1) excellent business results of ELES,
2) sound operations of the ELES Group,
3) realisation of the goals laid down in the Long-Term Strategic Plan for 2016-2020,
4) increased investment activity with priority investments in smart grids,
5) intensive international activity upgraded with success in the acquisition of funds from EU funds,
6) continuation of activities started in 2010 that are aimed at creating an environment for a comprehensive business mindset and added value for the key stakeholders, in the short and long term, through cooperation and a proactive search for synergies among activities/organisational units within the Company and with external and foreign stakeholders.

There are also a few unrealised goals that were set for 2017. Their review and causes for not achieving them are indicated at the end of this address.

In 2017, the Company generated the highest net profit since taking into account the Energy Agency methodology, under which revenue exceeding the regulatory recognised costs and profit is accrued and deferred. The net profit amounts to €16.8 million and has jumped by 33% compared to 2016 and by 100% compared to 2013 (the first of the last 5 years). The return on equity amounted to 5.4%, rising by 44% compared to 2016 and by 145% compared to 2013.

In 2017, the Company made investments amounting to €49.5 million, the most in the last five years. Investments in 2017 increased by 43% compared to the previous year.

In 2017, the Company recorded the highest electricity offtake/input in the last 5 years, 23.05TWh. With respect to the previous year, the Company recorded a 2.6% increase and with respect to 2013, a 7.1% increase.

In 9 of the 13 strategic indicators, the Company achieved better results than the target values. 2 indicators showed minimum deviations (less than 1%), while 2 indicators showed somewhat larger deviations, which are explained below.

I am also extremely pleased with the operations of the ELES Group. The Group achieved a net profit of €19.6 million in 2017, which is 41% more than in 2016 and €22.5 million more than in 2013, when a loss of €2.8 million was recorded at Group level. The Group’s ROE for 2017 amounts to 5.7% and is 39% higher than in 2016.

To sum up, this was a year of overachievements, both financially and non-financially.

At the end of 2016, the Company sent the Ministry of Infrastructure the 10-year Development plan for the transmission system (2017-2026), which was approved in March 2017. Within the €519 million foreseen for investments, €103 million is foreseen for investments in smart grids. Since one of the key activities of ELES involves research, development and innovations, which was in recent years upgraded with involvement in major international R&D projects for which grants were received from various European and national funds, I decided in May 2017 to set up a new division for Strategic Innovations, which is in charge of coordinating the implementation of strategic innovations. That upgraded the Company's permanent stance towards innovations. I believe 2017 was a breakthrough year, hence the subtitle in the 2017 Annual Report - »Developing the transmission network of future.« The business section presents, in detail, all projects from the group of »smart« grids, initially highlighting the value created in the implementation of the Company's core activities (system operations, network expansion and maintenance, strategic innovations) used to realise its mission.

According to the Memorandum of Association of ELES, I, as the Company Director, am the sole Company representative responsible for the legality and success of its operations. Within the scope of the rules laid down in an organised, transparent and integrated business management and control system as published on the Company website, under which activities and responsibilities are divided among three lines of defence, I allocate certain powers to line managers at the Company.

In October 2013, I adopted the Rules of Procedure for the management of ELES d.o.o. Based on those Rules, I seek common decisions, consensus, policies and consultations through the following working bodies:
- strategic conference,
- the Director’s board meeting,
- technical-development board meeting,
- specialist councils,
- the Director’s Crisis and Emergency Management Board.

I hold regular periodic consultations with the Workers’ Council and trade union representatives. Every year, I visit all dislocated units - transmission grid infrastructure centres; the purpose of the visits is to inform employees of past major events and activities of the Company, future plans and an assessment of employees’ situation.

While managing, planning, implementing, monitoring, analysing and controlling Company operations and activities, I advocate and request the implementation of the 4 eyes or more principle to the maximum extent.

I direct Company operations in the spirit of the Corporate Governance Code for Companies with Capital Assets of the State and in line with the Recommendations and Expectations of the Slovenian Sovereign Holding wherever possible and logical with respect to specific operations of ELES.

In 2017, a survey of employee satisfaction and climate was conducted. The results obtained in the survey are used to assess the regularity of actions taken by the Company management.

In 2015, the Company put in place a comprehensive corporate integrity system and has since complemented its risk management system annually, while obtaining independent and unbiased information and opinions on the internal control system or, rather, risk management measures with the help of internal auditing as the third line of defence.

In 2017, a great deal of time, activities and funds were dedicated to introducing corporate security, which is a very important area for ELES as the operator of the most important infrastructure in the country, since the Company is subject to very diverse risks due to its wide influence. Risks are not only perceived as possible safety occurrences and natural disasters in the country and the world, but also as diverse negative deviations in the environment or in-house that may pose a threat to any major function of ELES.

Using the annual business excellence self-assessment system as per EFQM, I monitor the fulfilment of the Company’s strategic objective to achieve a score of 600 points in 2020. With respect to self-assessment results in 2017, the Company is well on its way to achieving that strategic objective as well.

ELES is the pillar of sustainability in Slovenia. That alone highlights the Company’s outstanding corporate social responsibility. As the Company Director, I make every effort to set and identify all activities as sustainable.

Maintaining a balance between the three pillars of sustainability, economic and social development and concern for environmental protection is, however, often highly demanding in companies fully owned by the State. Expectations of certain stakeholders are often exaggerated due to the nature of ownership. In 2017, the cost of social responsibility was assessed in a responsible manner taking into account the importance of stakeholders for the development of ELES and its strong business sustainability.

I direct ELES towards a comprehensive mindset and added value for the key stakeholders in the short and long term, through cooperation and proactive search for synergies among activities/organisational units within the Company and with external domestic and foreign stakeholders. ELES introduced an integrated management system years ago and has continued to develop corporate reporting towards modern trends of comprehensive/integrated reporting in line with IIRC (International Integrated Reporting Council) principles. The goal is to make a clear and overall statement of the positive sustainable effects of the Company’s core operations wherever present.

Changes have been a permanent feature of Company operations for the past few years; however, I see employees as the most important permanent feature of ELES and place them at the core of value generation with their knowledge, ideas, engagement and commitment to ELES’s mission. Recently, employees’ flexible mindset and actions have grown increasingly important. That is vital for the future of electricity industry (not only for ELES as its backbone, but also for the entire Slovenian electricity industry) that serves electricity customers any hour and day of the year. That value is inadequately recognised by the public and deserves more exposure in future.

I believe that the content of this Annual Report is the best demonstration of my previously written claims, assessments and thoughts.

The Company failed to realise the acquisition of a 110kV network owned by other legal entities against payment. The reason for this was the disagreement of current owners that the selling price could not exceed the carrying amount as at the last day of the month in which the contract on transfer for consideration was concluded. The reason for such position of ELES are the provisions of paragraph 5 of Article 35 and paragraph 6 of Article 39 of the Legal Act on the methodology determining the regulatory framework and network charge for the electricity distribution system. If ELES purchased the assets at a value exceeding the carrying amount, it would have to impair the assets upon their capitalisation, which would decrease its net profit or loss. Hence, the Company will propose that the Energy Agency amend the indicated provisions in the new Legal Act to read as follows: “If ELES accepts an asset from an electricity operator that has already received depreciation and network charge for that asset, the electricity operator shall sell the asset at its carrying amount, otherwise the seller (electricity operator) would generate undue profit if the sales value of the asset were higher on account of a difference between the carrying amount and sales value. Other owners (electricity producers and customers) may, however, sell assets that are the subject of the acquisition and for which they received no depreciation and network charge at the estimated value.” Due to the failure to realise the acquisition of a 110kV network in the amount of €10.6 million, the Company recorded a poorer net profit in relation to the regulatory methodology, i.e. by €0.6 million, €0.4 million of which due to unrealised return and €0.2 million due to lower recognised operating and maintenance costs. ELES made suitable preparations for the acquisition of the 110kV network, recruited additional human resources and purchased additional equipment as required.

The Long-Term Strategic Plan for 2016-2020 lays down a selection and target values of the key economic and technical indicators for monitoring performance during the term of the Long-Term Strategic Plan for 2016-2020. The Company defined 7 economic and 6 technical indicators. In 2017, target values were exceeded for 9 indicators, but not for 4 indicators, i.e. attainment of corrected regulated return, share of loss per MWh of electricity transmitted, investments per peak consumption and availability of telecommunications equipment for the purposes of the transmission network. The last two indicators involve only minimal deviations. Failure to achieve the corrected regulated return is the result of lower revenue generated from capitalised own products and services, lower profit from non-regulated activities than planned, and higher cost of services due to the engagement of external advisers for applications to EU projects for investment co-funding. The excessive share of losses on the transmission network is the result of incomplete transmission line between Divača and Nova Gorica at the section crossing Renče Municipality.