Federal Grid Company
28 March, 2011London
Investor Presentation
Andrey Kazachenkov, Deputy Chairman of the Management Board
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Disclaimer
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.
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Listing overview
Company
Sector
Listing
GDR/Share split
Financial Advisor
Investor meetings
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Legal Advisor
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Key messagesThe largest publicly traded electricity transmission
company in the world by the length of transmission lines and transformer capacity
A leading Russian blue chip company and the largest Russian utility company by market capitalisation
Natural monopoly position on the Russia’s high-voltage electricity transmission market
Guaranteed return on investment following the transition to the Regulatory Asset Base tariff system (RAB)
Strong development pipeline backed by a five-year RUR 952.4 billion investment programme
Considerable scope to enhance performance through greater operational efficiency and capital structure optimization
Market Cap: USD 17.5 bln (24th March, 2011)Market Cap: USD 17.5 bln (24th March, 2011)
Federal Grid at a glance
(1) Based on IFRS figures
(2) Adj. EBITDA = EBITDA - Reversal of impairment provision of property, plant and equipment + Revaluation loss on property, plant and equipment + Impairment of available-for-sale investments and associates + Finance income
(3) Adj. profit for the period = Net Profit - Reversal of impairment provision of property, plant and equipment + Revaluation loss on property, plant and equipment + Impairment of available-for-sale investments and associates - Deferred income tax on adjustments
(4) Owned, managed or operated by Federal Grid
Russian Federation: 79.48%
Free Float: 20.52%
Shareholders Structure:
Key Indicators 2009 1H 2010
Revenues(1), RUR mln 87,580 56,565
Adj. EBITDA(1), RUR mln 42,431(2) 31,949(2)
Adj. profit for the period(1),RUR mln
17,010(3) 12,636(3)
Number of substations(4) 761 798
Transformer capacity, MVA, 35-750 kV(4) 298,459 305,960
Transmission grid length, thousand km(4) 118 121
Total volumes of electricity transmitted, bln kWh
466 239
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Regions of operations
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Russian Electricity Sector
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Regulatory bodies
Ministry of Economic Development
Ministry of Energy:Investment program approval
Federal Tariff Service (FTS):Tariff setting
Russian Electricity Sector
Generation
Transmission
Distribution SalesFederal Grid
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Federal Grid Business
Electricity transmissionElectricity transmission Technological connectionTechnological connection
Federal Grid is the backbone of Russia’s national electricity sector and a natural monopoly operating in 73 regions of the country
Primary consumers are regional distribution companies, retail electricity supply and large industrial enterprises
Federal Grid’s share in the electricity prices paid by the end-consumers is approximately 6%
Revenues are based on the tariff set by Federal Tariff Service (FTS) for 5 years using RAB methodology
Income generated from electricity transmission makes up approximately 94% of the total revenue
Costs of electricity losses are passed on to consumers
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Strategy
The transmission electricity grid is a backbone of the national economy and infrastructure. Federal Grid plays a vital role in ensuring the development and reliability of this system. We operate in a modern, regulated market environment, and are committed to delivering value to our shareholders and investors.
MISSION
Reliability and efficiency
Development and innovations
Safety
Corporate Governance and Personnel
Shareholder Value
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Investment Program 2010 – 2014
Total amount of planned investments 2010-2014 is RUR952.4 bln
Grid upgrades under Federal Programs(2)
(4,808 km; 4,181 MVA)
Upgrading grid facilities in Moscow, St. Petersburg,
Tyumen(980 km; 17,531 MVA)
Long-haul grids development(3)
(5,367 km; 10,890 MVA)
Innovations and energy efficiency, technological operations improvement
Renewal of fixed assets (10,468 km; 37,866 MVA)
Technological connection (33 km; 2,577 MVA)
Other grid development projects
Joint projects with regional authorities(1)
(5,367 km; 10,890 MVA)
Capacity provision(NPP, HPP, TPP)
(5,180 km; 10,936 MVA)
(1) Excluding Moscow, St. Petersburg, Tyumen
(2) East Siberia – Pacific Ocean oil pipeline, Sochi Olympic Games, Vankor, Sayan, etc.
(3) Excluding joint projects with regional authorities8
127.4 (13.4%)
90.4 (9.5%)
212.8 (22.3%)
65.8 (6.9%)
216.3 (22.7%)
14.7 (1.5%)28.4 (3.0%)
58.7 (6.2%)
137.9 (14.5%)
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Capacity provision of Novovoronezhskaya NPP-2 generating unit #1 (1,150 MW)
Commissioning date – 2012
Key Investment Projects
Transmission lines (220KW, 330KW, 500KW, 750KW)
Transmission lines and substations
Underground cabling
Capacity provision of Boguchanskaya HPP start-up complex (1,000 MW)
Commissioning date – 2013
Infrastructure for Sochi Olympic Games 2014
Commissioning date – 2012
Capacity provision of Kalininskaya NPP generating unit #4 (1,000 MW)
Commissioning date – 2011
Electricity supply of East Siberia – Pacific Ocean oil pipeline
Commissioning date – 2012
Construction of Zeyskaya HPP – Russian-Chinese border transmission line
Commissioning date – 2013
Infrastructure for APEC summit in Vladivostok in 2012
Commissioning date – 2011
Construction of electricity supply facilities on Elginskoye coal deposit
Commissioning date – 2013
Underground cabling in Moscow, St. Petersburg, Nizhny Novgorod
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Transition from overhead lines to cable and construction of Skolkovo 220 KV substation
Commissioning date – 2012
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Investment Program: 2010-2014New Construction
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2010 2011 2012
26,557
13,047
22,4745,435
3,2933,521
Transmission lines, km
Transformer capacity, MVA
New construction 2010 – 2014
2013 2014
19,000
5,893
8,1022,936
73 new substations with a total transformer capacity of 89,180 MVA
123 new high-voltage transmission lines with a total length of 21,078 km
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Smart grid: new level of Russian power sector developmentSmart grid is a brand-new state of the grid based on the modern principles and technologies of electricity transmission and transformation
Smart grid (integration role)
Consumers, industrial plants
Digital substations
Microturbines and storage units
Smart grid element
Generation and alternative energy
Integration of all types of generation (including small generation) and all types of consumers (from households to large industrial enterprises) for situation management of demand for their services and active participation in energy system performance
Real-time change of the parameters and grid topology preventing the system from accident conditions
Enhancement of market infrastructure opportunities through rendering a wide range of services both by market entities and the infrastructure
Electricity loss minimization, enhancement of system self-diagnostic and self-sealing with compliance to the reliability and power quality terms
Power grid and information infrastructure integration for all-mode system management accompanied by a full information support
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Transition to RAB
201051.1%
tariff growth
Return on initial invested capital: 3.9%
Return on initial invested capital: 5.2%
Return on initial invested capital: 6.5%
Return on new invested capital: 11% per annum
*approved by the Government of Russian Federation
Source : Federal Tariff Service
5-year regulatory period*
Return on initial invested capital: 7.8%
Return on new invested capital: 10% per annum
Return on initial invested capital: 9.1%
26,95% tariff growth
201132.91%
tariff growth
201226.95%
tariff growth
201321.1%
tariff growth
201415.2%
tariff growth
Initial base of invested capital as of 01.01.2010 (Initial RAB) was RUR647.6 bln
Annual regulatory rate of decrease in operating costs controlled by FTS is 2%
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61,087
22,683
11,1672,003
69,251
33,813
7,66312,249
87,580
42,431
13,65117,010
56,565
31,949
13,98412,636
Revenue Adjusted EBITDA Adjusted operating profit Adjusted profit for the period
20072008
20091H 2010
Financial Performance(1) (2007 – 1H 2010)
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Indicator 2007 2008 2009 1H 2010
Adjusted operating profit margin,%
18.3% 11.1% 15.6% 24.7%
Adjusted EBITDA margin,% 37.1% 48.8% 48.4% 56.5%
Adjusted profit for the period margin,%
3.3% 17.7% 19.4% 22.3%
Key profitability ratios
P&L indicators, RUR mln
(1) Based on IFRS figures
(2) Adj. EBITDA = EBITDA - Reversal of impairment provision of property, plant and equipment + Revaluation loss on property, plant and equipment + Impairment of available-for-sale investments and associates + Finance income
(3) Adjusted operating profit is calculated as operating profit or loss adjusted for reversal of impairment provision of property, plant and equipment, specific impairment of property, plant and equipment and intangible assets, revaluation loss on property, plant and equipment and gain on sale of available-for-sale investments
(4) Adj. profit for the period = Net Profit-Reversal of impairment provision of property, plant and equipment + Revaluation loss on property, plant and equipment + Impairment of available-for-sale investments and associates - Deferred income tax on adjustments
(2) (4)(3)
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51.2%
20.7% 18.8%
56.5%
24.7% 22.3%
Adjusted EBITDA margin, % Adjusted operating profit margin, % Adjusted profit for the period margin, %
1H 2009
1H 2010
42,247
21,635
8,743 7,940
56,565
31,949
13,984 12,636
Revenue Adjusted EBITDA Adjusted operating profit Adjusted profit for the period
1H 2009
1H 2010
+34%
+48%
+60% +59%
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1H 2010 Financial Performance(1)
Key profitability ratios
(1) Under International Financial Reporting Standards (IFRS)
P&L indicators, RUR mln
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Bond issue RUR mln Interest rate,% Maturity date
Series 4 6,000 7.3 06.10.2011
Series 6 10,000 7.15 26.09.2013
Series 7 5,000 7.5 27.10.2015
Series 8 10,000 7.15 26.09.2013
Series 9 5,000 7.99 24.10.2017
Series 10 10,000 7.75 24.09.2015
Series 11 10,000 7.99 24.10.2017
Total 56,000
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Bond Portfolio (March 1st, 2011)
Credit portfolio and liquidity(1)
9m 2010 DEBT/EBITDA = 0.71
Credit facilities
(1) Based on Russian Accounting Standards (RAS)
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Summary
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Advanced Tariff Regulation System
RAB-based regulation enhances operational efficiency and ensures predictable returns on
invested capital
Large Scale of Operations and Stable Demand
Critical part of the infrastructure of the Russian economy and the backbone of the national
electricity sector
Sound Financial Position
Strong growth in revenue and earnings coupled with balance sheet strength
Established Development Program
Large-scale investment program is expected to stimulate a robust expansion of our
business and asset base
Maximization of shareholders value
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Contacts
Federal Grid Company of Unified Energy System5A, Akademika Chelomeya Str., Moscow, Russia, 117630
Head of Investor Relations
Alexander Duzhinov Head of Investor RelationsTel.: +7 (495) 710 90 64Mob.: +7 (916) 041 80 53E-mail: [email protected]
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