Godman Sachs EEMEA one-on-one Conference November 2010

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9M2010 Results, Y2010 Forecast

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Godman Sachs EEMEA one-on-one Conference November 2010

  1. 1. IDGC OF CENTER:RESULTS OF 9 MONTHS,FORECAST FOR 2010 1
  2. 2. Disclaimer The information in this presentation was received from the sources which, in opinion of IDGC of Centre (“the Company”), are reliable. Nevertheless, we do not guarantee accuracy of the given information which may be short or incomplete. All opinions and estimations containing in the present material reflect our opinion at the date of publication and are subject to change without notice. This presentation does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares or other securities representing shares in the Company, nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision. The information in this presentation includes forward-looking statements. These forward-looking statements include all matters that are not historical facts, statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, the Company’s results of operations, financial condition, liquidity, prospects, growth, strategies, and the industry in which the Company operates. By their nature, forward-looking statements involve risks and uncertainties, including, without limitation, the risks and uncertainties to be set forth in the prospectus, because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this presentation. In addition, even if the Company’s results of operations, financial condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in this presentation, those results or developments may not be indicative of results or developments in future periods The Company does not bear the responsibility for consequences of use of opinions containing in the present report or applications, or for incompleteness of the information. No person is under any obligation to update or keep current the information contained herein. By attending the presentation you agree to be bound by the foregoing limitations..2
  3. 3. IDGC of Center - an attractive target for investments • The transition to a new system of tariff regulation - RAB; Leader in the • The first IDGC which has completely transited to the RAB-based regulation (11 transition to branches): RAB-based 2009 - 3 branches regulation 2010 - 8 branches • Maintained a high level of iRAB – RUR 116 billion Achievements of the management team: Strong team • Developed and implemented a system of KPI, matrix management; of managers • Good financial condition, positive dynamics on all key financial and operating indicators; • A transparent system of corporate governance; • Implementation of stock option plan in 2011 • Investment "history" of the network complex attracts attention of analysts and investors: Prospects - since the beginning of the year capitalization of the Company increased by 82%; of growth - sector is significantly undervalued - the growth potential according to estimations of analysts of major investment banks in relation to their foreign counterparts; • Reducing losses and increasing reliability of the network assets of the Company in medium term due to the transition to RAB-based regulation and on-time implementation of large-scale investment program3
  4. 4. Company‟s storyline April „07 January„09 3 branches of theDecember „04 The final structure of the Company transferred to RAB;IDGC of Centre and North Company was approved, April „09 Company‘s shares wereCaucasus is registered the Company now includes included into quotation list ―B‖ ofaimed at further 11 regional grid companies MICEXinterregional integration in Central Russia (decision November „09 The Company wasthrough merger with the of the Board of Directors of assigned Standard & Poors creditCompanies of DGC RAO UES of Russia) rating "BB-"2004-2005 2006 2007 2008 2009 2010 March „08 Adherence of January „10 Another 2 DGCs to IDGC of Centre branches transferred to RAB: May „08 Company‘s shares Kurskenergo, Yarenergo „06 were launched for trading at July „10 Rating Agency S&P Enhancement of MICEX (MRKC) and RTS approved the Company‘s DGC management July „08 JSC ―IDGC credit rating ―BB-‖, forecast system. Transferring Holding‖ became the ―Stable‖ of powers of the majority shareholder of the Nov – Dec „10 FST of Russia DGC sole executive Company approved the transition to body to the Company October „08 Shares of RAB of the remaining6 IDGC of Centre were branches (Bryanskenergo, Orelenergo, included in calculation base Kostromaenergo, Tambovenergo, Voronezhenergo, Smolenskenergo) of MICEX PWR4
  5. 5. Key indicators Capitalization RUR 56.15 bln (as of 23.11.2010) USD 1.81 bln Amount of shareholders 15,157 (as of 12.05.2010) Revenue (RAS 2009) RUR 49.1 bln (RAS 9months 2010) RUR 43.4 bln Net profit (RAS 2009) RUR 1.3 bln (RAS 9months 2010) RUR 3.8 bln Net assets RUR 45.1 bln (RAS as of 30.09.2010) Output 53.1 bln kWh (2009 ) 40.68 bln kWh (as of 30.09.2010 Length of power lines (overhead 0.4 — 110 kV power lines 376.9 thousand km The Company is a natural monopoly, as of 30.09.2010) tariffs are regulated by state Capacity of substations (as of 30.09.2010) 35 — 110 kV 31.2 GVA 6 — 10/0.4 kV 15.0 GVA Number of personnel 27,920 (as of 30.09.2010)5
  6. 6. Structure of Group of Companies IDGC of Center . Key shareholders State 52.69% JSC “IDGC Holding”* Minority shareholders 50.23% 49.77%* Group of Companies JSC “IDGC of Center” Branches 100% Subsidiaries 51%+49% Belgorodenergo Yarenergo JSC “Energetik” JSC “Yargorelektroset” Брянскэнерго Tverenergo - August 3, 2010 51% JSC “IDGC of Center” signed a Воронежэнерго Tambovenergo contract for the acquisition of a JSC “YarESK” controlling stake in JSC “Yargorelektroset” - one of the Kostromaenergo Smolenskenergo largest TSO in CFD. As a result - November 11, 2009 of the transaction under the Subsidiary company JSC control of JSC “IDGC of Center” Kurskenergo Orelenergo "Energetik" acquired a will be more than 90% of the controlling stake in JSC assets of the power grid complex Lipetskenergo Operational ―YarESK‖- the target of the Yaroslavl region (the deal is on the completion stage) business units company for the consolidation of power grid 11 branches assets in the Yaroslavl region * - taking into account the State‘s share 0.46%6
  7. 7. Share capital structure IDGC of Center has a diversified share capital structure. Free float according to the Company‟s management estimations is about 30%. * - as of 12.05.20107
  8. 8. Developed structure of management bodies… High authority: External bodies responsible for monitoring financial and economic activities: General Meeting of Shareholders Auditor Strategic management body: Internal Audit Commission Board of Directors Committees (5): Executive bodies: Committee on Strategy and Management Board Development (1) Chairman of the MB– Reliability Committee Director General (2) Committee on Personnel and Remuneration (3) Control bodies over the Company’s Internal Control and Audit business activity Committee on Audit(4) Department Bodies providing recommendations for the Board of Directors over the Company’s Committee on Technological Internal control bodies over business activity Connection (5) strategic development formed in 2009 …meets international corporate governance standards8
  9. 9. Strategic vision of the Company‟s management – industry leadership… Goals of the Company Target subsystems of the management: • Growth and changes Industry • Finance leadership • Consumers • Main business processes • Management system • Personnel Challenges of the top level Growth Finance Consumers Processes Management Personnel Realize efficient and Ensure Ensure safe functioning and development and Enhance long- term Enhance the Ensure innovative efficient efficiency of growth of efficiency of effective sales of development of functioning of humanshareholder business services electricity network management resourcescapital value complex system ... a tool to achieve - the project approach, KPI system9
  10. 10. Credit ratingScale Outlookof international (C-Stable)rating (Н-Negative)(in foreigncurrency) History of credit rating In 2009 Standard&Poor‟s Confirmed July „10 assigned credit rating to the Assigned November ‗09 Company «ВВ-/В/ruAA-» forecast «Stable», In July 2010 the rating was confirmed on the same level MUEC IDGC of Centre Mosenergo The level confirms the Company‟s ability to extend credit10
  11. 11. National rating of CG History of RCG of IDGC of Center Confirmed July‟ 10 Assigned September ‗08 Developed practice of corporate governance Rating NRCG 7 indicates low risks of corporate governance, compliance with the RF legislation “7” Developed practice of and the Code of corporate governance. Corporate Behavior Leading position among IDGCs11
  12. 12. Stock market Dynamics of changes in IDGC of Centre share price, MicexPWR and Network Index for 10 months 2010 90% Start of trading: МРСКof Center IDGC Центра From 31.12.2009 c 31.12.09 80% MicexPWR MICEX-PWR May 21, 2008 Индекс Сети Index “Network” 70% Quotation list: 60% «B» MICEX 50% IDGC of Centre shares are 40% included in MICEX PWR, 30% RTSeu index calculation base 20% 10% 0% Ticker symbols -10% 31.12.09 25.01.10 09.02.10 26.02.10 15.03.10 30.03.10 14.04.10 29.04.10 14.05.10 31.05.10 15.06.10 30.06.10 15.07.10 30.07.10 16.08.10 31.08.10 15.09.10 30.09.10 15.10.10 29.10.10 MICEX MRKC RTS classic MRKC RTS stock MRKCG12
  13. 13. Key indicators of stock market: 2nd place on capitalization among IDGCs… Capitalization of distribution grid companies as of Market multiples on IDGCs and foreign 31.12.10 and of 29.10.10, RUR bln (MICEX) companies-analogues * 90 25,00 78 80 22,2 70 62 60 53 20,00 50 40 34 33 30 29 28 26 21 30 26 15,00 12,9 21 23 22 23 22 20 9 6 11,2 9 10,2 10 4 0 10,00 МРСК Центра ЛенЭнерго МОЭСК МРСК Северо-Запада IDGC МРСК Юга МРСК Центра и Приволжья МРСК Сибири МРСК Урала IDGC ofСеверного Кавказа МРСК Волги IDGC of Volga Volga Lenenergo IDGC of Centre of South IDGC of Centre and IDGC of Siberia MOESK IDGC of North-West IDGC of Urals МРСК North Caucasus 5,5 5,8 5,00 1,0 0,9 2,2 0,00 EV/S 2010П EV/EBITDA 2010П P/E 2010П МРСК Центра IDGC of Center Капитализация на 31.12.09, млрд. руб. bln.RUR Capitalization as of 31.12.2009, Среднее по российским аналогам Average on Russian companies Капитализация на 29.10.10, млрд. руб. bln.RUR Capitalization as of 29.10.2010, Average on developing countries Среднее по развивающимся странам ** * Calculations of the Company, data of investment banks covering the activities of IDGCs ** Calculations of the Company, data of investment banks covering the activities of IDGCs … potential of growth relative to foreign (foreign analogues: Eletropaulo, Compania General de Electricidad, Aksu Enerji ve Ticaret, etc.) companies-peer group13
  14. 14. Key indicators of stock market: 2nd place on volumes of trades among IDGCs… Day-average number of contracts Stock turnover at MICEX, Jan- Oct 2010, RUR mln at MICEX.pcs. 1000 4 000 900 3 050 3 500 800 3 000 700 2 500 2 000 600 1 500 500 1 000 500 400 283 0 300 200 100 20 0 Proportion of shares in the nominal holding by Average bid-ask spread of MRKC depository exchanges 2009-2010gg: at MICEX (%) , 2009-201040% 7,00%35% 3,06% 6,00% 4,86%30% 5,00%25% 28,74% 4,00%20% 3,00%15%10% 2,00% 5% 1,00% 0,36% 0% 0,00% НДЦ (% от УК) ДКК (% от УК) … significant decrease of bid-ask spread14
  15. 15. IDGC of Centre • RAS: 9 months 2010, forecast for 2010 • Transit to RAB-based regulation15
  16. 16. Revenue by activities: results, forecast (RAS) REVENUE, RUR BLN 70 60,12 60 49,05 50 35,66 40 32,40 ELECTRICITY DISTRIBUTION 30 REVENUE, RUR BLN 70 57,1 20 65 60 46,9 10 55 0 50 ‗07 ‗08 ‗09 ‘10(п) 45 32,6 40 35 29,3 OTHER ACTIVITY 30 TECHNOLOGICAL CONNECTION 25 20 ELECTRICITY TRANSMISSION 15 10 5 TECHNOLOGICAL CONNECTION 0 REVENUE, RUR BLN ‗07 ‗08 ‗09 ‘10(п) 2,62 2,5 3 2,30 OTHER TGC‟S REVENUE TRANSIT 2 1,65 1 REVENUE W/O OTHER TGC‟S 0 ‗07 ‗08 ‗09 ‘10(п) TECHNOLOGICAL CONNECTION16
  17. 17. 9 months 2010 performance (RAS)RUR bln 30.09.2009 30.09.2010 Change EBITDA, RUR blnRevenue 36.05 43.38 20.3% 0Cost 31.28 36.65 17.2% +29.4% 8.72Gross profit 4.77 6.73 41.1% 6.74Gross profit margin 13.2% 15.5% 2.3 p.p.EBITDA 6.74 8.72 29.4%EBITDA margin 18.7% 20.1% 1.4 p.p.Net profit 2.01 3.80 89.1%Net profit margin 5.8% 8.8% 3.0 p.p. 9M 19M 2009 2010 … significant growth of all key indicators17
  18. 18. Management of loan portfolio – absence of short-term credits and loans… Structure of capital RUR bln 31.12.2009 30.09.2010 Change Decrease of average Equity 41,23 45,04 9.24% interest rate on credits in Long-term liabilities 10,73 11,69 8.95% 2010 by 5.0% Short-term liabilities 0,40 0,00 -100% Accounts payable 8,69 11,29 42.04% Other 61,05 68,02 11.42% 12.93% 10.99% Financing support, 8.63% 8.41% 8.00% as of October 31, 2010 3% 5% 8% Sberbank Rosbank 34% Alfa Bank 20% Gazprombank Nordea Bank 31.12.09 31.03.10 30.06.10 31.10.10 31.12.10F 30% Others18
  19. 19. Debt position – low indicator of Net debt/EBITDA EBITDA vs. Net Profit, RUR bln RUR bln Ratio Net Debt/EBITDA 12 1,6 Net debt/ 1,4 Year EBITDA Net Profit Net Debt 10 EBITDA 1,2 8 12006 4.74 1.31 3.27 0.69 6 0,82007 6.83 1.98 6.14 0.90 0,62008 7.49 0.87 9.31 1.24 4 0,42009 7.64 1.33 10.76 1.41 2 0,22010F 11.27 4.07 14.88 1.32 0 0 2006 2007 2008 2009 2010(П)9M 2009 6.74 2.01 9.34 1.39 EBITDA Net debt/EBITDA9M 2010 8.72 3.80 10.11 1.16 NET PROFIT19
  20. 20. Investment activityRUR bln1210 Volume of capital Commissioning of fixed Year investments, assets. RUR bln w/o RUR bln w/o VAT VAT8 2006 4.509 4.3506 2007 7.839 6.372 2008 9.071 7.7394 2009 6.529 7.687 2010F* 11.820 11.79720 Others Прочее Ввод ОФ Ввод ОФ Ввод ОФ Ввод ОФ Ввод ОФ Освоение КВ Освоение КВ Освоение КВ Освоение КВ Освоение КВ CI CI CI CI CI FA FA FA FA FA New construction and expansion Новое строительство и of existing facilities расширение действующих объектов 2006 2007 2008 2009 2010 Техперевооружение и reconstruction Modernization and реконструкция 20 www.mrsk-1.ru
  21. 21. Transition to RAB Date of Branch Total value IRAB, transition of invested RUR mln capital RUR mln 350from 01.01.2009 Belgorodenergo 300 111 50 609 19 930 Lipetskenergo 250 25 726 10 030 200 Tverenergo 55 276 14 366 150from 01.01.2010 Kurskenergo 226 39 30 782 10 802 100 Yarenergo 50 76 21 586 8 968from 01.11.2010 Bryanskenergo 0 20 045 5 989 IC full value Полная величина IC residual value Остаточная Orelenergo ИК величина ИК 21 571 6 407From 01.01.2011 RAB branches RAB филиалы Kostromaenergo 16 892 7 437 Филиалы по которым планируется переход на RAB RAB planned branches Tambovenergo 18 609 5 515 Voronezhenergo Expected IRAB on all branches – 38 110 12 650 RUR 115.83 bln Smolenskenergo 37 041 13 735  forecast21
  22. 22. Contact information JSC “IDGC of Center” 129090 Russia, Moscow, Glukharev per., 4/2 Tel./fax: +7 (495) 747 9292 www.mrsk-1.ru Director on Corporate Relationships Tatiana A. Kulbakina Kulbakina_TA@mrsk-1.ru Head of Department for Shareholders Relationship Tatiana N. Miroshnichenko Miroshnichenko_TN@mrsk-1.ru Tel.: +7 (495) 747 9292, ext. 318122
  23. 23. Appendix23
  24. 24. Investment activity* Volume of capital Commissioning of fixed investments, assets. RUR bln w/o Year RUR bln w/o VAT VAT RUR bln 2009 6,529 7,68740 2010F 11 820 11 79735 2011F 18 929 17 89530 2012F 22 717 21 45725 33 622 32 653 2013F20 33 231 33 983 2014F1510 50 *Presented data on investment program have been formed Ввод ОФ Ввод ОФ Ввод ОФ Ввод ОФ Ввод ОФ Ввод ОФ Освоение КВ Освоение КВ Освоение КВ Освоение КВ Освоение КВ Освоение КВ without taking into account changes made by FTS Order from CI CI CI CI CI CI FA FA FA FA FA FA 01.09.2010 N 218-E / 5 «On Amendments to the Order of the 2009 2010 2011 2012 2013 2014 Federal Tariff Service of 15.08.2008 N 152-e/15 «On approval of the rate of return on invested capital». (Registered by Ministry of Justice on 21.09.2010 N 18491). Perhaps there will be changes in the middle of October 2010, when approving the adjusted investment program by the Board of Directors of IDGC of Centre.24
  25. 25. Productive supply, forecast on 2010-2014 Bln KWh +1.0% 59,00 +1.5% 58,48 +1.5% 57,89 58,00 +1.9% 57,05 57,00 +3.8% 56,21 56,00 55,14 55,00 54,00 53,13 53,00 52,00 51,00 50,00 ‗09 ‘10F ‘11F ‘12F ‘13F ‘14F25
  26. 26. Appendix 1 Sales of services (RAS) Bln KWh MV 60 600 Volume of Productive Growth Growth 55 550 technologicalYear supply, bln rate, rate, connection, 50 500 kWh % % MV 45 4502006 54.0 - 280.47 - 40 4002007 56.4 4.4% 481.28 71.6% 35 350 30 3002008 56.6 0.4% 479.84 -0.3% 25 2502009 53.1 -6.2% 445.62 -7.1% 20 200 2006 2007 2008 2009 20102010(F) 55.2 0.8% 531.55 19.3% Полезный отпуск э/э,bln KWh Productive supply, млрд. кВтч Объемы ТП, МВт Volume of TC, MW 26 www.mrsk-1.ru
  27. 27. Appendix 2 Dynamics of Electricity Losses 2006-2010 Change,Period kWh (th.) % p.p. Dynamics of Electricity 15,00 Losses, 2006-10F (%)2006 6.238 10.35 13,002007 5.932 9.52 (0.83) 11,00 10.4 10.1 10.032008 5.875 9.40 (0.12) 9.5 9.4 9,002009 5.977 10.11 0.71 7,002010F 6.154 10.03 (0.08) 5,00 3,00 1,00 2006 2007 2008 2009 2010F 27 www.mrsk-1.ru
  28. 28. Appendix 3 Market share in 1H 2010Power transmission share market Technological connectionin 2010 share market in 20(in terms of money) (in terms of money) Company‟s share in the power transmission market in regions, % (2009) Bryanskenergo Voronezhenergo Tambovenergo Yarenergo Lipetskenergo Tverenergo Orelenergo Kurskenergo OWN REVENUE OWN REVENUE Smolenskenergo REVENUE OF TGCs REVENUE OF TGCs Belgorodenergo Kostromaenergo28 www.mrsk-1.ru
  29. 29. Tariffs Average distributional tariffs, kop/kWh Branch 2006 2007 2008* 2009* 2010* Belgorodenergo 48,4 52,4 65,2 80,8 100,1 Bryanskenergo 40,5 74,9* 86,9 106,0 130,5 Voronezhenergo 38,2 45,5 74,0 91,1 102,4 Kostromaenergo 64,3 76,2 91,1 106,4 130,8 Kurskenergo 46,4 47,6 59,1 69,1 98,7 Lipetskenergo 33,5 42,3 64,8 82,2 111,1 Orelenergo 48,3 66,5 105,6 117,0 140,5 Smolenskenergo 65,4 73,0 90,3 110,4 123,8 Tambovenergo 47,0 49,3 87,3 100,3 108,3 Tverenergo 52,7 58,4 103,4 138,3 154,2 Yarenergo 48,4 43,3 59,8 74,0 86,2 * Tariffs are inclusive of the territorial network organizations29 www.mrsk-1.ru
  30. 30. Tariffs Average distributional tariffs w/o TNO, kop/kWh Branch 2008 2009 2010 Belgorodenergo 64,5 79,8 98,9 Bryanskenergo 55,4 70,3 83,8 Voronezhenergo 52,8 62,6 71,5 Kostromaenergo 90,2 104,5 126,7 Kurskenergo 52,0 60,4 65,8 Lipetskenergo 52,9 68,9 91,8 Orelenergo 79,6 91,1 108,2 Smolenskenergo 85,7 105,3 118,0 Tambovenergo 51,8 62,6 70,9 Tverenergo 72,4 102,2 119.8 Yarenergo 42,1 51,2 60,630 www.mrsk-1.ru

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