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RusHydro

December 12, 2019

RusHydro announces 9M 2019 IFRS results

December 12, 2019. Moscow, Russia. 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 3rd quarter and 9 months of 2019.

Key highlights for the 3Q and 9M of 2019:

  • Total revenue in 9M’19 was flat to 9M’18 and came in at RUB 287,620 mn (-0.4%), in 3Q’19 – RUB 87,486 (+0.1%);

  • EBITDA in 9M’19 – RUB 70,429 mn (-13.1% y-o-y); in 3Q’19 – RUB 19,659 mn (-6.7% y-o-y);

  • Operating expenses increased in 9M and 3Q by 5.2% y-o-y and 1.9% y-o-y, respectively, mostly as a result of fuel cost increase and growth of purchased electricity and capacity costs;

  • Adjusted net profit in 9M’19 – RUB 39,842 mn (-22.1% y-o-y); net profit in 9M’19 – RUB 35,157 mn (-23.5% y-o-y).

  • Financial results reflected decrease of electricity production in 9M’19 on the back of reduced water inflows to the majority of reservoirs of the HPPs in the first half of the year. In 3Q 2019 production increased on the back of rainfall flooding and increased water inflow to the following reservoirs.

3Q and 9M 2019/2018 highlights (in RUB mn) 1


3Q/19

3Q/181

chg.

9M’19

9M’181

chg.

Revenue

87,486

87,385

0.1%

287,620

288,670

-0.4%

Operating expenses

74,218

72,807

1.9%

236,621

225,005

5.2%

Other operating profit

144

444

-67.6%

614

5,340

-88.5%

Operating profit2

13,412

15,022

-10.7%

51,613

69,005

-25.2%

EBITDA3

19,659

21,067

-6.7%

70,429

81,016

-13.1%

Net profit

5,772

7,405

-22.1%

35,157

45,985

-23.5%

Net profit (adj.)4

8,733

10,937

-20.2%

39,842

51,151

-22.1%

Operating results 

Total electricity generation by RusHydro Group’s power plants amounted to 33,295 GWh in 3Q’19, an increase of 3.3% as compared to the corresponding period last year, in 9M’19 – 91,888 (-7.7%). In 3Q’19 total electricity generation by RusHydro Group’s hydropower and pumped storage plants increased by 4.6% to 27,168 GWh, electricity generation by the Group’s thermal power plants decreased by 2.6% to 6,036 GWh, and electricity generation by renewables increased by 4.5% to 91 GWh as compared to the corresponding period of 2018. Consequently, in 9M’19 of the year total electricity generation by RusHydro Group’s hydropower and pumped storage plants decreased by 10.1% to 68,824 GWh, by renewables – by 2.0% to 308 GWh, while electricity generation by the Group’s thermal power plants increased by 0.1% to 22,755 GWh as compared to the same period of 2018. Total electricity generation by Boguchanskaya hydropower plant5 in 3Q’19 amounted to 4,426 GWh, an increase of 7.4% as compared to 3Q 2018, in 9M – 11,785 (+14.6%). 

Heat output by RusHydro Group’s thermal plants in the Far Eastern Federal Districtin 3Q’19 increased by 13.2% to 2,168 GCal as compared to the corresponding period last year. In 9M’19, heat output decreased by 3.1% against 9M’18 to 18,967 GCal.

Total electricity output by RusHydro’s retail companies, operating in Chuvashia, Ryazan and Krasnoyarsk regions in the 3Q’19 decreased by 1.6% to 4,127 GWh as compared to 3Q’18. In 9M’19, total output decreased by 4.5% as compared to the corresponding period last year and amounted to 14,051 GWh. 

Key events in January - September 2019

  • On January 2, 2019, the Cental and Western districts of Yakutia were connected to the Unified Energy System of Russia. PJSC Yakutskenergo, a subsidiary of PJSC RusHydro, transferred the supervision and control of the territory to the System Operator;

  • On February 8, 2019, PJSC RusHydro has divested its 40% share in LLC VolgaHydro, a hydropower equipment manufacturing joint venture in the Saratov region, to Voith Group for RUB 450 mn;

  • On March 29, 2019, PJSC RusHydro and UC RUSAL commissioned the first stage of Boguchany aluminium smelter (BoAZ), part of Boguchanskiy Energy and Metals Complex (BEMO). Total funding of the smelter’s first phase with annual operational capacity is estimated at 298 thousand tons of aluminium amounts to USD 1.69 bn. It is being financed by own funds of partners in BEMO project along with project financing from VEB.RF (formerly – Vnesheconombank);

  • On April 19, 2019, The Board of Directors approved PJSC RusHydro’s dividend policy, which stipulates for a base scenario of dividend payout ratio at 50% of the company’s IFRS net profit. At the same time, a minimal payout level is set at the average amount of dividends paid over the last three years. Such measure guarantees shareholders a minimal dividend amount and improves the company’s investment attractiveness. The changes to the dividend policy will be in effect for three years;

  • On April 29, 2019, the first phase of placement of RusHydro’s additional share issue for the construction of Pevek-Bilibino 110 kV high-voltage overhead lines in light of upcoming reconstruction of the Chaun-Bilibino power system following decommissioning of the Bilibinskaya nuclear power plant took place. PJSC RusHydro has placed 7,000,092,298 shares including 7,000,000,000 shares in favor of the Russian Federation represented by the Federal Agency for State Property Management (Rosimushchestvo) at one ruble per  share;

  • On June 28, 2019, AGM of PJSC RusHydro elected new Board of Directors and approved 2018 dividends of RUB 0.0367388 per share in total amount of RUB 15.9 bn (50% of the Group’s net profit for 2018 under IFRS, and an increase of 42% over the amount distributed in dividends for 2017);

  • On July 17, 2019, the government of the Russian Federation approved all projects submitted by RusHydro for construction and modernization of thermal power plants in the Far East: construction of Artyomovskaya CHP-2, Khabarovskaya CHP-4, second phase of  Yakutskaya GRES-2 and modernization of Vladivostokskaya CHP-2. Return on the projects will be guaranteed by the mechanism stipulated  in the government’s program on thermal power modernization;

  • On September 7, 2019, RusHydro put into commission Nizhe-Bureyskaya HPP in the Amur region. The facility’s installed capacity and average annual electricity output stands at 320 MW and 1.67 TWh, respectively. It will supply power to customers in unified energy system of the East. 

Revenue

Revenue breakdown in 3Q and 9M 2019/2018 (in RUB mn)

 

3Q’19

3Q’18

chg

9M’19

9M’18

chg

Electricity sales

60,260

62,526

-3.6%

194,309

198,869

-2.3%

Incl. grants as per Resolution of the Russian Gov't No. 895 (premium to the price translated to the budgets of the regions of Russian Federation) 6

6,087

6,598

-7.7%

18,263

19,794

-7.7%

Capacity sales

11,556

10,670

8.3%

34,997

32,090

9.1%

Heat and hot water sales

3,082

2,905

6.1%

27,113

26,998

0.4%

Other sales

8,583

8,291

3.5%

20,128

20,892

-3.7%

Other government grants

4,005

2,993

33.8%

11,073

9,821

12.7%

Total revenue

87,486

87,385

0.1%

287,620

288,670

-0.4%

In 9M’19, total revenue of the Group amounted to RUB 287,620 mn as compared to RUB 288,670 in the 9M’18. The change is associated with the following key factors:

  • decrease in revenue from electricity sales of PJSC RusHydro by RUB 7,652 mn due to decline in production of hydropower plants by 11%;

  • increase in revenue from electricity of RAO ES East subgroup (incl. government subsidies) by RUB 2,014 mn on the back of tariff and sales volume growth;

  • increase in revenue from electricity sales  in ESC Rushydro subgroup by RUB 969 mn following new supply agreements, increase of tariffs on electricity sales as well as electricity sales volume growth on the wholesale market;

  • increase in capacity sales revenue by RUB 2,907 mn on the back of sales volume growth of PJSC DEK;

  • increase in heat and hot water sales revenue by RUB 115 mn following tariff growth;

  • decrease in other sales revenue by RUB 764 mn is mainly driven by decrease in revenue from grid connections and electricity distribution services in PJSC Yakutskenergo and PJSC Magadanenergo.

Operating expenses7

Operating expenses in 3Q and 9M 2019/2018 (in RUB mn)


3Q’19

3Q’181

chg

9M’19

9M’181

chg

Employee benefit expenses

18,308

18,025

1.6%

57,383

55,183

4.0%

Fuel expenses

11,871

10,642

11.5%

49,905

44,902

11.1%

Purchased electricity and capacity

9,385

9,126

2.8%

33,957

29,136

16.5%

Grid company services on electricity distribution

8,725

9,178

-4.9%

27,548

29,249

-5.8%

Third parties services

10,149

9,433

7.6%

25,043

25,155

-0.4%

Depreciation

6,434

5,824

10.5%

18,894

16,757

12.8%

Taxes other than on income

2,942

3,054

-3.7%

8,687

9,131

-4.9%

Other materials

3,626

3,172

14.3%

7,788

7,180

8.5%

Water usage expenses

1,124

1,025

9.7%

3,165

3,021

4.8%

Other expenses

1,654

3,328

-50.3%

4,251

5,291

-19.7%

TOTAL

74,218

72,807

1.9%

236,621

225,005

5.2%

Total operating expenses in the 9M’19 amounted to RUB 236,621 mn as compared 225,005 mn in the 9M’18 due to the following factors:

  • increase in purchased electricity and capacity by RUB 4,821 mn partially covered by additional revenue mostly at RAO ES East Subgroup following change in volume and tariff increase;

  • increase in fuel expenses mainly in JSC DGK by RUB 2,938 mn as a result of fuel purchase price increase following procurement results and in PJSC Kamchatskenergo by RUB 674 mn or as a result of purchase price increase of heating oil and its increased consumption due to restrictions in consumption of other types of fuel (gas, coal);

  • increase in depreciation expense following commissioning of CHP Vostochnaya and off-site construction of Sakhalinskaya GRES-2 in the 2H’18, commissioning of Nizhne-Bureyskaya HPP in 2H’19, and adoption of IFRS 16, Leases since 01.01.2019;

  • increase in employee benefit expenses by RUB 2,200 in accordance with existing collective agreements.

Profit

In the 9M’19, EBITDA decreased by 13.1% to RUB 70,429 mn as compared to RUB 81,016 mn in the same period of 2018. 

The Group’s net profit decreased by 23.5% to RUB 35,157 mn. Adjusted net profit in the reporting period amounted to RUB 39,842 – a 22.1% decrease as compared to the same period last year. 

The difference between the reported and adjusted profit is attributed mainly to the following non-cash effects (before income tax) and recognition of change in fair value of the derivative financial instrument:

  • financial income in the amount of RUB 995 mn as a result of change in fair value of non-deliverable forward contract following increase of market price of PJSC RusHydro’s shares in the reporting period;

  • impairment of financial assets in the amount of RUB 1,503 mn resulting from measuring expected credit losses of receivables;

  • impairment of property, plant & equipment and unfinished construction in the amount of RUB 2,414 million;

  • impairment of other assets in the amount of RUB 2,045 mn.

Key indicators of financial position

As of September 30, 2019, the Group's assets increased by RUB 25,417 mn or 2.7% to RUB 957,348 mn against RUB 931,931 as of December 31, 2018. Change in assets is primarily attributable to:

  • increase in property, plant & equipment (following execution of the Group’s investment program);

  • increase in inventories.

As at the end of the reporting period, the Group's liabilities increased by RUB 7,077 mn or 2.0% to RUB 352,789 mn as compared to RUB 345,712 as of December 31, 2018. The structure of liabilities has changed accordingly: long-term liabilities decreased by RUB 11,151 mn and short-term liabilities increased by RUB 18,228 mn mainly due to increase of accounts payable, current debt and current portion of non-current debt.  

As of September 30, 2019 the liability on issued shares in the amount of RUB 7,000 mn  is reflected, as additional share issue in the course of implementation of preemptive right, under which PJSC RusHydro  placed 7,000,092,298 shares among shareholders, was not completed.

The fair value of the non-deliverable forward contract, recognized under the terms of transaction with PJSC VTB Bank, decreased from RUB 31,896 mn (as of December 31, 2018) to RUB 27,170 mn (as of September 30, 2019) following increase of market price of RusHydro’s shares in 9M’19.

Events after the reporting date

  • On November 18, 2019, PJSC RusHydro has placed loan participation notes issued by RusHydro Capital Markets DAC in the amount of RUB 15 bn. The LPNs will mature in 2024 and bear an interest of 6.8% p.a. payable twice per year;

  • On November 21, 2019, PJSC RusHydro and PJSC VTB Bank signed a supplementary agreement to improve the terms of the forward contract. The supplemental agreement provides for lowering the forward rate by 0.5% p.a. and extension of the agreement for three years through 2025 allowing sourcing a strategic investor and jointly working on increasing RusHydro’s share price;

  • On November 22, 2019, PJSC RusHydro inaugurated Sakhalinskaya GRES-2 in the Sakhalin region of the Far East to replace the obsolete Sakhalinskaya GRES. The power plant’s installed capacity and long run electricity output stands at 120 MW and 0.84 TWh, respectively;

  • On November 28, 2019, PJSC RusHydro commissioned of 300 GCal peaking boiler plant at Yakutskaya GRES. The new facility will increase the reliability of heat supply in the capital of Yakutia and partially substitute the capacity of Yakutskaya GRES which will be gradually phased out.

  • On December 5, 2019, JSC Hydroinvest, a 100% subsidiary of PJSC RusHydro, entered into a share sale agreement with PJSC Hrazdan Energy Company (HrazTES, Tashir Group), to divest CJSC MEK, a company operating Sevan-Hrazdan cascade of hydropower plants in Armenia for RUB 172.96 mn.

The full financial statements are available on the Company’s website at:http://www.eng.rushydro.ru/investors/reports

1  As of January 1, 2018 the Group has changed its accounting policy to reflect the initial cost of property plant and equipment excluding accumulated depreciation and impairments. As a result accumulated depreciation for the 9 months of 2018 has been restated.

2  Operating profit is calculated as the difference between revenue, other operating profit and operating expenses.

3  EBITDA is calculated as operating profit / loss excluding depreciation of property, plant and equipment, gains on changes in the carrying value of financial assets at fair value through profit or loss, impairment of property, plant and equipment, impairment of other assets, impairment of financial assets, loss on disposal of property, plant and equipment, loss on disposal of other non-current assets and other non-monetary items of operating income and expenses.

4  Net profit is adjusted for the effects of recognition of financial income/expense arising from the change in fair value of non-deliverable forward contract, impairment of fixed assets, impairment of other assets, impairment of financial assets, profit / loss on disposal of property, plant and equipment, loss on disposal of other non-current assets as well as other operating income arising from the change in fair value of financial assets measured through profit or loss. 

5 The Boguchanskaya hydropower plant is part of the Boguchanskiy Energy and Metals Complex (BEMO), a joint venture (JV) between RusHydro and UC RUSAL, and is not part of RusHydro Group. According to RusHydro’s shareholding in the JV (50%), the results of the plant are reported in the official financial statements in “Share of results of associates and jointly controlled entities”. Operations of the HPP have been put into the press-release for general reference.

6 In July 2017, the Resolution of the Russian Government No. 895 “On reaching basic rates (tariffs) for electric power (capacity) in the territories of the Far East Federal region (the “Far East”)” became effective, under which rates for consumers in the territories of the Far East should be reduced starting from 1 January 2017 to the basic level  of RUB 4.00 / kWh, from 1 January 2018 to RUB 4.30 / kWh. According to the Resolution of the Russian Government No. 1614-r of 28 July 2017, PJSC RusHydro was appointed as the recipient of a premium to the price for capacity provided by the Company in the price zones of the wholesale market under CCS agreements. The premium to the price for capacity is set in order to achieve the basic level of rates (tariffs) for electricity (capacity) planned for the next regulation period in the Far East constituent regions. Within the amounts defined by Resolution No. 1615-r of the Russian Government dated 28 July 2017, the Company translates the collected amounts of margin in the form of free-of-charge targeted contributions to the budgets of the respective regions. The Group companies being guaranteeing suppliers will receive compensation for the shortage of income related to the reduction of rates, through subsidies from the Far East constituent regions.

7 Here and hereinafter the operating expenses do not include impairment loss.




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