REN Redes Energeticas Nacionais SGPS S A : Report and accounts 9M2020

REPORT & ACCOUNTS SEPTEMBER'20 CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial

Statements

30 September 2020

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

REPORT & ACCOUNTS SEPTEMBER'20 CONSOLIDATED FINANCIAL STATEMENTS

INDEX

1. FINANCIAL PERFORMANCE	2
1.1	RESULTS FOR THE 3RD QUARTER OF 2020	2
1.2	AVERAGE RAB AND CAPEX	5
1.3	QUARTERLY STATEMENTS OF PROFIT AND LOSS AND COMPREHENSIVE	7
INCOME FOR THE PERIODS FROM 1 JULY TO 30 SEPTEMBER 2020 AND 2019
2. CONSOLIDATED FINANCIAL STATEMENTS	9
3. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF 30 SEPTEMBER 2020	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	27
7	INVESTMENTS IN ASSOCIATES AND JOIN VENTURES	28
8	INCOME TAX	30
9	FINANCIAL ASSETS AND LIABILITIES	34
10	INVESTMENTS IN EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OTHER	36
COMPREHENSIVE INCOME
11	TRADE AND OTHER RECEIVABLES	38
12	DERIVATIVE FINANCIAL INSTRUMENTS	39
13	CASH AND CASH EQUIVALENTS	44
14	EQUITY INSTRUMENTS	44
15	RESERVES AND RETAINED EARNINGS	44
16	BORROWINGS	45
17	POS-EMPLOYMENT BENEFITS AND OTHERS BENEFITS	47
18	PROVISIONS FOR OTHER RISKS AND CHARGES	48
19	TRADE AND OTHER PAYABLES	49
20	SALES AND SERVICES RENDERED	50
21	REVENUE AND COSTS FOR CONSTRUCTION ACTIVITIES	50
22	OTHER OPERATING INCOME	51
23	EXTERNAL SUPPLIES AND SERVICES	51
24	PERSONNEL COSTS	52
25	OTHER OPERATING COSTS	52
26	FINANCIAL COSTS AND FINANCIAL INCOME	53
27	EXTRAORDINARY CONTRIBUTION OVER THE ENERGY SECTOR	53
28	EARNINGS PER SHARE	54
29	DIVIDENDS PER SHARE	54
30	CONTINGENT ASSETS AND LIABILITIES	54
31	RELATED PARTIES	55
32	SUBSEQUENT EVENTS	58
33	EXPLANATION ADDED FOR TRANSLATION	58

1

REPORT & ACCOUNTS SEPTEMBER'20 CONSOLIDATED FINANCIAL STATEMENTS

1. FINANCIAL PERFORMANCE

1.1 RESULTS FOR THE 3RD QUARTER OF 2020

In the first 9 months of 2020, net income reached 76.1 million euros, a 10.3 million euros drop (-11.9%) over the same period of the previous year. Net income reduction reflected mainly the drop of 20.9 million euros in the domestic business EBITDA (-22.4 million euros in EBIT), following the decrease in Portugal's sovereign bond yields which negatively impacts asset remuneration, and the increase of 3.8 million euros (+15.5%) in the Extraordinary Levy on the Energy Sector, reflecting the inclusion of Portgás' levy. On the other hand, the EBITDA from international businesses increased 5.4 million euros (+98.7%) when compared to the same period of the previous year, reflecting Transemel's acquisition in October of 2019, and financial results increased 2.8 million euros (+7.0%).

Similarly to the previous years, the results for 2020 reflect the continuation of the Extraordinary Levy on the Energy Sector (28.2 million euros in 2020 and 24.4 million euros in 20191).

Investment was 103.7 million euros, a 6.0% y.o.y decrease y.o.y (-6.6 million euros) and transfers to RAB decreased 38.3 million euros to 21.9 million euros. Average RAB dropped by 64.9 million euros (-1.7%), to 3,652.9 million euros.

The average cost of debt was 1.9%, a 0.3p.p. decrease y.o.y., and net debt reached 2,743.0 million euros, a 6.1% increase (+156.5 million euros) over the same period of the previous year.

MAIN INDICATORS	September	September
(MILLIONS OF EUROS)	2020	2019	VAR.%
EBITDA	352.5	368.0	-4.2%
Financial results2
-36.7	-39.4	7.0%
Net income1	76.1	86.3	-11.9%
Recurrent net income	98.6	110.7	-10.9%
Total Capex	103.7	110.3	-6.0%
Transfers to RAB3 (at historic costs)
21.9	60.1	-63.6%
Average RAB (at reference costs)	3 652.9	3 717.8	-1.7%
Net debt	2 743.0	2 586.5	6.1%
Average cost of debt	1.9%	2.2%	-0.3p.p.

• The full amount of the levy was recorded in the 1st quarter of 2020 and 2019, according to the Portuguese Securities Market Commission (CMVM) recommendations.
  2 The net gain of 0.1 and 0.2 million euros in September 2019 and September 2020, respectively, from electricity interconnection capacity auctions between Spain and Portugal - referred to as FTR (Financial Transaction Rights) was reclassified from financial income to Revenue. 3 Includes direct acquisitions (RAB related).

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REPORT & ACCOUNTS SEPTEMBER'20 CONSOLIDATED FINANCIAL STATEMENTS

Operational results - EBITDA

Domestic Power Transmission and Distribution Business

EBITDA for the domestic business reached 341.6 million euros in the first 9 months of 2020, a 5.8% (-20.9 million euros) drop over the same period of the previous year.

EBITDA - TRANSMISSION	September	September
(MILLIONS OF EUROS)	2020	2019	VAR.%

1. Revenues from assets RAB remuneration
   Lease revenues from hydro protection zone Economic efficiency of investments
   Recovery of amortizations (net of investment subsidies)
   Amortização dos subsídios ao Investimento
2. Revenues from opex
3. Other revenues
4. Own works (capitalised in investment)
5. Earnings on Construction (excl. own works capitalised in investment) - Concession assets
6. OPEX Personnel costs4 External costs
7. Construction costs - Concession assets
8. Provisions
9. Impairments
10. EBITDA (1+2+3+4+5-6-7-8-9)

317.9	332.2	-4.3%
	140.5	-11.1%
125.0
0.5	0.5	-1.2%
18.8	18.8	0.0%
	159.0	0.5%
159.8
13.9	13.3	3.8%
97.1	97.7	-0.6%
12.2	11.7	3.9%
13.2	13.9	-4.9%
81.2	96.4	-15.7%
98.5	92.7	6.3%
41.2	41.7	-1.2%
57.3	51.0	12.4%
81.2	96.4	-15.7%
0.0	0.0	n.m.
0.3	0.3	0.0%
	362.5	-5.8%
341.6

The decrease in EBITDA resulted mainly from:

• The decrease of 15.6 million euros in RAB remuneration (-11.1%) arising from:

• The 4.9 million euros drop in the remuneration of electricity transmission regulated assets reflecting (i) the reduction in the base rate of return (RoR) from 4.9% in September 2019 to 4.6% in September 2020 - as a result of the negative evolution of the yields of the Portuguese Republic 10Y Treasury Bills, and (ii) the decrease of 10.6 million euros (-0.2%) in electricity transmission average RAB;
• Reduction of 7.5 million euros in the remuneration of natural gas transmission regulated assets reflecting (i) the reduction in the rate of return from 5.4% in September 2019 to 4.6% in September 2020 - as a result of the negative evolution of the yields of the Portuguese Republic 10Y Treasury Bills; and (ii) the reduction of 42.0 million euros (-4.2%) in natural gas transmission average RAB;
• Reduction of 3.2 million euros in the remuneration of natural gas distribution regulated assets, reflecting the reduction in the rate of return from 5.7% in September 2019 to 4.8% in September 2020 - as a result of the negative evolution of the yields of the Portuguese Republic 10Y Treasury Bills, despite the increase of 0.2 million euros in natural gas distribution average RAB.

• Includes training and seminars costs.

3