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HSBC’s 12th Annual CEEMEA Investor Forum

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HSBC’s 12th Annual CEEMEA Investor Forum

  1. 1. 2011, 6M 2012 Results& Strategic Outlook for 2012HSBC’s 12th Annual CEEMEA Investor Forum London|03 September 2012
  2. 2. Disclaimer 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 of IDGC of Centre, 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 intentions of IDGC of Centre, beliefs or current expectations concerning its results of operations, financial condition, liquidity, prospects, growth, strategies, and the industry in which IDGC of Centre 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. IDGC of Centre cautions you that forward looking statements are not guarantees of future performance and that the actual results of operations, financial condition and liquidity of IDGC of Centre as well as 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 Companys 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. In addition to the official information on the activity of IDGC of Centre, this presentation contains information obtained from third parties. This information has been obtained from sources which, according to IDGC of Centre, are reliable. Nevertheless, we do not guarantee the accuracy of this information, which may be abbreviated or incomplete. All opinions and estimates contained in this material reflect our view on the day of publication and are subject to change without notice. IDGC of Centre shall not be liable for the consequences of use of the views or statements, or incomplete Information contained in this presentation. IDGC of Centre undertakes no obligation to revise or confirm the forward-looking statements and assessments, as well as to update information contained in this presentation. Despite the fact that prior to 31.03.2008 IDGC of Centre was not an operating company, this presentation contains the consolidated data on all Distribution Grid Companies of the service area of IDGC of Centre, including for the period up to 31.03.2008. The information about the financial and operational data on the Company was received as the sum of the corresponding indicators of 11 Distribution Grid Companies, which were consolidated with IDGC of Centre. Despite the fact that in 2006 and 2007 under the control of IDGC of Centre (at that time IDGC of Centre and Northern Caucasus) there were more than 11 companies, for correct comparison of the information for these periods the information is shown for 11 Distribution Grid Companies in the current configuration.2 www.mrsk-1.ru
  3. 3. Overview of the Company & Its Development Priorities3 www.mrsk-1.ru
  4. 4. Industry Structure POWER SECTOR RESTRUCTURING 2003-2007 TARIFF STRUCTURE* CURRENT TARIFF RAO UES of Russia 100% 63% 3% Generation 34% Retailers Generation (Electricity and Heat Production) Transmission (High Voltage Grids)  Hydro Power Plants Transmission & Distribution* Federal Grid Company  Heat Power Plants Transmission grid >220 kV  TGKs Federal Grid Company  OGKs of Unified Energy System Distribution (Low Voltage Grids) 17% 7% Infrastructure 34% Holding IDGC (MRSK) 4% 6%  Market Council Transmission & Distribution Losses TGOs  System Operator grids <110 kV Supply (Electricity Trading)  11 IGDCs (MRSKs) The structure is provided  7 retailers according to the results of  Retailers  5 DGCs 2011 tariff campaign  Others  others4 * Indicative as at January 01, 2011 www.mrsk-1.ru
  5. 5. Benchmark Among MRSKs (RAS 6M2012) MCAP* REVENUE RUR bln RUR bln MOESK 79 MOESK 127 IDGC of Centre 34 IDGC of Centre 68 IDGC of CV 22 IDGC of CV 64 IDGC of Volga 21 IDGC of Ural 55 IDGC of Ural 20 IDGC of Siberia 52 IDGC of Siberia 13 IDGC of Volga 48 Lenenergo 12 Lenenergo 37 IDGC of NW 9 IDGC of NW 31 IDGC of South 3 IDGC of South 24 IDGC of NC 2 #2 IDGC of NC 11 #2 NET PROFIT RAB RUR bln RUR bln MOESK 17,1 MOESK 205 IDGC of Centre 5,2 IDGC of Centre 121 IDGC of CV 4,2 IDGC of CV 85 IDGC of Ural 2,5 Lenenergo 79 IDGC of NW 1,4 IDGC of Volga 77 IDGC of NC 1,3 IDGC of Ural 57 Lenenergo 0,4 IDGC of Siberia 52 IDGC of Volga 0,3 IDGC of South 38 IDGC of South 0,3 IDGC of NW 23 IDGC of Siberia 0,1 #2 IDGC of NC 18 #25 * Market capitalization, indicative as at March 2012 www.mrsk-1.ru
  6. 6. Map of IDGC of Centre. Overview KEY INDICATORS BRANCHES OF IDGC OF CENTRE Service area MСap* RUR bln 23,4 458 000 km2 1 Belgorodenergo Revenue (IFRS) $ mln 727,6 Population 2 Bryanskenergo 13,6 mln people Revenue (IFRS) RUR bln 34,2 3 Voronezhenergo 4 Kostromaenergo Length of conductors 0.4 – 110 kV thousand km 366,1 5 Kurskenergo 10 6 Lipetskenergo 8 11 Length of cables 0.4 – 110 kV thousand km 9,4 7 Orelenergo 2 4 8 Smolenskenergo 7 Head office, Moscow Substation capacity: 5 6 9 Tambovenergo 9 1 3 35 – 110 kV MVA 32 187 10 Tverenergo 11 Yarenergo 6 – 10/0,4 kV MVA 15 498 Staff number** 31 619 Number of shareholders*** 16 775 IDGC of Centre is a natural monopoly, its tariff rates * As of 30.08.2012 are regulated by the ** IFRS, 6M 2012 *** indicative as at 04 July, 2012 (record date) Federal Tariff Service6 www.mrsk-1.ru
  7. 7. Strategic Priorities • Implementation of SAIDI*/ SAIFI** indicators calculation system in accordance with international standards Quality, Reliability • Implementation of asset management methodology, integration of asset management & Innovations system with geo-informational system (technical risk management) • Reduction of technical and commercial losses (implementation of smart metering systems) • Increase of the market share in the regions of the Company’s service area Market Share • Consolidation of grid assets (TGOs, ownerless grids) • Increase of transparency and efficiency of the procurement process Investment • Use of typified project solutions Activity • Use of a system approach to evaluate and approve investment projects • Increase of monitoring of the performance of work by contractors • OPEX optimization, reducing costs under control Operating • Governance improvement: implementation of an optimized KPI system for top-management Activity • Optimization of systems and processes in operation and maintenance • Development of additional energy service areas • Implementation of the policy of stable dividend payments • Implementation of a complex of measures to improve the liquidity of shares Investment • Access to foreign trading floors Appeal • Start of an option program • Possibility of privatization of the Company within the development strategy of IDGC Holding7 * System Average Interruption Duration Index ** System Average Interruption Frequency Index www.mrsk-1.ru
  8. 8. Company Structure & Major Shareholders SHARE CAPITAL STRUCTURE Russian Federation 50,23% 53,69% 15,90% IDGC Holding, JSC Minority shareholders Free Float** 50,23% 49,77%* 25% 8,40% IDGC of Centre, JSC 3,20% 2,73% Group of Companies 1,45% 18,09% Energy Service Yargorelectroset, JSC Energetik, JSC Company, JSC IDGC Holding, JSC 51% GENHOLD LIMITED 11 The main activities are to provide energy saving and energy efficiency services One of the largest Territory Grid Organization in the Central Federal YarESK, JSC THE BANK OF NEW YORK MELLON Operating Region. The result of acquisition of the 100% 100% IMMENSO ENTERPRISES LIMITED business stake is that IDGC of Energosoyuz Holdings Limited Center now controls more CIEET, CJSC units than 90% of the power RUSENERGO FUND LIMITED grid assets in the Yaroslavl region Centre of innovations Others and energy efficient Subsidiaries -100% technologies * including the State share 0,46% ** according to the MICEX Index Committee8 www.mrsk-1.ru
  9. 9. Corporate Governance & Rating External control over financial Supreme governing body : activities of the Company: RATING General Meeting Auditor of Shareholders Audit Commission Strategic governing body : Board of Directors Committees under the Board of Directors: Developed corporate governance practice & leading position among Committee Management Board 1 on Strategy MRSKs 2 Committee National Corporate Governance Rating (NCGR) Chairman of the Management on Audit Board - Director General Confirmed Feb’ 12 Committee Upgraded (7+) Mar’ 11 3 on Personnel Confirmed Jul’ 09 Internal control over financial Committee activities of the Company: 4 Confirmed Feb’ 09 on Reliability Internal Control and Assigned Sep’ 08 Committee Audit Department 5 on TC*9 * technological connection www.mrsk-1.ru
  10. 10. Financial and Operating Indicators& Investment Program
  11. 11. Financial Performance (IFRS 6M) REVENUE RUR bln Indicator 6M 2011 6M2012 % 35,2 34,2 Revenue, incl.: 35,2 34,2 (2.8%) 29,5 revenue from electric power other services transmission 33,6 33,3 (0.9%) revenue from TC 1,1 0,4 (63.6%) from technological 33,6 33,3 connection revenue from other services 0,5 0,5 0.0% 28,6 from electric energy EBITDA 8,6 9,1 5.8% transmission Net profit 3,8 3,5 (7.9%) 6m2010 6m2011 6m2012 EBITDA NET PROFIT PRODUCTIVE SUPPLY* RUR bln RUR bln kWh bln EBITDA margin Net profit margin 26,6% 10,8% 10,2% 24,4% 17,3% 9,1 7,9% 29,3 8,6 3,8 3,5 6,1 2,3 28,2 27,8 6m2010 6m2011 6m2012 6m2010 6m2011 6m2012 6m2010 6m2011 6m201211 * incl. TGOs www.mrsk-1.ru
  12. 12. Key Operating Indicators PRODUCTIVE SUPPLY 10 LARGEST CLIENTS 9% 14% TGOs 33% from grids to customers - 9% 35% legal entities of DGCs to residential customers Revenue % from transmission 9% 56% 4% 6% PRODUCTIVE SUPPLY BY VOLTAGE LEVELS 4% 6% 5% 5% 5% 6% 9% HV 110 OJSC Belgorod Retail Company OJSC Tverenergosbyt 10% LV OJSC Voronezh Retail Company OJSC Yaroslavl Retail Company OJSC Smolenskenergosbyt from grids MV2 OJSC Bryanskenergosbyt of DGCs OJSC NLMK 15% OJSC Kurskenergosbyt MV1 OJSC Kostroma Retail Company OJSC LESK 61% HV 220 Others12 www.mrsk-1.ru
  13. 13. Loan Portfolio & Credit Rating 40 NET DEBT / EBITDA* 2,0 CREDIT RATING HISTORY 35 RUR bln 30 1,3 1,3 1,5 1,2 25 1,1 20 1,0 15 18,6 10 14,7 14,8 0,5 12,4 Standard&Poor’s 9,3 10,8 5 8,8 8,6 0 0,0 Confirmed May’ 12 2008 2009 2010 2011 Confirmed Feb’ 12 EBITDA Net debt Net debt/EBITDA Confirmed Jul’ 10 Assigned (level BB-/ruAA-) Nov’ 10 LOAN PORTFOLIO FOR 6 M2012 3% 13% Sberbank National Rating Agency (NRA) Confirmed (outlook “positive”) Dec’ 11 VTB Upgraded (level AA-) Dec’ 10 18% Average Rosbank Confirmed Oct’ 10 8.35% Upgraded (level A+) Sep’ 08 Alfa-Bank 18% 49% Assigned (level A) Aug’ 07 Gazprombank13 * Target ratio Net debt / EBITDA – 3,5 www.mrsk-1.ru
  14. 14. CAPEX 2009 – 2012 (F) CAPEX AREAS IN 2012 SOURCES OF FINANCING FOR 2012* RUR bln 9,2% 2% 2% tariff sources 1,32 3,0 % 0,4% borrowed funds 6,1% 0,43 0,05 36% 0,88 other own 6,3% sources 35,9% 0,91 14,35 connection fee 60% 5,16 39,0% Commissioning of power Commissioning, on fixed assets 5,6 Period RUR bln km MVA 2009 6,5 2 414 877 retrofitting and reconstruction new construction (substations, overhead and cable lines) 2010 12,2 4 155 1 050 SCADA systems, communications, IT 2011 15,2 4 630 1 490 creation/upgrade of metering systems EAD 2012 (F)* 14,3 4 010 811 purchase of fixed assets others * according to the approved Investment Program for 201214 www.mrsk-1.ru
  15. 15. Transition to Regulatory Asset Base Method (RAB-Regulation)15 www.mrsk-1.ru
  16. 16. Return on Invested Capital Method (RAB-regulation) The size of invested capital of IDGC of Centre (taking Since January 01, 2009 IDGC of In 2011, IDGC of Centre Centre has been among the first into account Yargorelectroset, JSC) is RUR 118 bln (the average rate of revaluation ~2,4). The fair completed the transition Russian energy companies to start the transition to a new regulatory system evaluation was performed by the Consortium of of its branches & in the regions of its service area Independent Appraisers, which includes subsidiaries to RAB ZAO Deloitte&Touche CIS 2009 2010 2011 2012 2013 2014 2015 01.01.2009 31.12.2011 Belgorod, Tver, Lipetsk The 2nd long-term regulation period up to 2016 for Belgorod and Lipetsk 01.01.2010 31.12.2012 Kursk, Yaroslavl Prolongation up to 2015 (3+2) 01.11.2010 31.12.2014 Bryansk, Orel 01.01.2011 31.12.2015 Voronezh, Kostroma, Smolensk, Tambov & Yargorelectroset, JSC16 www.mrsk-1.ru
  17. 17. Goals & Results of the Transition to RAB AVERAGE JOINT RATE kopeck / kWh Goals of return on invested capital method (RAB) 140 27% 30% 25% 120  provides a clear relationship between customers, 25% 100 22% shareholders (investors) and the Company 20% 80 21% 14%  rates are approved for a long-term period (3-5 years) of 15% 60 regulation 10% 40  creation of incentives to improve operating performance of 20 5% 74,96 91,8 111,25 126,6 the Company 0 0% 2008 2009 2010 2011  provision of an opportunity to return on investment in assets and receive income Average joint rate Gain Gain for Branches in RAB KEY INDICATORS 65,9 Results of RAB implementation 70 12% 57,4 60 46,8 9%  additional electric grid capacity for connections 50 40 8,4% 8,0%  improvement of the quality of service and reliability of 30 6% electricity supply 4,3% 20 3%  the load in the tariff for return on investment is distributed 10 2,1 5,1 5,5 in the long run 0 0%  inflow of additional investment in the region 2009 2010 2011  increase of revenue at a faster pace Revenue from electric power transmission Net Profit Net Profit margin17 www.mrsk-1.ru
  18. 18. Tariffs for 2012 The following regulations to be amended RF Government approved Decree #1178 of December 29, 2011 “On the pricing of  Order of the FTS of Russia of 01.09.2010 # 218-e/5 "On amendments to Order of the Federal Tariff Service of 15.08.2008 # 152-e/15 "On approval of the rate of return on invested capital" regulated tariffs in the Electric Power  Order of the FTS of Russia of 26.06.2008 # 231-e "On approval of guidelines to regulate rates using the method of Industry“ return on invested capital"  Order of the FTS of Russia of 18.08.2010 # 183-e/1 "On approval of the agreement procedure by the Federal Tariff Service of proposals of executive bodies of subjects of the Russian Federation in the field of rate regulation in respect to the transition to the regulation of rates using the method of return on invested capital ..." December December 2011 2012 before January 01, 2012 before April 01, 2012 before July 01, 2012 The establishment by regional Adoption of decisions by regional regulators: The new tariff decisions regulatory authorities of the uniform will become effective  on establishment of the revised from 01.07.2012 of long- (joint) rates for the period from term parameters of RAB-regulation (LPR) and their 01.01.2012 to 30.06.2012 at the level agreement with the FTS of Russia; ≤ 2011 (subject to the execution of Government Decree # 1172)  on establishment of tariffs for electric energy transmission services in the second half of 2012, provided not exceeding the 11% average growth of the joint tariff rate in relation to the level set from 01.01.2012. Further up to 2017 the growth of rates shall be at the level of Statistical Department of the Ministry of Economic Development (10% per year)18 www.mrsk-1.ru
  19. 19. Consolidation of Grid Assets in the Regions of the Company’s Service Area & Implementation of Measures to Improve Investment Attractiveness of Its Stocks19 www.mrsk-1.ru
  20. 20. Consolidation of Electric Grids • Providing the share on the electric grid services market in the regions of the service area with not less than 97% by 2015 Target / Program • Long-term target program for the consolidation of power grid assets have been developed and approved (power grid assets consolidation plan for 2012 - 2015) • Company consolidates the assets primarily in 3 ways: acquisition of power grid Methods property, long term property rent, purchase of shares of power grid companies • The basic advantages of consolidation are as follows: implementation of a unified & Advantages technical policy, the development of a unified scheme of long-term development of of Consolidation power grids, improving the reliability of electricity supply to consumers of all categories, increasing of power grid transmission capacity • It is planned to continue consolidating municipal power grid assets in some regions Plans for where the Company operates 2012 - 2015 • Program provides working with more than 5 000 owners20 www.mrsk-1.ru
  21. 21. Plans for Consolidation of Grid Assets TGOs in IDGC of Centre Service Area Number of other TGOs = 441  The other TGOs average share in revenue in IDGC of Centre service areas – 17% 102  Required Gross Revenue (RGR) of the Company due to the assets consolidation in regions may increase to RUR 10 70 62 billion by 2015, RGR share may grow up to 97% 53 39  One of the key goals of the Company is the integration of 26 23 25 power grid assets that will allow: 14 18 9 - increasing the reliability level of power supply - enlarging the electric energy distribution sales market Lipetsk Tambov Bryansk Voronezh Kostroma Tver Smolensk Orel Yaroslavl Kursk Belgorod - improving the quality of customer service - balancing the tariff on electric energy transmission Dynamics of the Company’s Share in the Electric Power Transmission Market (in terms of money) 83.6% 83.8% 84.0% 83.0% 97.0% 2008 2009 2010 2011 2015 F21 www.mrsk-1.ru
  22. 22. Dynamics of Shares, Trading Volume & Key Events of 2011-2012 Mln 70 The need to curb the growth rate of tariffs on Multipliers electric energy was announced Record date to pay Current MRKC RF INTL dividends for 2010 60 (RAS) peers peers* P/E 6,6 7,8 13,2 Annual General Meeting with EV/EBITDA 3,8 3,9 8,0 Meeting of analysts within 50 Shareholders the Investor EV/S 0,8 0,6 1,3 Day of IDGC Holding Interim results EV/RAB 0,44 0,44 1,28 IFRS reporting Remaining 4 for 1H 2011 for 2011 and RAS reporting for branches and plans for 2012 2010 40 1 Subsidiary to adopt RAB Start of trading: RAS reporting for 1H 2011 30 May 21, 2008 Shares of the Company were included into MICEX Quotation list: A2 quotation list RAS reporting for 9M 2011 RAS reporting А2 (MICEX) for 2011 20 Shares of IDGC of Centre are part of the calculation base 10 in the indices: MICEX PWR MICEX SC 022 www.mrsk-1.ru
  23. 23. Stock Performance & Liquidity Increase May April September 2Q 2011 3Q 2011 3Q 2011 3Q 2008 2009 2010 2012F Company s shares Dividends payment Companys shares Dividends payment were listed on RUR 422 million, were included in RUR 610 million, MICEX (quotation pay-out-ratio 8.1% RTS EU pay-out-ratio 13% list B) & RTS Companys shares Confirmation Quotation list Quotation list were included in the of presence in upgrade upgrade index MICEX PWR RTS EU and RTS-2 (MICEX A2 ) (MICEX-RTS A1) Payment of Dividends for 2012 Companys priorities for 2012 Total, RUR million 422  stable dividend policy  quotation list upgrade (MICEX A1) Net Profit share 8%  depositary receipts launching  inclusion in international indexes Dividend yield (as at 31.07.2012) 1,33%  launching of option program23 www.mrsk-1.ru
  24. 24. Appendix24 www.mrsk-1.ru
  25. 25. Reported EBITDA 1H2012 Analysis RUR mln +611 +479 +9 185 8 812 -1 062 -136 -42 +659 -136 EBITDA’ 1H2012 EBITDA’ 1H2011 * - EBITDA calculated as results from operational activities and amortization (not adjusted)25 www.mrsk-1.ru
  26. 26. Cash Flow Statement 6M 2012 Analysis 9 185 -640 7 480 -784 -280 1695 -5786 * - EBITDA calculated as results from operational activities and amortization (not adjusted)26 www.mrsk-1.ru
  27. 27. Business Model of the Company payment for electric energy Customers Generation, Electricity supplied payment for power supply Retailers, by contract (by wholesale utility companies guaranteed supply electricity payment for electric and retailers) payment for electric companies energy purchase energy purchase market (wholesale market customers) (retail market customers) By ”direct” contracts electric energy electric energy electric energy payment for losses transmission payment for services power Transmission electric energy services Transmission payment for power payment for power Territorial Grid transmission services transmission services grids Organizations Federal Grid Company of Unified electric energy Interregional Distribution electric energy (TGOs) Energy System Grid Company Municipal grids “Joint operation”27 www.mrsk-1.ru
  28. 28. IR ContactsHead of Investor RelationsTatiana Miroshnichenko+7 915 075 12 38ir@mrsk-1.ru, Miroshnichenko.TN@mrsk-1.ruIDGC of Centre4, 2nd Yamskaya Str., Moscow, Russia 127018T: +7 495 747 9292 F: +7 495 747 9292Tickers:MICEX-RTS: MRKCBloomberg: MRKC RX Presentations and subscriptionReuters: MRKC.MM http://mrsk-1.com/en/investors/presentations/www.mrsk-1.ru/ru/investors

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