IR Releases

06.11.2014

Lenenergo released its financial statements for 9M 2014 prepared in accordance with RAS

Lenenergo released its financial statements for 9M 2014 prepared in accordance with RAS. Revenue growth compared to the similar period of last year is 21%

Indicator

Unit

9M 2013

9M 2014

Change

9M 2014/

9M 2013, %

For reference:

Business Plan
for 2014

(as of 31.12.14)

Operating Results

Productive electricity supply

mln kWh

20,195

20,908

3.5%

29,211

Electricity losses

%

9.91

10.16

-0.25 p.p.

10.18

Connected capacity

MW

562

404

-28.1%

609

 - generating facilities

MW

382

150

-60.7%

 

 - other

MW

180

254

41.1%

 

Revenue and Financial Result

Sales revenue, including:

RUB mln

24,343

29,508

21.2%

48,184

 - from electricity transmission services

RUB mln

21,356

26,412

23.7%

39,834

 - from technological connection services

RUB mln

2,868

2,940

2.5%

8,183

 - from other industrial activity

RUB mln

119

156

30.6%

168

Cost

RUB mln

24,378

28,495

16.9%

41,370

Gross profit (loss)

RUB mln

-35

1,013

-3,036.3%

6,814

Profit (loss) before taxes

RUB mln

-898

-3,090

244.3%

4,454

Net profit (loss)

RUB mln

-1,293

-3,217

148.8%

2,763

EBITDA *

RUB mln

6,476

4,459

-31.1%

16,862

EBITDA margin

%

26.6

15.1

-11.5 p.p.

35.0

Credit Portfolio and Debt Position

Loans and credits **

RUB mln

34,589

44,630

29.0%

45,600

Average credit offered rate

%

8.24

8.43

0.19 p.p.

-

Net debt

RUB mln

21,218

28,886

36.1%

43,904

Net debt/EBITDA for 4 quarters

х

1.9

3.1

-

2.6

Investment Program

Capex

RUB mln

9,880

12,250

24.0%

25,864

* The indicator is 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) is reflected

Note: actual indicators for 9M 2013 and 9M 2014 and forecasted 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 9M 2014 totaled RUB 29,508 mln and relatively the same period of 2013 revenue growth amounted to RUB 5,165 mln, or 21.2%.

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

The highest growth in absolute terms occurred in electric power transmission and amounted to RUB 5,057 mln, or 23.7% that was mainly caused by the increase in the average tariff by 19.0% due to the growth of the approved joint operation tariffs for electric power transmission services for 2014 in comparison with joint operation tariffs for 2013.

Growth of revenue from rendering services on technological connection compared to 9M 2013 amounted to RUB 72 mln, or 2.5%.  Positive dynamics in revenue was put at planning to perform accrued obligations towards applicants. The reduction of the volume of connected capacity compared to 9M 2013 by 158 MW is associated with decreased capacity for generating electricity facilities, while for other groups of applicants the volume of connected capacity on the contrary increased by 74 MW, which is also associated with the execution of accrued obligations towards the applicants.

Growth of revenue from other industrial activity by RUB 36 mln, or 30.6% compared to 9M 2013 was mainly caused by reflection in 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 9M 2014 totaled RUB 28,495 mln, and compared to 9M 2013 the growth of costs amounted to RUB 4,117 mln, or 16.9%. The most significant gain was marked in:

-        purchased power to compensate for losses (13%, or RUB 456 mln) – mainly due to the growth of unregulated tariff to purchase losses by 13% caused by the increased sales allowance over the Leningrad Region in 9.9 times approved for 2014 in comparison with that which existed 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 (72%, or RUB 2,706 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 2013. In this regard these expenses were not included in the financial report of JSC Lenenergo for 9M 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 514 mln) due to the increase in the book value of fixed assets in connection with commissioning of fixed assets due to implementation of the investment program;

-        compensation fund adjusted for insurance premiums (7%, or RUB 221 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 (50%, or RUB 185 mln) due to the increase in the property tax rate on power network equipment that is subject to taxation (pursuant to item 3 of Art. 380 of the Tax Code of the Russian Federation the tax rate on this group of assessed property in 2014 was 0.7%, in 2013 – 0.4%).

Gross profit of JSC Lenenergo by results of 9M 2014 totaled RUB 1,013 mln that is above the indicator of the similar period of previous year by RUB 1,048 mln. For 9M 2013 the Company received gross loss of RUB 35 mln.

Net loss of the Company by results of 9M 2014 totaled RUB 3,217 mln, and compared to the similar period of 2013 financial result deteriorated by RUB 1,924 mln (for 9M 2013 the Company earned net loss in the amount of RUB 1,293 mln). The formation of reserve for other contingent liabilities formed for 9M 2014 in the amount of RUB 3,232.8 mln influenced the growth of net loss primarily 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, and at the end of the year the adjustment of the value of reserves downward is expected.

EBITDA Formation

EBITDA characterizing cash flow generated by the Company before taxes and interest payments totaled RUB 4,459 mln by results of 9M 2014 and compared to the same period of last year declined by RUB 2,017 mln, or 31.1%. 

RUB mln

Indicators

Formula

9M 2013

9M 2014

Change

9M 2014/
9M 2013, %

Revenue

1

24,343

29,508

21.2%

 

Cost excluding depreciation

2

18,200

21,810

19.8%

 

Gross profit + depreciation

3 = 1 - 2

6,143

7,698

25.3%

 

Balance of other income and expenses (not
adjusted for interest payable and receivable)

4

334

-3,239

-1,070.9%

 

EBITDA
including:

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

6,476

4,459

-31.1%

 

Depreciation of FA and IA

6

6,177

6,685

8.2%

 

Interest payable

7

1,626

1,805

11.0%

 

Interest receivable

8

430

941

118.9%

 

Profit tax

9

396

127

-67.9%

 

Net profit

10 = 3 - 6 + 4 - 7 + 8 – 9

-1,293

-3,217

148.8%

 

The decline in EBITDA was influenced by the same factors that led to the increase in loss: the balance of other income and expenses net of interest payable and interest receivable decreased relative to the similar period of 2013 by RUB 3,573 mln and amounted to - RUB 3,239 mln (for 9M 2013 the balance was + RUB 334). The increase in the balance of other income and expenses was caused by the formation of reserve for other contingent liabilities for 9M 2014 in the amount of RUB 3,232.8 mln.

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 larger sum of principal debt.

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

The share of EBITDA in revenue (EBITDA margin) dropped by 11.5 percentage points by results of 9M 2014 and amounted to 15.1% (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 30.09.2014 compared to the same period of last year was RUB 10,041 mln (29.0%). Loans and credits were raised to finance of the Company’s investment program.

In the worsening of the situation on the capital market for the period from 01.10.2013 to 30.09.2014 and, as a consequence, the growth of rates on the concluded contracts, the weighted average rate on borrowed funds as of 30.09.2014 was 8.43%, which is higher than the value of the indicator for the similar period of the previous year by 0.19 percentage points.

The growth of Net debt for the past 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 (the sums of short-term investments and cash).

Net debt/EBITDA for 4 quarters Compared to the same period of 2013 increased by 1.2 points due to the growth of Net debt and lower values of EBITDA for the four quarters. Note, however, that a large part of revenue from technological connections is planned for Q4 and, respectively, EBITDA for Q4 by the end of 2014 will improve, while the expected ratio of Net debt/EBITDA as of 31.12.2014 will not exceed 3.

Investment Activity

Capex for 9M 2014 totaled RUB 12,250 mln that is 24 % higher than the indicator for 9M 2013 (RUB 9,880 mln).

Investment program implementation

9M 2013

9M 2014

Change

9M 2014/9M 2013, %

Capex, RUB mln (w/o VAT)

9,880

12,250

24%

Commissioning of fixed assets, RUB mln

6,381

8,383

31%

Financing, RUB mln (VAT included)

12,017

14,450

20%

Capacity input, MVA

450

481

7%

Capacity input, km

983

1,261

28%