OREANDA-NEWS. RusHydro Group (hereinafter referred to as the “Group”, ticker symbol: MOEX, LSE: HYDR; OTCQX: RSHYY) announces its condensed consolidated interim unaudited financial information prepared in accordance with International Financial Reporting Standards (IFRS) for the nine months of 2015.

Key highlights for 9M 2015:

  • Good 3Q 2015 financial results on the back of recovering hydropower output on the Volgo-Kama cascade and the South of Russia, healthy pricing environment on the electricity spot market and continued deregulation of hydro capacity sales in Siberia, and significantly increased profit from JV of Boguchanskaya hydropower plant;
  • Increase in revenue in 9M 2015 – 5.0%;
  • 3Q 2015 EBITDA – RUB 13,910 mn (+37.4%), 9M 2015 EBITDA – RUB 47,577 mn
  • (-7.6%);
  • Operating expenses in 3Q 2015 increased by 9.8%, in 9M 2015 – by 10.2% mainly due to growth of fuel costs, employee benefit expenses, expenses for purchased electricity and capacity, as well as third-party services;
  • Net profit for 9M 2015 – RUB 24,098 mn (+7.6%); net profit adjusted for non-cash items – RUB 28,214 mn (+6.7%).

9M 2015/2014 highlights (in RUB mn)

 

3Q’15

3Q’14

chg

9M’15

9M’14

chg

Revenue, including

76,963

70,225

9.6%

253,271

241,141

5.0%

Revenue

74,295

67,999

9.3%

245,083

233,308

5.0%

Government grants

2,668

2,226

19.9%

8,188

7,833

4.5%

Operating expenses

71,500

65,121

9.8%

226,069

205,089

10.2%

EBITDA[i]

13,910

10,125

37.4%

47,577

51,507

-7.6%

Net profit

5,516

1,062

419.4%

24,098

22,398

7.6%

Net profit (adj.)[ii]

8,148

2,112

285.8%

28,214

26,446

6.7%

Operating results

In the 3rd quarter of 2015, total electricity generation by power plants of RusHydro Group amounted to 26,396 GWh, a 2.9% increase as compared to the same period of 2014, total power generation in the 9 months of 2015 amounted to 83,569 GWh (a 3.5% decline as compared to the same period of 2014). In the 3rd quarter of 2015, hydropower (HPPs) and pumped storage power plants (PSPPs) of RusHydro Group increased electricity generation by 0.8% to 20,218 GWh, in the 9 months of 2015 generation decreased by 9.1% to 60,501 GWh, output by thermal (TPPs) and geothermal plants located in the Far East of Russia in the 3rd quarter of 2015 increased by 10.4% to 6,178 GWh, in the 9 months of 2015 – by 15.3% to 23,068 GWh.

The underlying factors of the production change in January-September of 2015 were:

  • total water inflow to reservoirs of the Volga-Kama cascade in the 3rd quarter of 2015 was higher than normal, in the 9 months - slightly lower than long-run average;
  • water inflow to major reservoirs of Siberia in the 3rd quarter of 2015 was substantially lower than long-run average level;
  • low water inflow to reservoirs of HPPs of the South of Russia and North Caucasus in the 3rd quarter of 2015;
  • increase in electricity generation by TPPs of the Far East due to lower hydro production in the unified power system of the Far East as well as growth in electricity consumption.

Events in January – September 2015

  • In April, PJSC RusHydro successfully placed its bonds of series 09 with par value of RUB 1,000 per bond and total par value of RUB 10 bn. The coupon rate was set at 12.75% per annum;
  • RusHydro’s largest hydroelectric power plant – Sayano-Shushenskaya – increased its maximum capacity output to 5,100 MW following the modernization of automatic reliability system installed at the station;
  • Reservoir of the Boguchanskaya hydropower plant (a 50/50 JV of RusHydro and UC RUSAL) has been filled to its design level of 208 m (above sea level) allowing the plant to reach its full capacity of 2,997 MW and produce 17.6 TWh of electricity per year;
  • In June, PJSC RusHydro signed a 5-year loan agreement in the amount of RUB 30 bn with JSC VTB Bank. The facility may be used to finance the Company’s current operating and investment activities;
  • In July 2015, PJSC RusHydro placed three issues of exchange traded bonds in total amount of RUB 15 bn with coupon rate of 11.85% per annum;
  • PJSC RusHydro paid the dividend for 2014 in total amount of RUB 6 bn. On June 26, 2015, the AGM resolved to pay dividends for 2014 in the amount of RUB 0.0156 per share;
  • In September 2015, PJSC RusHydro signed a cooperation agreement with VTB Bank (PJSC) aimed at refinancing of the debt portfolio of RAO ES of the East subgroup, increasing the investment appeal of RusHydro shares and seeking strategic investors in the Company’s share capital. ;
  • On September 14, 2015, Nikolay Shulginov was appointed Chairman of the Management Board, General Director of PJSC RusHydro.

Revenue

Revenue breakdown 9M 2015/2014 (in RUB mn)

 

3Q’15

3Q’14

chg

9M’15

9M’14

chg

Electricity sales

56,165

52,424

7.1%

180,347

172,326

4.7%

Heat and hot water sales

2,839

2,604

9.0%

22,981

22,224

3.4%

Capacity sales

8,418

6,911

21.8%

24,223

20,134

20.3%

Other sales

6,873

6,060

13.4%

17,532

18,624

-5.9%

Revenue from operations, total

74,295

67,999

9.3%

245,083

233,308

5.0%

Government grants

2,668

2,226

19.9%

8,188

7,833

4.5%

Total revenue

76,963

70,225

9.6%

253,271

241,141

5.0%

In the nine months of 2015, total revenue of the Group increased by 5.0% to RUB 253,271 mn. The change is associated with the following key factors:

  • increase in capacity prices of the competitive capacity auctions (KOM) for the hydropower plants of the second pricing zone following partial liberalization of hydro capacity market of Siberia from May 1, 2014;
  • increase in revenue from electricity sales of ESC RusHydro subgroup segment following an increase in electricity output, planned tariff growth as well as new consumers acquisition;
  • increase in electricity prices on the “day-ahead” market of the second price zone following decrease in electricity generation by hydropower plants;
  • decrease in electricity generation by hydropower plants due to: a) low water level in the basin of the Angara-Yenisey cascade (excluding Novosibirskoe reservoir); b) lower than long-run average water inflow to reservoirs of the Volga-Kama cascade;
  • decrease in the average prices on the “day ahead” market in the first pricing zone against the background of non-indexation of gas tariffs for industrial consumers starting from the second half of 2014 as well as sluggish electricity demand.

Operating expenses[iii]

Operating expenses in 9M 2015/2014 (in RUB mn)

 

3Q’15

3Q’14

chg

9M’15

9M’14

chg

Employee benefit expenses

16,672

15,784

5.6%

52,571

47,828

9.9%

Purchased electricity and capacity

12,235

12,348

-0.9%

42,720

39,164

9.1%

Fuel expenses

9,051

7,128

27.0%

37,811

31,228

21.1%

Electricity distribution expenses

9,514

8,682

9.6%

30,238

29,827

1.4%

Other third-party services

8,424

7,689

9.6%

22,933

20,962

9.4%

Depreciation

5,826

5,077

14.8%

16,983

15,484

9.7%

Taxes other than on income

2,452

2,235

9.7%

7,306

6,671

9.5%

Other materials

2,256

3,522

-36.0%

5,966

7,389

-19.3%

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

2,253

(92)

-

2,463

(65)

-

Water usage expenses

633

694

-8.8%

2,042

2,062

-1.0%

Travel expenses

560

454

23.3%

1,498

1,188

26.0%

Social charges

339

981

-65.4%

1,066

1,710

-37.7%

Purchase of oil products for sale

408

37

1002.7%

549

280

96.1%

Loss on disposal of subsidiaries and joint venture, net

165

36

358.3%

196

36

444.4%

Other expenses

712

546

30.4%

1,727

1,325

30.3%

TOTAL

71,500

65,121

9.8%

226,069

205,089

10.2%

Total operating expenses in the nine months of 2015 compared to the same period of 2014 increased by 10.2% from RUB 205,089 mn to RUB 226,069 mn.

Major factors affecting expenses:

  • growth of fuel expenses mainly as a result of increased electricity output of JSC Far-Eastern Generating company (DGK), increase in fuel consumption due to increased electricity generation by a number of inefficient plants in order to compensate the drop in electricity production by hydropower plants, as well as growth of fuel prices;
  • growth of employee benefit expenses as a result of quarterly indexation of tariff rates and salaries of personnel of RAO ES of the East subgroup’s subsidiaries, as well as quarterly indexation of salaries of operating personnel of PJSC RusHydro branches;
  • increase in purchased electricity and capacity expenses as a result of: a) growth of expenses of PJSC Yakutskenergo (RAO ES of the East subgroup) due to start of electricity purchase from JSC Vilyuiskaya HPP-3 (ALROSA group); b) increase in tariffs for electricity and capacity purchase from the Bilibinskaya NPP (Rosenergoatom Concern JSC) by JSC Chukotenergo; c) growth of purchased electricity and capacity expenses of PJSC Krasnoyarskenergosbyt mainly due to increase in electricity prices on the “day-ahead” market, as well as increase in the amount of capacity purchased under capacity supply agreements and free agreements; d) growth of expenses following acquisition of new consumers;
  • increase in depreciation following commissioning of new assets of PJSC RusHydro;
  • growth of the third-party services expenses, as a result of engagement of sub-contractors in the repair of the equipment of RAO ES of the East subgroup and restoration works at the Zagorskaya PSPP-2.

Profit

In the reporting period, EBITDA decreased by 7.6% to RUB 47,577 mn compared to RUB 51,507 mn for the same period of previous year. Decrease in EBITDA is related to growth of operating expenses exceeding revenue growth.

In the nine months of 2015, the Group’s net profit increased by 7.6% to RUB 24,098 mn compared to RUB 22,398 mn for the previous year. Adjusted net profit in the reporting period amounted to RUB 28,214 mn, a 6.7% 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):

  • accrual of impairment of fixed assets in the amount of RUB 2,240 mn;
  • accrual of impairment of accounts receivable in the amount of RUB 148 mn resulting from analysis of past due receivables and estimation of their collectability;
  • recognition of loss on disposal of property, plant and equipment in the amount of RUB 2,463 mn, mainly at the Zagorskaya PSPP-2.

Key indicators of financial position

As of September 30, 2015, the Group's assets increased by RUB 73,639 mn to RUB 957,409 mn against the comparable figure as at December 31, 2014. Change in assets is primarily attributable to:

  • increase in fixed assets of the Group;
  • increase in value of assets available-for-sale;
  • increase in cash equivalents on the banks accounts;
  • increase in accounts receivable;
  • decrease in short-term deposits value.

As at the end of the reporting period the Group's liabilities increased by RUB 54,381 mn from December 31, 2014, to RUB 343,000 mn. Change in the liabilities was mainly a result of placement of non-convertible interest bearing bonds in total amount of RUB 25 bn; securing short-term loans from PJSC Sberbank by JSC Sakhaenergo in the amount of RUB 3,294 mn for fuel purchases, securing short-term loans from PJSC ROSBANK in the amount of RUB 3,170 mn to purchase fuel and finance its repair program, as well as growth in liabilities of JSC NizhneBureiskaya HPP for completed works and delivered equipment.

Events after the reporting date

  • Gotsatlinskaya HPP in Dagestan with the installed capacity of 100 MW was launched in October.
  • In October, PJSC RusHydro fully and timely repaid its RUB-denominated Eurobond issue in the amount of RUB 20 bn placed in October 2010.
  • The Board of Directors approved the structure of transaction aimed at refinancing of debt of RAO ES of the East subgroup through issue of additional shares of PJSC RusHydro and raising equity financing from VTB Bank (PJSC) in total amount of RUB 85 bn.
  • The Board of Directors resolved to convene the EGM in absentee voting on December 25, 2015 to approve a series of transactions aimed at refinancing of debt portfolio of RAO ES of the East subgroup.