PJSC RusHydro: RusHydro announces 1H 2019 IFRS results

RusHydro announces 1H 2019 IFRS results

August 29, 2019. Moscow, Russia. RusHydro Group (hereinafter referred to as the "Group", ticker symbol: MOEX, LSE: HYDR; OTCQX: RSHYY) announces its condensed consolidated interim unaudited financial information prepared in accordance with International Financial Reporting Standards (IFRS) for the 2nd quarter and 1st half of 2019.

Key highlights for the 2Q and 1H of 2019:

• Total revenue in 1H'19 was flat to 1H'18 and came in at RUB 200,848 mn (-0.2%), in 2Q'19 - RUB 91,084 (-1.4%);
• EBITDA in 1H'19 - RUB 50,770 mn (-153% y-o-y); in 2Q'19 - RUB 21,206 mn (-24.8% y-o-y);
• Operating expenses increased in 2Q and 1H by 10.1% y-o-y and 7.2% y-o-y, respectively, mostly as a result of fuel cost increase and growth of purchased electricity and capacity costs;
• Adjusted net profit in 1H'19 - RUB 31,109 mn (-22.6% y-o-y); net profit in 1H'19 - RUB 29,385 mn (-23.8% y-o-y).
• Financial results reflected decrease of electricity production in 1H'19 on the back of reduced water inflows to the majority of reservoirs of the HPPs. Nonetheless, the situation changed in July as water inflows to the main reservoirs were at the long-run average or above it. Water reserves at Sayano-Shushenskoye reservoir at the end of August was 8% above the long-run average and at last year's level, while Bureyskoye reservoir is currently filled to the maximum level.

2Q and 1H 2019/2018 highlights (in RUB mn) *

Operating results

Total electricity generation by RusHydro Group's power plants amounted to 29,587 GWh in 2Q'19, a decrease of 16.7% as compared to the corresponding period last year, in 1H'19 - 58,539 (-13.1%). In 2Q'19 total electricity generation by RusHydro Group's hydropower and pumped storage plants decreased by 20.9% to 22,530 GWh, electricity generation by the Group's thermal power plants increased by 0.8% to 6,998 GWh, and electricity generation by renewables increased by 0.1% to 113 GWh as compared to the corresponding period of 2018. Consequently, in 1H'19 of the year total electricity generation by RusHydro Group's hydropower and pumped storage plants decreased by 17.7% to 41,657 GWh, by renewables - by 4.5% to 217 GWh, while electricity generation by the Group's thermal power plants increased by 1.2% to 16,720 GWh as compared to the same period of 2018. Total electricity generation by Boguchanskaya hydropower plant***** in 2Q'19 amounted to 3,619 GWh, an increase of 7.7% as compared to 2Q 2018, in 1H - 7,360 (+19.4%).

Heat output by thermal plants of RAO ES East Subgroup in 2Q'19 increased by 0.2% to 4,627 GCal as compared to the corresponding period last year. In the 1H'19, heat output decreased by 4.9% against 1H'18 to 16,800 GCal.

Total electricity output by RusHydro's retail companies, operating in Chuvashia, Ryazan and Krasnoyarsk regions in the 2Q'19 decreased by 4.8% to 4,305 GWh as compared to 2Q'18. In 1H'19, total output decreased by 5.8% as compared to the corresponding period last year and amounted to 9,902 GWh.

Key events of the 1H of 2019

• On January 2, 2019, the Cental and Western districts of Yakutia were connected to the Unified Energy System of Russia. PJSC Yakutskenergo, a subsidiary of PJSC RusHydro, transferred the supervision and control of the territory to the System Operator;
• On February 8, 2019, PJSC RusHydro has divested its 40% share in LLC VolgaHydro, a hydropower equipment manufacturing joint venture in the Saratov region, to Voith Group for RUB 450 mn;
• On March 29, 2019, PJSC RusHydro and UC RUSAL commissioned the first stage of Boguchany aluminium smelter (BoAZ), part of Boguchanskiy Energy and Metals Complex (BEMO). Total funding of the smelter's first phase with annual operational capacity is estimated at 298 thousand tons of aluminium amounts to USD 1.69 bn. It is being financed by own funds of partners in BEMO project along with project financing from VEB.RF (formerly - Vnesheconombank);
• On April 19, 2019, The Board of Directors approved PJSC RusHydro's dividend policy which stipulates for a base scenario of dividend payout ratio at 50% of the company's IFRS net profit. At the same time, a minimal payout level is set at the average amount of dividends paid over the last three years. Such measure guarantees shareholders a minimal dividend amount and improves the company's investment attractiveness. The changes to the dividend policy will be in effect for three years;
• On April 29, 2019, the first phase of placement of RusHydro's additional share issue for the construction of Pevek-Bilibino 110 kV high-voltage overhead lines in light of upcoming reconstruction of the Chaun-Bilibino power system following decommissioning of the Bilibinskaya nuclear power plant took place. PJSC RusHydro has placed 7,000,092,298 shares including 700,000,000 shares in favor of the Russian Federation represented by the Federal Agency for State Property Management (Rosimushchestvo) at one ruble per  share;
• On June 28, 2019, AGM of PJSC RusHydro elected new Board of Directors and approved 2018 dividends of RUB 0.0367388 per share in total amount of RUB 15.9 bn (50% of the Group's net profit for 2018 under IFRS, and an increase of 42% over the amount distributed in dividends for 2017).

Revenue

Revenue breakdown in 2Q and 1H 2019/2018 (in RUB mn)

In 1H'19, total revenue of the Group amounted to RUB 200,848 mn as compared to RUB 201,285 in the 1H'18. The change is associated with the following key factors:

• decrease in revenue from electricity sales of PJSC RusHydro by RUB 4,699 mn due to decline in production of hydropower plants;
• increase in revenue from electricity of RAO ES East subgroup (incl. government subsidies) by RUB 1,328 mn on the back of tariff and sales volume growth;
• increase in revenue from electricity sales  in ESC Rushydro subgroup by RUB 920 mn following new supply agreements;
• increase in capacity sales revenue by RUB 2,021 mn on the back of sales volume growth of PJSC DEK;
• increase in heat and hot water sales revenue by RUB 652 mn following tariff growth aided by increase in production;
• decrease in other sales revenue by RUB 1,056 mn is mainly driven by decrease in revenue from grid connections and electricity distribution services in PJSC Yakutskenergo and PJSC Magadanenergo as well as decrease of revenue from transportation services at JSC VOSTEK.

Operating expenses*******

Operating expenses in 2Q and 1H 2019/2018 (in RUB mn)

Total operating expenses in the 1H'19 amounted to RUB 163,117 mn as compared 152,198 mn in the 1H'18 due to the following factors:

• increase in purchased electricity and capacity by RUB 4,562 mn partially covered by additional revenue mostly at RAO ES East Subgroup following change in volume and tariff increase;
• increase in fuel expenses mainly in JSC DGK by RUB 2,170 mn as a result of fuel purchase price increase following procurement results and in PJSC Kamchatskenergo by RUB 591 mn or as a result of purchase price increase of heating oil and its increased consumption due to restrictions in consumption of other types of fuel (gas, coal);
• increase in depreciation expense following commissioning of CHP Vostochnaya in the 2H'18, off-site construction of Sakhalinskaya GRES-2 and adoption of IFRS 16, Leases;
• increase in employee benefit expenses by RUB 1,917 in accordance with existing collective agreements.

Profit

In the 1H'19, EBITDA decreased by 15.3% to RUB 50,770 mn as compared to RUB 59,949 mn in the same period of 2018.

The Group's net profit decreased by 23.8% to RUB 29,385 mn. Adjusted net profit in the reporting period amounted to RUB 31,109 - a 22.6% decrease as compared to the same period last year.

The difference between the reported and adjusted profit is attributed mainly to the following non-cash effects (before income tax) and recognition of change in fair value of the derivative financial instrument:

• financial income in the amount of RUB 3,812 mn as a result of change in fair value of non-deliverable forward contract following increase of market price of PJSC RusHydro's shares in the reporting period;
• impairment of financial assets in the amount of RUB 1,793 mn resulting from measuring expected credit losses of receivables;
• impairment of property, plant & equipment and unfinished construction in the amount of RUB 1,945 million;
• impairment of other assets in the amount of RUB 2,045 mn.

Key indicators of financial position

As of June 30, 2019, the Group's assets increased by RUB 24,702 mn or 2.7% to RUB 956,633 mn against RUB 931,931 as of December 31, 2018. Change in assets is primarily attributable to:

• increase in property, plant & equipment (following execution of the Group's investment program);
• increase in accounts receivable.

As at the end of the reporting period, the Group's liabilities increased by RUB 12,202 mn or 3.5% to RUB 357,914 mn as compared to RUB 345,712 as of December 31, 2018. The structure of liabilities has changed accordingly: long-term liabilities decreased by RUB 18,655 mn and short-term liabilities increased by RUB 30,857 mn mainly due to increase of accounts payable, current debt and current portion of non-current debt.  

As of June 30, 2019 the liability on issued shares in the amount of RUB 7,000 mn  is reflected, as additional share issue in the course of implementation of preemptive right, under which PJSC RusHydro  placed 7,000,092,298 shares among shareholders, was not completed.

The fair value of the non-deliverable forward contract, recognized under the terms of transaction with PJSC VTB Bank, decreased from RUB 31,896 mn (as of December 31, 2018) to RUB 25,591 mn (as of June 30, 2019) following increase of market price of RusHydro's shares in 1H'19.

Events after the reporting date

• On July 17, the government approved all projects submitted by RusHydro for modernization: Vladivostokskaya CHP-2, Artyomovskaya CHP, Khabarovskaya CHP and Yakutskaya GRES. Return on the projects will be guaranteed by the mechanism stipulated  by  the thermal power modernization program;
• On July 26, 2019, The Board of Directors re-elected Deputy Chairman of the Government of the Russian Federation - Plenipotentiary Representative of the President in the Far Eastern Federal District Yury Trutnev as its Chairman and elected members to the Committees of the Board of Directors.

The full financial statements are available on the Company's website at: http://www.eng.rushydro.ru/investors/reports

* As of January 1, 2018 the Group has changed its accounting policy to reflect the initial cost of property plant and equipment excluding accumulated depreciation and impairments. As a result accumulated depreciation for the 1H of 2018 has been restated.

** Operating profit is calculated as the difference between revenue, other operating profit and operating expenses.

*** EBITDA is calculated as operating profit / loss excluding depreciation of property, plant and equipment, gains on changes in the carrying value of financial assets at fair value through profit or loss, impairment of property, plant and equipment, impairment of other assets, impairment of financial assets, loss on disposal of property, plant and equipment, loss on disposal of other non-current assets and other non-monetary items of operating income and expenses.

**** Net profit is adjusted for the effects of recognition of financial income/expense arising from the change in fair value of non-deliverable forward contract, impairment of fixed assets, impairment of other assets, impairment of financial assets, profit / loss on disposal of property, plant and equipment, loss on disposal of other non-current assets as well as other operating income arising from the change in fair value of financial assets measured through profit or loss.

***** The Boguchanskaya hydropower plant is part of the Boguchanskiy Energy and Metals Complex (BEMO), a joint venture (JV) between RusHydro and UC RUSAL, and is not part of RusHydro Group. According to RusHydro's shareholding in the JV (50%), the results of the plant are reported in the official financial statements in "Share of results of associates and jointly controlled entities". Operations of the HPP have been put into the press-release for general reference.

****** In July 2017, the Resolution of the Russian Government No. 895 "On reaching basic rates (tariffs) for electric power (capacity) in the territories of the Far East Federal region (the "Far East")" became effective, under which rates for consumers in the territories of the Far East should be reduced starting from 1 January 2017 to the basic level  of RUB 4.00 / kWh, from 1 January 2018 to RUB 4.30 / kWh. According to the Resolution of the Russian Government No. 1614-r of 28 July 2017, PJSC RusHydro was appointed as the recipient of a premium to the price for capacity provided by the Company in the price zones of the wholesale market under CCS agreements. The premium to the price for capacity is set in order to achieve the basic level of rates (tariffs) for electricity (capacity) planned for the next regulation period in the Far East constituent regions. Within the amounts defined by Resolution No. 1615-r of the Russian Government dated 28 July 2017, the Company translates the collected amounts of margin in the form of free-of-charge targeted contributions to the budgets of the respective regions. The Group companies being guaranteeing suppliers will receive compensation for the shortage of income related to the reduction of rates, through subsidies from the Far East constituent regions.

******* Here and hereinafter the operating expenses do not include impairment loss.

About RusHydro

RusHydro Group is the leading producer of renewable energy in Russia. It is Russia's largest generating company and is among the top-5 in the world with over 400 generating facilities in Russia and abroad. The Group's total electricity generation capacity including Boguchanskaya HPP is 39.4 GW.

Russian Federation owns 61.20% in RusHydro, the rest is held by other institutional and individual shareholders (over 360,000). The company's stock is traded on the Moscow Stock Exchange. Group's GDRs are traded in the IOB section of LSE, ADRs - in OTCQX.

For more information:

Investor Relations Department

Tel. +7 (495) 122 0555 ext. 1607, 1319, 1304

ir@rushydro.ru

The information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of RusHydro. One can identify forward-looking statements by terms such as "expect," "believe," "anticipate," "plan", "aim", "target", "forecast", "project", "should", "estimate," "intend," "will," "could," "may" or "might," the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially from these statements.

We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic and political conditions, our competitive environment, risks associated with operating in Russia and rapid technological and market changes in our industries, as well as many other risks specifically related to RusHydro and its operations.