RusHydro announces full year 2013 IFRS results

March 20h, 2014

RusHydro announces full year 2013 IFRS results

RusHydro Group (Group, ticker symbol: MOEX, LSE: HYDR; OTCQX: RSHYY) announces its consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) for 2013.

Key highlights for 2013:

- Strong quarterly results on high storage levels and affluent water inflows in Siberia, cost control, favorable pricing environment on the wholesale electricity market;

- Operating costs increased by only 0.6% in 2013;

- 4Q 2013 EBITDA - RUB 27.1 bn (+14.4%); 2013 EBITDA - RUB 79.2 bn (+23.3%);

- Net profit - RUB 21 bn compared to net loss of RUB 25.3 bn in the previous year; net profit adjusted for non-cash items - RUB 52.7 bn (+62.3%).

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

Total power generation in 2013 amounted to 124,144 GWh (+10.4%), the highest Group's production volume on record. In the 4th quarter of 2013, hydropower plants of RusHydro Group slightly increased electricity generation by 0.3% to 22,260 GWh, generation in 2013 increased by 16.3% to 93,690 GWh.

The underlying factors of the production change in 2013 were:

- higher than average water resources in reservoirs of the hydropower plants;

- water to reservoirs of the Volga-Kama cascade higher than long-run average in the 1st, 2nd and 4th quarters;

- water inflow to major reservoirs of Siberia higher than normal during the whole year;

- priority of HPPs load in the Far East of Russia over thermal generation in the 3rd and 4th quarters of 2013 due to abnormal flooding.

Events in 2013

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

§ 19.54% 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,

§ 42.75% of shares of JSC Irkutsk electronetwork company,

§ 0.08% of shares of JSC Irkutskenergo.

- In February 2013, RusHydro Group 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 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.

- In September, the turbine room of the Zagorskaya pumped storage plant No.2 was flooded via broken expansion joints and intakes of unfinished water pipes. Immediately after the accident, restoration operations began. The construction and installation works and property, including equipment, of the plant are insured. However, the insurance payouts can be made only after the causes of the accident are analyzed by the insurers.

- RusHydro completed the equity offering by placement of 66,995,185,198 ordinary shares during pre-emptive right period, and 1,622,759,598 - during open subscription. After registration of the report on share issue results by Central Bank, the total number of outstanding shares amounted to 386,255,464,890;

- In December, JSC RusHydro signed a 5-year loan agreement with Sberbank of Russia in the amount of RUR 10,613 mn to refinance liabilities of RAO ES of East Holding (part of RusHydro Group).

- In December, JSC RusHydro signed a 12-year loan agreement with European Bank for Reconstruction and Development (EBRD) in the amount of RUR 4.4 bn to finance reconstruction and modernization of power infrastructure in the Far East of Russia, suffered from massive floods in 2013 caused by ample rainfalls.

- In 2013, the technological assessment and price audit of the Yakutskaya TPP No.2 and Blagoveschenskaya TPP was completed. The projects had also been approved by the Federal agency of assessment (Glavgosexpertiza). The whole package of design documentation for TPP in Sovetskaya Gavan' had been developed and approved by Glavgosexpertisa.

- In 2013, the Company commissioned 9 modernized hydro units with combined capacity of 737 MW as a result of its comprehensive modernization program. Rerating of modernized units added 62 MW of installed capacity.

Revenue

Revenue breakdown 2013/2012 (in RUB mn)

In 2013, total revenue of the Group increased by 5.6% to RUB 326,878 mn. The change is associated with the following factors:

- increase in electricity generation by hydropower plants of JSC RusHydro by 17% as compared to the same period of 2012;

- increase in electricity sales volumes and prices on the "day-ahead" market;

- increase in capacity prices of the competitive capacity auctions for the HPP's of the first pricing zone;

- indexation of regulated electricity and capacity tariffs;

- increase in volumes and tariffs of regulated electricity and capacity sales;

- decrease in capacity tariff of the Sayano-Shushenskaya HPP in the 2nd half of 2013.

Operating expenses

Operating expenses in 2013/2012 (in RUB mn)

Total operating expenses increased by 0.6% from RUB 271,181 mn to RUB 272,784 mn.

Major factors affecting expenses:

- growth of labor expenses 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 for new and operating facilities due to increase in construction volumes as well as in operating services tariffs;

- growth of tax expenses;

- decrease in total provisions for accounts receivables following reversal of a number of previously recognized provisions;

- reduction in costs for purchased power and capacity by power plants of the price zones to provide supplies under free and regulated contracts;

- fuel expenses reduction following the decrease of heat and power generation by heat and power plants, as well as switching to natural gas. 

Profit

In the reporting period, EBITDA increased by 23.3% to RUB 79,171 mn compared to RUB 64,188 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 day-ahead market, decrease in fuel and electricity and capacity purchase expenses and implementation of cost optimization plan by the management.

In 2013, the Group's net profit amounted to RUB 20,993 mn compared to net loss of RUB 25,324 mn in the previous year. Adjusted net profit in 2013 amounted to RUB 52,673 mn, a 62.3% 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 property, plant and equipment of a number of hydropower plants (Cascade of Verkhnevolzhskiye HPPs, Cascade of Kubanskiye HPPs, Karachaevo-Cherkesskiy branch, Saratovskaya HPP, Sayano-Shushenskaya HPP, Cheboksarskaya HPP, Nizhne-Bureyskaya HPP and other) in the amount of RUB 18,995 mn as a result of decline in prices and sales expectations in current economic conditions;

- impairment of shares of OJSC Inter RAO UES in the amount of RUB 7,594 mn due to significant and prolonged decline in their market value;

- impairment of non-interest-bearing promissory notes of JSC Boguchansky aluminium plant in the amount of RUB 1,633 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, and postponement of start of production from September 2013 to mid-2014;

- impairment of property, plant and equipment of the JSC Boguchanskaya HPP in the amount of RUB 3,648 mn, as a result of decline in revenue expectations for 2013-2014;

- impairment of accounts receivable in the amount of RUB 4,895 mn resulting from analysis of past due receivables and estimation of their collectability;

- reversal of impairment of property, plant and equipment and investments in JSC Krasnoyarskaya HPP in the amount of RUB 5,999 mn;

- curtailment gain in the amount of RUB 1,609 mn 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 December 31, 2013, the Group's assets decreased by RUB 2,221 mn to RUB 852,046 mn against the comparable figure as at December 31, 2012. Change in assets is primarily attributable to impairment of financial assets classified as held for sale, as well as decrease in cash and cash equivalents.

As at the end of the reporting period the Group's liabilities decreased by RUB 58,523 mn from December 31, 2012, to RUB 255,339 mn. Change in the liabilities was mainly a result of funds raised through bonds placement by JSC RusHydro in the amount of RUB 20 bn and obtaining a loan from Sberbank of Russia in the amount of RUB 10,613 mn in December, 2013, to refinance liabilities of RAO ES of East Holding (part of RusHydro Group) as well as to repay a part of other loan in the amount of RUB 20 bn secured from Sberbank of Russia, and also reclassification of the Group's liability in regards to additional issue of shares in the amount of RUB 50 bn to share capital.

Events after the reporting date

- In February, 2014 the Board of Directors approved the investment program of RusHydro Group for 2014-2018, which provides for funding in the amount of RUB 360,868.55 mn (incl. VAT);

- The Russian government prepared a draft decree aimed to liberalize tariff regulation for up to 50% of hydro capacity sales in the second price zone as of April, 2014;

- In March, ING Bank and Crédit Agricole Corporate & Investment Bank Deutschland arranged two export credit facilities in favor of RusHydro: a 14-year facility in the amount of EUR 95.4 mn and a 15-year facility in the amount of EUR 94.9 mn. The facilities will be used to continue modernization of the Saratovskaya HPP.

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/

[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] EBITDA is calculated as operating profit/loss excluding depreciation of property, plant and equipment and intangible assets, impairment of property, plant and equipment, impairment of available-for-sale financial assets, accounts receivable, long-term promissory notes, goodwill and intangible assets, loss on disposal of property, plant and equipment, loss on remeasurement of net assets of subsidiary acquired exclusively with a view for resale and curtailment in pension plan.

[3] 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 on disposal of property, plant and equipment, 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.

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 37.5 GW, heat capacity - 16.2 thousand GCal/h.

Russian Federation owns 66.8% 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 и MSCI Russia indexes. Company's GDRs in the IOB section of LSE, ADRs - in OTCQX.

For more information:

Investor Relations Department

Tel. +7 (800) 333 8000 ext. 1607, 1319, 1304

ir@rushydro.ru

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.