Financial Performance Analysis

Key Indicators Characterizing Financial Performance of the CompanyIndicators given in the table were calculated according to a methodology of financial ratios calculation for annul reporting recommended by Department of Corporate Finance of JSC Rosseti

Indicator

2011

2012 

2013 

Change,

2013/2012, p.p. (unless otherwise specified)

For information:formula

Indicators of financial stability

Cost of net assets, RUB mln

56,144

76,225

76,341

0.2%

Order # 10-N of the Ministry of Finance
of the Russian Federation

Level of delayed accounts payable, %

3.7

2.9

2.2

– 0.7

Overdue receivables/ (1400 + 1500 f. 1)

Equity-assets ratio (financial independence)

0.5

0.6

0.5

line 1300 f. 1/line 1700 f. 1

DEBT/EBITDA

3.1

2.9

3.0

Line 1410 f. 1 + line 1510 f.1) / EBITDA

Security ratio of own current assets

– 0.9

– 1.0

– 0.9

(line 1200 f. 1– line 1231 f. 1– line 1500 f. 1) / line 1200 f. 1
Profitability Ratios

EBITDA margin, %

23.1

26.8

28.3

1.4

(EBITDA/Revenue (line 2110 f. 2)) x 100%

Net Income margin, %

3.7

2.9

1.1

– 1.9

(line 2400 f. 2/Revenue (line 2110 f. 2)) x 100%

Return on Total Assets (ROTA)
on income before taxation, %

2.4

1.6

1.0

– 0.6

(line 2300 f. 2/(line 1600 f. 1 + line 1600 f. 1 base / 2))
x 100%

ROE (Return on Equity), %

2.5

1.6

0.6

– 1.0

line 2400 f 2/((line 1300 f. 1 + line 1300 f. 1 / 2)) *100%

Indicators of business activity

Assets turnover, times

0.3

0.3

0.3

2110 f. 2/1600 f. 1

Accounts receivable turnover, times

5.1

4.7

4.0

2110 f. 2/(1230-123204) f. 1

Accounts payable turnover, times

1.4

1.3

1.0

2120 f. 2/(1450 + 1520) f. 1

Ratio of receivables and payables growth rates, times

1.0

1.0

0.9

Current AR = line 1230 f. 1 / line 1230 f. 1

Current AP = line 1520 f. 1 / page 1520 f. 1

Current AR / Current AP = (line 1230 f. 1 / line 1230 f. 1) /

(line 1520 f. 1 / line 1520 f. 1)

Ratio of cumulative receivables and payables, times

0.3

0.3

0.3

line 1230 f. 1/line 1450 f. 1 + line 1520 f. 1)

Ratio of the most liquid receivables and payables, times

0.9

0.9

0.5

line 123201. 1 + page 123206 f. 1) /
(page 1521. 1 + page 1528 f. 1)
Liquidity Ratios

Absolute liquidity ratio

0.2

0.2

0.2

line 1240 f. 1 + line 1250 f. 1) / line 1500 f. 1

Quick liquidity ratio

0.5

0,.5

0.5

line 1260 f. 1 + line 1250 f. 1 + line 1240 f. 1 +line 1232 f. 1) / line 1500 f. 1

Current liquidity ratio

0.5

0.5

0.5

line 1200 f. 1/line 1500 f. 1
Market indicators

EPS, RUB

1.38

0.98

0.34

formula: (net profit for the reporting year - accrued dividends on preferred shares)/number of outstanding ordinary shares

P/E, times

7.14

6.75

7.04

formula: average weighted price of one ordinary share by the end of the reporting year/ earnings per share
Assets liquidity degree, RUB mln
Indicator Designation Formula
(line of the balance sheet)
2011 2012 2013
Most liquid assets А1 1240 + 1250 6,796 5,429 9,655
Quick assets А2 1232 + 1260 6,391 7,730 10,042
Slow assets А3 1210 +1220 + 1231 1,657 866 1,190
Sticky assets А4 1100 92,883 117,523 127,596
Most accrued liabilities P1 1520–1527 20,724 22,898 34,615
Short-term liabilities P2 1510 + 1527 + 1550 6,193 3,144 3,970
Long-term liabilities P3 1400 + 1530 + 1540 24,666 29,281 33,557
Stable liabilities P4 1300 56,144 76,225 76,341
Conditions of absolutely liquid balance sheet А1> =P1 А1 – P1 – 13,928 – 17,469 – 24,960
А2> =P2 А2 – P2 198 4,586 6,072
А3> =P3 А3 – P3 – 23,009 – 28,414 – 32,367
А4 <P4 P4 – A4 – 36,739 – 41,298 – 51,255

Dynamics of the ratio of net assets and total assets

Net assets of JSC Lenenergo by results of the reporting year increased due to the growth of consolidated financial result of the Company concerning the level of 2012. Essential excess (in 62.2 times) of net assets over the authorized capital completely meets requirements of regulations Article 35 of Law “About joint stock companies” of 26.12.1995 # 208-FZ (with the subsequent amendments and supplements). to the size of net assets of the organization and can be regarded as a major factor of stability of the Company’s financial condition at present and in the long-run.

Assessment of financial stability

Stability of the Company’s financial condition depends both on the optimal structure of equity sources (ratio of own and borrowed funds) and the optimal structure of the Company’s assets.

Since equity is a basis of the Company’s independence, a considerable share of own funds on balance of the Company testifies to its sufficient financial independence. For the end of 2013 specific weight of equity constituted 51.4% of balance sheet total of JSC Lenenergo that was not below the traditionally recommended level (50%).

In general the ratio of financial independence, the ratio of equity and borrowed capital, and the ratio of total debt to EBITDA by results of 2013 were within the standard limits that is regarded positively. Deterioration of the indicators of financial stability concerning the level of 2012 was primarily caused by increased liabilities of JSC Lenenergo in the conditions of growth of accounts payable and its debt on credits and loans.

The positive characteristic of the Company’s activity in 2013 was decrease in the level of delayed accounts payable due to reduction of its sum. Delayed accounts payable were attributable to advances received under contracts on technological connection. Work on minimization of delayed liabilities is conducted in the Company on a continuous basis.

Indicators of profitability and business activity

Indicators of profitability of JSC Lenenergo in 2013 were positive as a result of profitable business activity of the Company.

EBITDA margin

EBITDA margin reflecting the size of EBITDA per each ruble of revenue received by the Company improved in 2013. The gain was 1.43 percentage points in connection with advancing growth rate of EBITDA versus the growth rate of revenue. In 2013 the ratio of EBITDA to revenue was 28 kopeks per 1 rub.

The indicator of return on equity (ROE)

The indicator of return on equity (ROE) is one of the key indicators characterizing efficiency of functioning of the Company, and reflects the size of profit received by its owners from each ruble invested in the Company. Its decrease in comparison with 2012 was also connected with decrease in net income of JSC Lenenergo.

Net income margin

Decrease of net income margin reflecting the size of net income of the Company per 1 ruble of received revenue, is connected with multidirectional changes of the Company’s revenue (growth) and its net income (decrease).

The indicator of return on total assets (ROTA)

The indicator of return on total assets (ROTA) shows that on each ruble invested in assets, JSC Lenenergo received 1.0 kopeks of income before taxation in 2013. Reduction of the indicator testifies to decrease in efficiency of assets use.

Insufficiently high level of profitability indicators is primarily due to the operating tariff methodology – RAB regulation, application of smoothing, and lost income. Hence, transition of JSC Lenenergo to RAB-regulation of tariffs in the long-term will act as the main catalyst of considerable improvement of financial and economic condition and growth of the Company’s capitalization.

Management of the Company introduces a competent policy on a continuous basis aimed at achievement of positive results upon its operating activities and increase of investment appeal of JSC Lenenergo overall.

In modern conditions this policy assumes:

  • development and implementation of the program of costs optimization;
  • tender procedures directed on performance of the task of the President of the Russian Federation on decrease in expenses for purchasing of goods, works, services counting per unit of production not less than by 10% within three years in real expression in the prices of 2010;
  • annual development and implementation of the program on energy saving and increase of power efficiency;
  • execution of the Company’s obligations on technological connection of applicants;
  • formation of actual prices for rendering of other services;
  • negotiation for the purpose of attraction of additional financing under profitable terms, credit portfolio optimization, including measures on decrease of interest rates;
  • the program of innovative development for 2011–2016 was approved and is implemented in the Company to ensure modernization and technological development of the Company, reliability of power supply and increase of economic efficiency.
Accounts receivable turnover

Accounts receivable turnover reflects the speed under which buyers (debtors) pay off their obligations to the Company. By results of 2013 it constituted 4.0 times and as compared to the previous reporting year it decreased by 0.7 p.p. due to high growth rates of liabilities in comparison with the revenue growth. The similar trend was observed with respect to accounts payable turnover – decrease by 0.3 p.p. was caused by high growth rates of accounts payable concerning increase in operating costs.

Duration of turnover of accounts payable characterizes average duration of a delay of payments provided to the Company by suppliers. For 2013 duration of turnover of accounts receivable is much lower than duration of accounts payable turnover that was a positive factor.

At the same time the indicator of assets turnover in comparison with level of 2013 practically did not change and constituted 0.3 times in 2013.

In conditions of a higher growth of accounts payable concerning increase of accounts receivable, the indicator reflecting the ratio of receivables and payables following the results of 2013 decreased by 0.03 p.p. The indicator characterizing the ratio of most liquid receivables and payables also decreased that was caused by a considerable gain of the most urgent accounts payable (short-term accounts payable to suppliers and contractors and debt of other creditors – generally at the expense of debt growth to the construction organizations and network companies, reflection of debt on additional issue of ordinary shares).

In terms of higher growth rates of short-term accounts payable in comparison with growth rates of accounts receivable for 2013 the value of ratio of growth rates of receivables and payables decreased. Thus the indicator of the ratio of growth rates of receivables and payables is close to 1 that testifies to an insignificant gap at the growth rates of short-term accounts payable and accounts receivable, and is positively regarded from the viewpoint of assessment of the Company’s financial condition.

Liquidity and solvency assessment

The balance sheet of JSC Lenenergo for the end of 2013 was not absolutely liquid. Conditions of absolutely liquidity were observed only regarding excess of the size of quick assets over short-term liabilities.

Since JSC Lenenergo is a company relating to the capital-intensive industry, the structure of its balance liabilities is characterized by a large volume of debt funds, and non-current assets prevail in the structure of assets. Absolute financial stability (presence of own current assets) for capital-intensive industries may not always be ensured. Hence, for companies of the industry liquidity indicators are at the level below the traditionally recommended ones.

The ratio of security with own current assets of JSC Lenenergo has negative value since due to the industry specifics the Company has no own current assets that is admissible and acceptable for the Company. Current assets of JSC Lenenergo are not financed at the expense of long-term sources. At the same time concerning 2012 the indicator improved.

By results of 2013 optimum values of current and quick ratio were not reached, thus relative to the previous reporting year the ratios increased. The absolute liquidity index, which value as of 31.12.2013 increased also corresponds to the traditionally recommended indicator (> =0.15). The growth of liquidity indicators was caused by a higher growth rate of current assets, primarily at the expense of cash and short-term financial investments, concerning the growth rate of short-term liabilities.

At the same time the main lowering influence on liquidity indicators of the Company was rendered by a large sum of debt on advances received from applicants on contracts on technological connection. The major part of this debt is short-term (RUB 15,163 mln) – 43.8% of short-term accounts payable of JSC Lenenergo and 97.6% of cumulative size of advances on technological connections as of 31.12.2013 was assignable to it.

In most cases the fee for connection services to JSC Lenenergo networks are advances paid at conclusion of the contract on technological connection and which are actually long-term sources of funds since they are linked to implementation by the Company of its long-term investment program. The specified liabilities do not demand security with current assets as they are sources for formation of non-current assets of the Company and are repaid when rendering services in technological connection.

Improvement of the Company’s liquidity indicators in the long-term can be reached by decrease in the sum of short-term liabilities on advances received by the Company by result of fulfillment of its obligations towards applicants and increase in expected revenue from rendering of services in technological connection.

By results of the reporting year advances received under technological connection contracts increased by RUB 354 mln or 2.3%.

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