Inter RAO YEES : Group Publishes Consolidated IFRS Financial Statements for the First Six Months of 2018

Inter RAO Group published interim financial information under international standards for the first six months of 2018.

Indicator, billion rubles*	First six months of 2018	First six months of 2017	Change, %
Revenue 1	460.7	413.8	11.3%
Operating expenses	422.4	388.0	8.9%
Operating income	43.5	29.3	48.3%
Net income	38.3	30.8	24.4%
EBITDA	59.4	48.1	23.5%
Capital expenditures	13.8	12.3	11.7%
As of June 30, 2018	As of December 31, 2017	Change, %
Total assets 2	674.9	639.1	5.6%
Total equity	469.0	461.5	1.6%
Loans and borrowings	12.7	16.2	-21.5%
Leasing obligations 2	35.6	12.7	by a factor of 2.8
Net debt 3	-132.6	-135.5	-

* - Financial indicators are provided based on the IFRS financial statements in billion rubles rounded to one decimal. Percentage is calculated based on the data from these IFRS financial statements expressed in million rubles.

¹ Since January 1, 2018, the Group has applied IFRS 15 Revenue from Contracts with Customers, according to which the revenue is accounted for as the reimbursement amount, the right to which the Group intends to gain in exchange for the transfer of the promised goods or services to the customer. Comparable data for several items in the financial statements have been recalculated retrospectively according to the standard.

² As IFRS 16 Leases took effect, the financial statements as of December 31, 2017 acknowledged assets in the form of the right to use with the residual value of RUB12.0 billion, and leasing obligations in the amount of RUB12.3 billion. The total leasing obligations, including obligations in joint ventures, is RUB12.7 billion.

³ Including deposits for a period from 3 to 12 months and leasing obligations (including the share of leasing obligations in joint ventures).

The dynamics of the Group's financial performance was significantly influenced by the following key factors and events:

• Commissioning of the Power Unit 12 of Verkhnetagilskaya TPP with the installed capacity of 447 MW, and the Power Unit 4 of Permskaya TPP with the installed capacity of 903 MW in June and July 2017 under capacity supply agreements (CSAs);
• Commissioning of leased power plants in the Kaliningrad Region in March 2018: Mayakovskaya TPP and Talakhovskaya TPP with the total installed capacity of 312 MW each;
• Commissioning of Zatonskaya TPP in the Republic of Bashkortostan with the installed capacity of 440 MW in March 2018;
• Increase in average end consumer sales prices in the Supply Segment of the Group;
• Increase in the average heat sales prices for end consumers, and increase in the productive supply of heat across the Group's Russian assets;
• Increase of the profit margin in the Group's Trading Segment;
• Weakening of the Russian ruble against the euro.

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Group revenue increased by 11.3% (46.9 billion rubles) to 460.7 billion rubles

The increase in revenue in the Supply Segment by 32.3 billion rubles (11.6%) to 310.4 billion rubles is related both to higher average sales prices of suppliers of last resort for end consumers and the acquisition of new customers by suppliers of last resort and independent retailers, and to the fact that a new supplier of last resort began to operate in the Vladimir Region.

The increase in revenue in the Electric Power Generation in the Russian Federation Segment by 4.8 billion rubles (8.3%) to 61.9 billion rubles is mainly due to revenue from the sale of capacity: commissioning of the Power Unit 12 of Verkhnetagilskaya TPP in 2Q2017, and the Power Unit 4 of Permskaya TPP in 3Q2017 under CSAs, as well as commissioning of Mayakovskaya TPP and Talakhovskaya TPP leased by the Group in the Kaliningrad Region. Higher capacity sale prices in the Competitive Capacity Auction Segment provided additional impact. Along with this, the revenue from the sale of electricity decreased against the comparable period due to the reduced output caused by the current market situation.

Revenue in the Thermal Power Generation in the Russian Federation Segment which includes TGK-11 Group⁴ and Bashkir Generation Company Group increased by 1.7 billion rubles (4.6%) to 39.5 billion rubles. The main positive effect is related to the higher average heat sale prices in Bashkortostan, the Omsk Region and the Tomsk Region compared to the previous reporting period. Besides, heat sales increased, as the heating season in 2018 lasted longer. There was also a reduction in power generation due to a decline in margin.

Revenue of the Trading in the Russian Federation and Europe Segment increased by 4.7 billion rubles (19.0%) compared to the previous reporting period and amounted to 29.4 billion rubles for the first six months of 2018. The revenue increased due to the weakening of the ruble against the euro by 14.5%, an increase in supply to Finland, and an increase in Nord Pool price for Lithuania and Finland. Moreover, supply on the domestic market increased, mostly due to the electricity imported from Kazakhstan. However, a decrease in supply to Belarus had a negative impact on the revenue.

A decrease in the revenue in the Foreign Assets Segment by 0.4 billion rubles (2.9%) to 12.1 billion rubles was related primarily to a decline in power generation at Trakya Elektrik in accordance with the order of the system operator in the Republic of Turkey, and the lower disbursing tariff. Moldavskaya TPP had a positive impact on the revenue due to the start of direct supply to Moldova. The impact of Georgian assets on the revenue was also positive due to increased consumption and the higher disbursing tariff.

Operating expenses increased by 34.4 billion rubles (8.9%) to 422.4 billion rubles compared to the previous reporting period, which is lower than the growth of revenue.

Electricity transmission costs increased by 13.7 billion rubles (13.7%) to 113.7 billion rubles due to the performance of enterprises in the Supply Segment, and relates to the increased electricity consumption and its transmission fees.

The cost of purchased electricity and capacity increased by 16.6 billion rubles (10.1%) to 181.0 billion rubles compared to the previous reporting period, mainly due to the higher market prices for capacity compared to the previous reporting period, and higher volumes and market prices for purchased electricity in the Supply Segment.

Fuel costs declined by 2.2 billion rubles (3.7%) compared to the previous reporting period and amounted to 53.7 billion rubles. Factors behind the changes diverge:

• a decrease in power generation at Trakya Elektrik is related to the order of the system operator;
• gas consumption by power plants of JSC Inter RAO - Electric Power Plants decreased;
• heat output by power plants in Omsk and Tomsk in the lower ambient temperature increased compared to the previous reporting period;
• direct energy supply to Moldova started.

EBITDA increased by 23.5% to 59.4 billion rubles.

In the Supply in the Russian Federation Segment, EBITDA increased by 2.5 billion rubles (27.5%) to 11.5 billion rubles. This improvement was related to higher average sale prices and an increase in productive supply.

In the Electric Power Generation in the Russian Federation Segment, EBITDA increased by 3.0 billion rubles (10.9%) to 30.4 billion rubles. In the CDA sector, the most considerable positive impact was related to commissioning of the Power Unit 12 of Verkhnetagilskaya TPP in 2Q2017, and of the Power Unit 4 of Permskaya TPP in 3Q2017, as well as commissioning of Talakhovskaya TPP and Mayakovskaya TPP leased by the Group in the Kaliningrad Region in March 2018 and the start of power and capacity supply. At the same time, power generation at several power plants of JSC Inter RAO - Electric Power Plants decreased in the reporting period due to the optimization of power plant utilization and repairs.

In the Thermal Power Generation in the Russian Federation Segment, EBITDA increased by 1.5 billion rubles (14.4 %) to 11.6 billion rubles. The positive impact was related to commissioning of Zatonskaya TPP in March 2018, higher prices for heat and an increase in its productive supply in Bashkortostan, the Tomsk Region and the Omsk Region.

In the Trading in the Russian Federation and Europe Segment, EBITDA increased by 1.9 billion rubles (67.5%) and amounted to 4.8 billion rubles. The increase in EBITDA is related mainly to the increase in margin due to the growth of supply, primarily to Finland and Lithuania, and the increase in Nord Pool prices with the weakening of the ruble against the euro. An increase in the sales margin on the wholesale electricity and capacity market due to an increase in electricity import from Kazakhstan in favorable market conditions became an additional factor in EBITDA growth.

In the International Assets Segment, EBITDA increased by 1.4 billion rubles (75.3%) and amounted to 3.3 billion rubles. There was a positive impact in all assets of the Group: at CJSC Moldavskaya TPP it was related to renewed direct energy supply to Moldova and headcount reduction; at JSC Telasi it was due to faster growth of sale prices compared to the price of purchased electricity, and at Trakya Elektrik the positive impact was related to an increase in payment for capacity which is ready for load, in the first six months of 2018.

Net income for the first six months of 2018 amounted to 38.3 billion rubles, having increased by 24.4% (or by 7.5 billion rubles) compared to the previous reporting period. Higher net income is related to the achievements of Russian generation and sales subsidiaries.

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Total assets increased by 35.8 billion rubles (5.6%), amounting to 674.9 billion rubles.

Total assets of the Group increased, as the contract for leasing movable and immovable assets at Talakhovskaya and Mayakovskaya TPPs by Kaliningrad Generation LLC took effect. In the Statement of Financial Position of the Inter RAO Group the value of the assets at these power plants is recognized as right-of-use assets. Besides, the amount of cash and deposits increased due to accumulated cash from operating activities and repayment of accounts receivable for a stake of JSC Irkutskenergo sold in 2016.

Equity increased by 7.5 billion rubles (1.6%), amounting to 469.0 billion rubles.

The increase in equity was related to various changes, including the recognition of net income for the reporting period, distribution of dividends and acquisition of the company's own shares.

Loans and borrowings decreased by 21.5% to 12.7 billion rubles. Leasing obligations (including the share in joint ventures) increased by 22.9 billion rubles and amounted to 35.6 billion rubles.

Total loans and borrowings of the Group decreased by 3.5 billion rubles (21.5%) to 12.7 billion rubles as a result of scheduled repayment of loans and repayment ahead of schedule.

The ratio of long-term debt to short-term debt as of June 30, 2018 amounted to 12.5% versus 87.5% (on December 31, 2017, it was 28.9% versus 71.1%).

As a result of IFRS 16 Leases taking effect, the right-of-use assets and leasing obligations are recognized retrospectively in the Statement of Financial Position. An increase in obligations in the reporting period is related primarily to signing a long-term lease contract for Mayakovskaya and Talakhovskaya TPPs by Kaliningrad Generation LLC and recognizing the related leasing obligations in the Statement of Financial Position.

⁴ TGK-11 Group is represented by heat producers such as JSC TGK-11 (Omsk) and JSC Tomsk Generation, and heat distribution network operators such as JSC Tomsk RTS and JSC OmskRTS.