Romgaz S Regulatory News (SNGR)

IDENTIFICATION DETAILS ON REPORT AND ISSUER

Preliminary annual report according to art. 63 of Law 24/2017

Financial year: 2021

Report date: February 25, 2022

Name of the Company: Societatea Nationala de Gaze Naturale (SNGN) ROMGAZ SA

Headquarters: Medias, 4 Constantin I. Motas Square, code 551130

Telephone/fax number: 004-0374-401020 / 004-0269-846901

Fiscal Code: RO14056826

LEI code: 2549009R7KJ38D9RW354

Trade Registry No: J32/392/2001

Subscribed and paid in share capital: RON 385,422,400

Regulated markets where the issued securities are traded: Bucharest Stock Exchange (BVB), London Stock Exchange (LSE)

PRELIMINARY CONSOLIDATED ANNUAL REPORT

 (issued based on unaudited consolidated financial information prepared

 in compliance with the International Financial Reporting Standards)

ON THE ECONOMIC AND FINANCIAL ACTIVITY OF SNGN "ROMGAZ" SA GROUP[1] for 2021

OVERVIEW

SNGN Romgaz SA is a Romanian natural gas producer and supplier, the main business segments of the Group being: gas exploration, gas production and supply, underground gas storage and electricity production.

Relevant Consolidated Financial Results

(RON million, unless otherwise specified)

* p - preliminary

Figures in the above table are rounded; therefore, small differences may result upon reconciliation.

Romgaz Group's preliminary performances for the year ended December 31, 2021 were influenced by the following factors:

Ä Natural gas production estimated for 2021 was 5,028.5 mil.m3, by 508.8 mil.m3 higher than the production of the previous year (+11.3%).

Ä Preliminary revenue for 2021: RON 5.85 billion (2020: RON 4.07 billion), higher by 43,63%, influenced by the following factors:

o Quantity of natural gas sold (including gas purchased for resale) is 12.7% higher in 2021 as compared to 2020. Estimated revenue from natural gas sales for 2021 is RON 5.04 billion, increasing by 52.41% as compared to the previous year;

o In Q4 2021, revenue from natural gas sales increased by 101.81% as compared to the previous quarter (+17.15% quantitatively), and by 120.62% as compared to Q4 2020 (-15.64% quantitatively);

o In 2021 storage activities recorded a decrease by 30.64% of the revenue at group level, following 32.3% lower capacity reservation services (RON -91.18 million) and a decrease by 31.48% (RON -15.53 million) of injection services. As for Depogaz, revenue from these services decreased by 6.14%;

o Revenue from electricity sales increased by 69.9% as compared to last year (RON +132.31 million) against a 31.7% drop in production as compared to last year. This revenue is due to the high prices on centralised markets where the Group is active;

Ä In 2021, an income of RON 114.7 million was generated by executing the performance guarantee related to the works contract for development of CTE Iernut by building a new 430 MW power plant with combined cycle gas turbine concluded between S.N.G.N. Romgaz S.A. and the Consortium consisting of Duro Felguera S.A. and Romelectro S.A.;

Ä Romgaz won in court a litigation against ANAF (National Agency for Fiscal Administration) for the annulment of a fiscal inspection report related to an inspection carried out between December 2016 - April 2017, which led to the recognition of an income of RON 28.02 million from releasing to income the impairment set up for such receivable;

Ä Petroleum royalty expenses (including royalty for storage activities) increased by RON 552.54 million as compared to the previous year, namely by 280.65% (RON 749.4 million in 2021, as compared to RON 196.9 million in 2020), mainly as a result of the increase of the reference price considered for calculating royalty. The increase in Q4 2021 as compared to the previous quarter was by 145.7%;

Ä Windfall tax increased in 2021 by RON 843.1 million (203.17%) as compared to 2020. Compared to the previous quarter, windfall tax rose by 491.48% in Q4 2021;

Ä The table below shows the petroleum royalty and windfall tax related to revenues from sales of natural gas from the Group's production:

Ä In 2021, the Group performed an impairment test for the gas fields it operates. The increase of sales prices was mostly offset by the increase of costs, especially of costs with petroleum royalty and windfall tax, therefore the Group did not release to income the losses from previous impairments.

Ä In 2021, the Group recorded a net gain from impairment of receivables of RON 349.99 million, following collection of receivables from clients under insolvency;

Ä The amount of RON 94.1 million was cashed in 2021, representing financing from the National Investment Plan for building the new Iernut power plant;

Ä Preliminary net profit for 2021: RON 1.90 billion (2020: net profit RON 1.25 billion), increasing by 52.02%.

Ä The estimated Net Profit recorded in Q4 was RON 740.71 million, increasing by 87.63% as compared to Q3 2021.

Ä Consolidated net profit margins (32.41%), consolidated EBIT (35.48%) and EBITDA (47.26%) increased as compared to 2020 (30.62%; 33.83% and 50.33% respectively).

PHYSICAL INDICATORS

The table below shows the estimated volumes of gas production, gas deliveries, gas injected in/withdrawn from underground storages, gas used for power generation, electricity production and injection/withdrawal services invoiced for the reviewed period:

(million m3, unless otherwise specified)

ECONOMIC-FINANCIAL INDICATORS

The economic-financial indicators were calculated based on unaudited preliminary consolidated financial statements and may be different from the actual audited results.

The Group's revenue is mainly generated by the sale of natural gas, underground gas storage services and electricity production and sale.

Preliminary statement of consolidated comprehensive income (unaudited)

(RON thousand)

Revenue

In 2021, Romgaz estimates consolidated revenues of RON 5.9 billion as compared to RON 4.1 billion achieved in 2020.

The increase resides in a 52.41% increase of revenue from sales of gas produced by Romgaz and of gas purchased for resale as well as a 69.9% increase of revenue from sales of electricity. On the other hand, consolidated revenue from storage services decreased by 30.64%.

The main components of revenue are shown below:

(RON thousand)

Tariffs of storage services were:

- April 1, 2020 - March 31, 2021 storage cycle:

o Capacity reservation tariff: RON 7.58/MWh/annual cycle;

o Injection tariff: RON 3.67/MWh;

o Withdrawal tariff: RON 2.03/MWh.

- April 1, 2021 - March 31, 2022 storage cycle:

o Capacity reservation tariff: RON 9.31/MWh/annual cycle (a 22.82% increase);

o Injection tariff: RON 2.29/MWh (a 37.60% decrease);

o Withdrawal tariff: RON 1.74/MWh (a 14.29% decrease).

Please note that consolidated storage revenues include revenue from services invoiced by Romgaz when gas is sold from storage; non-consolidated storage revenue are down 6.14% compared to 2020.

As for volumes, compared with 2020, the Group estimates that in 2021:

- it sold 12.7% more gas (including gas acquired for resale);

- it provided gas withdrawal services from storages by 16.1% higher, gas injection services in storages by 63.4% higher;

- it produced 31.7% less electricity.

Cost of commodities sold

In 2021, cost of commodities sold increased by 1,412.5% (+RON 263.0 million) as compared to previous year, mainly due to the increase of gas quantity acquired on the domestic market for resale. During this period, revenue from sale of such gas increased by 2,024.9% (+RON 314.8 million).

Other gains and losses

Other net gains of RON 23.4 million include the income recorded following a final settlement in favour of Romgaz in a litigation against ANAF for cancelling a report issued further to a fiscal investigation performed in December 2016 - April 2017. Following this investigation, the Company paid RON 28.98 million representing additional taxes and penalties that are going to be recovered. The decisions of the court has not been communicated by the date of this report so that the Company could not take the necessary steps to recover the amounts.

Net losses/gains from impairment of trade receivables

The Group calculates impairments for trade receivables depending on non-collection risks. Therefore, as regards clients undergoing a bankruptcy procedure, the Group records losses from impairment for the entire non-collected amount; the same policy is applied to old debts.

In 2021, the Group recorded a net gain from impairment of receivables of RON 349.99 million after collecting old debts from clients undergoing an insolvency procedure.

Changes in inventories

During 2021, the gas quantity injected by Romgaz in storages was higher by 15.6% than the quantity withdrawn from storages, thus generating positive changes in inventory. The quantity of gas injected in storages by the Company in 2021 as compared to 2020 increased by 116% while the withdrawn quantity increased by 14.8%.

Raw materials and consumables used

Increase of expenses with raw materials and consumables is mainly due to a 72.71% higher technological consumption for the reviewed period of 2021 as compared to 2020 and due to the increase of expenses with spare parts used for current repairs.

Depreciation, amortization and net impairment

Depreciation, amortization and impairment expenses increased by 2.65% due to an increase of 3.4% of depreciation and amortization expenses and an increase of 1.08% of net impairment losses.

Due to existing market conditions, the Group considered necessary to update the impairment test for assets used in natural gas production activity. Considering that the increase of sale prices generated a substantial increase in petroleum royalty costs and windfall tax costs, the test did not result in the cancellation of previously set up impairments. In 2021, the Group recorded impairments only for specific assets as a result of abandoning wells that proved to be dry holes or as a result of deciding to stop operation in certain gas fields.

Exploration expenses

Exploration expenses recorded in 2021 of RON 1.2 million decreased by 95.48% compared to the previous year, performing significantly fewer surveys than in the previous period (-RON 24.5 million).

Government Decision No. 1011 of September 22, 2021, approved the addendum no. 6 to the concession agreement concluded between ANRM and Romgaz, extending the exploration period for eight petroleum blocks until October 2027. Pursuant to this addendum, Romgaz undertook to perform a certain minimum 3D seismic program that will result in increased exploration expenses.

Other expenses

In 2021, other expenses increased by 120.82% as compared to 2020. The increase of RON 1.4 billion is mainly due to higher windfall tax and royalties. Royalty expenses increased by RON 552.54 million (280.65%) compared to previous year and windfall tax increased by RON 843.1 million (203.17%) in 2021 compared to 2020.

Other income

Other income increased by 567.64% in the year ended December 31, 2021 as compared to the same period of 2020 following execution of the performance guarantee (RON 114.7 million) after terminating the works contract for development of CTE Iernut by building a 430 MW combined cycle gas-turbine power plant, concluded between S.N.G.N. Romgaz S,A. and the Consortium consisting of Duro Felguera S.A. and Romelectro S.A.

Preliminary Statement of Consolidated Financial Position (unaudited)

(RON thousand)

NON CURRENT ASSETS

The total of non-current assets decreased by 5.07% by the end of 2021 as compared to the end of 2020, meaning by RON 301.3 million. The decrease is due to depreciation, amortisation and impairment expenses for projects larger than investments during 2021 and due to the decrease of the decommissioning asset as a result of the reduction of the decommissioning provision of wells.

In 2021, the Group invested a total of RON 458.17 million, representing 34.13% of the investment budget.

CURRENT ASSETS

Current assets increased by 2,405.8 million on December 31, 2021 due to the increase of cash, cash equivalents and other financial assets by RON 1,585.9 million; this increase is due to a lower level of investments as compared to the previous year. The Group intends to use this additional amount for the investments set out in the strategy approved by shareholders.

Inventories

Inventories increased by 24.81% by the end of 2021 as compared to December 31, 2020.

During 2021, a gas quantity of 487.9 million m3 was injected by Romgaz in the underground gas storages, while the withdrawn gas quantity was of 422.2 million m3.

Trade and other receivables

Trade receivables increased in 2021 as compared to December 31, 2020 by 128.1% as a result of the increase in the gas price on the free market. In addition, the Group recorded a net decrease in impairment of trade receivables by RON 349.99 million due to collection of outstanding amounts in 2021 and 2022 (event subsequent to 2021).

NON-CURRENT LIABILITIES

At the end of 2021 non-current liabilities increased by 11.05% as compared to December 31, 2020.

In 2021, an additional amount of RON 94.1 million was collected from the National Investment Plan to finance the investment "Combined cycle with gas turbines" - Iernut (the amount is shown as "Deferred Income"). Also in 2021, the Romanian Government decided to extend the completion date of the investment until June 30, 2022, extending the reimbursement term from the National Investment Plan until December 31, 2022.

CURRENT LIABILITIES

Current liabilities increased by RON 838.77 million, from RON 662.14 million recorded on December 31, 2020 to RON 1,500.91 million at the end of 2021.

Trade payables and other liabilities 

Trade payables decreased by 19.99% as compared to December 31, 2020 due to lower payables to non-current assets suppliers (-RON 15.69 million) as a result of the lower level of investments in 2021.

Contract liabilities

These liabilities represent advances received from customers on December 31, 2021 for 2022 deliveries. The rise is due to the increase of the gas sales price as compared to the previous year.

Other liabilities

Other liabilities recorded a significant increase of 255.94% as compared to December 31, 2020. Most of these liabilities are liabilities to petroleum royalty due for Q4 and windfall tax for deliveries in December.

Provisions

On December 31, 2021, current provisions recorded an increase of 51.71% as compared to December 31, 2020. This increase is due, mainly, to the provision for greenhouse gas emission certificates (RON 154.9 million on December 31, 2021, the equivalent of 377,905 certificates, as compared to RON 81.2 million on December 31, 2020, the equivalent of 525,067 certificates).

CAPITAL AND RESERVES

Group's equity increased by 15.10%. The changes in the Group's equity in 2021 and 2020 are presented below:

 (RON thousand)

(RON thousand)

Preliminary Statement of Consolidated Statement of cash flows (unaudited)

The consolidated cash flows for January-December 2021 and the similar period of 2020 are as follows:

(RON thousand)