REVIEW OF THE KEY ELEMENTS OF THE BUDGET FOR THE YEAR 2018 SOCIETATEA ENERGETICA ELECTRICA SA

Transcription

1 REVIEW OF THE KEY ELEMENTS OF THE BUDGET FOR THE YEAR 2018 SOCIETATEA ENERGETICA ELECTRICA SA Dan Catalin STANCU CEO Mihai DARIE CFO 1

2 1. Introduction Societatea Energetica Electrica SA (thereafter Electrica, ELSA or Company ), incorporated with the Trade Register under no. J40/7425/2000, sole registration number and having as main scope of business the Business and other management consultancy activities - NACE code 7022, aims at coordination and efficient control of participation interests in subsidiaries that carry out electricity distribution and supply activities as well as energy services. The company also provides services on the electricity balancing market. The subsidiaries of Electrica, and the participation interests held as of December 31 st 2017 are: Subsidiary Societatea de Distributie a Energiei Electrice Muntenia Nord S.A. (SDMN) Societatea de Distributie a Energiei Electrice Transilvania Nord S.A. (SDTN) Societatea de Distributie a Energiei Electrice Transilvania Sud S.A. (SDTS) Electrica Furnizare S.A. ( EFSA ) Electrica Serv S.A. Servicii Energetice Muntenia S.A. (in restructuring) Servicii Energetice Oltenia S.A. (in restructuring) Activity Electricity distribution in North Muntenia geographical area Electricity distribution in Northern Transylvania geographical area Electricity distribution in Southern Transylvania geographical area Unique registration code Headquarters % stake 31 December Ploiesti 99, % Cluj-Napoca 99, % Brasov 99, % Electricity supply Bucharest 99, % Services in the energy sector (maintenance, repair, construction) Services in the energy sector (maintenance, repair, construction) Services in the energy sector (maintenance, repair, construction) Bucharest 100% Bucharest 100% Craiova 100% 2

3 2. Presentation of methodology for drafting the Revenues and Expenses Budget The Revenues and Expenses Budget ( REB ) represents the company s main instrument for forecasting the revenues and expenses related to the activities planned for one financial year, which is used both as a planning and controlling tool. The revenues are the best estimates associated with the activities carried out by the company, whilst the expenses are the planned use of resources necessary for the performance of those activities; all non-cash items involving revenues and expenses which may be projected based on certain assumptions are also included in the budget. The revenues and expenses budget for 2018 was prepared based on the going concern principle and based on the applicable accounting policies and standards. According to the Articles of Association of the company, the revenues and expenses budget is approved by the General Meeting of Shareholders after its endorsement by the Board of Directors The revenues and expenses budget presented below is only for Electrica on a standalone basis; the structure of the revenues and expenses budget is similar to the structure of the profit and loss account usually presented in the individual financial statements. 3. Operating results (th. RON) INDICATORS 2017 Actual 2018 Budget Budget 2018 vs. Actual 2017 Budget 2018 vs. Actual 2017 % Revenues 481,915 89,051 (392,864) -82% Other income 5,454 20,725 15, % Purchased electricity (469,698) (65,276) 404,422-86% Salaries and other employee benefits (25,848) (35,492) (9,644) 37% Depreciation and amortization (23,532) (23,976) (444) 2% Impairment of trade and other receivables, net (15,120) (2,000) 13,120-87% Impairment of property, plant and equipment (1,907) - 1,907 - Other operating expenses (48,129) (51,621) (3,492) 7% Change in provisions, net (12,293) (3,774) 8,519-69% Operating profit / (loss) (109,157) (72,364) 36,793-34% Financial revenues 364, ,648 (52,147) -14% Financial expenses (470) (100) % Net financial revenues 364, ,548 (51,776) -14% Profit/ (loss) before tax 255, ,184 (14,983) -6% Income tax expense 2,996 - (2,996) -100% Profit for the year 258, ,184 (17,980) -7% 3

4 The main assumptions of the 2018 REB are further detailed and explained Revenues Main assumptions of 2018 Budget are as follows: - BRP (Balancing Responsible Party) activity carried out on the electricity market for both affiliated companies as well as third parties shall be transferred from ELSA to EFSA as a business line starting April 1 st 2018, therefore revenues and costs associated with BRP activity were budgeted for only 3 months in ELSA, whereas for the other 9 months were budgeted in EFSA; - AMR system (measurement data presentation services, technical approval services, meter reading) is assumed to remain on ELSA s balance sheet for 2018 (there is no assumption of transfer of the system to DSOs - distribution subsidiaries in 2018). Operating revenues were budgeted in 2018 and consequently the same amounts were budgeted as costs at DSOs for 9 months of 2018, assuming the contracts for AMR services shall enter into force on April 1 st Thus, budgeted operating revenues for 2018 are: - BRP revenues amounting to RON 66,651 th. vs 2017 value of RON 480,607 th., mainly due to target transfer of BRP activity from ELSA to EFSA, but also due to a downsize of managed BRP portfolio, which currently includes mainly Group companies as well as electricity producers, as a result of ELSA s risk and guarantee policy in place, adjustment of contractual provisions and 2017 market influences and events. The combined BRP revenues budgeted for 2018 (ELSA for 3 months and EFSA for 9 months) is in amount of RON 266,603 th. (decrease of RON 214,004 th. compared with 2017 figures); - AMR revenues, which shall be realized as result of prospective contractual arrangements between ELSA and DSOs. The procurement procedures organized by DSOs for AMR services are in progress. AMR services are therefore budgeted on the assumption that those procedures shall be finalized and contracts concluded by April 1 st 2018; the overall amount budgeted for 2018 is RON 22,400 th. Other income Budgeted amount of RON 20,725 th. (RON 5,454 th. in 2017), which represents mostly income from EFSA, are related to business sale of BRP activity from ELSA to EFSA; the estimate is based on internal valuation of BRP business line and for the purpose of the budget RON 20,000 th. was used as provisional value. Costs Purchased electricity Cost of purchased electricity in relation with BRP activity is correlated with the downsizing of BRP activity in 2018 as compared to 2017, as well as with the business transfer of BRP to EFSA starting April 1 st A decrease of estimated average purchased electricity price is also forecasted for 2018, due to stabilization of market conditions as compared with previous year. Salaries and other employee benefits The salaries and other employee benefits expenses increase in 2018 to RON 35,492 th. compared to RON 25,848 th. in The net increase is mainly the result of several factors: 4

5 - change of organizational structure, by introducing new business structures, including middle management positions; - 2.3% salaries increase in 2018 as a result of new provisions of Collective Labour Agreement; - staff turnover (target number of staff as of is 127 as compared to 155 as of ; the average number of staff in 2018, considering the forecasted staff turnover is 141 as compared to 137 in 2017): new hires, including impact of executive managers, managers/mkp and specialized staff to be attracted from the labour market in order to have a fully functional organization according to the approved organisational chart, with an estimated higher average cost/ employee; normal reduction of staff number through retirement/ early retirement etc; VLP & dismissal program with a combined target of 53 in The cumulative impact in 2018 budget is RON 4,663 th., which accounts for a significant portion of the estimated increase. Other operating expenses In 2018, the company estimates a small increase of operating expenses, to RON 51,621 th. from RON 48,129 th. in The evolution is explained as follows: other opex include RON 25,809 th. recognized penalty in relationship with Termoelectrica litigation (0 in REB 2018); budget for consulting services related to development and reorganization strategy of the group, legal and financial advisory, staff recruitment etc is in amount of RON 36,452 th. (2017: RON 7,539 th.); - Rent expenses and associated costs were budgeted in 2018, being assumed that the relocation project of Electrica, EFSA and Electrica Serv shall be implemented starting May 15, 2018 gradually. Non cash items Estimated depreciation expense in 2018 is RON 23,976 th. (2017: RON 23,532 th.), on account of maintaining the AMR system for the entire 2018 year, as well as some slight increases of depreciation associated with the increase in revaluation reserve of the headquarter building owned by Electrica, the asset being revalued as of Net allowances for trade receivables budgeted in 2018 are RON 2,000 th. (2017: RON 15,120 th.), 2017 being negatively impacted by BRP clients entering insolvency procedures (Fidelis Energy, Transenergo, Electra Management). The net change in provisions budgeted in 2018 is of RON 3,774 th., as compared to RON 12,293 th. in In 2017, the most significant part of the amount is represented by an one-off event, the provision related to the Competition Council fine, amounting RON 10,800 th. EBITDA B2018 EBITDA is budgeted in a negative amount of RON 48,388 th., comparative to the negative value of RON 85,625 th. in

6 Operating result Operating loss for 2018 is estimated at RON 72,364 th. (RON 109,157 th. loss in 2017). Net finance income Net finance income is the difference between finance cost and finance income. Finance cost are not material and are associated mostly with fx losses, treasury related; finance income includes mostly dividend income from subsidiaries as well as interest income from treasury surplus (bank deposits and t-bills). Thus, net finance income budgeted for 2018 is RON 312,648 th. (RON 364,795 th. in 2017). The major source of finance income is represented by dividends from subsidiaries Interest income is based on projected cash flows, considering also estimated disbursements from intragroup loans as well as projected market interest rates; the average surplus treasury shall further decrease as result of disbursement from intragroup loans, in addition to the decrease occured in 2017 in relation with acquisition of minority stakes in subsidiaries from Fondul Proprietatea. Thus, interest income in 2018 is estimated at RON 12,972 th., down from RON 17,033 th. in Profit before tax Profit before tax for 2018 is estimated at RON 240,184 th. (RON 255,168 th. operating profit in 2017). Corporate income tax ELSA has carried forward tax losses; therefore, the corporate income tax is budgeted nill for Net profit Budgeted net profit for 2018 is RON 240,184 th. (2017: RON 258,164 th.) a 7% decrease yoy. 6