investor presentation 29 02 2012
DESCRIPTION
FEESTRANSCRIPT
Investor Presentation
February 2012
2
EN
D C
ON
SU
ME
R
GenerationElectricity and Heat
Production
Thermal Power Plants
TGKs(Produce Heat and
Electricity)
OGKs(Produce Electricity)
Hydro Power Plants
RusHydro
Nuclear Power Plants
Rosatom
SupplyElectricity Trading
DistributionLow Voltage Grids
Holding IDGC (MRSK)
Local IDGCs (MRSKs)
TransmissionHigh Voltage Grids
Share in Tariff (1)
50–60%
4–8%25–35%6–7%
Federal Grid Company
(1) Company estimates
Source Company data
The Russian Power Sector
3
Track record of substantial growth (2009 – 2010 revenue increased by 29%)
Rigorous programme of efficiency savings(c. RUR 2.6 Bn of savings in 2010(2))
Low leverage and ability to obtain one of the lowest debt interest rates among Russian companies
Investment grade credit ratings (S&P - BBB/Stable; Moody’s - Baa2/Stable)
Why is Federal Grid a Good Investment Opportunity?
Scale of Business Growth Prospects
Supportive Regulatory Regime Strong Financials
Anticipated electricity demand 2010 – 2020 CAGR of 2.4%
System upgrade focused on improving efficiency and reliability of the transmission network; development of smart grid model
Largest publicly traded electricity transmission company in the World (1) with over 120,000 km of transmission lines with total capacity of over 300,000 MVA
Leading Russian blue chip company and the largest Russian utility company by market capitalization
Unique natural monopoly position in Russia’s high-voltage electricity transmission market, operating in 73 out of 83 Russian regions
Source Company data; IFRS financials; Energy Forecasting Agency(1) By length of transmission lines and transformer capacity(2) Under RAS according to cost cutting programm
Business regulation based on 5-year Regulatory Asset Base (RAB) model
Guaranteed return on new invested capital 11% in 2010 – 2012 and 10% in 2013 – 2014
4
Commitment to the Best in Class Corporate Governance
There are 11 persons in the Company’s Board of Directors, 4 of them are independent directors (at least 6 members of the Board of Directors must be representatives of Russian state authorities)
On 16 December 2010 Federal Grid Company’s Board of Directors approved a new dividend policy Dividends equal to at least 10% of net income (based on Russian Accounting Standards) supported by cash flow In 2011 the Company made its first dividend payments to shareholders since 2008
Composition of the Board of Directors
Board of Directors consists of 11 members Independent Members of the Board of Directors
Ernesto Ferlenghi, Chairman of the Board of Directors Elected the Chairman of the Board of Directors on 1 August 2011 First ever foreign Chairman of a Russian State-owned company Member of the Board of Directors since 2008 Head of the Representative Office of Eni Russia and CIS Graduated from the Tor Vergata University of Rome Igor Khvalin, Deputy Chairman Member of the Board of Directors since 2010 General Director of Volga Engineering Group Member of the Board of Directors of MRSK Holding
Kirill Levin, Director Member of the Board of Directors since 2010 Deputy Chairman of the Management Board of Russian Agricultural Bank
Rashid Shapirov, Director Member of the Board of Directors since 2008 Deputy General Director of KFK-Consult
Source Company data
Independent: 4 directors
Non-independent: 7 directors
5
Source Company data; Bloomberg
Federal Grid Company History – Key MilestonesIncorporated in 2002
Shareholder StructureAs of January 2012
Share InformationAs of 27 January 2012
(1)
(1) Other shareholders include Gazprom, Norilsk Nickel and other
Number of shares outstanding: 1,255,948 MM Share price (MICEX)
Current: RUR 0.34 12 month low: RUR 0.21 12 month high: RUR 0.48
Market Cap: RUR 427 Bn Free Float: 20.52% Approved plan for the privatization of an additional
4.11% stake owned by the government
2009 20102008 2011
January 2010• Change from “cost plus” to
RAB regulation
February 2009• Inclusion of Federal Grid in
MSCI Russia and MSCI Emerging Markets Indices April 2011
• Approval of RUB 125 Bn bond placement program
May 2011• Deal with InterRAO
March 2011• LSE listing
December 2010• New dividend policy
August 2008• RTS and MICEX include
FSK in their indices
June 2008• Federal Grid shares listed
on RTS and MICEX
Company Development
6
2010 2011 2012 2013 2014
Return on initial invested capital 3.9% 5.2% 6.5% 7.8% 9.1%
Return on new invested capital 11% 11% 11% 10% 10%
Required Gross
RevenueYear’s Expenses RAB · [rRAB ] CAPEX · [rCAPEX ]
RAB____________
Payback PeriodCAPEX Return
Net Working
Capital · [rCAPEX ]Adjustments+= + + + + +
Include operating expenses, cost of services, etc.
Operating costs reduction - 2%
RAB = Initial base of invested capital at the beginning of the year
rRAB = existing capital return
Both are set by the regulator
The payback period on initial capital equals to 21 years
CAPEX = Cumulative sum investments from the beginning of the regulatory period
rCAPEX = Return on new investments (set by regulator)
Cumulative sum of investments made from the beginning of the regulatory period divided by the payback period of 35 years
If net working capital is more than 8% of previous years’ revenue, WC = 8% of revenue is used; if less than 4%, WC = 4% of revenue is used
Adjustments are made based on changes in amount/quality of services provided, changes in legislation, etc.
January 2010
• Switched to 3-year RAB regulation
September 2010
• Regulation period prolonged to 5 years
April 2011
• Tariff growth for 2011 has been smoothed out to 5%; Other potential changes discussed
Source Company data
Permitted Revenue Calculation Formula
RAB Return Calculation
RAB Regulation
7
Construction of electricity supply
facilities on Elginskoye coal deposit
Start Date: 2011
Due Date: 2013
Capacity provision of Kalininskaya
NPP generating unit #4 (1,000 MW)
Start Date: 2009
Due Date: 2012
Underground cabling in Moscow,
St. Petersburg
Start Date: 2011
Due Date: 2015
Infrastructure for Sochi Olympic
Games 2014
Start Date: 2008
Due Date: 2012
Transition from overhead lines to
cable and construction of Skolkovo
220 KV substation
Start Date: 2010
Due Date: 2012
Capacity provision of
Boguchanskaya HPP start-up
complex (1,000 MW)
Start Date: 2012
Due Date: 2014
Infrastructure for APEC summit in
Vladivostok in 2012
Start Date: 2008
Due Date: 2011
Construction of Zeyskaya HPP —
Russian-Chinese border
transmission line
Start Date: 2010
Due Date: 2013
Electricity supply of East Siberia
Pacific Ocean oil pipeline
Start Date: 2011
Due Date: 2016
Key Investment Projects
Source Company Data
Source Company data
8
Purpose: to support infrastructure and provide electricity for the APEC
Summit scheduled to take place in the Russian Far East city of
Vladivostok in 2012 New capacity and grids are aimed at strengthening existing
infrastructure in Vladivostok as well as providing electricity
to Russkiy island (where the APEC Summit will take place) Vladivostok’s Airport will also be supported by the newly
built electricity infrastructure Scope:
Overall 8 sub-projects including over 160 km of new electric
grids and substation capacity with overall capacity in excess
of 420 MVA Work status as of September 2011:
2 sub-projects are commissioned 4 sub-projects are finished and being tested 2 remaining sub-projects are scheduled to be finished by
the end of 2011
Purpose: to support infrastructure and provide electricity for the 2014
Winter Olympics in Sochi Scope:
10 substations with overall capacity of
1,762 MVA 15 new grids with the total length of 320 km, including
105 km of cable lines (10 – 110 kV) Work finished by 2010:
5 substations (782 MVA) 2 grids (29.4 km)
Work plan for 2011: 5 substations (700 MVA) 5 grids (119.3 km)
Project is on track and should be finished by the end of 2012 Construction is aimed at reducing environmental impact and
preserving the natural landscape by using substations of compact
configurations and other innovative solutions
Update on Key Investment Projects
Sochi Olympic Games 2014 APEC Summit in Vladivostok in 2012
71,21756,565
113,330
87,580
0
50,000
100,000
150,000
2009 2010 1H2010 1H2011
67,717
42,619 32,01945,459
59.8%
48.7%
56.6%63.9%
0
30,000
60,000
90,000
2009 2010 1H2010 1H2011
0%
25%
50%
75%
100%
27,91012,692
17,160
22,810
19.6%
24.6% 22.4%
32.0%
0
20,000
40,000
2009 2010 1H2010 1H2011
0%
10%
20%
30%
40%
Growth: 29%
Growth: 56%
Growth: 59%
Growth: 63%
RevenueRUR MM
EBITDA adj. (1) and MarginRUR MM %
CAPEXRUR MM
Profit for the period adj. (1) and MarginRUR MM %
EBITDA Margin
Net Income Margin
Financial Performance (IFRS)
Growth: 26%Growth: 42%
Growth: 80%
Growth: 34%
51,994
141,800
90,93469,581
0
50,000
100,000
150,000
2009 2010 1H2010 1H2011
Source Company IFRS financials(1) Adjusted for non-specific impairment provision of PP&E, impairment of available-for-sale investments and associates, loss on dilution of share in
associates, revaluation loss on PP&E, loss on re-measurement of assets held-for sale, gain on sale available-for-sale investments
9
10
311
17.5306 311
328.5
250
300
350
2009 2010 1H2011
In Operations To be Commissioned by the end of 2011
Total Transformer CapacityThousand MVA
Electricity TransmissionBn kWh
239 246
487467
0
200
400
600
2009 2010 1H2010 1H2011
Operational Overview
Transmission Grid LengthThousand km
122.3
3.2
125.5 121.7 121.1
100
110
120
130
2009 2010 1H2011
In Operations To be Commissioned by the end of 2011
Source Company data
0
0
Source Company data; IFRS financials; Bond portfolio structure and Credit potential shown as of 27 January 2012(1) Adjusted for reversal of impairment provision of PP&E, loss on re-measurement of assets held-for sale, revaluation loss on
PP&E and impairment of available-for-sale investments and associates
7,545 7,497 7,5526,000
50,000 50,815
13,545
57,497 58,367
0
10,000
20,000
30,000
40,000
50,000
60,000
2009 2010 1H2011
ST Debt LT Debt
11
Capital Structure
S&P Outlook
Moody’sOutlook
Debt Profile Evolution RUR MM
Federal Grid Ratings
Series 7 5,000 7.50 27 October 2015
Series 8 10,000 7.15 26 September 2013
Series 9 5,000 7.99 24 October 2017
Series 10 10,000 7.75 24 September 2015
Series 11 10,000 7.99 24 October 2017
Series 13 10,000 8.50 22 June 2021
Series 18 15,000 09 June 2014
Total 130,000
Series 6 10,000 7.15 26 September 2013
Average debt maturity of 4.8 years Weighted average cost of debt financing is 8.3%
Debt/Capital 2% 6%
Total Equity/Total Assets 0.82x 0.81x
Adjusted EBITDA (1) (RUR MM) 42,619 67,717
Total Debt/Adjusted EBITDA (2) 0.32x 0.85x
Key Ratios 2009 2010
Same as Sovereign: BBBStable
One Notch Below Sovereign: Baa2Stable
Credit Potential
Total amount of untapped credit lines: RUR 111.5 Bn
Credit Portfolio
Interest Rate, % Maturity/Put date Bond issue RUR MM
Series 15 10,000 8.75 23 October 2014
Maturity date Credit line RUR MM
Gazprombank 15,000 October 2014
Series 19 20,000 7.95 18 July 2018
8,50
Gazprombank 10,000 November 2014
12
Recent Developments
16 December 2010: Board of Directors of Federal Grid approved RUR 952.4 Bn investment program for 2010 - 2014
Investment Program
Federal Grid Company successfully issued bonds totaling RUR 55 Bn in 2011 Average interest rate: 8.35% Average maturity: 5.4 years Total demand on average exceeded the nominal volume being issued by 2.5 times
Bond Offerings
Federal Grid made the decision to pay out a dividend on the Company’s common stock for the year 2010 in the amount of 10% of net income (by RAS), excluding financial results from re-valuation of securities and build-up of unfunded provisions
Dividends
28 March 2011: Federal Grid successfully listed its GDRs on the Main Market of the London Stock ExchangeListing
8 February 2011: Board of Directors approved the Company’s option programOption Program
All generating assets held by Federal Grid and its subsidiaries were transferred to INTER RAO UES in exchange for its shares
As a result of the deal Federal Grid holds a 19.95% stake in INTER RAO UES
Assets Transfer
RAB Regulation 28 December 2010: Federal Tariff Service (FTS) approved RAB tariffs for the five year period (2010 - 2014) 13 April 2011: FTS adjusted the tariffs for 2-4Q2011 - 2014 to redistribute gross revenues of regulated
businesses between years within a single regulatory period
Source Company data
13
Transmission Fees Electricity SalesOther Revenues
D&A Personnel Expenses (2)
Purchased Electricity (1) Repair and Maintenance
Other (3)
Growth: 29% Growth: 12%
Revenue StructureRUR MM
Cost StructureRUR MM
Revenue and Cost Structure
Growth: 26%
Growth: 3%
Source Company IFRS financials(1) Federal Grid purchases electricity to cover electricity transmission losses in its grid(2) Including payroll taxes(3) Includes change in allowance for doubtful debtors and other items
14
Change in EBITDA
45,4597191,030
(277)
1,140
(2,893)
(931)
14,652
32,019
15,000
25,000
35,000
45,000
55,000
EBITDA1H2010
RevenueIncrease
FinanceIncome
PersonnelExpenses
PurchasedElectricity
Repair andMaintenance
Impairments Other EBITDA1H2011
RUR MM
13,440(+42%)
Source Company IFRS financials
15
Free Cash Flow
Source Company IFRS financials
Cash and cash equivalents at the end of the period
Net cash generated by operating activities
Cash and cash equivalents at the beginning of the period
Net cash used in investing activities
Net cash used in financing activities
Net increase in cash and cash equivalents
13,573
(2,102)
2,894
16,467
36,275
(31,279)
45,459
(1,051) (49) (8,084)
36,275
(69,581) (2,102) (35,408)
(100,000)
(50,000)
0
50,000
EBITDA1H2011
Reconciliationadjustments
Changes inWC
Profit tax Operating CF Capex Interest paid FCF
RUR MM
16
Step 1
Established RAB Period of returnx
Amount of return=
Step 3 Amount of return
Taxes+ Total Required Gross Revenue=
OperatingExpenses +
Step 4 Total Required Gross Revenue
Declared Network Capacity
Calculated Tariff=÷
Tariff Calculation (1)
Source Company Data(1) Simplified for illustrative purposes
= RAB amortization
Rate of returnEstablished RAB x
Step 2
+RAB amortization
Услуги
UES of North-West
UES of UralsUES of Volga
UES of EastUES of Siberia
UES of South
UES of Center
Export/import to/from Norway
Export/import to/from Norway
Integration of Urals and Siberia energy systems
Integration of Urals and Siberia energy systems
Export/import to/from Finland
Export/import to/from Finland
MoscowMoscowSt. PetersburgSt. Petersburg
TomskTomsk
Export to China
Export to China
Export to South Korea
Export to South Korea
Integration of Siberia and East energy
systems
Integration of Siberia and East energy
systems
West-East Energy Bridge
West-East Energy Bridge
Center-Urals Energy Bridge
Center-Urals Energy Bridge
Export to Azerbaijan and Georgia
Export to Azerbaijan and Georgia
Export to China
Export to China
Export/import to/from
Kazakhstan
Export/import to/from
KazakhstanExport to Mongolia
Export to Mongolia
Existing export/import Under construction
Export to Turkey
Export to Turkey
Prospects for Energy Bridge Development in Russia
17
18
Head of Investor Relations Alexander Duzhinov
Tel: +7 495 710 9064 Mob: +7 916 041 8053 Fax: +7 495 710 9641 E-mail: [email protected]
IR Contacts
Contacts for Institutional Investors and Analysts
Investor Relations Vladimir Baklanov
Tel: +7 495 710 9333 ext.2926 Fax: +7 495 710 9641 E-mail: [email protected]
Investor Relations
Nadezhda Sukhova
Tel: +7 495 710 9541 Fax: +7 495 710 9641 E-mail: [email protected]
Investor Relations Egor Toropov
Tel: +7 495 710 9333 ext.2275 Fax: +7 495 710 9641 E-mail: [email protected]
19
The materials comprising this Presentation have been prepared by the Company solely for use by the Company’s management at investor meetings with a limited number of institutional investors who have agreed to attend such meetings and to be subject to obligations to maintain the confidentiality of this Presentation.
This Presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Company or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this Presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This Presentation does not constitute a recommendation regarding the securities of the Company.
This Presentation is not directed at, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.
The forward-looking statements in this Presentation are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. These assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control and it may not achieve or accomplish these expectations, beliefs or projections. In addition, important factors that, in the view of the Company, could cause actual results to differ materially from those discussed in the forward-looking statements include the achievement of the anticipated levels of profitability, growth, cost and its recent acquisitions, the timely development of new projects, the impact of competitive pricing, the ability to obtain necessary regulatory approvals, and the impact of general business and global economic conditions. Past performance should not be taken as an indication or guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance.
Disclaimer