Electrica Regs Regulatory News (ELSA)

Summary of Consolidated Results for Q2 2023 / H1 2023

The evolution of the main indicators in H1 2023:

§ EBITDA - RON 636 mn., substantially increased, with RON 535 mn. compared to H1 2022;

§ Net result - profit of RON 106, significant improvement, compared to the loss of RON 176 mn. in H1 2022;

§ Operating income - RON 6739 mil, increase with 14% compared to RON 5933 mn. in H1 2022;

§ CAPEX PIF (commissioned) - RON 212.4 mn., solid increase with 93% compared to RON 110 mn. in H1 2022.

The evolution of the main indicators in Q2 2023:

§ EBITDA - RON 466 mn., substantially increased, with RON 314 mn. compared to Q2 2022;

§ Profit net -RON 173 mn., substantially increased, with the loss of RON 18 mn. in Q2 2022;

§ Operating income - RON 3206 mn., increased with 20% from RON 2675 mn. in Q2 2022;

§ CAPEX PIF (commissioned) - RON 162.2 mil, with 141% more than RON 67.4 mn. in Q2 2022.

The main results are presented below and are extracted from the Simplified Consolidated Interim Financial Statements as at and for the six-month period ended 30 June 2023 prepared in accordance with Order of Ministry of Public Finance 2844/2016:

*Amounts are rounded to the nearest whole value

**Income from the production of intangible assets representing the capitalization of additional costs with the purchase

of electricity. The first capitalized asset for the additional costs of purchasing electricity for the NL coverage was registered on 30.09.2022 for the period January-September 2022 according to OMFP 3900/2022 so in Q1 2022 we have no comparative value.

Source: Electrica

Declaratie Chirita Alexandru-Aurelian, Director General Electrica S.A.:

" The financial results achieved by Electrica Group in H1, including an increase in EBITDA to RON 636 million and a net profit of RON 106 million, not only highlight the company's resilient strategy but also the undeniable dedication of our team in implementing efficient solutions in a volatile market environment, with a deep focus on transitioning to green energy.

Our people are at the heart of this transition, serving as the source of innovation and adaptation. In a fluctuating economic and legislative environment, we are strengthening our position as a stable and resilient entity, always ready to adapt to the challenges of an evolving market.

By reinforcing our financial foundation and optimizing operational efficiency in all our business domains, we aim to strengthen and expand our portfolio focused on renewable energies. I express my deepest gratitude to each member of the team, our customers, investors, and partners, whose contributions have been essential in defining and shaping the direction we are pursuing.".

OTHER IMPORTANT OPERATIONAL INFORMATION

§ Distributed electricity volumes - 8,28 TWh, decreased with 7.9% compared to H1 2022; DEER serves approx. 3.9 mn. users, on an area covering about 40% of Romania;

§ Volumes of electricity supplied to final customers - 3,88 TWh, reduced with 6,84% compared to S1 2022, due to the general downward trend in electricity consumption; Electrica Furnizare supplies electricity for approx. 3.5 mn. consumption places on the competitive market, as well as on the universal service and last resort supplier market.;

§ Supply market share - Electrica Furnizare is one of the biggest electricity suppliers, with a total market share of 17,79% and a competitive market share of 10.43%, as per the latest available ANRE report (April 2023);

§ Electrica Group continues to pursue the expansion of its portfolio in the field of electricity production, especially from renewable sources, having at this time projects in different phases of execution with a capacity of 296,5 MW;

§ The estimated Regulated Assets Base (RAB), in nominal terms, with an inflation of 13.69% for the year 2023, estimated at the end of the first semester of the year 2023 was RON 6.9 bn., without inflation being RON 6.1 bn.

§ At the end of the first semester of 2023, the operator Distributie Energie Electrica Romania (DEER) made and put into operation investments (commissioned CAPEX) amounting to RON 212.4 mn., representing 28% of the value of the commissioning program planned for 2023 (RON 764 mn., of which RON 628.4 mn. plan for 2023, and RON 135.6 mn. values related to 2022 plan); RON 82.9 mn. from 2023, RON 95.2 mn. recoveries related to 2022 and RON 34.3 mn. additional works compared to the 2023 plan, resulting from legislative changes regarding the connections.

Analsysis of the consolidated financial indicators

In the first half of 2023, EBITDA at the level of the Electrica Group registered an increase of RON 535 mn., reaching a value of RON 636 mn., compared to a value of RON 101 mn. achieved in H1 2022.

The impact was mainly generated by the operational performance of the distribution segment, due to: increase in income from energy, generated by the increase in the distribution tariffs by an average of 20% (26.1% MN area; 21.5% TN area and 10.9% TS area), compared to the first six months of 2022, a positive effect reduced by the decrease in the volumes of electricity distributed by approx. 8% (in line with the decrease in national consumption); decrease in the costs incurred with the purchasing of electricity for covering network losses, due to the implementation of the centralized purchase mechanism MACEE, as well as the ongoing concern to keep operational costs under control.

*MACEE = According to the Emergency Ordinance no. 153/2022, during 1 January 2023- 31 March 2025, the centralised electricity purchasing mechanism is established, with OPCOM as the single buyer. The distribution system operators will buy from OPCOM through an annual/monthly mechanism a minimum of 75% of the quantity forecast and validated by ANRE at a price of 450 RON/MWh, and producers will sell to OPCOM through an annual/monthly mechanism 80% of the volumes forecast and validated by ANRE and Transelectrica, at a price of 450 RON/MWh.

On the distribution segment, we mention, related to the assets capitalization, the following: the first capitalized asset for the additional costs of purchasing electricity for the NL coverage was registered on 30 September 2022 for the period January-September 2022 according to OMFP 3900/2022 and began to be amortized from the fourth quarter of 2022, the second capitalized asset was registered on 31 December 2022 for the period October-December 2022 and began to be amortized from the first quarter of 2023, and the third capitalized asset was recorded on 30 June 2023 for the period April-June 2023 and will began to be amortized from 01 July 2023, while the recovery through increased tariffs of the electricity price difference for covering NL costs only started on 01 April 2023. Moreover, the capitalized assets for the difference of NL established in 2023 are worth RON 56 mn., as opposed to those established in 2022 worth RON 989 mn., a favorable effect of the implementation of MACEE on the distribution segment.

Due to the implementation of MACEE, the estimation for 2023 is that the capitalized will be significantly lower than those in 2022.

On the supply segment, following the adoption of Ord. no. 30 of 10 August 2023, the Ministry of Finance is authorized to fund the account provided for in the GEO no. 27/2022 regarding some of the measures applicable to final customers in on the electricity and natural gas market between 1 April 2022 and 31 March 2023, as well as for amending and supplementing certain normative acts in the field of energy, approved with amendments and completions by Law no. 206/2022, with the corresponding amounts of the solidarity contribution collected in 2023, within 3 working days from the date of entry into force of the Oordinance. According to this, the Group expects an increase in the recovery rate of subsidies.

The balance of subsidies to be received, as of 30 June 2023, is estimated at RON 2,299.9 mn., of which RON 497.9 mn. is the amount not yet collected for the year 2022, applications submitted and validated by ANRE, not collected, in the amount of RON 1,253.4 mn (Ministry of Energy: RON 361.4 mn and ANPIS: RON 891.9 mn.) and RON 548.5 mn. from applications not yet submitted to the state authorities until 30 June 2023.

Not collecting subsidies on time generated a significant additional borrowing requirement for the company, which generated exceptional financial costs, affecting profitability.

Analysis of the financial indicators at segment level

The Distribution Segment:

Ø The operational performance for the distribution segment which significantly improved in the second quarter of 2023, EBITDA registered in the first quarter on this segment was RON 112 million and in the second quarter it reached RON 418 million, representing an increase of approximately RON 306 million in the second quarter of 2023 alone.

Ø During the six months period ended 30 June 2023, revenues from the electricity distribution segment increased by RON 394 million, or 25.3%, to RON 1,952 million, from RON 1,558 million in the same period of the previous year, as a result of the following factors:

o  a favorable impact of approx. RON 193 million, mainly from the increase in the distribution tariffs by an average of 20% (see above the mention of tariffs increase starting with April 1, 2023 by aprox. 20%), compared to the first six months of 2022, a positive effect reduced by the decrease in the volumes of electricity distributed by approx. 8%;

o  a favorable impact from the evolution of revenues recognized in accordance with IFRIC 12 - revenues from electricity distribution segment are influenced by the recognition of network investments with concession agreements, these revenues increasing in H1 2023 by RON 201 million, compared to the same period last year. The impact was generated by the increase in CAPEX achieved in H1 2023 vs H1 2022.

Ø The revenues from the capitalization of own technological consumption amounted to RON 56 million, representing the additional CPT calculated as the difference between the net cost with the purchase of electricity and the cost of own technological consumption included in the regulatory tariff, for the period 01 January - 30 June 2023. Starting with 30 September 2022, Electrica Group applies the provisions of GEO no. 119/2022, through which the additional costs with the purchase of electricity, realized between 01 January 2022 and 31 March 2025, in order to cover its own technological consumption, compared to the costs recognized in the regulated tariffs are capitalized quarterly and remunerated at 50% of the regulated rate of return (RRR) approved by ANRE;

Ø The cost of electricity purchased to cover grid losses decreased by RON 520 million, or 46.4%, to RON 602 million, from RON 1,122 million, the evolution being generated by a significant decrease in the electricity acquisition prices as a result of the implementation of the MACEE centralized acquisition mechanism, according to which the producers have the obligation to sell 80% of the available energy at a price of 450 RON/MWh, impact mitigated by the increase of the electricity volumes necessary to cover grid losses;.

Ø The net result on the distribution segment reached in H1 2023 represents a net profit of RON 68 million and positive EBITDA of RON 529 million (vs RON 165 million negative EBITDA in H1 2022). The net result improved significantly with the entry into force of the increased distribution tariffs, starting with 01 April 2023.

The Supply Segment:

Ø Revenues from the supply of electricity and natural gas decreased by RON 138 million, or 3.6%, to RON 3.695 million, from RON 3.833 million in the first half of 2023, mainly due to the net effect of increasing retail prices on the retail market by 10% and reducing the amount of energy supplied to the retail market by 7%;

Ø The revenues from subsidies amount to RON 1.802 million in H1 2023, an increase by RON 591 million compared to the same period of the previous year, as a result of the increase in the electricity purchase prices and the application of the capping mechanism according to GEO 119/2022, with subsequent additions and amendments;

Ø The cost of purchased electricity (including transmission system services) increased by RON 525 million, or 13.8%, to RON 4.340 million in H1 2023, from RON 3.816 million recorded in H1 2022;

Ø The net profit in the supply segment in H1 2023 is RON 31 million (compared to RON 213 million in H1 2022) and positive EBITDA of RON 132 million (compared to RON 287 million in H1 2022), being significantly affected by interest on loans contracted to support payments, during the period when the proceeds of subsidies are not made in time.

Ø The reduction of the profit has, in essence, two main reasons, namely, increasing the financial costs and decreasing sales volumes, which reduced the trade net margin and implicitly, EBIDTA

The documents related to the H1 2023 results are available on Electrica's website at the following link:  https://www.electrica.ro/investitori/rezultate-si-raportari/rezultate-financiare/situatiile-financiare-pentru-s1-2023/.

We remind you that Electrica's management is organising on 30 August 2023, 16:00 (Romanian time), a web conference for analysts and investors: Presentation of Electrica Group H1 2023 Financial Results. The web conference can be accessed online under the following link: https://87399.themediaframe.eu/links/electrica230830.html.

Contact Details:

Electrica Investor Relations

E-mail: ir@electrica.ro ; +40731796111

CEO

Alexandru-Aurelian Chirita

CFO

Stefan Frangulea