IFRS Financial Results for 1H2014 August 29, 2014

IFRS Financial Results
for 1H2014
August 29, 2014
Disclaimer
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.
2
Key Corporate Highlights
May 26, 2014
May 16, 2014
March 27,
2014
February 10,
2014
The Strategy for
Developing and
Improving the Internal
Control System of
ROSSETI and
Subsidiaries and
Dependent Companies
is approved.
The Procurement Policy
is approved.
The Company’s GDRs
were admitted to trading
on the Moscow
Exchange on May 28,
2014.
Standard & Poor’s
assigned a BBB- longterm credit rating to
Rosseti.
May 20, 2014
A strategic cooperation
agreement is signed with
State Grid Corporation of
China.
April 28, 2014
February 10,
2014
Moody’s affirms
ROSSETI’s Ba1
corporate rating and
revises the rating outlook
from developing to
stable.
The Innovative
Development, Energy
Conservation, and
Energy Efficiency
Enhancement Policy is
approved.
3
Key Financial Results
Revenue
bn RUB
EBITDA (adj. 1)
bn RUB
+6,0%
+8,6%
400.0
379.5
349,4
140
120
300.0
100
200.0
32.1%
60
0.0
40
1H2013
1H2014
Net income (adj. 2)
bn RUB
1H2013
EBITDA
38.1
38
36.3
36
10.4%
+27,5%
540
440
37
1H2014
EBITDA margin
Net debt
bn RUB
+5,0%
39
367.1
467.9
1.9
340
10.0%
35
240
1.7
140
34
40
1H2013
Net income
2-
32.9%
80
100.0
1-
121.9
115.0
1H2014
Net income margin
1H2013
Net Debt
1H2014
Net Debt/ EBITDA adj.
Adjusted EBITDA is calculated as EBITDA excluding losses from impairment of available-for-sale investments, promissory notes and accounts receivable;
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.
4
Key Financial Indicators
Indicators
Revenue
Operating expenses
EBITDA
1
EBITDA (adj.)
Operating profit
Net profit/loss
Net profit (adj.) 2
Net debt
1H2014
bn RUB
1H2013 3
bn RUB
bn RUB
%
379.5
349.4
30.1
8.6
(331.7)
(318.7)
13.0
4.1
113.7
66.9
46.8
69.9
121.9
50.6
31.5
38.1
467.9
115.0
32.6
(2.1)
36.3
6.9
18.0
33.6
1.8
100.8
6,0
55.2
5.0
27.5
367.1
Change

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
programme.
was due to the growth of the loan portfolio as the Company attracted loan facilities to finance its investment
1-
Adjusted EBITDA is calculated as EBITDA excluding losses from impairment of available-for-sale investments, promissory notes and accounts receivable;
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.
2-
5
Revenue Structure
1H2014
1H20131
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
349.4
(0.1)
(2.3)
30.1
8.6
Total
379.5
Change
Revenue from electricity distribution services
accounted for over 81% of revenue in the 1st half of
2014
 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 Structure
3,2%
1.1%
Electricity transmission
14.6%
Sales of electricity and
capacity
81,1%
Technological
connection services
Other revenues
1 – Definite relative figures had been reclassificated for making comparable with reporting period data.
6
Operating Expenses Structure
Change
1H2014
bn RUB
1H20131
bn RUB
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
Total expenses
39.9
36.0
3.9
10.8
331.7
318.7
13.0
4.1
Operating expenses change factors

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).


12%
9%
13%
19%
19%
2%
2%
7%
9%
14%
2%
Allowance for
impairment of
receivables
Taxes other than
income tax
18%
Purchased electricity
for resale
17%
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.
24%
23%
Other expenses: increased due to provisioning for estimated liabilities for certain
subsidiaries.
1H2014
1H2013
1 – Definite relative figures had been reclassificated for making comparable with reporting period data.
Other expenses
11%
Electricity for
compensation of
technological losses
Amortization and
impairment
7
Debt Position
Total debt breakdown
bn RUB
Debt maturity structure
bn RUB
325
310
225
248
213
36
6/30/2014
Bonds
2015
Loans
2016
after 2016
Bonds
Average weighted rate trends
9.0%
8.5%
8.3%
8.1%
8.2%
31.03.2014
8.5%
31.12.2013
8.6%
8.5%
8.4%
8.0%
30.06.2014
30.09.2013
7.5%
30.06.2013
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)
110
85
37
31.03.2013
Credit ratings
31.12.2012
12/31/2013
Loans
46
15
16
2H2014
8
EBITDA adj. Analysis
160
150
+30,2
+0,9
140
-6,6
130
-8,6
-0,6
-2,2
-2,2
121,9
-3,7
120
-0,3
115,0
110
100
EBITDA adj.
1H2013
Revenue growth
Other income,
net growth
Personnel costs
growth
Electricity
Purchased
transmission
electricity for
expenses growth compensation of
technol. losses
growth
Purchased
electricity for
resale growth
Taxes other than Other operating
Net finance
income taxes expenses growth income and profit
growth
share from
assos.
companies
decrease
EBITDA adj.
1H2014
9
Net Income adj. Analysis
45
+6,9
40
+2,2
38,1
Income tax change*
Net profit adj. 1H2014
-4,4
36.3
-2,9
35
30
25
20
Net profit adj. 1H2013
* - Including deferred income tax expenses
EBITDA growth adj.
Amortization growth
Interest expense growth
10
Free Cash Flow
120.0
113.7
100.0
85.9
-18,7
-7,0
80.0
-2,1
60.0
+7,2
+13,7
40.0
38.1
27.8
-17,5
20.0
-61,5
0.0
EBITDA
1H2014
Changes in
Working Capital
Income Tax
Non-cash
Adjustments
Operating Cash
Flow
Net capex
Acquisition of Free Cash Flow Net borrowings Net Interest paid Free cash flow
investments and
& finance lease
to the equity
placement of
bank deposits
11
Key Balance Sheet Indicators
Indicators
Assets, including:
Non-current assets
31.06.2014
31.12.2013
mln RUB
mln RUB
bn RUB
Change
%
1,988.0
1,946.0
42.0
2.2
1,683.5
1,657.4
26.1
1.6
Current assets
304.5
288.6
15.9
5.5
Liabilities, including:
1,988.0
1,946.0
42.0
2.2
Equity
1,092.1
1,061.7
30.4
2.9
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
Liabilities:
Key factors affecting
changes in balance sheet indicators
Assets
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.
Liabilities
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).
12
Capex program
Areas covered by the capex program 2015-2019*
54.0%
Sources of financing in 1H2014
Transmission and
distribution lines
development
Tariff-based revenues
17.0%
Renovation of fixed
assets
28.0%
4%
Borrowed funds
15.0%
63,0%
Additionally issued
shares
Technological
connection services
Connection fees and
other
18.0%
New capacity and lines commissioning
(`000 km)
40
32.4
30
20
10
Financing dynamics
bn RUB (incl. VAT)
30.8
23.8
27.8
31.9
333
22.4
0
2011
2012
GVA
2013
`000 km
329
8.5
313
3.1
1H2014
93
2011
2012
2013
1H2014
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
13
Thank you!
14
Appendix
15
Financial Position Statement
in millions of Russian roubles
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investments in equity accounted investees
Non-current accounts receivable
Other investments and financial assets
Deferred tax assets
Total non-current assets
Current assets
Inventories
Other investments and financial assets
Current tax assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Treasury shares
Other reserves
Retained earnings
Total equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Non-current liabilities
Loans and borrowings
Trade and other payables
Employee benefits
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Provisions
Current tax liabilities
Total tax liabilities
Total liabilities
Total equity and liabilities
30 June 2014 г
Unaudited
31 December 2013
1 625 968
15 853
1 209
9 822
25 931
4 666
1 683 449
1 595 862
16 557
1 202
7 442
27 309
9 012
1 657 384
27 521
41 600
6 391
139 253
89 742
304 507
1 987 956
23 920
53 306
5 568
143 944
61 917
288 655
1 946 039
163 154
212 978
(2 819)
(5 662)
421 435
789 086
303 021
1 092 107
163 154
212 978
(2 819)
(6 265)
396 711
765 759
295 932
1 061 691
498 253
18 393
27 700
39 045
583 391
492 229
14 487
28 971
38 715
574 402
59 370
240 651
12 407
30
312 458
895 849
1 987 956
57 808
241 266
10 397
475
309 946
884 348
1 946 039
16
Comprehensive Income Statement
in millions of Russian roubles
Revenue and government subsidies
Operating expenses
Other income, net
Results from operating activities
Finance income
Finance costs
Net finance cost
Share of profit of equity accounted investees (net of income tax)
Profit before income tax
Income tax expense
Profit/(loss) for the period
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss:
Net change in fair value of available-for-sale financial assets
Foreign currency translation differences for foreign operations
Income tax on items that are or may be reclassified subsequently to profit or loss
Total items that are or may be reclassified subsequently to profit or loss
Items that will never be reclassified to profit or loss:
Remeasurements of the defined benefit liability
Income tax on items that will never be reclassified to profit or loss
Total items that will not be reclassified to profit or loss
Other comprehensive income for the period, net of income tax
Total comprehensive income/(loss) for the period
Profit/(loss) attributable to:
Owners of the Company
Non-controlling interest
Total comprehensive income/(losses) attributable to:
Owners of the Company
Non-controlling interest
Profit/(loss)/ income earnings per share
Basic and diluted income/(loss) earnings per ordinary share (in RUB)
Six months ended,
30 June 2014
(Unaudited)
Six months ended,
30 June 2013
(Unaudited)
379 526
(331 698)
2 814
50 642
5 194
(13 990)
(8 796)
1
41 847
(10 307)
31 540
349 371
(318 671)
1 913
32 613
5 285
(35 511)
(30 226)
12
2 399
(4 486)
(2 087)
18
(76)
(4)
(62)
(109)
81
20
(8)
1 112
(136)
976
914
32 454
1 032
(131)
901
893
(1 194)
22 724
8 816
(1 840)
(247)
23 327
9 127
(947)
(247)
0,14
(0,01)
17
Cash Flow Statement
in millions of Russian roubles
Six months ended, 30 June 2014
(Unaudited)
Six months ended,
30 June 2013
(Unaudited)
OPERATING ACTIVITIES
Profit/(loss) for the period
Adjustments for:
Depreciation, amortization and impairment
Finance costs
Finance income
Profit/(loss) on disposal of property, plant and equipment
Share of profit of equity accounted investees
(net of income tax)
Loss on disposal of subsidiaries
Other non-cash transactions
Income tax expense
Operating profit before working capital changes and reserves
Change in trade and other receivables
Change in financial assets related to employee benefit fund
Change in inventories
Change in trade and other payables
Change in employee benefit liabilities
Change in provisions
Cash flows from operations before income taxes and interest paid
Income taxes paid
Interest paid
Net cash flows from operating activities
INVESTING ACTIVITIES
Acquisition of property, plant and equipment and intangible assets
Proceeds from sale of property, plant and equipment
Acquisition of investments and placement of bank deposits
Proceeds from sale of investments and withdrawal of bank deposits
Interest received
Net cash flows used in investing activities
FINANCING ACTIVITIES
Proceeds from loans and borrowings
Repayment of loans and borrowings
Purchase of non-controlling interest in subsidiaries
Proceeds from shares issued
Dividends paid
Payment of finance lease liabilities
Net cash flows from financing activities
Net increase /(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
31 540
(2 087)
61 139
13 990
(5 194)
(113)
56 752
35 511
(5 285)
1 128
(1)
(28)
10 307
111 640
1 793
332
(3 612)
(17 979)
(1 264)
2 010
92 920
(7 039)
(22 123)
63 758
(12)
12
154
4 486
90 659
10 509
71
(5 210)
(553)
(256)
(3 793)
91 427
(6 256)
(17 576)
67 595
(63 090)
1 627
(19 393)
33 079
4 651
(43 126)
(86 003)
2 115
(32 874)
62 586
3 349
(50 827)
50 671
(43 038)
(9)
(431)
7 193
27 825
61 917
89 742
86 076
(69 997)
(764)
500
(1 000)
14 815
31 583
59 815
91 398
18