IR Releases

Lenenergo released its financial statements for 6M2017 prepared in accordance with IFRS

The revenue of the Lenenergo Group for 6M2017 grew by 15.4% and totaled RUB 29,742 mln. EBITDA increased by 23.1% to RUB 13,395 mln. Net profit for the reporting period was RUB 4,827 mln (6M2016: RUB 3,699 mln).

RUB mln, unless otherwise stated
Indicator	6M2017	6M2016	Change
Financial results
Sales revenue, including:	29,742	25,780	15.4%
- from electricity transmission services	24,272	22,001	10.3%
- from technological connection services	4,391	2,208	98.9%
- from other activity	1,079	1,571	(31.3%)
Operating expenses	22,817	21,305	7.1%
Operating profit	6,924	4,476	54.7%
Net profit	4,827	3,699	30.5%
Net profit margin	16.2%	14.4%	1.8,p.p.
EBITDA	13,395	10,877	23.1%
EBITDA margin	45.0%	42.2%	2.8,p.p.
Investments
Capex	7,700	6,554	17.5%
	30.06.2017	31.12.2016	Change
Indicators of the financial position statement
Assets	236,727	235,173	0.7%
Equity	151,274	148,341	2.0%
Return on equity (ROE)	5.0%	4.2%	0.8,p.p.
Liabilities	85,453	86,832	(1.6%)
Credit portfolio and debt position
Loans and credits	33,410	34,528	(3.2%)
Net debt	20,964	24,091	(13.0%)
Net debt/EBITDA for the year	0.8	1.0	-

Note:
EBITDA is calculated as profit before tat + depreciation of property, plant and equipment and amortization of intangible assets depreciation + finance expenses - finance income.
Net debt is calculated as long-term and short-term borrowings - cash and cash equivalents - short-term investments.
ROE is calculated using net profit for the past 12 months subject to the adjustments of the indicators for 6M2017 under IFRS 

Revenue and financial result

Group’s revenue

Sales revenue for 6M2017 was RUB 29,742 mln, +15.4% y-o-y (6M2016: RUB 25,780 mln).

·         The growth of revenue from electricity transmission services for 6M2017 versus 6M2016 is explained by the increase in the tariff rates in 2017 against 2016 and inclusion of consumers of the ex-responsibility area of JSC SPb ES in the amount of productive supply.

·         The growth of revenue from technological connection services for 6M2017 y-o-y (6M2016) is explained by performance of obligations towards applicants; such obligations include the works performed by Lenenergo at the end of 2016, but the close of such obligations under the contract and issuance of technological connection reports were carried out upon the applicants’ readiness in 6M2017.

·         Fall in revenue from other activity for 6M2017 versus 6M2016 by 31.3% is due to the reduction in income under compensation contracts by 86.4%.

Group’s operating expenses

Operating expenses of the Group for the reporting period were RUB 22,817 mln, +7.1% y-o-y (6M2016).

	RUB mln, unless otherwise stated
	6M2017	6M2016	Change
Total operating expenses	22,817	21,305	7.1%
Electricity transportation expenses	8,072	8,050	0.3%
Property, plant and equipment depreciation	6,264	5,120	22.3%
Payroll and payroll taxes	3,607	3,038	18.7%
Taxes, except profit tax	834	727	14.7%
Repairs and maintenance	677	549	23.3%
Expenses in the form of fines, penalty fees, forfeits	433	36	1,102.8%
Provisions for court proceedings and claims	302	469	(35.6%)
Raw materials and supplies	212	197	7.6%
Intangible assets depreciation	206	1,281	(83.9%)
Lease payment	204	292	(30.1%)
Public utility services	179	211	(15.2%)
Services of commercial electricity metering	175	175	0.0%
Expenses  for private security service	127	116	9.5%
Telecommunication and information services	121	84	44.0%
Provision / (provision reversal) for receivables impairment and write-off	110	191	(42.4%)
Social sphere expenses	100	103	(2.9%)
Consulting, legal and audit services	68	63	7.9%
Agency services	49	59	(16.9%)
Provision /(reversal of provision) for impairment of inventories	(6)	47	(112.8%)
Other operating expenses	1,083	496	118.3%

Comments concerning the dynamics of the most essential cost items:

·         Depreciation of property, plant and equipment

Growth of costs for property, plant and equipment depreciation by 22.3% was due to the increase in their book value as a result of commissioning property, plant and equipment in 2016 in the amount of RUB 20,643 mln.

·         Payroll and payroll taxes

Growth of payroll expenses by 18.7% was caused by the personnel optimization within the framework of the consolidation of business processes of the Group PJSC Lenenergo.

·         Depreciation of intangible assets

Fall in costs for intangible assets depreciation by 83.9% was due to the decrease in the depreciation of the intangible assets “Income-bearing contracts”, which were recognized in the consolidated statements regarding such companies as JSC SPb ES and JSC PES at the time of their acquisition. The major part of the income-bearing contracts was depreciated in 2016.

·         Provision / (provision reversal) for receivables impairment and write-off

Fall in the expenses for the creation of the provision for receivables impairment and write-off by 42.4% is explained mainly by the decrease in the amount of the doubtful receivables requiring the creation of the provision.

·         Provisions for court proceedings and claims

Fall in expenses for court proceedings and claims by 35.6% is due to the reversal of the earlier created provision for the litigations settled in favor of the Group.

·         Expenses in the form of fines, penalty fees, forfeits

Increase in the expenses in the form of fines, penalty fees, forfeits by 1,102.8% is mainly due to the recognition, in 6M2017, of the fine equaling RUB 303 mln, as agreed with Russia’s Energy Ministry.

·         Other operating expenses

Increase in other operating expenses by 118.3% is mainly due to the growth of the item of the services of technological connection to the grids (420%), growth of other costs under the contracts with the companies of the Group Rosseti (96%). 

Group’s operating profit

Operating profit of the Group for 6M2017 was RUB 6,924 mln, +54.7% to the similar period of 2016.

Group’s net profit

For 6M2017 the Group received Net profit of RUB 4,827 mln (6M2016: RUB 3,699 mln). The positive dynamics of 6M2017 financial result, besides the increase in the revenue for electricity transmission net of technological losses by 10.3%, was essentially influenced by the growth of technological connection revenue by RUB 2,183 mln (98.9%).

EBITDA

EBITDA for 6M2017 was RUB 13,395 mln, + 23.1% y-o-y (6M2016: RUB 10,877 mln).

Calculation of EBITDA, RUB mln

EBITDA	13,395
Profit before tax	5,698
Property, plant and equipment, and intangible assets depreciation	6,471
Financial incomes	433
Financial expenses	1,659

EBITDA margin for 6M2017 grew by 2.8 percentage points to 45.0%. The indicator dynamics is explained by higher rates of the EBITDA growth against the Group’s revenue growth. 

Credit portfolio and debt position

Credit portfolio in the form of short-term and long-term credits and loans of the company as at the end of the reporting period totaled RUB 33,410 mln, -3.2% to the similar indicator for 2016. The reduction regarding the Group’s main debt was mainly due to the early repayment of credits of JSC SPb ES in order to optimize the credit portfolio. The debt on interest fell due to the decrease in the interest rate on the exchange-traded bonds of series BO-05 following the results of the completion of offers on 23.01.2017, as well as the work performed in the first half of 2017 in order to optimize the credit portfolio and minimize the expenses for the debt servicing in the form of the reduction in the interest rates on current debt and refinancing of the credits in order to decrease interest rates.

Net debt for 6M2017 was RUB 20,964 mln, -13.0% to the similar indicator at the end of 2016. The reduction in the net debt was due to the decrease in the credit portfolio amount of the Group when cash and cash equivalent increased.

Net debt/EBITDA for the year as at the end of the reporting period was 0.8 against 1.0 as at the end of 2016

Investments

Capex amount for 6M2017 was RUB 7,700 mln, +17.5% y-o-y (6M2016: RUB 6,554 mln).