Financial Analysis

Electrica Furnizare S.A.

Muscan Petra-Julia, Papp Zsófia-Csilla

Finance and Banking English line
3rd year
Table of contents
Part 1. General information about the company 3
Introduction 3
History 3
Strategic Plan for 2019-2023 5
Board of directors 7
Organizational structure 7
Mission & vision 8
Part 2. Cash Flow Analysis 9
A. Cash from operational activities 11
B. Cash from investing activities 12
C. Cash from financing activities 12
Part 3. SWOT Analysis. 13
Strengths 13
Weaknesses 14
Opportunities 14
Threats 14

Conclusion 14
References 14
Part 1. General information about the company
Introduction
Electrica S.A. (on stock exchange: EL) is a company with private capital from Romania, listed
on the Bucharest and London stock exchanges. Electrica is the only company in Romania listed
in the field of electricity distribution and supply. The main activities of the Electrica Group are
the distribution and supply of electricity. The main shareholder of Electrica SA is the state,
represented by the Ministry of Energy, Small and Medium Enterprises and the Business
Environment (48.79%), followed by the EBRD, with 5%. North Transylvania, South
Transylvania, and North Muntenia are the three zones in which Electrica S.A. is organized for
the distribution of electricity. The company is also organized at the national level for supply,
maintenance, and energy services. In 2019, the business serves about 3.8 million clients.
Additionally, Electrica is in control of Electrica Serv, a service and maintenance firm. Electrica
Serv provides design, maintenance, inspections, updates, and repairs of energy and measuring
equipment. Electrica had a network of power lines of over 116,500 km in 2016. The corporation
owns a network of electrical lines of over 198,988 kilometers as of 2019. The Dimitrie Leonida
Technical Museum is another asset owned by the business.

History
The "Romanian Society for Industrial Electric Enterprises," founded in 1898, becomes "S.C.
ELECTRICA S.A. - Romanian Anonymous Society" in 1921, marking the beginning of the
electric era.
The first power distribution business was known as RENEL or Regia Autonomă de Electricity in
1990, following the fall of the communist government. The corporation had an installed
production capacity of roughly 20,000 MW and controlled and operated all aspect of electricity
production, transmission, and distribution in Romania. In 1998, RENEL is disbanded and
separated into three companies: RAAN (Autonomous Regia for Nuclear Activities),
Nuclearelectrica (production), and CONEL (supply and distribution) (production and research).
Since 1998, CONEL has been the organization in charge of all of the former RENEL's
production and transportation facilities (National Electricity Company). Three businesses made
up the business: Termoelectrica, which produced thermal energy and electricity from fossil fuels,
Hidroelectrica, which produced electricity from renewable sources, particularly hydropower
plants, and Electrica, which was focused on the sale and distribution of electricity. Three of the
CONEL company's subsidiaries split off to form separate businesses in 2000, including a new
one called Transelectrica that focused on the transmission of electricity across power lines.

Following the breakup of CONEL, the new Electrica firm was founded in 2000 and had eight
branches at first: "Transilvania Nord," "Transilvania Sud," "Muntenia Nord," "Muntenia Sud,"
"Moldova," "Oltenia," "Dobrogea," and "Banat." Electrica sold 51% of the shares in each of its
four branches—Moldova, Oltenia, Dobrogea, and Banat—to privatization them in 2005. For 167
million euros, the Czech firm CEZ Group purchased the branch "Electrica Oltenia," while the
German company E.ON purchased the branch "Electrica Moldova" for 100 million euros. The
Italian business Enel purchased "Dobrogea" and "Electrica Banat" for a total of 112 million. For
820 million euros, the Italian business also acquired a 64.4% ownership in "Electrica Muntenia
Sud," the largest of Electrica's divisions.

In 2002, "Electrica SA" was divided into 8 subsidiaries, as follows:

Electrica Transilvania Nord (based in Cluj-Napoca)

Electrica Transilvania Sud (based in Brașov)

Electrica Muntenia Nord (based in Ploiesti)

Electrica Muntenia Sud (based in Bucharest)

Electrica Banat (based in Timisoara)

Electrica Moldova (based in Bacău)

Electrica Oltenia (based in Craiova)

Electrica Dobrogea (based in Constanta)

In 2005, the subsidiaries Electrica Banat, Electrica Moldova, Electrica Oltenia and Electrica

Dobrogea were privatized in percentage of 51%, "Electrica SA" remaining a shareholder in them.

Following 2007, "Electrica SA" separated its three remaining subsidiaries based on their supply
and distribution-related activities to form the following subsidiaries:

Electrica Furnizare Muntenia Nord

Electrica Furnizare Transilvania Nord

Electrica Furnizare Transilvania Sud

Electrica Distribuție Muntenia Nord

Electrica Distribuție Transilvania Nord

Electrica Distribuție Transilvania Sud.
In 2008, the Electrica Muntenia Sud subsidiary underwent privatization, with the Italian
company ENEL acquiring a 64.4% interest.
Electrica Furnizare Muntenia Nord, Electrica Furnizare Transilvania Sud, and Electrica Furnizare
Transilvania Nord were merged to become SC Electrica Furnizare SA in 2011.
The three distribution businesses (Electrica Distribuție Transilvania Nord, Electrica Distribuție
Transilvania South, and Distribution Energie Electrică Romania) merged to form Distribution
Energie Electrică Romania (DEER) in 2021.

Strategic Plan for 2019-2023

The Group's main goals for the 2019–2023 period are:
 achieving synergies within the areas where the Group operates and expanding into related
domains;
 enhancing operational efficiency to consistently raise the standard of services provided to
customers;
 maintaining investments to increase the dependability of infrastructure;
 strengthening the sustainability of economic gains and improving performance.
There is a lot of interest in developing new activities based on cutting-edge technology in
addition to the traditional areas of interest, such as electricity distribution, electricity supply,
natural gas, and energy services, while continuing to track and analyze the chances for growth
through mergers and acquisitions. Additionally, a tighter interaction with the clients is sought
after, built upon the development of competences and the provision of goods and services catered
to their requirements.
The company's HR strategy aims to provide the qualified human resources required to support
the initiatives that ELSA has proposed for the next period in order to ensure the implementation
of the strategic plan for the years 2019–2023, taking into account an emphasized dynamics of the
labor market that are significantly influenced by the context of social distance. Thus, the HR
strategy aims to modernize the organization by implementing an organizational culture that has
excellence and safety as its central elements, for staff and collaborators, modernizing the
employer image, and implementing a cogent system for performance management and employee
evaluation. This ensures staff, in terms of quantity and professional competence, to increase
operational performance and achieve the strategic objectives of the Group.
The timelines of various projects have been modified to account for the additional restrictions
brought on by the pandemic context in 2021. At the Group level, a top objective is to guarantee
that important business areas have the appropriate human resources, train personnel, and take
advantage of their abilities, skills, and potential in order to boost individual performance and
labor productivity.
Through operationalized initiatives, measures aimed at the efficiency and continual improvement
of the activity, the organizational transformation process for the distribution segment, which
began in 2017, has been designed and implemented.
Additionally, at the end of 2019, the newly approved strategy's implementation at the Group
level was started. This was done in light of the megatrends that characterize the energy sector
(decarbonization, decentralization, and digitalization), which show a significant transformation
process that has accelerated internationally but also started at the national level. The national
economic environment, which puts additional pressure on regulated activities, and the energy
sector's strategic priorities have made it urgently necessary to transform electricity distribution
companies as well, making them one of the key pillars for the transformation of the energy
system. From the perspective of various implementation possibilities, from individual
optimization to the formal merger of the three distribution operators, the need and guiding
principles for changing the business model were thoroughly examined. The latter, attained by the
end of 2020, through the proposed organizational model and the start of the legal post-merger
integration program, is likely to create the conditions for compliance with the current
requirements of the framework, which have recently been in a special dynamic, as well as to
ensure medium-term operational efficiency, get the company ready for the challenges of the
energy transition, and take advantage of new medium- and long-term business opportunities.

Board of directors
Chairman of the boards of directors: Iulian Cristian Bosoanca
Chief Executive Officer: Georgeta Corina Popescu
Organizational structure

As of 31 December 2021, the Company’s associates are the following:

The Group's primary activities include managing and expanding energy distribution networks
and supplying electricity and natural gas to final users. The Group oversees the distribution of
electricity and serves as the primary electricity supplier in the counties of North Transylvania
(Cluj, Maramures, Satu Mare, Salaj, Bihor, and Bistrita-Nasaud), South Transylvania (Brasov,
Alba, Sibiu, Mures, Harghita, and Covasna), and North Muntenia (Prahova, Buzau, Dambovita,
Braila, Galati.
Mission & vision
By adjusting to the market environment and emphasizing the distinctive qualities of its firms,
Electrica Group supports the direction of its company.
 Part 2. Cash Flow Analysis
The following table presents the consolidated statement of cash flows of Electrica Group, for
2019-2021 (amounts in RON mn):
Cash Flow Statement (mil RON) 2019 2020 2021
Cash flow from operating activities
Profit for the year 206,7 387,5 -552,9
Adjustments for:
Depreciation 37,7 27,9 21,1
Amortization 442,5 463,1 459,7
Impairment of property, plant, and equipment and intangible assets, net 3,4 0,6 -3,9

Gain on disposal of property, plant and equipment, and intangible assets -2,3 -0,3 2,7

Evaluation of fixed assets recognized in profit, net - 2,4 -

(Reversal of impairment)/Impairment of trade and other receivables, net 4,9 -62,2 70,6

(Reversal of impairment)/Impairment of assets held for sale 0,4 -0,2 0,6

Change in provisions, net -9,5 -0,3 15,7

Net finance cost 8,2 17,1 26,9

Changes in employee benefits obligations -54,5 - 5,1

Gain from bargain acquisition of subsidiaries - -7,5 -

Corporate income tax expense 19,4 54,8 -79,5

656,9 882,9 -33,9

Changes in:
Trade receivables -136,0 -87,2 -391,4

Other receivables 27,2 3,8 -22,9

Prepayments - 0,6 -2,2

Inventories -10,8 4,3 -2,9
Trade payables 177,0 -76,0 274,8
Other payables 3,4 -2,3 32,5

Employee benefits 4,8 14,7 3,2

Deferred revenue 1,9 -1,3 4,0

Cash generated from operating activities 724,4 739,5 -138,9

Interest paid -12,9 -20,0 -24,1

Income tax paid -13,9 -51,7 -31,4
A. Net cash generated from operating activities 697,6 667,9 -194,4
Cash flow from investing activities
Payments for purchases of property, plant, and equipment -16,0 -6,7 -10,5

Payments for network construction related to concession agreements -887,4 -638,0 -483,8

Payments for purchase of other intangible assets -2,2 -2,2 -6,3

Proceeds from the sale of property, plant, and equipment 8,4 5,0 1,5

Proceeds from deposits with a maturity of 3 months or longer 438,0 66,4 -

Interest received 15,8 9,0 1,8

Restricted cash - - 320,0

Net cash effect from the gain of control over the acquired subsidiary - 5,6 -

Payment for acquisition of associated - - -25,8

Payment for acquisition of subsidiaries - 8,0 -

B. Net cash used for investment activities -811,4 -568,9 -203,2

Cash flow from financing activities
Proceeds from long term bank borrowings 120,3 354,3 234,7

Repayment of long term bank loans - -29,1 -385,9

Payment of lease liabilities -38,3 -29,3 -15,2

Dividends paid -247,2 -245,8 -247,6

C. Net cash used for financing activities -176,1 50,1 -414,0
D. Net increase in cash and cash equivalents (A+B+C+*) -289,9 149,1 -811,5
E. Cash and cash equivalents at the beginning of the year 546,8 256,9 406,0
F Cash and cash equivalents at the end of the year 256,9 406,0 -405,6
Check for the validity of the calculations: (F-E) has to be equal with D -289,9 149,1 -811,6
Overview
The cash flow statement provides information about a company cash receipts and cash payments
during an accounting period, showing how these cash flows link the ending cash balance to the
beginning balance shown on the company balance sheet.
The cash flow statement consists of three parts: cash flows provided by (used in) operating
activities, cash flows provided by (used in) investing activities, and cash flows provided by (used
in) financing activities.

Cash Flow statement

697.6 667.9

50.1
2019 2020 2021
-176.1 -194.4 -203.2

-414

-568.9

-811.4

A. Net cash generated from operating activities

B. Net cash used for investment activities
C. Net cash used for financing activities

A. Cash from operational activities

Cash flow from operating activities shows us the amount of money a company brings in
from its ongoing, regular business activities, such as manufacturing and selling goods or
providing a service to customers. That includes transactions, adjustments, and changes
in value, not defined as investing or financing activities. Basically this section show us
how much cash comes from sales of the company’s goods and services, less the amount
of cash needed to make and sell these goods and services.
Electrica’s cash from operating activities had a small decrease from 2019 to 2020,
followed by a huge drop in 2021. The company has positive cash flows in the first two
years, which is a good aspect, but regarding the last year, the cash flow is negative,
which is a bad thing.
B. Cash from investing activities
The cash from investing activities largely reflects the amount of cash the company has
spent on capital expenditures, such as new equipment or anything else that needed to
keep the business going. It also includes acquisitions of other businesses and monetary
investments such as money market funds.
We can observe negative values in all these three years. However, it is not necessarly a
bad thing because it shows us that the investment activities of the company expended,
which is a good aspect as long as these negative values are covered by positive values of
operating cash-flows. This is the case for the first two years, in the last year is a negative
aspect due to the fact that it has a negative operational cash flow.

C. Cash from financing activities

The cash used for financing activities describes the goings-on of cash associated with
outside financing activities. Typical sources of cash inflow would be cash raised by
selling stock and bonds or by bank borrowings. Likewise, paying back a bank loan would
show up as a use of cash flow, as would dividend payments and common stock
repurchases.
From the graph, we can notice an increase from 2019 to 2020, changing from negative
sign to positive sign, followed by an even higher negative value in 2021. A negative
figure in financing cash flow indicates that the company has paid out capital, such as
retiring or paying off long-term debt or making a dividend payment to shareholders,
which it’s a good aspect.

The bottom line on the statement is the Net Increase (Decrease) in Cash and Cash
Equivalents. It's determined by calculating the total cash inflows and outflows for each of
the three sections in the Cash Flow Statement. Again, we can see an increase from 2019
to 2020 and a high decrease from 2020 to 2021. The company generates overall positive
values only in 2020, meaning that the levels of inflows area is greater than the levels of
outflows. In 2019 and 2021 the overall level of cash flow is negative due to the higher
level of investments (intangible assets and property, plant and equipment ) and higher
level of (repayment of) loans taken from subsidiaries.
Part 3. SWOT Analysis.
An organization's strengths, weaknesses, opportunities, and threats can be identified and
analyzed using the SWOT analysis framework. The SWOT acronym is made up of these words.
The main objective of a SWOT analysis is to raise awareness of the variables that influence
business decisions or the formulation of business strategies. SWOT analyses the internal and
external environments as well as the variables that may affect the viability of a decision in order
to achieve this.

Strengths

 Equipping with high-performance equipment (including IT) and adapting processes to the

requirements of technical progress based on the increasing demands of consumers

 The major investments planned for the following years which, if the methodology for

establishing revenues and respective tariffs is taken into account, should lead to an

increase in profit.

 Currently, several services are subject to national or regional monopolies.

 The prestige of the company based on the tradition in the field as a company from a basic

sector of the economy, of national and international stature;

 Important human resources (numbers)

 Stable financial situation

Weaknesses

 Insufficient staff motivation, rigid salary system, which leads to staff migration;

 Employee mentality characterized by pessimism and conservatism

 The inflexibility of relatively high prices - in relation to those practiced by the

competition - established at the central level.

Opportunities
 Capitalizing on the energy conservation potential;
 Privatization of electricity distribution;
 The retrofitting of power plants will, at least partially, solve the problems of
environmental pollution, increasing production efficiency;
 Orientation towards advanced technologies and not towards conventional ones.
 Efficiency of activities through current investments in equipment and machinery
 performance;

Threats
 Market liberalization - internal and external competition through the emergence of
private firms with highly decentralized management and high flexibility
 Job insecurity (downsizing – unemployment or transfer to other motivating
companies);
 The economic instability affecting Romanian society;
 Loss of the leading position in the market for some strong local competitors who can
take over or series of important contracts in certain areas of the country;
 The possibility of losing important suppliers due to the impossibility of making
payments on time;

Conclusion:
The distribution and supply of power, as well as the provision of communications and IT
infrastructure, are the focus of the activity. These activities enable the application of high-
performance management under the circumstances of market liberalization and the presence of
competition in these industries. The development and use of communications and information
technologies, as well as activities related to the provision of electricity to our clients, are crucial
tasks. A wide range of services are now available to clients, including maintenance services for
electrical installations, design and consulting, repairs for energy equipment, car transport, and
commercially related activities. This development has been made possible by the creation of the
Energy Services Maintenance Directorate. In compliance with the laws now in effect and its own
statute, SC Electrica S.A. may engage in additional activities to further the purpose of the
activity.

References:
https://m.bvb.ro/infocont/infocont22/EL_20220421160903_ELSA-EN-2021-Annual-Report-
Electrica-compressed.pdf
https://energie.gov.ro/companiile-din-subordine/societatea-energetica-electrica-s-a/