Strong increase in EBITDA in the first 9 months of 2023 of 13.5% or RON 148.8 mn. compared to first 9 months of 2022

The evolution of the main indicators for the first 9 months of 2023:

§ EBITDA - RON 1,252.9 mn., an increase of 13.5% or RON 148.8 mn. compared to 9M 2022;

§ Operating income - RON 9,890.8 mn., a slight decrease of 3.2% compared to RON 10,221.4 mn. in 9M 2022;

§ Net result - profit of RON 418.3 mn., a decrease of 21.6% or RON 115.4 mn. compared to the profit of RON 533.7 mn. in 9M 2022;

§ CAPEX PIF (commissioned) - RON 324.9 mn., solid increase with 66.5% compared to RON 195.1 mn. in 9M 2022.

Declaration from Chirita Alexandru-Aurelian, General Director of Electrica S.A.:

"Consistently achieving favorable financial performance, even in the context of rapid changes in the energy sector, once again underlines the extraordinary adaptability and deep strategic vision of our team. The success of the Electrica Group is highlighted by the 13.5% increase in EBITDA, which is the most convincing sign of our ability to implement effective strategies to increase profitability and optimize operations. The consistent achievements we have recorded since 2022, and which continue in 2023, are the result of constant adaptation, prudent risk management and the successful application of our growth strategies, which is reflected in a positive and sustainable evolution for the Electrica Group.

Before the end of this year, we will present the new medium and long-term strategy of the Group, which will include the same high dose of resilience and flexibility, focusing not only on adapting the main areas of activity to the complex environment in which we operate, but also on the exploitation of renewable sources and the principles of sustainability. Thus, we want to strengthen our position as a market leader and achieve results that meet the expectations of our investors."

Analysis of the consolidated financial indicators

The main results presented below are extracted from the Simplified Consolidated Financial Statements (interim and final) 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.

Source: Electrica

In the first 9 months of 2023, EBITDA at Electrica Group level increased by 13.5%, i.e. by RON 148.8 mn., reaching a value of RON 1,252.9 mn., compared to the value of RON 1,104.1 mn. achieved in 9 months 2022.

In 9M 2023 the volumes of energy distributed and supplied were lower by 6.2% and 10% respectively compared to 9M 2022, the operating profit had a slight decrease, of 2.7%, due mostly to the decrease in operating income by 3.2% (mainly due to the tariffs' increase), in conjunction with the implementation of MACEE and the efforts to maintain the costs under control.

Electricity procurement expenses decreased by RON 873.5 mn., or 11.3%, to RON 6,854.0 mn. in the nine months ended 30 September 2023, from RON 7,727.7 mn. in 9M 2022, mainly due to the strong decrease on average by 47.9% in electricity costs for covering network losses (NL) for the distribution segment, as a result of the implementation of the MACEE to which is added the negative impact from the increase by an average of 20% of the electricity purchase price on the supply segment.

The operating expenses decreased with 3.3% in 9M 2023 compared to the same period of last year and the net profit in 9M 2023 recorded a decrease of RON 115.4 mn. (21.6%), mainly due to the increase in the negative impact of the financial result, from RON 103.3 mn. in 9M 2022 to RON 216.8 mn. in 9M 2023 (an increase of 110%). The significant increase in interest costs for the year 2023 compared to the year 2022 is a direct effect of the non-receipt of amounts from the Ministry of Energy and the National Agency for Payments and Social Inspection within the terms established by law, as a result of the application of the price cap mechanism for electricity and natural gas under the applicable legislation.

EBITDA growth at 9M was mainly driven by the operational performance of the distribution segment, namely the revenues increasing by 27.4%, or RON 673.9 mn., to RON 3,135.6 mn. from RON 2,461.6 mn. in the same period of last year, as a result of the following factors:

·    favourable impact of approx. RON 348.7 mn., from the increase in the distribution tariffs, on average by 20% compared to 9M 2022, positive effect reduced by the decrease in distributed electricity volumes by approx. 6.2%;

·    favourable impact from the evolution of the revenues recognised in accordance with IFRIC 12 - revenues from the energy distribution segment are influenced by the recognition of investments in the distribution network in connection with the concession agreements. These revenues increased in 9M 2023 by RON 325.5 mn., compared to the same period of last year.

As a result of ANRE order 27/2023, starting from Q2 2023, the distribution tariffs have been higher by approx. 20% (26.1% MN area; 21.5% TN area and 10.9% TS area), compared to the same period of the previous year, therefore the electricity distribution revenues are higher, with a favourable impact on the operational performance for the distribution segment. The tariffs applicable from 1 April 2023 will not change until 31 December 2023.

Also, at the beginning of the current regulatory period (PR4), ANRE made a total negative closing correction to PR3 amounting to RON -855 mn. (nominal terms) and RON -665 mn. (2018 terms), of which RON -341 mn. (2018 terms) for meters recognized as investments in PR2 (2008-2013). The meter correction was challenged in court by the distribution subsidiary of Electrica Group, because in 2013 ANRE recognized the meters in the RAB based on the principle of non-discrimination of all the distribution operators, although they were not registered as fixed assets. The total negative correction related to PR3 decreased the regulated profitability related to PR4, and the amount related to 2023 is -93 mn. RON (nominal terms).

For the supply segment, the revenues from the supply of electricity and natural gas decreased by RON 608.8 mn., or 10.2%, to RON 5,343.8 mn., from RON 5,952.6 mn. at 9M 2022, this variation being mainly generated by the net effect of the increase in retail market sales prices by 5% and the reduction in the quantity of energy supplied to the retail market by 10%.

As of September 30, 2023, the subsidies receivable from the supply segment amount to approximately RON 2,264.1 mn. (of which RON 2,254.3 mn. from the Ministry of Energy), an increase of RON 983.3 mn. (as of 31 December 2022 they amounted to RON 1,280.8 mn.). Of the total RON 2,254.3 mn., RON 1,198.6 mn. represents uncollected claims submitted to the state authorities up to the date of this press release.

It is noteworthy that the evolution in financial performance between 2023 and 2022 is underscored by a notable reduction in capitalized network losses (NL) costs. During the first nine months of 2023, the capitalized NL amounted to approximately RON 66 mn., a significant decrease from the RON 780 mn. recorded in the same period of 2022. This reduction is attributed to the Group's successful efforts in minimizing additional costs associated with the purchase of electricity for CPT in the distribution segment.

Upon excluding the capitalized NL from the operating profit, a positive trend emerges. The operating profit improved from RON 99 million in the first nine months of 2022 to RON 367 million in the corresponding period of 2023. This improvement significantly contributes to the positive trajectory of the Group's overall performance, impacting both current operating revenues and subsequent receipts.

The operational performance has been further bolstered by not only the decrease in NL costs but also by a reduction in other operational expenses and an increase in revenues from reactive energy. It is important to note that the intangible assets accumulated in conjunction with the income from the capitalization of NL costs are non-cash in nature. These revenues are recoverable in monetary terms through billings and subsequent receipts, commencing from the first year, 2023, effective April 1, 2023, and extending into subsequent periods.

Electrica's outstanding financial performance within the dynamic context of the energy sector is a testament to its strategic vision and operational resilience, achieved through efficient risk management, optimization of operations and embracing innovation. The Group will continue the process of adapting its activities and strategy to market conditions, based on a sustainable growth of the Group companies, so that we can ensure financial stability and efficiency of all business lines in the portfolio. Thus, the positive evolution of the financial performance evidenced by the significant increase of the net result, reflects Electrica SA's ability to adapt to the dynamic economic environment and to implement effective strategies to increase profitability and operational efficiency.

OTHER IMPORTANT OPERATIONAL INFORMATION

§ Distributed electricity volumes - 12.55 TWh, down 6.2% compared to 9M 2022 but up 3% in Q3 2023 compared to Q2 2023. DEER serves approx. 3.9 mn. users, over an area covering about 40% of Romania;

§ Volumes of electricity supplied to final customers - 5.7 TWh, down by 10% compared to 9M 2022, amid the general downward trend of electricity consumption; Electrica Furnizare supplies electricity to approx. 3.5 mil. consumption places on the competitive market, as well as in universal service and last resort);

§ Supply market share - Electrica Furnizare is one of the largest suppliers, with a total market share of 16.66% and a competitive market share of 9.98%, according to the latest ANRE report available (July 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 aprox. 300 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 third quarter of 2023 was RON 6.9 bn., without inflation being RON 6 bn.. Please note that the RAB assets will be valuated at the end of the year.

§ At the end of the first 9 months of 2023, the operator Distributie Energie Electrica Romania (DEER) made and put into operation investments (commissioned CAPEX) amounting to RON 324.9 mn., representing 42.5% of the value of the commissioning program planned for 2023 (RON 764.1 mn., of which RON 628.4 mn. plan for 2023, and RON 135.6 mn. values related to 2022 plan); RON 162.4 mn. from 2023, RON 95.2 mn. recoveries related to 2022 and RON 67.2 mn. additional works compared to the 2023 plan, resulted from legislative changes regarding the connections.

The documents related to the Q3 2023 results are available on Electrica's website at the following link:  https://www.electrica.ro/en/investors/results-and-reports/financial-results/financial-statements-for-q3-2023/,

We remind you that Electrica's management is organising on 20 November 2023, 16:00 (Romanian time), a web conference for analysts and investors: Presentation of Electrica Group Q3 2023 Financial Results.

The web conference can be accessed online under the following link:

https://87399.themediaframe.eu/links/electrica231120.html

Contact Details:

Electrica Investor Relations - [email protected] ; +40731796111

CEO                                                                                        CFO

Alexandru-Aurelian Chirita                                                   Stefan Frangulea