SNGN Romgaz : Consolidated Financial Statements of SNGN ROMGAZ SA Group for the year ended December 31, 2023

S.N.G.N. ROMGAZ S.A. GROUP

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2023

PREPARED IN ACCORDANCE WITH

THE ORDER OF THE MINISTRY OF PUBLIC FINANCE 2844/2016

CONTENTS:	PAGE:
Statement of consolidated comprehensive income	1
Statement of consolidated financial position	2
Statement of consolidated changes in equity	4
Statement of consolidated cash flow	5
Notes to the consolidated financial statements	7
1. Background and general business	7
2. Significant accounting policies	7
3. Revenue and other income	19
4. Investment income	20
5. Cost of commodities sold, raw materials and consumables	20
6. Other gains and losses	20
7. Depreciation, amortization and impairment expenses	21
8. Employee benefit expense	21
9. Finance costs	21
10. Other expenses. Taxes and duties	22
11. Income tax	22
12. Property, plant and equipment	25
13. Exploration and appraisal for natural gas resources	27
14. Intangible assets. Right of use assets	28
15. Inventories	29
16. Accounts receivable	29
17. Share capital. Earnings per share	31
18. Provisions	31
19. Deferred revenue	33
20. Trade and other current liabilities	34
21. Financial instruments	35
22. Related party transactions and balances	38
23. Information regarding the members of the administrative, management and
supervisory bodies	38
24. Investment in associates	40
25. Other financial investments	41
26. Segment information	42
27. Cash and cash equivalents	45
28. Interest bearing borrowings	45
29. Other financial assets	45
30. Commitments undertaken	46
31. Commitments received	46
32. Contingencies	46
33. Joint arrangements	47
34. Auditor's fees	47
35. Events after the balance sheet date	48
36. Approval of financial statements	48

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

Year ended	Year ended
Note	December 31, 2023	December 31, 2022
Revenue	3	9,001,878	13,359,653
Cost of commodities sold	5	(107,130)	(183,578)
Investment income	4	213,008	176,979
Other gains and losses	6	(17,748)	(9,441)
Net impairment gains/(losses) on trade
receivables	16	(57,546)	(55,166)
Changes in inventory of finished goods
and work in progress	(5,767)	(2,197)
Raw materials and consumables used	5	(109,441)	(118,037)
Depreciation, amortization and
impairment expenses	7	(476,568)	(550,076)
Employee benefit expense	8	(914,054)	(846,001)
Taxes and duties	10 b)	(1,495,473)	(6,954,380)
Finance cost	9	(62,003)	(27,295)
Exploration expense	13	(84,640)	(59,714)
Share of profit of associates	24	4,873	2,350
Other expenses	10 a)	(944,191)	(658,916)
Other income	3	122,264	80,068
Profit before tax	5,067,462	4,154,249
Income tax expense	11	(2,255,353)	(1,607,537)
Profit for the year	2,812,109	2,546,712
Other comprehensive income
Items that will not be reclassified
subsequently to profit or loss
Actuarial gains/(losses) on post-
employment benefits	18 c)	(10,970)	15,839
Income tax relating to items that will
not be reclassified subsequently to
profit or loss	11	1,755	(2,534)
Total items that will not be
reclassified subsequently to profit
or loss	(9,215)	13,305
Other comprehensive income for the
year net of income tax	(9,215)	13,305
Total comprehensive income for the
year	2,802,894	2,560,017
Basic and diluted earnings per share	17 b)	0.0073	0.0066

'000 RON

These financial statements were endorsed by the Board of Directors on March 22, 2024.

Răzvan Popescu

Chief Executive Officer

Gabriela Trânbițaș

Chief Financial Officer

'000 RON

S.N.G.N. ROMGAZ S.A. GROUP

STATEMENT OF CONSOLIDATED FINANCIAL POSITION

Note

December 31, 2023	December 31, 2022
ASSETS
Non-current assets
Property, plant and equipment	12	5,891,788	5,039,314
Intangible assets	14 a)	5,135,930	5,140,425
Investments in associates	24	33,410	28,537
Deferred tax asset	11	324,175	199,016
Right of use asset	14 b)	11,596	8,766
Other financial investments	25	5,616	5,616
Total non-current assets	11,402,515	10,421,674
Current assets
Inventories	15	301,690	284,007
Trade and other receivables	16 a)	1,398,953	1,373,664
Contract costs	-	3
Other financial assets	30	2,505,463	99,597
Other assets	16 b)	321,799	265,232
Cash and cash equivalents	27	535,210	1,883,882
Total current assets	5,063,115	3,906,385
Total assets	16,465,630	14,328,059
EQUITY AND LIABILITIES
Equity
Share capital	17 a)	385,422	385,422
Reserves	4,971,109	3,579,274
Retained earnings	6,204,783	6,111,869
Total equity	11,561,314	10,076,565
Non-current liabilities
Retirement benefit obligation	18	189,314	168,830
Deferred revenue	19	370,941	230,419
Lease liabilities	10,450	7,499
Borrowings	28	808,373	1,125,534
Provisions	18	373,536	210,838
Total non-current liabilities	1,752,614	1,743,120

'000 RON

'000 RON

S.N.G.N. ROMGAZ S.A. GROUP

STATEMENT OF CONSOLIDATED FINANCIAL POSITION

Note

December 31, 2023	December 31, 2022
Current liabilities
Trade payables	20	146,111	110,006
Contract liabilities	153,723	263,340
Current tax liabilities	11	1,766,637	1,177,498
Deferred revenue	19	7	11
Provisions	18	121,732	321,489
Lease liabilities	2,579	2,181
Borrowings	28	323,349	321,581
Other liabilities	20	637,564	312,268
Total current liabilities	3,151,702	2,508,374
Total liabilities	4,904,316	4,251,494
Total equity and liabilities	16,465,630	14,328,059

'000 RON

These financial statements were endorsed by the Board of Directors on March 22, 2024.

Răzvan Popescu

Chief Executive Officer

Gabriela Trânbițaș

Chief Financial Officer

'000 RON

S.N.G.N. ROMGAZ S.A. GROUP

STATEMENT OF CONSOLIDATED CHANGES IN EQUITY

Share

capital

'000 RON

Geological
Legal	quota	Development	Reinvested	Other	Retained
reserve	reserve**)	fund reserve	profit reserve	reserves	earnings ***)	Total
'000 RON	'000 RON	'000 RON	'000 RON	'000 RON	'000 RON	'000 RON
Balance as of January 1, 2023	385,422	90,294	486,388	2,586,687	396,180	19,725	6,111,869	10,076,565
Profit for the year	-	-	-	-	-	-	2,812,109	2,812,109
Other comprehensive income for the year	-	-	-	-	-	-	(9,215)	(9,215)
Total comprehensive income for the year	-	-	-	-	-	-	2,802,894	2,802,894
Allocation to dividends *)	-	-	-	-	-	-	(1,318,145)	(1,318,145)
Allocation to development fund reserve	-	-	-	1,315,735	-	-	(1,315,735)	-
Increase in reinvested profit reserves	-	-	-	-	76,100	-	(76,100)	-
Balance as of December 31, 2023	385,422	90,294	486,388	3,902,422	472,280	19,725	6,204,783	11,561,314
Balance as of January 1, 2022	385,422	85,250	486,388	2,046,460	361,152	19,725	5,596,756	8,981,153
Profit for the year	-	-	-	-	-	-	2,546,712	2,546,712
Other comprehensive income for the year	-	-	-	-	-	-	13,305	13,305
Total comprehensive income for the year	-	-	-	-	-	-	2,560,017	2,560,017
Allocation to dividends *)	-	-	-	-	-	-	(1,464,605)	(1,464,605)
Increase in legal reserves	-	5,044	-	-	-	-	(5,044)	-
Allocation to development fund reserve	-	-	-	540,227	-	-	(540,227)	-
Increase in reinvested profit reserves	-	-	-	-	35,028	-	(35,028)	-
Balance as of December 31, 2022	385,422	90,294	486,388	2,586,687	396,180	19,725	6,111,869	10,076,565

*) In 2023 the Group's shareholders approved the allocation of dividends of RON 1,318,145 thousand (2022: RON 1,464,605 thousand), dividend per share being RON 3.42 (2022: RON 3.80).

**) The geological quota reserve was set up until 2004 in accordance with the provisions of Government Decision no. 168/1998 on the establishment of the expense quota for the development and modernization of oil and natural gas production, refining, transportation and oil distribution. The reserve cannot be distributed.

***) Retained earnings include the geological quota reserve set up after 2004 in accordance with the provisions of Government Decision no. 168/1998 on the establishment of the expense quota for the development and modernization of oil and natural gas production, refining, transportation and oil distribution. Following the Group's transition to IFRS, the reserve existing as of December 31, 2012 was transferred to retained earnings. This result is allocated based on the depreciation, respectively write-off of the assets financed using this source, based on decision of General Meeting of Shareholders. As of December 31, 2023 the geological quota reserve available for distribution is of RON 627,612 thousand (December 31, 2022: RON 714,512 thousand).

These financial statements were endorsed by the Board of Directors on March 22, 2024.

Răzvan Popescu

Gabriela Trânbițaș

Chief Executive Officer

Chief Financial Officer

STATEMENT OF CONSOLIDATED CASH FLOW

Year ended	Year ended
December 31, 2023	December 31, 2022
Cash flows from operating activities
Net profit	2,812,109	2,546,712
Adjustments for:
Income tax expense (note 11)	2,255,353	1,607,537
Share of associates' result (note 24)	(4,873)	(2,350)
Interest expense (note 9)	43,838	5,627
Unwinding of decommissioning provision (note 9,
note 18)	18,165	21,668
Interest revenue (note 4)	(213,008)	(176,979)
Net loss on disposal of non-current assets (note 6)	6,867	451
Change in decommissioning provision recognized in
profit or loss, other than unwinding (note
10,18)	33,861	(75,652)
Change in other provisions (note 10,18)	(196,640)	111,564
Net impairment of exploration assets (note 7, note
13)	23,361	66,447
Exploration projects written off (note 13)	3	16
Net impairment of property, plant and equipment
and intangibles (note 7)	59,537	74,726
Foreign exchange differences	7,382	(453)
Depreciation and amortization (note 7)	393,670	408,903
Amortization of contract costs	59	773
Net receivable write-offs and movement in
allowances for trade receivables and other
assets (note 16 c)	53,523	55,765
Net movement in write-down allowances for
inventory (note 6, note 15)	5,647	5,438
Liabilities written off	(172)	(512)
Subsidies income (note 19)	(7)	(7)
Cash generated from operations before
movements in working capital	5,298,675	4,649,674
Movements in working capital:
(Increase)/Decrease in inventory	(22,571)	21,731
(Increase)/Decrease in trade and other receivables	(243,732)	(276,839)
Increase/(Decrease) in trade and other liabilities	330,817	(526,915)
Cash generated from operations	5,363,189	3,867,651
Interest paid	(43,183)	(5,040)
Income taxes paid	(1,781,868)	(410,976)
Net cash generated by operating activities	3,538,138	3,451,635

'000 RON

'000 RON

STATEMENT OF CONSOLIDATED CASH FLOW

Year ended	Year ended
December 31, 2023	December 31, 2022
Cash flows from investing activities
Bank deposits set up and acquisition of state bonds	(6,184,938)	(3,355,306)
Bank deposits and state bonds matured	3,790,236	3,669,504
Interest received	201,844	181,067
Proceeds from sale of non-current assets	1,684	1,033
Acquisition of non-current assets	(1,141,956)	(5,529,611)
Acquisition of exploration assets	(50,746)	(96,500)
Net cash (used in)/generated by investing
activities	(3,383,876)	(5,129,813)
Cash flows from financing activities
Borrowings received	-	1,606,475
Repayment of borrowings	(322,775)	(158,907)
Dividends paid	(1,317,745)	(1,463,984)
Repayment of lease liability	(2,955)	(1,936)
Grants received (note 19)	140,541	-
Net cash used in financing activities	(1,502,934)	(18,352)
Net increase/(decrease) in cash and cash
equivalents	(1,348,672)	(1,696,530)
Cash and cash equivalents at the beginning of
the year	1,883,882	3,580,412
Cash and cash equivalents at the end of the year	535,210	1,883,882

'000 RON

These financial statements were endorsed by the Board of Directors on March 22, 2024.

Răzvan Popescu

Chief Executive Officer

Gabriela Trânbițaș

Chief Financial Officer

'000 RON

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

• 1. BACKGROUND AND GENERAL BUSINESS

  Information regarding S.N.G.N. Romgaz S.A. Group (the "Group")

  The Group is formed of S.N.G.N. Romgaz S.A. ("the Company"/"Romgaz"), as parent company, and its fully owned subsidiaries S.N.G.N. ROMGAZ S.A. - Filiala de Înmagazinare Gaze Naturale DEPOGAZ Ploiești S.R.L. ("Depogaz") and Romgaz Black Sea Limited.

  Romgaz is a joint stock company, incorporated in accordance with the Romanian legislation.

  The Company's headquarter is in Mediaş, 4 Constantin I. Motaş Square, 551130, Sibiu County.

  The Romanian State, through the Ministry of Energy, is the majority shareholder of S.N.G.N. Romgaz S.A. together with other legal and physical persons (note 17).

  The Group has as main activity:

  • 1. geological research for the discovery of natural gas, crude oil and condensate reserves;

  • 2. operation, production and usage, including trading, of mineral resources;

  • 3. natural gas production for:

    •  ensuring the storage flow continuity;

    •  technological consumption;

    •  delivery in the transmission system.

  • 4. underground storage of natural gas provided by Depogaz;

  • 5. commissioning, interventions, capital repairs for wells equipping the deposits, as well as the natural gas resources extraction wells, for its own activity and for third parties;

  • 6. electricity production and distribution.

• 2. MATERIAL ACCOUNTING POLICIES

  Statement of compliance

  The consolidated financial statements ("financial statements") of the Group are prepared in accordance with Ministry of Finance Order 2844/2016, with subsequent amendments, to approve accounting regulations in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (MOF 2844/2016). MOF 2844/2016, with subsequent amendments, is in accordance with the IFRS adopted by the European Union.

  For the purpose of the preparation of these financial statements, the functional currency of the Group is deemed to be the Romanian Leu (RON).

  Basis of preparation

  The financial statements are prepared on a going concern basis. The principal accounting policies are set out below.

  Accounting is kept in Romanian and in the national currency. Items included in these financial statements are denominated in Romanian lei. Unless otherwise stated, the amounts are presented in thousand lei (thousand RON).

  Fair value

  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 "Inventory" or value in use in IAS 36 "Impairment of assets".

  In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance to the Group of the inputs to the fair value measurement, which are described as follows:

  •  level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date;

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

•  level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

•  level 3 inputs are unobservable inputs for the asset or liability.

Basis for consolidation

Subsidiaries

The Group controls an entity when it has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when it loses control of that subsidiary.

Upon obtaining control of a newly acquired subsidiary, the Group assesses whether the acquisition constitutes an acquisition of a business or an acquisition of assets.

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the investee. Acquisition-related costs are expensed as incurred.

The Group determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organized workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

If the acquisition is not a business, it is accounted for as an acquisition of assets.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Group. All intra-group assets and liabilities, income and expenses relating to transactions between members of the Group are eliminated in full on consolidation.

Associated entities

An associate is a company over which the Group exercises significant influence through participation in decision making on financial and operational policies of the entity invested in. Investments in associates are recorded using the equity method of accounting. By this method, the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the Group's share of the investee's net assets. The Group's profit or loss includes its share of the investee's profit or loss and the Group's other comprehensive income includes its share of the investee's other comprehensive income.

Joint arrangements

A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

A joint arrangement is either a joint operation or a joint venture.

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint ventures.