Financial results according to RAS

Commentary-interview of the First Deputy Director General for Financial & Economic Activities and Corporate Governance A. V. Inozemtsev

The year 2015 was marked by the 10th anniversary of PJSC MOESK when the Company once again managed to confirm its status of the largest grid company, which not only delivers reliable and high-quality power supply but also maintains steady dynamics of its financial results.

Compared with a similar period last year, even despite the limitations on the tariff growth against the backgrounds of rising inflation rates and reduced power consumption, PJSC MOESK managed to achieve the increase in EBITDA by 13.2% and increase in the net profit by 12.7%.

The Company was able to achieve such results due to successful implementation of the Program for Reduction of Costs and Electric Power Losses. The specific operation costs were proactively reduced by 5% against the level of 2014 in compliance with RF Government Decree No. 2303p- P13 dated April 16, 2015, which requires annual reduction of the target indicator value by 2-3%.

The scope of losses in 2015 was 8.55%, while the losses over the same period last year were 8.77%.

Another important achievement in the current market conditions with the poor payment discipline demonstrated by many users of electric power transmission services and higher costs of borrowing is the Company’ ability to maintain its credit portfolio at the level of January 1, 2015 without any increase. Thus, the Company managed to fulfill all of its obligations in connection with bonded loans and credit obligations in due time and manner in the reporting period and maintained the level of borrowings as of December 31, 2015 at 73.4 bln rubles.

The Company continuously demonstrates steady position in the ratings of the largest rating agencies, such as Fitch Ratings, Moody’s.

In March 2015, Moody’s confirmed the credit rating of PJSC MOESK at the Ba2 level; in December, Fitch Ratings confirmed the BB+ rank level.

In 2016, the Company will continue optimization of operation and investment costs, take actions to increase the revenue base by strengthening its position in associated economy sectors, identify cases of power consumption without commercial metering, consolidate its assets, including consolidation with no consideration, develop additional services. Considering that the economic situation remains difficult, special attention will be paid to replacement of imported products, increase in the share of repair activities and technological connections performed using the Company’s resources only. The Company has gained sufficient level of competence over the past few years to achieve these goals. Additionally, the Company will revise the scope of financing allocated to the Company’s investment program in order to preserve the current level of financial stability while maintaining the standards of electric power supply reliability and implementing the priority projects in the region.

The total amount of PJSC MOESK accounts receivable as of the start of the reporting year was 26,673 mln rubles; as of December 31, 2015, 27,219 mln rubles. The 2% increase occurred due to the increase in the level of receivables in the “Customers and clients” category by 25.5% and reduction of “advances paid” by 25.2% and “other receivables”, by 2.9%.

The amount of accounts receivable due by the Customers and clientswas 15,631 mln rubles, which is 3,174 mln rubles (25.5%) higher than the level as of December 31, 2014. The increase is explained by the higher level of current receivables due for electric power transmission in connection with revised payment schemes under the contracts with retail electricity companies.

The accounts receivable on advances paid was 7,436 mln rubles, which is 2,502 mln rubles lower than the level of receivables as of December 31, 2014. The “Advances paid” line in the balance sheet of PJSC MOESK reflects settlements for technological connections with the parties to the tariff regulation in the framework of the Single Window. These accounts receivable were generated in the period from 2006 to 2010 as a result of distribution of advance payments received from the service consumers to the settlement accounts of other grid companies in accordance with the amounts (rates) of payment for technological connections as stipulated by the orders of Regional Energy Committee of Moscow. The Company is performing work on settlement of accounts receivable with the technological connection partners through pre-court settlement procedure. The decrease in the level of receivables over the reporting year was caused by enforcement of certain court resolutions on PJSC MOESK claims against its technological connection partners initiated to recover the amounts of non-justified enrichment, due to consumer-initiated termination of contracts on technological connections which had been executed earlier in accordance with the “single window” principle. The major decrease in the accounts receivable on advances paid over the reporting period is connected with additional accrual of reserve for doubtful debt under the contract with state unitary enterprise “Moskollektor” to 100% of payables (4,451 mln rubles) due to dismissal of PJSC MOESK claims, including refusal to refer the cassation appeal of PJSC MOESK to the Judicial Panel of the RF Supreme Court for review. As of the start of the reporting period, the amount of reserve for “Moskollektor” was 50% of payables (2,274.2 mln rubles).

Main Balance Sheet Figures

Assets, RUB mln

Liabilities, RUB mln

Accounts Receivable
RUB mln

27,219

Receivables in the “Customers and clients category

15,631

Advances paid
RUB mln

7,436

Other receivables
RUB mln

4,152

Accounts Receivable and Payable

Category 2013 2014 2015 2015/2014
Receivables, RUB mln 25,014 26,673 27,219 2.0%
Payables, RUB mln 55,463 59,610 59,599 0.0%
Balance of receivables and payables, RUB mln -30,449 -32,937 -32,380 -1.7%

Structure of Accounts Receivable for Electric Power Transmission Services

Indicator as of December 31, 2013 as of December 31, 2014 as of December 31, 2015 December 31, 2015/ December 31, 2014, %
Accounts receivable for electric power transmission, including: 9,234 10,514 13,436 27.8%
Current 8,348 9,087 11,872 30.7%
Overdue 887 1,109 1,564 41.0%
For reference: disputed accounts receivable for electric power transmission, RUB mln 56 388 435 12.11%

Accounts Receivable Due by the Members of the “Single Window” System

Category as of December 31, 2013 as of December 31, 2014 as of December 31, 2015 December 31, 2015/ December 31, 2014, %
Accounts receivable due by the members of the “Single Window” system (without reserve for doubtful debts), RUB mln, including: 21,598.5 21,320.7 8,715.7 -59.1%
JSC “Energokompleks” 12,480.0 12,346.8 - -100.0%
SUE “Moskollektor” 4,601.4 4,548.4 4,451.0 -2.1%
JSC “UEC” 3,839.9 3,758.2 3,611.0 -3.9%
PJSC “Mosenergo” 677.2 667.3 653.7 -2.0%
Reserve for doubtful debts, RUB mln, including: 13,792.6 15,008.1 4,838.1 -67.8%
JSC “Energokompleks” 13,792.6 12,346.8 - -100.0%
SUE “Moskollektor” 925.5 2,274.2 4,451.0 95.7%
JSC “UEC” 387.1 387.1 387.1 0,0%
PJSC “Mosenergo” - - - -
Receivables due by the members of the “Single Window” system (with consideration of reserve for doubtful debts), RUB mln, including: 7,805.9 6,312.6 3,877.6 -38.6%
JSC “Energokompleks” - - - -
SUE “Moskollektor” 3,675.9 2,274.2 - -100.0%
JSC “UEC” 3,452.8 3,371.1 3,223.9 -4.4%
PJSC “Mosenergo” 677.2 667.3 653.7 -2.0%

Analysis of Accounts Payable Variation1

Structure of Accounts Payable

Indicator as of December 31, 2013 as of December 31, 2014 as of December 31, 2015 December 31, 2015/ December 31, 2014, %
Accounts payable, RUB mln, including: 55,463 59,610 59,599 -0.0
1. Current/overdue 3.6 6.5 2.8 -56.9%
Current 43,347 51,615 44,016 -14.7%
Overdue 12,116 7,994 15,583 94.9%
For reference: ratio of overdue accounts payable to total revenues, % 8.2 5.4 10.2 88.9%
2. Long-term/short-term 0.13 0.16 0.18 12.5%
Long-term 6,536 8,227 9,284 12.8%
Short-term 48,927 51,383 50,315 -2.1%

The accounts payable in 2015 are lower than those in 2014 by 11 mln rubles; as of December 31, 2015, the amount of accounts payable was 59,599 mln rubles. The following changes were observed:

The payables in the “suppliers and contractors” category increased by 1,059 mln rubles because the amounts due to construction companies increased by 1,824 mln rubles, amounts due to repair companies increased by 94 mln rubles, and the amounts due to other suppliers increased by 725 mln rubles, while the amounts due under the settlements with the electric power suppliers increased by 1,584 mln rubles. The payables in the “advances received” category was 36,566 mln rubles, which is 3,149 mln rubles (7.9%) lower than the same indicator as of December 31, 2014. This balance sheet item is 99% formed by advance payments received in the framework of performance under the contracts on technological connections. The decrease in this indicator is observed due to fulfillment of obligations in the reporting year in compliance with the schedule of commissioning and technological connections. The availability of accounts payable under contracts on technological connections in the balance sheet is due to the payment procedure and terms of such contracts established by the law for various consumer groups (from 6 months to 2 years).

The amount of payables in the form of taxes and levies is 1,400 mln rubles, which is 164 mln rubles (13.3%) higher than the same indicators as of December 31, 2014. These are current payables, which accrued in line with occurrence of the Company’s tax liabilities subject to payment in compliance with the due timeframe.

The amount of other accounts payable as of the end of the reporting year specified in table 6 is 2,196 mln rubles, which is a 1,916 mln rubles increase relative to the beginning g of the year. The increased amount of payables occurred due to receipt of contract performance securities in 2015.

Revenue, RUB mln

EBITDA, RUB mln

Cost of products (services), RUB mln

Net profit (loss), RUB mln

Revenues from sales of products (services), including

Key Financial and Economic Indicators, RUB mln

Indicator 2013 2014 2015 2015/2014
Gross profit 21,708 16,549 15,640 -5.5%
Sales profit (loss) 21,708 16,549 15,640 -5.5%
Interests receivable 378 550 933 69.6%
Interests payable 2,448 3,457 4,787 38.5%
Shareholding income 14 3 2 -33.3%
Other incomes 10,766 9,403 7,258 -22.8%
Other costs 14,794 11,148 5,686 -49.0%
Pre-tax profit (loss) 15,624 11,899 13,361 12.3%
Profit tax and other payments 3,983 3,691 4,114 11.5%

The amount of revenues from the sale of products (services) according to the year-end results in 2015 was 129,288 mln rubles, which is 4,028 mln rubles (3.2%) higher than in 2014, with the amount of revenues from electric power transmission being 117,683 mln rubles (5,174 mln rubles higher than the same indicator in 2014). The growth was observed due to the increase in the average annual amount of uniform tariffs (for more details, see section 2.4. Tariff Regulation). The volume of revenues from technological connection services in 2015 was 10,302 mln rubles, which is 1,528 mln rubles lower than the actual volume in 2014. The reduction in the volume of revenues was caused by non-readiness of consumers and postponement of work completion to later dates.

The cost amount was 113,648 mln rubles, which is 4,937 mln rubles (4.5%) increase against the level of 2014. Higher costs are explained mostly by increased expenses on compensation of losses, cost of services provided by PJSC FGC of UES, depreciation, and by the increase of other costs, namely: personnel costs, property taxes and other operating costs.

According to the year-end results, the net profit of the Company in 2015 was 9,247 mln rubles, which is 1,038 mln rubles higher than in 2014. The growth is mostly attributable to the reduction of negative balance of other incomes and costs with consideration of interests receivable and payable.

Comparison of the actual revenues from electric power transmission services, Business Plan values and values as per the Tariff and Balance Resolution (TBR)

Indicator 2013 2014 2015 2015/2014
Revenues (without cost of load losses), RUB mln 110,980 112,509 117,683 4.6%
Cost of load losses, RUB mln. 3,101 3,181 3,173 -0.3%
Revenue (including load losses), RUB mln. 114,081 115,690 120,855 4.5%
Volume of delivered services, mln kW·h 71,412 71,884 70,533 -1.9%
Average tariff, kopecks/kW·h without VAT 159.8 160.9 171.4 6.5%

Conditionally noninfluenceable costs

Influenceable costs

Costs in 2015

The costs of electric power procurement for compensation of losses in 2015 were 13,171 mln rubles (11.6% of the total costs). In absolute terms, the increase relative to 2014 was 1,596 mln rubles and occurred due to increase in the tariff for compensation power procurement by 28 kopecks.

The cost of services provided by PJSC FGC of UES was 14,834 mln rubles (13% of the total costs). In absolute terms, the increase relative to 2014 was 223 mln rubles and occurred due to increase in the rower rating, growth of average power tariff and average tariff for regulatory losses.

The cost of services provided by distribution grid companies in 2015 was 30,085 mln rubles (26.5% of the total costs). The costs decreased by 881 mln rubles compared with the previous year. The deviation is explained by the reduced number of grid companies in 2015.

Depreciation of property, plant and equipment and intangible assets was higher than in 2014 (by 2 104 mln rubles) due to introduction of new PPE in the framework of Investment Program in 2015.

The amount of personnel costs in 2015 was 16,795 mln rubles (14.8% of the total costs), which is 9.2% higher than in 2014. The main cause of higher value for this cost item is increase in the salary of industrial and production personnel in line with the growth of minimum monthly remuneration rate for workers of category 1.

The value of other cost items in 2015 was 7,452 mln rubles, which in general is similar to the levels of such costs in 2014. The Company was able to maintain the same level for this cost item due to implementation of activities aimed at reduction of its operating costs. Regarding growth factors, the increase in the amount of taxes and levies should be noted, including the amount of property tax in connection with the increased rate for the exempt property.

EBITDA*

In 2015, EBITDA grew by 13.2% to 41,954 mln rubles. Reduction of negative balance of other revenues and costs relative to 2014 contributed to the increase of this measure.

According to the results of 2015, the net profit of the Company was 9,247 mln rubles, which is 1,038 mln rubles higher than in 2014. This variation is attributable to the following factors:

Factors which influenced the increase in the net profit:

  • Growth of revenues from electrical power transmission by 5,174 mln rubles due to increase in the average annual uniform tariffs;
  • Growth of revenues from other activities by 382 mln rubles due to higher volumes of sales of additional services, including due to development of promising services and other services with high demand level;
  • Reduction of negative balance of other revenues and costs by 2,371 mln rubles due to decline in other costs and revenues;

Factors which influenced the reduction of net profit:

  • Reduction of revenues from technological connections by 1,528 mln rubles due to non-readiness of consumers and postponement of work completion to later dates;
  • Increase of non-influenceable costs by 3,040 mln rubles mainly due to the increased costs of loss compensation, cost of services provided by PJSC FGC of UES and amortization;
  • Increase of influenceable costs by 1,897 mln rubles due to higher personnel costs, property tax, cost of other production services and other costs;
  • Increase of property tax by 423 mln rubles due to the growth of taxable base.
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Indicators of Financial Performance and Operation Results

Indicator 2013 2014 2015 2015/ 2014
Absolute liquidity ratio 0.03 0.06 0.003 -0.0588%
Acid test ratio 0.43 0.41 0.48 0.07%
Current liquidity ratio 0.54 0.44 0.52 0.08%
Working capital to current assets ratio 0.17 -0.29 -0.05 0.23%
Turnover rate of accounts payable 1.90 1.89 1.91 0.02%
Ratio of accounts receivable and accounts payable growth rates 0.59 1.07 1.02 -0.05%
Ratio of total accounts receivable and accounts payable 0.45 0.45 0.46 0.01%
Share of accounts receivable in the revenues 0.17 0.18 0.18 0.00%
Equity to total assets 0.60 0.56 0.57 0.01%
EBITDA/% 9.34 7.22 5.80 -1.42%

Liquidity and Current Solvency Indicators

PJSC MOESK operates in the capital-intensive sector; therefore, the structure of Company liabilities is characterized by a large volume of borrowed funds while the structure of assets mainly includes non-current assets. The absolute financial stability (availability of the Company’s own working) in capital-intensive sectors of industry may not always be provided. For this class of companies, the values of liquidity ratios are lower than conventional recommended level. The main factor, which causes lower liquidity indicators of the Company, is the high amount of accounts payable in the form of advances received from the applicants for the contracts on technological connections.

In 2015, the optimum liquidity ratio values were not achieved. The increase in the current liquidity indicators is associated with more considerable reduction of the volume of shortterm obligations compared with reduction of working assets.

Working capital to current assets ratio for the annual report was calculated without consideration of short-term obligations associated with advances on future technological connections, which more accurately reflects the Company’s financial condition.

Ratios of Turnover and Efficiency

The growth of efficiency ratio over the reporting period is attributable to the activities performed by PJSC MOESK to control the accounts receivable and accounts payable and characterizes the efficiency of assets utilization in 2015. The growth of the total accounts receivable to total accounts payable ratio with the steady share of accounts receivable in the revenues demonstrates the financial stability of the Company.

Financial Stability Indicators

Stability of the company’s financial situation depends on the structure of the capital sources (debt to equity ratio) and the structure of the company’s assets.

Since the equity forms the basis for the company’s independence, the significant share of equity in the Company’s balance sheet demonstrates its sufficient financial independence.

The equity to total assets ratio in 2015 was 0.57, which means that 57% of the Company assets are financed on account of equity.

The ratio of total debt to EBITDA in 2015 was within the regulated values; moreover, certain decline in this indicator value was observed over the reporting year, which is a positive trend.

The ratio of EBITDA to interests on debt liabilities regulates the level of interest load on the Company. Reduction of this indicator in 2015 is attributable to the higher cost of borrowing services in the financial market. The increase in the indicator does not exceed the regulatory value.

In general, the indicator values show financial stability of the Company.

In 2015, the Company raised 27,479,700 thous. rubles, including:

under facility agreements in the amount of 20,479,700 thous. rubles, including:

  • for debt refinancing — 14,826,926 thous. rubles;
  • for financing of investments activities —5,652,774 thous. rubles;

under bonded loan in the amount of 7,000,000 thous. rubles for debt refinancing.

Over the year 2015, debt service obligations in the amount of 27,433,137 thous. rubles were fulfilled.

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