S C Electroarges S A : Position of Electroarges SA - FSA Decision 238/04.03.2022 - English version

To:	The Financial Regulator ("ASF");

For the attention of: Mr. Gabriel Gradinescu, Vice-President;

Referring to: ASF VPI Notice no. 16652/26.11.2021;

Date:03.12.2021;

Dear Mr. Vice-President,

Electroarges SA (Electroarges), a company registered in the Trade Register with number J03/758/1991, unique registration code RO 156027, with its registered office in Curtea de Arges, str. Albesti, nr. 12, Arges county, e-mail [e-mail], represented by Roxana Scarlat - Vice Chairman of the Board of Directors;

Given the:

• ASF VPI Notice no. 16652/26.11.2021;

Pursuant to art. 155 paragraph 1 of the Law no. 24 / 2017, we formulate the present:

OBJECTIONS

By which we inform you that the claims included in the ASF VPI Notice no. 16652/26.11.2021 are unfounded, as there are no irregularities reported by ASF, respectively a violation by Electroarges of the obligation to present to the shareholders exact financial statements and real information regarding the economic conditions of the issuer.

In this regard, please consider the following:

REASONS

1. Electroarges complied with the legal provisions that provide for the preparation of financial statements, and the irregularities invoked by ASF do not exist

I.1. There are no irregularities regarding the situation of changes in equity

In 2020, the following other equity were recorded in the accounts:

• The amount of (-) 4,847,847 lei representing different results from the change in fair value, related to financial assets valued at fair value through other items of the comprehensive income;
• The amount of 755,656 lei representing the deferred tax recognized in the current period, related to the above difference (16% x 4,847,847 lei);
• The amount of 19,904 lei representing different results from the updating of the entity's obligation regarding the benefits granted to employees at retirement, in accordance with IAS 19;
• The amount of (-) 3,185 lei representing deferred tax related to the differences reported in the previous point (16% x19,904);
• The amount of 483,009 lei representing deferred tax corrections, related to the surplus of revaluation of buildings, registered on 31.12.2019.

Note:According to IAS 12 and IAS 16, the revaluation surplus related to fixed assets and the related deferred tax are recorded in other equity items. Given this and the fact that the amounts result from the same type of transaction, the company's management decided to present the effect of the revaluation of buildings on 31.12.2019 on the net (surplus minus deferred tax), under the heading of "Other comprehensive income"from the statement of changes in equity.

The above movements were presented in the financial statements as follows:

• 1. The statement of return swap
• The difference resulting from the changes in the fair value of financial assets (-) 4,847,847 lei and the changes in the entity's obligation regarding the granting of employee benefits at retirement (+) 19,904, were presented individually for each position;
• The deferred tax related to the above differences, including the correction related to the deferred tax related to the revaluation surplus on 31.12.2019, was reported globally on a single line (775,656 lei - 3,185 + 483,009 = 1,255,480)
• 1. The statement of changes in equity:

Item description		Revaluation reserves	Retained earnings (*)
Differences from the changes in the		(-)4,847,847
fair value of financial assets
Deferred tax related to these		775,656
differences
Retirement	benetit	obligations		19,904
updates

Related deferred tax		(-)3,185
Deferred tax correction related to	483,009
revaluation reserves
Transfer of revaluation reserves	(-)2,279,991	2,279,991
made
Total annual movements	(-)1,796,982	(-)1,775,481
Total Other comprehensive income	(-)1,796,982	(-)1,775,481
from "Changes in equity"

• For presentation purposes, the company's management decided to report the movements of other equity, minus those related to revaluations of fixed assets, on the retained earnings column, as this type of movement together with the result of the current year forms the entity's comprehensive income.

The amount of 3,898,728 lei on 31.12.2020 on the result column from the statement of changes in equity is composed of:

• Other equity, 7,088,407 lei, debit balance, representing the differences resulting from the change in the fair value related to the revaluation of assets;
• Other equity, 1,134,145 lei, credit balance, representing the deferred tax related to the above difference;
• Other equity, 9,246 lei, debit balance, representing the difference of the granted benefits;
• Other equity, 1,479 lei, credit balance, representing the tax related to the difference from the previous row;
• The retained earnings in the amount of 14,474,468 lei, credit balance;
• The outturn of the financial year in the amount of 12,411,167 lei, debit balance.

In view of the above, Electroarges SA properly applied the provisions of IAS 1, respectively recorded in the equity accounts the effect resulting from the change in the fair value of financial assets measured at fair value through other comprehensive income, as well as the related deferred tax.

I.2. There are no irregularities regarding the goodwill

The goodwill reported on 31.12.2019 and 31.12.2018 restated was determined as the difference between the share capital of the subsidiary held by the parent company and the value of the participation without the effect of past revaluations.

The company did not have at its disposal the historical financial information at the time of the acquisition in order to be able to apply the provisions of IFRS 3, so that there are no irregularities that can be attributed to the subscriber.

I.3. There are no irregularities in connection with investments in associates (consolidated financial statements)

The Electroarges SA Group reflected in its consolidated financial statements the participations held in Braiconf SA, Mobila SA and Mecanoenergetica SA as follows:

1. Braiconf SA

The investments held in this entity have been reflected in the financial statements in accordance with the provisions of IAS 28.

The determination of the value of the participation on 31.12.2020 was made starting from the balance existing on 31.12.2019 to which was added the participation quota of Electroarges SA, from the movement in 2020 of the revaluation reserve and the result of the period reported by Braiconf SA in its individual financial statements on 31.12.2020 (according to the equivalence method).

The value thus obtained was compared with the market value of the determined participation, starting from the last trading price in 2020 on BSE. As the market value is significantly lower than the value of the investment resulting from the equivalence method, there is an objective indication of impairment (IAS 28.41a) so that in the consolidated financial statements of 31.12.2020 a value adjustment of 1,093,032 lei was reported, through which this depreciation was performed.

The value of the participation determined by the equity method: 6,522,119 lei.

Market value held in Braiconf SA: 5,429,087 lei.

Impairment of value registered: 1,093,032 lei.

1. Mecanoenergetica SA

Although the necessary efforts were made, the financial statements prepared on 31.12.2020 by Mecanoenergetica SA could not be obtained or were not made public until the date of preparation of the group's consolidated financial statements. Thus, Electroarges SA did not have the information to be able to determine the adjustments necessary to report these participations, in accordance with the provisions of IAS 28.

Considering the above, the management of the Electroarges SA group took the decision to maintain the reporting value from 31.12.2019 on 31.12.2020, namely 60,332 lei.

1. Mobila SA

As in the case of Mecanoenergetica SA, the management took all the measures to take possession of the financial statements prepared by Mobila SA on 31.12.2020. In the absence

of this information, respectively the decision of Mobila SA's management to open the insolvency procedure and the suspension from trading on BSE, Electroarges SA's management took the decision to present these participations at their acquisition value, respectively 3,528,562 lei.

I.4. There are no irregularities related to tangible fixed assets

A. Both individually and consolidated, Electroarges SA's policy is to present the property buildings at market value. Thus, in 2019, the property buildings were evaluated by an independent expert, and the effects of this evaluation were reflected in the financial statements, in order to relate them to the market value.

An increase in value of 13,518,542 lei was recorded in consideration for the revaluation reserve (according to IAS 16).

In accordance with IAS 12.61A and IAS 12.62, the tax on the difference in revaluation recognized in other equity (respectively revaluation reserves) will also be recognized in other equity. The deferred tax related to the revaluation difference recognized on 31.12.2019 was in the amount of 2,645,975 lei. Subsequently, the amount of the deferred tax was corrected with the amount of 483,008 lei in the financial statements of 31.12.2020. Thus, the value of the deferred tax recognized following the revaluation on 31.12.2019 is 2,162,967 lei.

Given this and the fact that the amounts recorded in the financial statements in 2019 (revaluation surplus, respectively related deferred tax) are the result of the same type of transaction, the company's management decided to present the effect of the revaluation of buildings in 2019 in the statement of changes in equity, in net value (surplus (-) 13,518,542 lei, minus deferred tax (-) 2,645,975 lei) within the line "other comprehensive income").

B. The net effect of (-) 408,694 lei (125,704 lei increase in value recognized in counterpart with the revaluation reserve account and 534,399 lei decrease in value recognized through profit and loss account) recognized in the consolidated financial statements of 31.12.2020, as a result of the revaluation of Amplo SA buildings was presented in note 11 "Tangible fixed assets", on a separate line. Due to the insignificant value of the revaluation impact compared to the net value of the buildings reported by the group on 31.12.2020, the presentations made in the notes to the financial statements were sufficient.

C. Following the loss of control in Braiconf SA (a part of the shares were sold so that in 2019 Electroarges SA no longer holds the majority stake) and Mercur SA (the shares were sold in full), in the preparation of the consolidated financial statements of 31.12.2019 , the Electroarges SA group applied the provisions of IFRS 10.

Thus, the assets and liabilities of Braiconf SA and Mercur SA were derecognized, and the Braiconf SA investment was accounted for with IAS 28.

Fixed assets derecognized as a result of the loss of control were presented in note 11 "Tangible fixed assets" on the outflow line, cumulated with the rest of the cassations and