IR Releases

03.11.2015

Lenenergo releases its financial statements for 9M2015 prepared in accordance with IFRS

Lenenergo released its financial statements for 9M2015 prepared in accordance with RAS.

Indicator

Unit

9M2014

9M2015

Change

 9M2015/

9M2014,
%

Productive electricity supply

mln kWh

20,908

20,760

-0.7%

Electricity losses

%

10.64

11.55

0.91 p.p.

Connected capacity

MW

396

239

-39.6%

Sales revenue, including:

RUB mln

29,508

30,419

3.1%

- from electricity transmission services

RUB mln

26,412

28,214

6.8%

- from technological connection services

RUB mln

2,940

2,078

-29.3%

- from other industrial activity

RUB mln

156

127

-18.4%

Cost

RUB mln

28,495

30,438

6.8%

Gross profit (loss)

RUB mln

1,013

-19

-101.9%

Profit (loss) before taxes

RUB mln

-3,090

-6,285

-103.4%

Net profit (loss)

RUB mln

-3,217

-5,410

-68.2%

EBITDA *

RUB mln

5,400

4,156

-23.0%

EBITDA margin

%

18.3%

13.7%

-4.6 p.p.

Loans and credits **

RUB mln

44,630

49,594

11.1%

Average credit offered rate

%

8.43%

10.29%

1.86 p.p.

Net Debt

RUB mln

28,886

42,586

47.4%

Net Debt/EBITDA* for 4 quarters

х

2.8

4.1

49.0%

Capex

RUB mln

12,250

4,564

-86%

* The indicator is calculated as EBITDA = Net profit + income tax + Depreciation + Interest expense + Provision for impairment of debt financial
investments.

** The amount of outstanding borrowings (debt of the Company) including interest (sum of lines 1410 and 1510 of the balance sheet) is reflected.

Formation of Revenue and Financial Result

Sales revenue for 9M2015 amounted to RUB 30,419 mln, the revenue increase was RUB 911 mln, or 3.1%, compared to the same period of 2014.

The growth of revenue compared to the same period of 2014 was influenced by increased revenue from electricity transmission services by RUB 1,802 mln at a simultaneous drop in the revenue from technological connection by RUB 862 mln and revenue from other industrial activity by RUB 29 mln.

The growth of revenue from electricity transmission services was due to increased tariff rates in 2015 relative to 2014.

The decrease in revenue from technological connection services concerning the fact of 9M2014 was associated with the sequestering of the investment program in 2015.

The decrease in revenue from other industrial activity by RUB 29 mln was due to the inclusion in 2014 of income from facilities maintenance of Kubanenergo, rendered in the period of preparation and holding of the XXII Olympic Winter Games and XI Paralympic Winter Games.

Electricity losses for 9M2015 increased by 0.91 percentage points over the fact of 9M2014 and amounted to 11.55%. The growth of losses was due to the transition from June 2014 on AIMS CEM in the cross section of Lenenergo - FGC UES to determine the amount of electricity supply to the network of Lenenergo (the calculation method agreed upon by the parties was previously applied). Thus, since the level of electricity consumption by the consumers of St. Petersburg and the Leningrad Region has not changed significantly, the increase in electricity supply in the network has resulted in the growth of factual losses in the electric networks of Lenenergo.

Cost of services (including depreciation) for 9 months 2015 amounted to RUB 30,438 mln, the growth compared to 9M2014 was RUB 1,943 mln, or 6.8%.  The cost increase was primarily influenced by the growth of costs for purchased power to compensate for losses not regulated by the Company, the growth of services of distribution grid companies at the expense of the growth of tariffs and increase in the depreciation of fixed assets due to the execution of the investment program. At the same time, the costs for FGC UES’s services were down due to the reduction of losses and the actual average tariff for electricity purchase to compensate for losses in the UNEG networks, and operating expenses under a number of articles due to the implementation in the Company of the Plan of actions to increase efficiency and improve the economic and financial position of Lenenergo in part of costs optimization.

Gross profit of Lenenergo for 9M2015 totaled RUB (19 mln) that is below the indicator of the same period of the previous year by RUB 1,032 mln. For 9M2015, the Company received gross profit of RUB 1,013 mln.

Net loss of the Company for 9M2015 amounted to RUB 5,410 mln. The financial result was below the indicator of the same period of 2014 by RUB 2,193 mln (for 9M2014, the Company received net loss of RUB 3,217 mln). The increase in net loss compared to the same period of 2014 was mainly associated with the increase in the negative balance of other income and expenses by RUB 2,163 mln due to the growth of the balance of valuation allowances for bad debts and increased interest expenses, and the drop of gross profit by RUB 1,032 mln at the expense of the cost growth.

Formation of EBITDA

EBITDA characterizing cash flow generated by the Company before taxes and interest payments for 9M2015 totaled RUB 4,156 mln and dropped compared to the same period of 2014 by RUB 1,243 mln, or 23%.

The decrease in EBITDA compared to the same period of 2014 was influenced by the growth of the negative balance of other income and expenses (excluding interest payable) and a slight decrease in gross profit (excluding depreciation).

The share of EBITDA in revenue (EBITDA margin) dropped by 4.6 percentage points compared to 9M2014 and amounted to 13.7% (as a result of lower EBITDA values at the growth of revenue).

Credit Portfolio and Debt Position

The growth of debt on loans and credits as at 30.09.2015 compared to the same period of last reporting year was RUB 4,964 mln, or 11.1%. Loans and credits were raised to finance of the Company’s Capex program.

The weighted average rate on raised borrowings as at 30.09.2015 amounted 10.29% and exceeds the value of the indicator for the same period of the previous year by 1.86 percentage points due to the deterioration of the situation on the capital market and raised interest rates under the existing and concluded loan agreements.

The increase in net debt to the level of the same period of 2014 exceeds the growth of the debt on borrowings due to the reduced value of the most liquid assets at the end of the period (the sum of short-term investments and cash).

The ratio of Net Debt/EBITDA for 4 quarters increased by 1.4 points compared to the same period of 2014 due to the growth in net debt and EBITDA drop for 4 quarters.

Investment Activity

Capex for 9M2015 according to the operational data as at 29.10.2015 amounted to RUB 4,564 mln, which is 86% below the indicator of the same period of 2014 (RUB 12,250 mln).


Capex program implementation

9M2014

9M2015

Change

 9M2015/

9M2014,

%

Capex, RUB mln (w/o VAT)

12,250

4,564

-86%

Commissioning of fixed assets, RUB mln

8,383

2,628

-90%

Financing, RUB mln (VAT included)

14,450

6,937

-86%

Capacity input, MVA

481

172

-88%

Capacity input, km

1,261

291

-96%

The targets are given in accordance with the approved investment program for 2015 in the structure of the investment program for 2014-2019 by Order of the Ministry of Energy of Russia of 29.08.2014, No. 562.

The deviation from the planned performance is due to the critical financial and economic state of the Company, and the lack of opportunities to attract credits to finance the investment program, and therefore – forced suspension of works and termination of contracts on the objects of the investment program.

In the current economic situation, the Company prepared by the adjustment of its investment program for 2015 and submitted it to the Ministry of Energy of Russia in the prescribed manner.

The Company has also conducted works to approve its investment program in regions of the Russian Federation.

Following the revision and taking into account the comments, the draft of the adjusted investment program for 2015 was submitted to the Ministry of Energy of Russia on 21.10.2015, No. LE/04-01/1482.

Forward-Looking Statements Regarding Expected Results in 2015:

Due to the deteriorating financial performance of Lenenergo by the end of 2014, the Group has prepared the Plan of actions to increase efficiency and improve the economic and financial position of Lenenergo, which includes the following activities held by the Company in 2015 and in the subsequent periods:

·  optimization of operating (controllable) expenses of the Company;

·  optimization of investment costs and revision (adjustment) of the Company’s investment program for 2015;

·  approval of the Company’s long-term investment program and optimization of investment costs for the period until 2020;

·  settlement of disputes between the Company and third-party grid organizations, operating on the territory of St. Petersburg and the Leningrad Region;

·  consolidation of network organizations functioning on the territory of St. Petersburg and the Leningrad Region on the basis of Lenenergo;

·  repayment of debt;

·  etc.

The Company’s management believes that the implementation of the above measures will allow maintaining the liquidity of the Group at the proper level and timely comply with all financial obligations.