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August 10th, 2010
Federal Grid Companyof Unified Energy System
1H2010 RAS ResultsAndrey Kazachenkov, CFO
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Number of staff: 21,770
Federal Grid Company– a natural monopoly in electric power transmission, owns and operates the Unified National Electric Grid (UNEG) (220 kV and higher)
Over 121 thousand km of transmission lines and 797 substations, spanning 73 Russian regions
From January 1st , 2010, the Company transferred to a new tariff regulation system based on RAB methodology
Federal Grid Company: Overview
Russian Federation: 79.11%Free float: 20.89%
Regions covered by the Company
Key indicators 1H 2010
Revenues, RUR mln 55,925
Operating expenses,* RUR mln 37,836
Operating profit, RUR mln 20,499
EBITDA, RUR mln 35,336
Net profit, RUR mln 13,131
Electricity output from the UNEG, bln kWh 239
Electricity losses, bln kWh 11
Shareholder structure
1
Ticker symbol (MICEX): FEES
RUR 430.5 bln
Market capitalization (as of 05.08.2010)
* Including management expenses1
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1) As of January 1st, 2010 Federal Grid Company has operated under the tariff regulation system that uses the method of return on invested capital (RAB-regulation)
2) Technical service and repair functions were transferred from Glavsetservis UNEG to Federal Grid Company and the transition to fulfilling work using its own resources was completed
3) With the aim of adjusting the book value of PP&E to the level of the evaluated value of initial invested capital used by Federal Tariff Service (FTS) for setting RAB tariffs, a PP&E revaluation was carried out as of 01.01.2010, which led to an increase in PP&E depreciation costs
4) A transition was conducted to the capitalization of costs connected with investing activity
Significant Changes in the Company's Financials
2
Page 3
Key results for 1H 2010
*Including interest income
Financial indicators (excluding VAT), RUR mln 1H 2009 1H 2010 change, %
Revenues from operating activities, including: 41,209 55,925 35.7
Revenues from transmission services, including: 39,798 55,396 39.2
compensation for electricity losses 6,659 7,086 6.4
Revenues from technological connections 464 88 (4.3 times)
Other incomes* 38,767 51,370 32.5
EBITDA 24,812 35,336 42.4
Net profit (loss) 8,682 13,131 51.2
Federal Grid Company revenues for 1H 2010 increased 35.7% y-o-y, due to the transition to a new tariff regulation system usingthe method of return on invested capital, as of January 1st, 2010. The increase in other incomes in 1H 2010 is due mainlyto the reversal of allowance for doubtful accounts of LLC “Index of energy - FGC UES” and other counterparties. The main factordriving EBITDA growth was the increase in profit before taxes and the increase in amortization due to the commissioningof new capacity, as a result of implementing the Company’s investment program.
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Financial Results Performance
Indicator, RUR mln 1H 2009 1H 2010 change, % Comments
Revenues 41,209 55,925 35.7Transition to a new tariff regulation system using the method of return on invested capital, as of January 1st, 2010
Operating expenses 31,665 37,836 19.5Due to the commissioning of new capacity,exchange rates and amortization growth
Net profit 8,682 13,131 51.2Due to increases in the tariff component for financing sources for the investment program
Net Debt (38,752) (47,597) 22.8 Due to redeeming the bond issue in 1H 2010
EBITDA 24,812 35,336 42.4 Increase in profit before tax and amortization due to the commissioning of new capacity
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The increase in other incomes during 1H 2010 by RUR 12,603 mln y-o-y is primarily due to the disposalof promissory notes of JSC VTB Bank and the reversal of allowance for doubtful accounts of LLC “Index of energy -FGC UES” and other counterparties.
5
Other Income Structure
Indicator, RUR mln 1H 2009 1H 2010
Gain on the disposal of property and proprietary interests 32,838 37,263
Income on the reversal of reserves 1,473 9,883
Interest income on financial investments and bank accounts 3,748 2,914
Miscellaneous other income 708 1,310
Total other incomes 38,767 51,370
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Operating Expense Structure(operating activities)
6
* including administrative expenses
Indicator, RUR mln 1H 2009 1H 2010 change, %
Material expenses, including:
Raw and other materials
Purchased energy, fuel and water supply
including: compensation for electricity losses
Workwear
Operating work and services
including: repair services
12,942
88
6,933
6,853
58
5,863
5,013
10,269
516
7,209
7,003
118
2,426
1,807
-20.7
484.1
4.0
2.2
103.3
(58.6)
(63.9)
Amortization
Employee benefit expenses
Taxes and fees on operating expenses
General business expenses and services
Expenses on maintaining property
including: rent
insurance
Other operating expenses
Total operating expenses*
11,952
2,992
633
1,215
1,611
530
553
320
31,665
16,321
6,368
1,396
1,282
1,664
602
447
537
37,836
36.6
112.8
120.5
5.5
3.3
13.5
-19.3
67.8
19.5
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Significant Changes: Balance Sheet (1)
Indicator, RUR mln 01.01.2010 30.06.2010 Change, % Comments
ASSETS
Non-current assets, including: 523,702 560,924 7.1
PP&E 237,391 235,627 (0.7)
Construction-in-progress 216,530 243,653 12/5 Fulfillment of the investment program
Long-term financial investments 66,970 79,020 18.0Novation of zero-coupon promissory notes of Energo-Finance into interest-bearing promissory notes
Current assets, including: 222,602 196,247 (11.8)
Inventories, including. 2,428 4,472 84.2
Raw materials 2,262 3,680 62.7Increase in raw material purchases for the fulfillment of repairs with its own resources
Prepaid expenses 135 762 462.8 Conclusion of property insurance agreement
Accounts receivable (non-current), including:
20,493 6,572 (67.9) Novation of zero-coupon promissory notes of Energo-Finance into interest-bearing promissory notes
other debtors 20,307 6,384 (68.6)
Accounts receivable(current), including:
117,171 129,144 10.2Payment failure from customers, the reversal of allowance for doubtful accounts receivable
customers and clients 8,949 13,055 45.9
Short-term financial investments 69,128 42,016 (39.2)Decrease in the balance of bank accounts and promissory notes redemption
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Significant Changes: Balance Sheet (2)
Indicator, RUR mln 01.01.2010 30.06.2010 % of change Comments
Equity and liabilities
Equity, including 665,254 718,563 8.0
Share capital 576,757 616,781 6.9 Registration of additional share issue
Additional paid-in capital 146,089 145,975 (0.1)
Retained earnings of the reporting year
- 13,131
Non-current liabilities, including:
7,440 8,170 9.8 Increase of deferred tax liabilities
Loans and credits 6,000 6,000 0.0
Current liabilities, including: 73,609 30,439 (58.6)
Loans and credits 7,481 466 (93.8) Bond issue redemption
Accounts payable, including 65,803 29,647 (54.9) Transfer of liabilities before the shareholders on the additional share issue (accounts payable to the shareholders) to the share capital
Other creditors 46,862 8,458 (82.0)
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Transition to RAB Regulation
2008 2009 2010 2011 2012 2013-2014
3-year regulatory period*
Federal Tariff Service sets tariffs
using RAB methodology
Return on existing capital: 3.9%
Return on existing capital: 5.2%
Return on existing capital : 6.5%
Return on newly invested capital: 11%
The Russian Government adopted the transition to RAB-
regulation
The Russian Federal Tariff Service adopted
RAB parameters Transition to tariffsetting using RAB
methodology
Average tariff increase 2010 : 51%
9 * approved by Federal Tariff Service
5-year regulatory period
Full replacement value of invested capital as of 01.01.2010 –RUR 1, 095.97 bln
Depreciated value of invested capital (iRAB)as of 01.01.2010 – RUR 647.6 blnAnnual rate for decreases in controllable expenses: 2%Period of return – 35 years
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Credit portfolio
Redemption date RUR mln
Series 04 bonds 06.10.2011 6,000
Total: 6,000
RUR 50 bln – total volume of registered bonds of Federal Grid Company consisting of 6 issues with a duration of 10years (registration date – 05.10.2010);
RUR 45 bln – total volume of undrawn credit lines
RUR 12 bln – the balance of bank accounts
RUR 3 bln – deposits
RUR 41.2 bln – banks’ promissory notes with a duration of up to 1 year
Liquidity
Credit Portfolio and Liquidity, as at 30.06.2010
Ruble-denominated debt
Leverage: 0.79% of total assets
DEBT/EBITDA = 0.17
Key parameters
2004200
5200
6200
7200
8200
9
B B+ B+BB
+BB
+
Baa2
Baa2
Baa2
Credit ratings
BBB/stable (international scale)ruAAА (national scale)
Baa2/stable (international scale)AAА.ru (national scale)
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0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
70,0%
80,0%
90,0%
100,0% FEESMSCI Russia
Federal Grid Company is an Attractive Investment
Source: MICEX, MSCI Barra
Unique position in Russian power sectorLeading Russian “blue chip:”
Large company by market capitalization: RUR 430. 5 blnFree float – not less than 15%
International presence and plans for increasing theinvestor base:
Depository receipts listing on the Frankfurt Stock Exchange in 4Q 2010-1Q 2011Federal Grid Company’s shares are included in MSCI EM and MSCI Russia indices
Income growth potential:New RAB regulation -> stable guaranteed returnTariff growth: 2010 – 51%; 2011 – 33%; 2012 – 25%Return on newly invested capital: 11%Low leverage – plans for further decrease in WACC
Undervaluation of the Company: EV/RAB not more than0.5
Company CountryEV/EBITDA
(2010)EV/Sales(2010)
EV /RAB
ELIA Belgium 11.6 5.3 1.24
Terna S.p.A. Italy 9.2 6.8 1.30
REN Portugal 7.0 4.9 1.15
Red Electrica Spain 8.0 5.7 n/a
National Grid UK 8.6 2.6 1.41
ITC Holdings USA 11.7 7.7 n/a
Power Grid India 10.9 9.2 n/a
CTEEP Brazil 5.9 4.8 n/a
Transener SA Argentina 6.6 1.6 n/a
Transelectrica Romania 5.9 0.8 0.93
Federal Grid Russia 3.7 2.0 0.36
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Developed countries
Developing countries
Federal Grid Russia 4.2 2.3 0.42
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Contacts
Federal Grid Company of Unified Energy System 5А Akademika Chelomeya Street, Moscow, 117630
Investor Relations Department
Tel: +7 495 710 90 64Mobile: +7 906 077 38 90
Alexander DuzhinovE-mail: [email protected]
Nadezhda SukhovaE-mail: [email protected]
Olga OvchinnikovaE-mail: [email protected]
Tatiana MaybaE-mail: [email protected]
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APPENDIX
1313
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1H 2010 Profit and Loss Statement (RAS)
RUR thousand CodeFor the reporting
periodFor the same period of
the previous year
Revenues (net), including: 010 55,925,353 41,208,893
transmission services 011 55,395,566 39,798,164
other activities 012 529,787 1,410,729
Operating expenses, including: 020 (35,426,527) (29,702,799)
transmission services 021 (35,076,990) (29,099,278)
other activities 022 (349,537) (603,521)
Operating profit 029 20,498,826 11,506,094
Administrative expenses 040 (2,409,919) (1,962,240)
Profit (loss) from sales 050 18,088,907 9,543,854
Interest income 060 2,914,297 3,748,192
Interest expense 070 (490,939) (1,278,202)
Income from investments in associates 080 - -
Other incomes 090 48,455,781 35,018,971
Other expenses 100 (50,445,259) (35,458,916)
Profit (loss) before tax 140 18,522,787 11,573,899
Deferred tax assets 141 21,940 67,465
Deferred tax liabilities 142 694,124 235,990
Profit tax 150 (4,779,053) (2,637,324)
Other similar mandatory payments 151 103,387 48,704
Net profit (loss) for the period 190 13,131,057 8,681,824
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Balance Sheet as at June 30, 2010 (RAS)
ASSETS , RUR thousand CodeAt the beginning of
the reporting period
As of the end of the reporting period
Intangible assets 110 1,396,257 1,148,802
PP&E 120 237,390,753 235,627,318
Construction-in-progress 130 216,529,585 243,652,510
Long-term financial investments 140 66,970,387 79,020,451
Other non-current assets 150 1,415,088 1,475,314
TOTAL NON-CURRENT ASSETS 190 523,702,070 560,924,395
Inventories 210 2,427,514 4,472,039
Value-added tax 220 2,070,794 1,999,082
Accounts receivable (non-current), including: 230 20,492,819 6,571,803
customers and clients 231 185,910 187,979
advances paid 234 36 -
other debtors 235 20,306,873 6,383,824
Accounts receivable (current), including: 240 117,170,891 129,144,188
customers and clients 241 8,949,413 13,054,971
advances paid 243 67,036,337 73,429,502
other debtors 244 41,185,141 42,659,715
Short-term financial investments 250 69,127,725 42,016,355
Cash 260 11,312,141 12,043,899
TOTAL CURRENT ASSETS 290 222,601,884 196,247,366
TOTAL ASSETS 300 696,988,144 660,516,871
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Balance Sheet as at June 30, 2010 (RAS)
EQUITY AND LIABILITIES, RUR thousand CodeAt the beginning of
the reporting periodAs of the end of the
reporting period
Share capital 410 576,757,098 616,780,667
Additional paid-in capital 420 146,088,835 145,974,763
Reserve capital 430 10,134,044 10,134,044
Retained earnings for the previous years 460 (67,725,491) (67,457,062)
Retained earnings for the reporting year 470 - 13,131,057
TOTAL EQUITY 490 665,254,485 718,563,469
Loans and credits 510 6,000,000 6,000,000
Deferred tax liabilities 515 1,435,064 2,151,128
Other non-current liabilities 520 5,098 18,549
TOTAL NON-CURRENT LIABILITIES 590 7,440,162 8,169,677
Loans and credits 610 7,481,469 466,036
Accounts payable, including: 620 65,802,620 29,647,365
suppliers and contractors 621 11,018,708 10,579,487
accounts payable to the employees 622 134,473 573,313
taxes and fees payable 623-624 672,790 893,673
advances received 627 7,114,653 9,143,173
other creditors 625 46,861,996 8,457,719
Accounts payable to the shareholders 630 46,898 46,898
Prepaid expenses 640 278,319 278,316
TOTAL CURRENT LIABILITIES 690 73,609,306 30,438,615
TOTAL EQUITY AND LIABILITIES 700 746 303 954 757 171 76116
