RusHydro announces 1Q 2013 IFRS results

JSC RusHydro (ticker symbol: MICEX-RTS, LSE: HYDR; OTCQX: RSHYY) announces its condensed consolidated interim unaudited financial statements for January-March of 2013 under International Financial Reporting Standards (IFRS).

Key highlights:

• Strong quarterly results on high storage levels and affluent water inflows, cost control, favorable pricing environment;
• EBIT – RUR 18.1 bn (+30% y-o-y), EBITDA – RUR 23.1 bn (+ 20% y-o-y);
• Net profit – RUR 10.7 bn (+0.4%), adjusted for non-cash items – RUR 14.6 bn (+32%);
• Non-manageable costs decreased 1.8%, manageable costs were down 0.3% – on restrained fuel consumption and implementation of cost control program;
• Average spot power prices in European Russia in 1Q – 1,051 RUR/MWh (+6%), in Siberia – 744 RUR/MWh (+18%);
• RusHydro plans increase in OPEX in FY2013 below consumer price index (CPI);
• 1H 2013 IFRS results to be announced August 29, 2013.

1Q 2013/2012 financial highlights (in RUR mn)

Operating results

In the 1^st quarter of 2013, total electricity generation by power plants of RusHydro,its subsidiaries and Boguchanskaya hydropower plant 4 amounted to 31,962 GWh, a 15% increase as compared to the 1^st quarter of 2012. In the reporting period hydropower plants of RusHydro, including Boguchanskaya hydropower plant, increased electricity generation by 27% as compared to the same period of 2012. In the 1^st quarter of 2013, generating assets of RAO ES of East Group generated 9,657 GWh of electricity, a 4.8% decrease as compared to the 1^st quarter of 2012. In the reporting period, heat output by thermal plants of RAO ES of the East Group decreased by 1% to 14,042 thousand GCal.

The underlying factors of the production change in 1^st quarter of 2013 were:

• higher than average water resources in reservoirs in the Far East and Center of Russia in the beginning of the year following the heavy floods in late 2012;
• 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;
• launch of the Boguchanskaya hydropower plant into commercial operation in the end of 2012.

In January-March 2013, average electricity selling price on the “day-ahead” market, a key segment of wholesale electricity market, in the 1^st pricing zone amounted to RUR 1,051/MWh (a 6% increase as compared to the 1^st quarter of 2012), in the 2^nd pricing zone electricity price was RUR 744/MWh (a 17.7% increase as compared to the 1^st quarter of 2012). According to the Market Council, a significant increase in prices on the “day-ahead” in Siberia in 2013 as compared to 2012 was due to planned and emergency outages of major fossil-fuel power stations, decrease in volumes of price-taking supply in generator’s bids in excess of technological minimum, price increase in bids of certain power stations.

Key events in January-March

• On January 16, 2013, the Group sold a 25% plus 1 share interest in a general contractor, JSC Bureyagesstroy, for the cash consideration in the amount of RUR 250 mn.
• In February 2013, the Group received the following assets as payment for 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 RusHydro’s ownership of RAO ES of East voting shares increased to 76.72%; in Sakhalin energy company – to 44.64%; in Ust’-Srednekanskaya HPP – to 100%; in Irkutsk electronetwork company – to 42.53%.

During the pre-emptive right period RusHydro placed 66,995,185,198 additional shares at RUR 1 per share; 66,006,190,951 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, the Company successfully placed 10-year non-convertible bonds of series 07 and 08 in total amount of RUR 20 bn with the coupon rate of 8.5% p.a. The bonds are subject to put option in 5 years.
• In January 2013, the forth 333 MW hydropower unit of the Boguchanskaya HPP was put into commercial operation; in March 2013, new 640 MW hydropower unit with installed at the Sayano-Shushenskaya HPP. 

Revenue

Revenue breakdown for the 1^st quarter of 2013/2012 (in RUR mn)

In the 1^st quarter of 2013, total revenue of the Group increased by 3.7% to RUR 88,358 mn. The change is associated with the following factors:

• increase in electricity output and electricity prices on the “day-ahead” market;
• increase in capacity prices of the competitive capacity auctions in the 1^st quarter of 2013 due to capacity price indexation for consumer price index (CPI) in 2013;
• decrease in revenue from RAO ES of East Group due to reduction in electricity output as a result of high generation volumes by the hydropower plants in the Far East;
• decrease in total revenue from power retail operations due to decrease in non-tariff revenues after changes in regulation of the power retail sector effective starting from the 2^nd quarter of 2012.

In the 1^st quarter of 2013, the share of “Generation” segment in total revenue was ca. 26%, “Retailing” – ca. 25%, «RAO ES of East Group» – ca. 47%, other segments – around 2% 5.

Operating expenses

Operating expenses in 1Q 2013/2012 (in RUR mn)

Total operating expenses decreased by 1.4% from RUR 71,280 mn to RUR 70,270 mn. Non-manageable costs of the Group decreased by 1.8%, manageable costs decreased by 0.3%.

Major factors affecting expenses:

• fuel expenses reduction by 0.3% due to decrease in electricity production and output by thermal power plants of RAO ES of East by 5%, as well as restrained fuel prices growth rate;
• reduction in costs for purchased power and capacity and electricity distribution by 3.5% and 2.3% respectively, due to decrease in electricity output by retail companies of the Group and measures aimed at lowering power purchase by power plants and optimization of hydropower plants’ load;
• almost flat growth of labor expenses after optimization of the Group’s organizational structure and business processes;
• decrease in depreciation as a result of impairment of PP&E booked as of December 31, 2012.

Profit

In the reporting period, EBITDA increased by almost 20% to RUR 23,122 mn compared to RUR 19,316 mn for the same period of previous year. EBITDA growth is related to increase in electricity output and growth in electricity prices on the “day-ahead” market and capacity prices.

In the 1^st quarter of 2013, the Group received a net profit in the amount of RUR 10,698 mn compared to RUR 10,652 mn in the same period of previous year. Adjusted net profit in the 1^st quarter of 2013 amounted to RUR 14,588 mn, a 32% increase as compared to the same period of the previous year. The difference between the reported and adjusted profit is attributed to:

• accrual of impairment of shares of OJSC Inter RAO UES in the amount of RUR 3,541 mn due to significant and prolonged decline in their market value;
• accrual of impairment of accounts receivable in the amount of RUR 360 mn resulting from analysis of past due receivables and estimation of their collectability;
• accrual of gain from disposal of fixed assets in the amount of RUR 11 mn.

Key indicators of RusHydro Group’s financial position

As of March 31^st, 2012, the Group's assets increased by RUR 37,939 mn to RUR 892,686 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, construction in progress, investments in associates and jointly controlled entities after receiving a number of assets as payment for shares of additional issue of RusHydro, as well as increase in deposits from funds received from bonds placement.

As at the end of the reporting period the Group's liabilities rose by RUR 36,160 mn from December 31^st, 2012, to RUR 352,512 mn. The increase in the liabilities was mainly a result of funds raised through domestic bonds placement and increase in accounts payable for placed shares of additional issue.

Significant events after the reporting period

• In April 2013, Standard & Poor's Ratings Services has revised its outlook on RusHydro 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 April-May, a number of Management Board members increased their shareholdings in the Company’s share capital through acquisition of RusHydro’s shares on the open market.
• In May, the European Investment Bank approved a 12-year loan facility in the amount of RUR 4 bn to RAO ES of East under a guarantee agreement with RusHydro to finance the construction of the Vostochnaya thermal power plants in Vladivostok.
• In May, RusHydro provided the guarantee under a $25 million loan signed by Asian Development Bank (ADB) and International Power Corporation, subsidiary of RusHydro, for rehabilitation of the Sevan-Hrazdan cascade of hydropower plants in Armenia.
• In May, RusHydro International A.G. received a first payment under agreement with Mainstream Energy Solutions Ltd for management services in regards to two hydropower plants in Nigeria with total installed capacity of 1,338 MW.
• In June, RusHydro registered four 100% subsidiaries that will implement the construction of new fossil-fuel generating facilities in the Far East.
• In June, the Annual General Meeting of shareholders of RusHydro approved dividend payment in the amount of RUR 0.00955606 per share, or 25% of net profit under RAS for the previous year; the total dividend payment for 2012 amounted to RUR 3,676 mn, a 47% increase compared to the previous year.

Evgeny Dod, Chairman of the Management of RusHydro, commented:

“The Group’s financial results in the 1^st quarter of 2013 reflected favorable weather conditions, high storage levels and strong water inflows to major hydropower plants and beneficial pricing environment on the market, as well as management’s efforts in cost optimization and improvement of operational efficiency of the Group.

In 2012, we developed and launched a comprehensive cost control program, which already delivered its first results in 2012, but its effects will be even more visible this year. The cost optimization measures include: improvement in quality of maintenance works and enforcing shorter planned outages; decrease in works implemented by contracting parties in cases when enrolled personnel is available; lowering power consumption of generating facilities; rationing/decrease in expenses for transportation, telecommunications, security, banking, utility, audit, consulting, legal and information services; sale of inefficient non-core assets.

I am confident that in 2013 we will not only substantially increase revenue from our core businesses, but also will keep low operating costs. I think, we will manage to keep the growth of our operating expenses below inflation, despite the inevitable increase in the Company’s needs in the onset of challenging construction projects in the Far East and launch of new hydropower facilities”.

The consolidated financial statements of the Group are available at: http://www.eng.rushydro.ru/investors/reports/

The presentation of the results is available at: http://www.eng.rushydro.ru/investors/presentations/results_presentations/

The announcement of 2Q 2013 IFRS results is scheduled on August 29, 2013.

1 EBIT is calculated excluding loss from impairment of available-for-sale financial assets.

2 EBITDA is calculated as operating profit before depreciation of property, plant and equipment and non-cash impairment charges.

3 Net profit is adjusted for the effects of impairment of the Group's available-for-sale financial assets, effects of accounts receivable impairment.

4 The Boguchanskaya HPP is part of the Boguchanskiy Energy and Metals Complex (BEMO), 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 jointly controlled entities”. Operations of the HPP have been put into the press-release for general reference.

5 Revenue from segments is calculated under RAS excluding revenue from intersegment transactions.