The document provides an overview of IDGC of Centre's 2011 financial results and strategic outlook for 2012. It discusses key financial indicators such as revenue growth of 13.9% in 2011, EBITDA growth of 19.4%, and net profit growth of 7.8%. It also outlines the company's strategic priorities, including improving quality, reliability and innovations, increasing market share, optimizing investment activity and operating costs, and enhancing investment appeal.
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Morgan Stanley EEMEA Conference
1. 2011 IFRS Results &
Strategic Outlook for 2012
Morgan Stanley EEMEA Conference
London | April 2012
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 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.
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. Overview of the Company
& Its Development Priorities
3 www.mrsk-1.ru
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 others
4 * Indicative as at January 01, 2011 www.mrsk-1.ru
5. Benchmark Among MRSKs (RAS 2011)
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 #2
5 * Market capitalization, indicative as at March 2012 www.mrsk-1.ru
6. Map of IDGC of Centre. Overview
KEY INDICATORS
BRANCHES OF IDGC OF CENTRE
Service area
458 000 km2 MСap* RUR bln 34,3
1 Belgorodenergo
Population
2 Bryanskenergo 13,6 mln people Revenue (IFRS) RUR bln 69,0
3 Voronezhenergo
Length of conductors
4 Kostromaenergo
0.4 – 110 kV thousand km 366,1
5 Kurskenergo
10 Length of cables
6 Lipetskenergo 8 11
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 35 – 110 kV MVA 32 187
1
10 Tverenergo 3
11 Yarenergo 6 – 10/0,4 kV MVA 15 498
Staff number** 30 977
Number of shareholders*** 16 775
IDGC of Centre is a natural
monopoly, its tariff rates * indicative as at March 30, 2012
are regulated by the ** indicative as at December 31, 2011
*** indicative as at May 12, 2011 (record date)
Federal Tariff Service
6 www.mrsk-1.ru
7. Milestones of 2010 - 2011
Sep 2010 Nov 2010 Dec 2010 Jan 2011 Jun - Aug 2011 Dec 2011
2004
–
2009
Board of Directors 5 years RAB tariff system Successful implementation The Company developed
approved the Regulations was adopted in Orelenergo of Business Plan and and approved the Program of
on the dividend policy and Bryanskenergo, iRAB Investment Program for innovative development for
based on a system amounts to RUR 118 bln 2010, approved by the 2011-2016, the Board of
executing a set of criteria Board of Directors, CAPEX Directors approved Business
amounted to RUR 12.2 bln Plan and Investment Program
for 2012
Dec 2004 The first stage
As part of RAO UES reforming IDGC of Smart Grid
of Centre and Northern Caucasus Program is 5 years RAB tariff system The Company fulfilled its
was registered for RGC integration completed in adopted in Kostromaenergo, obligations for dividend
Apr 2007 Belgorod Tambovenergo, payments of RUR 611 million
The final structure of the Company
Voronezhenergo, (13% - pay out ratio); Company
was accepted, including 11 regional
Smolenskenergo and stocks moved across to MICEX
grid companies of Central Russia
Yargorelectroset, 100% quotation list A2; 1H2011 IFRS
(the decision of Board of Directors The Company acquired 100% subsidiary of the Company financials were reported
of RAO UES) of Yargorelectroset, the share
Mar 2008 Affiliation of RGCs demonstrating growth of the key
of IDGC of Centre in regional financial indicators
May 2008 Listing on MICEX and RTS
grid assets increased to 90%
7 www.mrsk-1.ru
8. 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 Holding
8 * System Average Interruption Duration Index ** System Average Interruption Frequency Index www.mrsk-1.ru
9. 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 Committee
9 www.mrsk-1.ru
10. 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*
10
* technological connection www.mrsk-1.ru
15. 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 2012
15 www.mrsk-1.ru
17. 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, JSC
17 www.mrsk-1.ru
18. 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 margin
18 www.mrsk-1.ru
19. 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)
19 www.mrsk-1.ru
20. Consolidation of Grid Assets in the Regions
of the Company’s Service Area & Implementation
of Measures to Improve Investment Attractiveness of Its Stocks
20 www.mrsk-1.ru
21. 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 owners
21 www.mrsk-1.ru
22. 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 F
22 www.mrsk-1.ru
23. 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
0
23 www.mrsk-1.ru
24. Stock Performance & Liquidity Increase
May April September 2Q 2011 3Q 2011 3Q 2011 2Q
2008 2009 2010 2012F
Company 's shares
Company's shares Dividends payment Quotation list
were listed on
were included in RUR 610 million, upgrade
MICEX (quotation
RTS EU pay-out-ratio 13% (MICEX-RTS A1)
list B) & RTS
Company's shares Confirmation Quotation list
were included in the of presence in upgrade
index MICEX PWR RTS EU and RTS-2 (MICEX A2 )
Payment of Dividends for 2010 Company's priorities for 2012
Total, RUR million 611 stable dividend policy
quotation list upgrade (MICEX A1)
Net Profit share 13% depositary receipts launching
inclusion in international indexes
Dividend yield (as at 12.05.2011) 1,33% launching of option program
24 www.mrsk-1.ru
26. Reported EBITDA 2011 Analysis
RUR mln
+8 428 -1 797
-197
-2 263
-415 -1 015
-432
15 217*
12 908*
Revenue
distribution
Purchased
Other opex
Personnel cost
EBITDA' 2010
Raw materials
Other income
EBITDA' 2011
electricity
and supplies
Power
* - EBITDA calculated as results from operational activities and amortization (not adjusted)
26 www.mrsk-1.ru
27. 27
EBITDA 2011
15 217*
Other non-cash items +587
Changes in WC
-517
Cash income tax paid
-981
Operating Cash flow
14 305
Capex
-15 659
* - EBITDA calculated as results from operational activities and amortization (not adjusted)
Free cash flow to the firm
-1 354
Net borrowings & finance
+5 690
lease
Net Interest paid
-1 370
Free cash flow to the equity
2 966
Dividends paid
-579
2 387
Net increase in cash, 2011
RUR mln
www.mrsk-1.ru
Cash Flow Statement 2011 Analysis
28. 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”
28 www.mrsk-1.ru
29. IR Contacts
Head of Investor Relations
Tatiana Miroshnichenko
+7 919 768 92 09
ir@mrsk-1.ru
IDGC of Centre
4, 2nd Yamskaya Str., Moscow, Russia 127018
T: +7 495 747 9292 F: +7 495 747 9292
Tickers:
MICEX-RTS: MRKC
Bloomberg: MRKC RX
Reuters: MRKC.MM
www.mrsk-1.ru/ru/investors