REN Redes Energeticas Nacionais SGPS S A : Report & Accounts 9M2022

REPORT & ACCOUNTS SEPTEMBER'22 CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial

Statements

30 September 2022

REN - Redes Energéticas Nacionais, SGPS, S.A.

REPORT & ACCOUNTS SEPTEMBER'22 CONSOLIDATED FINANCIAL STATEMENTS

INDEX

1. FINANCIAL PERFORMANCE	2
1.1	RESULTS FOR THE FIRST 9 MONTHS OF 2022	2
1.2	AVERAGE RAB AND CAPEX	6
1.3	QUARTERLY STATEMENTS OF PROFIT AND LOSS AND COMPREHENSIVE	7
INCOME FOR THE PERIODS FROM 1 JULY TO 30 SEPTEMBER 2022 AND 2021
2. CONSOLIDATED FINANCIAL STATEMENTS	9
3. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 30 SEPTEMBER 2022	14
1	GENERAL INFORMATION	14
2	BASIS OF PRESENTATION	17
3	MAIN ACCOUNTING POLICIES	18
4	SEGMENT REPORTING	20
5	TANGIBLE AND INTANGIBLE ASSETS	23
6	GOODWILL	25
7	INVESTMENTS IN ASSOCIATES AND JOIN VENTURES	26
8	INCOME TAX	28
9	FINANCIAL ASSETS AND LIABILITIES	32
10	INVESTMENTS IN EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OTHER	34
COMPREHENSIVE INCOME
11	TRADE AND OTHER RECEIVABLES	36
12	DERIVATIVE FINANCIAL INSTRUMENTS	37
13	CASH AND CASH EQUIVALENTS	43
14	EQUITY INSTRUMENTS	43
15	RESERVES AND RETAINED EARNINGS	44
16	BORROWINGS	44
17	POS-EMPLOYMENT BENEFITS AND OTHERS BENEFITS	46
18	PROVISIONS FOR OTHER RISKS AND CHARGES	47
19	TRADE AND OTHER PAYABLES	48
20	SALES AND SERVICES RENDERED	49
21	REVENUE AND COSTS FOR CONSTRUCTION ACTIVITIES	49
22	OTHER OPERATING INCOME	50
23	EXTERNAL SUPPLIES AND SERVICES	50
24	PERSONNEL COSTS	51
25	OTHER OPERATING COSTS	51
26	FINANCIAL COSTS AND FINANCIAL INCOME	52
27	EXTRAORDINARY CONTRIBUTION OVER THE ENERGY SECTOR	52
28	EARNINGS PER SHARE	53
29	DIVIDENDS PER SHARE	53
30	CONTINGENT ASSETS AND LIABILITIES	53
31	RELATED PARTIES	54
32	SUBSEQUENT EVENTS	56
33	EXPLANATION ADDED FOR TRANSLATION	56

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REPORT & ACCOUNTS SEPTEMBER'22 CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL PERFORMANCE

1.1 RESULTS FOR THE FIRST 9 MONTHS OF 2022

In the first 9 months of 2022, net income reached 81.4 million Euros, a 13.1 million Euros increase (+19.1%) over the same period of the previous year. Net income increased reflecting mainly the following effects: (i) increase of 17.5 million Euros in the Group EBITDA (+11.5 million Euros in EBIT), and (ii) the increase of 5.3 million Euros in financial results (+17.1%), partially offset by (iii) the increase of 1.0 million Euros in the Extraordinary Levy on the Energy Sector (+3.5%).

The following events are also worth of note:

• Similarly to the previous years, the results for 2022 reflect the continuation of the Extraordinary Levy on the Energy Sector (28.0 million Euros in 2022 and 27.1 million Euros in 20211).
• For the new regulatory period of the Electricity Sector, which will be in force from 2022 to 2025, the regulator introduced in the Electricity Transmission activity a revenue cap mechanism applied to the total controllable costs (hereinafter referred to as " Totex"), replacing the reference cost incentive model in Capex and revenue cap in Opex, which had been in force since 2009. In accordance with this new model based on Totex, REN is remunerated at a fixed annual amount defined by the regulator for the entire regulatory period from 2022 to 2025, which aims to remunerate the company's operating costs (Opex) and cost of capital (Capex), this amount being updated annually in accordance with defined cost drivers and an annual efficiency factor.

Investment was 126.0 million Euros, a 11.1% y.o.y decrease (-15.7 million Euros) and transfers to RAB increased 2.8 million Euros (+3.5%) to 83.2 million Euros. Average RAB increased by 84.8 million Euros (+2.4%), to 3,603.3 million Euros.

The average cost of debt was 1.7%, an increase of 0.1 p.p. over the previous year, and net debt reached 1,941.5 million Euros, a 18.4% decrease (-436.7 million Euros) over the same period of the previous year driven by the evolution of REN Trading's tariff deviations.

MAIN INDICATORS	September	September
(MILLIONS OF EUROS)	2022	2021	VAR.%
EBITDA	360.9	343.4	5.1%
Financial results2
-25.8	-31.1	17.1%
Net income1
81.4	68.4	19.1%
Recurrent net income	107.0	93.0	15.0%
Total Capex	126.0	141.7	-11.1%
Transfers to RAB3 (at historic costs)
83.2	80.5	3.5%
Average RAB (at reference costs)	3 603.3	3 518.5	2.4%
Net debt	1 941.5	2 378.2	-18.4%
Average cost of debt	1.7%	1.6%	0.1p.p.

_____________________________________

1. The full amount of the levy was recorded in the 1st quarter of 2022 and 2021, according to the Portuguese Securities Market Commission (CMVM) recommendations.
2. The net costs of 1.9 million Euros in September 2022 and 0.2 million Euros in September 2021 from electricity interconnection capacity auctions between Spain and Portugal - referred to as FTR (Financial Transaction Rights) were reclassified from financial income to Revenue.
3. Includes direct acquisitions (RAB related).

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REPORT & ACCOUNTS SEPTEMBER'22 CONSOLIDATED FINANCIAL STATEMENTS

Operational results - EBITDA

Domestic Power Transmission and Distribution Business

EBITDA for the domestic business reached 345.9 million Euros in the first 9 months of 2022, a 3.7% (+12.5 million Euros) increase over the same period of the previous year.

EBITDA - TRANSMISSION		September		September
(MILLIONS OF EUROS)		2022		2021	VAR.%
1)	Revenues from assets		145.9		152.0	-4.0%
	RAB remuneration1
		55.5		48.5	14.5%
	Lease revenues from hydro protection zone		0.5		0.5	-1.3%
	Incentive for improvement of the TSO's technical
		5.6		20.2	-72.1%
	performance2
	Recovery of amortizations (net of investment		70.7		68.9	2.6%
	subsidies)1
	Amortization of investment subsidies		13.6		14.0	-2.9%
	Revenues from Totex1
2)		203.6		184.6	10.3%
3)	Revenues from Opex1		78.4		79.0	-0.8%
4)	Other revenues		10.9		10.8	1.3%
5)	Own works (capitalised in investment)		15.9		15.3	4.0%
6)	Earnings on Construction (excl. own works) -
	106.8		123.1	-13.2%
Concession assets
7) OPEX		108.0		108.0	0.0%
	Personnel costs3
		43.2		41.9	3.0%
	External costs		64.9		66.1	-1.9%
8)	Construction costs - Concession assets		106.8		123.1	-13.2%
9)	Provisions/ (reversal)		0.5		0.0	n.m.
10) Impairments		0.3		0.3	0.0%
11) EBITDA (1+2+3+4+5+6-7-8-9-10)		345.9		333.4	3.7%

1. In 2022, a new regulatory period entered in force in the Electricity Sector, introducing a remuneration model based on Totex for the Electricity Transmission activity. Therefore, for comparability purposes, the 2021 values of the regulated revenue items of "RAB Remuneration", "Recovery of amortizations (net of investment subsidies)" and "Revenues from Opex " of the Electricity Transmission activity were reclassified to the item "Revenues from Totex".
2. The values presented in 2021 correspond to the Incentive for rationalization of economic investments, which was the incentive in force until
   December 31, 2021, having been replaced in 2022 by the Incentive for improvement of the TSO's technical performance with the new regulatory period for 2022-2025 for the electricity sector.
3. Includes training and seminars costs.

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REPORT & ACCOUNTS SEPTEMBER'22 CONSOLIDATED FINANCIAL STATEMENTS

The increase in EBITDA resulted mainly from:

• The increase in Electricity Transmission Activity regulated revenues (+19.0 million Euros), with the introduction of the new Totex remuneration model. The rate of return was 4.7% in September of 2022, which compares to 4.5% in the same period of the previous year. The regulated revenues recorded with the new Totex model correspond to an annual fixed rent defined by the regulator, which results from an equivalent annual rent over the estimated revenues for the 2022-2025 regulatory period, thus explaining the increase over the previous year;
• The increase of 1.8 million Euros (+2.6%) in the recovery of amortizations7, reflecting the evolution of the gross asset base;
• The increase of 7.0 million Euros in RAB remuneration (+14.5%) arising mostly from:

1. Increase of 3.3 million Euros in the remuneration of natural gas transmission regulated assets reflecting the increase in the rate of return from 4.5% in September 2021 to 5.2% in September 2022 - as a result of the positive evolution of the yields of the Portuguese Republic 10Y Treasury Bills; partially offset by the reduction of 28.3 million Euros (-3.1%) in natural gas transmission average RAB;

1. Increase of 2.8 million Euros in the remuneration of natural gas distribution regulated assets, reflecting (i) the increase in the rate of return from 4.7% in September 2021 to 5.4% in September 2022 - as a result of the positive evolution of the yields of the Portuguese Republic 10Y Treasury Bills, and (ii) the increase of 11.6 million Euros in natural gas distribution average RAB (+2.5%).

These effects were partially offset by:

• The reduction of 14.5 million Euros in the Incentive for improvement of the TSO's technical performance, reflecting the introduction of these new incentive with the new electricity regulatory period started in 2022, which replaced the previous Incentive to the rationalization of economic investments;

With respect to domestic business, it is also important to note that the natural gas distribution business contributed with EBITDA of 37.8 million Euros.

International Business

The EBITDA for international businesses reached 15.0 million Euros in the first 9 months of 2022, a 5.0 million Euros (+50.1%) increase over the same period of the previous year, resulting mainly from:

• EBITDA of Transemel - an electrical power transmission company in Chile - was 7.2 million Euros, a y.o.y. increase of 1.5 million Euros (+27.4%) reflecting essentially the increase of 1.5 million Euros in revenues from the transmission of electricity (+18.7%);
• The increase of 3.5 million Euros (+78.8%) in the recognized income from the 42.5% stake held by REN in the Chilean company Electrogas.

EBITDA - INTERNATIONAL	September	September
(MILLIONS OF EUROS)	2022	2021	VAR.%
1)	Revenues from the Transmission of Electrical Power	9.8	8.3	18.7%
2)	Other revenues	7.9	4.4	78.8%
3)	Own works (capitalized in investment)	0.3	0.0	n.m.
4) OPEX	2.9	2.7	10.1%
	Personnel costs1
	0.5	0.4	n.m.
	External costs	2.4	2.3	6.0%
5)	EBITDA (1+2+3-4)	15.0	10.0	50.1%

1 Includes costs with training.

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