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KONČAR GROUP
CONSOLIDATED ANNUAL REPORT
31 DECEMBER 2021
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Consolidated Management Report and Corporate Governance Statement
Comment by Gordan Kolak, president of the Management Board
Key performance indicators
KONČAR in 2021
Origin and history
Corporate profile of KONČAR Group
Mission, vision and core values
Corporate governance
Capital market
Social responsibility
Quality, Environment, Safety of people and information security
Employee relations
KONČAR Group financial operations
Operational risks
Business plan for 2022
Events after the reporting period
Statement of Management’s responsibilities
Independent Auditor’s Report to the Shareholders of KONČAR – ELECTRICAL INDUSTRY Inc.
Consolidated financial statements:
Consolidated statement of profit and loss
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes in equity
Notes to the consolidated financial statements
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9
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Table of contents
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+66%
+18%
+17.0% +59.8%
+223 bps
+11.5%
Net profit
Sales revenue EBITDA
EBITDA margin Export sales
Double-digit growth rates
Compared to 31 December 2020
Compared to 2020
Compared to 2020
Compared to 2020
Compared to 2020
Compared to 2020
Backlog
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Key performance indicators
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Consolidated Management Report and Corporate Governance Statement
The year in which we celebrated our century of excellence ended with a double-digit growth
in all key performance indicators. Record-breaking revenue growth, combined with a signifi-
cantly greater profit compared to 2020, not only met, but also exceeded our planned targets.
KONČAR Group 2020+ Integral Strategy has set a clear direction for the Company’s future
business performance.
In 2021 KONČAR Group’s operations showed a great resilience and stability, achieving the
best results in the history of the Company. During 2021, the macroeconomic environment
was still under the great impact of the COVID-19 pandemic, which was reflected primarily
in the supply chains disruptions and in soaring prices of key raw materials and commodities.
Nevertheless, KONČAR Group’s timely measures and activities have mitigated the negative
effects on the performance. Strong financial position, great order intake, adaptability to cu-
stomers and suppliers, enabled us to meet our deadlines and regularly fulfil payment obliga-
tions, contributing to growth in the number of new orders and allowing us to continue with the
positive performance trend in 2022.
Excellent results and great order intake are the basis for continued growth
Total revenue generated in 2021 amounted to HRK 3,602 million, representing an increase of HRK 536.9 million (17.5%) com-
pared to 2020. Revenue generated from sales of products and services in international markets amounted to HRK 2,062.7
million, representing an increase of 11.5% year-on-year. The share of exports in revenues from sales of products and services
amounted to 60%, two thirds of which pertained to EU countries. This is a good indicator of the fact that KONČAR Group’s
products and solutions are certainly competitive in the area of electrical power and rail solutions. The Company generated
operating profit (EBIT) in the amount of HRK 194 million, which was double than the 2020 EBIT. EBITDA amounted to HRK
291.3 million, representing an increase of HRK 108.5 million year-on-year. EBITDA margin is 8.4% New order intake amounted
to HRK 4,238.5 million. Book-to-bill ratio, order intake in comparison to orders realised in 2021, stands at 1.22. Backlog at the
end of 2021 amounted to HRK 5,008.1 million, which represents an HRK 760.5 million (17.9%) increase compared to the value
at the start of the year.
Numerous contracts were performed and concluded in 2021, both in the domestic and international markets. A contract valued
HRK 330 million was signed with Hrvatska elektroprivreda for the replacement of primary equipment at Senj Hydro Power Plant.
KONČAR’s trams were commissioned in the city of Liepāja, commencing the performance of a contract for the delivery of a total
of 14 trams for this Latvian city - 10 of which were delivered by end of 2021. A contract for delivery of three generators for two
small hydro power plants in Japan marked the Company’s further step forward in the Asian market. A project worth HRK 57.2
million was contracted for the future production and R&D facilities of Rimac Automobili. The contract includes the construction
of a substation, relocation of the existing overhead power line Rakitje - Tumbri 3 and the construction of a new overhead connecti-
on line. Works also commenced in North Macedonia on the construction of a 400/110 kV substation in Ohrid. The substation will
enable international connection with neighbouring Albania, which will further strengthen the region’s power system. An HRK 63
million contract was signed with Vattenfall Eldistribution, the Swedish distribution system operator. The contract includes a very
complex reconstruction of a facility at the Finnslätten substation in Västerås. Long-standing cooperation with ZET (Zagreb Ele-
ctric Tram) continued with the signing of a two-year framework agreement for the maintenance of low-floor trams. The signed
framework agreement is in line with KONČAR’s business strategy to build long-term relationships with its customers, important
to ensure the best performance of KONČAR products during their life cycle.
KONČAR Group Integral Strategy
Following the pandemic breakout, which almost brought the entire world to a halt at one point, the economy has been recove-
ring and life is slowly beginning to return to normal, which has resulted in a great increase in demand for and consumption of
electricity. Recognising these trends in the area that is closely connected with the Group’s core business activities, identifying
the Group’s strengths and weaknesses, and having a clear vision of future development and objectives are processes that
require continuous adaptation of business models. KONČAR Group 2020+ Integral Strategy sets the development direction
and the strategic objectives which contribute to KONČAR Group utilising all its potentials and defining its strategic priorities
for the upcoming period. The strategy lays down the main objectives defined as the new dimension of development. The
Comment by Gordan Kolak, President of the
Management Board
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Consolidated Management Report and Corporate Governance Statement
Strategy includes a compelling new four-year development and investment cycle, improvement of employee qualification and
competencies structure through recruitment of a significant number of new engineers over the next four years, and a further
increase in exports through winning new key markets. By 2024, through expanding the portfolio of services and offering in-
tegrated solutions that have greater added value, the Group plans to generate consolidated revenue in the amount of HRK 4
billion, in terms of organic growth.
The 2020+ Integral Strategy is based on six levers of transformation that are intended to transform KONČAR into an even
more modern and agile company that has the ability to adapt to market trends at any given moment, primarily in electrical
power solutions, rail solutions and related infrastructure. The plan to turn this vision into reality is based on the identified
opportunities that will contribute to the growth of the overall performance and creation of new value, not only for KONČAR
and its stakeholders, but for the society as a whole.
Recapitalisation of Dalekovod
In 2021, KONČAR expressed interest and became involved in the process of financial restructuring of Dalekovod through a
potential capital injection, specifically by investing in the company’s share capital, together with Construction Line. By parti-
cipating in the process of financial restructuring of Dalekovod, KONČAR has recognized an opportunity for future growth and
development which is related to reconstruction and modernization of the power grid for transmission and distribution. The
complementarity of the product ranges of KONČAR and Dalekovod will enable the expansion of the portfolio of services and
comprehensive solutions and increase the share of revenues from exported services and solutions, with greater added value.
Appreciation for all the employees and shareholders
The excellent results achieved are the result of the efforts of all employees across all our facilities. Their commitment and
exceptional dedication, teamwork, competencies, and wide expertise have created a foundation that enable us to deliver ex-
cellent results. I would also like to thank our shareholders for the trust they have placed in us, as well as to our suppliers, bu-
siness partners, and customers. Our efforts would not have yielded such results had it not been for their loyalty and support.
Investment in new technologies, new manufacturing processes and in employees is the path that we continue to take in our
business operation, to the satisfaction of all our stakeholders..
mr.sc. Gordan Kolak
President of the Management Board
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Normalised EBITDA
1
: EBITDA decreased by the net effect of provisions, assets sale profits, loos compensation revenue, and increased by value adjusment of non-
current and current assets.
Cash balance, loans and backlog
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: balance as at 31 December 2021
in HRK 000 2019 2020 2021 ∆ 2021/2020 CAGR
2021/2019
Operating income 2,876,986 3,026,268 3,554,258 527,990 117,4 11.1
Sales revenue - total 2,810,951 2,972,558 3,477,453 504,895 117,0 11.2
Sales revenue - export 1,650,471 1,849,589 2,062,733 213,144 111,5 11.8
Operating expenses 2,834,974 2,941,063 3,360,266 419,203 114,3 8.9
Operating profit 42,012 85,205 193,992 108,787 227,7 114.9
Operating margin 1.5% 2.9% 5.6% +bps 271 93.2
Net profit 52,052 127,576 211,391 83,815 165,7 101.5
Amortization 91,487 97,546 97,285 -261 99,7 3.1
EBITDA 133,499 182,751 291,277 108,526 159,4 47.7
EBITDA margin 4.7% 6.15% 8.38% +bps 223 32.8
Normalised EBITDA
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154,354 190,829 306,837 116,008 160,8 41.0
Normalised EBITDA margin
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5.5% 6.4% 8.8% +bps 240
Cash balance (deposits + cash)
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662,635 820,008 725,516 -94,492 88,5
Loans (long-term + short-term)
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327,893 230,087 305,214 75,127 132,7
Order intake 3,079,211 3,734,951 4,238,487 503,536 113,5 17.3
Backlog
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3,485,203 4,247,593 5,008,076 760,483 117,9 19.9
Book-to-bill ratio 1.10 1.26 1.22
Key performance indicators
2021 was a volatile year in which KONČAR achieved record results. On the one hand, investments in the electric power sector
have increased, which is an opportunity for KONČAR, while on the other hand, supply chain disruptions, soaring prices of raw
materials and energy have made business more challenging. As a result of good cooperation with our suppliers, we were able
to meet delivery terms and grow our order intake.
Below you will find a short overview of major completed projects and new contracts for the upcoming period.
January
• We marked the centenary of business operations with a donation of HRK 100,000 to Topusko High School in the earthqu-
ake-affected area. During the jubilee year, together with donations, many press releases, interviews, events and more, a
documentary film was prepared conceived as a short overview of KONČAR’s rich history and a monograph
100 years of
KONČAR - People and Work
was published.
• KONČAR - Distribution and Special Transformers was the first in the world to produce and test a transformer filled with
the new biodegradable and sustainable insulating liquid Nytro BIO 300X, which boasts better cooling characteristics. Aware
of the importance of a sustainable and clean environment in manufacturing, more and more environmentally friendly raw
materials are selected, products are ecologically designed while clean, safer and healthier processes are being introduced
into manufacturing.
KONČAR in 2021 - major completed projects
and new contracts
Consolidated Management Report and Corporate Governance Statement
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February
• Rehabilitation of 110/35 kV Prilep 1 in North Macedonia was completed.
• KONČAR - Motors and Electrical Systems delivered the first fans to the Chinese customer Siemens Energy Transformer
Jinan.
• KONČAR - Steel Structures commenced the delivery of the components of complex Phase shifter units for a long-term Dut-
ch customer. These include two interconnected transformer tanks, each of which has standard and test equipment. Each
unit weighs almost 60 tons.
• KONČAR - Generators and Motors delivered two vertical synchronous generators with the nominal power of 5.3 MVA to a
Malaysian customer.
March
• Trams manufactured by KONČAR - Electric Vehicles were commissioned in Liepāja.
• Reconstruction works of the USZMR system, PROCIS and the lubrication system of unit C at HPP Kraljevac were completed.
• Overhaul of unit 2 at HPP Rama in BiH was contracted.
April
• An agreement on SCADA / EMS system upgrades was signed with the Albanian transmission system operator.
May
• Contract for the replacement of primary equipment at HPP Senj worth HRK 330 million was signed.
• Design, manufacturing and supervision during the installation of three generators for two different small hydro power
plants in Japan was contracted.
June
• Almost 400 distribution transformers of 630 and 1000 kVA for the electricity distribution network operator HEDNO were
delivered, which marks the return of KONČAR - Distribution and Special transformers to the Greek market.
• An agreement worth HRK 57.2 million was signed for the construction of a 110/20 kV substation for the energy supply of
Rimac Campus, the future centre for R&D, battery and hyper-car manufacturing. The scope of the turn-key project also inc-
ludes relocation of the existing 110 kV power line Rakitje – Tumbri 3 and the construction of a new 110 kV cable connection
line.
July
• New low-floor electric train (EMV) was commissioned on the route Rijeka - Permani - Rijeka. The train was delivered to
HŽPP by KONČAR - Electric Vehicles pursuant to the April 2020 contract for the manufacturing of 12 EMVs for urban-su-
burban and regional mobility.
• The consortium consisting of KONČAR - Power Plant and Electric Traction Engineering (KET) and Colas Rail was awarded
the project of modernization of the tram infrastructure in the city of Osijek. The value of works in this part of the project
amounts to HRK 57.9 million.
• KONČAR - Generators and Motors contracted new projects with Sydkraft Hydropower for the rehabilitation of generators at
HPP Forsse in Sweden and with Électricité de France for the rehabilitation of HPP Saint Tulle II generator in France.
August
• As part of a Laboratory Centre at KONČAR - Electrical Engineering Institute, the construction of a multi-purpose laboratory
for large electrical machines and plants was launched. In addition to high-voltage, other electrical, mechanical and environ-
mental tests will be conducted in the new laboratory.
• In North Macedonia, the works on the construction of the new 400/110 kV Ohrid substation, which was contracted by
KONČAR - Power Plant and Electric Traction Engineering in 2020, were officially opened. The substation will enable an
international connection with neighbouring Albania at a 400 kV voltage level, which will further strengthen the region’s
energy system.
• KONČAR - Electrical Engineering Institute successfully completed the project
Safe human-robot interaction in logistic
applications for highly flexible warehouses (SafeLog)
within the Horizon 2020 programme. The aim of the project was to
enable safe interaction between humans and robots in flexible logistics centres.
September
• KONČAR – Power Plant and Electric Traction Engineering signed the inaugural contract for the Swedish distribution system
operator Vattenfall Eldistribution AB worth HRK 63 million. This significant contract in the field of transmission and distri-
bution was won against strong competition from renowned local companies.
• Liepāja tramvajs partnered up with KONČAR - Electric Vehicles once again placing an order for two more low-floor trams.
KONČAR – Electric Vehicles will deliver a total of 14 low - floor trams to Liepājas tramvajs.
Consolidated Management Report and Corporate Governance Statement
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October
• One of major steps forward of KONČAR Group is the establishment of KONČAR - Digital. Development and application of
digital technologies, primarily in the power industry, is of strategic interest for KONČAR. The new company will be based on
the knowledge and competencies that have been created over the last few years and will be the cornerstone of further deve-
lopment of digital technologies and solutions.
• KONČAR - Infrastructure and Services was awarded Green Prix - the national award for environmental protection for 2021.
• Contract was signed for the design, manufacturing, factory testing and transport of three generators with associated excita-
tion and monitoring systems, tools and devices along with spare parts and supervision of the installation and commissioning
for the HPP Nam Nam 3 project in Laos.
November
• KONČAR - Engineering successfully completed contractual obligations as part of the construction of the SVC plant at
400/220/110/10 kV substation Konjsko. The construction of the SVC plant at Konjsko substation marked the completion
of the third and final part of Croatia’s commitments in the European project of advanced networks Sincro.Grid. In addition
to KONČAR - Engineering, several Group companies participated in the implementation of this project including KONČAR -
Power Transformers, a joint venture between Siemens Energy and KONČAR, KONČAR - Instrument Transformers, KONČAR
- Switchgear and KONČAR - Electronics and Informatics.
December
• General overhaul of the motor-generator number 1 at SA SP HPP Čapljina was completed. PS HPP Čapljina is specific for
its 636-meter-long tunnel leading through the mountain massif which allows access to the underground engine room and it
boasts a 280-tonne motor generator.
• In mid - December KONČAR - Electric Vehicles delivered the tenth of fourteen contracted low-floor electric trams for public
transport in Liepāja, Latvia.
Awards and acknowledgements
• On the occasion of the centenary of business operations, the President of the Republic of Croatia Zoran Milanović, awarded
KONČAR - Electrical Industry with the Charter of the Republic of Croatia for exceptional and longstanding contribution to
Croatian economy and its promotion domestically and internationally.
• KONČAR was awarded the Charter of the Croatian Chamber of Commerce on the occasion of 100th anniversary of business
operations, as one of the leading Croatian exporters, which has established itself as a regional electrical power industry lea-
der. Four members of KONČAR Group have been awarded the Croatian Chamber of Commerce Zlatna kuna Award 13 times,
and the Croatian Sustainability Index Award seven times.
• KONČAR - Distribution and Special Transformers was awarded the Zlatna kuna plaque by the Croatian Chamber of Commer-
ce in the category of large companies for achieved business results and demonstrated financial, technological and innovative
excellence.
• At the 16
th
Convention of Croatian Exporters, two Golden Keys were awarded to Končar’s companies. KONČAR - Distribution
and Special Transformers was named the best major exporter in 2020, and the Golden Key in the category of the best expor-
ter to Qatar went to KONČAR - Energy Transformers (KPT), a joint venture of Siemens Energy and KONČAR.
• As part of the 13
th
Conference on Sustainable Development KONČAR – Electrical Engineering Institute was awarded the
Croatian Sustainability Index Award (HRIO) in the Human Rights category.
• In December 2021, KONČAR was also awarded Partnership for Sustainability Award by the UN Global Compact Network . The
Award aims to give a boost to businesses, employees, top management, and various levels of government for implementation
of sustainable strategies in operational standards.
Consolidated Management Report and Corporate Governance Statement
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KONČAR’s operations are divided into four business segments which are based on the complementarity of the business and
product range, market segmentation and customer categorization. The main business segments are power generation, power
transmission and distribution, rail solutions and infrastructure, and digital solutions and platforms. The Group consists of the
parent company Končar - Electrical Industry Inc. and seventeen group members, predominantly manufacturing companies,
two affiliated companies and two joint ventures.
Today, KONČAR generates almost HRK 3.6 billion in total revenues, 60 percent in international markets and employs 3,640
people.
Origin and history
KONČAR Group corporate profile
KONČAR began its history back in 1921 from a workshop in Trešnjevka, Zagreb and today it is known as the regional leader in the
electric power industry and rail solutions. KONČAR’s growth is based on technology, knowledge and clear goals, and has greatly
driven the development and the future of the Croatian electric power industry. Many generations of KONČAR workers poured their
work and enthusiasm into creating the company’s reputation, initiated numerous new ideas and drove the Croatian economy forward.
With exports that began back in 1952, throughout its rich history KONČAR has delivered equipment and products to all continents
across the world, which is an indicator of competitiveness and the high level of quality and reliability. The USD 6.7 billion exports
realized during the century of excellence speak of the quality, reliability and constant technological progress.
Mission, vision, core values
Inspired by challenge, we
develop modern solutions for the
electrical industry; we contribute
to local manufacturing and energy
sustainability of the society.
An innovative partner for
advanced solutions on the path
of green energy transition and
mobility.
• Market orientation
• Agility
• Collaboration
• Innovation
• People development
OUR MISSION OUR VISION
OUR CORE VALUES
1921 1946 2021
1921 1991
ELEKTRA Inc. Siemens Inc. RADE KONČAR
KONČAR - Electrical
Industry Inc.
Consolidated Management Report and Corporate Governance Statement
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Application of corporate governance principles
The shares of KONČAR - Electrical Industry Inc. are listed on the Official Market of the Zagreb Stock Exchange. The Company
applies the Corporate Governance Code of the Zagreb Stock Exchange and the Croatian Financial Services Supervisory Agency
(HANFA). The Code is available on the websites of the Zagreb Stock Exchange (www.zse.hr) and HANFA ( www.hanfa.hr ).
In line with statutory regulations in force, KONČAR – Electrical Industry Inc. prepared a 2021 Corporate Governance Statement,
confirming that its operations and development adhere to corporate governance best practices in all business segments. The
Corporate Governance Statement is available on the Company website (www.končar.hr), the websites of the Zagreb Stock Ex-
change (www.zse.hr) and HANFA (www.hanfa.hr). However, some corporate governance elements differ in definition from the
Corporate Governance Code of the Zagreb Stock Exchange and HANFA. Exceptions and deviations from the Code are presented
hereinafter.
In addition to the applicable Corporate Governance Code of the Zagreb Stock Exchange and HANFA, KONČAR Group also applies
its own Corporate Governance Code, furthering the business transparency standards that comply with EU Directives. The Cor-
porate Governance Code defines the procedures for the activities of the Supervisory Board, Management Board and other deci-
sion-making bodies, ensuring avoidance of the conflict of interest, efficient internal controls and efficient accountability system.
The Management and Supervisory Boards adopted the Code of Conduct - the key document used to adopt and promote the
core corporate values of both the Company and the Group as a whole, as well as to promote corporate social responsibility. The
Company is a signatory of the Code of Business Ethics of the Croatian Chamber of Economy. By adopting the Code of Business
Ethics, the Company has undertaken to act in compliance with the principles of responsibility, truthfulness, efficiency, transpa-
rency, quality, good faith and observance of fair business practices towards business partners, business and social environment
and own employees.
By adopting and accepting the Code of Conduct, the Company has undertaken to promote equality of all employees, regardless
of their gender, age, nationality, ethnic origin, race, religion, language, social or economic status, sexual orientation, affiliation
to political or other organizations, pertaining to employment and work environment, including the requirements and selection
criteria for recruitment, promotion and professional development.
The description of key elements of internal controls and risk management is an important part of business operations, and those
elements are further outlines below. The composition and work of the Management Board, Supervisory Board and General As-
sembly and information about the Company’s shareholders are an integral part of the Declaration on Corporate Governance and
are described below. All of the documents are available on KONČAR website (www.koncar.hr).
The Company complies with the recommendations of the Code, with the exception of the provisions whose application is not
practical or not provided for in the applicable legal framework at a given time. Such exceptions are as follows:
• The Supervisory Board did not formally set a target for the percentage of women members on the Supervisory and Manage-
ment Boards (Article 14 of the Code). However, all the international and national standards pertaining to gender representation
and equality are implemented directly. At the moment, 22.2 percent of the Supervisory Board members are women. At Group
level, women account for 21 percent of the total number of employees.
• The Remuneration Committee performs all the tasks defined in Article 15 of the Code, with the exception of the oversight of
the Management board in the appointment process for the members of management boards of subsidiaries, which falls under
the competence of the supervisory boards of Group members.
• In the re-election process for the Supervisory Board members whose term of office ended in 2020, the materials for the Gene-
ral Assembly session did not include details of their attendance at the meetings of the Supervisory Board and its committees
during their previous term of office, or the conclusions of the most recent evaluation of their performance (Article 17 of the
Code). The Company will include this information in the materials for the General Assembly session next time it proposes the
re-election of an existing Supervisory Board member.
• The majority of the members of the Audit Committee are not independent (Article 27 of the Code). All the Audit Committee
members are also Supervisory Board members, therefore the Audit Committee is exempt from the requirement of indepen-
dence, as stipulated in Article 65, paragraph 7 of the Audit Act.
• Members of other committees are also not independent, and they are also members of the Supervisory Board.
• Remuneration Committee performs all the tasks defined in Article 50 of the Code, however decisions on the remuneration of
the members of the management boards in subsidiaries fall under the competence of their supervisory boards.
Corporate governance
Consolidated Management Report and Corporate Governance Statement
11
• The Company has failed to establish effective formal mechanisms to enable minority shareholders to raise questions directly
with the presidents of the Supervisory and Management Boards (Article 76 of the Code). The Company has established mec-
hanisms to enable minority shareholders to raise questions via e-mail address available to investors (ir@koncar.hr), in addition
to raising any questions directly with the Supervisory and Management Board Members at the General Assembly session.
• The Company does not use the means of modern communication technology for participation and voting in the General As-
sembly session (Article 79 of the Code), as in practice, the current manner of exercising votes has been shown to be the optimal
solution, mostly due to the existence of many shareholders with a small number of shares.
• Answers to the questions asked at the General Assembly session were not made freely available by the Company on its websi-
te (Article 82 of the Code). There were no questions asked by the shareholders attending the two General Assembly sessions
held in 2021. Had there been any, such questions and the answers to them would have been included in the Minutes of the
General Assembly session publicly available in the court register.
• Communication between the chairpersons and members of the committees and the Company’s stakeholders (suppliers,
buyers, etc.) is not provided for by the rules of procedure, and the purpose of the committees is to give recommendations
and proposals to the Supervisory Board. The Audit Committee is the exception to that rule and it communicates directly with
external and internal auditors (Article 87 of the Code).
Combating corruption and bribery
Members of the governing bodies, employees and business partners are familiar with anti-corruption policies and procedures and
observe the principles of the Code of Ethics in their business and day-to-day activities. KONČAR enjoys the reputation of a loyal
and fair business partner in the international market, and no cases of corruption have been reported at the Group level.
KONČAR - Electrical Industry Inc. has not made any direct or indirect financial or non-monetary contribution towards political
objectives to any state or beneficiary. KONČAR promotes and executes fair and transparent competition principles across its bu-
sinesses in dealing with all entities across all locations. Anti-competitive, antitrust or monopoly practices have not been recorded
in KONČAR Group.
Corporate governance organization
In line with the best practices, KONČAR has set out to achieve high corporate governance standards and transparency of opera-
tions as the only proper course of action, which is the basis for all business activities in the Group. Corporate governance stru-
cture is a two - tier board structure, composed of the Supervisory Board and the Management Board. Together with the General
Assembly, and pursuant to the Articles of Associations and the Companies Act, they constitute the three governance bodies of
the Company.
General Assembly
The General Assembly is a body that allows shareholders to exercise their rights in Company matters. The work of the General
Assembly, its authority and competence, shareholders rights and the manner in which they are exercised are set out in the Com-
pany’s Articles of Association, publicly available on the Company website (www.koncar.hr).
The General Assembly is responsible for the election and discharge of the Supervisory Board members, decides on the use of
profit, grants discharges to the Management and Supervisory Board Members, appoints auditors and decides on amendments
to the Articles of Association, increases and reductions of share capital and other matters as stipulated by the relevant acts.
In 2021, one session of the General Assembly was held. At the session held on1 June 2021, all items on the agenda were adopted.
The General Assembly passed a resolution on the discharge of the Management Board and the Supervisory Board, a resolution
on the distribution of the Company profit realised in 2020, a resolution on the appointment of auditors for 2021 and approved
the Report on the Remuneration for the Members of the Management Board and the Supervisory Board for 2020. All decisions
adopted at the General Assembly sessions have been published in accordance with legal regulations and are available on the
Company websites (www.koncar.hr) Zagreb Stock Exchange and HANFA websites.
Supervisory Board
In accordance with the Corporate Governance Code adopted by the Zagreb Stock Exchange and HANFA, applicable as of 1 Janu-
ary 2020, the Supervisory Board consists mostly of independent members who have no business, family or other relations to the
Consolidated Management Report and Corporate Governance Statement
12
Company, a majority shareholder or a group of majority shareholders, or a member of the Management or Supervisory Board or
a majority shareholder.
The Supervisory Board has nine members. Five members are appointed and recalled by the General Assembly, one member is
appointed by the employees as per the Labour Act and three members are appointed, in accordance with the Companies Act
(Article 256), by the shareholder Kapitalni fond d.d. for as long as it holds Company shares representing 25% plus one share in
the Company’s share capital. In the event of a decrease of the number of shares held by Kapitalni fond d.d., the number of Super-
visory Board members it appoints shall be reduced accordingly.
The Supervisory Board is responsible for the supervision of the management, represents the Company in dealings with the Ma-
nagement Board and adopts decisions on matters not falling under the General Assembly’s competence. The Supervisory Board
does not engage in direct management of the Company. Rather, the Supervisory Board directs the Management Board in matters
pertaining to the adoption of strategic decisions and setting a governance framework. The Supervisory Board has also been gran-
ted additional authorisations by virtue of the Company’s Articles of Association, stipulating that particular types of tasks can be
performed only with the prior consent of the Supervisory Board.
The President of the Supervisory Board is elected by the members of the Board, who are elected by the General Assembly. De-
puty President is elected by the appointed members of Kapitalni fond d.d., from among their own ranks. The Supervisory Board
members are appointed for a four-year term and may be reappointed. Members appointed by Kapitalni fond d.d. may be appoin-
ted for two consecutive terms at most.
Pursuant to the Decision of the General Assembly of KONČAR – Electrical Industry of 12 July 2016, monthly remuneration for
the Supervisory Board Members was determined in the gross amount of 1.5 average (gross) salary paid in KONČAR Group in the
month preceding the month of remuneration calculation. Every member of the Supervisory Board is entitled to a fixed monthly
remuneration starting from the date of appointment to that duty until the date of expiry thereof. In order to maintain their inde-
pendence and objectivity, remuneration of Supervisory Board members does not depend on the Company’s performance and
does not include variable remuneration.
The Remuneration report for the Members of the Management and Supervisory Boards includes information on the remunerati-
on amount, and it is drawn up pursuant to Article 272 of the Companies Act and the Company’s Remuneration Policy, and it will
be presented to the General Assembly for adoption.
Supervisory Board members in 2021:
Joško Miliša President of the Supervisory Board:
Darko Horvatin Deputy President of the Supervisory Board
Branko Lampl Member
Ivan Milčić Member
Maja Martinović Member
Ruža Podborkić Member
Mario Radaković Member
Zvonimir Savić Member
Danko Škare Member
In 2021, the Supervisory Board held fourteen meetings. The quorum at the meetings of the Supervisory Board requires five Su-
pervisory Board members. The Supervisory Board adjusted its functioning to the circumstances caused by the COVID-19 virus
and recommendations given by the Civil Protection Directorate, holding most of its meetings via teleconference or videoconfe-
rence.
All the members participated in decision-making at all the meetings, casting their votes by videoconferencing or in writing, as
provided for in the Rules of Procedure of the Supervisory Board.
The Management and the Supervisory Board closely cooperate in the best interests of the Company and the Group, through
joint meetings and other communication channels as necessary. The Supervisory Board was duly and regularly informed by the
Management Board on any business events of greater importance, the course of business operations, income and expenditure
and the general status of the Company and the Group. The Management Board submitted to the Supervisory Board quarterly, se-
mi-annual and annual business reports, within legally defined deadlines. The Supervisory Board adopted them unanimously and
without objections. In addition, the Supervisory Board was informed by the Management Board on corporate strategy, planning,
business events, risk management, compliance, any deviations of business events from the original plans and estimates, as well
as significant business transactions involving the Company and its subsidiaries and affiliates.
Consolidated Management Report and Corporate Governance Statement
13
The Supervisory Board evaluated the profile and competencies of individual Supervisory Board members and members of its
committees. The evaluation was carried out by the President of the Supervisory Board with the assistance of appropriate com-
mittees, without engaging an external auditor.
The Supervisory Board operates with the optimal number of nine members who all possess the knowledge, skills, as well as
professional experience required for the performance of their duties. Diversity aspect is taken into consideration by ensuring the
appropriate number of women members. Evaluation of the members of the Supervisory Board and its committees confirmed
that every member makes an efficient contribution, demonstrating commitment to their role and dedicating sufficient time to
their duties.
Administrative support in preparing Supervisory Board meetings is provided by the Company Secretary, in an efficient and timely
manner. Out of nine members of the Supervisory Board, two are woman, which makes 22 percent of the total number of mem-
bers. When making appointments, in addition to the necessary expertise of the candidates, the Supervisory Board also takes
diversity into account.
The Report on the Supervision conducted in 2021, prepared for voting at the General Assembly session, contains the following:
• The manner and the extent to which the Supervisory Board oversaw the management of the Company in 2021,
• Results of the review of annual financial statements prepared as at 31 December 2021,
• Auditor’s reports,
• Results of the review of the Management Board’s Report on the Company’s performance in 2021,
• Results of the review of the report on relations with the parent company and its subsidiaries and affiliates.
Supervisory Board committees:
Four committees operate within the Supervisory Board, providing support services to the work of the Board: Audit Committee,
Strategic and Business Development Committee, Appointments Committee and Remuneration Committee. Members of all the
committees are appointed from the ranks of the Supervisory Board.
Audit Committee
Audit Committee analyses financial statements in detail, supports the Company’s accounting department and sets up appropria-
te and efficient internal control systems in the Company. The Committee ensures the integrity of financial information, speci-
fically the validity and consistency of accounting methods used in the Company and KONČAR Group, including the criteria for
consolidated financial reporting of Group companies. Moreover, the Committee is tasked with monitoring the internal control
and risk management system with the aim of allowing the Company to identify, publicly disclose and appropriately manage the
major risks to which it is exposed.
Darko Horvatin is the Chairman of the Audit Committee, and Mario Radaković and Joško Miliša are members. In 2021, the Audit
Committee held five sessions. All the members of the Audit Committee participated in decision-making at all the sessions. At
the sessions, the committee members discussed, made decisions and gave recommendations to the Supervisory Board on the
following matters: reports on the implementation of the annual internal audit plan, implementation of the policy on the provision
of non-audit services for 2021, supervision of the statutory audit and consolidated and unconsolidated annual financial state-
ments for 2021, making recommendations for the adoption of those reports, and appointing auditors for 2021. The Audit Com-
mittee is independent in its work and most of its members possess the appropriate expertise in the field of accounting and audit.
Strategic and Business Development Committee
The Committee is tasked with providing support to the Supervisory Board as regards strategic planning, specifically: monitoring
and assessing the development and changes in the environment, evaluating the Group’s short-term and long-term objectives,
assisting with strategic decisions pertaining to acquisitions, joint investments, restructuring and development of strategic human
resources. It consists of five members. Ivan Milčić is the Chairman of the Strategic and Business Development Committee and
its members are: Branko Lampl, Zvonimir Savić, Joško Miliša and Maja Martinović. All members of the Committee also serve
as members of the Supervisory Board. In 2021, the Committee held 2 sessions and they were attended by all the Committee
members. In 2021, the Strategic Board discussed the KONČAR Group 2020+ Integral Strategy and referred it to the Supervisory
Board for adoption.
Consolidated Management Report and Corporate Governance Statement
14
Appointments Committee is a working body of the Supervisory Board formed for the purpose of preparing decisions to be made
by the Supervisory Board. The Appointments Committee is competent for holding discussions and submitting proposals to the
Supervisory Board regarding decisions on the appointment and election of Management Board members. The Committee is cha-
ired by Danko Škare, and Darko Horvatin and Ivan Milčić are members. All members of the Committee also serve as members of
the Supervisory Board. In 2021, the Committee held no sessions as it was not necessary.
Remuneration Committee outlines the content of Management Board member contracts and determines the structure of their
remuneration. The Committee is also in charge of drawing up the Remuneration Policy for the members of the Management and
Supervisory Boards. The Chairman of the Committee is Branko Lampl, and Maja Martinović and Ruža Podborkić are members. All
members of the Committee also serve as members of the Supervisory Board. In 2021, the Committee held 1 session, which was
attended by all the Committee members.
Management Board
The role of the Management Board in managing the Company’s operations is regulated by the Companies Act, the Articles of
Association and the internal regulations of Končar - Electrical Industry Inc. The Management Board carries out the duties with
due care and diligence of a prudent businessman taking into account the best interest of the Company and the shareholders.
The Company’s Management Board is the governing body solely responsible for overall business operations. It is appointed and
recalled by the Supervisory Board. The scope of work of the members of the Company’s Management Board is determined by: bu-
siness areas, activities and processes and markets. The Management Board is responsible for proper business risk management.
At its regular meetings, it reviews the Company’s economic, environmental and social impact.
At its regular meetings, the Supervisory Board evaluates the performance of the Company’s Management Board and the Mana-
gement Boards of Group companies based on key performance indicators and the maintaining and building of a positive reputa-
tion of the Company. Through their membership in the Supervisory Boards and General Assemblies, and based on other rules
adopted, Management Board members coordinate, direct, supervise and monitor performance in KONČAR Group companies.
Members of the Management Board of KONČAR – Electrical Industry do not receive remuneration for their work in the Supervi-
sory Boards of dependent companies.
The Supervisory Board assessed that in 2021, the Management and Supervisory Boards cooperated effectively in the best inte-
rests of the Company, maintaining regular contact. The Supervisory Board was duly and regularly informed by the Management
Board on any business events of importance, the course of business operations, income and expenditure and the general status of
the Company. The Management Board regularly submitted to the Supervisory Board quarterly, semi-annual and annual business
reports, which were adopted by the Supervisory Board unanimously and without objections. The Management Board regularly
informs the Supervisory Board on corporate strategy, planning, business events, risk management, compliance, any deviations
of business events from the original plans and estimates, as well as significant business transactions involving the Company and
its subsidiaries and affiliates. The Management Board regularly submits legally prescribed reports to the Supervisory Board,
and in between its meetings, the Management Board duly informs the Supervisory Board of any important events relating to the
Company’s operations.
Self-assessment of the individual performance a member of the Management Board is an integral part of the annual process
of performance management and performance assessment of the members of the Management Board. Moreover, pursuant to
Companies Act, the General Assembly approves the manner in which the Management Board carried out the Company’s operati-
ons, by issuing a discharge for the previous business year.
Pursuant to the Articles of Association, the Management Board consists of three to seven members. Currently, the Manage-
ment Board operates with six members. Management Board members are appointed for an up to five-year term and may be
reappointed without any limitations regarding the number of terms. Every Management Board member manages the operations
in their respective business area individually, at their own responsibility, with due care and diligence of a prudent businessman,
and makes all their decisions only in the best interest of the Company. When deciding on key business policy matters or matters
relating to business areas of other Management Board members, a Management Board member must present such matters to
the Management Board, to be decided on by the Management Board as a whole.
The rights and obligations of Management Board members are defined by virtue of a Management Board Member Contract. The
Remuneration Report for the Members of the Management and Supervisory Boards with the information on the remuneration
amount, drawn up pursuant to Article 272 of the Companies Act and the Company’s Remuneration Policy, and it will be presented
to the General Assembly for adoption.
Consolidated Management Report and Corporate Governance Statement
15
Members of the Management Board in 2021:
Gordan Kolak President of the Management Board in charge of the energy segment
(electricity generation, transmission and distribution)
Ivan Bahun, Deputy President of the Management Board in charge of the rail solutions segment
Josip Ljulj Member of the Management Board in charge of the industry segment
Miki Huljić Member of the Management Board in charge of real estate management
Josip Lasić Member of the Management Board in charge of economics and finance
Božidar Poldrugač Member of the Management Board in charge of digital solutions, ICT and urban infrastructure
In the second year of the mandate, in addition to the planned regular activities, the Management Board defined and referred to
the Supervisory Board a proposal of KONČAR Group 2020+ Integral Strategy and carried out the merger of two Group mem-
bers that had operated in related segments (Končar - Power Plant and Electric Traction Engineering and Končar - Engineering
for plant installation and commissioning). In the 2021 spin-off, the digital segment was separated from Končar - Power Plant
and Electric Traction Engineering and a new company Končar - Digital was established. Development and application of digital
technologies, primarily in the electric power industry, is of strategic interest for KONČAR. In line with the adopted Strategy and
the new operational model of the Group, the Management Board of the Company carried out activities related to the change of
the legal form of Group members, whereby some of the companies were transformed from joint stock companies into limited
liability companies. The change allows more efficient and streamlined corporate governance process, i.e., provides preconditions
for the efficient establishment and implementation of the Group’s new operational model. In 2021, in agreement with the Chinese
partner, liquidation of the joint venture KONČAR - XD was carried out.
The Company’s Management Board operates with the optimal number of six members. All Management Board members posse-
ss the knowledge, skills, as well as professional experience required for the performance of their duties. Every member makes
an effective contribution, demonstrating commitment to their role and dedicating sufficient time to their duties.
Internal audit
KONČAR Group Internal Audit Department operates as an independent audit and controls system. It informs the Management
through comprehensive reports on performed audits (providing findings and recommendations for improvements). The Internal
Audit Charter was adopted in October 2018. It defines the scope of activities and main principles applied in the work of KONČAR
Group’s Internal Audit Department.
The Department is responsible for assessing risk management levels in business processes and audits the efficiency of the
controls system with the aim of improving risk management and procedural compliance. It is in charge of scrutiny and analysis
of compliance of the existing business systems with adopted policies, plans, procedures, legislation and regulations which might
have a significant impact on business reports. Internal Audit recommends preventive measures in the area of financial reporting,
compliance, operations and controls system in order to eliminate risks and possible failures which might lead to process ineffi-
ciencies or fraudulent practices. The Internal Audit Department informs the Management Board, the Audit Committee and the
Supervisory Board about its work and the audit plan. The findings and recommendations allow the Management to improve the
processes, pre-emptively eliminate potential risks or reduce them to acceptable levels. In 2021, several audits were carried out
in the areas of sales processes, procurement, inventory management, due diligence processes in companies that were merged.
The Overview of Findings and Recommendations outlines detailed findings and recommendations for all the performed audits
with deadlines and status reports. The report on the conducted audits was submitted and adopted by the Audit Committee.
Consolidated Management Report and Corporate Governance Statement
16
Capital market
Ownership Structure
The shares of KONČAR – Electrical Industry Inc. are listed on the Official Market of the Zagreb Stock Exchange. The shares
are identified by the symbol “KOEI-R-A”, ISIN: HRKOEIRA0009. KONČAR’s ownership structure is stable and diversified, with
the most significant share of 75.5 percent held by Kapitalni fond and voluntary pension funds.
Shares
In keeping with the Companies Act and Rules of Zagreb Stock Exchange, the Company ensures regular access to information
on operations and activities and information on any facts and circumstances that may affect the share price (price sensitive
information).
The share capital of the Company amounts to HRK 1,208,895,930.00 divided into 2,572,119 ordinary shares with a nominal
value of HRK 470.00. The Company owns 26,670 treasury shares, which is 1.04 percent of the share capital of the Company.
The Company applies the same conditions to all shareholders and treats them equally irrespective of the number of shares
in their possession, their country of origin and other properties. Voting rights encompass all shareholders in that the number
of votes they are entitled to at the General Assembly equals the number of shares they have in their possession (one-share-
one-vote rule).
In 2021, in line with the resolution of the General Assembly, net profit in the amount of HRK 681,230.68 was allocated to legal
and other reserves. The remainder of the profit in the amount of HRK 6,131,076.02 and retained earnings from previous years
in the amount of HRK 8,632,528.18 were paid to shareholders through dividends. The dividend stood at HRK 5.80 per share.
In the first half of 2021, the capital market recorded strong growth, which slowed down in the second half of the year.
CROBEX10 achieved a growth of 16.0% and CROBEX grew by 19.6%. At the same time, Končar - Electrical Industry Inc. share
recorded a significant uplift of 55.2% (closing price).
On 10 December 2021, KONČAR – Electrical Industry Inc. and Interkapital vrijednosni papiri d.o.o. signed an Annex to the
Market Making Contract. Interkapital vrijednosni papiri d.o.o. will continue to engage in market making for the ordinary shares
of KONČAR – Electrical Industry Inc., KOEI-R-A, ISIN: HRKOEIRA0009, listed on the Official Market of Zagreb Stock Exchange.
Market maker’s services include issuing simultaneous buy and sell orders regarding company shares, in accordance with the
Rules of the Zagreb Stock Exchange. The market maker will continue to perform the tasks under the signed Annex until 31
December 2022.
HPB / KAPITALNI FOND Skrbni račun
ERSTE & STEIERMÄRKISCHE BANK d.d. / PBZ CO
OTP BANKA d.d. / ERSTE PLAVI OMF
OTP BANKA d.d. / AZ OMF
CERP / REPUBLIKA HRVATSKA
PRIVREDNA BANKA ZAGREB d.d. / RAIFFEISEN OMF
ZAGREBAČKA BANKA d.d. / AZ PROFIT OMF
KONČAR d.d.
OSTALI DIONIČARI
28.17 %
17.49 %
15.49 %
14.39 %
2.67 %
1.85 %
1.39 %
1.04 %
17.51 %
Consolidated Management Report and Corporate Governance Statement
17
KOEI-R-A 31 December
2020
31 December
2021
Index
Final price (HRK) 580.00 900.00 155.2
Highest price (HRK) 670.00 900.00 134.3
Lowest price (HRK) 430.00 580.00 134.9
Volume 95,131 91,767 96.5
Turnover (HRK) 51,579,683 65,270,145,00 126.5
Market capitalization (HRK) 1,476,360,420 2,290,904,100 155.2
EPS (HRK) 29.00 64.41 221.1
(profit of the parent company owner/weighted average number of shares
Investor relations
In 2021, KONČAR - Electrical Industry held regular webcast conferences following each release of business results. In addi-
tion to regular conferences, the Group participated in various domestic and international investment conferences and held
numerous meetings with domestic and foreign investors.
170
160
150
140
130
120
110
100
90
Share price indexes and ocal ZSE Index Crobex
2020-12-30
2021-01-30
2021-02-28
2021-03-31
2021-04-30
2021-05-31
2021-06-30
2021-07-31
2021-08-31
2021-09-30
2021-10-31
2021-11-30
HRK
155
120
KOEI-R-A
CROBEX
17
Consolidated Management Report and Corporate Governance Statement
18
Social responsibility
KONČAR fosters a comprehensive approach to corporate social responsibility, which includes care for employees, care for the en-
vironment and all the segments related to protection and conservation of natural resources, and cooperation with the community.
KONČAR systematically reports on its activities relating to corporate social responsibility to all its stakeholders, and detailed in-
formation can be found in the Corporate Social Responsibility Report (CSR Report), which has been published for sixteen years and
is available on the website www.koncar.hr/drustvena-odgovornost/izvjesca-o-drustveno-odgovornom-poslovanju/.The report was
prepared in accordance with the GRI Standards of the Global Reporting Initiative and the UN Global Compact Principles. Successful
implementation of those world-renowned reporting frameworks is proven by the fact that KONČAR’s CSR Report was also publi-
shed on their websites. Following the global trends in corporate social responsibility, the CSR Report also looks at the UN Sustai-
nable Development Goals of the 2030 Agenda and highlights the goals carefully integrated by KONČAR into its business activities.
Note:
Corporate Sustainability and Social Responsibility Report shall be available in May 2022. The obligation of the Company to report
on factors in line with the EU Delegated Act supplementing Article 11 Paragraph 3 (EU Taxonomy Regulation) shall constitute an
integral part of the Report.
Quality, environment, safety of people and
information security
An integral part of KONČAR’s business policy is meeting customer satisfaction by delivering quality and reliable products, protecting
the environment, protecting the health and safety of employees in the workplace, as well as information security. These policies are
implemented in the Group companies by applying and certifying management systems according to the requirements of international
standards ISO 9001 for quality management, ISO 14001 for environmental management, OHSAS 18001/ISO 45001 for occupational
health and safety management, ISO/IEC 27001 for information security management and ISO/IEC 50001 for energy management.
ISO 9001 Quality Management System has been certified in twelve Group companies. The core purpose of the system is related
to the management of all processes in the Company aimed at ensuring the quality of products or services and achieving customer
satisfaction. ISO 9001 Certificate, issued by authorised independent certification institutions, provides customers with a degree of
assurance concerning the capacity of an organisation to meet their demands. Nevertheless, customers have been increasingly enga-
ging in direct audits of their partners (by carrying out on-site verification of the quality of management system operations in order to
ensure the company’s capacity to deliver on their requirements and expectations), especially during pre-qualification process when
contracting certain products.
ISO 14001 Environmental Management System has been certified in fourteen Group companies. By applying this system, Group
companies continuously monitor and analyse various aspects of the environment while performing their business activities and
carrying out their processes, by looking into the environmental impact of products and services they deliver and taking adequate
measures to mitigate any adverse effects. ISO 14001 Certificate, issued by authorised independent certification institutions, assures
all stakeholders, ranging from central governments to local communities, of the Company’s responsible behaviour towards the
environment. KONČAR has defined an Environmental Management Policy, which is available on www.koncar.hr and which has been
communicated to all employees.
At the beginning of 2020, the Group company whose operations are related to infrastructure activities (KONČAR - Infrastructure and
Services) introduced the EMAS system and was entered in the national EMAS register. EMAS is a voluntary environmental management
system developed by the European Commission for organizations to assess, report and improve their environmental performance. Before
the EMAS system, ISO 14001 Environmental Management System and ISO 50001 Energy Management System had been introduced.
KONČAR - Infrastructure and Services was the first domestically-owned company in Croatia to be entered into the national EMAS register.
All the adopted principles are based on the regulations of the Republic of Croatia and the adopted international standards. KONČAR
accepts and applies international and local principles, charters and standards which contribute to a better quality of products, work
processes and manufacturing, as well as to the preservation and improvement of the natural and social environment.
OHSAS 18001/ISO 45001 Occupational Health and Safety Management System has been certified in nine Group companies. By
applying this system, Group companies continuously monitor and analyse workplace hazards and carry out measures for the pre-
Consolidated Management Report and Corporate Governance Statement
19
vention and mitigation of accidents which might lead to impaired health or death of an employee or to property loss. OHSAS 18001/
ISO45001 certificate issued by authorized independent certification institutions provides assurance to all stakeholders of the com-
pany’s implementation of legal and other measures aimed at ensuring a safe working environment and protecting employees from
work-related injuries.
ISO/IEC 27001 Information Security Management System has been certified in three Group companies. By applying this system,
Group companies have achieved information system, property and business information protection. ISO/IEC 27001 Certificate issued
by certified independent certification institutes proves that information security management system provides data protection under
the principles of secrecy, integrity and controlled availability, enables information security implementation and reduces fraud risk,
loss of information or unauthorized disclosure of information, improves the organization’s credibility and opens up business opportu-
nities for cooperation with customers aware of security needs.
ISO 50001 Energy Management System has been certified in two Group companies. By applying this system, Group companies ac-
hieve ongoing improvement of energy management, better resource and infrastructure utilization, and lower energy consumption i.e.,
lower costs, while at the same time limiting and controlling environmental impacts.
Energy efficiency is one of the most cost-effective ways of improving security of power supply and reducing the emission of green-
house gases and other pollutants. In order to determine the level of efficiency, energy audits of facilities used for non-manufacturing
activities of KONČAR Group companies were carried out (to determine current energy consumption and energy performance). All
facilities were assigned an appropriate energy efficiency class and energy efficiency improvement measures were put in place.
In addition to energy audits of facilities, energy audits of large enterprises were also carried out in order to determine and improve
energy efficiency (analysis of technical and energy performance of facilities, analysis of all technical and process systems, i.e., of
all manufacturing, transformation and distribution systems and consumption of energy sources). KONČAR Group companies which
were classified as large enterprises under the criteria set out in legal regulations have opted to avail themselves of the option to in-
troduce and certify ISO 50001 Energy Management System instead of the statutory obligation to conduct energy audits. All KONČAR
Group companies, irrespective of their size, are encouraged to introduce this system.
Customers and suppliers
A number of other standards have also been applied to individual products as per requirements specified by customers and users. Equ-
ipment and products manufactured by KONČAR Group for electricity generation, transmission and distribution require a high degree
of two-fold responsibility - primarily operational safety and reliability (so as not to generate additional problems in electricity supply)
and protection of the environment in which such equipment is installed. Apart from the above, passenger transport must also contain
a safety feature as a key characteristic of trains and trams manufactured by KONČAR, along with a major environmental component.
As KONČAR Group bears immense responsibility for the products it offers to the market, it has been managing the entire manufa-
cturing chain by supervising the quality of individual manufacturing processes. KONČAR Group companies cooperate only with those
suppliers whose materials and components do not cause harm to humans and the environment and can be recycled after the end of
their life cycle or disposed of without endangering people or the environment. Selection of a supplier of individual materials and servi-
ces is subject to meeting defined quality levels, lead times and credit terms, taking into consideration occupational health and safety
and environmental protection. Suppliers are required to provide evidence (certificates) of compliance. KONČAR Group companies keep
a database of the existing and potential suppliers. In addition to basic information on suppliers (name, address, phone number, e-mail,
contact person), the database contains other data that might be relevant for the selection of suppliers, such as suppliers’ references,
information about complaints, information about the quality system, occupational health and safety and environmental protection.
Furthermore, investors that decide to construct facilities using equipment supplied by KONČAR are required to comply with envi-
ronmental protection regulation and standards. Aware of the environmental risk, KONČAR implements the Precautionary Principle.
This is particularly important as our products and facilities (substations, hydropower plants, other power facilities or rail vehicles)
are often delivered to areas of high biodiversity (rivers, lakes and rural areas). KONČAR’s products and equipment meet the highest
safety standards and have a minimal environmental impact, as evidenced by no recorded cases of complaints or incidents to date.
These management systems and compliance with the necessary standards enable the Company to perform its operations and to
achieve the main priorities of the Company:
• profit generation
• development and growth of the Company and Group companies
• ensuring high quality of life and work environment
KONČAR Group companies are users of ZelEn HEP - Opskrba products and use electricity produced exclusively from renewable
sources in their operations.
Consolidated Management Report and Corporate Governance Statement
20
Employee relations
Achieving KONČAR’s business goals and maintaining competitiveness is based on the experience, knowledge and innovation of the
employees. Successful human resource management ensures the acquisition, development, retention and rewarding of employees
who achieve the set goals and add value to KONČAR.
Employee satisfaction and good working conditions are the key factors of productivity and employee engagement. Human resources
management implies efforts to carry out research and analysis of factors contributing to employee motivation. For this reason, the
Company conducts individual interviews with employees and carries out employees satisfaction surveys, which provide the best
possible perspective on the perceptions, needs and preferences of each individual employee and indicate points for further improve-
ment. Based on the findings of such analyses, action plans are designed with the aim of creating a motivating work atmosphere that
contributes to employee wellbeing.
The newly-adopted Group Integral Strategy outlines human resource management as one of the core strategic objectives, including
transformation of the workforce through retention of young talents, talent management, development and upskilling through lifelong
learning and expansive recruitment of engineers.
Labour relations
All KONČAR Group employees are entitled to equal benefits proportionally to their length of service, irrespective of contract type,
race, gender and age. The Collective Agreement stipulates that all Group companies shall make payments for loyalty/service awar-
ds, 3 annual bonuses, a gift for children under the age of 15, various forms of allowances defined by the Collective Agreement, addi-
tional allowances for family needs, work-related injury insurance policy and the like.
Employees are also entitled to reimbursement for travel/commute costs and to non-taxable severance pay prior to retirement.
In order to develop the potential of all employees, KONČAR companies have systematically been conducting education and professi-
onal training in various ways: encouraging participation in formal education system, specialized on-the-job trainings such as foreign
language courses, with a great focus on presentation and communication skills, computer skills as well as developing and upgrading
other knowledge relevant for performance and professionalism.
At KONČAR, new employees are onboarded in the induction programme, Seminar for trainees and new employees. Since 2003, when the
onboarding seminar was launched, until 2020, twenty-nine were held, for slightly under 1,000 trainees and new employees. The participants
of the seminar learn about the organization, the full product range, references, marketing activities and promotion, social responsibility and
other activities at KONČAR, gain knowledge about the strength and the importance of synergy of the Group companies and labour relations.
Due to the epidemiological situation and the recommendations of Croatian Institute of Public Health the seminar was not held in 2021.
Gender equality
One of the core principles of business ethics at KONČAR is the principle of equality, respect for human rights and the dignity of all
people. Guided by the principles of professionalism, expertise and impartiality, job applications are not gender-biased and women and
men are employed equally, based on their qualifications, and are afforded equal opportunities for development and advancement.
All women employees are entitled to maternity and parental leave and all men employees are entitled to parental leave. All women
employees have resumed work upon completing their maternity leaves, while men employees have resumed work following their
parental leaves.
As at 31 December 2021, KONČAR employed 3,640 people. In the structure of employees, 79 percent are men and 21 percent are
women. Women make up 20 percent of 439 managers.
Employee structure
As at 31 December 2021, KONČAR employed 3,640 people. According to job type, 2,687 workers hold engineering / manufacturing
jobs (78 percent) and 777 workers (22 percent) hold administrative jobs.
Of the total number of workers, 68% are employed in engineering / manufacturing jobs, and among them the leading occupations are
in the field of electrical engineering (1,194 people) and mechanical engineering (1,132 people).
Consolidated Management Report and Corporate Governance Statement
21
In 2021 KONČAR employed 41 people holding PhDs, 43 people holding master’s degrees, 1296 university specialists and 107 specia-
list graduates. The share of employees holding higher education qualifications was 39 percent.
In 2021, the largest age cohort was 30 to 39, accounting for 30% of employees. The age group of 40 to 49 includes 25% of employees,
while people aged 50 to 59 make up 17.6% of the total number of employees. The smallest age cohort (5.5%) includes employees
between the ages of 19 and 24.
Employee turnover
In 2021 a total of 623 new workers were employed. A total of 519 workers left KONČAR during the reporting period, with the em-
ployee turnover rate at 14.5%. Year-on-year, in 2021, 190 more workers were employed, while 135 more workers left KONČAR Group.
Employee protection
Pursuant to the Whistleblower Act, the Management Board of KONČAR - Electrical Industry Inc., at the proposal of employees, has
adopted a decision to appoint a confidential person to whom irregularities are reported.
The confidential person monitors the implementation of the act governing the protection of whistleblowers and promotes complian-
ce with legal provisions and protection of whistleblowers, receives reports of irregularities, conducts internal reporting of irregula-
rities, protects the identity and data received from whistleblowers, provides whistleblowers with general information on their rights
and procedures, provides insight into the case file and keeps records of received reports.
In 2021, one irregularity was reported. After an investigation conducted by the confidential person it was concluded that it was founded, and
it was established that it could be resolved with the Employer and therefore there was no need to refer the irregularity to external bodies.
No case of racial, ethnic, gender, religious, political, national or social discrimination has been recorded during the reporting period.
Under the provisions of the Collective Agreement, the Employer has undertaken to protect employee dignity in the course of their
work, and to ensure working conditions in which employees will not be exposed to sexual and non-sexual harassment by the Em-
ployer, managers, colleagues, or other persons with whom employees come into regular contact in the course of their work.
Cooperation with the community
KONČAR has continuously engaged in cooperation with the scientific and professional community by identifying, defining and imple-
menting projects, on the basis of equal partnership, and has encouraged cooperation between the science, education and business.
We are particularly committed to encouraging educational excellence of young people, and we thus traditionally award prizes for the
best students of various universities and colleges, as well as awards for the best doctoral dissertations with industrial application.
Sponsorships and donations
As a socially responsible company, over the years KONČAR has endorsed and supported projects in science, sports, culture and the
arts, education of children and youth, environmental protection and humanitarian projects through donations and sponsorships. Spon-
sorship and donation activities that contribute to the development of society as a whole are an integral part of our business strategy.
When selecting projects to be donated or sponsored by KONČAR, the fundamental criteria are quality and originality, the benefits for
the local or wider community, alignment with the marketing strategy and a positive contribution to KONČAR’s identity and image.
Beneficiaries of donations and sponsorships can be natural persons and educational, cultural, sports institutions and clubs, associa-
tions and organizations that have a regulated legal status.
KONČAR does not donate or sponsor:
• Political parties and citizens’ associations that are organized with the aim of promoting political objectives,
• State bodies and institutions,
• Organizations and individuals in projects whose activities or implementation thereof promote racial, religious or any other form of
discrimination,
• Organizations and individuals in projects whose funding would lead to conflict of interest,
• Organizations and individuals who have harmed the work and reputation of the Company.
In 2021, KONČAR allocated HRK 2 million towards donations and sponsorships. Donations were primarily chandelled towards huma-
nitarian and social causes, while sponsorships were primarily channelled towards professional conferences and media promotion.
Consolidated Management Report and Corporate Governance Statement
22
KONČAR Group financial operations
Growth based on great order intake
Order intake
2019 2020 2021
in HRK million
a) Revenue from the sales of products and services
In 2021, revenues generated from sales of products amounted to HRK 3,477.5 million, representing an increase of HRK 504.9
million year-on-year.
Revenues generated from sales in the domestic market amounted to HRK 1,414.7 million, representing an increase of HRK
291.7 million year-on-year.
In the structure of products and services sales revenue in the domestic market, revenues generated from sales of products
and services to HEP Group members (HEP – Generation, HEP – Distribution System Operator and Croatian Transmission
System Operator amounted to HRK 638.5 million (18.4 percent of total revenue from sales of products and services). Re-
venues from the sales of products and services to HŽ Passenger Transport, HŽ Infrastructure and Rolling Stock Technical
Services amounted to HRK 341.9 million (9.8 percent of the total revenue).
Revenues generated from the sales of products and services in foreign markets amounted to HRK 2,062.7 million, represen-
ting an increase of HRK 213.1 million or 11.5 percent year-on-year. Exports account for 59.3 percent of the total product and
service sales revenue. By country, the most significant sales were realized in the German market, in the amount of HRK 410.9
million, accounting for 19.9 percent of the total exports (HRK 185.3 million increase year-on-year). Goods and services expor-
ted to Sweden amounted to HRK 273.5 million (13.3 percent of the total exports); to Austria HRK 148.2 million (7.2 percent of
the total exports). Compared to the same period in the previous year, apart from Germany and Austria, a significant increase
in revenues from export sales of products and services pertained to the following markets: Greece (an HRK 43.6 million in-
crease); Spain (an HRK
42.1 million); Latvia (an HRK 39.9 million increase); and the Netherlands with HRK 39.8 million more in goods and services expor-
ted year-over-year. Exports to the European Union rose by HRK 374.3 million year-on-year and in 2021 amounted to HRK 1,593.3
million. Revenues declined across all other continents as a result of travel restrictions and restrictions of direct contacts with cu-
stomers during the lockdown and travel disruptions (primarily in container shipping). Somewhat better revenues were generated
in the regional markets, amounting to HRK 100.5 million or HRK 26.6 million more than in 2020. Year-on-year, higher order intake
was recorded across all markets. Higher order intake impacts on sales results are expected in the upcoming period.
3,079.2
3,735.0
4,238.5
CAGR
+17.3%
Book-to-bill ratio
1.22
2019 2020 2021
in HRK million
2,811.0
2,972.6
3,477.5
CAGR
+11.2%
Sales revenue
2019 2020 2021
in HRK million
2,811.0
2,972.6
3,477.5
Sales revenue
4,000.0
3,500.0
3,000.0
2,500.0
2,000.0
1,500.0
1,000.0
500.0
0
Consolidated Management Report and Corporate Governance Statement
23
Export by regions (2021)
Export in total
sales revenue
60%
EU countries in HRK million
Germany 410,9
Sweden 273,5
Austria 148,2
Non-EU European countries in HRK million
Great Britain 42,7
Norway 40,4
Switzerland 22,9
Neighbouring countries in HRK million
North Macedonia 49,1
Bosnia and Herzegovina 31,0
Serbia 8,0
Asia and Africa in HRK million
UAE 36,9
Philippines 12,3
Malaysia 9,3
America and Australia in HRK million
USA 23,0
Australia 22,8
Canada 12,2
Germany
Sweden
Austria
Latvia
Netherlands
Hungary
Spain
Finland
North Macedonia
Greece
Bulgaria
Great Britain
Czech Republic
Italy
Norway
0 100,000 200,000 300,000 400,000
in HRK million
EU 77%
Asia and Africa 8%
America and Australia 4%
Non-EU European countries 6%
Neighbouring countries 5%
Consolidated Management Report and Corporate Governance Statement
24
b) Revenues from the sales of products and services by product group
In 2021, companies in the transformer segment generated sales revenues in the amount of HRK 1,565.6 million, which was
HRK 233.9 million growth year-on-year. The transformer segment accounts for 45 percent of the total sales revenues. Out of
the total sales revenues, 86% was generated in export markets, mostly in the EU.
Companies operating in the transformer segment place most of their products in the EU market (86 percent).
Companies operating in the engineering segment generated revenues in the amount of HRK 681.5 million, which represents
an HRK 77.8 million decline year-on-year. Lower revenues were generated mainly due to the shift in deliveries and extensions
of some contracts in 2022, at the request of customers.
Revenues generated in the rail solutions segment amounted to HRK 449.1 million, which is an HRK 297.2 million rise ye-
ar-on-year.
Revenues generated by the companies operating in the rotating machines segment were HRK 323.3 million, which is HRK 44.7
million growth year-on-year. Companies operating in the segment of industrial electronics and rail vehicles generated sales
revenues in the amount of HRK 143.3 million, which is HRK 10.9 million increase year-on-year.
Index
HRK 000
2020 2021 ∆ 2021/2020
Transformer segment 1,331,729 1,565,631 233,902 118
Engineering 759,350 681,532 -77,818 90
Rail vehicles 151,870 449,080 297,210 296
Rotating machines 278,569 323,273 44,704 116
Industrial electronics and
development
132,417 143,310 10,893 108
Other*
318,623
314,627 -3,996
99
Sales revenue
2,972,558 3,477,453 504,895 117
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
EngineeringTransformer
segment
Rotating
machines
Rail vehicles Idustrial
electronics and
development
2020
2021
HRK 000
Note:
*“Other” relates to sales revenues of the companies whose activities are not classified under specific groups of products and services stated in the table above.
c) Order intake in 2021 and backlog as at 31 December 2021
In 2021, KONČAR Group companies contracted new projects worth HRK 4,238.5 million. Compared to 2020, the value of
contracted projects as of 31 December 2021 was HRK 503.5 million (13.5%) higher. Book-to-bill ratio for the period January
– December 2021 was 1.22.
Other
Consolidated Management Report and Corporate Governance Statement
25
3,079.2
3,735.0
4,238.5
Out of the total amount of order intake, HRK 1,663.9 million (39.2% of total order intake) pertains to the Croatian market,
whereas HRK 2,574.6 million (60.8% of the total order intake) pertains to export contracts. In terms of the order intake in the
Croatian market, the most significant portion in the amount of HRK 1,062.1 million pertains to the contracts for HEP Group
(HEP – Generation, HEP – Distribution System Operator, HEP Transmission System Operator), representing 25.0 percent of the
total order intake in 2021. Of the total order intake for HEP, the most significant amount pertains to the contract for the repla-
cement of primary equipment at HPP Senj. Contracted works and equipment worth HRK 330 million constitute the main part
of the HPP Senj reconstruction project, which will increase the rated capacity of the plant by 20 MW. The works are expected
to commence in 2022 and to be completed in 2026. Two significant contracts in the domestic market include the contract for
Rimac Automobili in the amount of HRK 57.2 million and the framework agreement for the maintenance and service of trams
with Zagreb Holding in the amount of HRK 44.7 million.
In the period from January to December 2021, most order intake in the foreign markets pertained to EU countries, specifically
HRK 2,574.6 million, which was HRK 746.9 million or 40.9% percent increase year-on-year. Of the total order intake in foreign
markets, the majority pertains to the European Union countries, amounting to HRK 1,928.8 million, which is HRK 550.9 mi-
llion or 40.0 percent more than contracted in 2020. The most significant growth in order intake was recorded in the German
market (HRK 204.0 million more), Swedish market (HRK 112.5 million more) and Italian market (HRK 57.6 million increase
year-on-year). The share of the European Union countries in the total order intake in exports stands at 74.9 percent. Following
a downturn in contracting in 2020, in 2021 there was an upturn in order intake across all other markets. Order intake in non-EU
countries amounted to HRK 222.3 million and increased by HRK 94.1 million. In the regional countries, order intake was HRK
44.6 million higher compared to 2020. In the Americas and Australia, order intake grew by HRK 38.4 million. Order intake in
Asian and African countries was HRK 18.9 million higher year-on-year and amounted to HRK 203.0 million. In terms of delivery
dynamics, HRK 1,425.9 million or 33.7 percent of order intake was contracted for realization in 2021, and HRK 2,022.2 million
(47.7 percent) was contracted for realization in 2022, while HRK 790.4 million or 18.6 percent of order intake was contracted
for delivery after 2022.
The status of order intake (backlog) as at 2021 year end amounted to HRK 5,008.1 million, representing a 17.9% increase com-
pared to the value at year start. Backlog at the end of 2021 is higher by HRK 760.5 million year-on-year (HRK 4,247.6 million
as at 31 December 2020).
6,000
5,000
4,000
3,000
2,000
1,000
0
31/12/2018
Backlog
Croatia
Export
1,732.7
1,639.1
1,610,9
1,786,3
1,848,0
2,399.6
2,359.6
2,648.4
31/12/2019 31/12/2020 31/12/2021
in HRK million
2019 2020 2021
in HRK million
Order intake
4,500.0
4,000.0
3,500.0
3,000.0
2,500.0
2,000.0
1,500.0
1,000.0
500.0
0
Consolidated Management Report and Corporate Governance Statement
26
Key indicators of the profit and loss account for 2021
Business operations in 2021 continued to be affected by the COVID-19 pandemic, which primarily affected supply chains and
rising prices of key commodities and raw materials.
In addition to challenges faced in the supply of materials, there was a disruption and a significant increase in the cost of tran-
sport (primarily container shipping). Despite the challenges, the Group continued to operate successfully in 2021.
Total generated consolidated operating income amounted to HRK 3,602.7 million, representing an increase of HRK 536.4
million or 17.5 percent year-on-year.
Operating revenues amounted to HRK 3,554.3 million, which is 17.4 percent higher year-on-year.
Operating expenses amounted to HRK 3,360.3 million and are 14.2 percent higher year-on-year. With reference to operating
expenses, material costs (cost of raw materials and commodities, costs of goods, services and energy sold) amounted to HRK
2,379.4 million. In 2021, there was a surge in the prices of main commodities and raw materials, in particular those related
to the transformer segment (copper, aluminium, transformer sheet, transformer oil, steel), which was reflected in the rising
costs of commodities and raw materials. Savings were realised from the costs of goods sold and other costs, which are HRK
25.8 million less year-on-year. The Group has continuously taken measures and activities to mitigate the significant impact of
the price surge on operations.
Staff costs in the amount of HRK 729.6 million exceed 2020 by HRK 43.6 million. The rise in staff costs was primarily caused
by the increase in the overall number of employees. At year end, the total number of employees was 3,640, which is 179
workers more than at the end of 2020.
Net financial result is positive and amounts to HRK 5.1 million. In the comparative period, it amounted to HRK 7.2 million. This
is mostly related to fluctuations in foreign currency exchange rates in the largest markets for the Group.
All Group members with the exception of KONČAR – Renewable Sources, achieved positive results in 2021. KONČAR – Re-
newable Sources realised positive results in the course of regular operations, and following impairment of tangible assets it
ended the year at a loss.
Net profit for the period January - December 2021 amounts to HRK 211.4 million, of which non-controlling interest (minority
interest) is attributed a profit of HRK 47.4 million (compared to HRK 53.7 million year-on-year) and parent company sharehol-
ders are attributed a profit in the amount of HRK 163.9 million (compared to HRK 73.9 million year-on-year). The consolidated
result of the Group is higher by HRK 83.8 million or 65.7 percent year-on-year. Operating profit (EBIT) amounted to HRK 194.0
million, representing a year-on-year increase of HRK 108.8 million. The operating margin was 5.6 percent and was almost do-
ubled year-on-year (it amounted to 2.9 percent in 2020). EBITDA amounted to HRK 291.3 million, representing a year-on-year
increase of HRK 108.5 million. EBITDA margin was 8.4 percent (it amounted to 6.1 percent in the same period of 2020).
Normalized EBITDA amounts to HRK 306.8 million and is HRK 116.0 million higher year-on-year. Normalized EBITDA margin
is 8.8 percent (it amounted to 6.4 percent in the same period of 2020).
Normalized EBITDA was calculated as reported EBITDA less the net effect of provisions amounting to HRK 11.5 million in
2021 (amounted to HRK 17.0 million in 2020), less the profit from the sales of non - operating assets in the amount of HRK 10.8
million (in 2020 it amounted to HRK 1.6 million), less the amount of insurance claims in the amount of HRK 10.4 million (HRK
7 million in 2020). Total value adjustment in the reporting EBITDA amounted to HRK 29.3 million. The increase in the amount
of HRK 44.9 million (in 2020 it amounted to HRK 37.1 million) relates to impairment losses on current and non-current assets.
Consolidated Management Report and Corporate Governance Statement
27
Consolidated profit and loss statement
Index
Item (HRK 000) 2020 2021 ∆ 2021/2020
OPERATING INCOME 3,026,268 3,554,258 527,990 117.4
OPERATING EXPENSES 2,941,063 3,360,266 419,203 114.3
Material costs and change in the value of inventories 1,983,851 2,346,778 362,927 118.3
Staff costs 685,997 729,606 43,609 106.4
Depreciation & Amortisation 97,546 97,285 -261 99.7
Other costs 136,561 141,735 5,174 103.8
Value adjustment of non-current and current assets 37,108 44,862 7,754 120.9
OPERATING PROFIT 85,205 193,992 108,787 227.7
SHARE IN PROFIT OF ASSOCIATED PARTIES 25,662 38,856 13,194
FINANCIAL INCOME 13,115 9,196 -3,919 70.1
FINANCIAL EXPENSE 5,963 4,134 -1,829 69.3
TOTAL INCOME 3,065,045 3,602,310 537,265 117.5
TOTAL EXPENSES 2,947,026 3,364,400 417,374 114.2
Profit before tax 118,019 237,910 119,891 201.6
Corporate tax -9,557 26,519 36,076
PROFIT FOR THE PERIOD 127,576 211,391 83,815 165.7
Shareholder’s profit 73,889 163,945 90,056 221.9
Non-controlling interest’s profit 53,687 47,446 -6,241 88.4
EPS (basic and diluted) 29.00 64.41 35.41 222.1
Statement of financial position
Key indicators of the balance sheet as at 31 December 2021
Compared to the balance at year end 2020, significant changes occurred in the following items:
Balance of total consolidated funds and sources of funds as at 31 December 2021 amounted to HRK 4,447.3 million, which is HRK
272.4 million or 6.5 percent higher year-on-year.
Inventories increased by HRK 198.4 million. In the structure of inventories, the amount of inventories of components and raw ma-
terials increased by HRK 132.3 million, the amount of work in progress increased by HRK 41.6 million, the amount of inventories of
finished and semi-finished products decreased by HRK 10.6 million, inventories of merchandise increased by HRK 0.7 million, the
amount of small inventory and packing increased by HRK 0.2 million, the amount of advances for inventories increased by HRK 34
million. There was an increase in inventories in all members of the Group and the most significant increase was in the companies
where increased deliveries are expected in the upcoming period (rail vehicles, transformer segment).
Total current receivables increased by HRK 143.3 million. There was a significant increase in receivables from customers and assets
recognized on the basis of acquisition costs in the amount of HRK 65.5 million. Receivables from advances paid for services increased
by HRK 20.2 million and other receivables increased by HRK 35.6 million.
Financial assets increased by HRK 225.4 million. The amount of deposits over three months amounts to HRK 121.1 million and is hig-
her by HRK 45.5 million compared to the end of 2020. Other financial assets amount to HRK 180.6 million and relate to the process
of share capital increase of Dalekovod.
At the Group level, the amount of cash balance decreased by HRK 319.9 million.
Total non-current assets held for sale amounted to HRK 52.9 million, which was HRK 44 million more than as at 31 December 2020.
KONČAR Group Integral Strategy has defined the sale of non - operating assets that are not considered to be part of the Company’s core
operations. The sale process commenced at the end of 2021 and non - operating assets are expected to be sold off by the end of 2022.
Total capital and reserves amounted to HRK 2,843.6 million, which is a HRK 173.1 million increase compared to the balance as at 31
December 2020.
Consolidated Management Report and Corporate Governance Statement
28
Non-controlling (minority interest) amounted to HRK 315.4 million, which is HRK 25.4 million more than as at 31 December 2020.
Non-current provisions amount to HRK 178.7 million and are higher by HRK 0.9 million compared to the end of 2020.
Non-current borrowings amount to HRK 104.9 million and are lower by HRK 18.2 million.
Current liabilities amount to HRK 1,320.1 million and are higher by HRK 116.6 million year-on-year.
In the structure of current liabilities, significant changes occurred in the items of liabilities toward banks and other financial instituti-
ons, which increased by HRK 75 million compared to the end of 2020, and liabilities towards suppliers, which increased by HRK 78.2
million. Current liabilities are less year-on-year in items warranty provisions (HRK 41.2 million less) and contract liabilities (HRK 53.8
million less).
Current assets are 2.2 times greater than total current liabilities. The structure of the consolidated balance sheet indicates a balance
between funding sources and investments and an overall financial stability of KONČAR Group.
Index
HRK 000
Summarised balance sheet
31/12/2020 30/12/2021 ∆ 2021/2020
Assets 4,174,893 4,447,304 272,411 106.5
Non-current assets 1,598,223 1,502,885 -95,338 94.0
Current assets 2,576,670 2,944,419 367,749 114.3
Liabilities 1,276,102 1,415,457 139,355 110.9
Provisions 228,271 188,205 -40,066 82.4
Noin-current liabilities
123,117 104,914
-18,203 85.2
Current liabilities 1,152,985 1,310,543 157,558 113.7
Equity 2,670,520 2,843,642 173,122 106.5
HRK 000 31/12/2020 31/12/2021. ∆
Current assets 2,576,670 2,944,419 367,749
Current liabilities 1,203,477 1,320,087 116,610
Current ratio 2,1 2,2
Current ratio
Capital expenditure (CAPEX)
Capital expenditure includes payments made for the purpose of acquisition of property, plant and equipment and other intan-
gible assets. The negative impact of COVID-19 on operations was also present during 2021, and a portion of the investment
plans were revised and planned investments that were not crucial for operations were postponed accordingly. Despite that,
CAPEX incurred in 2021 amounted to HRK 72 million. The most significant investments pertain to the project of construction
of a new laboratory and investments in equipment and machinery in manufacturing companies.
Net debt
Total loans (long-term and short-term) amount to HRK 299.9 million, representing a reduction by HRK 74.4 million compared to
the balance as at 31 December 2020. The Group has a low level of indebtedness to financial institutions and total loans account for
6.9% of total capital and liabilities.
HRK 000 31/12/2020 31/12/2021 ∆
Non-current liabilities to banks 120,406 100,912 -19,494
Current liabilities to banks 104,533 199,014 94,481
Financial assets 76,261 301,685 225,424
Cash and cash equivalents 743,747 423,831 -319,916
Net debt -595,069 -425,590 169,479
Normalised EBITDA 190,829 306,837 116,008
Net debt / normalised EBITDA neg neg
Consolidated Management Report and Corporate Governance Statement
29
Operational risks
KONČAR Group is exposed to various market-related and financial operating conditions. The business environment risk is
affected by political, economic and social conditions existing in markets in which the companies operate. Group companies
monitor all the risks and take measures to mitigate their potential impact on financial stability.
Pursuant to the Corporate Governance Code, which was drafted jointly by the Croatian Financial Services Supervisory Agency
(HANFA) and the Zagreb Stock Exchange and entered into effect on 1 January 2020, the Management Board of KONČAR –
Electrical Industry Inc. and its Supervisory Board adopted the Risk Management Policy in 2020.
In order to ensure effective risk management, all members of KONČAR Group operate in accordance with the following principles:
• Risk management is an integral part of the governance process.
• Risk management is an integral part of the decision-making process in the organisation.
• Risk management pertains to all activities that involve any uncertainty.
• Risk management is structured and timely.
• The risk management system is based on precise available information and data. Risk management is situation-specific.
• Risk management takes into account human and cultural factors.
• Risk management is transparent and inclusive.
• Risk management is dynamic and sensitive to change.
• Risk management supports measures and procedures conducted with the aim of improvement and development.
All Group companies regularly monitor and manage their balance sheets, liquidity and capital adequacies, set measures
focused on illiquidity cause, prevention or elimination, take measures focusing on companies’ sufficient long-term sources of
funding in view of the scope and type of their business activity, and regularly monitor capital adequacy level.
At Group level, long-term sources of funding (capital, long-term provisions and long-term liabilities) exceed non-current as-
sets and average inventory balance, which indicates a sound funding maturity structure. The structure of the consolidated
balance sheet indicates overall financial soundness of the Group.
The companies within the Group manage risks that might affect the Group’s operations by monitoring business processes and
internal reports on the risks to identify and analyse the exposure by degree and magnitude of risks.
Impact of COVID-19 pandemic
KONČAR Group’s operations in 2021 showed great resilience and stability, achieving the best results in the history of the Com-
pany. Complex macroeconomic environment is still under the profound impact of the COVID-19 pandemic, which has reflected
primarily in the supply chains disruptions and in soaring prices of key raw materials and commodities. Nevertheless, timely
measures and activities have mitigated the negative effects on performance.
All Group companies adhered to epidemiologic measures and guidelines provided by the Civil Protection Headquarters. Em-
ployees interested in getting all three doses of COVID-19 vaccine were able to do so at all sites.
In the last quarter of 2021 when the number of new cases increased, the Group imposed new measures, introducing shift work
in some companies and allowing work from home for office workers. Business meetings and contact with customers took
place via digital platforms, whenever necessary. In such extraordinary circumstances, special attention was paid to keeping
on board specific know-how and key staff, which resulted in the fact that the number of employees has not dropped, nor have
their earnings. Active financial control, cost monitoring, maintaining of liquidity and debt management made it possible for the
Group to maintain financial stability and for the defined operating plans to be realised.
Market Risk
Market risk emerges as a result of potential losses stemming from less-than-favourable economic conditions and decline in
market demand.
KONČAR Group operates domestically and internationally. The Group’s core activity is energy and mobility-related equipment
and products. The scope of production heavily depends on investments in those areas. Periods of straightforward contracting
of new business correlate with periods of increased demand. Conversely, contracting new business is more challenging in
periods of general recession and economic downturn, often coupled with a decline in profit margin.
Consolidated Management Report and Corporate Governance Statement
30
Due to the impacts of crisis and geopolitical instability in certain parts of the world, there is risk that some markets might
become limited or even completely closed, and as a result there is a growing tendency to award contracts to domestic enter-
prises.
In addition to volatile prices of key raw materials in 2021 in the power engineering equipment market, there has also been a
strong competitive pressure on the price of equipment and profit margins. Competitiveness of our products and services is
also impacted by changes of operating conditions for both the Group and our customers.
Management Boards of individual companies price their products autonomously.
Risk in the procurement market
Prices of key raw materials and commodities (copper, transformer sheet metal, steel ...) increased significantly, especially in
the first half of 2021. Raw material price increase severely affected Group companies dealing with transformers.
The Group implementing several measures to hedge against sudden price hikes of key raw materials. In case of copper, given
that it is listed on the London Metal Exchange, risk is mitigated by using forward contracts to negotiate with copper suppliers
on the quantities and prices for future periods according to stock and estimates of signed contracts. In case of transformer
sheet metal and some of the most crucial supply parts, risk is mitigated by employing semi-annual contracts with suppliers,
seeking to ensure necessary quantities. Also, certain long-term customer contracts employ a sliding formula based on mate-
rial price changes. Changes in the prices of materials are taken into account when preparing new offers.
Technological and development risks
Group companies have continuously invested significant assets in key technologies and strategically important segments of
production to mitigate risks of falling behind the competition in technology and development. In the upcoming period, KONČAR
Group companies are planning to invest significant resources in new product development and upgrade of the existing product
portfolio.
Human resources risks
Usual turnover and changes in the HR structure have not significantly affected the Group’s operations. Sudden or bigger turno-
ver of employees with specialist knowledge (e.g., EU labour markets opening to workers from Croatia) might affect business
operations. Continuous investments in training and financial incentives offered to key company employees tend to hedge
against HR risks.
Capital management risk
KONČAR Group manages capital to ensure operating as a going concern while maximising shareholder return through op-
timisation of debt-to-equity ratio. The Group manages capital and makes appropriate adjustments in line with changes of
economic conditions on the market and risk characteristics of its assets.
Foreign Exchange Risk
The functional currency of the Group is Croatian Kuna. However, certain foreign currency transactions are converted to Croa-
tian Kuna using the exchange rates in effect on the date of the balance sheet. Exchange rate differences that arise are credited
or charged to the profit and loss statement. The companies hedge against F/X risk by continuously planning and monitoring
their cash flow, contracting sales and procurement in the same currency where possible, adjusting inflow and outflow dyna-
mics by F/X forward purchases in accordance with cash inflows and outflows plan. Companies with a higher share of exports
in the total revenue employ financial derivatives to hedge against financial risk exposure, primarily in relation to EUR.
Interest rate risk
KONČAR Group companies are exposed to interest rate risk because a portion of the loans is subject to floating (variable) inte-
rest rates while the majority of assets are non-interest-bearing. By negotiating a fixed interest rate, companies avoid interest
rate risk. The Group has a low level of indebtedness and is not particularly exposed to interest rate risk. The estimated effect
of the realistically possible change in interest rates on the result is intangible.
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Credit Risk
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in a financial loss for
the other party. The Group has adopted a policy of dealing exclusively with creditworthy counterparties thus mitigating risks
of financial loss form defaults. The Group uses data and opinions collected from specialized credit rating companies or the
Chamber of Commerce, as well as publicly released information on the financial position of customers and its own database
to rank key customers. The Group’s risk exposure and changes in credit ratings of its partners are continuously monitored. In
principle, transactions are contracted with creditworthy partners and appropriate payment security instruments (L/C, gua-
rantees, etc.) are obtained.
Exposure to credit risk is affected mainly by individual characteristics of each customer.
The Group performs impairments of trade receivables as an estimation of expected losses from receivables and investments.
Liquidity Risk
Liquidity risk reflects the Group’s inability to meet financial obligations as they fall due. Liquidity risk management is the res-
ponsibility of the Management Boards of Group companies. The Group manages this risk by continuously monitoring estima-
ted cash flow, comparing and adjusting it to the actual revenue and expenses. Overall, there has been no significant exposure
of the Group to liquidity risk.
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32
Business plan for 2022
At the proposal of the Management Board of KONČAR – Electrical Industry Inc., the Supervisory Board has adopted the busi-
ness plan of KONČAR – Electrical Industry Inc. and the consolidated plan of the Group for 2022.
The business plan for 2022 is based on the substantial number of contracts concluded by KONČAR by the end of the business
year 2021. The value of order intake (backlog) at the end of 2021 is estimated to be more than HRK 5 billion.
In 2022, the revenue from sales of products and services is expected to be HRK 3.78 billion. A further growth in export revenue
is projected, with export accounting for 60 percent of the planned revenue from sales. The demanding market of the European
Union is expected to contribute the majority of 2022 income, with a planned share of HRK 1.5 billion. In terms of other markets,
the Group plans to generate more income than predicted for 2021, with the greatest rise expected in neighbouring countries
and on Asian and African markets.
In 2022, the value of order intake is expected to be HRK 4.4 billion. The value of order intake (backlog) at the end of 2022 is
expected to reach HRK 5.6 billion.
The expected backlog provides a solid basis for achieving the Group’s strategic objectives until 2024.
Developments after the reporting date
The impact of war in Ukraine on KONČAR Group business operations
Following the annexation of Crimea in 2014 and sanctions imposed on Russia, KONČAR significantly scaled back its business
activities in Russia. Consequently, total revenue from sales of products and services on the Russian market amounted to HRK
3.5 million, accounting for 0.1 percent of total revenue of KONČAR Group.
Current exposure of KONČAR Group to Russian market poses no significant risk and does not negatively affect the Company’s
business operations. In 2021, several new contracts, worth HRK 13.1 million, were concluded with customers in Russia or
customers linked with Russia through ownership structure. These contracts account for 0.26 percent of the Group’s total
number of contracts. Performance of these contracts was expected in 2022.
Total sales revenues in the market of Ukraine in 2021 amounted to HRK 3.7 million (0.1 percent of the total revenues of the
group) and HRK 4 million of new business was contracted for realization in 2022 (less than 0.1 percent of totally contracted in
2021). All activities on the implementation of these agreements are currently suspended.
Despite a small number of contracts with Russia, generally speaking, Russian attack on Ukraine poses significant risks for the
economies worldwide, already struggling with inflation, shortages and supply chain disruptions.
At the moment it is impossible to predict and quantify the scope and severity of damage the war might cause as it depends
largely on when the war might end.
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