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TERNA ENERGY
Industrial Commercial Technical Societe Anonyme
85 Mesogeion Ave., 115 26 Athens, Greece
Societe Anonyme Reg. No. 318/06/ Β /86/28
GENERAL COMMERCIAL REGISTER (GEMI) No. 000312701000
ANNUAL FINANCIAL REPORT
for the year
1 January to 31 December 2021
According to article 4 of Law 3556/2007 and relevant executive decisions of Hellenic Market Commission Board of Directors
[IMAGE]
TERNA ENERGY GROUP
Annual Financial Report for the Year 2021
(Amounts in thousands of Euros unless mentioned otherwise)
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CONTENTS
TERNA ENERGY GROUP
Annual Financial Report for the Year 2021
(Amounts in thousands of Euros unless mentioned otherwise)
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I. REPRESENTATIONS OF THE MEMBERS OF THE BOARD OF DIRECTORS
(according to article 4, par. 2, Law 3556/2007)
The following representatives:
George Peristeris, Chairman of the Board of Directors
Emmanuel Maragoudakis, Chief Executive Officer
George Spyrou, Executive Member of the Board of Directors
WE HEREBY DECLARE AND CERTIFY
To the best of our knowledge that:
i) The hereby annual separate and consolidated financial statements of the Company TERNA ENERGY S.A. of the annual period from January 1st 2021 to December 31st 2021, that has been prepared according to the applicable accounting standards, reflect truly and fairly assets and liabilities, equity, and the financial results of the Company as well as the companies that has been included in the consolidation in aggregate, and
ii) The attached BoD Report provides a true and fair view of the Company’s evolution, performance and position, as well as of the companies included in the consolidation in aggregate. A description of the main risks and uncertainties to which they are exposed is also encompassed in the Report.
Athens , 14/04/2022
The Certifiers
Chairman of the BoD
Chief Executive Officer
Member of the BoD
George Peristeris
Emmanouil Maragoudakis
George Spirou
TERNA ENERGY GROUP
Annual Financial Report for the Year 2021
(Amounts in thousands of Euros unless mentioned otherwise)
4
II. ANNUAL MANAGEMENT REPORT OF THE BOARD OF DIRECTORS OF “TERNA ENERGY SOCIETE ANONYME INDUSTRIAL COMMERCIAL AND TECHNICAL COMPANY” ON CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS FOR FINANCIAL YEAR 2021
Dear Shareholders,
In compliance with provisions of Law 4548/2018 as well as Law 3556/2007 Article 4 par. 2(c), 6,7 & 8 and the decisions issued by the Hellenic Capital Market Commission under No. 8/754/14.4.2016 Article 2 and the Company’s Articles of Association, we are hereby submitting the annual management report of the Board of Directors for the financial year from 01/01/2021 to 31/12/2021.
The present report discloses financial and non-financial reporting for FY 2021 of TERNA ENERGY Group, as well as the most significant events occurred (before and after the financial statements reporting date). It also describes the key risks and uncertainties which the Group might face in 2022 and presents significant transactions between the Company and its related parties.
A. Financial Developments and Performance of FY 2021
Following the initial shock of the pandemic and the emergency measures taken by the authorities, the Greek economy is recovering dynamically after the lifting of restrictions and the resumption of economic activity, a trend that is also being aided by fiscal and monetary policy measures. In 2021 the economic climate index increased to 105.4 points and essentially returned to 2019 levels.
The data announced by ELSTAT (Greece’s Statistical Service) on the course of economic activity in the fourth quarter of 2021 form an especially strong basis for what it will follow in the next year, 2022. In particular, the high GDP growth rate in the last quarter of the year (7.7% on an annual basis), combined with the downward revision for the previous two quarters, led to a strong growth estimate for the year 2022, at the order of 1.6 %.
For the entire year of 2021, the growth rate settled at 8.3% and as a result the real GDP is approaching now pre- pandemic levels. However, this momentum - which would support estimates for economic growth of about 5% in year 2022 - is expected to calm down to some extent following the impact of Russia’s invasion to Ukraine.
An important component in the continuation of the domestic economy’s growth trend in 2022, is expected to come from the contribution of EU’s Recovery and Resilience Facility. It is estimated that in the coming years (and up until 2026), this facility will contribute over 30.0 billion in total, through grants and loans on favorable terms, thus shoring up the Greek banks as well as the Greek economy and its competitiveness in general, given that the largest percentage of funds is expected to be absorbed in the areas of green investments, digital transition and social cohesion.
On 19/01/2022 the Greek government proceeded with the first bond issuance of that particular year. With the issuance of the 10-year bond, Greek authorities raised 3.0 billion with a coupon rate of 1.75% and a yield of 1.836%, while the issue coverage was more than 5 times. On 14/01/2022, international credit rating agency Fitch kept the country's rating unchanged at "BB" upgrading the outlook to positive.
TERNA ENERGY GROUP
Annual Financial Report for the Year 2021
(Amounts in thousands of Euros unless mentioned otherwise)
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Recent geopolitical developments in the region of Ukraine are expected to prolong inflationary pressures through a stronger and longer rise in energy and raw material prices, while in combination with any further disruptions in the supply chain are expected to lead to a tightening of the monetary policy that will in turn affect consumption, investment, credit expansion and the wider economic activity.
The main factors of uncertainty regarding the course of domestic economic activity in 2022 can be summarized as follows:
Firstly, relates to the impact of rising energy prices on production costs, profitability and investment planning.
Secondly, there is the effect of inflation pressures coming from energy and grain prices, in combination with the energy dependence of Greece, and their relation to the real disposable income and the purchasing power of Greek households.
Thirdly, the impact on the receipts of Greek tourism, due to, on the one hand, the cessation of tourist flows from the countries involved in the above war conflicts and, on the other hand, the aggravation of the disposable income in many countries which the incoming tourists originate from, mainly European ones.
Fourthly, the impact of geopolitical developments on foreign direct investment, as increased uncertainty adversely affects the country’s risk especially in the case of Greece whose credit rating has not yet reached the level of investment grade.
Fifthly, the further expansion and potential extent of fiscal flexibility that will be allowed at European level and the degree of utilization of the EU resources by the Greek government.
Furthermore, it is worth mentioning that the Harmonized Index of Consumer Prices (HICP) increased in February 2022 by 6.3%, compared to the same month of 2021, with most of the increase coming from the energy products. In addition, almost 40% of Greece's natural gas imports in 2020 originated from Russia. Therefore, the energy dependence of the country, in terms of covering the required quantity through imports remained quite high. The latter condition makes the impact of the war conflicts in the region of Ukraine an important factor of uncertainty when it comes to estimating the future trajectory of the Greek economy, as the higher energy prices are expected to affect both domestic companies, via the increased production costs leading to lower profits, and households, through the reduction of disposable income and consumer spending. The presentation by the European Union of a plan aiming at the gradual decoupling of European countries from Russian fossil fuels (REPowerEU), which includes the adoption of additional support measures to tackle to impact from rising energy costs, will be an important factor in mitigating these negative developments.
Despite the prevailing uncertainty due to the above factors, the outlook of the Greek economy remains positive in the medium term, as conditions needed for a change in the pattern of economic growth are already in place, and this is expected to come to a greater extent from investment spending. The increase in investments, in the next period, will be determined by the course of the credit rating of Greek economy’s debt towards the investment grade, by the inflow of resources from EU’s Recovery and Resilience Facility, as well as by the implementation of structural reforms that create a friendly business environment.
As early as 2021, investments in Greece increased significantly, by 19.6%, while they had the second largest contribution to GDP’s expansion (2.3 percentage points), next to private consumption (which achieved 5.5 percentage points). The good performance of exports of services and especially of tourist receipts, in 2021, resulted into the positive contribution of net exports to GDP growth of 0.9 percentage points. Finally, public
TERNA ENERGY GROUP
Annual Financial Report for the Year 2021
(Amounts in thousands of Euros unless mentioned otherwise)
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consumption increased by 3.7% in 2021, compared to 2020, contributing by 0.8 percentage points to GDP growth. In contrast, inventories (including any statistical adjustments) decreased significantly in year 2021, thus deducting 1.1 percentage points from GDP growth.
The effects of recent sanctions on Russia's economy and the changing global economic landscape.
The current geopolitical turmoil is expected to drastically change the dynamics of world trade, as the new conditions will have major effects not only on the Russian economy, but also on the rest of the world. Initially, the sanctions imposed on Russia are expected to lead to a recession in its economy.
At the same time, the strong supply disruption, primarily in the energy sector but also in basic agricultural products (wheat, fertilizers, etc.) is expected to lead to lower rates of economic growth in large economies, compared to what it was initially estimated, due to strong inflationary pressures.
TERNA ENERGY Group strongly committed to its development strategy and the realization of its vision, constantly improves and modernizes the structures and operating systems, selects with special care the executives personnel that is needed from the market, trains its staff in modern digital systems and in the obligation to comply with the provisions of the corporate governance system, the other provisions of the Internal Regulations, as well as the rules imposed by the competent bodies of the State for the relations of companies with their members of the Board. Also, reacting quickly and sensitively for the health and safety of its human resources, it took all the necessary measures, set up a special committee to deal with the coronavirus and ensured that ALL employees take full care of the current situation in terms of the COVID-19 and its mutations. The Committee systematically monitors the development of the pandemic, is immediately informed of any critical factors of its spread and guides the necessary actions to be taken by the Management and each employee throughout the Group in order to minimize the risks of the phenomenon and the impact on the course of the company.
This policy and the nature of the activities of the Group, have protected the Group from the related risks and have allowed the Management to continue its development course, not directly affected by the spread of the virus. Keeping personnel on standby and limiting their communication with a few external partners, combined with the lack of contact with large groups of customers / consumers provide the Group with the opportunity to focus on its goals and not be directly and greatly influenced by evolution of the pandemic phenomenon. For these reasons, TERNA ENERGY Group continues to invest in the generation of energy through Renewable Sources (RES), fully focused on achieving its goal of exceeding 3,000 MW of installed capacity within the next 5 years.
Despite the difficulties, the way seems to be open for the Group, since the preparations it has completed for a generation of new projects aimed at strengthening the green economy and environmental protection make it ready for immediate action and place it into a highly competitive position, allowing the Group to implement its business plan and further consolidate its leading position in the