amount, or 20/80 of net expense.
Corporate income tax on dividends is recognised in the statement of profit or loss as expense in the reporting period
when respective dividends are declared, while as regards other deemed profit distribution items, at the time when
expense is incurred in the reporting year.
Lithuania
Current corporate income tax is applied at the rate of 15% on taxable income generated by a company during the
taxation period. Income tax expense for the period comprises current income tax and deferred income tax. Current
income tax charges are calculated on current profit before tax using the tax rate 15% in accordance with applicable
tax regulations as adjusted for certain non–deductible expenses/non–taxable income and are based on the taxable
income reported for the taxation period.
Estonia
Under the Income Tax Act, the annual profit earned by entities is not taxed in Estonia. Corporate income tax is
paid on dividends, fringe benefits, gifts, donations, representation costs, non–business related disbursements
and transfer pricing adjustments. The tax rate on the net dividends paid out of retained earnings is 20/80. Since
2019, it is possible to apply a tax rate of 14/86 to dividend payments. This more favourable tax rate can be used
for dividend payments up to the average dividend pay–out of the previous three financial years, taxed 20/80 rate.
In calculating the average dividend payment for the three preceding financial years, 2018 was the first year to be
considered. The corporate income tax arising from the payment of dividends is accounted for as a liability and
expense in the period in which dividends are declared, regardless of the actual payment date or the period for
which the dividends are paid.
Deferred income tax
Latvia and Estonia
Deferred tax liabilities are recognised in the consolidated financial statements on undistributed profits of the
subsidiaries, which will be subject to taxation upon distribution in foreseeable future. No other deferred tax assets
and liabilities are recognised.
Lithuania
Deferred income tax is provided in full, using the liability method on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is
determined using tax rates (and laws) that have been enacted by the end of reporting period and are expected to
apply when the related deferred income tax asset is realised, or the deferred income tax liability settled. Deferred
income tax assets are recognised to the extent that it is probable that future taxable profit of the respective Group
entity will be available against which the temporary differences can be utilised.
EUR’000
Group Parent Company
2021 2020 2021 2020
Current income tax for the year 6,832 8,160 – –
Deferred income tax on foreseeable profit distributions of subsidiaries (3,446) (1,926) – –
Deferred income tax relating to temporary differences (79) – – –
TOTAL income tax 3,307 6,234 – –
35
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
13. Intangible assets
a) Intangible assets
Accounting policy
Intangible assets are measured on initial recognition at historical cost. Following initial recognition, intangible assets
are carried at cost less any accumulated amortisation and accumulated impairment losses.
Assets under development are recognised in Statement of Financial Position within intangible assets and measured
at cost until the intangible assets are completed and received.
Usage rights, licenses and software are shown at historical cost less accumulated amortisation and accumulated
impairment losses. Amortisation is calculated using the straight–line method to allocate the cost of usage rights,
licenses and software over their estimated useful lives. Computer software development costs recognised as assets
are amortised over their estimated useful lives, not exceeding a period of use defined in agreement or five years.
Connection usage rights are the payments for the rights to use the transmission or distribution system’s power grid.
Connection usage rights are measured at cost net of amortisation and accumulated impairment that is calculated
on straight–line basis to allocate the cost of connection usage rights to the residual value over the estimated period
of relationship with a supplier (connection installer).
Goodwill is initially measured at cost. If the fair value of the net assets acquired is in excess of the aggregate
consideration transferred, the Group and the Parent Company re–assesses whether it has correctly identified all
of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts
to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets
acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each
of the Group’s and the Company’s cash–generating units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
EUR'000
Group Parent Company
Goodwill Usage rights
and licences
Greenhouse
gas emission
allowances
Software Assets under
development
TOTAL Usage rights
and licences
Greenhouse
gas emission
allowances
Software Assets under
development
TOTAL
As of 31 December 2019
Cost – 2,507 11,024 50,487 148 64,166 10,797 11,024 47,467 148 69,436
Accumulated amortisation – (2,375) – (39,204) – (41,579) (5,474) – (37,851) – (43,325)
Net book amount – 132 11,024 11,283 148 22,587 5,323 11,024 9,616 148 26,111
Year ended 31 December 2020
Additions – – 9,547 – 4,805 14,352 – 9,547 – 4,269 13,816
Transfers – 641 – 4,219 (4,860) – 3 – 4,216 (4,219) –
Disposals – – (17,414) – – (17,414) – (17,414) – – (17,414)
Reclassified to current intangible assets – – (3,157) – – (3,157) – (3,157) – – (3,157)
Impairment charge – – – (81) – (81) – – (81) – (81)
Amortisation charge – (1,683) – (2,898) – (4,581) (460) – (2,622) – (3,082)
Recognised usage rights after distribution of discontinued
operation* – 38,100 – – 222 38,322 – – – – –
Closing net book amount as of 31 December 2021 – 37,190 – 12,523 315 50,028 4,866 – 11,129 198 16,193
As of 31 December 2020
Cost – 58,173 – 52,617 315 111,105 10,800 – 49,593 198 60,591
Accumulated amortisation – (20,983) – (40,094) – (61,077) (5,934) – (38,464) – (44,398)
Net book amount – 37,190 – 12,523 315 50,028 4,866 – 11,129 198 16,193
Year ended 31 December 2021
Additions 2,546 – – – 6,907 9,453 – – – 4,321 4,321
Transfers – 2,444 – 4,095 (6,539) – 17 – 4,002 (4,019) –
Disposals – – – (81) – (81) – – (81) – (81)
Impairment charge – – – 81 – 81 – – 81 – 81
Amortisation charge – (3,000) – (2,924) – (5,924) (459) – (2,649) – (3,108)
Closing net book amount as of 31 December 2021 2,546 36,634 – 13,694 683 53,557 4,424 – 12,482 500 17,406
As of 31 December 2021
Cost 2,546 60,617 – 56,449 683 120,295 10,817 – 53,370 500 64,687
Accumulated amortisation – (23,983) – (42,755) – (66,738) (6,393) – (40,888) – (47,281)
Net book amount 2,546 36,634 – 13,694 683 53,557 4,424 – 12,482 500 17,406
* Until 10 June 2020, Latvijas elektriskie tīkli AS was a Latvenergo Group’s company, that ensured the construction of connections to the transmission network and recognised usage rights for connection to transmission system network within the Group was excluded in consolidation process
36
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
b) Current intangible assets (Greenhouse gas emission allowances)
Accounting policy
Emission rights for greenhouse gases (or allowances) are recognised and subsequently measured at purchase
cost when the Group or the Parent Company is able to exercise the control. Allowances received from the
Government free of charge are recognised at zero cost. In those cases, when the quantity of emitted greenhouse
gases exceeds the quantity of allowances allocated by the state free of charge, the Group and the Parent
Company purchase additional allowances.
Group Parent Company
2021 2020 2021 2020
Number of
allowances
Number of
allowances
Number of
allowances
Number of
allowances
At the beginning of the year 977,325 1,784,364 958,122 1,688,912
Allowances allocated free of charge* 8,664 125,103 – 112,769
Purchased allowances 1,105,000 375,000 1,105,000 375,000
Written off verified allowances (837,120) (1,227,142) (831,270) (1,218,559)
Sold allowances (5,000) (80,000) – –
At the end of the year 1,248,869 977,325 1,231,852 958,122
including estimated allowances used during the
reporting year (unverified) (834,267) (812,710) (834,267) (812,710)
Allowances available at the end of the year 414,602 164,615 397,585 145,412
* The number of allowances received by the Group and the Parent Company from the Government free of charge, in accordance with the law “On Pollution”
and Directives of the Ministry of Environmental Protection and Regional Development of the Republic of Latvia. Therefore, their carrying amount as of
31December2021 was nil (31/12/2020: nil).
Current intangible assets
EUR’000
Group Parent Company
2021 2020 2021 2020
Net book amount at the beginning of the year 3,157 – 3,157 –
Additions 64,500 – 64,500 –
Disposals (43,391) – (43,391) –
Reclassified from non-current intangible assets – 3,157 – 3,157
Closing net book amount at the end of the year 24,266 3,157 24,266 3,157
14. Property, plant and equipment
a) Property, plant and equipment
Accounting policy
Property, plant and equipment (PPE) are measured on initial recognition at cost. Following initial recognition PPE are
stated at historical cost or revalued amount less accumulated depreciation and accumulated impairment loss, if any.
The acquisition cost comprises the purchase price, transportation costs, installation, and other direct expenses
related to the acquisition or implementation. The cost of the self–constructed item of PPE includes the cost of
materials, services and workforce. Subsequent costs are included in the asset’s carrying amount or recognised
as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the
item will flow to the Group or the Parent Company and the cost of an item can be measured reliably. All other
repair and maintenance expenses are charged directly to the Statement of Profit or Loss when the expenditure
is incurred.
If an item of PPE consists of components with different useful lives and acquisition costs of such components are
significant concerning the PPE value, these components are accounted as separate items.
Land is not depreciated. Depreciation on the other assets is calculated using the straight–line method to allocate
their cost over their estimated useful lives, as follows:
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. Those are included
in the Statement of Profit or Loss. If revalued property, plant and equipment have been sold, appropriate
amounts are reclassified from revaluation reserve to retained earnings.
All fixed assets under construction are stated at historical cost and comprise of costs of construction of assets.
The initial cost includes construction and installation costs and other direct costs related to construction of fixed
assets. General and specific borrowing costs directly attributable to the acquisition or construction of qualifying
assets are added to the cost of those assets, until such time as the assets are substantially ready for their
intended use. Borrowing costs consist of interest and other costs that the Group or the Parent Company incur
in connection with the borrowing of funds. Borrowing costs are capitalised to fixed assets proportionally to the
part of the cost of PPE under construction over the period of construction. Assets under construction are not
depreciated until the relevant assets are completed and ready for intended use, impairment test is performed
when there is indication for impairment, either individually or at the cash-generating unit level. The amount
of any impairment loss identified is measured as the difference between the asset’s carrying amount and the
recoverable amount that is higher of the asset’s the fair value less costs to sell and value in use.
The Group and the Parent Company classifies non–current assets as held for sale if their carrying amount will
be recovered principally through a sale transaction rather than through continuing use, and sale is considered
highly probable. Non–current assets held for sale are measured at the lower of their carrying amount and fair
value less costs to sell.
Transfers are made from (or to) property, plant, and equipment to (or from) investment property only when there
is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for
subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an
investment property, the Group and the Parent Company accounts for such property in accordance with the
policy stated under property, plant and equipment up to the date of change in use.
Type of property, plant and equipment (PPE) Estimated useful life, years
Buildings and facilities 15 – 100
Assets of Hydropower plants:
- hydropower plants' buildings and facilities, 25 – 100
- hydropower plants' technology equipment and machinery 10 – 40
Transmission system electricity lines and electrical equipment (until 10 June 2020):
- electricity lines 20 – 50
- electrical equipment of transformer substations 12 – 40
Distribution system electricity lines and electrical equipment:
- electricity lines 30 – 50
- electrical equipment of transformer substations 30 – 35
Technology equipment and machinery 3 – 40
Other property, plant and equipment 2 – 25
37
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Net book amounts and movements of property, plant and equipment by groups, including groups of revalued categories are as follows
EUR’000
Group Parent Company
Land,
buildings
and
facilities
Assets
of Hydro
Power Plant
Distribution
system
electricity
lines and
electrical
equipment
Transmission
system
electricity
lines and
electrical
equipment
Technology
equipment
and
machinery
Other PPE Assets
under
construction
Property,
plant and
equipment
TOTAL
Land,
buildings
and
facilities
Assets
of Hydro
Power Plant
Technology
equipment
and
machinery
Other PPE Assets
under
construction
Property,
plant and
equipment
TOTAL
As of 31 December 2019
Cost or revalued amount 456,257 2,050,409 2,921,846 – 637,869 157,052 99,802 6,323,235 341,761 2,050,409 612,341 105,335 76,199 3,186,045
Accumulated depreciation and impairment (254,582) (1,267,432) (1,410,073) – (528,854) (103,992) (5,357) (3,570,290) (202,471) (1,267,433) (516,306) (85,779) (5,055) (2,077,044)
Net book amount 201,675 782,977 1,511,773 – 109,015 53,060 94,445 2,752,945 139,290 782,976 96,035 19,556 71,144 1,109,001
Year ended 31 December 2020
Additions (866) – – – – (80) 164,997 164,051 – – – – 46,730 46,730
Transfers 5,480 21,119 78,177 2,923 26,262 15,046 (149,007) – 2,585 21,120 26,097 6,198 (56,000) –
Reclassified (to) / from investment property, net (477) – – – – – – (477) 2,427 – – – – 2,427
Reclassified to non-current assets for sale – – – – (21) (22) – (43) – – – (1) – (1)
Disposals (364) (4) (5,340) (33) (201) (42) (417) (6,401) (299) (4) (195) (236) (741) (1,475)
Investment in share capital of other company
(Note 16) – – – – – – – – (2,449) – (15) (503) – (2,967)
Increase of assets as a result of revaluation – – 96,264 – – – – 96,264 – – – – – –
Reversed impairment charge as a result of
revaluation – – 8,660 – – – – 8,660 – – – – – –
Impairment charge (Note 14 d I) (3,037) – – – (4,465) – 373 (7,129) (3,037) – (4,465) – 386 (7,116)
Depreciation (14,051) (25,612) (65,945) (10,958) (34,552) (12,439) – (163,557) (9,667) (25,612) (33,161) (6,589) – (75,029)
Changes in value of assets attributable to the
discontinued operation* 2,722 – – 8,068 9 (1,929) (25,857) (16,987) – – – – – –
Closing net book amount as of
31December 2020 191,082 778,480 1,623,589 – 96,047 53,594 84,534 2,827,326 128,850 778,480 84,296 18,425 61,519 1,071,570
As of 31 December 2020
Cost or revalued amount 426,279 2,045,830 3,006,885 – 649,011 156,217 89,518 6,373,740 341,001 2,045,830 623,104 101,718 66,188 3,177,841
Accumulated depreciation and impairment (235,197) (1,267,350) (1,383,296) – (552,964) (102,623) (4,984) (3,546,414) (212,151) (1,267,350) (538,808) (83,293) (4,669) (2,106,271)
Net book amount 191,082 778,480 1,623,589 – 96,047 53,594 84,534 2,827,326 128,850 778,480 84,296 18,425 61,519 1,071,570
Year ended 31 December 2021
Additions – – – – 4,969 – 112,286 117,255 – – – – 25,203 25,203
Invested in share capital 20 – – – – – – 20 20 – – – – 20
Transfers 10,457 23,096 83,272 – 7,285 14,320 (138,430) – 7,442 23,096 7,205 5,553 (43,296) –
Reclassified (to) / from investment property, net (3,182) – – – – – – (3,182) (692) – – – – (692)
Reclassified to non–current assets for sale (27) – – – –
(78) – (105) (20) – – – – (20)
Disposals (34) (69) (5,197) – (43) (74) (39) (5,456) (84) (69) (42) (136) (20) (351)
Reversed impairment charge (Note 14 d I) 9,187 – – – 27,537 – 4,699 41,423 9,187 – 27,537 – 4,669 41,393
Depreciation (13,120) (25,157) (70,241) – (30,913) (11,196) – (150,627) (9,587) (25,157) (29,655) (5,751) – (70,150)
Closing net book amount as of
31December2021 194,383 776,350 1,631,423 – 104,882 56,566 63,050 2,826,654 135,116 776,350 89,341 18,091 48,075 1,066,973
As of 31 December 2021
Cost or revalued amount 427,180 2,044,719 3,031,424 – 661,828 168,431 63,334 6,396,916 346,175 2,044,719 630,116 101,775 48,075 3,170,860
Accumulated depreciation and impairment (232,797) (1,268,369) (1,400,001) – (556,946) (111,865) (284) (3,570,262) (211,059) (1,268,369) (540,775) (83,684) – (2,103,887)
Net book amount 194,383 776,350 1,631,423 – 104,882 56,566 63,050 2,826,654 135,116 776,350 89,341 18,091 48,075 1,066,973
* Until 10 June 2020, Latvijas elektriskie tīkli AS was a Latvenergo Group’s company, that was the owner of the transmission system assets and ensured the construction of the transmission network. Changes in value of assets include additions, disposals and depreciation of property, plant and equipment.
38
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Impairment charge or reversed charge is included in the Statement of Profit or Loss under ‘Depreciation,
amortisation and impairment of intangible assets, PPE and right-of-use assets’.
As of 31 December 2021, cost of fully depreciated PPE which are still in use for the Group amounted to
EUR305,295 thousand (31/12/2020: EUR 354,967 thousand) and for the Parent Company amounted to
EUR277,392 thousand (31/12/2020: EUR 270,456 thousand).
In 2021 the Group and the Parent Company have capitalised borrowing costs in the amount of
EUR331thousand (2020: EUR 479 thousand) (see Note 11). Rate of capitalised borrowing costs was of
1.45% (2020: 1.58%).
Information about the pledged property, plant and equipment is disclosed in Note 23 I.
b) Investment property
Accounting policy
Investment properties are land, or a building or part of a building held by the Group or the Parent Company as the
owner to earn rentals or for capital appreciation, rather than for use in the production of goods or supply of services
or for administrative purposes, or sale in the ordinary course of business. Investment property generates cash flows
independently of the other assets held. The investment properties are initially recognised at cost and subsequently
measured at acquisition cost net of accumulated depreciation and impairment losses. The applied depreciation
rates are based on estimated useful life set for respective fixed asset categories – from 15 to 80 years.
EUR'000
Group Parent Company
Investment property held for
capital appreciation
Investment properties for
lease*
Investment property held for
capital appreciation
TOTAL Investment property
2021 2020 2021 2020 2021 2020 2021 2020
Cost at the beginning of the year 1,455 910 4,005 64,377 1,427 876 5,432 65,253
Accumulated depreciation and impairment at the beginning of the year (943) (609) (1,155) (25,209) (943) (609) (2,098) (25,818)
Net book amount at the beginning of the year 512 301 2,850 39,168 484 267 3,334 39,435
Reclassified to investment property held for capital appreciation 3,182 477 (766) (2,904) 1,458 477 692 (2,427)
Disposal (18) (6) – (24) (18) (6) (18) (30)
Investment in the share capital of other company – – – (32,333) – – – (32,333)
Sold (348) (260) – (840) (348) (254) (348) (1,094)
Depreciation (12) – (58) (217) – – (58) (217)
Cost at the end of the year 3,807 1,455 2,700 4,005 1,861 1,427 4,561 5,432
Accumulated depreciation and impairment at the end of the year (491) (943) (674) (1,155) (285) (943) (959) (2,098)
Net book amount at the end of the year 3,316 512 2,026 2,850 1,576 484 3,602 3,334
* Leased property, plant and equipment and real estate related to distribution and transmission system assets
The Group and the Parent Company apply the cost model in valuation of investment properties. Land
or building or part of a building held by the Group or the Parent Company as the owner to earn rentals
or for capital appreciation, rather than for use in the production of goods or supply of services or for
administrative purposes, or sale in the ordinary course of business, after decision of the Group’s or the
Parent Company’s management are initially recognised as investment properties at cost and subsequently
measured at acquisition cost net of accumulated depreciation and impairment losses.
c) Property, plant and equipment revaluation
Accounting policy
Revaluations have been made with sufficient regularity to ensure that the carrying amount of property, plant and
equipment items subject to valuation does not differ materially from that which would be determined using fair value
at the end of reporting period.
The following hydropower plants, transmission system and distribution system assets (property, plant and
equipment) are revalued regularly but not less frequently than every five years:
a) Assets of Hydropower plants:
y hydropower plants’ buildings and facilities,
y hydropower plants’ technology equipment and machinery;
b) Transmission system electricity lines and electrical equipment (until 10 June 2020):
y electricity lines,
y electrical equipment of transformer substations;
c) Distribution system electricity lines and electrical equipment:
y electricity lines,
y electrical equipment of transformer substations.
Increase in the carrying amount arising on revaluation is recognised in the Statement of Comprehensive income
as “Non–current assets revaluation reserve” in shareholders’ equity. Decrease in the carrying amount arising on
revaluation primarily offset previous increases recognised in ‘Comprehensive income’ and if decrease exceeds
revaluation reserve, it is recognised in the Statement of Profit or Loss.
At the date of revaluation, initial carrying amounts and accumulated depreciation are increased or decreased
proportionately with the change in the carrying amount of the asset so that the carrying amount of the asset after
the revaluation equals its revalued amount.
Non–current assets revaluation reserve is decreased and transferred to retained earnings at the moment, when
revalued asset has been written off or disposed.
Revaluation reserve cannot be distributed in dividends, invested in share capital, used for indemnity, reinvested in
other reserves, or used for other purposes.
39
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
The carrying amounts of revalued categories of property, plant and equipment groups at revalued amounts
and their cost basis are as follows:
EUR’000
Group
Revalued property, plant and equipment groups
Assets of
Hydropower
plants (the
Parent
Company)
Distribution
system
electricity lines
and electrical
equipment
TOTAL
revalued PPE
At revalued amounts
As of 31 December 2021
Revalued 2,044,719 3,031,424 5,076,143
Accumulated depreciation (1,268,369) (1,400,001) (2,668,370)
Revalued net book amount 776,350 1,631,423 2,407,773
As of 31 December 2020
Revalued 2,045,830 3,006,885 5,052,715
Accumulated depreciation (1,267,350) (1,383,296) (2,650,646)
Revalued net book amount 778,480 1,623,589 2,402,069
At amounts stated on historical cost basis
As of 31 December 2021
Cost 453,213 1,531,323 1,984,536
Accumulated depreciation (191,691) (518,820) (710,511)
Net book amount 261,522 1,012,503 1,274,025
As of 31 December 2020
Cost 432,117 1,518,927 1,951,044
Accumulated depreciation (182,739) (512,629) (695,368)
Net book amount 249,378 1,006,298 1,255,676
Assets of Hydropower plants were revalued in 2017. The revaluation was performed by an independent,
external and certified valuation expert by applying the income method or the replacement cost model.
Income method is based on average perennial water inflow in each HPP, power exchange (Nord Pool
Spot) forecasts of electricity prices, analysis of historical generation and operating expenses, forecast
of expenses based on publicly available state statistics, forecast of capital expenditure, forecast of net
cash flows, as well as discount and capitalisation rate calculation using the weighted average cost of
capital (WACC) formula based on market data.
Considering that the estimated replacement cost of the assets exceeded the value determined by using
income method, the value of each of the hydropower plant assets item was reduced to recognise the
economic depreciation. The replacement cost was determined according to technical characteristics of
property, plant and equipment, current technical requirements and the cost of replacement of functional
analogue less physical, functional and economic depreciation.
The nominal pre–tax discount rate used in valuation was 7.5%. If the pre-tax rate would have been
increased by 0.1% then the value of the revalued assets of hydropower plants would have been
decreased by EUR 17,686 thousand (2020: by EUR 45,938 thousand). If the pre–tax rate would have
been decreased by 0.1%, the value of the revalued assets of hydropower plants would have been
increased by EUR 18,279 thousand (2020: by EUR 48,308 thousand). If electricity price would have
been increased by 1%, the value of assets would have been increased by EUR 22,406 (2020: by
EUR27,665), if the prices would have been by 1% less, the value of assets would have been decrease
by EUR 22,406 (2020: by EUR 27,665).
Considering the situation at the end of the year when the increase in civil engineering construction costs
exceeded the 10% for at least 2 consecutive quarters since the previous revaluation, and anticipating
that the increase in the civil engineering construction costs is likely to remain significant and sustainable,
which could result in significantly higher value for hydropower plants, and accordingly in 2022 has
passed a cycle of 5 years, in February 2022 has been started the valuation process for hydropower
plants. Given that the revaluation process is complex and complicated, independent, external, certified
valuation experts has been involved in revaluation.
Distribution system electrical equipment was revalued as of 1 April 2020, as a result the carrying value
increased by EUR 30,739 thousand of which EUR 30,870 thousand was recognised as increase in
property, plant and equipment revaluation reserve in equity (see Note 21), while impairment in amount
of EUR 131 thousand was recognised in profit or loss.
External valuation expert used cost approach and assessed how components of the replacement
or renewal costs of the same property, plant and equipment items have changed since the
previous revaluation. The values of sub-categories of property, plant and equipment were indexed
by cost components. Material costs were indexed according to the data of the Central Statistical
Bureau on price changes, or the available information provided by Sadales tīkls AS on changes in
construction/establishment costs from purchases made during the last 12 months. At the same time
component of labour costs was indexed according to the data of the Central Statistical Bureau on
wage growth in the respective period. According to the data of Central Statistical Bureau, the increase
in labour costs since the period of previous revaluation (compared to the previous period) ranged from
1.47% to 9.51% per year and changes in prices of materials ranged from -4.28% to 2.7% per year. For
materials, the value of which has been determined using the information provided by Sadales tīkls AS,
price changes since the previous revaluation have ranged from -12.65% to 11.2%. After determining
the estimated replacement or renewal value, the valuation expert estimated the physical and functional
depreciation for each item of property, plant and equipment.
Distribution system electricity lines were revalued as of 1 January 2021 and the revaluation result has
been recognised in the Financial statements of 2020 as an adjusting event. As a result, the carrying
amount of assets was increased by EUR 74,185 thousand, of which EUR 65,394 thousand was
recognised in non–current assets revaluation reserve in equity (see Note 21), while reversal of previously
recognised impairment in the amount of EUR 8,791 thousand was recognised in the Statement of Profit
or Loss, position ‘Depreciation, amortisation and impairment of intangible assets, property, plant and
equipment and right-of-use assets’.
External valuation expert used cost approach in valuation of electricity lines, by assessing the control
estimate values of cost items of the electricity lines construction used for the construction of Sadales tīkls
AS electricity network. The control estimate is an estimate of the median object for the construction or
reconstruction of electricity lines, which corresponds to the median value of the price for each group of
electricity lines (property, plant and equipment), not taking into account the extreme costs of construction.
40
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
In the calculation of replacement costs, cost items of construction control estimates are priced according
to market prices as of 1 January 2021. Initial replacement value for 1 km of electricity lines by each of
electricity lines group, by regions, and by population levels of the territory was determined. Specialised
databases of construction specialists, construction estimates of other customers for construction works
and construction companies in Latvia, which were attributable to the valuation date, were used as source
for market prices. After determining the estimated replacement or renewal value, the valuation expert
estimated the physical and functional depreciation for each item of property, plant and equipment. During
the reporting year, the management has changed the estimates of the remaining useful life for those
distribution system electricity lines that are planned to be reconstructed, based on more recent and
objective information on the dates and volumes of reconstruction. As a result of change in estimates,
depreciation expense for year 2021 decreased by EUR 7,107 thousand. Management believes that change
in estimates has no significant effect on the revalued value of the distribution system electricity lines.
A quantitative sensitivity analysis of significant assumptions used in calculation of revalued amounts as
of the date of revaluation is indicated below:
EUR'000
Date of
revaluation
Labour costs Material costs Useful lives
1%
increase
1%
decrease
1%
increase
1%
decrease
1%
increase
1%
decrease
Revaluation of electrical equipment 01/04/2020 742 (743) 2,963 (2,476) 2,130 (2,140)
Revaluation of electricity lines 31/12/2020 5,484 (5,499) 5,387 (5,438) 6,772 (6,592)
Summary of quantitative information about the significant unobservable inputs
Date of
revaluation
Proportion of labour
costs (%)
Proportion of material
costs (%) Useful lives (years)
Range Average Range Average Range
Revaluation of electrical equipment 01/04/2020 0-30 23 70-100 77 30-35
Revaluation of electricity lines 31/12/2020 25-49 38 51-75 62 30-50
d) Impairment
Accounting policy
Assets that are subject to depreciation or amortisation, land and investments in subsidiaries are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs of disposal and value
in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using
a pre–tax discount rate that reflects the current market expectations regarding the time value of money and the
risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable
amount is determined for the cash–generating unit to which the asset belongs. Impairment losses are recognised
in the Comprehensive Income within PPE revaluation reserve for the assets accounted at revalued amount and in
the Statement of Profit or Loss within amortisation, depreciation and impairment charge expenses for the assets
that are accounted at cost, less depreciation and impairment, and for the assets accounted at revalued amount
in case if impairment charge exceeds revaluation surplus previously recognised on individual asset.
The key assumptions used in determining recoverable amount of the asset are based on the Group entities’ or
the Parent Company’s management best estimation of the range of economic conditions that will exist over the
remaining useful life of the asset, on the basis of the most recent financial budgets and forecasts approved by
the management for a maximum period of 10 years. Assets are reviewed for possible reversal of the impairment
whenever events or changes in circumstances indicate that impairment must be reviewed. The reversal of
impairment for the assets that are accounted at cost, less depreciation and impairment, is recognised in the
Statement of Profit or Loss. Reversal of impairment loss for revalued assets is recognised in the Statement of
Profit or Loss to the extent that an impairment loss on the same revalued asset was previously recognised in the
Statement of Profit or Loss; the remaining reversals of impairment losses of revalued assets are recognised in
Comprehensive Income.
I) Latvenergo AS combined heat and power plants (Latvenergo AS CHPPs)
Impairment review performed for Latvenergo AS CHPPs is based on value in use calculations. The cash–
generating unit is defined as the assets of Latvenergo AS CHPPs.
In October 2017, the Parent Company applied for a one-off compensation from the state, at the same
time opting out of the receipt of 75% of the guaranteed annual payments for installed electrical capacity
in combined heat and power plant CHPP–1 and CHPP–2 (Note 4 g). The one-off compensation was
calculated as 75% of the discounted future guaranteed payments for installed electrical capacity. On
21November 2017, the Cabinet of Ministers of the Republic of Latvia accepted an order on one–off
compensation to Latvenergo AS on guaranteed support for the installed capacity of cogeneration power
plants. Conditional grant part recognised as deferred income in the Group’s and the Parent Company’s
statement of financial position (Note 28) and to be allocated to income on a straight-line basis until
fulfilling obligation till the end of the support period – 23 September 2028. EUR 23,990 thousand were
recognised as ‘Other income’ in the Group’s and Parent Company’s statement of profit or loss in 2021
(2020: EUR 23,990 thousand) (Note 7). Consequently, EUR 161,440 thousand remained recognised
as deferred income as of 31 December 2021 (31 December 2020: EUR 185,340 thousand) and to be
allocated to income on a straight-line basis until fulfilling obligation till the end of the support period –
23September 2028.
As of 31 December 2021, the future discounted cash flows generated by the operation of LatvenergoAS
CHPPs are evaluated in the amount of EUR 26 527 thousand (31 December 2020: nil). More detailed
information is given below. Consequently, the value of Latvenergo CHPPs assets is estimated
equal to the sum of deferred income and future discounted cash flows as of 31 December 2021–
EUR187,967thousand (31 December 2020: EUR 185,430 thousand).
As a result of the above transactions, in 2021 reversal of impairment in the amount of EUR36,724thousand
for Latvenergo AS CHPPs (2020: additional impairment EUR 7,502 thousand). The recognised reversal
of impairment is included in the Statement of Profit or Loss position ‘Depreciation, amortisation and
impairment of intangible assets, PPE and right-of-use assets. The accumulated impairment as of
31December 2021 amounted to EUR 205 411 thousand (31/12/2020: EUR 242,136 thousand).
To ensure the carrying value is in line with recognised impairment, the future cash flows expected to be
derived from the operation of Latvenergo AS CHPPs were evaluated. Forecasted period is 2022-2028
and the terminal value appraisal as of end of 2028, evaluated as a sum of land value, backup fuel reserves
of diesel, and the future value of heat water boilers, is included. Revenue stream forecast includes the
income from electricity and heat generation, as well as the remaining intensity of electrical capacity
payments and the support period for CHPP-2 till September 23, 2028, as it is set out in regulations by
Cabinet of Ministers of the Republic of Latvia No. 561, dated 2 September 2020. The market prices of
electricity, natural gas and emission allowances were forecasted by relying on the most recent third-
party expert’s estimates. The forecast of expenses is based on historical data, the budget approved
by the management for 2022, the service maintenance agreements and assumed long-term inflation
41
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
forecasted at 2%. Nominal pre–tax discount rate used to determine value in use of cash–generating unit
by discounting cash flows is 7.5% (2020: 7.5%). As a result of calculation, the future discounted cash
flows generated by Latvenergo AS CHPPs are evaluated as EUR 26 527 thousand (2020: nil). The rise
in the assets of Latvenergo AS CHPPs is mainly attributable to including the profit from the electricity
generation in the future cash flows. The operation of Latvenergo AS CHPPs plants can be flexibly adjusted
to the electricity market conditions and guarantees a significant baseload electricity capacity for Latvia.
CHPPs can cover Latvian electricity consumption almost completely in circumstances where, due to
certain factors, electricity imports from foreign countries are limited.
As of 31 December 2021, the Group and the Parent Company has performed a sensitivity analysis of the
fair value test of Latvenergo AS CHPPs to changes in inputs:
EUR'000
Discount rate Electricity price* Natural gas price* Inflation rate
1%
increase
1%
decrease
10%
increase
10%
decrease
10%
increase
10%
decrease
1%
increase
1%
decrease
Possible changes of
CHPPs assets value (1,800) 2,000 37,200 (38,800) (23,700) 23,200 (4,900) 4,800
*Natural gas and electricity commodity costs are historically closely correlated
II) Sadales tīkls AS distribution system assets
Impairment review performed for electricity distribution system assets in accordance with IFRS and based
on value in use calculations and there is no additional impairment loss recognised in 2021 (2020:no
impairment loss recognised). The cash–generating unit is defined as the distribution system assets.
Nominal pre–tax discount rate used to determine value in use of cash–generating units by discounting
pre-tax cash flows is 4.37% (2020: 4.40%) as included in the electricity distribution system service tariff
calculation methodology. Performance of impairment review also considered pricing forecast for major
revenue streams, which are contingent on regulatory pre–approvals, and assumptions related to capital
investment plans. The model applies an average revenue growth rate 1.8% per year (2020: 1.6%).
15. Leases
a) Right-of-use assets and lease liabilities
Accounting policy
At the time of conclusion of the contract, the Group and the Parent Company assess whether the contract is a
lease or contains a lease. A contract is a lease, or contains a lease, when the contract gives the right to control
the use of an identified asset throughout the period of time in exchange for consideration.
Lessee
To assess whether the contract is a lease or contains a lease, the Group and the Parent Company assess whether:
y the contract provides for the use of an identified asset: the asset may be designated, directly or indirectly, and
must be physically separable or represent the total capacity of the asset from the physically separable asset. If
the supplier has a significant right to replace the asset, the asset is not identifiable;
y the Group and the Parent Company have the right to obtain all economic benefits from the use of the identifiable
asset over its useful life;
y the Group and the Parent Company have the right to determine the use of the identifiable asset. The Group and
the Parent Company have the right to determine the manner in which the asset will be used, when it can decide
how and for what purpose the asset will be used. Where the relevant decisions about how and for what purpose
an asset is used are predetermined, the Group and the Parent Company should assess whether it has the right
to dispose of the asset or designate the asset in a particular manner, or the Group and the Parent Company
have developed an asset in a manner that predetermines how and for what purpose the asset will be used.
At initial measurement or in the case of reassessment of a lease that contains a lease component or several
lease components, the Group and the Parent Company attribute each of the lease components to their relative
individual price.
Leases and right–of–use assets are recognised for all long–term leases that meet the criteria of IFRS 16 (the
remaining lease term exceeds 12–months at the date of implementation of the standard).
Low value leases are fully accounted without additional exemption.
Leases are recognised as right–of–use assets and the corresponding lease liabilities at the date when leased
assets are available for use of the Group and the Parent Company. The cost of the right–of–use an asset
consistsof:
y the amount of the initial measurement of the lease liability;
y any lease payments made at or before the commencement date less any lease incentives received;
y any initial direct costs.
The right–of¬–use the asset is recognised as a separate item in the composition of non–current assets and is
classified according to groups of property, plant and equipment.
The Group and the Parent Company account for the right–of–use assets of land, buildings and facilities.
The right–of¬–use asset is amortised on a straight–line basis from the commencement date to the end of the
useful life of the underlying asset. Depreciation is calculated on a straight–line basis from the commencement
date of the lease to the end of the lease term, unless an asset is scheduled to be redeemed. The right–of–use
asset is periodically reduced for impairment losses, if any, and adjusted for any revaluation of the lease liabilities.
Assets and liabilities arising from leases at commencement date are measured at the amount equal to the
present value of the remaining lease payments, discounted by the interest rate implicit in the lease, if that rate can
be readily determined. If that rate cannot be readily determined, the lessee shall use the incremental interest rate.
Lease liabilities include the present value of the following lease payments:
y fixed lease payments (including in–substance fixed lease payments), less any lease incentives receivable;
y variable leases payments that are based on an index or a rate;
y amounts expected to be payable by the lessee under residual value guarantees;
y the exercise price of a purchase option if the lessee is reasonably certain to exercise that option;
y payments of penalties for terminating the lease, if the lease term reflects lessee exercising that option.
Lease liabilities are subsequently measured when there is a change in future lease payments due to changes of
an index or a rate used to determine these payments, when the Group’s and the Parent Company’s estimate
of expected payments changes, or when the Group and the Parent Company change their estimates of the
purchase option, lease term modification due to extension or termination. When a lease liability is subsequently
remeasured, the corresponding adjustment is made to the carrying amount of the right–of–use asset or
recognised in the statement of profit or loss if the carrying amount of the right–of–use asset decreases to zero.
Each lease payment is divided between the lease liability and the interest expense on the lease. Interest expense
on lease is recognised in the statement of profit or loss over the lease term to form a constant periodic interest
rate for the remaining lease liability for each period.
Lease payments related to short–term leases are recognised as an expense in the statement of profit or loss on a
straight–line basis. Short–term leases are leases with a lease term of 12 months or less at the commencement date.
The Group and the Parent Company have recognised the right-of-use assets for land, buildings and
facilities, and on a lease of the fiber of the combined optical cable (OPGW - optical ground wire with
dual function).
42
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Right–of–use assets
EUR’000
Group Parent Company
As of 31 December 2019
Cost 6,745 3,873
Accumulated amortisation (1,223) (397)
Net book amount 5,522 3,476
Year ended 31 December 2020
Recognised changes in lease agreements 4,178 1,746
Depreciation (1,447) (736)
Closing net book amount as of 31 December 2020 8,253 4,486
As of 31 December 2020
Cost 10,970 5,619
Accumulated amortisation (2,717) (1,133)
Net book amount 8,253 4,486
Year ended 31 December 2021
Recognised changes in lease agreements 1,925 1,723
Depreciation (1,866) (1,066)
Closing net book amount as of 31 December 2021 8,312 5,143
As of 31 December 2021
Cost 12,871 7,342
Accumulated amortisation (4,559) (2,199)
Net book amount 8,312 5,143
Lease liabilities
EUR’000
Notes Group Parent Company
As of 31 December 2019 5,565 3,502
Of which are:
- Non–current 4,349 3,126
- Current 1,216 376
Year ended 31 December 2020
Recognised changes in lease agreements 4,178 1,746
Decrease of lease liabilities (1,530) (777)
Recognised interest liabilities 131 69
As of 31 December 2020 8,344 4,540
Of which are
- Non–current 6,783 3,734
- Current 1,561 806
Year ended 31 December 2021
Recognised changes in lease agreements 1,906 1,725
Decrease of lease liabilities (1,960) (1,122)
Recognised interest liabilities 138 83
As of 31 December 2021 8,428 5,226
Of which are
- Non–current 6,540 4,085
- Current 1,888 1,141
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or
loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
b) Expenses from leases (IFRS 16)
The following amounts are recognised in profit or loss:
EUR’000
Group Parent Company
2021 2020 2021 2020
Depreciation for the right-of-use assets (land buildings and facilities) 1,866 1,447 1,066 736
Interest expense on lease liabilities (included in finance costs) 138 131 83 69
Short–term lease expenses 84 201 54 137
TOTAL expenses from leases 2,088 1,779 1,203 942
In the Statement of Cash Flows for the year ended 31 December 2021, lease payments of the Group in
amount of EUR 400 thousand (the Parent Company: EUR 525 thousand) have been made by non–cash
offsetting and included in cash flows from operating activities in working capital adjustments (2020: the
Group in amount of EUR 400 thousand and the Parent Company in amount of EUR 632 thousand). Other
lease payments of the Group in amount of EUR 1,276 thousand (the Parent Company: EUR 295 thousand)
are included in the cash flows from financing activities (payments of principal on leases) and in cash flows
from operating activities (payments of interest on leases) (2020: the Group EUR1,111thousand and the
Parent Company EUR 169 thousand).
c) Income from leases
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
Income from leases
(the Group and the Parent Company is the lessor) 6 1,999 1,639 3,410 3,921
Future minimum lease payments receivable under operating lease contracts by
due dates (the Group and the Parent Company are the lessor)
EUR’000
Group Parent Company
2021 2020 2021 2020
< 1 year 1,973 1,271 3,410 3,921
1–5 years 2,203 3,920 2,402 4,379
> 5 years 1,602 1,602 1,602 1,602
TOTAL rental income 5,778 6,793 7,414 9,902
43
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
16. Non–current financial investments
The Parent Company’s participating interest in subsidiaries and other non–current financial
investments
Name of the company Country of
incorporation
Business activity held 31/12/2021 31/12/2020
Interest
held, %
EUR’000 Interest
held, %
EUR’000
Investments in subsidiaries:
Sadales tīkls AS Latvia Electricity distribution 100% 641,450 100% 641,150
Enerģijas publiskais tirgotājs AS Latvia Administration of mandatory
electricity procurement process 100% 40 100% 40
Elektrum Eesti OÜ Estonia Electricity and natural gas trade 100% 35 100% 35
Elektrum Lietuva, UAB Lithuania Electricity and natural gas trade 100% 98 100% 98
Liepājas enerģija SIA Latvia Thermal energy generation and
trade, electricity generation 51% 3,556 51% 3,556
TOTAL 645,179 645,179
Other non–current financial investments:
Pirmais Slēgtais Pensiju
FondsAS
Latvia Management of pension plans
46.30% 36 46.30% 36
Rīgas siltums AS Latvia Thermal energy generation and
trade, electricity generation 0.0051% 3 0.0051% 3
TOTAL 39 39
The Group’s non–current financial investments
Name of the company Country of
incorporation
Business activity held 31/12/2021 31/12/2020
Interest
held, %
EUR’000 Interest
held, %
EUR’000
Other non–current financial investments
Pirmais Slēgtais Pensiju
FondsAS Latvia Management of pension plans 48.15% 37 48.15% 37
Rīgas siltums AS Latvia Thermal energy generation and
trade, electricity generation 0.0051% 3 0.0051% 3
TOTAL 40 40
The Group owns 48.15% of the shares of the closed pension fund Pirmais Slēgtais Pensiju Fonds
AS (Latvenergo AS – 46.30%). However, the Group and the Parent Company are only a nominal
shareholder as the Pension Fund is a non-profit company, and all risks and benefits arising from
associate’s activities and investments in the pension plan are taken and accrued by the members of
the Pension Fund pension plan. For this reason, the investment in Pirmais Slēgtais Pensiju FondsAS
is valued at acquisition cost. On 26 May 2020 Latvijas elektriskie tīkli AS sold 1/6 of presumed capital
shares of Pirmais Slēgtais Pensiju Fonds AS to Sadales tīkls AS and Enerģijas publiskais tirgotājs AS.
Since 31 December 2020 Enerģijas publiskais tirgotājs SIA and Sadales tīkls AS jointly own one share
of Pirmais Slēgtais Pensiju Fonds AS with nominal value in the amount of EUR 1,422 (1.85% interest
held in share capital) and consequently, each entity owns 1/2 of the notional shares in the amount of
EUR 711 per share.
In 2020, the Parent Company invested EUR 300 thousand in the share capital of Sadales tīklsAS, by
investing the Parent Company’s real estate and property, plant and equipment related to distribution
system in the amount of EUR 35,300 thousand and its related liabilities (borrowings) in the amount of
EUR35,000 thousand.
On 10 June 2020, transmission system assets in the amount of EUR 694.3 million were separated
from Latvenergo Group, transferring all the shares of Latvijas elektriskie tīkli AS in the amount of
EUR222.7million to the Ministry of Economics. The separation of Latvijas elektriskie tīkli AS was carried
out by reducing the share capital of Latvenergo AS, it was reduced to EUR 612.2 million (Note 20).
Profit from distribution of non–current financial investments in Latvijas elektriskie tīkli AS for the Parent
Company is disclosed in Note 7 and for the Group in Note 30.
Accounting policy on investments in subsidiaries and non-current investments disclosed in Note 2.
Movement in non-current investments
EUR’000
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 40 39 645,218 831,350
Invested in share capital – – – 300
Disposal of investment in Latvijas elektriskie tīkli AS – – – (186,432)
Discontinued operation – 1 – –
At the end of the year 40 40 645,218 645,218
44
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Summarised financial information for subsidiaries
EUR'000
Subsidiaries
Equity Net profit / (loss) for the year Dividends from subsidiaries* Carrying amount of interest
from investment
31/12/2021 31/12/2020 2021 2020 2021 2020 31/12/2021 31/12/2020
Latvijas elektriskie tīkli AS – – – 2,249 – 9,742 – –
Sadales tīkls AS 1,001,041 1,011,688 10,429 22,050 22,050 29,317 641,450 641,450
Enerģijas publiskais tirgotājs AS 40 40 – – – – 40 40
Elektrum Eesti OÜ 828 911 156 239 239 288 35 35
Elektrum Lietuva, UAB (202) 455 (580) 77 77 504 98 98
Liepājas enerģija SIA 13,193 16,918 1,393 3,555 2,612 1,892 3,556 3,556
1,014,900 1,030,012 11,398 28,170 24,978 41,743 645,179 645,179
* in 2021 dividends from subsidiaries received in cash in the amount of EUR 2,928 thousand and with non–cash offset in the amount of EUR 22,050 thousand (2020: EUR 12,426 thousand received in cash and with non–cash offset in the amount of EUR 29,317 thousand)
Summarised financial information for non-controlling interests
EUR'000
Non-controlling interest of subsidiaries
Non-current assets Current assets Non-current liabilities Current liabilities
31/12/2021 31/12/2020 31/12/2021 31/12/2020 31/12/2021 31/12/2020 31/12/2021 31/12/2020
Liepājas enerģija SIA (49%) 14,904 15,568 2,963 2,084 8,061 7,118 3,342 2,244
The Parent Company’s subsidiary’s Elektrum Eesti OÜ participating interest in subsidiaries
As of 31 December 2021, subsidiary Elektrum Eesti OÜ had investments with the 100% interest held in
the subsidiaries Energiaturu Võrguehitus OÜ, SNL Energia 1 OÜ, Baltic Energy System OÜ and Elektrum
LatvijaSIA in the amount of EUR 4,754 thousand (31/12/2020: EUR 3 thousand).
Business combinations and acquisition of ownership interests
On 26 August 2021 the Parent Company’s subsidiary Elektrum Eesti OÜ acquired 90% of ownership
interest in Energiaturu Võrguehitus OÜ (10% shares of Energiaturu Võrguehitus OÜ are held by SNL
Energia1OÜ, therefore total participation interest by the Group is 100%), 100% in SNL Energia1OÜ
and 100% in Baltic Energy System OÜ. All of acquired companies specialised in provision of microgrid
electricity services in Estonia, thus significantly increased Latvenergo Group’s competitiveness in the
Estonian electricity and related products and services market. Business combinations are accounted for
by applying the acquisition method.
Summarised financial information for Elektrum Eesti OÜ interests
EUR’000
Assets Equity
Net profit (Consolidated result
after acquisition)
31/12/2021 31/12/2020 31/12/2021 31/12/2020 2021 2020
Total Elektrum
EestiOÜ interests 7,510 2 2,408 2 188 –
17. Inventories
Accounting policy
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling
price in the ordinary course of business, less applicable variable selling expenses. Cost is determined using the
weighted average method, except of natural gas inventory held per Inčukalns underground gas storage where cost
is determined using FIFO method. Goods for sale are determined using FIFO or weighted average cost method, or
specific identification method.
Purchase cost of inventories consists of the purchase price, import charges and other fees and charges, freight–in
and related costs as well as other costs directly incurred in bringing the materials and goods to their present location
and condition. The value of inventories is assigned by charging trade discounts, reductions, and similar allowances.
Existence of inventories as of the end of reporting period is verified during stock–taking.
At the end of each reporting year the inventories are reviewed for any indications of obsolescence. When obsolete or
damaged inventories are identified, allowances are recognised to their recoverable amount. Additionally, during the
reporting year at least each month inspection of idle inventories is performed with the purpose to identify obsolete
and damaged inventories. Allowances for an impairment loss are recognised for those inventories.
The following basic principles are used in determining impairment losses for idle inventories:
a) Maintenance inventories for machinery and equipment of hydropower plants and thermal power plants that
haven’t turned over during last 12 months are impaired in amount of 90%, while inventories haven’t turned over
during last 6 months are impaired in amount of 45%
b) All other inventories that haven’t turned over during last 12 months are fully impaired, while inventories that
haven’t turned over during last 6 months are impaired in amount of 50%,
c) Allowances are not calculated for the fuel necessary to ensure uninterrupted operations of hydropower and
combined heat and power plants, for natural gas and scraps.
45
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Raw materials and materials 17,978 17,224 847 824
Natural gas 115,462 41,621 115,461 41,620
Goods for sale 3,896 2,508 754 549
Other inventories 8,121 8,203 8,059 8,060
Prepayments for natural gas and other inventories 47,786 189 46,901 25
Allowance for raw materials and other inventories (1,110) (991) (735) (607)
TOTAL inventories 192,132 68,754 171,287 50,471
Changes in the allowance for raw materials and materials at warehouses are included in the Statement of
Profit or Loss position ‘Raw materials and consumables used’.
Movement on the allowance for inventories
EUR’000
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 991 1,287 607 674
Charged / (credited) to the Statement of Profit or Loss 119 (296) 128 (67)
At the end of the year 1,110 991 735 607
18. Receivables from contracts with customers and other receivables
Accounting policy
Receivables from contracts with customers and other receivables are classified in groups:
a) Energy (electricity and natural gas) and related services sales, including distribution system services,
b) Heating sales,
c) Other sales (IT & telecommunication services, connection service fees and other services),
d) Receivables from subsidiaries,
e) Other financial receivables
Receivables from contracts with customers are recognised initially when they originated. Receivables without a
significant financing component are initially measured at the transaction price and subsequently are measured at
amortised cost.
The Group and the Parent Company consider the evidence of impairment for the receivables from contracts with
customers and other receivables at both an individual and a collective level. All individually significant receivables and
receivables of energy industry companies and related parties are individually assessed for impairment. Those found
not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually
identified. Receivables that are not individually significant are collectively assessed for impairment using the portfolio
model. Collective assessment is carried out by grouping together receivables with similar risk characteristics and the
days past due. The Group and the Parent Company have applied two expected credit loss models: portfolio model
and counterparty model.
The expected loss rates used for portfolio model are based on the payment profiles of sales over a period of 3 years
and the corresponding historical credit losses experienced within this period and are adjusted to reflect current and
forward-looking information. The Group and the Parent Company apply the IFRS 9 simplified approach to measuring
expected credit losses of the collectively assessed receivables (portfolio model) using lifetime expected loss allowance.
For individually significant other receivables and other receivables of energy industry companies and related parties’
receivables the Group and the Parent Company apply the IFRS 9 general approach to measuring expected credit
losses (counterparty model) using expected credit loss allowance on assessment of significant increase of credit risk.
The expected credit losses according to this model are based on assessment of the individual counterparty’s risk of
default based on Moody’s corporate default and recovery rates for the Latvenergo group’s and the relevant industry’s
entities (Note 4 b).
Receivables from contracts with customers grouped by the expected credit loss
(ECL) assessment model, net
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Individually assessed receivables with lifetime ECL assessment
(counterparty model) 37,995 2,775 16,837 6,257
Receivables with lifetime ECL assessment by simplified approach
(portfolio model) 143,141 105,403 93,801 69,599
TOTAL receivables from contracts with customers 181,136 108,178 110,638 75,856
a) Receivables from contracts with customers, net
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Receivables from contracts with customers:
- Electricity, natural gas trade and related services customers
(portfolio model) 133,497 136,647 87,828 102,120
- Electricity and related services customers (counterparty model) 22,493 – – –
- Heating customers (portfolio model) 21,233 9,463 18,807 7,386
- Other receivables from contracts with customers (portfolio model) 5,384 3,557 1,150 1,093
- Other receivables from contracts with customers (counterparty
model) 15,557 2,780 12,792 1,480
- Subsidiaries (counterparty model) – – 4,070 4,782
198,164 152,447 124,647 116,861
Allowances for expected credit loss from contracts with
customers:
- Electricity, natural gas trade and related services customers
(portfolio model) (14,748) (41,761) (13,621) (40,672)
- Electricity and related services customers (counterparty model) (28) – – –
- Heating customers (portfolio model) (361) (328) (343) (315)
- Other receivables from contracts with customers (portfolio model) (1,864) (2,175) (20) (13)
- Other receivables from contracts with customers (counterparty
model) (27) (5) (22) (2)
- Subsidiaries (counterparty model) – – (3) (3)
(17,028) (44,269) (14,009) (41,005)
Receivables from contracts with customers, net:
- Electricity, natural gas trade and related services customers
(portfolio model) 118,749 94,886 74,207 61,448
- Electricity and related services customers (counterparty model) 22,465 – – –
- Heating customers (portfolio model) 20,872 9,135 18,464 7,071
- Other receivables from contracts with customers (portfolio model) 3,520 1,382 1,130 1,080
- Other receivables from contracts with customers (counterparty
model) 15,530 2,775 12,770 1,478
- Subsidiaries (counterparty model) – – 4,067 4,779
181,136 108,178 110,638 75,856
46
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Receivables from contracts with customers with lifetime expected credit losses (ECL) assessed on the portfolio model basis and grouped by past due days
EUR'000
Late payment delay in days ECL rate
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Receivables Allowances
for ECL
Net Receivables Allowances
for ECL
Net Receivables Allowances
for ECL
Net Receivables Allowances
for ECL
Net
On time 0.20% 139,516 (301) 139,215 102,220 (220) 102,000 91,096 (209) 90,887 67,146 (148) 66,998
Less than 30 days 3% 2,530 (76) 2,454 1,923 (58) 1,865 1,759 (53) 1,706 1,251 (38) 1,213
Past due 30 - 59 days 20% 901 (179) 722 1,070 (214) 856 711 (142) 569 990 (198) 792
Past due 60 - 89 days 50% 281 (138) 143 422 (211) 211 240 (120) 120 391 (195) 196
Past due 90 - 179 days 60% 428 (252) 176 572 (343) 229 296 (177) 119 508 (305) 203
Past due 180 - 359 days 75% 721 (541) 180 970 (728) 242 597 (448) 149 789 (592) 197
Past due more than 360 days 100% 11,758 (11,758) – 15,997 (15,997) – 9,530 (9,530) – 13,480 (13,480) –
Individually assessed 90% 2,508 (2,257) 251 – – – 2,508 (2,257) 251 – – –
Insolvent debtors* 100% 1,471 (1,471) – 26,493 (26,493) – 1,048 (1,048) – 26,044 (26,044) –
TOTAL 160,114 (16,973) 143,141 149,667 (44,264) 105,403 107,785 (13,984) 93,801 110,599 (41,000) 69,599
* receivables under insolvency process and with an established payment schedule
The expected loss rates used for portfolio model are based on the payment profiles of sales over a period
of 3 years and the corresponding historical credit losses experienced within this period. Adjusting by
forward–looking information is disclosed in Note 4 b.
Receivables from contracts with customers with lifetime expected credit losses
(ECL) assessed on the counterparty model basis
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Receivables of electricity and related services customers 22,493 – – –
Allowances for expected credit loss on receivables of
electricity and related services customers (28) – – –
Other receivables from contracts with customers 15,557 2,780 12,792 1,480
Allowances for expected credit loss on other receivables
from contracts with customers (27) (5) (22) (2)
Receivables from subsidiaries 29 b – – 3,787 4,170
Accrued income from subsidiaries 29 c – – 283 612
Allowances for expected credit loss on subsidiaries
receivables 29 b – – (3) (3)
TOTAL 37,995 2,775 16,837 6,257
Allowances for impairment loss are calculated based on Moody’s credit rating agency corporate default
and debt recovery rate assigned for credit rating level - Baa2 (stable) (for receivables from related parties)
and corporate default and debt recovery rate assigned for energy utilities industry.
There is no significant concentration of credit risk with respect to receivables from contracts with customers
as the Group and the Parent Company have large number of customers except major heating customer
the net debt of which as of 31 December 2021 amounted to EUR 18,455 thousand (31/12/2020:
EUR7,077 thousand).
The Management assumptions and methodology for estimation of impairment for receivables from
contracts with customers and evaluation of impairment risk are described in Note 4.
Movements in loss allowances for impaired receivables from contracts with
customers
EUR’000
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 44,269 46,737 41,005 43,521
Receivables written off during the year as uncollectible (30,094) (3,681) (29,679) (3,252)
Allowances for expected credit losses 2,853 1,213 2,683 736
At the end of the year 17,028 44,269 14,009 41,005
b) Other financial receivables (assessed on the counterparty model basis)
EUR’000
Level of
SICR
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Current financial receivables:
Unsettled revenue on mandatory procurement PSO fee
recognised as assets* Stage 1 36,588 77,273 – –
Receivables for lease
Stage 1 16 32 14 26
Stage 3 2 16 1 7
Other current financial receivables
Stage 1 20,448 6,641 20,124 5,054
Stage 3 2,027 1,728 1,583 1,331
Other accrued income Stage 1 – 874 – 874
Allowances for expected credit loss
Stage 1 (140) (164) (114) (116)
Stage 3 (1,443) (1,536) (1,133) (1,215)
Receivables for lease from subsidiaries (Note 29 b) Stage 1 – – 21 73
Other financial receivables from subsidiaries (Note 29 b) Stage 1 – – 21,196 21,460
Other accrued income from subsidiaries (Note 29 c) Stage 1 – – 1,534 1,850
Allowances for expected credit loss on subsidiaries
receivables (Note 29 b) Stage 1 – – (14) (16)
TOTAL current financial receivables 57,498 84,864 43,212 29,328
TOTAL other financial receivables 57,498 84,864 43,212 29,328
* by applying agent principle unsettled revenue on mandatory procurement PSO fee is recognised as assets in net amount, as difference between revenue
and costs recognised under the mandatory procurement
47
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
As of 31 December 2021 the Group and the Parent Company have no significant concentration
of credit risk with respect to other financial receivables except the commodities exchange –
Nasdaq Commodities– the net debt of which to the Group as of 31 December 2021 amounted to
EUR20,047thousand (31/12/2020: EUR 2,348 thousand) and the Group’s receivable from State of
guaranteed fee for the installed electrical capacity of cogeneration power plants and unsettled revenue
on mandatory procurement PSO fee recognised as assets – EUR 36,588 thousand (31/12/2020:
EUR77,273 thousand). Loss allowance for other financial receivables assessed individually and based
on counterparty’s model (Note 4).
c) Other non-financial receivables
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Non–current non–financial receivables 2,544 429 441 417
Current non–financial receivables 2,242 226 2,190 212
TOTAL non–financial receivables 4,786 881 2,631 699
None of the receivables are secured with pledges or otherwise. The carrying amounts of other receivables
are assumed to approximate their fair values.
19. Cash and cash equivalents
Accounting policy
Cash and cash equivalents include cash balances on bank accounts, demand deposits at bank and other short–
term deposits with original maturities of three months or less.
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Cash at bank 97,079 100,703 92,418 98,261
TOTAL cash and cash equivalents 97,079 100,703 92,418 98,261
In existing rate environment, cash at bank balances practically don’t earn any interests. If cash balances
at banks exceed certain limits, the banks apply the European Central Bank’s deposit facility rate for cash
balances above set limits.
The carrying amounts of cash are assumed to approximate their fair values.
20. Share capital
As of 31 December 2021, the registered share capital of the Latvenergo AS is EUR 790,368 thousand
(31/12/2020: EUR 790,348 thousand) and consists of 790,368 thousand ordinary shares (31/12/2020:
790,348thousand) with the nominal value of EUR 1 per share (31/12/2020: EUR 1 per share). All shares
have been fully paid.
On 14 June 2021, in accordance with the Directive No. 119 of the Cabinet of Ministers of the Republic
of Latvia, dated 26 February 2021 – “On the Investment of the State’s property units in the Share Capital
of Latvenergo AS”, real estate in the amount of EUR 20 thousand was invested in the share capital of
Latvenergo AS (Note 14 a).
On 10 June 2020, transmission system assets were separated from the Latvenergo Group, transferring
all the shares of Latvijas elektriskie tīkli AS to the Ministry of Economics and decreasing share capital of
Latvenergo AS in the amount of EUR 222,678 thousand. On 9 June 2020 changes of share capital were
registered in the Commercial Register of the Republic of Latvia according to the decision by the Register
of Enterprises of the Republic of Latvia.
On 9 July 2020, in accordance with the decision of the Cabinet of Ministers of the Republic of Latvia on
unbundling of transmission assets dated 8 October 2019, the shareholders’ meeting of LatvenergoAS
decided to increase the share capital of Latvenergo AS by investing in Latvenergo AS retained earnings
from previous years in the amount of EUR 178,143 thousand. On 16 July 2020 changes of share capital
were registered in the Commercial Register of the Republic of Latvia according to the decision by the
Register of Enterprises of the Republic of Latvia.
48
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
21. Reserves, dividends and earnings per share
a) Reserves
EUR'000
Notes
Group Parent Company
Property, plant
and equipment
revaluation
reserve
Hedge
reserve
Post–employment
benefit plan
revaluation
reserve
Other
reserves
TOTAL
reserves of
continuing
operations
Reserves
classified
as held for
distribution
TOTAL Property, plant
and equipment
revaluation
reserve
Hedge
reserve
Post–employment
benefit plan
revaluation
reserve
TOTAL
As of 31 December 2019 1,083,772 (6,227) (2,420) 110 1,075,235 28 936 1,104,171 785,870 (6,227) (1,481) 778,162
Non–current assets revaluation reserve attributable to discontinued
operations 30 – – – – – (28 683) (28,683) – – – –
Post–employment benefit plan revaluation reserve attributable to
discontinued operations 30 – – – – – (21) (21) – – – –
Increase of non–current assets revaluation reserve as a result of
revaluation 14 a 96,264 – – – 96,264 – 96,264 – – – –
Disposal of non–current assets revaluation reserve 14 a (8,882) – – – (8,882) (232) (9,114) (4,097) – – (4,097)
Losses on re–measurement of defined post–employment benefit plan 27 a, 30 – – (476) – (476) – (476) – – (176) (176)
Losses from fair value changes of derivative financial instruments 24 – (7,774) – – (7,774) – (7,774) – (7,774) – (7,774)
As of 31 December 2020 1,171,154 (14,001) (2,896) 110 1,154,367 – 1,154,367 781,773 (14,001) (1,657) 766,115
Disposal of non–current assets revaluation reserve 14 a (13,329) – – – (13,329) – (13,329) (3,724) – – (3,724)
Gains on re–measurement of defined post–employment benefit plan 27 a, 30 – – 1,098 – 1,098 – 1,098 – – 121 121
Gains from fair value changes of derivative financial instruments 24 – 33,219 – – 33,219 – 33,219 – 33,219 – 33,219
As of 31 December 2021 1,157,825 19,218 (1,798) 110 1,175,355 – 1,175,355 778,049 19,218 (1,536) 795,731
Non–current assets revaluation reserve, post–employment benefit plan revaluation and hedge reserves
cannot be distributed as dividends. Other reserves are maintained with the aim to maintain stability in the
operations of the Group entities.
b) Dividends
Accounting policy
Dividend distribution to the Parent Company’s shareholders is recognised as a liability in the Financial Statements in
the period in which the dividends are approved by the Parent Company’s shareholders.
In 2021 the dividends declared and paid to equity holders of the Parent Company for 2020 were
EUR 98,246 thousand or EUR 0.12431 per share (in 2020 for 2019: EUR 127,071 thousand or
EUR0.16003 per share).
According to the Law “On the Medium-Term Budget Framework for 2021, 2022 and 2023” the expected
amount of dividends to be paid by Latvenergo AS for the use of state capital in 2021 (for the reporting
year 2020) amounted to not less than EUR 98,2 million (incl. income tax). The distribution of net profit
and amount of dividends payable is subject to a resolution of the Latvenergo AS Shareholders Meeting.
c) Earnings per share
Accounting policy
The Group’s share capital consists of the Parent Company’s ordinary shares. All shares have been fully paid.
Basic earnings per share are calculated by dividing profit attributable to the equity holders of the Parent
Company by the weighted average number of ordinary shares outstanding (Note 20). As there are no
potential ordinary shares, diluted earnings per share are equal to basic earnings per share in all comparable
periods.
Group Parent Company
2021 2020 2021 2020
Profit attributable to the equity holder of the Parent Company
(inthousand EUR) 70,675 114,513 79,520 154,848
Weighted average number of shares (thousand) 790,360 794,059 790,360 794,059
Basic earnings per share (in euros) 0.089 0.144 0.101 0.195
Diluted earnings per share (in euros) 0.089 0.144 0.101 0.195
49
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
22. Other financial investments
Carrying (amortised cost) amount of other financial investments
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Financial investments in Latvian State Treasury bonds:
- non–current – 2,693 – 2,693
- current – 14,143 – 14,143
TOTAL other financial investments – 16,836 – 16,836
As at the reporting date not the Group nor the Parent Company have any other financial investments.
As of 31 December 2020 the entire Group’s and the Parent Company’s other financial investments were
Latvian State Treasury bonds with 10–year maturity, which were purchased with the purpose to invest
liquidity reserve in the low–risk financial instruments with higher yield. In 2021 in connection with the
amortisation of other financial investments net losses amounted to nil (2020: EUR 50 thousand) (Note11)
are recognised from changes in the value of the purchased bonds.
23. Borrowings
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Non-current portion of non-current borrowings from financial
institutions 564,209 533,898 553,862 526,229
Non-current portion of issued debt securities (bonds) 49,866 100,179 49,866 100,179
Total non-current borrowings 614,075 634,077 603,728 626,408
Current portion of non-current borrowings from financial institutions 79,186 107,428 76,866 105,330
Current portion of issued debt securities (bonds) 100,055 – 100,055 –
Accrued interest on non-current borrowings from financial institutions 495 617 455 577
Accrued coupon interest on issued debt securities (bonds) 1,218 1,077 1,218 1,077
Total current borrowings 180,954 109,122 178,594 106,984
TOTAL borrowings 795,029 743,199 782,322 733,392
Movement in borrowings
EUR’000
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 743,199 882,671 733,392 872,899
Received borrowings from financial institutions 79,997 39,500 75,000 35,000
Repaid borrowings from financial institutions (77,928) (143,176) (75,830) (138,692)
Proceeds from issued debt securities (bonds) 50,000 – 50,000 –
Repayment of issued debt securities (bonds) – (35,000) – (35,000)
Change in accrued interest on borrowings from financial institutions 19 (703) 20 (722)
Changes in outstanding value of issued debt securities (bonds) (258) (93) (258) (93)
At the end of the year 795,029 743,199 782,322 733,392
Borrowings by categories of lenders
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
International Financial Institutions 286,304 334,506 286,304 334,506
Commercial banks 357,586 307,437 344,879 297,630
Issued debt securities (bonds) 151,139 101,256 151,139 101,256
TOTAL borrowings 795,029 743,199 782,322 733,392
Borrowings by contractual maturity, excluding the impact of derivative
instruments to the interest rate
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Fixed rate non–current and current borrowings:
- < 1 year (current portion of non–current borrowings) 101,273 1,077 101,273 1,077
- 1–5 years – 100,179 – 100,179
- > 5 years 49,866 – 49,866 –
Total fixed rate borrowings 151,139 101,256 151,139 101,256
Floating rate non–current and current borrowings:
- < 1 year (current borrowings) – – – –
- < 1 year (current portion of non–current borrowings) 79,660 108,169 77,300 106,031
- 1–5 years 413,279 367,474 405,750 362,162
- > 5 years 150,951 166,300 148,133 163,943
Total floating rate borrowings 643,891 641,943 631,183 632,136
TOTAL borrowings 795,029 743,199 782,322 733,392
Borrowings by repricing of interest, including the impact of derivative instruments
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
- < 1 year 600,401 461,003 587,695 451,196
- 1–5 years 69,762 182,196 69,762 182,196
- > 5 years 124,866 100,000 124,865 100,000
TOTAL borrowings 795,029 743,199 782,322 733,392
As of 31 December 2021 and as of 31 December 2020 all of the Group’s and the Parent Company’s
borrowings were denominated in euros.
The fair value of current and non–current borrowings with floating interest rates approximate their carrying
amount, as their actual floating interest rates approximate the market price of similar financial instruments
available to the Group and the Parent Company, i.e., the floating part of the interest rate corresponds to
the money market price while the added part of the interest rate corresponds to the risk premium the
lenders in financial and capital markets require from companies of similar credit rating level; therefore, the
effect of fair value revaluation is not significant.
Lease liabilities of the Group and the Parent Company are disclosed in Note 15.
50
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
I) Pledges
As of 31 December 2021 the Group’s and the Parent Company’s assets are not pledged to secure the
borrowings, except the pledge on assets of Liepājas Enerģija SIA of maximum secured claims in the
amount of EUR 29 million (31/12/2020: EUR 29 million) to secure its current and non–current borrowings.
As of the end of the reporting year there has been pledged the property, plant and equipment in the net
book amount of EUR 26 million and the claims on the receivable’s accounts in the amount of EUR 3 million
(31/12/2020: EUR 23 million and EUR 3 million, respectively).
II) Un–drawn borrowing facilities
As of 31 December 2021, the un–drawn committed non–current credit facilities amount to EUR 35 million
(31/12/2000: EUR 35 million).
As of 31 December 2021, the Group had entered into two overdraft agreements with total notional
amount of EUR 63 million (31/12/2020: five overdraft agreements of EUR 128 million) of which one
overdraft agreements were entered by the Parent Company with total notional amount of EUR 60 million
(31/12/2020: four overdraft agreements of EUR 125 million). In respect of all the overdraft agreements all
conditions precedent have been met. At the end of the reporting year EUR 2,997 thousand of credit lines
were used; no credit line was used by the Parent Company.
III) Weighted average effective interest rate
During the reporting year the weighted average effective interest rate (including interest rate swaps)
on non–current borrowings was 1.18% (2020: 1.38%), weighted average effective interest rate for
current borrowings was 0.67% (2020: 0.77%). As of 31 December 2021 interest rates for non–current
borrowings in euros were 6 months EURIBOR + 0.72% (31/12/2020: + 0.94%) for the Group and
6 months EURIBOR+ 0.72% (31/12/2020: + 0.93%) for Latvenergo AS. As of 31 December 2021,
the total notional amount of interest rate swap agreements concluded by the Group amounted to
EUR169.0million (31/12/2020: EUR 193.8 million) and the interest rate was fixed for the initial periods
from 7 to 10years.
IV) Issued and outstanding debt securities (bonds)
In 2015 and in 2016 the Parent Company (Latvenergo AS) issued green bonds in the total amount of
EUR100 million with the maturity date 10 June 2022 (ISIN code – LV0000801777) with the annual coupon
rate of 1.9%. In 2021 Latvenergo AS issued green bonds in the total amount of EUR 50 million with the
maturity date 17 May 2028 (ISIN code – LV0000802460) with the annual coupon rate of 0.5%. The total
nominal amount of outstanding bonds as of 31 December 2021 was EUR 150 million (31/12/2020:
EUR 100 million). All issued bonds are quoted in NASDAQ Baltic Stock Exchange. The issued debt
securities (bonds) are measured at amortised cost at the end of reporting year.
As of 31 December 2021, the fair value of issued debt securities (bonds) exceeds their carrying amount
by EUR 545 thousand (31/12/2020: EUR 2.5 million). The fair value of debt securities (bonds) issued is
calculated by discounting their future cash flows and using the market quoted yield to maturity rates of the
respective bonds as of the end of the reporting year as discount factor (Level 2).
24. Derivative financial instruments
Accounting policy
The Group and the Parent Company use derivatives such as interest rate swaps, electricity forwards and futures,
natural gas forwards and currency exchange forwards to hedge risks associated with the interest rate and purchase
price fluctuations, respectively. The Group and the Parent Company have decided to continue to apply hedge
accounting requirements of IAS 39 for derivatives.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
re–measured at their fair value. Fair values are obtained from quoted market prices and discounted cash flow
models as appropriate.
The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging
instrument, and if so, on the nature / content of the item being hedged. Other derivatives are accounted for at fair
value through profit or loss.
The Group and the Parent Company designate certain derivatives as hedges of a particular risk associated with
highly probable forecasted transactions or variable rate borrowings. The Group and the Parent Company document
at the inception of the transaction the relationship between hedging instruments and hedged items, as well as
its risk management objectives and strategy for undertaking various hedging transactions. The Group and the
Parent Company also document their assessment, both at hedge inception and on an on–going basis, whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged
items.
The fair value of the derivative instruments is presented as current or non–current based on settlement date.
Derivative instruments that have maturity of more than twelve months and have been expected to be hold for more
than twelve months after the end of the reporting year are classified as non–current assets or liabilities. Derivatives
are carried as assets when fair value is positive and as liabilities when fair value is negative.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges
is recognised in other comprehensive income and accumulated in equity within ‘Hedging reserve’. The gain or loss
relating to the ineffective portion, if such arise, is recognised immediately in the Statement of Profit or Loss.
Amounts accumulated in equity are recognised in the Statement of Profit or Loss in the periods when the hedged
item affects profit or loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting,
any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast
transaction is ultimately recognised in the Statement of Profit or Loss.
51
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
I) Outstanding fair values of derivatives and their classification
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Interest rate swaps 24 II – (4,312) – (9,504) – (4,312) – (9,504)
Energy forwards, futures, and
swaps 24 III 25,735 (14,208) 1,557 (4,993) 25,466 (14,208) 1,557 (4,993)
Currency exchange forwards 24 IV – – – (7) – – – (7)
Total outstanding fair
values of derivatives 25,735 (18,520) 1,557 (14,504) 25,466 (18,520) 1,557 (14,504)
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Non–current – (2,332) 291 (9,672) – (2,332) 291 (9,672)
Current 25,735 (16,188) 1,266 (4,832) 25,466 (16,188) 1,266 (4,832)
TOTAL fair values of derivative
financial instruments 25,735 (18,520) 1,557 (14,504) 25,466 (18,520) 1,557 (14,504)
Gains / (losses) on fair value changes as a result of realised hedge agreements
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
Included in the Statement of Profit or Loss 8
Interest rate swaps 9 316 – 316 –
Energy forwards, futures, and swaps 8 (13,373) 1,242 (13,642) 1,242
(13,057) 1,242 (13,326) 1,242
Included in the other comprehensive income 21 a
Interest rate swaps 24 II 4,876 (288) 4,876 (288)
Energy forwards, futures, and swaps 24 III 28,336 (7,479) 28,336 (7,479)
Currency exchange forwards 24 IV 7 (7) 7 (7)
33,219 (7,774) 33,219 (7,774)
Total loss on fair value changes 20,162 (6,532) 19,893 (6,532)
II) Interest rate swaps
As of 31 December 2021, the Group and the Parent Company had interest rate swap agreements
with total notional amount of EUR 169 million (31/12/2020: EUR 193.8 million). Interest rate swaps are
concluded with 7–to–10–year initial maturities and hedged floating rates are 6 months EURIBOR. As
of 31December2021, fixed interest rates vary from 0.087% to 1.979% (31/12/2020: from 0.087%
to2.41%).
As at the end of the year all the outstanding interest rate swap agreements with total notional amount of
EUR 169 million were eligible for hedge accounting and were assessed prospectively and retrospectively
to test whether they are effective within the hedging period (31/12/2020: 100% with notional amount
of EUR193.8 million). All contracts are designed as cash flow hedges. During the prospective and
retrospective testing, an ineffective portion of some transactions has been identified and recognised in
the Statement of Profit or Loss.
Fair value changes of interest rate swaps
EUR’000
Group Parent Company
2021 2020 2021 2020
Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Outstanding fair value at the
beginning of the year – (9,504) – (9,216) – (9,504) – (9,216)
Included in Statement of Profit or
Loss – 316 – – – 316 – –
Included in other comprehensive
Income – 4,876 – (288) – 4,876 – (288)
Outstanding fair value at the end
of the year – (4,312) – (9,504) – (4,312) – (9,504)
The main interest rate hedging criteria stated in the Financial Risk Management policy is to ensure average
fixed rate duration from 1 to 4 years and fixed rate portion at more than 35% of borrowings. As of
31December2021, 37% (31/12/2020: 38%) of the Group’s and 38% (31/12/2020: 39%) of the Parent
Company’s borrowings had fixed interest rates (considering the effect from the interest rate swaps), and
average remaining time to interest re–pricing was 1.5 years (2020: 1.6 years) for the Group and the Parent
Company.
III) Energy forwards, futures, and swaps
As of 31 December 2021, the Group have entered into 44 electricity forward and future contracts
(31/12/2020: 101 contracts) with total outstanding electricity purchase volume of 899,324 MWh
(31/12/2020: 358,873 MWh) and notional value of EUR 63 million (31/12/2020: EUR 8 million). As of
31 December 2021, the Parent Company have entered into 38 electricity forward and future contracts
(31/12/2020: 101 contracts) with total outstanding electricity purchase volume of 894,708 MWh
(31/12/2020: 358,873 MWh) and notional value of EUR 63 million (31/12/2020: EUR 8 million). Electricity
forward and future contracts are concluded for the maturities from one month to one year with expiration
date during the period from 1 January 2022 to 31 December 2023. As of 31 December 2021 the
Group and the Parent Company have entered into 37 natural gas price swap contracts (31/12/2020:
30 contracts) with total outstanding natural gas purchase volume of 3,067,000 MWh (31/12/2020:
3,390,000MWh) and notional value of EUR 121 million (31/12/2020: EUR 57 million). Natural gas swap
contracts are concluded for the maturities from one month to one season with expiration date during the
period of 1January2022 to 31 December 2022.
The Group and the Parent Company enter into electricity future contracts in the Nasdaq Commodities
exchange, as well as concludes electricity forward contracts with other counterparties. Electricity forward
and future contracts are intended for hedging of the electricity price risk and are used for fixing the price
of electricity purchased in the Nord Pool AS power exchange. The Group and the Parent Company
have concluded natural gas swap contracts with other counterparties. Natural gas swap contracts are
intended for hedging of the natural gas price risk and are used for fixing the price of natural gas purchased
in wholesale gas market.
Electricity forward and future contracts with total outstanding volume of 288,212 MWh as of
31 December 2021 (31/12/2020: 283,578 MWh) are designated to comply with hedge accounting
treatment and were reassessed prospectively and retrospectively to test whether they are effective within
the hedging period. All contracts are designed as cash flow hedges. For the contracts which are fully
effective contracts fair value gains are included in other comprehensive income. 23 natural gas swap
52
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
contracts with total outstanding volume of 1,387,000 MWh as of 31 December 2021 are designated
to comply with hedge accounting treatment (31/12/2020: 16 contracts of 2,370,000 MWh) and were
reassessed prospectively and retrospectively to test whether they are effective within the hedging period.
Fair value changes of electricity forward and future contracts
EUR'000
Notes
Group Parent Company
2021 2020 2021 2020
Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Outstanding fair value at
the beginning of the year 1,557 (4,993) 6,717 (3,916) 1,557 (4,993) 6,717 (3,916)
Included in the Statement of
Profit or Loss 8 (785) (12,588) (978) 2,220 (1,054) (12,588) (978) 2,220
Included in other
comprehensive income 24,963 3,373 (4,182) (3,297) 24,963 3,373 (4,182) (3,297)
Outstanding fair value at
the end of the year 25,735 (14,208) 1,557 (4,993) 25,466 (14,208) 1,557 (4,993)
IV) Currency exchange forwards
As of 31 December 2021 the Group and the Parent Company have not entered in any currency exchange
forwards. The (31/12/2020: two EUR/USD currency exchange forward contract with notional principal
amount of the outstanding USD 0.932 million).
Fair value changes of forward currencies exchange contracts
EUR'000
Group Parent Company
2021 2020 2021 2020
Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
Outstanding fair value at the
beginning of the year – (7) – – – (7) – –
Included in other comprehensive
income – 7 – (7) – 7 – (7)
Outstanding fair value at the end
of the year – – – (7) – – – (7)
25. Fair values and fair value measurement
Accounting policy
The Group and the Parent Company measure financial instruments, such as, derivatives, at fair value at each
balance sheet date. Non–financial assets such as investment properties are measured at amortised cost, but some
items of property, plant and equipment at revalued amounts.
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair values are estimated based on market prices and
discounted cash flow models as appropriate.
The fair value of financial instruments traded in active markets is based on quoted market prices at the end of
reporting period. The quoted market prices used for financial assets held by the Group and the Parent Company
are the actual closing prices.
The fair value of financial instruments that are not traded in active market is determined by using valuation techniques.
The Group and the Parent Company use a variety of methods and make assumptions that are based on market
conditions existing at end of reporting period. Estimated discounted cash flows are used to determine fair value for
the remaining financial instruments.
In this Note are disclosed the fair value measurement hierarchy for the Group’s and the Parent Company’s
financial assets and liabilities and revalued PPE.
Methods and assumptions used to estimate the fair values are disclosed in Note 4 j.
53
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Quantitative disclosures of fair value measurement hierarchy for assets at the end of the year
EUR'000
Type of assets Notes
Group Parent Company
Fair value measurement using Fair value measurement using
Quoted prices
in active
markets
(Level1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
TOTAL Quoted prices
in active
markets
(Level1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
TOTAL
As of 31 December 2021
Assets measured at fair value
Revalued property, plant and equipment 14 c – – 2,407,773 2,407,773 – – 776,350 776,350
Non-current financial investments 16 – – 40 40 – – 39 39
Derivative financial instruments, including:
Energy forwards, futures, and swaps 24 – 25,735 – 25,735 – 25,466 – 25,466
Assets for which fair values are disclosed
Investment properties 14 b – – 3,316 3,316 – – 3,602 3,602
Loans to related parties:
- Floating rate loans 29 e – – – – – 172,313 – 172,313
- Fixed rate loans 29 e – – – – – 534,065 – 534,065
Current financial receivables 18 a, b – – 238,634 238,634 – – 153,850 153,850
Cash and cash equivalents 19 – 97,079 – 97,079 – 92,418 – 92,418
As of 31 December 2020
Assets measured at fair value
Revalued property, plant and equipment 14 c – – 2,402,069 2,402,069 – – 778,480 778,480
Non-current financial investments 16 – – 40 40 – – 39 39
Derivative financial instruments, including:
Energy forwards, futures and swaps 24 – 1,557 – 1,557 – 1,557 – 1,557
Assets for which fair values are disclosed
Investment properties 14 b – – 512 512 – – 3,334 3,334
Other financial investments 22 – 16,836 – 16,836 – 16,836 – 16,836
Loans to related parties:
- Floating rate loans 29 e – – – – – 131,133 – 131,133
- Fixed rate loans 29 e – 86,620 – 86,620 – 611,096 – 611,096
Current financial receivables 18 a, b – – 193,042 193,042 – – 105,184 105,184
Cash and cash equivalents 19 – 100,703 – 100,703 – 98,261 – 98,261
There have been no transfers for assets between Level 1, Level 2 and Level 3 during the reporting period.
54
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Quantitative disclosures of fair value measurement hierarchy for liabilities at the end of the year
EUR'000
Type of liability Notes
Group Parent Company
Fair value measurement using Fair value measurement using
Quoted prices
in active
markets
(Level1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
TOTAL
Quoted prices
in active
markets
(Level1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
TOTAL
As of 31 December 2021
Liabilities measured at fair value
Derivative financial instruments, including:
Interest rate swaps 24 – 4,312 – 4,312 – 4,312 – 4 ,312
Energy forwards, futures, and swaps 24 – 14,208 – 14,208 – 14,208 – 14,208
Liabilities for which fair values are disclosed
Issued debt securities (bonds) 23 – 151,139 – 151,139 – 151,139 – 151,139
Borrowings from financial institutions 23 – 643,890 – 643,890 – 631,183 – 631,183
Trade and other financial current payables 26 – – 163,946 163,946 – – 166,516 166,516
As of 31 December 2020
Liabilities measured at fair value
Derivative financial instruments, including:
Interest rate swaps 24 – 9,504 – 9,504 – 9,504 – 9,504
Energy forwards, futures, and swaps 24 – 4,993 – 4,993 – 4,993 – 4,993
Currency exchange forwards 24 – 7 – 7 – 7 – 7
Liabilities for which fair values are disclosed
Issued debt securities (bonds) 23 – 101,256 – 101,256 – 101,256 – 101,256
Borrowings from financial institutions 23 – 641,943 – 641,943 – 632,136 – 632,136
Trade and other financial current payables 26 – – 76,429 76,429 – – 51,664 51,664
There have been no transfers for liabilities between Level 1, Level 2 and Level 3 during the reporting period.
The fair value hierarchy for the Group’s and the Parent Company’s financial instruments that are measured
at fair value, by using specific valuation methods, is disclosed above.
Set out below, is a comparison by class of the carrying amounts and fair value of the Group’s and the
Parent Company’s financial instruments, other than those with carrying amounts which approximates their
fair values:
EUR'000
Group Parent Company
Carrying amount Fair value Carrying amount Fair value
31/12/2021 31/12/2020 31/12/2021 31/12/2020 31/12/2021 31/12/2020 31/12/2021 31/12/2020
Financial assets
Fixed rate loans to related parties – 86,620 – 89,409 534,065 611,096 545,297 641,936
Other financial investments – 16,836 – 18,031 – 16,836 – 18,031
Financial liabilities
Issued debt securities (bonds) 151,139 101,256 151,683 103,762 151,139 101,256 151,683 103,762
Management assessed that cash and short–term deposits, receivables, trade payables, bank overdrafts
and other current liabilities approximate their carrying amounts largely due to the short–term maturities of
these instruments.
55
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
26. Trade and other payables
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Financial liabilities:
Payables for materials and services 60,945 38,101 29,672 14,783
Payables for electricity and natural gas 78,053 16,178 57,297 385
Payables to related parties 29 b 10,969 8,324 30,541 26,761
Accrued expenses 10,889 12,085 5,832 6,132
Accrued expenses from related partie 29 d 327 – 41,359 2,646
Other financial current payables 2,767 1,741 1,816 957
TOTAL financial liabilities 163,950 76,429 166,517 51,664
Non–financial liabilities:
State social security contributions and other taxes 12,405 13,258 4,095 7,244
Contract liabilities 9,822 8,515 4,289 3,771
Other current payables 2,841 2,710 1,160 1,025
TOTAL non–financial liabilities 25,068 24,483 9,544 12,040
TOTAL trade and other current payables 189,018 100,912 176,061 63,704
The carrying amounts of trade and other payables are assumed to approximate their fair values.
27. Provisions
Accounting policy
Provisions are recognised when the Group or the Parent Company have a present obligation as a result of past event;
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation,
and when a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future
operating losses.
Provisions are presented in the Statement of Financial Position at the best estimate of the expenditure required to
settle the present obligation at the end of reporting period. Provisions are used only for expenditures for which the
provisions were originally recognised and are reversed if an outflow of resources is no longer probable.
Provisions are measured at the present value of the expenditures expected to be required for settling the obligation
by using pre–tax rate that reflects current market assessments of the time value of the money and the risks specific to
the obligation as a discount rate. The increase in provisions due to passage of time is recognised as interest expense.
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Non-current:
- post–employment benefits (recognised in profit or loss) 13,623 12,802 6,040 5,745
- post–employment benefits (recognised in equity) 1,798 2,896 1,367 1,488
- termination benefits – 957 – 507
- environmental provisions – 662 – 662
15,421 17,317 7,407 8,402
Current:
- termination benefits 311 1,846 133 250
15,732 19,163 7,540 8,652
a) Provisions for post–employment benefits
Accounting policy
The Group and the Parent Company provide certain post–employment benefits to employees whose employment
conditions meet certain criteria. Obligations for benefits are calculated considering the current level of salary and
number of employees eligible to receive the payment, historical termination rates as well as number of actuarial
assumptions.
The defined benefit obligations are calculated annually by independent actuaries using the projected unit credit
method.
The liability recognised in the Statement of Financial Position in respect of post–employment benefit plan is the
present value of the defined benefit obligation at the end of the reporting period. The present value of the defined
benefit obligation is determined by discounting the estimated future cash outflows using weighted average
discount rate of EIOPA risk-free interest rate, interest rates of Latvian government bonds (maturity of 5 years)
and EURBMK BBB electricity industry rate. The discount rate used is determined by reference to market yields
on government bonds due to lack of deep market on high quality corporate bonds. The Group and the Parent
Company use projected unit credit method to establish the present value of fixed benefit obligation and related
present and previous employment expenses. According to this method it has been stated that each period of
service gives rise to an additional unit of benefit entitlement and the sum of those units comprises total Group’s
and the Parent Company’s obligations of post–employment benefits. The Group and the Parent Company use
objective and mutually compatible actuarial assumptions on variable demographic factors and financial factors
(including expected remuneration increase and determined changes in benefit amounts).
Actuarial gains or losses arising from experience adjustments and changes in actuarial assumptions are charged
or credited to the Statement of Comprehensive Income in the period in which they arise. Past service costs are
recognised immediately in the Statement of Profit or Loss.
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 15,698 15,086 7,233 7,088
Current service cost 1,485 1,337 672 617
Interest cost 145 87 67 41
Post–employment benefits paid (809) (1,288) (444) (521)
Losses as a result of changes in actuarial assumptions 21 a (1,098) 476 (121) 176
Transfer of Latvenergo AS employees to Sadales tīkls AS – – – (168)
At the end of the year 15,421 15,698 7,407 7,233
Total charged / (credited) provisions are included in the Statement of Profit or Loss position ‘Personnel
expenses’ within state social insurance contributions and other benefits defined in the Collective
agreement (Note 9):
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 15,698 15,086 7,233 7,088
(Credited) / charged to the Statement of Comprehensive
Income 21 a (1,098) 476 (121) 176
Charged to the Statement of Profit or Loss 821 136 295 137
Transfer of Latvenergo AS employees to Sadales tīkls AS – – – (168)
At the end of the year 15,421 15,698 7,407 7,233
56
About Latvenergo Group
Corporate Governance
Operating Segments
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Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Weighted average discount rate used for discounting benefit obligations was 0.92% (2020:
0.58%), considering EIOPA risk-free interest rate, interest rates of Latvian government bonds and
EURBMK BBB electricity industry rate at the end of the reporting year. The Group’s Collective
Agreement provides indexation of employees’ wages at least at the level of inflation. Long–term
inflation determined at the level of 3.0% (2020: 3.0%) when calculating long–term post–employment
EUR’000
Assumptions Date of
valuation
Group Parent Company
Discount rate Future salary changes Retirement probability changes Discount rate Future salary changes Retirement probability changes
1% increase 1% decrease 1% increase 1% decrease 1% increase 1% decrease 1% increase 1% decrease 1% increase 1% decrease 1% increase 1% decrease
Impact on provisions for
post–employment benefits
31/12/2021 1,866 (1,677) 1,966 (1,650) 2,184 (1,807) 830 (744) 874 (732) 972 (801)
31/12/2020 1,173 (1,728) 2,031 (1,701) 2,250 (1,855) 499 (732) 864 (720) 956 (785)
benefits. In calculation of these liabilities also the probability, determined on the basis of previous
experience, of retirement in different employees’ aging groups was also considered.
A quantitative sensitivity analysis for significant assumptions on provisions for post–employment
benefits as of the end of the year is as shown below:
The sensitivity analysis above has been determined based on a method that extrapolates the impact on
post-employment benefits obligation as a result of reasonable changes in key assumptions occurring at
the end of the reporting period.
Contributions are monitored on an annual basis and the current agreed contribution rate is 5%. The next
valuation is due to be completed as of 31 December 2022.
Expected contributions to post–employment benefit plan for the year ending 31 December 2022 is
EUR5,1million.
The weighted average duration of the defined benefit obligation is 19.80 years (2020 – 19.91 years).
EUR’000
Group Parent Company
Less than 1 year From 1 to 5 years Over 5 years TOTAL Less than 1 year From 1 to 5 years Over 5 years TOTAL
Defined benefit obligation
31/12/2021 1,947 2,405 11,069 15,421 1,532 1,064 4,811 7,407
31/12/2020 2,059 2,281 11,358 15,698 1,508 1,054 4,671 7,233
b) Termination benefits
Accounting policy
Termination benefits are measured in accordance with IAS 19 and are payable when employment is terminated
by the Group Companies before the normal retirement date, or when an employee accepts voluntary redundancy
in exchange for these benefits. The Group and the Parent Company recognise termination benefits at the earlier
of the following dates: (a) when the Group entity can no longer withdraw the offer of those benefits; and (b) when
the Group entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment
of terminations benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits
are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12
months after the end of the reporting period are discounted to present value. Management judgements related
to the measurement of provisions for termination benefits is disclosed in Note 4 d.
Termination benefits paid out are included in the Statement of Profit or Loss position ‘Personnel expenses’
within expenditure of employment termination (Note 9), while termination benefits and projected future
liability values for 2021 to 2022 are recognised as a liability in the Statement of Financial Position and as
accrued costs within expenditure of employment termination (Note 9):
EUR’000
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 2,803 4,375 757 1,257
Termination benefits paid (4,281) (2,387) (148) (289)
Changes in provisions 1,789 815 (476) (211)
At the end of the year 311 2,803 133 757
According to defined development directions per Strategy of Latvenergo Group for the period 2017–2022,
management of the Parent Company approved the Strategic Development and Efficiency Programme.
Provisions for employees’ termination benefits are recognised on a basis of Strategic Development and
Efficiency Programme of Latvenergo Group for the period in which it is planned to implement the efficiency
program (including Latvenergo AS and Sadales tīkls AS efficiency activities), by which it is intended to
reduce gradually the number of employees by the year 2022.
Assumptions used in calculation of termination benefits are as follows – average employee earnings at
the time of termination equal average earnings per year, with projected increase (salary indexation) in the
year2022 by 7,9% (2021: 0%), average employee length of service at the time of termination, the State
Social Insurance Contributions rate is 23.59% in 2021 and 2022.
57
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
c) Environmental provisions
Accounting policy
Environmental protection provisions are recognised to cover environmental damages that have occurred before
the end of the reporting period when this is required by law or when the Group’s or the Parent Company’s past
environmental policies have demonstrated that the Group or the Parent Company have a constructive present
obligation to liquidate this environmental damage. Experts’ opinions and prior experience in performing environmental
work are used to set up the provisions.
EUR’000
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 662 661 662 661
Charged to the Statement of Profit or Loss (662) 1 (662) 1
At the end of the year – 662 – 662
The environmental provision for the Group represented the estimated cost for Latvenergo AS of cleaning
up CHPP–1 combined heat and power plant ash–fields in accordance with the requests made by the
regional Environmental Authority of Riga and feasibility study on this project.
28. Deferred income
Accounting policy
Government grants are recognised where there is reasonable assurance that the grant will be received, and
all attached conditions will be complied with. Government grants are recognised as income over the period
necessary to match them with the related costs, for which they are intended to compensate, on a systematic
basis. For grants received as part of a package of financial or fiscal aid to which a number of conditions are
attached, those elements which have different costs and conditions are identified. Treatment of the different
elements determine the periods over which the grant will be earned.
From 1 December till 31 December 2021, in accordance with Regulations of the Cabinet of Ministers No.50
‘Regulations regarding the trade and use of electricity’, the government granted support for electricity distribution
fee to all end-users in the amount of 50%, which is reimbursed from the state budget. The compensation
mechanism for electricity end-users provides for a reduction of the electricity distribution system service fee by
50% of the service fee to the end-user, while not changing the distribution system tariffs.
Public Utilities Commission has not changed distribution system services tariffs and Regulations of the Cabinet
of Ministers No. 50 ‘Regulations regarding the trade and use of electricity’ determines that the state support is
granted to end users, determining the beneficiaries (customers), the amount of the reduction and the period of
the support accordingly. The Group or the Parent Company are not considered to be grant receiver because
the service is still provided in full and revenues are recognised as revenue from distribution system services in
accordance with IFRS 15 (Note 6).
Grants related to expense items
When a grant relates to an expense item, and it has a number of conditions attached, it is initially recognised
at fair value as deferred income. Grants are credited to income on a systematic basis over the periods that the
related costs, for which it is intended to compensate, are expensed. Management judgements related to the
measurement of government grants is disclosed in Note 4.
A government grant that becomes receivable as compensation for expenses or losses already incurred or for the
purpose of giving immediate financial support to a company with no future related costs are recognised in profit
or loss of the period in which it becomes receivable. Related income is recognised in the Statement of Profit or
Loss as ‘Other income’ (Note 7).
Grants related to assets
Property, plant, and equipment received at nil consideration are accounted for as grants. Those grants are
recognised at fair value as deferred income and are credited to the Statement of Profit or Loss on a straight–line
basis over the expected lives of the related assets.
Accounting policy on recognition of deferred income from connection fees to distribution and transmission
system disclosed per Note 6.
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
I) Non-current deferred income
a) contracts with customers
From connection fees 6 136,217 138,750 – –
Other deferred income 802 863 802 863
137,019 139,613 802 863
b) operating lease
Other deferred income 342 366 342 366
342 366 342 366
c) other
On grant for the installed electrical capacity of CHPPs 137,450 161,440 137,450 161,440
On financing from European Union funds 8,220 8,459 2,114 1,601
Other deferred income 103 148 52 73
145,773 170,047 139,616 163,114
TOTAL non-current deferred income 283,134 310,026 140,760 164,343
II) Current deferred income
a) contracts with customers
From connection fees 6 14,794 14,167 – –
Other deferred income 237 924 67 813
15,031 15,091 67 813
b) operating lease
Other deferred income 20 20 20 20
20 20 20 20
c) other
On grant for the installed electrical capacity of CHPPs 23,990 23,990 23,990 23,990
On financing from European Union funds 896 782 144 7
Other deferred income – 7 – 4
24,886 24,779 24,134 24,001
TOTAL current deferred income 39,937 39,890 24,221 24,834
TOTAL deferred income 323,071 349,916 164,981 189,177
The Group and the Parent Company ensure the management, application of internal controls and
accounting for the Group’s and the Parent Company’s projects financed by the European Union funds,
according to the guidelines of the European Union and legislation of the Republic of Latvia.
Accounting of the transactions related to the projects financed by the European Union is ensured using
separately identifiable accounts. The Group and the Parent Company ensure separate accounting of
financed projects with detailed income and expense, non–current investments and value added tax in the
relevant positions of the Statement of Profit or Loss and Statement of Financial Position.
58
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Movement in deferred income (non-current and current part)
EUR’000
Notes
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 349,916 375,984 189,177 211,268
Received deferred non–current income (financing) 848 1,441 848 1,441
Received advance payments for contracts with customers 6 – 808 – 808
Received connection fees for connection to distribution
system 6 12,556 10,749 – –
Other deferred income credited to the Statement of Profit or Loss (24,907) (24,960) (24,106) (24,159)
Deferred income from contracts with customer and
operating lease credited to the Statement of Profit or Loss (15,342) (14,106) (938) (181)
At the end of the year 323,071 349,916 164,981 189,177
29. Related party transactions
Accounting policy
The parties are considered related when one party has a possibility to control the other one or has significant
influence over the other party in making financial and operating decisions. Related parties of the Group and the
Parent Company are Shareholder of the Company who controls the Company in accepting operating business
decisions, members of Latvenergo Group entities’ management boards, members of the Supervisory board of the
Company, members of Supervisory body of the Company – the Audit Committee and close family members of any
above–mentioned persons, as well as entities over which those persons have control or significant influence.
Trading transactions taking place under normal business activities with the Latvian government including
its departments and agencies and transactions between state–controlled entities and providers of public
utilities are excluded from the scope of related party quantitative disclosures. The Group and the Parent
Company enter into transactions with many of these bodies on an arm’s length basis. Transactions with
government related entities include sales of energy and related services and does not contain individually
significant transactions and quantitative disclosure of transactions with those related parties is impossible
due to broad range of the Latvenergo Group’s and the Parent Company’s customers, except for
transactions with transmission system operator – Augstsprieguma tīkls AS and Latvijas elektriskie tīkliAS
since 10 June 2020.
a) Sales/purchases of goods, PPE and services to/from related parties
EUR’000
Group Parent Company
2021 2020 2021 2020
Other
related
parties*
Other
related
parties*
Subsidiaries Other
related
parties*
Subsidiaries Other
related
parties*
Sales of goods, PPE and services,
finance income:
- Sales of goods and services 23,359 9,046 43,646 23,206 54,090 8,484
- Sales of property, plant and
equipment 2 – 171 – 1,621 –
- Lease of assets 1,039 16,293 1,483 1,039 2,376 662
- Interest income 1,341 1,169 9,282 1,341 10,651 1,169
TOTAL 25,741 26,508 54,582 25,586 68,738 10,315
Purchases of goods, PPE, and
services:
- Purchases of goods and services 79,188 79,833 346,314 8,362 268,058 6,600
- including gross expenses from
transactions with Sadales tīkls AS
recognised in net amount – – 226,712 – 265,853 –
- Purchases of property, plant and
equipment and construction services 2,540 29,517 76 563 13 392
- Lease of assets 676 689 145 296 182 200
TOTAL 82,404 110,039 346,535 9,221 268,253 7,192
* Other related parties included transmission system operator – Augstsprieguma tīkls AS, Latvijas elektriskie tīkli AS (from 10 June 2020 until 25 November2020),
Pirmais Slēgtais Pensiju Fonds AS and other entities controlled by the management members of Latvenergo Group
59
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
EUR’000
Notes
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
b) Receivables and payables at the end of the year
arising from sales/purchases of goods, PPE, and
services:
Receivables from related parties:
- Subsidiaries 18 a, b – – 25,004 25,704
- Other related parties* 12,404 2,387 11,866 1,653
- Loss allowances for expected credit loss from receivables
of subsidiaries 18 a, b – – (16) (19)
- Loss allowances for expected credit loss from receivables
of other related parties* (22) (5) (21) (3)
12,382 2,382 36,833 27,335
Payables to related parties: 26
- Subsidiaries – – 28,415 24,956
- Other related parties* 10,969 8,324 2,126 1,805
10,969 8,324 30,541 26,761
c) Accrued income raised from transactions with
related parties:
- For goods sold / services provided for subsidiaries 18 a, b – – 435 1,115
- For interest received from subsidiaries 18 a, b – – 1,381 1,346
– – 1,816 2,461
d) Accrued expenses raised from transactions with
related parties: 26
- For purchased goods / received services from subsidiaries – – 41,032 2,646
- For purchased goods / received services from other
related parties* 327 – 327 –
327 – 41,359 2,646
* Other related parties included transmission system operator – Augstsprieguma tīkls AS, Latvijas elektriskie tīkli AS (from 10 June 2020 until 25November2020),
Pirmais Slēgtais Pensiju Fonds AS and other entities controlled by the management members of Latvenergo Group
The Group and the Parent Company have not incurred write–offs of trade payables and receivables from
transactions with related parties, as all debts are recoverable.
Receivables and payables with related parties are current balances for services and goods. None of the
amounts at the end of the reporting year are secured.
Remuneration to the Latvenergo Group’s management includes remuneration to the members of
the Management Boards the Group entities, the Supervisory Board, and the Supervisory body (Audit
Committee) of the Parent Company. Remuneration to the Parent Company’s management includes
remuneration to the members of the Parent Company’s Management Board, the Supervisory Board, and
the Supervisory body (Audit Committee). Information disclosed in Note 9.
Dividend payments to Shareholder of the Parent Company and share capital contributions are disclosed
in Note 20 and Note 21 b, respectively.
Dividends received from subsidiaries are disclosed in Note 16.
e) Loans to related parties
Non-current and current loans to related parties
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Non–current loans to subsidiaries
Sadales tīkls AS – – 467,786 477,507
Elektrum Eesti OÜ – – 7,560 –
Elektrum Lietuva, UAB – – 1,970 –
Allowances for expected credit loss – – (306) (344)
Non-current loans to other related parties
Augstsprieguma tīkls AS – 86,672 – 86,672
Allowances for expected credit loss – (52) – (52)
TOTAL non–current loans – 86,620 477,010 563,783
Current portion of non–current loans
Sadales tīkls AS – – 97,000 76,648
Elektrum Eesti OÜ – – 300 –
Allowances for expected credit loss – – (62) (55)
Current loans to subsidiaries
Sadales tīkls AS – – 10,000 10,000
Elektrum Eesti OÜ – – 34,880 7,937
Elektrum Lietuva, UAB – – 56,198 10,209
Enerģijas publiskais tirgotājs SIA – – 31,137 73,781
Allowances for expected credit loss – – (85) (74)
TOTAL current loans – – 229,368 178,446
TOTAL loans to related parties – 86,620 706,378 742,229
Counterparty model is used on individual contract basis for assessment of expected credit risk for non-
current and current loans to subsidiaries. The expected credit losses according to this model are based
and impairment for expected credit loss is recognised on assessment of the individual counterparty’s risk
of default and recovery rate assigned by Moody’s credit rating agency for 12 months expected losses
(Note 4 b). Credit risk of subsidiaries is assessed at the same level as Latvenergo AS credit risk considering
that they are 100% controlled by Latvenergo AS – ‘Baa2 level’ credit rating. Since the initial recognition of
loans, credit risk has not increased significantly that matches Stage 1.
All current loans to related parties as of 31 December 2021 will be settled in 2022.
60
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Movement in loans issued to related parties
EUR’000
Group Parent Company
2021 2020 2021 2020
At the beginning of the year 86,620 – 742,229 794,256
Change in current loans in cash (net) – – 319,304 286,688
Change in current loans by non-cash offsetting of operating
receivables and payables (net) – – (199,767) (364,096)
Transferred non–current loan liabilities – 225,232 – 225,232
Issued non–current loans in cash – – 7,860 –
Repayment of loan in cash (86,672) (138,560) (86,672) (138,560)
Issued non–current loans by non-cash offset – – – 20,000
Repaid non–current loans by non-cash offset – – (76,648) (81,275)
Impairment for expected credit loss 52 (52) 72 (16)
At the end of the year – 86,620 706,378 742,229
incl. loan movement through bank account
Issued loans to subsidiaries – – 716,106 573,957
Repaid loans issued to subsidiaries – – (388,942) (287,269)
Repaid loans issued to other related parties (86,672) (138,560) (86,672) (138,560)
(Repaid) / issued loans, net (86,672) (138,560) 240,492 148,128
Interest received from related parties
EUR’000
Group Parent Company
2021 2020 2021 2020
Interest received 1,341 926 10,623 11,578
1,341 926 10,623 11,578
I) Non–current loans, including current portion
Concluded non–current loan agreements with Sadales tīkls AS
EUR’000
Agreement
conclusion date
Principal amount
of the loan
Outstanding loan amount Interest rate Maturity date
31/12/2021 31/12/2020
29 September 2011 316,271 20,919 29,300
6 months EURIBOR +
fixed rate 1 September 2025
6 February 2013 42,686 2,134 6,403 fixed rate 10 September 2022
18 September 2013 42,686 8,537 12,806 fixed rate 10 August 2023
29 October 2014 90,000 30,000 40,000 fixed rate 10 September 2024
20 October 2015 90,000 40,000 50,000 fixed rate 21 October 2025
22 August 2016 60,000 33,333 40,000 fixed rate 22 August 2026
22 August 2016 50,000 30,000 35,000 fixed rate 14 June 2027
14 December 2018 260,000 203,875 231,938 fixed rate 31 January 2030
3 March 2020 200,000 195,988 108,708 fixed rate + floating rate 25 March 2030
TOTAL 1,151,643 564,786 554,155
As of 31 December 2021, total outstanding amount of non–current loans with Sadales tīkls AS
amounted to EUR 564,786 thousand (31/12/2020: EUR 554,155 thousand), including current portion
of the loan repayable in 2021 – EUR 97,000 thousand (31/12/2020: EUR 76,648 thousand). As of
31December2021, 5.38% of non–current loans issued to Sadales tīkls AS (31/12/2020: 5%) was
bearing floating interest rate, which was influenced by 6 months EURIBOR interbank rate fluctuations.
During 2021 the effective average interest rate of non–current loans was 1.42% (2020: 1.53%). As of
31December2021 for non–current floating rate loans 6 months EURIBOR was -0.523% (31/12/2020:
6M EURIBOR -0.474%). As of 31 December 2021, impairment for expected credit loss of non–current
loans to Sadales tīkls AS in the amount of EUR 361 thousand EUR (31/12/2020: EUR 399 thousand)
was recognised. Non–current loans are not secured with a pledge or otherwise.
Non–current loans to Sadales tīkls AS by maturity
EUR’000
Parent Company
31/12/2021 31/12/2020
Non–current loan:
- < 1 year (current portion) 97,000 76,648
- 1 – 5 years 315,672 311,665
- > 5 years 152,114 165,842
564,786 554,155
Concluded non–current loan agreement with Augstsprieguma tīkls AS
EUR’000
Agreement
conclusion date
Principal amount
of the loan
Outstanding loan amount Interest rate Maturity date
31/12/2021 31/12/2020
8 May 2020 225,232 – 86,672 fixed rate 15 March 2023
Along with the distribution of transmission system assets and unbundling of Latvijas elektriskie tīkliAS
on 10 June 2020, all Latvijas elektriskie tīkli AS liabilities were transferred to Augstsprieguma tīklsAS,
including the Latvenergo AS loan to Latvijas elektriskie tīkli AS in amount of EUR 225,232 thousand, of
which EUR 46,672 thousand were repaid on 18 June 2021 and EUR 40,000 thousand on 20July2021
before the maturity date (on 19 June 2020: EUR 138,560 thousand).
Non–current loans to Augstsprieguma tīkls AS by maturity
EUR’000
Group Parent Company
31/12/2021 31/12/2020 31/12/2021 31/12/2020
Non–current loan:
- 1 – 5 years – 86,672 – 86,672
– 86,672 – 86,672
Concluded non–current loan agreements with Elektrum Eesti OÜ
EUR’000
Agreement
conclusion date
Principal amount
of the loan
Outstanding loan amount Interest rate Maturity date
31/12/2021 31/12/2020
25 August 2021 7,560 7,560 –
6 months EURIBOR +
fixed rate 24 August 2031
On 25 August 2021 the Parent Company issued non–current loan in the amount of EUR 7,860 thousand
to subsidiary Elektrum Eesti OU. The annual interest rate according to the loan agreement is 6(six)
months EURIBOR (Euro Interbank Offer Rate) plus margin 0.74%. If the Base rate is negative, it is equal
to zero. The final repayment date of the loan is 24 August 2031.
61
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
Non–current loans to Elektrum Eesti OÜ by maturity
EUR’000
Parent Company
31/12/2021 31/12/2020
Non–current loan:
- < 1 year (current portion) 300 –
- 1 – 5 years 900 –
- > 5 years 6,360 –
7,560 –
Concluded non–current loan agreements with Elektrum Lietuva, UAB:
EUR’000
Agreement
conclusion date
Principal amount
of the loan
Outstanding loan amount Interest rate Maturity date
31/12/2021 31/12/2020
31 October 2021 1,970 1,970 –
6 months EURIBOR +
fixed rate 29 September 2031
On 31 October 2021 the Parent Company issued non–current loan in the amount of EUR 1,970 thousand
to subsidiary Elektrum Lietuva, UAB. The annual interest rate according to the loan agreement is 6(six)
months EURIBOR (Euro Interbank Offer Rate) plus margin 0.68%. If the Base rate is negative, it is equal
to zero. The final repayment date of the loan is 29 September 2031.
Non–current loans to Elektrum Lietuva, UAB by maturity
EUR’000
Parent Company
31/12/2021 31/12/2020
Non–current loan:
- < 1 year (current portion) – –
- 1 – 5 years 875 –
- > 5 years 1,095 –
1,970 –
II) Current loans
To ensure efficiency and centralised management of Latvenergo Group companies’ financial resources
and using the functionality of Group accounts and possibility for non–cash offsetting of mutual invoices
between the parties, current loans are provided. In the reporting period Latvenergo AS issued loans
to subsidiaries in accordance with mutually concluded agreement ‘On provision of mutual financial
resources’, allowing the subsidiaries to borrow and to repay the loan according to daily operating needs
and including non-cash offsetting of operating receivables and payables. In 2021 the effective average
interest rate was 0.77% (2020: 0.53%).
On 29 March 2021 an agreement was concluded between Latvenergo AS and Enerģijas publiskais
tirgotājs SIA for issue of the current loan in amount of EUR 120,000 thousand to ensure Enerģijas
publiskais tirgotājs SIA financial resources for the fulfilment of public supplier duties and mandatory
procurement process administration. Maturity date of the loan was 31 March 2022 with the possibility
to extend the contract for one year if the condition is met that neither of parties propose a termination
of the agreement one month before the expiration of the agreement. Annual interest rate is fixed
at 1.098% (2020: 1.115%). As of 31 December 2021, net outstanding amount of current loan is
EUR31,137 thousand (31/12/2020: EUR 73,709 thousand).
As of 31 December 2021 impairment for expected credit loss of current loans to related parties is
recognised in the amount of EUR 85 thousand (31/12/2020: EUR 73 thousand).
f) Interest paid to related parties
Financial transactions between related parties have been carried out by using current loans with a
target to manage Latvenergo Group companies’ financial resources effectively and centrally, using
Group accounts. In the reporting period Latvenergo AS has received borrowings from subsidiaries in
accordance with mutually concluded agreement “On provision of mutual financial resources”. In 2021 the
effective average interest rate was 0.77% (2020: 0.53%). At the end of the reporting year LatvenergoAS
has no borrowings from related parties (31/12/2020: nil).
EUR’000
Group Parent Company
2021 2020 2021 2020
Interest received – – 26 11
– – 26 11
30. Discontinued operation
Accounting policy
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale
or distribution and that represents a separate major line of business or geographical area of operations, is part of
a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired
exclusively with a view to resale.
The Group classifies assets and liabilities held for distribution if the discontinued operation is available for immediate
distribution in its present condition and distribution is highly probable, as well is measured at the lower of their
carrying amount and fair value less costs to distribute.
Assets and liabilities classified as held for distribution are presented separately from the other assets and other
liabilities in the Statement of Financial Position.
Discontinued operations are excluded from the results of continuing operations and are presented as a single
amount as profit for the year from discontinued operation in the Statement of Profit or Loss.
On 8 October 2019, the Cabinet of Ministers of the Republic of Latvia supported the implementation
of the “full ownership unbundling” model for the electricity transmission system operator by its
Protocol Decision No. 46 §38. On 10 June 2020, the Company transferred the ownership interest
in its subsidiary Latvijas elektriskie tīkli AS (LET) to the Ministry of Economics. The transaction was
a non-cash distribution to the Company’s owners (IFRIC 17), transferring all the shares of Latvijas
elektriskie tīkli AS in the fair value of EUR222,678thousand (stated in the separate financial statements
at EUR186,432thousand) to the Ministry of Economics. As a result of the transaction transmission
system total assets of EUR694,290thousand were disposed of by the Latvenergo Group and profit
from distribution of non–current financial investments in the amount of EUR 36,246 thousand recognised
as ‘Other income’ (Note7).
62
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
In the 2020 Financial Statements till 10 June 2020 the subsidiary Latvijas elektriskie tīkli AS was
classified as a discontinued operation in accordance with IFRS 5, “Non–current Assets Held for Sale
and Discontinued Operations”. In the Statement of Profit or Loss was disclosed profit from discontinued
operation for period from 1 January 2020 until 10 June 2020 in the amount of EUR 9,844 thousand. Net
changes in cash and cash equivalents of discontinued operation for period from 1 January 2020 until
10June2020 are negative and amounted to EUR 139 thousand. In the Group’s operating segments
results financial results of Latvijas elektriskie tīkli AS are disclosed in transmission system assets lease
segment because until the termination of its ownership on 10 June 2020 the Management Board of the
Parent Company continued to review financial results of this operating segment.
31. Changes in liabilities arising from financing activities
The changes in lease liabilities (Note 15):
EUR’000
Group Parent Company
2021 2020 2021 2020
Net book amount at the beginning of the period 8,344 5,565 4,540 3,502
Recognised changes in lease agreements 1,906 4,178 1,725 1,746
Paid lease payments in cash (1,275) (1,111) (294) (169)
Paid lease payments by non-cash offset (400) (400) (524) (632)
Change in accrued liabilities (285) (19) (304) 24
Recognised interest liabilities 138 131 83 69
Closing net book amount at the end of the period 8,428 8,344 5,226 4,540
In 2021, the movement for borrowings (Note 23) relates to cash flows, except the effect of accrued but not
yet paid interest – for the Group decrease in the amount of EUR 239 thousand and for the Parent company
decrease in the amount of EUR 238 thousand (2020: the Group – decrease of EUR796thousand, the
Parent Company – decrease of EUR 815 thousand).
In 2021, deferred income on financing from European Union funds (Note 28) consists of movement
in cash, except the credited amount to Statement of Profit or Loss - for the Group in the amount of
EUR873 thousand and for the Parent company in the amount of EUR 97 thousand (2020: the Group–
EUR787thousand, the Parent Company – EUR 12 thousand).
32. Commitments and contingent liabilities
As of 31 December 2021, the Group had commitments amounting to EUR 136.8 million (31/12/2020:
EUR66.6million) and the Parent Company had commitments amounting to EUR 105.0 million (31/12/2020:
EUR 28.9 million) for capital expenditure contracted but not delivered at the end of the reporting period.
Latvenergo AS has issued support letters to its subsidiaries – on 9 February 2022 to Enerģijas publiskais
tirgotājs SIA, on 17 February 2022 to Sadales tīkls AS and on 22 February 2022 to Elektrum Lietuva,UAB
acknowledging that its position as the shareholder is to ensure that subsidiaries are managed so that they
have sufficient financial resources and are able to carry their operations and settle their obligations.
63
About Latvenergo Group
Corporate Governance
Operating Segments
Sustainability Indicators
Annexes to
the Sustainability Report
Annual Report
– Key Figures
– Management Report
– Financial Statements
Statement of Profit or Loss
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
– Independent Auditors’
Report
33. Events after the reporting year
Accounting policy
Events after the reporting period that provide significant additional information about the Group’s and the Parent
Company’s position at the balance sheet date (adjusting events) are reflected in the financial statements. Events
after the reporting period that are not adjusting events are disclosed in the notes when material.
On 24 January 2022 the international credit rating agency Moody’s Investors Service has updated
Latvenergo AS credit analysis. The rating of Latvenergo AS remains unchanged Baa2 with a stable
outlook.
In January 2022, Latvenergo AS signed two short–term loan agreements (overdraft agreements) with
term for both agreements up to 2 years for working capital financing and liquidity management – with
OPCorporate Bank plc Latvia Branch in the amount of EUR 60 million and with SEB banka AS in the
amount of EUR 30 million.
In January 2022, the Saeima of the Republic of Latvia adopted a Law on measures to reduce extraordinary
rise in energy prices with the aim to reduce the negative socio–economic impact associated with an
unprecedented sharp rise in energy prices on the well–being of the population and economic growth. The
law provides for various types of support measures to legal and natural persons to partially compensate
the rising costs of energy resources from 1 January to 30 April 2022. Various state support mechanisms
for reducing energy prices have been established in Estonia and Lithuania, too. Support measures are
financed from national budgets.
On 22 February 2022 the Cabinet of Ministers of the Republic of Latvia conceptually supported the
intention of the state capital companies Latvenergo AS and Latvijas valsts meži AS to establish a joint
venture for the development of wind farms in Latvia.
On 24 February 2022, the Russian Federation has launched an invasion of the Republic of Ukraine.
Shortly after the invasion, the EU and rest of the world, including global bodies, imposed wide–ranging
set of restrictive measures against Russia, which is updated and expanded on a regular basis.
Until the date of authorisation of these financial statements, the restrictive measures imposed had no
significant impact on the Group’s performance, no operations had been suspended and no significant
direct losses related to the restrictive measures had been incurred at the date of the financial statements.
Latvenergo Group has not entered into any significant direct agreements with companies in Russia,
Belarus, or Ukraine, which could have a material negative impact on the Group’s operations in the
current situation. An additional impact on the Latvenergo Group’s financial results could be caused by
the general deterioration of the economic situation.
Assessing the possible risks related to the Russia’s invasion of Ukraine and in accordance with the task
given by the government on 24 February 2022 to replenish gas reserves for national security purposes,
Latvenergo AS has swiftly procured approximately 2 terawatt hours (TWh) of gas for the security of supply
of production of the combined heat and power plants of Latvenergo AS. The concluded agreements
envisage liquefied natural gas supply to Klaipeda Terminal and injection of gas into Inčukalns underground
gas storage in April and May 2022. Natural gas will be supplied from Norway, the USA and Qatar. The
purchased amount of gas will ensure the production of electricity and heat at the planned production
regime of the combined heat and power plants of Latvenergo AS in 2022, at the same time envisaging
gas reserves in the event of a possible energy crisis.
On March 8, 2022, Latvenergo AS and Sadales tīkls AS signed an agreement on a long-term loan in the
amount of EUR 175 million.
There have been no other significant events after the end of the reporting year that might have a material
effect on the Latvenergo Consolidated and Latvenergo AS Annual Financial Statements for the year
ending 31 December 2021.
This document is signed with a secure digital signature and contains a time stamp
The Management Board of Latvenergo AS:
Mārtiņš Čakste Dmitrijs Juskovecs Guntars Baļčūns Kaspars Cikmačs Harijs Teteris
Chairman of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board
Liāna Ķeldere
Accounting director of Latvenergo AS
12 April 2022
64