Financial results

Indicators for 2012 and 2013 are given herein according to the annual accounting statements for 2014 including retrospective data.

Financial review

Dynamics of key financials

Revenue, RUB mln

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EBITDA, RUB mln

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Net profit, RUB mln

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Financial result in 2014

Formation of net profit 2014

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Revenue from products (services) in 2014 increased by RUB 4,820 mln, or 12.1% y-o-y to RUB 44,722 mln. The increase was due to the growth of all components: revenue from electricity transmission, revenue from technological connection and revenue from other activities.

Cost increased by RUB 2,827 mln, or 7.8% y-o-y to RUB 39,257 mln.

Thus, gross profit for the reporting period grew by RUB 1,993 mln compared to 2013 to RUB 5,466 mln.

Profit before tax dropped by RUB 10,238 mln compared to 2013 totaling RUB 8,793 mln.

By the end of 2014 net loss of the Company amounted to RUB 7,968 mln (i.e. financial result was RUB 8,393 mln below the level of 2013). The decrease in net profit in 2014 was mainly due to the growth of negative balance of other income and expenses, resulting from creation of provision for impairment of investments in connection with the problems of Bank Tavrichesky, increase of expenses on creation of provision for disagreements with third-party grid organizations and reflection of losses for lost cases involving disagreements with third-party grid organizations.

Structure of income

Dynamics of sales revenue, RUB mln

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In 2014, sales revenue increased by RUB 4,820 mln, or 12.1% y-o-y to RUB 44,722 mln.

Income from electricity transmission services account for a major share in the revenue structure of Lenenergo. At year-end, this type of revenue accounted for 81.1%, or RUB 36,261 mln (up by 9.2% y-o-y). In absolute terms, the increase totaled RUB 3,054 mln due to the growth in average tariff by 12.7% (increase in revenue by RUB 4,171 mln) under declined volumes of electricity transmission by 933.2 mln kWh, or 3.2% (decrease in revenue by RUB 1,073 mln).

Income from technological connection services in 2014 increased by 26.6% y-o-y to RUB 8,249 mln and accounted for 18.4% of total revenue of the Company. The increase was due to the presence in the structure of revenue in 2014 of the contracts with major applicants.

Other income generated RUB 212 mln for the Company, accounting for 0.5% of total revenue (up by 17.6% y-o-y).

Structure of expenses

Structure of expenses in 2014, %

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Expenses for purchased electricity to compensate for losses in 2014 amounted to RUB 5,829 mln, accounting for 14.8% of total expenses. In absolute terms, the growth amounted to RUB 414 mln, or 7.6 % y-o-y, and was the result of increased losses by 73 mln kWh, or 2.1% y-o-y (growth of costs by RUB 122 mln) and the increased unregulated tariff for purchase of losses by 5.4% due to the growth of the actual ATS price (growth of costs by RUB 292 mln).

Expenses for FGC UES services amounted to RUB 6,566 mln, or 16.7% of total expenses. The decline compared to 2013 in absolute terms totaled RUB 149 mln and was mainly due to the reduction of customer contract demand by 363 MW, or 9.3% y-o-y as a result of leaving of a number of the so-called “last mile” consumers and the rising cost of loading losses by RUB 50 mln, or 6.1% y-o-y at a simultaneous growth of tariffs for UNEG networks maintenance and payment of losses in UNEG networks.

Expenses for electricity transmission services of third-party grid organizations in 2014 amounted to RUB 9,166 mln, or 23.3% of total expenses. The growth of expenses totaled RUB 1,392 mln compared to 2013. The increase was due to the indexation of individual tariffs from the second half of 2014.

Personnel expenses in 2014 amounted to RUB 3,384 mln, accounting for 8.6% of total expenses, up by 7.3% y-o-y due to the growth of payroll linked to the indexation of salaries resulting from execution of obligations of the employer under the Branch tariff agreement, actions for motivation of the personnel of key positions and professions, and changes in the legislation on payment of remuneration to the staff engaged in work with harmful working conditions.

Depreciation of fixed assets and intangible assets was up by RUB 711 mln compared to 2013 due to the increased book value of assets as a result of execution of the investment program on commissioning of fixed assets.

Cost reduction program

Devised and run in 2014, the cost management program of Lenenergo which includes a complex of organizational and technical measures aims to improve the Company’s performance, namely: measures to increase revenue, improving logistics through tender procedures, optimization of the production program, implementation of the program of decrease in electricity losses, decrease in general expenses, decrease in the cost of credit resources, and optimization of investment activities.

The result of implementation of measures aimed to reduce operating costs and to generate additional income in 2014 amounted to RUB 1,350 mln. The result of implementation of measures aimed to reduce financial costs totaled RUB 76 mln. The result of implementation of measures aimed to cut costs in the field of technical re-equipment, reconstruction and new construction in 2014 amounted to RUB 1,260 mln.

Breakdown of the cost managment program executed in 2014, %

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Under the development strategy of the grid complex of Russia, the Company should achieve the target indicator of decrease in operating expenses by at least 15% by 2017, considering the level of inflation in 2012 counting per unit of electrical equipment service. The business plan for 2014-2018 was developed under condition of advancing rate of achievement of target indicators.

EBITDA

In 2014, EBITDA characterizing cash flow generated by the Company before taxes and interest, decreased by RUB 1,072 mln, or 9.5% y-o-y to RUB 10,207 mln. Its decline was due to the increase in negative balance of other income and expenses without interest payable and interest receivable, and expenses on creation of provision for impairment of investments (by RUB 3,776 mln) primarily as a result of negative balance on provisions for other contingent liabilities.

The grounds for exclusion of expenses on creation of provision for impairment of investments were that the accrual of provision did not entail any diversion of funds, did not require any sources of funding, and thus formed “paper” losses of the Company. The source of compensation of the losses received in 2014 as a result of impairment of investments placed in Bank Tavrichesky will be recovered annually for 20 years.

However, the growth of revenue by 12.1% y-o-y, or RUB 4,820 mln exceeded the growth of cost net of depreciation accounting for 7.5% y-o-y, or RUB 2,116 mln. As a result, gross profit before depreciation (profit generated as a difference of revenue and cost, net of depreciation) increased to a lesser extent compared to the increase in the negative balance of other income and expenses without interest payable and interest receivable, and totaled RUB 2,704 mln, or 23.0% y-o-y.

Formation of EBITDA in 2014, RUB mln

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¹ Without interest payable and interest receivable, expenses on provision for impairment of investments.

EBITDA change bridge, RUB mln

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Balance sheet

This section was formed on the basis of the balance sheets as at 31 December 2012, 2013 and 2014 (as part of the audited annual accounting statements of Lenenergo for 2014 based on retrospective).

Balance sheet total (i.e. the sum of the assets in the Company’s possession) at the end of 2014 amounted to RUB 164,769 mln. In comparison with the balance sheet as at 31 December 2013 the amount of the Company’s assets and sources of their formation increased by RUB 16,650 mln, or 11.2% y-o-y.

Since Lenenergo is an enterprise related to capital-intensive industry, the structure of its liabilities under the balance sheet is characterized by a great volume of borrowings, and the assets structure is dominated by non-current assets.

At the end of 2014 the balance sheet was characterized by the following features:

• high share of non-current assets for 88.7% of balance sheet total;
• prevalence in the structure of current assets of the sum of receivables for 67.5% of working capital and 7.6% of balance sheet total, however cash and short-term investments in aggregate account for 22.% of current assets and 2.6% of balance sheet total;
• significant amount of borrowings (long-term and short-term credits and loans) for 30.2% of balance sheet total and 53.3% of total liabilities;
• significant share in the structure of sources for assets formation of equity capital and long-term liabilities (43.4% and 33.5% of balance sheet total, respectively) generated mainly due to the long-term borrowings.

Assets structure, %

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СLiabilities structure, %

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Non-current assets

As at 31 December 2014, non-current assets amounted to RUB 146,223 mln, or 88.7% of balance sheet total. Property and equipment (including construction in progress and advances for capital construction and acquisition of property and equipment) for the total amount of RUB 139,479 accounted for 84.7% of total assets and 95.4% of non-current assets.

The increase in non-current assets was due to expansion of the investment program, and commissioning and reconstruction of property and equipment during its implementation.

Long-term investments in the amount of RUB 2,605 mln accounted for 1.8% of non-current assets. Their growth by RUB 1,707 mln or 1.0% y-o-y was mainly caused by reflection of some debt investments as at 31 December 2014 in the amount of RUB 1,703.7 mln in the structure of long-term investments in accordance with accounting standards. Thus, RUB 3.5 mln were contributions to the authorized capital of PJSC FIC (the company was established on 18 November 2014 and registered by the decision of Interregional Inspection of the Federal Tax Service across St. Petersburg #15 on 21 November 2014. Its founders are JSC Research Center of UES (99%) and Lenenergo (1%)). In addition, long-term financial investments included the cost of shares of several issuers in total of RUB 898 mln (including provision for impairment of investments), among them CJSC Lenenergospetsremont, CJSC Kurortenergo, CJSC Tsarskoselskaya Energy Company, etc.

As at 31 December 2014 deferred tax assets in the amount of RUB 3,343 mln, or 2.0% of balance sheet total and other non-current assets in the amount of RUB 567 mln accounting for 0.3% of the Company’s assets were reflected in the balance sheet. This line of the balance sheet reflects a number of expenses relating to future periods (the cost of connection to networks of other organizations, insurance contracts, non-exclusive rights to use databases, license agreements, etc.).

Current assets

Current assets at the end of 2014 totaled RUB 18,547 mln, or 11.3% of balance sheet total, having decreased by RUB 2,051 mln, or 10.0% y-o-y.

The main share in the structure of current assets by the end of 2014 accounted for receivables — 67.5% of current assets, or RUB 12,520 mln.

Cash and short-term investments (bank deposits) in aggregate amount to RUB 4,223 mln and rank second in the structure of current assets accounting for 22.8% of their value. The most liquid assets include funds from additional issue and other funds to finance the investment and operating activities net of the provision for impairment of investments established in connection with the problems of Bank Tavrichesky.

Moreover, current assets reflect stocks, VAT on purchased assets and other current assets (VAT on advances for capital construction and acquisition of property and equipment).

Decrease in current assets by the end of 2014 was generally due to the decline in short-term investments (by RUB 3,228 mln) and cash (by RUB 2,204 mln which were used to finance the Company’s activities), whereas all other components of current assets grew to a lesser extent. Reduction of short-term investments was influenced by creation of provision for impairment of investments in Bank Tavrichesky.

Capital and reserves

Own sources of the Company’s assets in the amount of RUB 71,441 mln accounted for 43.4% of balance sheet total. The main share was revaluation of non-current assets (71.8 % of equity funds). Additional capital accounted for 19.7%, authorized capital — 2.5%, and total financial result (of previous years and the reporting year) — 5.8% of Section III Capital and Reserves.

Compared to 2013, capital and reserves dropped by RUB 4,900 mln, or 6.4 %, due to receiving by results of the reporting year of considerable uncovered loss totaling RUB 7,968 mln. The positive impact on the value of capital and reserves was rendered by records of the results of additional issue of shares resulting in the growth of the authorized and additional capital of the Company.

In 2014, there were no changes in the amount of reserve capital, and funds of the created reserve fund were not used in the reporting year.

In accordance with the Charter “the Company forms the reserve fund in the amount of fifteen (15) percent of the authorized capital. The amount of obligatory annual deductions to the reserve fund is not less than five (5) percent of net profit until the reserve fund reaches the established size. The reserve fund is intended to cover the Company’s losses in case of lack of other funds. The reserve fund cannot be used for other purposes”.

The size of reserve capital of Lenenergo at the end of 2014 amounts to RUB 184 mln, or 10.5% of the authorized capital, and will be brought to the size required by the Charter (15% of the authorized capital, or RUB 263 mln) through payments to the reserve capital of RUB 79 mln as a result of distribution of the net profit received by the Company in subsequent years (in 2014 Lenenergo received uncovered loss).

Liabilities

Liabilities of Lenenergo (sections IV and V of the balance sheet net of deferred tax liabilities, deferred income and estimated liabilities) as at 31 December 2014 amounted to RUB 85,553 mln, including:

• long-term payables for RUB 3,213 mln, or 3.8% of liabilities;
• long-term borrowings for RUB 48,188 mln (56.3%), including debt on the bonded loan placed in 2012, and liabilities on the par value on the exchange bonds of series BO-01 placed in Q2 2013 for the total amount of RUB 6,000 mln;
• short-term borrowings (including debt on accrued but unpaid interest) for RUB 1,581 mln (1.8%);
• short-term payables payable for RUB 32,570 mln (38.1%).

Non-current liabilities (section IV of the balance sheet) were the second largest after equity capital, the source of assets accounting for 32.2% of balance sheet total. They were generated for 87.3% due to the long-term borrowings in total amount of RUB 48,188 mln.

The increase in non-current liabilities by RUB 21,326 mln, or 62.9 % y-o-y was primarily due to the growth of debt on long-term borrowings.

Current liabilities accounted for 23.1% of the sources of assets. The greatest share in current liabilities accounted for short-term payables — 85.4% of total current liabilities, and 19.8% of all funding sources. Short-term payables decreased by RUB 348 mln, or 1.1% y-o-y.

As at 31 December 2014 (1.0% of all sources of assets) the following items were reflected in the structure of short-term borrowings:

• the amount of debt on long-term borrowings transferred into current liabilities in accordance with the accounting requirements (as before their repayment there is less than one year) for RUB 1,400 mln;
• accrued interest on the long-term and short-term borrowings in the amount of RUB 181 mln.

Short-term borrowings decreased by RUB 2,389 mln, or 60.2% relative to 31 December 2013 due to reduction of debt on the loans and credits included in current liabilities as at 31 December 2014.

However, the overall amount of debt (debt on long-term and short-term loans and credits, including arrears of interest) increased by RUB 16,393 mln, 49.1% y-o-y. Total payables (long-term and short-term) as at 31 December 2014 totaled RUB 35,784 mln, having increased by RUB 959 mln, or 2.8% y-o-y (see above).

Analysis of changes in receivables and payables

Total receivables of Lenenergo at the beginning of the reporting period amounted to RUB 13,887 mln, and as at 31.12.2013 — RUB 10,777 mln. Receivables net of provision for bad debts as at 31.12.2014 totaled RUB 12,520 mln, and as at 31.12.2013 — RUB 9,782 mln.

As at 31.12.2014 the provision for bad debts in the amount of RUB 1,367 mln was formed, including for doubtful receivables in the amount of RUB 1,367 mln (reflected in the balance sheet as reduction of receivables); advances for acquisition of plant and equipment amounted to RUB 114 mln (reflected in the balance sheet as non-current assets and as reduction of debt on prepayments).

The Company deals with pre-trial and judicial settlement of disagreements with contractors.

Throughout the year, uncollectible receivables in the amount of RUB 142 mln were written-off.

In 2014, payables increased by RUB 959 mln compared to 2013, and as at 31.12.2014 amounted to RUB 35,784 mln. The changes were as follows:

• Debt on suppliers and contractors grew by RUB 5,009 mln in connection with the increase of arrears to construction companies by RUB 2,690 mln. Thus, arrears to repair companies decreased by RUB 72 mln.
• Debt on advances received were RUB 1,459 mln below. Prepayments for technological connection account for 99.4% of the debt.
• Debt on wages payable to employees dropped by RUB 8 mln.
• Debt on taxes and fees decreased by RUB 417 mln.

Debt under the items “debt on wages payable to employees” and “debt on taxes and fees” is current.

Overdue accounts payable of Lenenergo in 2014 amounted to RUB 1,953 mln.

Overdue payables are attributable to prepayments on the contracts for technological connection to electric networks. Violation of the terms of performance of obligations by the Company was due to the fact that the connection of consumers to electric networks is carried out in conditions of shortage of capacity in St. Petersburg and the Leningrad Region. In addition, the violation of the terms of performance of obligations was related to the long delay in the approval of permits for construction of power grid facilities and in some cases — to unfair execution of works on construction of grid facilities by the contractors engaged by the Company for implementation of activities on technological connection of subscribers, and non-fulfilment by subscribers of the specifications for connection.

Lenenergo on a continuous basis carries out work to reduce the amount of accumulated obligations under the contracts on technological connection to electric networks, including:

• inventory of contracts and optimization of specifications to them;
• analysis and preparation of measures for optimization of the suspensive conditions on the contracts, work with applicants in case of violation of their obligations under the contracts;
• preparation and direction of notifications and supplementary agreements in order to minimize the risks arising from delayed performance of obligations on the connection of applicants.

Financial analysis

Dynamics of net assets, total assets and authorized capital

As a result of the deterioration of the financial result received by the end of 2014, the amount of net assets of Lenenergo reduced y-o-y. At the same time, continuing significant excess (at 40.8-fold) of net assets over the authorized capital fully meets the requirements of normative acts to the value of net assets and can be regarded as the main factor of stability of the Company’s financial position in the present conditions and for the future.

Dynamics of net assets to total assets, RUB mln

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At the year-end, the share of equity capital accounted for 43.4% of balance sheet total of Lenenergo. A significant share of equity on the balance sheet indicates a relatively high level of financial independence of the Company, despite the growth of liabilities. Thereto, the most stable liabilities (equity capital and non-current liabilities) together account for 76.9% of balance sheet total.

Deterioration of financial stability (equity-assets ratio, debt to equity ratio, Debt/EBITDA) relative to 2013 was due to the increase in arrears of loans and credits attracted mainly to finance the investment program at simultaneous deterioration of the financial result.

Profitability and business activity

Profitability indicators

In 2014, the profitability indicators of Lenenergo (except EBITDA margin) take negative values due to the loss of Company’s activities in 2014.

The decrease in EBITDA margin, reflecting the amount of EBITDA per each ruble of revenue earned by the Company in 2014, due to the mixed changes in EBITDA (decrease) and revenue (growth). ROE reflects the amount of profit earned by its owners per each ruble invested in the Company.

Its decrease y-o-y was also attributable to the deterioration of financial results of Lenenergo.

The main negative impact on profitability in 2014 was provided by creation of provision for impairment of investments in connection with the problems of Bank Tavrichesky and expenses on creation of provision for estimated liabilities on existing disagreements with third-party grid organizations.

Indicators of business activity

Receivables turnover reflects the rate at which buyers (debtors) pay off their obligations to the Company. By the end of 2014 it was 3.57 times and decreased by 0.51 p.p. y-o-y. Thus, payables turnover increased by 0.05 p.p.

The length of payables turnover characterizes the average length of a grace period provided to the Company by its suppliers. In 2014, the length of receivables turnover was significantly lower than the length of payables turnover.

Total receivables and payables ratio grew by 0.07 p.p. by the end of 2014 due to the excess of the growth rate of receivables relative to the growth rate of payables.

At the same time, in 2014 the indicator characterizing most liquid receivables and payables ratio did not essentially change and the increase amounted to only 0.02 p.p.

Liquidity and solvency

The values of cash, quick and current ratios by the end of 2014 reduced. This was due to the decrease in the amount of current assets at a simultaneous increase of current liabilities.

In terms of economic instability in the country and the uncertainty in the financial markets achievement by Lenenergo of positive results from its operating activities and increase of its investment appeal is becoming particularly urgent. This comprises:

• development and implementation of the costs management program;
• tender procedures for the assignment of the President of the Russian Federation on reduction of expenses on acquisition of goods, work and services per unit of production by at least 10% a year for three years in real terms in the prices of 2010;
• annual development and implementation of the Program of energy saving and increase of power efficiency;
• implementation of the Company’s obligations on technological connection of subscribers;
• formation of the actual prices for services on other activities;
• negotiations with the aim of attracting additional financing on favorable terms, implementation of work on the optimization of the credit portfolio, including reducing the cost of attracted credits;
• development and implementation of a set of anti-crisis measures aimed at ensuring break-even activity on electricity transmission and improving performance indicators as a whole;
• the Company has approved and executed the innovative development program for 2011-2016 to ensure modernization and technological development of the Company, reliability of power supply and increase of its economic efficiency.

Credit policy

For the purpose of financing the investment program and refinancing its debt the Company applies all available methods to attract borrowings: bank loans and bonds (corporate and exchange). The decisions on attraction of extra financial resources are based on the principle of providing lower cost of funding along with increased terms of borrowings.

For the purpose of financing the investment program and refinancing its debt the Company applies all available methods to attract borrowings: bank loans and bonds (corporate and exchange). The decisions on attraction of extra financial resources are based on the principle of providing lower cost of funding along with increased terms of borrowings.

Lenenergo activities in the field of attraction of credit resources are carried out in accordance with the Regulations on credit policy approved by the Board of Directors (Minutes #8 of 11 October 2013), the limits of borrowings’ cost parameters approved by the Board of Directors and the approved Business plan. In accordance with the specified documents, the Company has introduced the system of limits on the amount of borrowings enabling to forecast the solvency of the Company, and the powers of management for making financial decisions in the field of crediting have been established.

After calculation of the compliance of Lenenergo debt position to the limits of the debt position established in the Regulations on credit policy, the group of solvency (A, B or C) is defined, that also affects the powers of management for making financial decisions in the field of crediting. The limits of borrowings’ cost parameters are defined based on the refinancing rate, the term of loan and availability of collateral for the date of borrowings.

In 2012-2014, there has been a steady growth both of the Company’s debt (its arrears of loans and credits) and net debt. Borrowings were attracted to finance the Company’s investment activity, and for refinancing.

Net debt, RUB mln

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By the end of 2014, Debt/EBITDA increased by 1.92 y-o-y to 4.88 due to the increase in arrears of loans and credits, while the value of EBITDA declined in the terms of deteriorating financial results of the Company.

Debt, RUB mln

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Net debt/EBITDA also increased compared with the beginning of the year due to the increase in the amount of net debt (driven by the growth of debt at a simultaneous decrease in the most liquid assets), while EBITDA reduced in 2014.

Debt maturity profile, RUB mln

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Attracted funds profile, RUB mln

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Dynamics of the average weighted interest rate on borrowings by the end of 2014 was characterized by the tendency to increase in terms of the rates growth under existing contracts and deterioration of the situation on the capital market in general.

Loan portfolio changes on the sum of principal debt, RUB mln

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Accrued and paid interest bridge, RUB mln

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Main bank creditors of Lenenergo, %

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In 2014, the increase in the loan portfolio was driven by the growth of borrowings attracted to finance investment activities.

In November 2009, the international rating agency Moody’s assigned Lenenergo long-term credit rating on the international scale at Ba2 (stable), and on the national scale — at Aa2.ru (stable). On 7 February 2014, the rating agency affirmed the ratings of Rosseti and Lenenergo and other rated companies of the Group with stable outlook. This stand-alone credit profile of the Company is estimated by the Agency at Ba3, and one level to the rating the agency gives for the probability of providing the Company timely support from the state through its primary shareholder. On 3 April 2014, the agency despite the revision of outlooks on the ratings of many Russian grid companies affirmed the credit ratings of Lenenergo on the same level at Ba2 and preserved the stable outlook. In its reports for 2014, the agency notes the strategic importance of the Company’s presence in the region. In addition, Moody’s views positively the prospects of development of the Company and the ability of Lenenergo to preserve financial stability in the volatile environment.

Against the backdrop of escalation of the situation in Ukraine, deterioration of macroeconomic indicators, a sharp drop in oil prices and devaluation of the national currency, Moody’s has repeatedly revised the credit ratings of the Russian Federation and major Russian companies in 2014. On 23 December 2014 Moody’s put the credit ratings of Lenenergo and other 44 Russian non-financial organizations on review for downgrade. This decision was made following the lowering by Moody’s of the ceiling on non-sovereign ratings of the Russian Federation by one notch.

However, stand-alone credit profile of Lenenergo has remained at the same level.

In addition, on 27 March 2014 Standard & Poor’s has assigned Rosseti long-term credit rating of BBB- on the international scale and ruAAA on the national scale.

At the same time, according to the Ministry of Finance of the Russian Federation, the outlook of the sovereign credit rating assigned by Moody’s is unduly conservative, since the pessimism of Moody’s forecasts surpasses the estimates of all other financial organizations (including IMF, World Bank and international banks), and provided information about the anti-crisis decisions of the Government of the Russian Federation was not considered by Moody’s.

Events after the reporting date

On 25 March 2015, Moody’s confirmed the credit ratings of Lenenergo at Ba2 on the international scale, Aa2.Ru on the national scale, and probability of default — Ba2-PD. The negative outlook on the rating of Lenenergo is caused by a similar outlook on the sovereign rating of the Russian Federation, as well as by generally pessimistic estimates of the agency regarding the economic situation in Russia in short- and medium-term.

Forecast of financial results

The forecast of financial results of Lenenergo is based on the financial-economic model of the Company’s development in 2015-2019 (formed at the time of drafting the Annual Report).

Scenario conditions for the financial-economic model of the Company’s development in 2015-2019

• Mid-annual growths of joint-operations tariffs for electricity transmission in 2016-2019 are formed based on the growths of tariffs for different groups of customers. Thus, the growths of electricity transmission tariffs for the consumer group “Population” for 2016-2019 are adopted in accordance with the social and economic development of the Russian Federation in 2015 and the planning period of 2016 and 2017, developed by the Ministry of economic development. The growths of electricity transmission tariffs for the consumer group “Other” in 2016-2019 are formed on the basis of forecasted models of regulators with regard to excess of the growth levels of electricity transmission tariffs set by the Government of the Russian Federation which is acceptable for St. Petersburg and the Leningrad Region in accordance with the clause stipulated by the Forecast of social and economic development of Russia for 2015 and the planned period of 2016 and 2017;
• Electricity losses are planned with regard to the decrease in relative size of electricity losses by 2017 from the actual indicators of 2012;
• Decrease in Operating expenses is planned with regard to inflation concerning the level of 2012 per unit of electrical equipment service (in accordance with the development Strategy of the power grid complex of the Russian Federation approved by Decree of the Government of the Russian Federation of 03.04.2013, #511-R);
• Dividends are planned in the amount of at least 25% of the planned Net profit (under RAS);
• The investment program is formed with regard to the financial and economic position of the Company;
• Specific investment costs are planned with regard to the decrease by 30% till 2017 concerning the level of 2012 (in RUB per physical unit (km, MVA)) according to the development Strategy of the power grid complex of the Russian Federation approved by Decree of the Government of the Russian Federation of 03.04.2013, #511-R, and the long-term development program of the power grid complex.

In general, when making the forecast of its performance the Company considered the impact of adverse macroeconomic conditions and liquidity shortage at its basic bank, crisis phenomena in the assessment of current and forecasted demand for services, business slowdown and fall in investment activity in the regions of its presence, and tariff and balance decisions approved by the regional regulators for 2015.

Key forecasted financials

Indicator	Unit	2014	2015	2016	2017	2018	2019	2019/2014, % (unless otherwise specified)	For reference: formula
		Fact	Plan	Forecast	Forecast	Forecast	Forecast
Book value of assets	RUB mln	164,769	162,661	161,512	170,125	182,176	19, 401	18.0	Line 1600 f.1
Equity capital	RUB mln	71,441	65,320	70,762	77,198	86,461	96,936	35.7	Line 1300 of BS
Net assets	RUB mln	71,441	65,900	70,762	77,198	86,461	96,936	35.7	Order #84n of 28 August 2014 of the Ministry of Finance of Russia
Debt for the period end	RUB mln	49,769	49,854	49,045	50,887	52,416	53,889	8.3	Line 1410 + Line 1510
Net debt	RUB mln	45,546	47,837	47,855	50,679	52,191	53,527	17.5	Line 1410 + Line 1510 —Line 1240 — Line 1250 (f.1)
Sales revenue, including:	RUB mln	44,722	44,159	58,735	67,396	77,467	85,709	91.6	Line 2110 of PLS
from electricity transmission	RUB mln	36,261	40,330	50,264	60,092	70,568	80,882	123.1	—
from technological connections	RUB mln	8,249	3,643	8,278	7,103	6,692	4,616	–44.0	—
from other services	RUB mln	212	186	193	201	207	211	–0.2	—
Cost	RUB mln	39,257	44,656	47,175	51,340	55,922	60,018	52.9	Line 2120 of PLS
Sales profit	RUB mln	5,466	–497	11,560	16,055	21,545	25,691	370.1	Line 2200 (f. 2)
Profit before tax	RUB mln	–8,793	–6,121	7,695	10,708	14,978	17,568	299.8	Line 2300 (f. 2)
Net profit	RUB mln	–7,968	–6,121	5,443	7,796	11,212	13,278	266.6	Line 2400 (f. 2)
The forecast of EBITDA starting from 2015 is calculated as Net profit + Profit tax + Depreciation + Interest payable.EBITDA	RUB mln	10,207	8,356	23,674	27,707	34,190	39,310	285.1	Net profit + Profit tax + Depreciation + Interest payable — Interest receivable + Creation of provision for impairment of debt investments
The forecast of EBITDA starting from 2015 is calculated as Net profit + Profit tax + Depreciation + Interest payable.EBITDA margin	%	22.8	18.9	40.3	41.1	44.1	45.9	+23.0 p.p.	(EBITDA/Sales revenue (Line 2110 f. 2)) x 100%
The forecast of EBITDA starting from 2015 is calculated as Net profit + Profit tax + Depreciation + Interest payable.Net debt/EBITDA	—	4.46	5.72	2.02	1.83	1.53	1.36	–3.10 p.p.	(Line 1410 + Line 1510 — Line 1240 — Line 1250 f.1)/EBITDA
The forecast of EBITDA starting from 2015 is calculated as Net profit + Profit tax + Depreciation + Interest payable.Debt/EBITDA	—	4.88	5.97	2.07	1.84	1.53	1.37	–3.51 p.	(Line 1410 f.1 + Line 1510 f.1) / EBITDA
ROE	%	–10.78	–8.95	8.00	10.54	13.70	14.48	+25.26 p.p.	[Line 2400 f.2/((Line 1300 f.1 report +Line 1300 f.1 base)/2)] x 100%
ROTA on profit before tax	%	–5.62	–3.74	4.75	6.46	8.50	9.33	+14.95 p.p.	[Line 2300 f.2/((Line 1600 f.1 report+ Line 1600 f.1 base)/2)] x 100%
Cash ratio	—	0.111	0.035	0.022	0.004	0.004	0.010	–0.101 p.p.	(Line 1240 f.1 + Line 1250 f.1) / Line 1500 f.1
Quick ratio	—	0.42	0.23	0.20	0.20	0.19	0.29	–0.14 p.p.	(Line 1260 f.1+ Line 1250 f.1+ Line 1240 f.1 + Line 1232 f.1)/Line 1500 f.1
Current ratio	—	0.49	0.27	0.24	0.24	0.23	0.34	–0.15 p.p.	Line 1200 f.1/Line 1500 f.1
Equity-assets ratio	—	0.43	0.40	0.44	0.45	0.47	0.50	+0.07 p.p.	Line 1300 f.1/Line 1700 f.1
Working capital financed by equity to total assets ratio	—	–1.10	–2.80	–3.22	–3.12	–3.38	–1.98	–0.89 p.p.	Current assets — Receivables over 12 months — Current liabilities)/ Current assets (Line 1200 f.1 — Line 1231 f.1 — Line 1500 f.1)/Line 1200 f. 1
Debt to equity ratio	—	0.8	0.7	0.8	0.8	0.9	1.0	+0.2 p.p.	(Line 1300) / (Line 1700) (f.1)
Receivables and payables growth rates ratio	—	1.29	0.84	1.00	1.00	0.97	1.02	–0.27 p.p.	GRR= Line 1230 f.1 report/Line 1230 f. 1 base GRP= Line 1520 f. 1 report/Line 1520 f. base GRR / GRP= (Line 1230 f.1 report/Line 1230 f.1 base)/ (Line 1520 f.1 report/ Line 1520 f.1 base)
Total receivables and payables ratio	—	0.35	0.30	0.30	0.30	0.29	0.30	–0.05 p.p.	Line 1230/ (Line 1520 + Line 1450 of BS)
Most liquid receivables and payables ratio	—	0.51	0.46	0.48	0.46	0.43	0.45	–0.06 p.p.	(Line 123201 f.1+ Line 123206 f.1)/ (Line 1521 f.1+ Line 1528 f.1)
Leverage	%	41.1	43.3	40.9	39.7	37.7	35.7	–5.3 p.p.	(Line 1410 + Line 1510) / (Line 1410 + Line 1510 + Line 1300) (f.1)

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By 2019, Lenenergo plans to improve its financial position as evidenced by the positive dynamics of the majority of key performance indicators

The revenue growth in 2019 compared to 2014 is expected at the level of 91.6% (1.92 times), substantially outpacing the growth rates of cost (1.53 times). A significant growth of revenue from electricity transmission in 2014-2019 (in 2.23 times) is thus predicted with a decrease in revenue from technological connections (44.0%). In 2014-2019, the share of technological connections in revenue is estimated to drop from 18.4% in 2014 to 5.4% in 2019.

Key performace indicators according to the long-term financial-economic model of the Company’s development, RUB mln



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In the next five years, a gradual increase in EBITDA to RUB 39,310 mln in 2019 is forecasted with a parallel growth of EBITDA margin to 45.9% in 2019, which positively characterizes the financial position and performance results of the Company.

Thus, the share of net profit in the structure of EBITDA at the end of 2019 will increase to 33.8% (by the end of 2014 financial result of the Company was negative and has had a downward effect on the value of EBITDA), which is a positive feature of the Company’s financial position.

Revenue by core types of activity, RUB mln



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Dynamics of EBITDA and EBITDA margin, RUB mln



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Significant improvement of financial results by 2019 is due to the essential growth of revenue from electricity transmission. Equity capital will also increase by 35.7%, and in 2019 ROE will reach its maximum value of 14.48% throughout 2014-2019.

Dynamics of ROE is characterized by a steady growth trend throughout the considered period, and since 2016 the value of equity will also grow.

Dynamics of equity capitaland ROE, RUB mln



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The indicators of Debt to equity ratio (total liabilities) for 2014-2019 are slightly below 1, and Equity-assets ratio is less than 0.5, however exceeding the value traditionally recommended in world practice, at the level of 0.4 (40%). By the end of the reporting period Equity-assets ratio will improve and in 2019 it will reach 0.50 p.

Dynamics of Debt to equity ratio, RUB mln



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The range of changes in the Company’s loan portfolio for 2014-2019 is insignificant. By the end of 2019, the growth in debt to the level of 2014 is 8.3%. In 2015-019, credit resources are involved for implementation of the investment program and refinancing.

Since the dynamics of EBITDA in 2015-2019 is characterized by a steady growth trend (though the volume of the loan portfolio changes to a lesser extent) starting from 2016, Debt/EBITDA shall not exceed 3.0 and by 2019 it decreases down to 1.37 p.

Dynamics of debt and Debt/EBITDA, RUB mln



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The dynamics of Leverage in 2019 is characterized by a downward trend in terms of the advancing growth of equity capital to the debt.

Net assets for 2014-2019 remain within the recommended standard values, namely at the level considerably exceeding the amount of the authorized capital.

Dynamics of net and total assets, RUB mln



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Overall, the financial position of Lenenergo in 2019 compared to 2014 will improve, including due to the positive financial results from electricity transmission activities in the amount of RUB 9,616 mln against the loss from this type of activity received by the end of 2014.