Financial results

Dynamics of key financial and business indicators

Among the main trends of financial and business activity of JSC Lenenergo in 2013 were:

  • increase of sales volumes;
  • a slight gain of Income on Sales;
  • drop in Net Income.

Balance sheet of the Company

At preparation of the present section of the annual report balance sheets of the Company as of 31.12.2011, 31.12.2012 and 31.12.2013 (as a part of the audited annual accounting reporting of JSC Lenenergo for 2013 taking into account a retrospective) were used.

Grand total (i.e. sum of assets at the Company’s disposal) at the end of 2013 made RUB 148,483 mln. In comparison with the balance sheet as of 31.12.2012 total property of the Company and sources of its formation increased by RUB 16,935 mln (12.9%).

As JSC Lenenergo operates in the capital-intensive industry, the structure of liabilities under the Company’s balance sheet is characterized by a large volume of debt funds, and in structure of assets non-current assets prevail.

The balance sheet of the Company as of 31.12.2013 is characterized by the following features:

  • a high share of non-current assets – 85.9% of grand total;
  • prevalence of accounts receivable in the structure of current assets– 48.2% of current assets, 6.8% of grand total, and a considerable sum of the most liquid assets (cash and short-term financial investments) that makes 46.2% of current assets and 6.5% of grand total in aggregate, respectively;
  • a considerable volume of borrowings (long-term and short-term credits and loans) – 22.5% of grand total, 46.3% of total liabilities of the Company;
  • prevalence of equity in the structure of assets formation sources (51.4% of grand total).
 
Indicator Line (Decree
# 66-N)
As of 31.12.12, actual result* Share in grand total, % As of 31.12.13, actual result Share in grand total, % Changes, 2013/2012
Sum, RUB mln % On specificweight in grand total, %
Assets
I. NON-CURRENT ASSETS
Intangible assets 1110 146 0.1 105 0.1 −41 −28.0 0.0
R&D results 1120 67 0.1 83 0.1 16 23.6 0.0
Fixed assets 1150 115,075 87.5 124,823 84.1 9748 8.5 −3.4
including construction in progress 11,322 8.6 11,753 7.9 432 3.8 −0.7
including advance payments on capital construction and acquisition of fixed assets 745 0.6 458 0.3 −287 −38.6 −0.3
Financial investments 1170 947 0.7 898 0.6 −49 −5.2 −0.1
Deferred tax assets 1180 510 0.4 980 0.7 469 92.0 0.3
Other non-current assets 1190 777 0.6 707 0.5 −70 −9.0 −0.1
Total for Section I 1100 117,523 89.3 127,596 85.9 10,073 8.6 −3.4
II. CURRENT ASSETS
Supplies 1210 443 0.3 584 0.4 141 31.9 0.1
Value added tax under purchased valuables 1220 223 0.2 % 495 0.3 % 272 122.2 0.2
Accounts receivable, including: 1230 7,797 5.9 10,071 6.8 2,274 29.2 0.9
Long-term accounts receivable 1231 201 0.2 112 0.1 −90 −44.5 −0.1
Short-term accounts receivable 1232 7,596 5.8 9,960 6.7 2,364 31.1 0.9
Financial investments (excluding cash equivalents) 1240 2,266 1.7 6,284 4.2 4,018 177.3 2.5
Cash and cash equivalents 1250 3,163 2.4 3,370 2.3 208 6.6 −0.1
Other current assets 1260 134 0,1 82 0,1 −52 −38,6 0,0
Total for Section II 1200 14,025 10.7 20,887 14.1 6,862 48.9 3.4
Balance sheet total 1600 131,548 100.0 148,483 100.0 16,935 12.9 0.0
LIABILITIES
III. CAPITAL AND RESERVES
Authorized capital 1310 1,228 0.9 1,228 0.8 0 0.0 −0.1
Revaluation of non-current assets 1340 51,520 39.2 51,433 34.6 −87 −0.2 −4.5
Additional capital 1350 11,417 8.7 11,417 7.7 0 0.0 −1.0
Reserve capital 1360 153 0.1 184 0.1 31 20.5 0.0
Retained profit (uncovered loss) 1370 11,907 9.1 12,078 8.1 172 1.4 −0.9
Total for Section III 1300 76,225 57.9 % 76,341 51.4 % 116 0.2 % −6.5 %
IV. LONG-TERM LIABILITIES
Loans and credits 1410 24,645 18,7 29,406 19,8 4,761 19,3 1,1
Deferred tax liabilities 1420 1,989 1.5 2,569 1.7 579 29.1 0.2
Other liabilities 1450 1,586 1.2 572 0.4 −1,013 −63.9 −0.8
Total for Section IV 1400 28,220 21.5 32,547 21.9 4,327 15.3 0.5
IV. SHORT-TERM LIABILITIES
Loans and credits 1510 3,144 2.4 3,970 2.7 826 26.3 0.3
Accounts payable 1520 22,898 17.4 34,615 23.3 11,717 51.2 5.9
Deferred income 1530 0 0.0 0 0.0 0 0.0 %
Estimated liabilities 1540 1,061 0.8 % 1,010 0.7 −51 −4.8 −0.1
Total for Section V 1500 27,103 20.6 % 39,595 26.7 12,492 46.1 6.1
Balance sheet total 1700 131,548 100.0 % 148,483 100.0 16,935 12.9 0.0

Non-current assets

Non-current assets of the Company as of 31.12.2013 totaled RUB 127,596 mln, or 85.9% of grand total. 84.1% of cumulative assets and 97.8% of non-current assets of the Company were assignable to fixed assets (including construction in progress and advance payments on capital construction and acquisition of fixed assets) of RUB 124,823 mln.

The increase of non-current assets was caused by extension of the Company’s investment program, input and reconstruction of fixed assets during its performance.

In the structure of long-term financial investments of the Company (RUB 898 mln, 0.7% of non-current assets) the cost of stakes in CJSC Lenenergospetsremont, CJSC Kurortenergo, CJSC Tsarskoselskaya Energy Company and a number of other issuers was considered. Decrease in their size by RUB 49.3 mln, or 5.2%, was connected with creation of reserve under devaluation of shares of JSC Northwest Energy Management Company, CJSC Velma and CJSC Akvatron and sale of JSC Ruskobank shares.

Other non-current assets in the sum of RUB 707 mln making 0.5% of total assets were also recognized in the balance sheet as of 31.12.2013. In this balance sheet line a number of expenses relating to future reporting periods (under insurance contracts, non-exclusive rights to use databases, license agreements, expenses on connection to grids of third-party organizations, etc.) was reflected.

Current assets

For the end of 2013 current assets of the Company totaled RUB 20,887 mln, or 14.1% of grand total, and having increased by RUB 6,862 mln (or 48.9%) in comparison with 2012.

The major specific weight in the structure of current assets by results of 2013 was assignable to accounts receivable – 48.2% of their total amount (RUB 10,071 mln). The most liquid assets – cash and short-term financial investments (presented by bank deposits) – made in total RUB 9,655 mln, or 46.2% of current assets.

Moreover, supplies, VAT under purchased valuables and other current assets –VAT on sums of advances given out on capital construction and purchase of fixed assets, were reflected in the structure of current assets.

A growth of current assets by results of 2013 was caused by increase in the sum of the most liquid assets by RUB 4,226 mln, in 1.8 times, including the sums of short-term financial investments – by RUB 4,018 mln (in 2.8 times), cash and cash equivalents – by RUB 208 mln, 6.6%. In particular, sources received as a result of additional issue of shares, cash of subscribers on technological connections for financing construction of facilities under the investment program, other own sources were considered in the structure of the most liquid assets.

Introducing amendments to the Federal Laws # 94-FZ of 21.07.2005 “About placement of orders for delivering of goods, performing of works, rendering of services for state and municipal needs” and # 135-FZ of 26.07.2006 “About protection of competition” since 2012 provides for placing financial sources without carrying out competitive procedures and promotes to the growth of the sum of short-term financial investments of the Company. Management of temporarily free funds of the Company is based on a principle of achievement of the maximum efficiency of financial investments at optimization of a risk – profitability ratio.

Concerning 2012 the size of value added tax under purchased valuables and supplies also increased by RUB 272 mln and RUB 141 mln, respectively. The size of other current assets thus decreased.

Cumulative value of accounts receivable for the end of fiscal year was RUB 10,071 mln that is RUB 2,274 mln (29.2%) higher than under the balance sheet as of 31.12.2012.

The sum of advances paid under capital construction which decreased for the analyzed period by RUB 287 mln (w/o VAT) did not enter into Section II “Current assets” under the line “Accounts Receivable” as of 31.12.2012 and 31.12.2013, and constituted RUB 745 mln as of 01.01.2013 and RUB 458 mln for the year end, respectively.

Advances paid as of 31.12.2013 totaled RUB 573 mln, or 5.7% of cumulative accounts receivable.

Long-term and short-term accounts payable, RUB mln
Long-term and short-term accounts receivable, RUB mln

Thus advances paid under contracts of leasing (RUB 33 mln, or 5.8% of total amount of advances) were recognized as a part of long-term accounts receivable. Advances paid to service providers for the sum of RUB 4 mln and to other debtors for the sum of RUB 536 mln (0.7% and 93.5% of total amount of advances paid) were recognized as a part of short-term advances in the volume of RUB 540 mln.

Accounts payable of suppliers and contractors totaled RUB 5,898 mln, or 58.6% of cumulative accounts receivable: a growth in comparison with 31.12.2012 was RUB 3,103 mln. This debt includes: debt on the contracts signed on rendering of services on electric power transmission over JSC Lenenergo grids (increase by RUB 1,752 mln); debt of buyers and customers on technological connections services (increase by RUB 988 mln), under identified non-contractual electricity consumption (increase by RUB 378 mln) and debt of other buyers and customers (cumulative decrease of RUB 15 mln).

About 58.6% of cumulative accounts receivable were assignable to other receivables in the sum of RUB 3,600 mln as of 31.12.2013. It includes: VAT on advances received (RUB 2,454 mln), the sum of overpayments on taxes and fees (RUB 379 mln), debtors on claims (RUB 289 mln), short-term debt on leasing at a rate of RUB 85 mln and other debt.

Capital and Reserves

Own sources had the greatest specific weight among sources of assets formation of the Company – 51.4% of the balance sheet total, or RUB 76,341 mln. The main share among them is occupied by the sum of revaluation of non-current assets (67.4% of own sources). The additional capital represents 15.0%, the share of authorized capital is 1.6%, on retained profit (of past years and fiscal year) – 15.8% of the Section III “Capital and Reserves”. Concerning 2012 the sum of capital and reserves increased (by RUB 116 mln, or 0.2%) due to the growth of consolidated financial result.

Authorized capital for 2013 did not change. Growth of the authorized and additional capitals by results of the additional issue of ordinary shares carried out by JSC Lenenergo is expected in 2014 after registration of the report on results of additional issue.

By results of net profit distribution for 2012 the reserve capital in the reporting year was increased by RUB 31 mln. The reserve capital of JSC Lenenergo as of 31.12.2013 amounted to RUB 184 mln, or 15% of its authorized capital that corresponds to requirements of the Company’s Charter. Sources of the created reserve fund were not used in reporting year.

Liabilities

Liabilities of JSC Lenenergo (Sections 4 and 5 of the balance sheet net of deferred tax liabilities, income of future periods and estimated liabilities) as of 31.12.2013 totaled RUB 68,564 mln, including:

  • long-term accounts payable – RUB 572 mln, or 0.8% of total liabilities of the Company;
  • long-term debt funds – RUB 29,406 mln (42.9%), including debt on the bond issue placed in 2012, and liabilities on par value on exchange bonds of a series BO-01 placed in Q2 2013 – totaling RUB 6,000 mln;
  • short-term liabilities (including debt on accrued but unpaid interest) – at a rate of RUB 3,970 mln (5.6%);
  • short-term accounts payable – RUB 34,615 mln (50.5%).

The share of long-term liabilities (Section IV of the balance sheet) was 21.9% by results of 2013. Long-term liabilities were created by 90.3% at the expense of long-term credits and loans in total amount of RUB 29,406 mln.

The gain of long-term liabilities of the Company in comparison with previous fiscal year (by RUB 4,327 mln, or 15.3%) was caused by the growth of debt on long-term credits and loans (on RUB 4,761 mln, or 19.3%).

Short-term liabilities (including income of future periods and estimated liabilities) were the second important source of formation of the Company’s assets– 26.7% of the balance sheet total.

The greatest specific weight among short-term liabilities was assignable to accounts payable – 87.4% of short-term liabilities and 23.3% of all funding sources. In comparison with 31.12.2012 the sum of short-term accounts payable increased by RUB 11,717 mln, or 51.2%.

As a part of short-term liabilities as of 31.12.2013 (2.7% of all sources of assets formation) there were recognized:

  • RUB 3,813 mln – the sum of debt on long-term credits transferred according in the structure of short-term liabilities pursuant to accounting requirements as before their repayment there is less than 1 year;
  • accrued interest on long-term and short-term credits and loan in the sum of RUB 157 mln.

The gain of short-term liabilities relatively 31.12.2012 was RUB 826 mln (26.3%) and was caused by the growth of debt on credits and loans considered in the structure of short-term liabilities as of 31.12.2013.

Overall, the amount of debt (indebtedness on long-term and short-term credits and loans, including debt on interest) concerning 2012 increased by RUB 5,587 mln (20.1%). The Company carried out both attraction and repayment of credits and loans in the reporting year (see section “Credit Policy”).

The cumulative accounts payable (long-term and short-term) as of 31.12.2013 totaled RUB 35,187 mln, having increased by RUB 10,704 mln (43.7%) in comparison with 2012.

Thus on 31.12.2013 concerning the beginning of reporting period the sum of short-term payables increased by RUB 11,717 mln, or 51.2%, and the sum of long-term payables decreased by RUB 1,013 mln, or 63.9%.

Dynamics and structure of accounts payable, RUB mln
Dynamics and structure of accounts receivable, RUB mln

Decrease in long-term accounts payable concerning the level of the year beginning occurred at the expense of decrease in long-term accounts payable on advances received on the contracts of technological connection to electric networks. As of 31.12.2013 long-term liabilities on advances on technological connections made RUB 380 mln compared to RUB 1,335 mln as of 31.12.2012, respectively.

For the end of 2013 short-term accounts payable of the Company reached RUB 34,615 mln. The growth of short-term accounts payable by RUB 11,717 mln concerning the level of 2012 is generally associated with influence of the following factors:

  • growth of obligations under advances received by RUB 1,315 mln, including short-term advances received on technological connection – by RUB 1,308 mln, taking into account reclassification of debt;
  • increase in debt to suppliers and contractors by RUB 6,265 mln, mainly in connection with debt growth to construction organizations by RUB 2,347 mln and to grid companies by RUB 3,516 mln. The gain of debt to construction organizations is caused by changes in the scheme of financing of investment projects: implementation of calculations upon performance by contractors of their obligations in time not less than 90 (ninety) calendar days from the date of executed works (services) or delivery of goods. The change of the scheme of financing allowed minimizing risks in cases of unfair performance of works on construction (reconstruction) of the objects of power network complex by contract organizations.
  • increase in other accounts payable by RUB 4,137 mln that is generally caused by recognition of debt on additional issue of ordinary shares (in the amount of RUB 3,000 mln) and growth of debt on providing applications for tender procedures by RUB 474 mln, and increase in accounts payable on taxes and fees by RUB 282 mln (primarily on profit tax – by RUB 171 mln and property tax – by RUB 94 mln, as a result of tax privileges cancelation and increased tax charges in 2013).

In general, within the analysis of the receivables and payables ratio, including in dynamics, specifics of financial and business activity of JSC Lenenergo associated with implementation of the investment program and payment of fees on technological connection should be considered.

The ratio of receivables and payables reflects the extent of crediting of buyers by the Company on the one hand and the level of the Company’s crediting by sellers on the other hand, and it is considered normal at a level of 1.2–1.5. Within the conditions of a smaller growth rate of the sum of receivables concerning a growth rate of the Company’s payables the indicator reflecting their ratio dropped by results of 2013.

Indicators of the Company’s profit and loss statements

Financial results

Financial performance by results of financial and business activity of JSC Lenenergo in 2011–2013, RUB mln
Indicators 2011 2012 2013 Change, 2013/2012, %
Revenue (net) 36,958 36,273 39,902 10.0
Costs of production and sales −31,758 −32,830 −36,429 11.0
Profit (loss) on salesThe sum of profit (loss) on sales coincides with the size of gross profit (loss) in the absence of commercial and management expenses 5,201 3,443 3,473 0.9
Income of participation in other organizations 0.4 0.8 0.7 −16.1
Interest receivable 57 296 644 117.4
Interest payable −1,167 −1,788 −2,217 24.0
Other income 750 1,924 3,529 83.4
Other expenses −2,530 −1,914 −3,985 108.2
Profit (loss) before taxes 2,311 1,962 1,444 −26.4
Current profit tax −782 −447 −1,000 123.5
Change of deferred tax liabilities −443 −496 −579 16.7
Change of deferred tax assets 288 −25 470 −1,949.9
Other −7 49 90 83.2
Total profit tax and other payments −944 −920 −1,019 10.8
Net profit (loss) of the reporting period 1,367 1,042 425 −59.2

Revenue

Revenue, RUB mln
Revenue 2011 Share in revenue, % 2012 Share in revenue, % 2013 Share in revenue, % Change, 2013/2012, %
Total revenue, including: 36,958 100.0 36,273 100.0 39,902 100.0 10.0
from electric power transmission 28,475 77.0 28,816 79.4 33,207 83.2 15.2
from technological connection services 8,311 22.5 7,282 20.1 6,515 16,3 −10.5
from other services 172 0.5 175 0.5 180 0.5 2.7
Dynamics of sales revenue, RUB mln

JSC Lenenergo revenue for 2013 totaled RUB 39,902 mln (growth of 10.0% to the level of 2012).

Revenue from basic types of activity – electric power transmission and services in technological connection – made 99.5% of consolidated revenues of the Company for the reporting year.

Revenue growth on electric power transmission by results of 2013 concerning the fact of the similar period of 2012 was caused by growth of the average tariff by 16.8% at decrease in the volumes of electric power transmission by 394 mln kWh (1.3%).

Drop in revenue from rendering technological connection services by results of 2013 in comparison with the fact of 2012 was caused by postponement of the maturity date under a large contract for 2014 due to default on submission of working documentation by the applicant.

Performance of revenue plan in 2013, RUB mln
Revenue PlanPlanned indicators are given according to the approved business plan of the Company for 2013–2017 (approved by the Board of Directors on 26.04.2013 (Minutes # 29 of 30.04.2013) Fact Fact/Plan, %
Total revenue, including: 42,669 39,902 −6.5
from electric power transmission 34,271 33,207 −3.1
from technological connection services 8.239 6.515 −20.9
from other services 159 180 13.1

The actual revenue of the Company turned out to be lower than the forecasted indicator by RUB 2,767 mln. A drop in revenue from electric power transmission by RUB 1,064 mln, or 3%, was caused by decrease in the volume of consumption by 617 mln kWh, or for 2%, and a slight reduction of the average tariff by 0.8%. Decrease in the actual revenue from technological connection services relative to the planned indicator was caused by postponement of the maturity date under a large contract for 2014.

Prime cost

Dynamics of expenses on production and sale of services by types of activity, RUB mln
2011 Share in total amount, % 2012 Share in total amount, % 2013 Share in total amount, %
Prime cost, including: 31,758 100.0 32,830 100.0 36,429 100.0
rendering of services in electric power transmission 30,456 95.9 32,344 98.5 35,903 98.6
rendering of services in technological connection 1,226 3.9 400 1.2 437 1.2
other services 75 0,2 86 0,3 89 0,2
Structure and dynamics of costs by items of expenditure in 2011–2013, RUB mln
2011 Share in total amount, % 2012 Share in total amount, % 2013 Share in total amount, %
Material costs 5,852 18.4 5,292 16.1 5,990 16.4
Works and services of production character 14,662 46.2 15,366 46.8 15,961 43.8
Payroll and social charges 3,424 10.8 3,525 10.7 3,981 10.9
Depreciation 5,102 16.1 6,278 19.1 8,261 22.7
Miscellaneous expenses 2,717 8.6 2,368 7.2 2,236 6.1
Total expenses 31,758 100.0 32,830 100.0 36,429 100.0

Prime cost of sold goods, products, works, and services of JSC Lenenergo in 2013 was RUB 36,429 mln (growth by RUB 3,599 mln, 11.0% to the level of 2012).

By results of 2013 the most essential changes in the structure of costs of production and sales of goods (services) occurred concerning a growth in the share of depreciation (by 3.6 items) at a simultaneous decrease in the specific weight of works and services of production character (by 3.0 items).

In absolute expression the most considerable gain (31.6%, or RUB 1,983 mln) was noted on the size of depreciation that is connected with increase in the book value by results of implementation of the investment program on input of fixed assets and revaluation of fixed assets carried out for the end of 2012.

There was also an increase on the following items:

  • material costs increased by RUB 699 mln (13.2%) in connection with growth of expenses for purchased electric power to compensate for losses due to an increase in the non-regulated tariff of losses purchase at the expense of growth of the actual ATS price in 2013 in comparison with 2012 and at the expense of increase in the cost premium across the Leningrad Region from 2H 2013.
  • works and services of production character were up by RUB 595 mln (3.9%) at the expense of increased cost on JSC FGC UES services due to an increase in the rates of networks maintenance and payment of losses in the UNEG networks in 2013.
  • Payroll and social charges increased by UB 455 mln (12.9%) in connection with carrying out of indexation, increase in official salaries by key professions, and motivation of the personnel involved in elimination of consequences of black outs in the Company’s grid.
  • Thus miscellaneous expenses decreased by RUB 132 mln (5.6%).

The growth rate of controllable costs for the reporting period in comparison with 2012 exceeded the growth rate of non-controllable costs while in absolute expression controllable costs increased by RUB 935 mln, and non-controllable costs – by RUB 2,664 mln, respectively.

Costs of production and sales of goods (services) of the Company broken down by controllable and non-controllable costs, RUB mln
Indicator 2011 2012 2013 Change, 2013/2012, %
Controllable costs 5,488 5,857 6,792 16.0
Material costs 413 469 503 7.2
Works and services of production character 1,014 1,218 1,464 20.2
Labor compensation fund 2,693 2,790 3,154 13.1
Other costs 1,369 1,380 1,672 21.1
Non-controllable costs 26,270 26,973 29,637 9.9
Purchased energy on compensation of losses 5,357 4,754 5,415 13.9
Services in electric power transmission by networks of third-party grid organizations 7,969 8,029 7,774 −3.2
JSC FGC UES fees 5,686 6,119 6,715 9.7
Depreciation of fixed assets and intangible assets 5,102 6,278 8,261 31.6
Leasing payments 1,187 803 123 −84.6
Other costs 969 990 1,349 36.3
Total costs 31,758 32,830 36,429 11.0
Dynamics of controllable and non-controllable cost, RUB mln

In comparison with the previous reporting year specific weight of controllable and non-controllable costs in the prime cost structure practically did not change. By results of 2013 controllable costs represented 18.6% and non-controllable costs – 81.4% of total costs of the Company for production and sales of goods (work, services).

Both in the previous year and by results of the reporting year the share of labor compensation fund (46.4%) prevailed in structure of controllable costs. The share of labor compensation fund in comparison with 2012 decreased (by 1.2%), the gain of a share of works and services of production character made 0.8%. The share of material costs in 2013 decreased by 0.6%. Miscellaneous costs increased by 1%.

Overall growth of controllable costs by 16%, or RUB 935 mln in 2013 is caused by increase in works and services of production character, growth of labor compensation fund and miscellaneous costs.

The main specific weight in the structure of non-controllable costs is the share of depreciation (27.9%), and services in electric power transmission by networks of third-party grid organizations, JSC FGC UES and purchased energy on compensation of losses. The most essential changes in the structure of non-controllable costs in comparison with 2012 occurred regarding a growth of specific weight of depreciation by 4.6 p.p. at a simultaneous decrease in the share of costs of services in electric power transmission by networks of third-party grid organizations by 3.5 p.p. and leasing payments by 2.6 p.p.

Cost reduction program

The program of cost management was developed and executed in JSC Lenenergo in 2013.

The effect from implementation of activities directed on optimization of operational costs and generation of additional income constituted RUB 952.1 mln in 2013.

The effect form implementation of activities directed on optimization of costs in the field of technical re-equipment, retrofitting and new construction totaled RUB 474.5 mln in 2013.

Implementation of the cost management program and actions held by the Company on definition of the limits of operational budgets provided execution of the Resolution of the Government on decrease in reduced operating costs in 2013 by 10% to the level of 2010.

Within the strategy of development of the power network complex of Russian Federation the Company is obliged to ensure achievement of the target indicator of decrease in operating expenses not less than 15% by 2017 taking into account inflation concerning the level of 2012 counting per unit of service of electro-technical equipment. The Company’s business plan for 2014–2018 was developed under the condition of ensuring advancing rate of achievement of the target indicators.

The program includes a complex of organizational and technical actions directed on optimization of business operations of the Company, such as:

  • actions on revenue increase;
  • logistics improvement by carrying out tender procedures;
  • cost optimization of the production program;
  • implementation of the losses decrease program;
  • general business costs reduction;
  • investment activity optimization.
Decrease in the cost of service per unit of electro-technical equipment in comparison with the level of 2012
Indicator 2014, plan 2015, plan 2016, plan 2017, plan 2018, plan
Reduced fix costs (in the prices of 2012), RUB thousand 5,870,308 6,116,677 5,894,969 5,891,476 5,891,926
Quantity, c.u. 526,801 546,573 565,733 584,891 605,191
Reduced fixed costs per c.u., RUB thousand 11.14 11.19 10.42 10.07 9.74
Decrease in costs per c.u. In comparison with 2012, % −9.4 −9.0 −15.3 −18.1 −20.8
Target indicator, % −5.0 −8.3 −11.7 −15.0 −18.0
Decrease in operating costs reduced to the level of 2010
Indicator 2011 2012 2013
Decrease (–) / growth (+) of operating costs reduced to the level of 2010, RUB mln +176.5 −347.3 −449.9
Decrease in operating costs reduced to the level of 2010, % +4.2 −8.3 −10.8

Sales profit

By results of 2013 sales profit reached RUB 3,473 mln. Its gain in comparison with the previous reporting year was caused by a higher increase in revenue of the Company compared to its prime cost growth. The sum of expenses per 1 rub of sold goods for 2013 compared to the previous reporting year practically did not change and constituted 91 kopeks.

Other income and expenses

Interest payments of JSC Lenenergo in 2013 increased by RUB 429 mln compared to 2012 and totaled RUB 2,217 mln in the reporting year. Interest payments for 2013 were calculated on credits and the loans attracted by the Company in 2010–2013. Growth of interest payments was caused by increase in the sum of a principal debt on which interest accrual was made in the reporting period.

The sum of interest payments in favor of JSC Lenenergo reached RUB 644 mln that was above the level of previous reporting period by RUB 348 of mln (in 2.2 times). The specified income is in dependence from the balance of cash placed on settlement accounts of the Company within a year and total cash placement on deposits.

Income of participation in other organizations was insignificant and made less than RUB 1 mln.

In general concerning 2012 there was a decrease in balance of other income and expenses (without interest receivable and payable and income of participation in other organizations) by RUB 466 mln in the conditions of a smaller gain of the sum of other income in comparison with increase in other expenses.

Thus, the main influence on decrease in balance of other income and expenses was rendered by a growth of expenses on creation of reserves on bad debts and other conditional obligations while increase in income of identified non-contractual electricity consumption made a smaller volume.

Income before taxes and income tax

Growth of income on sales in 2013 compared to 2012 was followed by a significant increase in absolute expression, increase in negative balance of other income and expenses (including interest and income from participation in other organizations). As a result income before taxes by results of 2013 decreased by RUB 518 mln.

Income tax and other similar obligatory payments following the results of 2012 reached RUB 1,019 mln that was above the level of 2012 by RUB 99 mln.

EBITDA

Analysis of EBITDA dynamics, RUB mln

EBITDA of the Company identifying cash flow generated by the Company before interest and taxes payments increased in 2011–2013.

By results of 2013 EBITDA totaled RUB 11,279 mln that was above the level of 2012 by RUB 1,546 mln (15.9%). The growth of indicator was primarily due to higher growth rate of revenue (+10.0%, RUB 3,629 mln) in comparison with prime cost growth net of depreciation (+6.0%, RUB 1,617 mln).

The balance of other income and expenses without interest payable and interest receivable decreased by RUB 466 mln (in 3.2 times), mainly at the expense of reserve formation on bad debts and reserve on other conditional obligations that was not compensated by growth of positive balance of income and expenses on identified non-contractual electricity consumption.

Net income

Dynamics of net income generation, RUB mln
Period Income on Sales Balance of other income and expenses Income before Taxes Profit tax and other similar payments Net Income
1 2 3 4 = 2 + 3 5 6 = 4 + 5
2011 5,201 −2,890 2,311 −944 1,367
2012 3,443 −1,481 1,962 −920 1,042
2013 3,473 −2,028 1,444 −1,019 425
Change, 2013/2012, % 0.9 37.0 −26.4 10.8 −59.2
Implementation of the plan on net income in 2013, RUB mln
Indicators Plan Fact Deviation fact/plan, %
Net income, including: 801 425 −46.9
from electric power transmission on networks −7,116 −6,446 −9.4
from services on technological connection 7,427 5,733 −22.8
from other services 490 1,138 132.4

Decrease in net income in relation to the forecast constituted RUB 376 mln, or 46.9%. Performance results of the company were affected by the following factors:

Decrease in revenue by RUB 2,767 mln at the expense of:

  • decrease in revenue on electric power transmission by RUB 1,064 mln that was caused by decrease in the volume of consumption by 617 mln kWh, or 2% and insignificant reduction of the average tariff by 0.8%;
  • decrease in revenue from technological connection by RUB 1,724 mln was due to non-fulfillment of the large contract caused by the applicant’s failure to provide working documentation.

Decrease in prime cost by RUB 2,230 mln. The most significant decrease was due to:

  • decrease of costs on services of other distribution grid companies by RUB 1,290 mln in connection with existence of disagreements: regarding application in calculations of actual or declared capacity due to the lack of documents confirming ownership rights for objects and execution of technological connection due to selection of a tariff type (single-rate, double-rate);
  • decrease in depreciation by RUB 1,012.5 mln in connection with decrease in the average rate of depreciation charges that is associated with the changes introduced in 2012 in accounting policies of JSC Lenenergo due to increase in terms of useful life of fixed assets at significant improvement of characteristics of the objects after their modernization;
  • decrease in the cost of JSC FGC UES services by RUB 217,4 mln because of the losses volume reduction in UNEG networks by 99.1 mln kWh at the expense of a drop in electric power output from UNEG networks;
  • decrease in the cost of purchased electric power on compensation of losses by RUB 117.2 mln due to reduction in the volume of losses by 111.4 mln kWh, or 3% caused by decline of electricity output in network by 754.4 mln kWh, or 2% at insignificant increase in the non-regulated tariff of losses purchase by 1% due to increase in the actual ATS price;
  • thus there was a growth of the cost of services of repair organizations by RUB 529 mln in connection with rendering of supplementary repair services which were carried out during passing of the autumn and winter period of 2012/13.

Decrease in the negative balance of other income and expenses by RUB 3 mln. Growth of other expenses by RUB 3,237 mln was compensated by the growth of other income by RUB 3,240 mln.

The greatest increase in other income was due to:

  • receiving additional revenue from identified non-contractual electricity consumption;
  • growth of interest receivable due to the growth of short-term financial investments and remains on settlement accounts;
  • accounts payable write-off by results of inventory under the contracts on technological connection;
  • growth of other actual income which were recognized after reset of earlier created reserves, income of compensatory contracts, insurance payments and other.

The greatest increase in other expenses was due to:

  • creation of a reserve on bad debts – bad debt on capital construction, on technological connection services, on other activity;
  • creation of a reserve on other conditional obligations – on disagreements regarding coordination of settlement schemes on application of the tariff type and calculated capacity, on lawsuits concerning technological connection on the basis of decisions adopted by the court of appellate jurisdiction and set not in favor of the Company, on other lawsuits;
  • growth of interest payments in connection with excess of the size of credit portfolio within a year in comparison with the forecast and a larger volume of refinancing of credits with a view of decrease in interest rates; increases in expenses from identified non-contractual electricity consumption in connection with obtaining income in a higher volume than it was planned;
  • receivables write-off – debt on electric power transmission; write-off of losses, fines, penalties and legal costs.

Reduction in income tax by RUB 159 mln, or 14% due to the gross income drop.

THE LOSS FROM ACTIVITIES ON ELECTRIC POWER TRANSMISSION FOR 2013 TOTALED RUB 6,446 MLN THAT WAS LESS THAN THE FORECASTED LOSS BY RUB 670 MLN, OR 9%. DECREASE IN THE LOSS WAS AFFECTED BY THE FOLLOWING FACTORS:

Decrease in prime cost by RUB 2,341 mln. Decrease in prime cost was caused by a drop in the services of other distribution grid companies by RUB 1,290 mln, or 14% because of selection of the single-rate type of an individual tariff and existing disagreements regarding application in calculations of actual or declared capacity; decrease in depreciation charges by RUB 1,020 mln in connection with increase in the terms of useful life of fixed assets as well as setting of new terms of useful lives at significant improvement of characteristics of objects after their modernization.

Decrease in revenue in a smaller volume than the drop in prime cost. The revenue decreased by RUB 1,064 mln, or 3% that was caused by decrease in the volume of consumption by 617 mln kWh, or 2%, and insignificant reduction of the average tariff by 0.8%.

Growth of expenses from income by RUB 702 mln, or 29% by results of the following factors:

  • growth of interest payable by RUB 322 mln in connection with excess of the size of credit portfolio within a year in comparison with the forecast and a higher volume of refinancing of credits with a view of decrease in interest rates;
  • formation of a reserve on other conditional obligations at a size of RUB 390 mln on disagreements with third-party network organizations regarding coordination of calculation schemes on application of the tariff type and estimated capacity;
  • write-off of accounts receivable at a rate of RUB 169 mln on electric power transmission on the basis of court decisions;
  • recognition of income on earlier created reserves at a rate of RUB 113 mln as revenue of past periods on the basis of change of judgments of the court of appellate jurisdiction which were set in favor of the Company;

Reduction in income tax by RUB 94 mln in connection with decrease in fixed tax liabilities.

Net income from activities on technological connection totaled RUB 5,733 mln that is less than the forecasted net income by RUB 1,693 mln.

Reduction of net income was affected by a drop in revenue on technological connection by RUB 1,724 mln, or 21% that was caused by non-fulfilment of the large contract due to the applicant’s failure to provide working documentation. The income tax carried on activity on technological connection, decreased by RUB 100 mln due to decline of income before taxes.

Net income from other types of activity constituted RUB 1,138 mln that exceeded the forecasted indicator by RUB 648 mln. The growth of net income was influenced by increase in miscellaneous income to a greater extent than the growth of miscellaneous expenses. The major factors which affected the growth of net income were:

  • growth of the balance from identification of non-contractual electricity consumption by RUB 931 mln;
  • growth of interest receivable by RUB 581 mln in connection with increase in short-term financial investments and remains on settlement accounts;
  • thus there was a growth of miscellaneous expenses: a reserve on other conditional obligations at a rate of RUB 310 mln on lawsuits on the basis of judgments of the court of appellate jurisdiction which were approved not in favor of the Company was formed; the negative balance on the won lawsuit for losses caused by a contract organization at carrying out reconstruction of substation # 17 of RUB 273 mln was recognized; growth of miscellaneous expenses by RUB 248 mln – write-off of construction in progress, losses of past years, fines and penalties.

Income tax attributable to other activities was up by RUB 35 mln due to the growth of income before taxes.

Net income secured by cash flow, RUB mln
Показатели 2011 2012 2013 Change, 2013/2012, % For information: formula
Net income secured by cash flow 1,266 975 210 −78.5 % Net profit of the reporting period = (profit of past years revealed in the reporting period x 0.8 + write-off of accounts payable x 0.8 + income on revaluation of financial investments)

Dynamics of net income secured by cash flow declined in 2011–2013 and coincided with the dynamics of net income for the corresponding periods.

In general, the size of income on sales in 2013 concerning the level of 2012 increased, while the sum of income (loss) before taxes and net profit both relatively 2011 and 2012, decreased in the reporting year.

Dynamics of income on sales, income before taxes and net income

Overall decrease in net profit in 2013 was primarily due to the growth of negative balance of miscellaneous income and expenses relative to previous reporting period despite increase in income on sales.

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