Annual Report 2013

Analysis of RAS Results

INCOME STATEMENT

The revenues of IDGC of Centre in 2013 totaled 92.9 bln RUB, which is higher than the income received in 2012 by 33.9%.

This positive change is stipulated by the fact that the Company started to fulfill the functions of a supplier of last resort in 2013 in 5 territorial entities, i.e. the Bryansk, Kursk, Orel, Tver and Smolensk Regions. Power sales companies in these regions were deprived of the status of wholesalers in the reporting year, and the Russian Ministry of Energy handed these functions over to IDGC of Centre.

In this context, the Company’s revenue structure for 2013 includes income from selling electrical energy to end consumers.

+33.9%

Growth of the revenue in 2013


+11.4%

Growth of the revenue from power transmission in 2013

Due to the emergence of a new type of operations, figures in the ‘Revenue from power transmission’ item may not be compared with the figures of the previous years. Due to accounting peculiarities on the territory of the branches fulfilling the functions of suppliers of last resort, the income from electrical energy sales actually includes a part of the Company’s revenues from power transmission services in the amount of 13.8 bln RUB received in these regions.

The revenue from power transmission services in relative conditions in 2013 amounts to 75.2 bln RUB with an 11.4% growth vs. 2012. The share of revenue from these operations equals 80.9% from the total income of the Company.

The revenue from the new operations, i.e. electrical energy sales, totaled 29.8 bln RUB in 2013. Income from grid connection services decreased by 25.0% to bln 0.9 RUB vs. 2012.

CHANGE IN KEY ECONOMIC INDICATORS IN 2011-2013, bln RUB:

Indicator 2011 2012 2013 Change
2013/2012, %
Revenues 68.1 69.4 92.9 33.9
of which:        
power transmission 65.7 67.5 61.4 – 9.0
grid connection 1.7 1.2 0.9 – 25.0
electrical energy sales** 29.8
other 0.7 0.7 0.8 14.3
Cost 55.5 57.9 78.1 34.9
Gross profit 12.6 11.5 14.8 28.7
EBITDA 13.7 12.3 11.5 – 6.5
Net profit 5.2 3.5 0.3 – 91.4
of which:        
power transmission 3.7 2.4 – 1.0 –41.7
grid connection* 1.2 0.7 0.5 – 28.6
electrical energy sales 0.4
other 0.3 0.4 0.4
 

CHANGE IN FINANСIAL INDICATORS IN 2011 – 2013, bln RUB:

EBITDA in 2011-2013 decreased from 13.7 bln RUB to 11.5 bln RUB. This change was primarily caused by the creation of the following provisions:

  • A 7 bln RUB provision for bad debt relating to power transmission services of power sales companies which were deprived of the status of suppliers of last resort in the reporting year.
  • A 3.6 bln RUB provision for unregulated receivables relating to disputes with contractors.

The cost in 2013 totaled 78.1 bln RUB, which is 20.2 bln RUB higher than the figure of 2012. The growth of cost was partly associated with the fulfillment of functions of a supplier of last resort, however, the Company managed to maintain the controllable expenses growth rate at the level of 4%, which is lower than the inflation growth rate, by implementing a cost management program.

Net profit of IDGC of Centre in 2013 totaled 0.3 bln RUB. The reduction in net profit in comparison with the previous year is associated with the creation of a mandatory provision for bad debt, i.e. receivables for the power transmission services of the sales companies, which were deprived of the status of suppliers of last resort.

The decision on profit distribution will be made on the Annual General Meeting of Shareholders subject to recommendations of the Company’s Board of Directors.

FINANCIAL STRENGTH

KEY FINANCIAL RATIOS FOR 2011-2013:

Indicator 2011 2012 2013 Change
2013/2012, %
Absolute ratio 0.247 0.067 0.074 10.4 %
Acid test ratio 1.08 1.06 1.04 – 1.9 %
Current ratio 1.23 1.16 1.19 2.6 %
Gross profit margin, % 18.6 % 16.6 % 15.9 % - 0.7 ppt
Net profit margin, % 7.6 % 5.0 % 0.3 % - 4.7 ppt
Operating profitability, % 10.9 % 6.5 % 2.1 % - 4.4 ppt
ROE, % 10.3 % 6.4 % 0.6 % - 5.8 ppt
EBITDA margin, % 20.1 % 17.7 % 12.4 % - 5.3 ppt
ROTA, % 9.5 % 4.9 % 1.9 % - 3 ppt
Equity ratio 0.59 0.54 0.50 – 7.4 %
Total debt to EBITDA ratio 1.6 2.2 2.9 33.6 %
Current assets coverage ratio 0.18 0.14 0.16 14.2 %
 

Reduction of the net profit of IDGC of Centre by 91.4% in 2013 had an adverse effect on the Company’s financial indicators.

Net profit margin shrank from 5.0% in 2012 to 0.3% in 2013, EBITDA margin – from 17.7% to 12. 4%. ROE went down from 6.4% in 2012 to 0.6% in 2013.

Apart from the creation of provisions for bad debts, the primary causes of the negative change included:

  • A 10.4% increase of tariffs on power transmission services rendered by JSC FGC UES.
  • Growth of tariffs of the territorial grid companies.
  • A 19.6% increase of electrical energy purchase prices, which is acquired in order to compensate for the power losses in the Company’s grids.

THE DYNAMICS OF THE FINANCIAL PERFORMANCE OF IDGC OF CENTRE IN 2011-2013, bln RUB:

Current liquidity ratio of IDGC of Centre stood at 1.16 as of December 31, 2012 and at 1.19 as of December 31, 2013, which proves that the Company is financially stable and able to fulfill its liabilities.

Absolute liquidity ratio, which demonstrates the Company’s ability to discharge long-term debt, stood at 0.074 at the end of 2013, which is 10.4% higher than the figure of the previous year. The acid test ratio in the reporting period amounted to 1.04 with a 1.9% reduction vs. 2012. Nevertheless, despite a certain reduction, the figure remained within the normal limits.

In 2013 equity ratio also had a permissible value of 0.5.

Current assets of IDGC of Centre in 2013 remained on the level of 2012 and amounted to 16.5 bln RUB. The current assets coverage ratio grew by 14.2% to 0.16 vs. 2012.

ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE IN 2011-2013, bln RUB:

Indicator 2011 2012 2013 Change
2013/2012, %
Current assets, bln RUB 12.7 16.4 16.5
Accounts receivable, bln RUB 8.3 13.5 13.0 – 0.5 %
Ratio of receivables to current assets, % 65.2 % 82.0 % 79.1 % - 2.9 ppt
Current assets/short-term debt 1.22 1.16 1.19 0.03 p.
Accounts payable, bln RUB 7.7 11.0 10.7 – 2.9
Ratio of receivables to payables growth rate 1.0 1.1 1.0 – 0.1
Ratio of total receivables to payables 1.1 1.2 1.2
Ratio of the most liquid receivables to payables 1.6 2.2 1.8 – 0.4

STRUCTURE OF RECEIVABLES OF IDGC OF CENTRE IN 2013, %:

STRUCTURE OF PAYABLES OF IDGC OF CENTRE IN 2013, %:

The amount of accounts receivable declined insignificantly from 13.5 bln RUB in 2012 to 13.0 bln RUB in 2013. The share of receivables in current assets did not change significantly either.

The primary reason for the emergency of accounts receivables of IDGC of Centre is the violation of payment terms by the sales companies. Nevertheless, IDGC of Centre fulfills its obligations to suppliers and contractors in accordance with the contract terms and conditions.

Large amounts of accounts receivable is a peculiarity of distribution grid companies. IDGC of Centre devotes significant effort to controlling debt for power transmission services: the Company monitors changes in receivables on a monthly basis in order to control the fulfillment of contractual obligations by contractors as far payments to the Company are concerned.

Should receivables emerge with a term of over 30 days, the company takes measures aimed at recovering these receivables.

In order to control accounts receivable for power transmission services, IDGC of Centre submits an accounts receivable recovery schedule plan for the next three months to the Company’s Board of Directors on a quarterly basis and subsequently reports to the Board of Directors on the fulfillment of the schedule.

CAPITAL AND BORROWING POLICY OF THE COMPANY

IDGC OF CENTRE CAPITAL STRUCTURE IN 2011-2013, bln RUB:

Indicator 2011 2012 2013 Change
2013/2012, %
Equity 50.5 53.5 53.0 – 0.9
Borrowed capital 34.6 45.6 52.0 14.0
Of which:        
loans and credits 21.2 26.4 33.1 25.4
accounts payable 7.7 11.0 10.7 – 2.7
Leverage, % 41 % 46 % 50 % 4 ppt
Cash at end of period 2.6 0.95 1.03 8.4
Net debt 18.7 25.5 32.0 25.5
Equity to debt ratio 1.5 1.2 1.0 – 0.2 p.
 

The equity of IDGC of Centre in 2013 totaled 53.0 bln RUB, or 50% of the whole capital of the Company. A slight reduction in equity of the Company by 0.5 bln RUB in absolute terms was caused by the reduction of the financial performance in 2013 by 91.4%.

The Company’s financial policy, which has been implemented since 2009, aims to replace short-term borrowing with long-term loan resources. The amount of long-term liabilities in 2013 grew to 36% of the total amount of the Company’s capital, whereas the figures for 2012 and 2011 were 32% and 28% respectively. The capital structure changed primarily because of IDGC of Centre’s assumption of longterm loan resources to finance the investment program.

Summarizing the results of financial and utility-related operations in 2013, the share of short-term liabilities in total liabilities did not change significantly and amounted to 13% as of December 31, 2013. A slight drop took place because of reduction in accounts payable.

The financial policy of IDGC of Centre puts primary emphasis on long-term borrowings. In this respect, the maximum term of credits borrowed in the reporting year amounted to 60 months.

IDGC OF CENTRE CREDIT AND LOAN PAYMENT SCHEDULE AS OF DECEMBER 31, 2013,
bln RUB:

Indicator Principal payment Interest payment
Due within 12 months 1.7 0.13
Due in one to five years 28.2
Due in over five years 3.0
TOTAL 32.9 0.13

CHANGE IN DEBT ON LOANS IN 2011-2013, bln RUB:

The growth of debt on loans in 2013 equaled 25.5%, or 6.7 bln RUB vs. 2012, when this figure amounted to 19.2%, or 5.1 bln RUB, vs. 2011.

IDGC of Centre is not past due on principal or interest.

The average borrowing rate for IDGC of Centre as of December 31, 2013 was 8.2%. The reduction of the average rate by 0.54 ppt vs. 2012 was caused by the measures taken by the Company to reduce the cost terms and conditions of borrowings.

AVERAGE BORROWING RATE IN 2011-2013, %:

IDGC of Centre borrows credit resources and funds without security.

DIVERSIFIED STRUCTURE OF THE LOAN PORTFOLIO OF IDGC OF CENTRE IN 2013 (BONDS NOT INCLUDED):

IDGC of Centre is diversifying its loan portfolio to minimize potential risks; it borrows mainly from large and highly reliable Russian banks. IDGC of Centre does most of its borrowing from Sberbank of Russia, VTB Bank, and Rosbank.

In 2012, IDGC of Centre issued Series BO-01 three-year traded bonds totaling 4 bln RUB at the par value as a continuation of its financial policy and in an effort to borrow at a more favorable rate.

The bonds are traded on Moscow Stock Exchange in the second tier A listing. The first and second coupon payments on bonds were made in full in 2013.

For details on traded bonds please see Bonds on the Annual Report and visit our
corporate website.