Q3 2018 Financial Results

QUARTERLY REPORT

REGARDING THE ECONOMIC-FINANCIAL ACTIVITY OF ROMGAZ GROUP

ON SEPTEMBER 30, 2018 (January 01, 2018 - September 30, 2018)

IDENTIFICATION DETAILS ON REPORT AND ISSUER

ROMGAZ GROUP 1) PERFORMANCES

Operational and financial performances of Romgaz during the 9-month period ended on September 30, 2018 remain high.

During the first 9 months of 2018, the national gas consumption registered a decrease of approx. 1.84% reported to the similar period of the previous year. Romgaz deliveries remained at the level of the previous year, dropping only by 0.28% from 42.91 TWh to 42.79 TWh, with the specification that during the same period in 2017 the deliveries recorded an increase of approx. 35% from 31.86 to 42.91 TWH as compared to the same period of 2016. As a result, in terms of delivery market in Romania, Romgaz market share reached 48.96% during the first 9 months, by 0.77% higher than the share of the previous period (48.19%) 2).

The natural gas production was of 3,922 million m3, with 171 million m3 higher than the production recorded during the same period in the previous year (+4.6%) and with 61 million m3 higher than planned (+1.5%).

According to estimations, with this production, Romgaz had a market share of 53.54% from the gas consumption from internal production, 1.77% increase in relation to the share owned during the previous period (51.77%).

Romgaz electricity production of 284.4 GWh decreased compared to the similar period of 2017 (465.8 GWh). With this production Romgaz owns a market share of 1.89% 3).

The margins of the main profitability indicators: net profit (29.8%), EBIT (34.2%) and EBITDA (45.5%) confirm the high profitability of Romgaz Group.

1) Romgaz Group consist of SNGN Romgaz SA ("The Company"/"Romgaz") as parent company, Filiala de Înmagazinare Gaze Naturale Depogaz Ploiești SRL ("Depogaz") the subsidiary 100% owned by Romgaz, and its associates SC Depomureş SA (40% of the share capital) and SC Agri LNG Project Company SRL (25% of the share capital).

2) The market shares include the natural gas quantities delivered to CTE Iernut and Depogaz for the technological consumption.

3) Source: CNTEE Transelectrica SA.

Relevant Financial Results

*RON million*

*) In Q2 2018, the Group voluntarily modified the accounting policy related to costs with seismic, geological, geophysical and other similar operations. According to the new policy, these costs are recognized as expenses when incurred. Previously, these where recognized as intangible exploration assets. The information related to the previous periods were restated in order to ensure their compatibility with the current period.

**) EPS is calculated based on the individual results of SNGN ROMGAZ SA.

The figures in the table above are rounded, therefore differences might result upon reconciliation.

Note: income and expenses do not include in-house works capitalized as non-current assets.

Confirming the previous trend, in Q3 2018 the Group recorded an increase of the revenue but, as the expenses grew at a higher rate than the income, for reasons stated hereinafter, the profitability indicators as well as the ones derived from them registered a subunit evolution.

A brief overview of the Group's main indicators for January-September 2018 is:

Ø Total income higher by RON 275.7 million, recording an increase of 8.5% while total expenses recorded an increase of 25.7%.

Ø Gross result is lower by 13.8% as compared to the same period of the previous year further to the following influential factors:

· Royalty (+ RON 97 million). According to ANRM Order no. 32/2018 4), starting with February 12, 2018 "the reference price for natural gas produced in Romania used for calculating the value of the natural gas gross production and the equivalent value of the petroleum royalty" was changed, being related to the reference price of index "PEGAS CEGH Day Ahead Market Single Day Select, VWAP/CEGHIX Central European Gas Hub AG (CEGH)". 

The table below shows the gas price difference representing the royalty for the reporting period, compared to the previous period:

As shown in the table above, the royalty increase of approximately 85% (RON 85.7 million) is caused by the increase of the reference price established by ANRM Order no.32/2018.

The table below shows the significant royalty price difference once ANRM Order no.32/2018 became effective:

· The additional income tax applicable to income resulting from gas prices deregulation (+ RON 104 million);

· Change of the accounting policy (+RON 59 million). Changing the accounting policy, namely exploration expenses for seismic surveys, geological and geophysical studies and other similar works are recorded as expenses when incurred and no longer capitalized, led to recording exploration expenses of RON 74 million in the reporting period, compared to RON 15 million in the similar period of last year;

· Decrease by 26% of storage tariffs approved by ANRE, applied as of April 1, 2018;

· Decrease of electricity production because of unfavourable market conditions, that led to a decrease by approx. 55% of the revenue recorded on this segment;

Ø Net Profit, lower by RON 167.2 million as compared to the previous period due to the increase of income and influenced by the increase of expenses due to the above mentioned reasons (-14.0%);

Ø Labour productivity increased by 7.25% as compared to the previous period, from RON 523.35 thousand /employee to RON 561.29 thousand/employee;

Ø Net Profit Rate, EBIT Ratio and EBITDA Ratio are lower as compared to the first 9 months of 2017 due to a higher rise of expenses against the revenue increase;

Ø EPS (SNGN Romgaz SA net profit/share) is RON 2.7, 12.9% lower than the one registered during January-September 2017.  

Although some indicators are lower than the ones registered in the same period of 2017, when the company had remarkable results, the general level of the indicators is high. For example, the revenue registered in the first 9 months of 2018 is 1% higher than the revenue registered for the entire 2016 (RON 3,444.6 million vs RON 3,411.9 million), the net profit in the first 9 months is slightly higher than the one registered for the entire 2016 (RON 1,026.5 million vs RON 1,024.6 million), while the net profit per share for the two periods is equal, namely RON 2.7/share.

4) Order of the National Agency for Mineral Resources no.8 of February 9, 2018 on approving the Methodology for setting the reference price for the natural gas produced in Romania.

Operational Results

Note: the information is not consolidated, it contains transactions between Romgaz and Depogaz.

Gas production was in the expected parameters when preparing the 2018 production schedule; the achieved level represents 101.58% of the schedule.

Romgaz produced 3,922 million m3 natural gas during the first 9 months of 2018, 171 million m3 (4.56%) more than the volume produced during the same period of the previous year.

As shown in the table below, the decrease of produced electricity was in close relation to the high hydrology recorded at the beginning of the third quarter.

*MWh*

The full version of the Quarterly Report Regarding the Economic-Financial Activity of Romgaz Group on September 30, 2018 (January - September 2018) and the Consolidated Condensed Interim Financial Statements (not audited) for the nine-month and three-month periods ended September 30, 2018 are available on company's website www.romgaz.ro - Section Investor Relations - Interim Reports and on RNS website at:

http://www.rns-pdf.londonstockexchange.com/rns/4491H_1-2018-11-15.pdf