RAO Energy Systems of the East
Developing energy for development of Far East
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RAO ES EAST Group doubles its 6 months 2016 EBITDA up to 8.5 bln RUB

24.08.2016 16:37:00 / Moscow

“RAO Energy Systems of the East” Group (part of RusHydro Group, MOEX, LSE: HYDR) publishes its unaudited condensed consolidated interim financial information for three and six months of ended on June 30, 2016, prepared in accordance with International Financial Reporting Standards (IFRS).

 

Financial Highlights (RUB in millions)[1]

 

Indicator

Six months

y-o-y

Second quarter

y-o-y

 

2016

2015

%

2016

2015

%

Revenues with government grants

94,389

86,672

9%

38,350

35,251

9%

Operating expenses

91,435

87,692

4%

41,022

39,169

5%

Operating (loss) profit

2,473

(532)

-

(2,980)

(4,210)

-29%

Operating profit (loss) profit (adj) 1

4,542

106

4185%

(1,717)

(3,148)

-45%

EBITDA[2]

8,540

4,178

104%

300

(1,311)

-

Financial expenses, net

(4,543)

(4,235)

7%

(2,297)

(2,348)

-2%

Share of (loss)/income of associates

(2)

116

-102%

5

21

-76%

(Loss) before income tax (adj.) 1

(3)

(4,013)

-100%

(4,009)

(5,475)

-27%

Total income tax expense

(740)

(156)

374%

(110)

181

-161%

(Loss) for the period

(2,812)

(4,807)

-42%

(5,382)

(6,356)

-15%

(Loss) for the period (adj.) 1

(743)

(4,169)

-82%

(4,119)

(5,294)

-22%

 

The key factors for the Group financial performance were:

-      9% rise of average selling electricity price to retail consumers up to 4.01 RUB due to tariff indexation;

-      4% power production decrease of less efficient power units of JSC “FEGC” with output substitution by the Bureyskaya HPP (part of PJSC “RusHydro”).

-      4% growth of heat output accompanied by 7-10% increase of heating tariffs;

-      6% increase of average fuel price up to 3,673 Rub per reference fuel ton driven by gas prices of “Sakhalin-1” consortium.

 

Main events

 

RAO ES EAST Group cut down electricity production in the first six months of 2016 by 3.5% YoY to 17,195 million kWh due to the 31% output increase of Bureuskaya HPPs (also part of Group RusHydro) with the power consumption in the United Energy System of the East growing 2.6% y-o-y. Export sales to China were 18% less than in the same period last year. Heat output of the Group’s CHPPs and boilers in the first six months of 2016 was up by 4% totaling 18,259 thousand Gcal.

 

On March 31, 2016 RusHydro Group upon repurchasing of more than 10% and consolidating over 95% of RAO ES East, PJSC within voluntary tender offer forwarded to the rest of ordinary and preference shareholders of RAO ES East, PJSC the claim for compulsory repurchase of the shares. All settlements were completed on June 08, 2016.

 

Revenue

The Group total revenues for the first six months of 2016, combined with government grants, increased by 9% amounting to 94,389 million RUB.

 

The main factors influencing total revenues in the first six months of 2016 were:

Ø 9% rise of average selling electricity price to retail consumers up to 4.01 RUB due to tariff indexation;

Ø 4% decrease of electricity output down to 15,235 million RUB due to higher loading of RusHydro HPPs;

Ø 6% growth in heat sales coupled with the 7-10% tariff growth y-o-y.

Ø 12% increase of other revenues due to new settlement scheme of between PJSC “Yakutskenergo” and JSC “Vilyuiskaya HPP-3”.

Ø 17% growth of government grants for reduced tariffs to consumers due to additional compensation from price increases of goods and services, including fuel and personnel costs.

 

Revenue Structure (RUB in millions)

 

Revenue Item

Six months

y-o-y

Second quarter

y-o-y

 

2016

2015

%

2016

2015

%

Sale of electricity and capacity

57,448

54,167

6%

24,478

23,280

5%

Heat sales

22,727

20,062

13%

6,999

6,274

12%

Other revenue

7,773

6,938

12%

3,714

3,240

15%

Total revenue

87,948

81,167

8%

35,191

32,794

7%

Government grants

6,441

5,505

17%

3,159

2,457

29%

Revenues with government grants

94,389

86,672

9%

38,350

35,251

9%

 

Operating expenses

 

In the first six months of 2016 the Group’s operating expenses were up by 4% compared to the same period last year, amounting to 91,435 million RUB. In the second quarter of 2016 operating expenses grew by 5%. Variable costs for the six and three months ended on June 30, 2016 increased by 4% and 3% respectively. Fixed costs for the same periods grew by 4% and 6% respectively.

 

Fuel expenses in the first six months of 2016 grew by 5% amounting to 30,228 million RUB. This was due to the 6% growth in the average cost of specific reference fuel, 4% heat output increase coupled with 3.5% reduction of power production. The average cost of specific reference fuel in first six months of 2016 was up by 6% to 3,766 RUB per reference fuel ton due to price increase of the gas from “Sakhalin-1” consortium. The average price of specific reference fuel in the second quarter of 2016 increased by 9% up to 3,518 RUB per reference fuel. The specific reference fuel consumption (SRFC) for the Group power production was up by 0.9 g/kWh to 378 g/kWh resulted from the shift to coal fired generation for economic reasons. SRFC in the second quarter increased by 3.1 g/kWh to 394 g/kWh. As the result, the fuel consumption in the first six months of 2016 measured in tones of reference fuel decreased by 1% to 8,229 thousand tones with this year’s second quarter reference fuel consumption decreasind by 3% down to 3,074 thousand tons.

18% decrease of purchased electricity and capacity is caused by the termination of the electricity purchase contracts from JSC “Vilyuiskaya HPP-3” now that starting from January 1, 2016 the sales of electricity from Vilyuiskaya HPP-3 are proceeded without the resale scheme through JSC AK “Yakutskenergo as a guaranteed supplier.

 

Employee benefit expenses in six and three months ended June 30, 2016 increased by 5% and 3% due to the indexation of employee wages and salaries in 2015 and January 1, 2016 driven by the growth of CPI (basic salary of worker of the utilities sector is indexed by the actual CPI).

 

Operating expenses (RUB in millions)

 

Expense items

Six months

y-o-y

Second quarter

y-o-y

 

2016

2015

 

2016

2015

 

Fuel expenses

30,228

28,732

5%

10,814

10,253

5%

Expenses for electricity distribution

8,037

7,200

12%

3,540

3,281

8%

Purchase of electricity and capacity

5,518

6,762

-18%

2,472

3,024

-18%

Purchase and transmission of heat

1,792

1,590

13%

754

628

20%

Water usage expenses

975

932

5%

479

444

8%

Purchase of oil products for sale

157

141

11%

80

80

0%

Transportation costs

677

298

127%

245

146

68%

Accrual of impairment for accounts receivable, net

1,437

1,146

25%

810

767

6%

Total Variable Expenses

48,821

46 801

4%

19,194

18,623

3%

Employee benefit expenses (including payroll taxes and pension benefit expenses)

27,223

26,042

5%

13,097

12,696

3%

Other materials

2,787

2,954

-6%

1,620

1,634

-1%

Depreciation of property, plant and equipment

3,992

3,837

4%

2,017

1,837

10%

Repairs and maintenance

1,190

1,097

8%

851

775

10%

Rent

686

690

-1%

344

377

-9%

Security expenses

701

666

5%

357

337

6%

Services of SO-CDU, NP Council Market, CFS

363

365

-1%

178

179

-1%

Services of subcontracting companies

289

388

-26%

240

156

54%

Consulting, legal and information expenses

269

315

-16%

162

174

-8%

Insurance cost

151

182

-17%

73

101

-28%

Other third parties services

2,190

1,886

16%

1,198

961

25%

Taxes other than on income

1,199

1,211

-1%

597

586

2%

Social charges

323

364

-11%

263

225

17%

Business travel

196

198

-1%

118

116

2%

Insurance indemnity

(13)

(49)

-73%

(10)

(15)

-33%

Other expenses

917

761

20%

578

402

44%

Loss (Profit) on disposal of property, plant and equipment, net

151

(20)

-

145

3

4733%

Total Fixed Expenses

42,614

40,891

4%

21,828

20,546

6%

Total Expenses

91,435

87,692

4%

41,022

39,169

5%

 

Profit

“RAO Energy Systems of the East” Group (hereinafter the Group) posted an adjusted operating profit for first six months of 2016 amounting to 4,542 million RUB, compared to 106 million a year earlier. The second quarter adjusted operating loss decreased by 45% y-o-y down to 1,717 million RUB. EBITDA for the 6 months of 2016 increased by 104% y-o-y, totaling 8,540 million RUB with the second quarter of 2016 EBITDA reaching 300 million RUB compared to 1,311 EBITDA loss in the second quarter of 2015.

 

The Group's adjusted net loss for the six months of 2016 totaled 743 million RUB compared to 4,169 million RUB loss a year earlier. The adjusted net loss in the second quarter of 2016 amounted to 4,119 million RUB or 22% less than in the same period last year. Net loss for the first six months of 2016 totaled 2,812 million RUB with the net loss of the same period last year totaling 4,807 million RUB. The second quarter of 2016 amounted to 5,382 million RUB, or 15% less than the last year’s results.

 

Financial position

 

As of June 30, 2016, the Group's total assets increased by 3% up to 167,285 million RUB mostly driven by the 3% increase in property, plant and equipment. There were certain changes in the current assets structure:

Ø 17% decrease of cash and cash equivalents down to 9,085 million RUB

Ø 4% reduction of inventories down to 19,496 million RUB typical for the end of June;

Ø 8% rise in accounts receivable and prepayments up to 28,117 million RUB;

 

The Group's equity as of June 30, 2016 decreased by 18% down to 13,340 million RUB compared to December 31, 2015, which is mostly the result of the 24% decrease of the non-controlling interest and 9% increase of retained losses to 18,960 million RUB.

 

The Group's total liabilities as of June 30, 2016 increased by 5% compared to December 31, 2015 and totaled 153,945 million RUB. This was provided by:

Ø The financial debt (total of short-term and long-term debt) increase by 14% up to 104,509 million RUB;

Ø Net debt (financial debt minus cash and cash equivalent and current deposits) grew by 18% to 95,424 million RUB;

Ø the non-current debt increased by 31% down to 63,158 million RUB;

Ø The current debt decreased by 5% to 41,351 million RUB.

Ø The accounts payable and accruals decreased by 10% to 31,345 million RUB.

 

The Group’s main creditors are its parent company RusHydro (25% of total financial debt) and PJSC Sberbank (24% of total financial debt).

 

CAPEX

The amount of capital expenditure in the first six months of 2016 increased by 22% to 8,283 million RUB y-o-y. The amount of financing of the investment program was up by 24% amounting to 6,714 million RUB (excluding VAT) compared to the same period last year.

 

Future capital expenditures are mainly related to reconstruction of existed equipment of power plants and grid.

 

Subsequent events

 

After the end of the reporting period the Group has concluded loan agreements (including those on credit lines) with commercial banks. The agreements were concluded with PJSC Sberbank in total amount of 12,855 million RUB with annual interest rates of 10.45-11.00 percent; Bank GPB (JSC) in total amount of 1,830 million RUB with annual interest rates of 11.09% - 11.61%. Bank «RRDB» (JSC) in total amount of 500 million RUB with annual interest rates of 10.64%.

 

The financial information in full, press release and presentation are posted on the website of Public Joint Stock Company “RAO Energy Systems of the East” at: http://www.rao-esv.ru/en/shareholders-and-investors/companys-reports/annual-financial-report/


[1] Operating profit, profit before income tax, and profit (loss) for the period  are adjusted for the accrual of impairment for accounts receivable, by income and loss on disposal of property, plant and equipment, as well as  by the Impairment of property, plant and equipment and other operating income.


[2] Earnings before interest, taxes, depreciation and amortization is calculated by summing up the adjusted operating profit with the cash income of 235 million RUB resulted from asset sale in the first quarter of 2015. 



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