JSC ROSSETI
FINANCIAL RESULTS FOR FIRST HALF OF 2014
29 August 2014, Moscow, Russia – JSC ROSSETI (LSE: RSTI) (“ROSSETI” or the “Company”), the largest electricity transmission and distribution grid company in Russia, today announces its interim condensed consolidated IFRS resultsfor the six months ended 30 June 2014.
Key financial indicators:
- Revenue: RUB 379.5 bn(1H2013: RUB 349.4 bn)
- EBITDA: RUB 113.7 bn (1H2013: RUB 67.0 bn)
- AdjustedEBITDA[1]: RUB 121.9 bn(1H2013: RUB 115.0 bn)
- Adjusted EBITDA margin: 32.1% (1H2013: 32.9%)
- Net profit / (loss):RUB 31.5bn (1H2013: RUB (2.1)bn)
- Adjusted net profit[2]: RUB 38.1 bn (1H2013: RUB 36.3 bn)
- Net cash flows generated by operating activities: RUB 63.8 bn (1H2013:RUB 67.6 bn)
Key corporate highlights:
- Admission to trading of global depositary receipts of the Company on the Moscow Stock Exchange.
- Transfer of the guaranteed electricity supplier functions to certain subsidiaries of ROSSETI.
- Confirmation of the Ba1 credit rating and change of outlook from “developing” to “stable” by Moody's.
- Assignment of a long-term credit rating BBB- by Standard & Poor’s.
- Developmentof the consolidated investment programme for 2015-2019.
- Change of the English version of the Company’s name for ‘’JSC ROSSETI’’.
Commenting on the 1H 2014 financial results, Andrey Demin, First Deputy Director General for Economic Affairs and Financeof ROSSETI, said:
“We are pleased with the results of the first half of 2014. ROSSETI demonstrated a significant increase in EBITDA and net profit as a result of the improvingoperating efficiency and revenue growth, including revenue from electricity transmission services, which was higher than thegrowth of operating expenses. We see a positive effect of the consistent implementation of our strategy aimed at increasingoperating efficiency, gradual reduction of costs and optimisation of our investment programme. In the second half of the year, we will make every effort to further increase profitability and improve cost management, while fulfilling allour obligations under the approved investment programme”.
FINANCIAL SUMMARY
Indicators / 1H2014 / 1H2013 / Changebillions, RUB / billions, RUB / %
Revenue / 379.5 / 349.4 / 8.6
Operatingexpenses / (331.7) / (318.7) / 4.1
incl. amortisation / (61.1) / (56.8) / 7.6
Operating profit / 50.6 / 32.6 / 55.2
EBITDA / 113.7 / 67.0 / 69.7
AdjustedEBITDA / 121.9 / 115.0 / 6.0
Net profit/(loss) / 31.5 / (2.1) / -
Adjusted net profit / 38.1 / 36.3 / 5.0
Net cash flows from operating activities / 63.8 / 67.6 / (5.6)
Net debt / 467.9 / 367.1 / (27.5)
In1H 2014,the Company’s revenue increased by 8.6% y-o-y to RUB 379.5 bn(1H2013:RUB 349.4bn),driven byhigher revenue fromelectricity transmission services as a result of the growth of the electricity transmission tariff from 1 July 2013.
Operating expenses totaled RUB 331.7 bn, representing an increase of 4.1% y-o-y (1H 2013: RUB 318.7 bn). The growth of operating expenses was mainly relatedto the increase in the cost of electricity transmission services provided by territorial grid organizations due to the increase in their tariffs. Other major factors include the increase in personnel expenses related to the indexation of salaries in accordance with the Industry Agreement dated 1 July 2013, as well as to the increase in headcount due to the commissioning of new facilities as part of the investment programme); the increase in provisions accrued for estimated liabilities, mainly due to legal cases related to contracts for electricity transmission services provided by territorial grid organizations; and the increase in accumulated amortisationdue to the launch of new property, plant and equipment as part of the investment programme.Additionally, the reporting period saw an increase in the cost of electricity purchased for sale by certain subsidiaries acting as guaranteed suppliers, which was also due to thegrowth of electricity tariffs.
The increase in both EBITDA and net profit were driven by the revenue growth which was faster than the growth of operating expenses, as well as by the decrease in financial expenses related to the reduction of losses from impairment of investments (particularly the recognition of impairment losses from the decline in the market value of equity investments in OJSC “INTER RAO UES” as of 30 June 2013).
In 1H 2014, adjusted EBITDA grew by 6.0% y-o-y to RUB 121.9 bn (1H 2013: RUB 115.0 bn), supported by the increased operating efficiency and higher profit before tax, which was primarilydriven by the increase in revenue from electricity transmission services.
The Company’s adjusted net profit amounted to RUB 38.1 bn,a5.0% increase y-o-y(1H 2013: RUB 36.3 bn). This is attributed to revenue growth, including revenue from electricity transmission services, which was higher than the growth of operating expenses.
Total assets grew by 2.2% YTD to RUB 1,988 bn (YE2013: RUB 1,946bn) as a result of the increase in property, plant and equipment following the launch of new facilitiesas part of the investment programme, the increase in reserves due to the transition of certain subsidiaries to their own accounts for repair works, and the increase in cash on settlement accounts(on 30 June 2014, cash and cash equivalents grew by 45% YTD to RUB 89.7 bn from RUB 61.9 bn as of 31 December 2013).
In1H 2014, net debt amounted to RUB 467.9 bn(1H 2013:RUB 367.1bn).The increase was due to the growth ofthe loan portfolio as the Company attracted loan facilities to finance its investment programme.
Outlook
On 3 April 2014, the Government of the Russian Federation approved the Strategy for electricity grid development (decree № 511-r dated 3 April 2013), which is aimed at decreasing operating expenses in the industry by 15% by 2017 compared to 2012, adjusted for inflation, per unit of electric equipment services and maintenance. Additionally, according to the approved strategy, investment expenses are expected to decline by 30% by 2017 compared to 2012, while electricity losses are expected to be scaled back by 11% compared to 2012.
Further improvement in operating efficiency remains ROSSETI’ priority for 2014 as the Company aims to outpace the decrease in operating expenses set by the strategy for electricity grid development and achieve a target of 16.9% in 2017, compared to 2012 and adjusted for inflation, per unit of electric equipment services and maintenance. ROSSETI expects to meet the targets for the decrease in investment expenses and electricity losses set by the strategy.
Additionally, according to the Government directive, in 2014 the Company will decrease administrative and management expenses by at least 15% y-o-y on both the Company and subsidiary level.
* * *
The Company will hold a conference call for investors and analysts at 1:00 PM Moscow/ 10:00 PM London / 5:00 AM EDT on 29August 2014.
Participant dial-in:
Russian version
UK dial-in: / +44 (0) 20 3427 1916Russia dial-in: / +7 (495) 213 0977
USA dial-in: / +1(212) 444 0896
Confirmation code: / 8812399
English version
UK dial-in: / +44 (0) 20 7784 1036Russia dial-in: / +7 (495) 705 9450
USA dial-in: / +1 (646) 254 3367
Confirmation code: / 9535015
Participants are advised to dial in 5-10 minutes prior to the start time.
The call will be recorded and there will be a replay facility available until 11 September 2014 asfollows:
UK dial-in: / +44 (0) 20 3427 0598Russia dial-in: / +7 (495) 705 9453
USA dial-in: / +1 (347) 366 9565
Replay passcode: / Russian version: 8812399
English version: 9535015
For enquiries:
JSC ROSSETI
Maria Stepanova, Head of IR +7(495) 995 5333 (ext. 3961)
Yulia Martynova, IR +7 (495) 995 5333 (ext. 3834)
FTI Consulting
Maria Shiryaevskaya +7 (495) 795 0623
Olga Lundquist +7(495) 795 0623
About the Company
JSC ROSSETI is the largest electricity transmission and distribution grid company in Russia. It is also one of the largest electricity transmission and distribution grid companies in the world by length of electricity lines and installed transformer capacity. JSC ROSSETI holds interests in and manages 15 distribution grid companies and Federal Grid Company in Russia. The Company together with its subsidiaries owns and operates 2.25 million kilometers of electricity transmission and distribution lines with a total installed transformer capacity of 743 GVA. The Company operates in 74 regions of Russia covering an area of 13.6m sq. km.
Forward-looking statements
Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of JSC ROSSETI. You can identify forward looking statements by terms such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “will,” “could,” “may” or “might” the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Russia, rapid technological and market change in our industry, as well as many other risks specifically related to JSC ROSSETI and its operations.
Group of companies “Russian Grids”
Consolidated Interim Condensed Statement of Profit and Loss and Other Comprehensive Income
for the six months ended 30June 2014 (Unaudited)
(in millions of Russian roubles, unless otherwise stated)
Six months ended30 June 2014
Unaudited / Six months ended
30 June 2013
Unaudited
Revenue / 379,526 / 349,371
Operating expenses / (331,698) / (318,671)
Other income, net / 2,814 / 1,913
Results from operating activities / 50,642 / 32,613
Finance income / 5,194 / 5,285
Finance costs / (13,990) / (35,511)
Net finance costs / (8,796) / (30,226)
Share of profit of equity accounted investees (net of income tax) / 1 / 12
Profit before income tax / 41,847 / 2,399
Income tax expense / (10,307) / (4,486)
Profit/(loss) for the period / 31,540 / (2,087)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Net change in fair value of available-for-sale financial assets / 18 / (109)
Foreign currency translation reserve / (76) / 81
Income tax on items that may be reclassified subsequently to profit or loss / (4) / 20
Total items that may be reclassified subsequently to profit or loss / (62) / (8)
Items that will not be reclassified to profit or loss:
Remeasurements of the defined benefit liability / 1,112 / 1,032
Income tax on items that will not be reclassified to profit or loss / (136) / (131)
Total items that will not be reclassified to profit or loss / 976 / 901
Other comprehensive income for the period, net of income tax / 914 / 893
Total 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/(loss) attributable to:
Owners of the Company / 23,327 / (947)
Non-controlling interest / 9,127 / (247)
Profit/(loss) per share
Basic and diluted profit/(loss) per ordinary share (in RUB) / 0.14 / (0.01)
Group of companies “Russian Grids”
Consolidated Interim Condensed Statement of Financial Position as at 30 June 2014 (Unaudited)
(in millions of Russian roubles, unless otherwise stated)
Unaudited / 31 December 2013
ASSETS
Non-current assets
Property, plant and equipment / 1,625,968 / 1,595,862
Intangible assets / 15,853 / 16,557
Investments in equity accounted investees / 1,209 / 1,202
Non-current accounts receivable / 9,822 / 7,442
Other investments and financial assets / 25,931 / 27,309
Deferred tax assets / 4,666 / 9,012
Total non-current assets / 1,683,449 / 1,657,384
Current assets
Inventories / 27,521 / 23,920
Other investments and financial assets / 41,600 / 53,306
Current tax assets / 6,391 / 5,568
Trade and other receivables / 139,253 / 143,944
Cash and cash equivalents / 89,742 / 61,917
Total current assets / 304,507 / 288,655
Total assets / 1,987,956 / 1,946,039
Group of companies “Russian Grids”
Consolidated Interim Condensed Statement of Financial Position as at 30 June 2014 (Unaudited)
(in millions of Russian roubles, unless otherwise stated)
Unaudited / 31 December 2013
EQUITY AND LIABILITIES
Equity
Share capital / 163,154 / 163,154
Share premium / 212,978 / 212,978
Treasury shares / (2,819) / (2,819)
Other reserves / (5,662) / (6,265)
Retained earnings / 421,435 / 398,711
Total equity attributable to equity holders of the Company / 789,086 / 765,759
Non-controlling interest / 303,021 / 295,932
Total equity / 1,092,107 / 1,061,691
Non-current liabilities
Loans and borrowings / 498,253 / 492,229
Trade and other payables / 18,393 / 14,487
Employee benefits / 27,700 / 28,971
Deferred tax liabilities / 39,045 / 38,715
Total non-current liabilities / 583,391 / 574,402
Current liabilities
Loans and borrowings / 59,370 / 57,808
Trade and other payables / 240,651 / 241,266
Provisions / 12,407 / 10,397
Current tax liabilities / 30 / 475
Total current liabilities / 312,458 / 309,946
Total liabilities / 895,849 / 884,348
Total equity and liabilities / 1,987,956 / 1,946,039
Group of companies “Russian Grids”
Consolidated Interim Condensed Statement of Cash Flows for the six months ended 30 June 2014 (Unaudited)
(in millions of Russian roubles, unless otherwise stated)
Six months ended30 June 2014
Unaudited / Six months ended
30 June 2013
Unaudited
OPERATING ACTIVITIES
Profit/(loss) for the period / 31,540 / (2,087)
Adjustments for:
Depreciation, amortization and impairment / 61,139 / 56,752
Finance costs / 13,990 / 35,511
Finance income / (5,194) / (5,285)
Profit/(loss) on disposal of property, plant and equipment / (113) / 1,128
Share of profitof equity accounted investees
(net of income tax) / (1) / (12)
Loss on disposal of subsidiaries / - / 12
Other non-cash transactions / (28) / 154
Income tax expense / 10,307 / 4,486
Operating profit before working capital changes and reserves / 111,640 / 90,659
Change in trade and other receivables / 1,793 / 10,509
Change in financial assets related to employee benefit fund / 332 / 71
Change 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 / 91,427
Income taxes paid / (7,039) / (6,256)
Interest paid / (22,123) / (17,576)
Net cash flows from operating activities / 63,758 / 67,595
Six months ended
30 June 2014
Unaudited / Six months ended
30 June 2013
Unaudited
INVESTING ACTIVITIES
Acquisition of property, plant and equipment and intangible assets / (63,090) / (86,003)
Proceeds from sale of property, plant and equipment / 1,627 / 2,115
Acquisition of investments and placement of bank deposits / (19,393) / (32,874)
Proceeds from sale of investments and withdrawal of bank deposits / 33,079 / 62,586
Interest received / 4,651 / 3,349
Net cash flows used in investing activities / (43,126) / (50,827)
FINANCING ACTIVITIES
Proceeds from loans and borrowings / 50,671 / 86,076
Repayment of loans and borrowings / (43,038) / (69,997)
Purchase of non-controlling interest in subsidiaries / - / (764)
Proceeds from shares issued / - / 500
Dividends paid / (9) / -
Payment of finance lease liabilities / (431) / (1,000)
Net cash flows from financing activities / 7,193 / 14,815
Net increase in cash and cash equivalents / 27,825 / 31,583
Cash and cash equivalents at the beginning of the period / 61,917 / 59,815
Cash and cash equivalents at the end of the period / 89,742 / 91,398
1
[1] AdjustedEBITDAiscalculatedasEBITDAexcludinglossesfromimpairmentof available-for-sale investments, promissory notes and accounts receivable;
[2]Adjustednetprofitiscalculatedasnetprofitfortheperiod excluding losses from impairment of available-for-sale investments, promissory notes, accounts receivable and deferred income tax expense related to them.