ANNUAL REPORT (PROTOTYPE) 2021 State Owned Enterprises GOVERNMENT of COUNTRY X | Contact@MOF.GOV ANNUAL REPORT - 2021 | 1 Introduction Good practice and agreed global standards emphasize the need to ensure complete and accurate information on the State-Owned Enterprise (SOE) sector. SOEs should observe high standards of transparency and be subject to the same high-quality accounting, disclosure, compliance, and auditing standards as listed companies. Many would argue that given the public nature of SOEs, and their position in some protected markets, their transparency and reporting practices should even be higher than those of private companies. Preparing and publishing aggregate reports on the state’s SOE portfolio has become established practice in many countries. In addition to informing the public and policy makers, the process of developing aggregate SOE reports strengthens the state’s ability to oversee its portfolio of companies and can help improve companies’ financial and operational performance, thereby increasing value creation for the public. This prototype SOE report outline is intended to serve as a practical tool to support the preparation of an aggregate SOE report in line with good international practice, with reference to the OECD Guidelines on SOE Corporate Governance and the World Bank SOE toolkit. It should not be interpreted as a reporting standard and is not intended as a complete guide to SOE reporting or a replacement for other reporting requirements, for which SOEs are bound by the policy and legal framework in their countries of operation. Moreover, different institutions may require specific information and other ways of treating the data for a variety of purposes including fiscal risk assessments, environmental audits, inclusion in national accounts, asset valuations, and others. This note was prepared by Kjetil Hansen (Sr Public Sector Specialist) and Andry Ralijaona (Consultant) with inputs from the SOE Global Support Group of the World Bank Governance Global Practice: Henri Fortin (Lead Financial Management Specialist), Andrei Busuioc (Senior Financial Management Specialist), Fabian Seiderer (Lead Public Sector Specialist), Natalia Manuilova (Senior Financial Management Specialist), Saw Young Min (Senior Governance Specialist). The note further benefitted from guidance from peer reviewers: Pedro L. Rodriguez (Lead Economist), James Brumby (Senior Advisor), Immanuel Steinhilper (Sr. Public Sector Specialist), Christina Donna (Sr. Financial Management Specialist) and Sarah Cuttaree (Sr. Operational Officer). , their transparency and reporting practices should even be higher than those of private companies. n addition to informing the public, the process of developing aggregate SOE reports strengthens the state’s ability to oversee its portfolio of companies, which can help improve companies’ performance. This annotated outline is intended to serve as a practical guide to support the preparation of an aggregate SOE report in line with good international practice, with reference to the OECD Guidelines on SOE Corporate Governance and the World Bank SOE toolkit. It is not intended as a complete guide to SOE reporting and should not be interpreted to replace existing reporting ANNUAL REPORT – 2021 | 2 Table of Contents Foreword ....................................................................................4 Executive Summary ...................................................................5 PART I .......................................................................................6 The SOE Portfolio ......................................................................6 Important events in 2020............................................................7 “Country X’s� policy on State-Owned Enterprises: Why do we have them? ................................................................................7 State-Owned Enterprises Portfolio at-a-Glance .........................8 The SOE portfolio ...................................................................8 Financial Performance Indicators of SOE Portfolio ................8 Policy performance .................................................................8 Liabilities.................................................................................8 General lessons .....................................................................9 Support and transfers to/from the State .....................................9 Budget Transfers to SOEs ......................................................9 Transfers from SOEs to the National Budget .........................9 Corporate Governance...............................................................9 PART II .................................................................................... 11 The SOE factsheets ................................................................. 11 SOE 1: Name and Ownership structure ............................... 12 Highlights of the year ........................................................ 12 Performance Indicators ..................................................... 12 Performance of the Board ................................................. 12 Relevant Comments on Remuneration Packages to Board Members and CEO ........................................................... 12 Employees ........................................................................ 12 SOE 2: Name and Ownership structure ............................... 14 Highlights of the year ........................................................ 14 Performance Indicators ..................................................... 14 Performance of the Board ................................................. 14 Relevant Comments on Remuneration Packages to Board Members and CEO ........................................................... 14 Employees ........................................................................ 14 Annex 1: Checklist on Reporting Requirements ....................... 16 ANNUAL REPORT - 2021 | 3 Foreword The foreword should be used by the issuing authority to remind the reader of the role of SOEs in the economy, with reference to relevant government policies and the main developments that have affected the SOE sector over the past year, including any changes to the legal framework, new government policies in sectors where SOEs operate, restructurings/sales of SOEs, or any new investments involving SOEs. It should also outline the state’s principles for SOE management where relevant, including transparency requirements, environmental and social standards. ANNUAL REPORT – 2021 | 4 Executive Summary The year 2020 has been challenging for the world. However, our social- centered approach helped mitigate the highly testing circumstances. Our portfolio of State Owned Enterprises performances were significantly impacted by Covid overall. On the one hand, companies such as our national airline suffered from the global traffic slowdown; on the other hand, other companies such as our health related companies including the medical insurance or general hospital, fulfilled all the social functions they were designed for. Our medical insurance company has come to the rescue of 546,000 households. We will continue to adopt a prudent management of our assets in line with our SOE policy and improve our … ANNUAL REPORT – 2021 | 5 PART I The SOE Portfolio ANNUAL REPORT - 2021 | 6 Important events in 2020 This section should summarize events that occurred during the past year that might have affected the business environment of SOEs, the demand for their services, their investments and the financial and operational performance of the SOE portfolio or selected SOEs. “Country X’s� policy on State-Owned Enterprises: Why do we have them? This section reminds the reader about the specific reasons for why the state owns companies. Reference should be made to relevant national strategies, laws or policies. An overview of the different categories of companies, including the specific objectives of each category of SOEs should be provided. Countries generally organize their SOEs into categories that reflect their objectives. For example, SOEs with purely commercial objective and those with social objective, or a mix of both. Specific public policy objectives may include the development of certain industries, management of cultural assets, more sustainable consumption, R&D, the supply of medicines, financial services, public transport, health services, higher education, or the maintenance of infrastructure provision. ANNUAL REPORT - 2021 | 7 Ownership Structure State-Owned Enterprises Portfolio at-a- Glance 0.7% Central government share 27.4% This section should include a concise description of the following: Other government share The SOE portfolio 71.9% Private sector share Key numbers on the portfolio including a complete list of SOEs, their total value, total assets, total revenue, number of employees, total investments, and economic sector of operation and line ministries to which they report, SOE typology, ownership and government's stake. Portfolio Financial Performance 4,000 This section should also provide a summary of structural factors that may have affected SOE performance over the last year. Such issues 2,000 may include global factors such as changes in commodity prices, inflation, exchange rate, global travel, tourism, etc. 0 2017 2018 2019 2020 2021 Financial Performance Indicators of SOE Portfolio Revenues Ebitda Ebit Net income (loss) The financial performance section should provide an easy-to-  Net income grew by 38% understand narrative summary and graphic overview of SOE 100% performance on standard financial indicators such as gross 80% revenues/turnover, earnings before interest and taxes (EBIT), 60% earnings before interest, depreciation and amortization (EBITDA), net 40% profit/loss, return on assets (ROA), cash flow from operating 20% activities, gross investment, return on equity (ROE), equity/asset ratio, cash flow, working capital, and dividends. If feasible and 0% 2018 2019 2020 2021 relevant, a comparison could be made with listed private sector -20% companies from similar sectors. Revenue growth Ebitda growth Ebit growth Net income (loss) growth Policy performance This section should provide an analysis of SOE performance on  Efforts to improve financing structure policy objectives or progress towards these. This could include a has brought results description of public services provided by sector or by SOE as relevant. For example, number of households reached with electricity supply, water supply, number of passengers transported, number of viable projects financed, number of students enrolled in schools/universities, number of housing units provided to low-income 2017 2018 2019 2020 2021 households. Areas of focus would depend on country specific objectives and targets. Net debt/equity (%) Liabilities 4,000 Complete information on SOE liabilities, including: - Loans guaranteed by the State, beneficiaries of loans 3,000 - Contracts awarded: notable procurement contracts awarded with 2,000 value of contracts and bid winners identities. 1,000 0 2017 2018 2019 2020 2021 TOTAL ASSETS TOTAL LIABILITIES TOTAL EQUITY ANNUAL REPORT – 2021 | 8 General lessons Lessons to rectify or improve policies governing SOEs and possible mid-term strategic development of the portfolio. This could include a need to reinforce monitoring, strengthening of the state ownership function, sectoral or company specific restructuring and reforms including part of full sales/divestment or privatization where BUSINESS appropriate. PRIORITIES  Increase household access to Support and transfers to/from the State energy Overview of any public support from the national budget to SOEs. This should include details on any state support including subsidies,  Reduce system losses guarantees, bonds emission, equity injections, loans, and any other  Reduce outages transfers. It should also provide information on the purpose of such transfers including some summary information on the cost of providing public services. Budget Transfers to SOEs: Each type of support should be listed and quantified and explained (why) and should detail the outcomes of the support, actual or projected. Transfers from SOEs to the National Budget Conversely, SOEs’ contributions to the revenue of the State through e.g. special taxes, dividends, repayments of loans or fees should also be explained. Contributions to National Priorities  Vaccination campaign  Support for Health personnel  Energy supply at lower rate to support hospitals’ operations  Transportation and connectivity Corporate Governance This section should include any notable changes that occurred during the elapsed year regarding appointments of board members and top management position. This is to ensure transparency and accountability around the appointment of board members and management and shows the will of the ANNUAL REPORT – 2021 | 9 public authorities to demonstrate openness and integrity in such appointments. Summary information on diversity policies, including targets, gender balance on the board and in management positions could be included. The names of board members and senior management could be included in each of the individual SOE factsheets in the second part of this report 178 181 185 182 Female board members Independent board members Male board members Gov.appointed board members 2.94 2.94 length of the chairman mandate (years) length of the board members mandate (years) This section should also include information on SOE compliance with national and international financial reporting and auditing standards. ANNUAL REPORT – 2021 | 10 PART II The SOE factsheets ANNUAL REPORT - 2021 | 11 SOE 1: Name and Ownership structure - Succinct description of the activity and policy objective at inception. Include a historical reminder if the context requires. Highlights of the year - A brief narrative on any sector/industry and/or global trends or domestic developments that are relevant to the SOE. BUSINESS PRIORITIES Performance Indicators - Financial performance: all standard financial ratios, benchmarked  Increased cost recovery against industry averages if possible - Policy performance: public goods delivered, information on  Reduce operational results/outcome/impact where available. costs - Transfers to/from budget and nature/purpose of transfer  Reduce non-revenue - Major investment projects water - Environment, Social and Governance Data - Procurements: notable contracts awarded with value of contract and winners’ identities (including goods and services) Performance of the Board - Detailed nominative list of board members with either biodata or links ADDED to biodata, incl appointment terms (so that the list would be auditable) - Number of meetings, attendance rate PRIORITIES - Information on auditor(s) - Information on performance agreements  Improve social media - Information on board evaluations in case these are carried out presence  Improve customer Relevant Comments on Remuneration Packages to satisfaction Board Members and CEO - Remuneration packages should be disclosed and include both fixed and variable income and in-kind benefits. Several countries require their SOEs to exercise modesty in their remuneration packages while recognizing that salaries need to be competitive and aligned to industry practice to attract suitable profiles. A comparison of national and international salary grids and the level practiced by the enterprise can be shown. CONTRACTS AWA R D E D Employees - Total number of personnel, breakdown by gender and demographic  Company A attributes or meaningful social value, by location and, when relevant,  Company B the percentage of unionized personnel. ANNUAL REPORT - 2021 | 12 Name of company: s1 Sector: Water supply, sewage, waste management Legal form: s.a. Year of establishment: 1986 indicators 2021 2020 2019 2018 2017 ROE 31.0% 28.9% 21.9% 17.9% 22.3% ROA 25.0% 22.3% 15.9% 12.3% 14.7% ROIC 30.7% 28.6% 21.4% 30.2% 38.6% Net debt/ebitda -0.4x -0.2x 0.1x 0.2x 0.3x Debt service coverage ratio 4.5x 2.5x 1.1x 0.7x 0.4x Cash conversation 30.2% 22.6% 12.1% 21.5% 9.6% Net debt/equity (%) -22.6% -9.5% 2.4% 8.8% 23.5% Current ratio 3.1x 2.2x 1.6x 1.4x 1.4x Ebitda 850.8 627.3 392.8 418.2 465.0 Ebit 805.8 582.3 347.8 373.2 420.0 Net income 515.0 362.1 210.5 142.3 151.9 Net debt (375.9) (118.9) 22.8 70.2 160.0 Total debt 240.0 240.0 240.0 240.0 240.0 Subsidies 100.0 200.0 500.0 50.0 1,000.0 Grants 400.0 300.0 0.0 350.0 300.0 Government guaranteed loans 1,500.0 1,100.0 2,000.0 2,000.0 3,500.0 Tax arrears 4,000.0 3,450.0 987.0 970.0 1,500.0 Income statement 2021 2020 2019 2018 2017 Revenues 1,574.1 1,368.8 1,190.3 1,035.0 900.0 Cost of sales (629.6) (684.4) (714.2) (517.5) (360.0) Gross profit (loss) 944.5 684.4 476.1 517.5 540.0 Other operating income 0.0 50.0 30.0 0.0 0.0 Selling expenses (78.7) (82.1) (83.3) (67.3) (45.0) Administrative expenses (15.0) (25.0) (30.0) (32.0) (30.0) Other operating expenses 0.0 0.0 0.0 0.0 0.0 Profit (loss) from discontinued operations 0.0 0.0 0.0 0.0 0.0 Depreciation and amortisation (45.0) (45.0) (45.0) (45.0) (45.0) Operating profit (loss) 805.8 582.3 347.8 373.2 420.0 Interest expenses (80.0) (85.0) (82.0) (180.0) (205.0) Interest revenues 10.0 20.0 35.0 10.0 2.0 Profit (loss) from affiliated companies 0.0 0.0 0.0 0.0 0.0 Profit (loss) before income tax 735.8 517.3 300.8 203.2 217.0 Income Tax (220.7) (155.2) (90.2) (61.0) (65.1) Net income (loss) 515.0 362.1 210.5 142.3 151.9 ANNUAL REPORT – 2021 | 13 SOE 2: Name and Ownership structure - Succinct description of the activity and policy objective at inception. Include a historical reminder if the context requires. Highlights of the year - Brief narrative on any sector/industry and/or global trends or domestic developments that are relevant to the SOE. BUSINESS PRIORITIES Performance Indicators - Financial performance: all standard financial ratios, benchmarked  Increase customer against industry averages if possible satisfaction by 2% - Policy performance: public goods delivered, information on results/outcome/impact where available.  Maintain growth - Transfers to/from budget and nature/purpose of transfer - Major investment projects - Environment, Social and Governance Data - Procurements: notable contracts awarded with value of contract and winners’ identities (including goods and services) Performance of the Board ADDED - Detailed nominative list of board members with either biodata or links PRIORITIES to biodata, incl appointment terms (so that the list would be auditable) - Number of meetings, attendance rate  Improve social media - Information on auditor(s) coverage - Information on performance agreements - Information on board evaluations in case these are carried out Relevant Comments on Remuneration Packages to Board Members and CEO - Remuneration packages should be disclosed and include both fixed and variable income and in-kind benefits. Several countries require their SOEs to exercise modesty in their remuneration packages while CONTRACTS recognizing that salaries need to be competitive and aligned to AWA R D E D industry practice to attract suitable profiles. A comparison of national and international salary grids and the level practiced by the enterprise  Company A can be shown.  Company B Employees - Total number of personnel, breakdown by gender and demographic attributes or meaningful social value, by location and, when relevant, the percentage of unionized personnel. s2 name of company: sector: Information and Communication ANNUAL REPORT – 2021 | 14 legal form: year of establishment: indicators 2021 2020 2019 2018 2017 ROE 29.2% 26.1% 18.0% 10.0% 11.0% ROA 22.1% 19.3% 13.0% 7.2% 8.2% ROIC 28.8% 26.6% 19.2% 27.6% 34.7% Net debt/ebitda -0.2x 0.0x 0.2x 0.2x 0.1x Debt service coverage ratio 2.8x 1.4x 0.3x 0.1x 0.0x Cash conversation 23.9% 16.8% 7.0% 7.8% -9.1% Net debt/equity (%) -8.2% 1.5% 7.7% 6.9% 5.9% Current ratio 2.2x 1.7x 1.3x 1.1x 1.2x Ebitda 658.4 493.4 305.5 318.2 355.0 Ebit 613.4 448.4 260.5 273.2 310.0 Net income 380.4 268.4 149.4 72.2 74.9 Net debt (106.4) 15.9 63.9 50.2 40.0 Total debt 260.0 225.0 190.0 155.0 120.0 Subsidies 0.0 0.0 0.0 0.0 0.0 Grants 0.0 0.0 0.0 0.0 0.0 Government guaranteed loans 0.0 0.0 0.0 0.0 0.0 Tax arrears 0.0 0.0 0.0 0.0 0.0 Income statement 2021 2020 2019 2018 2017 Revenues 1,224.3 1,064.6 925.8 805.0 700.0 Cost of sales (489.7) (532.3) (555.5) (402.5) (280.0) Gross profit (loss) 734.6 532.3 370.3 402.5 420.0 Other operating income 0.0 50.0 30.0 0.0 0.0 Selling expenses (61.2) (63.9) (64.8) (52.3) (35.0) Administrative expenses (15.0) (25.0) (30.0) (32.0) (30.0) Other operating expenses 0.0 0.0 0.0 0.0 0.0 Profit (loss) from discontinued operations 0.0 0.0 0.0 0.0 0.0 Depreciation and amortisation (45.0) (45.0) (45.0) (45.0) (45.0) Operating profit (loss) 613.4 448.4 260.5 273.2 310.0 Interest expenses (80.0) (85.0) (82.0) (180.0) (205.0) Interest revenues 10.0 20.0 35.0 10.0 2.0 Profit (loss) from affiliated companies 0.0 0.0 0.0 0.0 0.0 Profit (loss) before income tax 543.4 383.4 213.5 103.2 107.0 Income Tax (163.0) (115.0) (64.0) (31.0) (32.1) Net income (loss) 380.4 268.4 149.4 72.2 74.9 ANNUAL REPORT – 2021 | 15 Annex 1: Checklist on Reporting Requirements  Primarily focus on financial performance and the value of the SOEs  Provide an indication of the total value of the state’s portfolio  Include a general statement on the state’s ownership policy and information on how the state has implemented this policy  Include information on the organization of the ownership function  Include an overview of the evolution of SOEs in recent years  Include aggregate financial information  Include reporting on changes in SOE boards and senior management  Provide the main financial indicators including turnover, profit, cash flow from operating activities, gross investment, ROE, Equity/Asset ratio, and dividends  Key non-financial performance indicators including sector or company specific targets, or sustainability standards where applicable  Report on how SOEs are complying with national corporate governance standards including financial reporting and audit standards, remuneration guidelines, transparency requirements  Include information on methods used to aggregate data  Include individual reporting on the most significant SOEs ANNUAL REPORT – 2021 | 16