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Federal Grid Company

Federal Grid Company. Capital Markets Day: Presentation of 2010 Results. May 11 th , 2011 Moscow, Russia. Andrey Kazachenkov Deputy Chairman of the Management Board. Disclaimer.

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Federal Grid Company

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  1. Federal Grid Company Capital Markets Day: Presentation of 2010 Results May 11th, 2011 Moscow, Russia Andrey Kazachenkov Deputy Chairman of the Management Board

  2. 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.

  3. On December 28, 2010 Federal Tariff Service approved tariffs based on return on invested capital methodology • for five-year period (2010 – 2014) • On April 13, 2011 new tariffs were approved for 2-4Q 2011 – 2014 calculated in accordance with tariff “smoothing” approach On December 16, 2010 the Company’s Board of Directors approved RUR 952.4 bln2010-2014 Investment Program 2010 Results and the Latest 2011 News (1) • On December 16, 2010the Board of Directors approved revised version of Regulation on Dividend Policy based on transparent method of dividend calculations RAB – Regulation In 2010 the Company undertook the largest in Russian market history public issueof RUR denominated corporate bonds for the total amount of RUR 50 bln Investment Program Approval • On March 28, 2011 Federal Grid Company listed on the Main Market of the London Stock Exchange and started its DRs trading Dividend Policy Approval • On February 8, 2011 the Board of Directors approved Regulation on the Company’s Option Program Largest in Russian Market History Bond Public Issue Depository Receipts Listing on London Stock Exchange Launch of the Option Program

  4. 2010 Investment Program financingtotaled RUR 67.03 bln(98% of the plan); • The 2010 Investment Program was disbursed at RUR 131.62bln(95% of the plan). • As of May 11, 2011, all Federal Grid Company’s generating assets are transferred in exchange for INTER RAO UES’ shares (excluding UES GruzRosenergo’ shares); • Under transaction results, the Company’s share does not exceed 20%, the Federal Grid Company Group share does not exceed 25% of INTER RAO UES’ charter capital. 2010 Results and the Latest 2011 News (2) Federal Grid successfully delivered on all key objectives of its 2010 Business Plan Investment Program Transfer of the Company’s and Power Industry Index – Federal Grid Company’s assets in exchange for INTER RAO UES’ shares The Company has moved to a faster preparation of its RAS statements; IFRS consolidated statements were prepared for the first time according to UK Disclosure Transparency Rulesand received an unqualified auditor’ report. Successful delivery on the2010 Business Plan • The Cost Reduction Program approved by the Board of Directors was realized; • In 2010, the total effect of cost reduction was RUR 2.6 bln; • In 2010, the cumulative energy efficient effect from undertaken measures stood at 291.64 mln kWh. Preparation of Financial Statements Cost Reduction Program

  5. Company at a Glance • Key messages • The largest publicly traded electricity transmission company in the world (based on the length of transmission lines and transformer capacity); • A leading Russian blue chip company and the largest Russian utility company (based on market capitalization); • Guaranteed return on investment following the transition to the Regulatory Asset Base (RAB) tariff system; • Realization of an ambitious investment program focused on grid infrastructure development; • Developing and implementing elements of the smart grid, applying innovative technologies to realize investment projects; • Focusing on greater operational efficiencyand capital structure optimization. Regions of operations * Including the reversal of impairment provisions for property, plant and equipment and other non-cash items Shareholders Structure: Market Capitalization: USD 16.8bln(as of 10.05.2011) Russian Federation: 79.48% Free Float : 20.52%

  6. During the 2010, the RAB-regulation transition period was successfully extended to five years. 2010-2014 tariffs for the Company were approved. RAB-regulation Transitioning 2010-2012 RAB tariff parameters for Federal Grid Company were approved on January 1, 2010 As of April 1st, 2011, the Russian FTS determined RAB-regulation parameters for the Q2-Q4 2011–2014 period, including the application of a tariff smoothing mechanism. Electricity transmission tariff (grid maintenance), effective as of 01.04.2011 5

  7. RAB-regulation timeline 5-year regulatory period* Return on initially invested capital: 3.9% Return on initially invested capital: 5.2% Return on initially invested capital: 6.5% Return on initially invested capital: 7.8% Return on initially invested capital: 9.1% 2011 26.4% **tariff growth 2012 26.4% tariff growth 2013 26.3% tariff growth 2010 51.1%tariff growth 2014 26.3% tariff growth Return on new invested capital: 10% p.a. Return on new invested capital: 11% p.a. • As of January 1st, 2010, the initial base of invested capital was RUR 647.6 bln; • Regulatory rate of operating costs decrease set by FTS is 2% p.a. *Approved by the Government of the Russian Federation ** 32.91% for Q1 2011, 26.4% for Q2-Q4 2011 Source: The Russian Federal Tariff Service

  8. Revenue breakdown and rate of growth • Operating cost structure and change 7

  9. Cash Flows

  10. 2009-2010 Financial Performance P&L Indicators, RUR mln 62.6% 29.4% 58.9% 17,169 Revenues Adj. EBITDA Adj. profit Profitability rates ratios Adj. EBITDA margin Adj. profit margin Adj. assets margin

  11. Cost Optimization • Key 2010 Results of the Company Costs Reduction Program: • Activities carried out within the Costs Reduction Program enabled Federal Grid Company to reduce grid complex operating costs by RUR 2.6 bln (100%); • The Company accomplished measures to reduce losses in the UNEG in full; • The 2010 total energy saving effect:291.64 mln kWh. Cost saving based on the results of Costs Reduction Program in 2010 Reduction of energy losses in the UNEG, 5% Stock optimization, 0.5% Raw materials and fuel, 9% General and administrative expenses, 45% Repairs, 40% 10

  12. Credit Portfolio and Liquidity • Debt/ AdjustedEBITDA = 0.85 Credit Rating Bond Portfolio 2010 BBB Baa2 Credit Potential • Untapped credit lines total RUR 65 bln • On 28.04.2011, the Company’s Board of Directors decided to offer bond issues up to RUR 125 bln 2009 2008 2007 2004 2006 2005 BBB BB+ BB+ B+ B B+ Baa2 Baa2 Baa2 Baa2 11

  13. 2010 Investment Program Implementation Target value: Not less than 90% 2,806 km 11,835 MVA Transformer capacity Transmission lines Investment Program Financing (VAT incl.) RUR bln Actual Plan

  14. 2010-2014 Investment Program Total 2010-2014 planned investments: RUR 952.4 bln Providing for NPP, HPP and HCP output (5,180 km; 10,936 MVA) Joint projects with regional administrations(1) (5,367 km; 10,890 MVA) Federal Programs(2) (4,808 km; 4,181 MVA) Other projects Enhancing the reliability of power supply for Moscow, St. Petersburg and Tyumen(980 km; 17,531 MVA) Backbone grids development(3) (5,367 km; 10,890 MVA) Technological connections (33 km; 2,577 MVA) Fixed assets renovation(10,468 km; 37,866 MVA) Innovations, energy efficiency and technological management improvement Excluding Moscow, St. Petersburg and Tyumen East Siberia – Pacific Ocean oil pipeline, Sochi Olympic Games, Vankor, Sayan, etc. Projects other than joint projects with regional administrations

  15. Key Investment Projects • 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 Transmission lines (220 kV, 330 kV, 500 kV and750 kV) Transmission lines and SSes Underground cable laying • Capacity provision of Novovoronezhskaya NPP-2 generating unit #1 (1,150 MW) • Commissioning date – 2012 • Construction of Zeyskaya HPP – Russian-Chinese border transmission line • Commissioning date – 2013 • Underground cabling in Moscow, St. Petersburg, Nizhny Novgorod • Construction of electricity supply facilities on Elginskoye coal deposit • Commissioning date – 2013 • Infrastructure for the 2012 APEC Summit in Vladivostok • Commissioning date – 2011 • Capacity provision of Boguchanskaya HPP start-up complex (1,000 MW) • Commissioning date – 2013 • Infrastructure for the 2014 Sochi Olympic Games • Commissioning date – 2012 • Transition from overhead lines to cable and construction of Skolkovo 220 KV substation • Commissioning date – 2012

  16. 2010-2014 Investment ProgramNew Construction Projects • 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 2010-2014 new construction projects 5,893 5,435 22,474 19,000 3,521 26,557 3,293 8,102 2,936 13,047 Transmission lines, km Transformer capacity, MVA 2010 2011 2012 2013 2014

  17. Smart Grid, the future of Russian Electricity Sector • Integrating all types of generation (including distributed generation) and all types of consumers (from households to large industrial enterprises) for situational management of demand for their services and active participation in energy system performance; • Real-time changes in parameters and grid topology that prevent accidents from happening in the system; • Enhancing market infrastructure opportunities by rendering a wide range of services (both for market entities and infrastructure); • Minimizing electricity loss, enhancingthe self-diagnostic and self-sealing system that complies with reliability and power quality terms; • Integrating power grid and information infrastructure for all-mode system management, accompanied by full information support. The smart grid is a leading-edge concept for the electricity grid, based on the desire to save energy and using breakthrough technologies and design. Micro-turbines and counter tank Transmission lines Generation and alternative energy sources Customers Intelligent grid element Intelligent grid Power transmission and storage (HCAB) Industrial plants 16

  18. Development of advanced technologies and equipment • Vyborg Transforming Complex: • Pilot project for the introduction of the static reactive-power compensator (STATCOM) with a capacity of ±50 MVar • Technological value: • Maximum transferred capacity to Finland increased by 20 MW; • Reduction in the number of technological failures at the VTC. • 500 kV Beskudnikovo Substation: • Pilot project for the introduction of the synchronized synchronous compensator (ASC) • ±100 MVar. • Technological value: • Ensuring reliable operation of TPP 22 and TPP 27 generators under SC in JSC Mosenergo’s 220 kV grid; • Stabilizing the voltage level at the 500 kV Beskudnikovo Substation. • The first stage of the Experimental Digital Substation put into pilot production at The Centre for Science and Technology of the Electricity Sector. • Primary purpose is the development of innovative technologies for their further deployment at electricity grid facilities. • Technological value: • The automated process reduces the risk of human failure on grid operations, and increases its reliability; • Advantages include: cost cutting, reduction in maintenance requirements and operating costs; • Deployment of this type of substations will significantly improve the reliability of power supply for the customers. 17

  19. Introduction of advanced technologies Multi-chamber discharge insulator for overhead transmission lines: This piece of equipment will help to increase reliability of power supply by reducing effects of lightning on the system, remove the need for lightning protection cables and reduce the cost of construction and maintenance of transmission lines. • Explosion-proof oil-immersed electrical equipment: • Technological value: • Reduces the damage to substations from fire caused by transformers; • Improves life expectancy of substations; • Helps to minimise financial losses from equipment and communication damage; • Helps to avoide the possibility of fire spreading to other buildings. New methods of crashing ice deposits and ice cover on wires and lightning protection cables for overhead transmission lines: The principal achieved effect wasupgradingoverhead transmission line reliability in areas of ice deposits and ice coating events. This will reduce outages 25% (the volume of non-transmitted electricity equals approximately 3,000 MWh for the UES). Mobile test complex based on magnetic explosion generators for testing the electric grid for lightning resistance. Key purpose – testing overhead transmission line facilities and SSes for lightning protection The development of overhead transmission line and SS lighting protection design will reduce the construction cost for lightning protection systems. 18

  20. Key Elements of the Company’s Financial Strategy Improving shareholder value Enhanced transparency on international financial markets Efficiently enhancing resource and asset use Meeting tariff regulation parameters Developing IR strategy Upgrading the liquidity management system Realization of stable tariff setting policy Upgrading shares and GDR markets liquidity Implementation of new financial instruments Implementation of a complex costs management system Realization of the Company’s dividend policy Maximizing FGC UES cash flow from subsidiary and affiliated companies and other activities Tax management Realization of the corporate credit policy Capital structure optimization Forming a common information management environment Implementing a complex risk management system Planning system improvement Optimizing accounting and reporting processes Reinforcing the Internal control system 19

  21. Federal Grid Company: a Russian Blue Chip Developed markets Emerging markets Source: MICEX, MSCI Barra • Unique position in the Russian energy sector • Leading public Russian company: • Market capitalization – USD 16.8 bln (as of 10.05.2011) • Free float – 20.52% • Included in MICEX, MICEX Large Cap & RTS indices • Foreign capital markets presence and potential investor base expansion: • Included in MSCI EM and MSCI Russia indices • GDR listing on the LSE (March 28th, 2011) • Significant potential revenue growth: • Transition to RAB regulation -> stable business model • Approved tariff growth: 2010 – 51%; 2011 – 26.4%; 2012 – 26.4%; 2013 – 26.3%; 2014 – 26.3% • Focus on reducing the cost of capital • Return on new invested capital2010-2012 -11%; 2013-2014 – 10% • Significant potential for credit portfolio increase -> further reduction in the weighted average cost of capital (WACC) • Fundamental growth potential - EV/RAB does not exceed 0.7 Source: Bloomberg, Thomson Reuters 20

  22. Contacts: Federal Grid Company 5A Akademika Chelomeya Street, Moscow, Russia, 117630 Investor Relations E-mail: ir@fsk-ees.ru

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