18
IFRS Financial Results for 1H2014 August 29, 2014
IFRS Financial Resultsfor 1H2014
August 29, 2014
Disclaimer
2
The information contained in this presentation has been prepared by the Company and presented on an “as is” and “as available” basis, and, consequently, you shall bear the risks associated with the use of and reliance upon such information. The recipient shall not rely upon the information contained herein or its completeness, accuracy, or objectivity, for any purposes. The information contained herein shall be verified for authenticity, completeness, and updates.
Some information contained in this presentation may contain forecasts and assertions concerning future events or financial performance of ROSSETI (“Company”) and its subsidiaries. Such assertions are based on numerous assumptions related to the current and future plans of the Company’s business strategy and the conditions in which such strategy will be pursued in the future. We caution you that such assertions shall not guarantee certain results in the future and are connected with risks, uncertainty, and assumptions that may not be predicted with full certainty. Consequently, the actual results and outcomes of activities may be substantially different form the presumptions or forecasts stated in such assertions with respect to any future events. Such assertions are made as of the date of this presentation and are subject to change without notice. We have no intention of updating such assertions to bring them into line with any actual results.
This is not a prospectus or advertisement of any securities. This is not an offer or invitation to sell, or a recommendation to subscribe to or buy any securities. Nothing contained herein shall form the basis of any contract or commitment whatsoever.
March 27, 2014
Standard & Poor’s assigned a BBB- long-term credit rating to Rosseti.
February 10, 2014
Moody’s affirms ROSSETI’s Ba1 corporate rating and revises the rating outlook from developing to stable.
April 28, 2014
The Innovative Development, Energy Conservation, and Energy Efficiency Enhancement Policy is approved.
May 16, 2014
The Procurement Policy is approved.
May 20, 2014
A strategic cooperation agreement is signed with State Grid Corporation of China.
February 10, 2014The Strategy for Developing and Improving the Internal Control System of ROSSETI and Subsidiaries and Dependent Companies is approved.
Key Corporate Highlights
May 26, 2014
The Company’s GDRs were admitted to trading on the Moscow Exchange on May 28, 2014.
3
Key Financial Results
Revenue bn RUB
EBITDA bn RUB
Net income bn RUB
Net debt bn RUB
4
+8,6% +6,0%
(adj. 2)
(adj. 1)
+5,0% +27,5%
1H2013 1H201440
60
80
100
120
140
115.033121.9
32.9%32.1%
EBITDA EBITDA margin
1H2013 1H201440
140
240
340
440
540
367.1467.9
1.7
1.9
Net Debt Net Debt/ EBITDA adj.
1H2013 1H20140.0
100.0
200.0
300.0
400.0 349,4 379.5
1H2013 1H201434
35
36
37
38
39
36.3
38.1
10.4%10.0%
Net income Net income margin
1 - Adjusted EBITDA is calculated as EBITDA excluding losses from impairment of available-for-sale investments, promissory notes and accounts receivable;2 - Adjusted net profit is calculated as net profit for the period excluding losses from impairment of available-for-sale investments, promissory notes, accounts receivable and deferred income tax expense related to them.
Key Financial Indicators
5
Indicators 1H2014 1H2013 3 Change
bn RUB bn RUB bn RUB %
Revenue 379.5 349.4 30.1 8.6
Operating expenses (331.7) (318.7) 13.0 4.1
EBITDA 113.7 66.9 46.8 69.9
EBITDA (adj.) 1 121.9 115.0 6.9 6,0
Operating profit 50.6 32.6 18.0 55.2
Net profit/loss 31.5 (2.1) 33.6 -
Net profit (adj.) 2 38.1 36.3 1.8 5.0
Net debt 467.9 367.1 100.8 27.5
Revenue grew mainly due to increased revenue from electricity transmission as a result of the average tariff of electricity distribution services grew. Operating expenses increased due to the growth of the price of electricity distribution services provided by other distribution grid companies
(specifically, because of tariff grew of territorial grid organizations), personnel expenses (related to the indexation of salaries in accordance with the current Industry Agreement dated 1 July 2013 and from the increase in personnel expenses due to the commissioning of new facilities), amortization expenses (related to the commissioning of facilities as part of the investment programme), and provisioning for accrued for estimated liabilities, including provisioning for legal proceedings (mainly in relation to electricity distribution services contracts of territorial grid organizations).
The key factors contributing to a rise in EBITDA and Net Profit were the accelerated growth of revenue above the growth of operating expenses and decrease in financial expenses related to the reduction of losses from impairment of investments (specifically, the recognized impairment losses on shares in Inter RAO as a result of the decrease in their market value in the 1st half of 2013).
Adjusted EBITDA went up due to increased operating profit (resulting from higher revenue from electricity distribution) and profit before tax and because of a rise in interest expenses (resulting from the Company’s increased loan portfolio) and higher depreciation and amortization (as a consequence of putting into operation new capital assets covered by the capex program).
Adjusted Net Profit was up due to a growth in revenue from electricity transmission services. The Group’s increased net debt was due to the growth of the loan portfolio as the Company attracted loan facilities to finance its investment
programme.
1 - Adjusted EBITDA is calculated as EBITDA excluding losses from impairment of available-for-sale investments, promissory notes and accounts receivable;2 - Adjusted net profit is calculated as net profit for the period excluding losses from impairment of available-for-sale investments, promissory notes, accounts receivable and deferred income tax expense related to them.3 - Definite relative figures had been reclassificated for making comparable with reporting period data.
Revenue Structure
6
The growth in revenue from electricity transmission services was largely due to the higher average tariff of electricity distribution services;
The rise in electricity sales revenue was due to higher electricity tariffs;
The rise in revenue from network connection services was due to the larger number of signed network connection contracts as a result of the implementation of the Action Plan (Road Map) “Enhancing the Affordability of the Power Infrastructure” approved by the Decree of the Government of the Russian Federation No. 1400-r of August 09, 2013.
Revenue from electricity distribution services accounted for over 81% of revenue in the 1st half of 2014
1H2014 1H20131 Change
bn RUB bn RUB bn RUB %
Electricity transmission 307.6 283.2 24.4 8.6
Sales of electricity and capacity 55.4 51.5 3.9 7.6
Technological connection services 12.3 10.4 1.9 18.3
Other revenues 4.2 4.3 (0.1) (2.3)
Total 379.5 349.4 30.1 8.6
Revenue Structure
81,1%
14.6%
3,2% 1.1%
Electricity transmission
Sales of electricity and capacity
Technological connec-tion services
Other revenues
1 – Definite relative figures had been reclassificated for making comparable with reporting period data.
Operating Expenses Structure
7
Operating expenses change factors
1H2014bn RUB
1H20131
bn RUB
Change
bn RUB %
Personnel costs 79.2 72.6 6.6 9.1
Electricity transmission 63.2 54.7 8.5 15.5
Amortization and impairment 61.1 56.8 4.3 7.6
Electricity for compensation of technological losses 43.9 43.3 0.6 1.4
Purchased electricity for resale 30.9 28.8 2.1 7.3
Taxes other than income tax 7.1 4.9 2.2 44.9
Allowance for impairment of receivables 6.4 21.6 (15.2) (70.4)
Other expenses 39.9 36.0 3.9 10.8Total expenses
331.7 318.7 13.0 4.1
Personnel costs: increased due to wage indexation in accordance with the current Sectorial Wage Rate Agreement and due to the commissioning of new facilities under the capex program.
Electricity distribution expenses: increased primarily due to higher tariffs of territorial grid organizations.
Depreciation and amortization and impairment: increased as a consequence of putting into operation new capital assets covered by the capex program.
Purchased electricity for resale: increased due to higher tariffs of purchased electricity.
Taxes except profit tax: increased largely because of property tax raised by amendments to tax legislation (gradually abolished tax relief on property related to power lines since January 1, 2013).
Impairment of receivables: decreased due to substantial provisioning in 2013 in connection with the supplier of last resort functions taken on and performed by ROSSETI subsidiaries in 12 Russian regions.
Other expenses: increased due to provisioning for estimated liabilities for certain subsidiaries. 1H2014 1H2013
24% 23%
19% 17%
19%18%
13%14%
9%9%
2% 2%
2%7%
12% 11%Other expenses
Allowance for im-pairment of receiv-ablesTaxes other than income tax
Purchased electricity for resale
Electricity for com-pensation of techno-logical losses
Amortization and impairment
Electricity transmission
Personnel costs
1 – Definite relative figures had been reclassificated for making comparable with reporting period data.
Debt Position
Total debt breakdown bn RUB
Debt maturity structurebn RUB
8
Credit ratings Average weighted rate trends Rosseti –“BВВ-” S&P (March 2014), “Ba1”
Moody’s (July 2010) Lenenergo – “Ba2” Moody’s (November 2009) MOESK - “Ba2” Moody’s, “BВ” S&P, “ВВ+“ Fitch (October 2007 /January 2012/ August 2013) MRSK of Centre - “BB” S&P (November 2009) MRSK of Volga - “Ba2” Moody’s (October 2012) MRSK of Centre&Volga - “Ba2” Moody’s (October 2012)
MRSK of Volga - “Ba2” Moody’s (October 2012) FGC UES - “Baa3“ Moody’s, «ВВВ» Fitch, «ВВВ-» S&P (February 2006/ October 2013/March 2014)
12/31/2013 6/30/2014
225 248
325 310
Loans Bonds2H2014 2015 2016 after 2016
16 3785 110
15
46
36
213
Loans Bonds
31.
12.2
012
31.0
3.20
13
30.0
6.20
13
30.0
9.20
13
31.1
2.20
13
31.0
3.20
14
30.0
6.20
14
7.5%
8.0%
8.5%
9.0%8.6% 8.5% 8.5%
8.3%8.1% 8.2%
8.4%
EBITDA adj. Analysis
9
EBITDA adj.1H2013
Revenue growth
Other income, net growth
Personnel costs growth
Electricity transmission
expenses growth
Purchased elec-tricity for com-pensation of
technol. losses growth
Purchased elec-tricity for resale
growth
Taxes other than income taxes growth
Other operating expenses
growth
Net finance in-come and profit share from as-sos. companies
decrease
EBITDA adj.1H2014
100
110
120
130
140
150
160
115,0
+30,2 +0,9
-6,6
-8,6 -0,6-2,2
-2,2
-3,7 -0,3
121,9
Net Income adj. Analysis
10* - Including deferred income tax expenses
Net profit adj. 1H2013 EBITDA growth adj. Amortization growth Interest expense growth Income tax change* Net profit adj. 1H2014
20
25
30
35
40
45
36.3
+6,9
-4,4
-2,9
+2,2 38,1
Free Cash Flow
11
EBITDA1H2014
Changes in Working Capi-
tal
Income Tax Non-cash Ad-justments
Operating Cash Flow
Net capex Acquisition of investments
and placement of bank de-
posits
Free Cash Flow
Net borrowings & finance lease
Net Interest paid
Free cash flow to the equity
0.0
20.0
40.0
60.0
80.0
100.0
120.0113.74
85.881
38.104
27.825
-18,7
-7,0-2,1
-61,5
+13,7
+7,2
-17,5
Key Balance Sheet Indicators
Key factors affecting changes in balance sheet indicators
12
Assets Liabilities
Indicators31.06.2014 31.12.2013 Change
mln RUB mln RUB bn RUB %
Assets, including: 1,988.0 1,946.0 42.0 2.2 Non-current assets 1,683.5 1,657.4 26.1 1.6 Current assets 304.5 288.6 15.9 5.5Liabilities, including: 1,988.0 1,946.0 42.0 2.2Equity 1,092.1 1,061.7 30.4 2.9Liabilities: 895.9 884.3 11.6 1.3
- long-term 583.4 574.4 9.0 1.6
- short-term 312.5 309.9 2.6 0.8
Key factors contributing to changes in the value of non-current assets:• increased value of property, plant and equipment largely due to
putting into operation new facilities under the capex program;• increased non-current accounts receivable due to a rise in
overdue receivables for electricity distribution services.Key factors contributing to changes in the value of current assets:• higher costs of building materials and a growth in inventories due
to certain subsidiaries’ switching over to using their own resources to carry out repairs;
• considerably increased cash and cash equivalents due to a rise in cash at banks, including as a result of bank deposits closed as at the balance sheet date.
Key factors contributing to changes in the structure of equity:• increased retained earnings resulting from the reporting period.
Key factors contributing to changes in the structure of liabilities:• increased trade and other payables resulting from a rise in
advance payments received for network connection services due to the larger number of signed network connection contracts;
• increased loans and borrowings aimed at implementing the capex program;
• increased other provisions due to additional provisioning for estimated liabilities (mainly in relation to electricity distribution services contracts of territorial grid organizations, including retail operations arising from the supplier of last resort functions performed by certain subsidiaries).
13
Capex program
Areas covered by the capex program 2015-2019*
New capacity and lines commissioning(`000 km)
Sources of financing in 1H2014
28.0%
54.0%
18.0%
Transmission and distri-bution lines development
Renovation of fixed assets
Technological connection services
Capex program for 2015–2019:*
• Commissioning of transformer capacity: 107,5 GVA• Commissioning of power lines: 99,000 km
* Targets, pending approval from federal executive authorities
Financing dynamicsbn RUB (incl. VAT)
2011 2012 2013 1H20140
10
20
30
40
27.8 31.922.4
3.1
23.8
32.4 30.8
8.5
GVA `000 km2011 2012 2013 1H2014
333 329 313
93
63,0%
15.0%
4% 17.0%
Tariff-based revenues
Borrowed funds
Additionally issued shares
Connection fees and other
Thank you!
14
Appendix
15
Financial Position Statement
16
in millions of Russian roubles30 June 2014 г Unaudited 31 December 2013
ASSETSNon-current assetsProperty, plant and equipment 1 625 968 1 595 862Intangible assets 15 853 16 557Investments in equity accounted investees 1 209 1 202Non-current accounts receivable 9 822 7 442Other investments and financial assets 25 931 27 309Deferred tax assets 4 666 9 012Total non-current assets 1 683 449 1 657 384
Current assetsInventories 27 521 23 920Other investments and financial assets 41 600 53 306Current tax assets 6 391 5 568Trade and other receivables 139 253 143 944Cash and cash equivalents 89 742 61 917Total current assets 304 507 288 655Total assets 1 987 956 1 946 039EQUITY AND LIABILITIESEquityShare capital 163 154 163 154Share premium 212 978 212 978Treasury shares (2 819) (2 819)Other reserves (5 662) (6 265)Retained earnings 421 435 396 711Total equity attributable to equity holders of the Company 789 086 765 759Non-controlling interest 303 021 295 932Total equity 1 092 107 1 061 691Non-current liabilitiesLoans and borrowings 498 253 492 229Trade and other payables 18 393 14 487Employee benefits 27 700 28 971Deferred tax liabilities 39 045 38 715Total non-current liabilities 583 391 574 402
Current liabilitiesLoans and borrowings 59 370 57 808Trade and other payables 240 651 241 266Provisions 12 407 10 397Current tax liabilities 30 475Total tax liabilities 312 458 309 946Total liabilities 895 849 884 348Total equity and liabilities 1 987 956 1 946 039
Comprehensive Income Statement
17
in millions of Russian roubles
Six months ended, 30 June 2014 (Unaudited)
Six months ended, 30 June 2013 (Unaudited)
Revenue and government subsidies 379 526 349 371Operating expenses (331 698) (318 671)Other income, net 2 814 1 913Results from operating activities 50 642 32 613Finance income 5 194 5 285Finance costs (13 990) (35 511)Net finance cost (8 796) (30 226)Share of profit of equity accounted investees (net of income tax) 1 12Profit before income tax 41 847 2 399Income tax expense (10 307) (4 486)Profit/(loss) for the period 31 540 (2 087)Other comprehensive incomeItems that are or may be reclassified subsequently to profit or loss:Net change in fair value of available-for-sale financial assets 18 (109)Foreign currency translation differences for foreign operations (76) 81Income tax on items that are or may be reclassified subsequently to profit or loss (4) 20Total items that are or may be reclassified subsequently to profit or loss (62) (8)Items that will never be reclassified to profit or loss:Remeasurements of the defined benefit liability 1 112 1 032Income tax on items that will never be reclassified to profit or loss (136) (131)Total items that will not be reclassified to profit or loss 976 901Other comprehensive income for the period, net of income tax 914 893Total comprehensive income/(loss) for the period 32 454 (1 194)Profit/(loss) attributable to:Owners of the Company 22 724 (1 840)Non-controlling interest 8 816 (247)Total comprehensive income/(losses) attributable to:Owners of the Company 23 327 (947)Non-controlling interest 9 127 (247)Profit/(loss)/ income earnings per shareBasic and diluted income/(loss) earnings per ordinary share (in RUB) 0,14 (0,01)
Cash Flow Statement
18
in millions of Russian roubles
Six months ended, 30 June 2014 (Unaudited)
Six months ended, 30 June 2013 (Unaudited)
OPERATING ACTIVITIESProfit/(loss) for the period 31 540 (2 087)Adjustments for: Depreciation, amortization and impairment 61 139 56 752Finance costs 13 990 35 511Finance income (5 194) (5 285)Profit/(loss) on disposal of property, plant and equipment (113) 1 128Share of profit of equity accounted investees (net of income tax) (1) (12)Loss on disposal of subsidiaries - 12Other non-cash transactions (28) 154Income tax expense 10 307 4 486Operating profit before working capital changes and reserves 111 640 90 659Change in trade and other receivables 1 793 10 509Change in financial assets related to employee benefit fund 332 71Change in inventories (3 612) (5 210)Change in trade and other payables (17 979) (553)Change in employee benefit liabilities (1 264) (256)Change in provisions 2 010 (3 793)Cash flows from operations before income taxes and interest paid 92 920 91 427Income taxes paid (7 039) (6 256)Interest paid (22 123) (17 576)Net cash flows from operating activities 63 758 67 595INVESTING ACTIVITIES Acquisition of property, plant and equipment and intangible assets (63 090) (86 003)Proceeds from sale of property, plant and equipment 1 627 2 115Acquisition of investments and placement of bank deposits (19 393) (32 874)Proceeds from sale of investments and withdrawal of bank deposits 33 079 62 586Interest received 4 651 3 349Net cash flows used in investing activities (43 126) (50 827)FINANCING ACTIVITIESProceeds from loans and borrowings 50 671 86 076Repayment of loans and borrowings (43 038) (69 997)Purchase of non-controlling interest in subsidiaries - (764)Proceeds from shares issued - 500Dividends paid (9) -Payment of finance lease liabilities (431) (1 000)Net cash flows from financing activities 7 193 14 815Net increase /(decrease) in cash and cash equivalents 27 825 31 583Cash and cash equivalents at the beginning of the period 61 917 59 815Cash and cash equivalents at the end of the period 89 742 91 398
