ANNUAL REPORT OF âTRANSGAZâ MANAGEMENT INDIVIDUAL ...

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SNTGN “TRANSGAZ” SA Medias Annual Management Report for 2007 The operating expenses increased during 2005-2007, mainly because of the following factors: - Expenses for works and services executed by third parties increased as a result of the performance of works formerly planned to be carried out under our management; - The royalty for the concession of the NTS increased in the 4 th quarter 2007 from 5% to 10%; - The cost of the delivered import gas accrued due to an increase in the delivered gas quantities. Financial expenses The financial expenses are mainly broken-down on expenses for interests and commissions related to the loans committed and expenses for exchange rate differences which recorded a decrease because of the national currency fluctuation as opposed to other currencies. Gross profit The decrease in the gross profit for 2007 compared to 2006 is justified by: - Delayed application of new tariffs, therefore the tariff for the first year of the second regulatory period (July 1 st , 2007 – June 30 th , 2008) entered into force only in the 4 th quarter of 2007 based on negotiations with the National Energy Regulatory Authority on the value of the regulated rate of return; - Decrease in the financial proceeds generated by the depreciation of the leu in relation with the other currencies; - Doubling of the oil royalty in the 4 th quarter of 2007. Although the gross profit decreased, the “Gross Profit/Gas amount circulated through the NTS” (lei/1000 cm) ratio recorded a positive growth in 2007 as opposed to 2006, increasing from lei 15.63/1000 cm to lei 15.82/1000 cm which stands for an increase of about 1.40%. Page 44 of 54
SNTGN “TRANSGAZ” SA Medias Annual Management Report for 2007 5.1.3. Cash-flow The cash flow during 2005-2006 is rendered below: Ratio Financial year ended on December 31 st 2005 2006 2007 Operational activities: Net profit 138,447,085 237,912,527 224,006,454 Depreciation expense 62,650,342 71,278,807 73,448,093 Expense/ (revenues) for floating assets provisions 5,975,614 -13,202,598 3,266,022 Loss on receivables of various debtors 0 0 143,015 Adjustment on risk and expense provisions 3,887,872 -11,004,095 9,581,049 Penalties on dividends in arrears for 2000 – 2003 and 45,483,318 6,234,233 0 2006 Interest revenues -2,605,662 -1,703,052 -4,879,452 Interest expenses 16,330,276 14,717,567 12,196,687 Profit/loss from sales of tangible fixed assets 2,020,757 -18,761,597 93,250 Other expenses/ financial revenues 0 -832,931 -451,993 Tax on profit 36,610,652 48,377,640 45,323,764 Increase in cash from operation before floating capital amendments 308,800,254 359,421,697 362,726,889 Decrease in the balance of stocks 336,242 4,711,468 3,963,644 (increase) / decrease in balances of commercial receivables and other receivables -20,913,033 -194,193,492 -163,688,924 Increase in balances of commercial liabilities 48,030,224 160,312,593 163,559,425 Net cash-flow from operational activities 336,253,687 330,252,266 366,566,034 Cashed interest 2,381,565 2,024,387 4,881,043 Paid interests -16,194,649 -8,696,715 -5,192,094 Payments related to the employees’ share in profit -3,887,872 -4,350,025 -4,862,190 Tax on paid profit -54,592,171 -35,628,007 -48,070,130 Cash flow from operating activities 263,960,560 283,601,907 313,322,663 Cashed dividends 32,140 0 0 Sales of financial fixed assets 0 627,736 -758,851 Receipts from loans granted 0 832,931 451,993 Receipts from sales of fixed tangible assets 0 20,271,750 563,403 Fixed asset acquisition -246,940,568 -189,022,637 -202,840,254 Cash flow used for investment activities -246,908,158 -167,290,220 -202,583,701 Loan reimbursement 5,646,457 -41,884,419 -18,981,205 Loan withdrawals -14,499,667 25,889,683 52,950,000 Paid dividends 0 -71,388,676 -121,384,642 Capital increase 13,849,560 Issuance premium 251,933,300 Cash flow used for financing activities -8,853,210 -87,383,912 178,367,003 Total cash-flow 8,199,192 28,927,775 289,105,965 Variation in cash and cash equivalents Cash and cash equivalents at the beginning of the period 24,846,071 33,045,263 61,973,038 Variation in cash and cash equivalents 8,199,192 28,927,775 289,105,965 Cash and cash equivalents at the end of the period 33,045,263 61,973,038 351,079,003 5.2. Financial risk management By the nature of business, our company is subject to various risks including: credit risks, currency risks, interest rate risks, liquidity risks and capital market risks. The Page 45 of 54
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