RusHydro announces half-yearly 2013 IFRS results

RusHydro announces half-yearly 2013 IFRS results

 

RusHydro Group (Group, ticker symbol: MICEX-RTS, LSE: HYDR; OTCQX: RSHYY) announces its condensed consolidated interim unaudited financial information for the first half of 2013 under International Financial Reporting Standards (IFRS).

Key highlights for the 1^st half of 2013:

-       Strong quarterly and half-yearly results on high storage levels and affluent water inflows, cost control, favorable pricing environment (average selling spot power prices in the 1st price zone ? 1,036 RUB/MWh (+10%), in 2nd price zone ? 731 RUB/MWh (+15%));

-       Operating costs increased by 1.6%, RusHydro Group plans to hold the growth of operating costs in FY2013 below inflation;

-       EBIT ? RUB 27.2 bn (+46.5%), EBITDA ? RUB 38.7 bn (+22.8%);

-       Net profit ? RUB 10.8 bn compared to net loss of RUB 0.4 bn in the same period of previous year; net profit adjusted for non-cash items ? RUB 23 bn (+38.0%).

 

1H 2013/2012 financial highlights (in RUB mn) ^[1]

	1H 2013	1H 2012	Chg,%	2Q13	2Q12	Chg, %
Revenue, including	161,869	151,155	7.1%	73,511	65,970	11.4%
Revenue from operations	156,448	145,802	7.3%	70,866	63,193	12.1%
Government grants	5,421	5,353	1.3%	2,645	2,777	-4.8%
Expenses	134,712	132,622	1.6%	64,442	61,342	5.1%
EBIT[2]	27,157	18,533	46.5%	9,069	4,628	96.0%
EBITDA[3]	38,720	31,529	22.8%	15,598	12,213	27.7%
Net profit	10,818	(436)	-	-	-	-
Net profit (adj.) [4]	23,001	16,663	38.0%	8,413	5,643	49.1%

 

Operating results

In the 2^nd quarter of 2013, total electricity generation by power plants of JSC RusHydro, its subsidiaries and the Boguchanskaya hydropower plant (HPP)^[5] amounted to 34,630 GWh, a 17% increase as compared to the 2^nd quarter of 2012; total power generation in the 1^st half of 2013 amounted to 66,633 GWh (+16%). In the 2^nd quarter of 2013, hydropower plants of JSC RusHydro, its subsidiaries and the Boguchanskaya HPP increased electricity generation by 23% to 28,005 GWh, generation in the 1^st half of 2013 amounted to 50,303 GWh (+25%).

The underlying factors of the RusHydro Group production change were:

-       higher than average water resources in reservoirs in the Far East and Center of Russia;

-       water inflow to reservoirs of the Volga-Kama cascade higher than long-run average;

-       water inflow to major reservoirs of Siberia slightly higher or close to long-run average;

Furthermore, in the end of 2012 the first units of Boguchanskaya hydropower plant were launched into commercial operation.

In the 1^st half of 2013, average electricity selling price on the ?day-ahead? market, a key segment of wholesale electricity market, in the 1^st price zone amounted to RUB 1,036/MWh (+10% compared to the same period of 2012), in the 2^nd price zone electricity price was RUB 731/MWh (+15% as compared to the same period of 2012). In the 2^nd quarter of 2013, the average electricity selling price on the ?day-ahead? market in the 1^st price zone amounted to RUB 1,026/MWh (+13%), in the 2^nd price zone ? RUB 721/MWh (+13%). According to the Market Council, a significant increase in prices on the ?day-ahead? in 1^st pricing zone in 2013 as compared to 2012 was due to increase in gas tariffs starting from June 1, 2012, the main fuel for thermal plants in the European zone of Russia; in the 2^nd price zone ? due to a combination of factors, including price increase in bids of certain power stations, decrease in volumes of spinning reserve of thermal plants load as well as decrease in volumes of price-taking supply in generator?s bids in excess of technological minimum.

Events in the 1^st half of 2013

-       In February 2013, the Group received the following assets as payment for JSC RusHydro?s shares of additional issue:

?  9.6% of ordinary shares of JSC RAO Energy System of East,

?  24.54% of shares of JSC Sakhalin Energy Company,

?  14.83% of shares of JSC Ust?-Srednekanskaya HPP,

?  42.53% of shares of JSC Irkutsk electronetwork company.

As a result of pre-emptive right execution JSC RusHydro?s ownership of JSC RAO ES of East voting shares increased to 76.72%; in JSC Sakhalin energy company ? to 44.64%; in JSC Ust?-Srednekanskaya HPP ? to 100%; in JSC Irkutsk electronetwork company ? to 42.53%.

During the pre-emptive right period JSC RusHydro placed 66,995,185,198 additional shares at RUB 1 per share; 66,006,190,950 of shares were placed in favor of the Russian Federation and the rest in favor of other shareholders exercised their pre-emptive right.

-     In February 2013, JSC RusHydro successfully placed 10-year non-convertible bonds of series 07 and 08 in total amount of RUB 20 bn with the coupon rate of 8.5% p.a. The bonds are subject to put option in 5 years.

-     In April 2013, Standard & Poor's Ratings Services has revised its outlook on RusHydro Group from ?negative? to ?stable? and affirmed the 'BB+' long-term and 'B' short-term corporate credit ratings and the 'ruAA+' Russia national scale rating.

-     In May, the European Investment Bank approved a 12-year loan facility in the amount of RUB 4 bn to JSC RAO ES of East under a guarantee agreement with JSC RusHydro to finance the construction of the Vostochnaya combined heat and power plant in Vladivostok.

-     In June, JSC RusHydro registered four 100% subsidiaries (SPVs) that will implement the construction of new fossil-fuel generating facilities in the Far East.

-     In June, the Annual General Meeting of shareholders of JSC RusHydro approved dividend  payment in the amount of RUB 0.00955606 per share, or 25% of net profit under RAS for 2012; the total dividend payment for 2012 amounted to RUB 3,676 mn, a 47% increase compared to the previous year.

Revenue

Revenue breakdown for the 1^st half of 2013/2012 (in RUB mn)

	1H13	1H12	chg	2Q13	2Q12	chg
Electricity sales	116,231	108,908	6.7%	54,952	49,689	10.6%
Heat and hot water sales	19,328	18,442	4.8%	5,812	4,817	20.7%
Capacity sales	12,708	11,082	14.7%	5,855	5,180	13.0%
Other sales	8,181	7,370	11.0%	4,247	3,507	21.1%
Revenue from operations, total	156,448	145,802	7.3%	70,866	63,193	12.1%
Government grants (RAO ES of the East Group)	5,421	5,353	1.3%	2,645	2,777	-4.8%
Total revenue	161,869	151,155	7.1%	73,511	65,970	11.4%

 

In the 1^st half of 2013, total revenue of the Group increased by 7.1% to RUB 161,869 mn. The change is associated with the following factors:

-       significant increase in electricity generation by hydropower plants in the 1^st half of 2013 as well as increase in electricity sales volumes and prices on the ?day-ahead? market;

-       increase in electricity prices on the ?day-ahead? market in both price zones;

-       increase in capacity prices of the competitive capacity auctions for the HPP?s of the first pricing zone from January 2013;

-       increase in heat power and hot water sales in the Far East due to prolonged heating period in 2013 as a result of low air temperatures in spring;

-       increase in revenues of general contractor companies of RAO ES of East Group from construction and repair services to external companies (SUEK, Alliance Oil Company).

In the 1^st half of 2013, the share of ?Generation? segment in total revenue was ca. 30%, ?Retailing? ? ca. 25%, RAO ES of East Group ? ca. 43%, other segments ? around 2%^[6].

Operating expenses

Operating expenses in 1H 2013/2012 (in RUB mn)

	1H13	1H12	chg	2Q13	2Q12	chg
Purchased electricity and capacity	28,102	28,667	-2.0%	12,704	12,705	0,0%
Employee benefit expenses	25,541	24,108	5.9%	13,259	11,844	11.9%
Fuel expenses	24,332	24,984	-2.6%	8,813	9,415	-6.4%
Electricity distribution expenses	20,236	20,467	-1.1%	8,916	8,881	0.4%
Other third-party services	12,300	11,033	11.5%	6,732	5,590	20.4%
Depreciation	9,204	9,224	-0.2%	4,609	4,257	8.3%
Taxes other than on income	5,322	3,587	48.4%	3,397	1,802	88.5%
Other materials	3,872	4,089	-5.3%	2,133	2,159	-1.2%
Water usage expenses	1,996	3,698	-46.0%	1,546	3,320	-53.4%
Accrual of impairment of accounts receivable, net	1,406	1,299	8.2%	721	669	7.8%
Social charges	836	426	96.2%	694	254	173.2%
(Gain) / loss on disposal of property, plant and equipment, net	363	74	390.5%	374	8	4575.0%
Other expenses	1,202	966	24.4%	544	438	24.2%
TOTAL	134,712	132,622	1.6%	64,442	61,342	5.1%

 

Total operating expenses increased by 1.6% from RUB 132,622 mn to RUB 134,712 mn.

Major factors affecting expenses:

-       fuel expenses reduction by 2.6% following the decrease of heat and power generation by thermal power plants, as well as decrease in fuel consumption as a result of increase in cogeneration due to prolonged heating period;

-       reduction in costs for purchased power and capacity, due to decrease in electricity consumption by pumped storage plant during repair works, and measures aimed at lowering power purchase by power plants and optimization of hydropower plants? load;

-       reduction in costs for electricity distribution by distribution companies of the Group;

-       growth of labor expenses by 5.9% as a result of indexation of salaries;

-       increase in costs for third-party services, mainly due to use of subcontractors by contracting companies of RAO ES of East Group for construction and repair services to external companies (SUEK, Alliance Oil Company);

-       growth of tax expenses due to accounting of estimated property tax liabilities of JSC RusHydro;

-       impairment of accounts receivable, mainly for households supplied by Kamchatskenergo, a subsidiary of JSC RAO ES of East, and debts of power retail companies, including those from now defunct Energostream Group.

Profit

In the reporting period, EBITDA increased by 22.8% to RUB 38,720 mn compared to RUB 31,529 mn for the same period of previous year. EBITDA growth is related to increase in electricity output by hydropower plants, growth in prices on the free market, decrease in fuel and electricity and capacity purchase expenses.

In the 1^st half of 2013, the Group?s net profit amounted to RUB 10,818 mn compared to net loss of RUB 436 mn in the same period last year. Adjusted net profit in the 1^st half of 2013 amounted to RUB 23,001 mn, a 38.0% increase as compared to the same period of the previous year. The difference between the reported and adjusted profit is attributed mainly to the following non-cash effects (before the income tax):

-       impairment of shares of OJSC Inter RAO UES in the amount of RUB 6,055 mn due to significant and prolonged decline in their market value;

-       impairment of core assets of the JSC Boguchanskaya HPP in the amount of RUB 2,762 mn, as a result of decline in revenue expectations for 2013-2014;

-       impairment of non-interest-bearing promissory notes of JSC Boguchansky aluminium plant in the amount of RUB 1,556 mn due to changes in assessment of their recoverable amount as a result of prolonged decline in aluminum prices and USD to RUB rate increase;

-       impairment of accounts receivable in the amount of RUB 1,996 mn resulting from analysis of past due receivables and estimation of their collectability;

-       curtailment gain in the amount of RUB 1,609 from from cancellation of pension plan of JSC Far East Generation Company, part of RAO ES of East Group.

Key indicators of RusHydro Group?s financial position

As of June 30^th, 2012, the Group's assets increased by RUB 40,390 mn to RUB 894,657 mn against the comparable figure as at December 31^st, 2012. The increase in assets is primarily attributable to additions to the Group's fixed assets, investments in associates and joint ventures after receiving 42.53% of shares of JSC Irkutsk electronetwork company and shares of JSC Sakhalin energy company as payment for JSC RusHydro?s shares of additional issue, and other operating assets due to increase in deposits from funds received from bonds placement in the amount of RUB 20 bn.

As at the end of the reporting period the Group's liabilities rose by RUB 43,376 mn from December 31^st, 2012, to RUB 357,238 mn. The increase in the liabilities was mainly a result of funds raised through bonds placement in the amount of RUB 20 bn and increase in accounts payable for placed shares of additional issue.

 

Events after the reporting date

-       Board of Directors of JSC RusHydro elected Mikhail Poluboyarinov as Chairman of the Board, Viktor Danilov-Danilyan as Deputy Chairman of the Board and formed new composition of the Board?s committees.

-       In July 2013, Moody's Investors Service affirmed the ?Ba1? long-term credit rating assigned to RusHydro Group as well as the ?Aa1.ru? national scale rating with a ?stable? outlook and also confirmed the ?Ba1? rating on the Company?s bonds.

-       In July the Board of Directors of JSC RusHydro approved the disposal of the Company?s 33.54% shareholding in JSC Trest Gidromontazh in favor of JSC TEK Mosenergo for a total consideration of RUB 1,663 mn.

-       Since the end of July 2013, the Far East regions where the Group operates have been hit by the worst flood over the last years. Some districts declared a state of emergency. Management continuously performs flood monitoring and takes all measures to minimise losses and mitigate effects of the natural disaster. Currently, it is not practicable to assess the ultimate consequences of this emergency; however, they can have a significant impact on the Group?s operational results in the future.

 

About RusHydro:

RusHydro Group is one of Russia?s largest generating companies. RusHydro is the leading producer of renewable energy in Russia with over 70 generating facilities in Russia and abroad. The company also manages a number of R&D, engineering and electricity retail companies. Group?s thermal assets are operated by subsidiary ? RAO Energy System of East in the Far East of Russia. Total electricity generation capacity of the Group is 36.5 GW, heat capacity ? 16.2 thousand GCal/h.

Russian Federation owns 67.1% in RusHydro, the rest is held by other institutional and individual shareholders (over 360,000). The company?s stock is traded on the MICEX and RTS stock exchanges, and included in MSCI EM ? MSCI Russia indexes. Company?s GDRs in the IOB section of LSE, ADRs ? in OTCQX.

 

For more information:

JSC RusHydro, Investor Relations Department

Tel. [phone] ext. 1319, 1607

[e-mail]

 

DISCLAIMER

The information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of RusHydro. One 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 from these statements.

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 and rapid technological and market changes in our industries, as well as many other risks specifically related to RusHydro and its operations.

[1] Here and henceforth the company includes quarterly figures that are not reported in the official financial statements, they have been calculated and put into the press release for reference.

[2] EBIT is calculated as total revenue less operating expenses.

[3] EBITDA is calculated as EBIT before depreciation and amortisation and non-cash charges.

[4] Net profit is adjusted for the effects of impairment of the Group's available-for-sale financial assets, accounts receivable, promissory notes, property, plant and equipment, investments in associates, property, plant and equipment of joint ventures, loss from remeasurement of the net assets of OJSC DRSK, classified as a discontinued operation to fair value less costs to sell, gain from cancellation of pension plan of Far East Generation Company.

[5] The Boguchanskaya hydropower plant is part of the Boguchanskiy Energy and Metals Complex (BEMA), a 50/50 joint venture (JV) between RusHydro and UC RUSAL, and is not part of RusHydro Group. According to RusHydro?s shareholding in the JV (50%), the results of the plant are reported in the official financial statements in ?Share of results of associates and joint ventures?.

[6] Revenue from segments is calculated under RAS excluding revenue from intersegment transactions.