Availability of H1 2023 Results - IFRS

Societatea Energetica Electrica SA

20 September 2023

 

Societatea Energetică Electrica S.A.

9, Grigore Alexandrescu str. 010621

District 1, Bucharest, Romania

Phone: [phone]; Fax: [phone]

Fiscal Registration Certificate RO 13267221

J40/7425/2000

Share capital: 3.464.435.970  RON

www.electrica.ro

 

            PRESS RELEASE

Updated information regarding the availability of consolidated financial statements according to IFRS-EU related to H1 2023

The consolidated interim financial statements as of and for the six-month period ending on 30 June 2023, prepared in accordance with the International Financial Reporting Standards adopted by the European Union (IFRS-EU) with subsequent amendments, will be accessible on 28 September 2023, 20:00 (Romanian time).

These together with the consolidated board of directors report according to IFRS-EU for the first semester of 2023 will be able to be accessed, both in Romanian and in English, in electronic format, on the company's website, at www.electrica.ro, section "Investors > Results and Reports > Financial Results": https://www.electrica.ro/en/investors/results-and-reports/financial-results/financial-statements-for-h1-2023/

On 7 March 2023, Electrica announced for the first time, through a press release published on BVB and LSE, that it will publish two sets of annual financial statements - one prepared according to OMFP 2844/2016 (the primary set) and another one prepared according to IFRS -EU (secondary set), detailing the main differences between the two sets of consolidated financial statements of the Electrica Group and the reasons why, starting with 2022, the Group will report two sets of consolidated financial statements. Later, on 27 March 2023, Electrica published, on the BVB and the LSE, a press release in which it explained and detailed with amounts the differences that appear between the two sets of financial statements - the one drawn up according to OMFP 2844/2016 (the primary set ) and the one drawn up according to IFRS-EU (secondary set).

Also, in the Annual Report for 2022, published at the end of April 2023, details were included regarding the two sets of consolidated financial statements.

A)  The impact of legislative changes in energy on the annual and half-yearly financial reporting framework of the Electrica Group applicable starting from 31 December 2022

Until 31 December 2021, the consolidated financial statements prepared in accordance with OMFP no. 2844/2016 were equivalent to those drawn up according to IFRS-EU. As a result of the legislative changes introduced by GEO 119/2022 approved by Law no. 357/2022 (in force starting with 1 September 2022) as well as OMFP 3900/2022 (in force starting with 20 October 2022) following it, starting from 31 December 2022, OMFP 2844/2016 was amended by introducing a new clause related to regulatory accounts for the capitalization of electricity purchase expenses to cover own technological consumption (NL) compared to the costs included in the distribution tariffs, these being recognized as intangible assets (see published on the website the financial accounting treatment in the primary sets of financial statements in accordance with OMFP No. 2844/2016 on 31 December 2022 and 30 June 2023).

In the context of the electricity price crisis of 2022, following the provisions of GEO 119/2022, the financial regulations of OMFP 3900/2022 were amended, and ANRE issued Order no. 129/2022, regarding the recognition of costs in tariffs additional with the purchase of electricity to cover NL compared to the costs included in the approved distribution tariffs for the period 1 January 2022 - 31 March 2025.

Also, starting with 31 December 2022, the Group issues a set of consolidated financial statements prepared in accordance with IFRS-EU (see the secondary set of financial statements in accordance with IFRS-EU on 31 December 2022 published on the website). In the additional set of consolidated financial statements according to IFRS-EU, these additional expenses with the purchase of electricity to cover Technological Own Consumption "NL" are accounted for in the form of financial assets based on the changes to the concession contracts concluded with the Ministry of Energy (the additional documents signed from dated 20 January 2023), in which the additional costs of purchasing electricity to cover the distribution operators' own technological consumption are recognized as a financial asset as part of the concession contract, being guaranteed by the concession contract which is enforceable by law.

B) Financial impact of additional NL costs starting with 2022

For the year 2022, the distribution subsidiary has capitalized additional costs with NL in the amount of RON 989 mn., according to the provisions of ANRE Order no. 129/2022, determined for the amount of NL of 1,850 GWh recognized for the year 2022, and the price difference of 597 RON/MWh resulting as the difference between the average purchase price achieved, of 989 RON/MWh, and 392 RON/MWh, recognized price effectively in tariffs by ANRE.

For the first 6 months of 2023, the distribution subsidiary capitalized additional costs with NL in the amount of RON 56.3 mn., according to the provisions of ANRE Order no. 129/2022, determined for the amount of NL performed in the first semester of 2023.

In the six-month period ending on June 30, 2023, the cost of electricity purchased to cover NL (net of revenues) decreased compared to the first half of 2022 by RON 491 mn., or 46%, to RON 582 mn., from RON 1,073 mn..

C) Publication requirements

Regarding the publication requirements and the legal obligations of the Electrica Group regarding the financial statements, we make the following clarifications:

a.   Starting with 2022, Electrica publishes both consolidated financial statements according to IFRS-EU (secondary set) and according to OMFP 2844/2016 (primary set) for the year end and the half-year, due to the different treatment of the additional capitalized NL;

b.   According to BVB code and ASF regulations, the Group reports according to IAS 34 for half year, and according to Law 24/2017 - art. 68, the Group prepares half year consolidated financial statements in accordance with the international accounting standards applicable to interim financial reports adopted according to the procedure provided for in art. 6 of Regulation (EC) no. 1.606/2002 (IFRS-EU). Also, according to law 24/2017, the Group publishes a half-year financial report for the first 6 months of each financial year, as soon as possible after the end of the relevant period, but no later than 3 months after its end. For the first 6 months of 2023, Electrica published the set of primary financial statements according to OMFP 2844/2016 on 25 August 2023. The Group is not obliged to publish financial statements audited or reviewed by the financial auditors every six months, this being the option of the Group in order to increase transparency of financial reports;

c.   For the statutory and legal obligations (other than those above), the Group prepares the primary set according to OMFP 2844/2016 which is submitted to the Ministry of Finance;

d.   According to Law 24/2017 art 65 paragraph (3), the company has the obligation to draw up annual consolidated financial statements according to IFRS-EU (secondary set).

Thus, the Group publishes two sets of half-yearl and annual financial statements (IFRS "local" cf. OMFP 2844/2016 with NL capitalized as an intangible asset and IFRS-EU with NL capitalized as a financial asset) to fulfill all legal listing requirements and related to the capital market (taking into account the listing of the shares at the BVB as well as the GDRs at the LSE), the primary set also agreed with the Romanian authorities being OMFP no. 2844/2016 (the reference).

D) IFRS-EU Analysis

Regarding the accounting treatment according to the IFRS-EU standard related to the recognition in the form of a financial asset of the capitalized NL related to the energy cost difference for the NL for the distribution subsidiary, based on the amendment of the concession contracts with the Ministry of Energy (guaranteed receivables), at the moment, the validation of the technical arguments prepared by the Group with the financial auditors at the level of Deloitte Global IFRS is under discussion regarding the way to treat the additional costs with NL according to the IFRS-EU, the Group accounting them in the form of financial assets.

We mention that this financial asset is currently registered by the management according to the accounting policies of the Electrica Group presented in the financial statements in chapter 6 "Significant accounting policies" for the registration of financial assets according to IFRS 9, starting with the year 2018 when the respective standard was adopted by the EU and applied by the Group. The Group has defined the categories for which IFRS 9 applies (contractual assets, financial guarantee contracts, trade receivables, etc.). At the same time, comparability with other companies with similar provisions of the energy concession contract was analyzed (to be comparable and transparent at the EU level for energy companies).

In consolidated financial statements prepared according to IFRS-EU, both on 31 December 2022 and on 30 June 2023, the financial asset is at the level of the net value of the intangible asset (the fair value determined as the net present value of the additional costs with the purchase of electricity incurred), until the establishment of a final calculation for the subsequent measurement of these financial assets.

Considering the complexity of the ongoing technical analysis with the financial auditors at Deloitte Global IFRS level, the IFRS-EU consolidated financial statements (secondary set) as of and for 30 June 2023 will be published on 28 September 2023 (unaudited and unrevised), at a later date than the one previously mentioned in the current report from 9 August 2023, namely 20 September 2023.

Currently, the consultation with the financial auditors on the accounting treatment related to IFRS-EU is in progress, the Company considers that the arguments presented are sufficient for recognition as a financial asset, presentation comparable otherwise with other energy companies with similar provisions of the contract of concession, but considering the complexity of the case, the financial auditor will be able to evaluate the impact on the audit report, only after the completion of all procedures. Thus, then it will be possible to determine if from the point of view of the financial auditors, the assets and the carried forward result are over-valued by including in the consolidated financial statements the financial asset recognized as a result of the amendment of the concession contracts with the Ministry of Energy in order to be able to reflect the NL additionally on the distribution segment. The result of the currently ongoing consultation will be reflected in the set of consolidated financial statements according to IFRS-EU as of and for 31 December 2023, which will be audited by the financial auditors of the Electrica Group.

The Simplified Individual Interim Financial Statements as at and for the six-month period ending on 30 June 2023, together with the Board of Directors' individual report for the first half of 2023, will be published on 20 September 2023, 20.00 (Romanian time).

Contact details:

Electrica Investors relations, E-mail: [e-mail]

Chief Financial Officer,

Stefan Frangulea

 

END