IR Releases

01.08.2014

Lenenergo released its financial statements for 6M 2014 prepared in accordance with RAS. Revenue growth compared to the similar period of last year amounted to 30%

Indicator

Unit

6M 2013

6M 2014

Change

 6M 2014/

6M 2013, %

For reference

BP 2014

(as of 31.12.14)

Operational indicators

Productive electricity supply

Mln kWh

14,119

14 516

2.8%

29,211

Electricity losses

%

10.97

10.51

-0.46 p.p.

10.18

Connected capacity

MW

94

130

38.3%

609

Revenue and financial result

Sales revenue, including:

RUB mln

15,516

20,105

29.6%

48,184

 - from electricity transmission services

RUB mln

14,159

18,436

30.2%

39,834

 - from technological connection services

RUB mln

1,282

1,560

21.7%

8,183

 - from other industrial activity

RUB mln

76

110

45.1%

168

Cost

RUB mln

15,964

19,303

20.9%

41,370

Gross profit (loss)

RUB mln

-447

803

-279.5%

6,814

Profit (loss) before taxes

RUB mln

-964

-2,494

158.7%

4,454

Net profit (loss)

RUB mln

-1,135

-2,504

120.6%

2,763

EBITDA *

RUB mln

3,933

2,682

-31.8%

16,862

EBITDA margin

%

25.3%

13.3%

-12 p.p.

35.0%

Credit portfolio and debt position

Loans and credits **

RUB mln

32,580

42,701

31.1%

45,600

Average credit offered rate

%

8.33%

8.22%

0,11 p.p.

-

Net debt

RUB mln

24,046

25,998

8.1%

43,904

Net debt/ EBITDA
for the last 4 quarters

х

2.6

2.6

-

2.6

Investment program

Investment program

(deployment)

RUB mln

5,788

6,719

16.0%

25,864

* The indicator was calculated in accordance with the methodology used in the formation of the Business plan: EBITDA = Net profit + Profit tax + Depreciation + Interest expense - Interest receivable
** The amount of outstanding borrowings (debt of the Company) including interest (sum of lines 1410 and 1510 of the balance sheet) was reflected.
Note: actual indicators for 6M 2013 and 6M 2014, and expected indicators for 2014 according to the adjusted Business plan approved by the Board of Directors (Minutes # 30 of 16.04.2014) are given in the table. 

Formation of revenue and financial result

                Sales revenue by results of 6M 2014 totaled RUB 20,105 mln and relatively 2013 revenue growth amounted to RUB 4,589 mln or 29.6%.

The revenue increase was recorded in all types of activity: electric power transmission services, techno-logical connections, and other industrial activity.

The highest growth in absolute terms occurred in electric power transmission and amounted to RUB 4,277 mln (30.2%) that was mainly caused by the increase in the average tariff by 26.2% due to the growth of the approved joint operation tariffs for electric power transmission services of 2014 in comparison with joint operation tariffs of 2013.

Growth of revenue from rendering services on technological connection compared to 6M 2013 amounted to RUB 278 mln (21.7%).  Positive dynamics in revenue was put at planning in order to perform accrued obligations towards applicants.

Growth of revenue from other industrial activity by RUB 34 mln, or 45.1% compared to 6M 2013 was mainly caused by reflection in 1H 2014 of income from technical, operational and repair maintenance of JSC Kubanenergo facilities, rendered in the period of preparation and holding XXII Olympic Winter Games and XI Paralympic Winter Games 2014.

Cost of rendered services (adjusted for depreciation) by results of 6M 2014 totaled RUB 19,303 mln, and compared to 2013 the growth of costs amounted to RUB 3,339 mln (20.9%). The most significant gain was marked in:

-        purchased power to compensate for losses (9%, or RUB 237 mln) – mainly due to the growth of unregulated tariff to purchase losses by 19% caused by the increased sales allowance over the Leningrad Region (in 9.9 times) approved for 2014 in comparison with the one existing in 1H 2013 (from 66.0 RUB/thousand kWh to 720.5 RUB/thousand kWh);

-        services in electric power transmission by networks of third-party DGCs (90%, or RUB 2,169 mln) due to an attempt to change the joint operation scheme of electric power transmission and calculations for services rendered to consumers of LLC RKS-energo in the area of the third-party grid organization JSC LOESK in 1H 2013. In this regard these expenses were not included in the financial report of JSC Lenenergo in 1H 2013 (there was no change of the joint operation scheme of electric power transmission by results of 2013, and accounting of revenue and expenses on third-party grid organizations was held in Q4 2013);

-        the size of depreciation charges (8%, or RUB 330 mln) due to the increase in the book value of fixed assets in connection with input of fixed assets owing to implementation of the investment program;

-        compensation fund adjusted for insurance premiums (11%, or RUB 219 mln) due to the indexation of official salaries caused by execution of the employer’s obligation under the Industry tariff agreement, ongoing activities on motivation of the personnel of key positions and professions;

-        property tax (48%, or RUB 123 mln) in connection with increase in the rate of property tax on power network equipment subject to taxation (pursuant to item 3 of Article 380 of the Tax Code of the Russian Federation the tax rate in 2014 on this group of assessed property was 0.7%, in 2013 – 0.4%).

Gross profit of JSC Lenenergo by results of 6M 2014 totaled RUB 803 mln that is above the indicator of the similar period of previous year by RUB 1,250 mln. For 6M 2013 the Company received gross loss of RUB 447 mln.

Net loss of the Company by results of 6M 2014 totaled RUB 2,504 mln. Compared to the similar period of 2013 financial result deteriorated by RUB 1,369 mln (for 6M 2013 the Company earned net loss in the amount of RUB 1,135 mln). The reserve for other contingent liabilities formed in Q2 2014 in the amount of RUB 2,458.4 mln influenced obtaining by the Company of net loss due to existing disagreements with third-party grid organizations. The demand for creation of valuation reserves rise to obligations for which the court decision was not presented, but there were precedents for similar court decisions not in favor of the grid company. At present the Company is continuing its legal battle with third-party grid organizations.

When forming the Business plan initially a loss caused by peculiarities of activity on technological connection was put in the plan for 6M. The main part of contracts for technological connection of applicants to electric networks of the Company was closed at year-end. Therefore the most part of revenue from technological connection is planned for Q4.

EBITDA formation

EBITDA characterizing cash flow generated by the Company before taxes and interest payments totaled RUB 2,682 mln by results of 6M 2014 and compared to the same period of last year dropped by RUB 1,251 mln (-31.8%).

RUB mln

Indicators

Formula

6M 2013

6M 2014

Change

 6M 2014/

6M 2013, %

Revenue

1

15,516

20,105

29.6%

 

Cost excluding depreciation

2

11,857

14,867

25.4%

 

Gross profit + depreciation

3 = 1 - 2

3,659

5,239

43.2%

 

Balance of other income and expenses
(less interest payable and receivable)

4

274

-2,557

-1,034.4%

 

EBITDA
including:

5 = 3 + 4 = 6 + 7 - 8 + 9 + 10

3,933

2,682

-31.8%

 

Depreciation of FA and IA

6

4,106

4,436

8.0%

 

Interest payable

7

1,044

1,280

22.6%

 

Interest receivable

8

254

540

112.8%

 

Profit tax

9

171

10

-94.1%

 

Net profit

10 = 3 - 6 + 4 - 7 + 8 – 9

-1,135

-2,504

120.6%

 

The decline in EBITDA was influenced by the same factors that led to the increase in loss: balance of miscellaneous income and expenses less interest payable and receivable decreased relative to the similar period of 2013 by RUB 2,830 mln and amounted to a negative value (for 6M 2013 the balance was positive).

The increase in the amount of interest payable was largely due to the fact that during the reporting period interest accrual was made for a large sum of principal debt.

The growth of the amount of interest receivable was related to the presence of free cash and its successful placement in short-term investments by the Company during the year.

The share of EBITDA in revenue (EBITDA margin) dropped by 12 percentage points by results of 6M 2014 and amounted to 13.3% (as a result of lower EBITDA values at the revenue growth).

Credit portfolio and debt position

The growth of debt on loans and credits as of 30.06.2014 adjusted for interest (debt of the Company, the sum of lines 1410 and 1510 of the balance sheet) compared to the same period of last year amounted to RUB 10,121 mln (31.1%). Credits and loans were attracted to finance of the Company’s investment program.

Due to the refinancing of credits with high interest rates for the period from 01.07.2013 to 30.06.2014, lack of increase in interest rates under previously signed credit agreements and conclusion of new contracts under interest rates below the average market ones the average credit offered rate as of 30.06.2014 was 8.22% that is lower than the value of the indicator for the similar period of last year by 0.11 p.p.

The growth of net debt for the last 4 quarters was lower than the growth of debt on loans and credits due to the increase in the most liquid assets at the end of the period (sums of short-term financial investments and cash).

The ratio of Net debt/EBITDA for the last 4 quarters has not changed relative to similar period of 2013. 

Investment activity

Capex for 6M 2014 totaled RUB 6,719 mln that is 16 % higher than the indicator for 6M 2013. 

Investment program execution

6M 2013

6M 2014

Change
 6M 2014/
6M 2013, %

Deployment, RUB mln (w/o VAT)

5,788

6,719

16%

Commissioning of fixed assets, RUB mln

3,693

4,660

26%

Financing, RUB mln (VAT included)

7,577

9,882

30%