IR Releases

PJSC Lenenergo released its financial statements for 2017 prepared in accordance with IFRS.

Revenue of the Group of PJSC Lenenergo in 2017 increased by 17% Y-o-Y to RUB 77,653 mln. EBITDA increased by 6% and amounted to RUB 25,433 mln. Net profit for the reporting period totalled RUB 8,227 mln (+7% Y-o-Y).

RUB mln, unless otherwise specified
Indicator	2017	2016	Change
Financial results
Revenue from sales,  including:	77,653	66,208	17.3%
- From electricity transmission services	60,910	55,486	9.8%
- From technological connection services	15,125	8,814	71.6%
- From other activities	1,618	1,908	(15.2%)
Operating expenses	(64,555)	(58,007)	11.3%
Other net income/expenses	(616)	2,237	(127.5%)
Operating profit	12,482	10,437	19.6%
Net profit	8,227	7,703	6.8%
Net profit margin, %	10.59%	11.63%	(1.04 p. p.)
EBITDA	25,433	23,944	6.2%
EBITDA margin, %	32.75%	36.16%	(3.41 p. p.)
	31.12.2017	31.12.2016	Change
Indicators of the statement of financial position
Assets	231,632	235,173	(1.5%)
Equity	150,593	148,341	1.5%
Return on Equity (ROE), %	5.46%	5.19%	0.27 p. p.
Liabilities	81,039	86,832	(6.7%)
Loan portfolio and debt position
Loans and credits	36,925	34,528	6.9%
Net debt	33,493	24,091	39.0%
Net debt/EBITDA	1.32	1.01	0.31 p. p.

Notes:

EBITDA = profit before tax + depreciation of fixed assets and intangible assets + financial expenses - financial income

Net debt = long-term and short-term loans and credits - cash and cash equivalents - short-term investments

Revenue of the Group

 Revenue from sales in 2017 amounted to RUB 77,653 mln, which is 17.3% higher than in 2016 (RUB 66,208 mln).

·        The growth of revenue from electricity transmission services relative to 2016 was due to an increase in tariff rates in 2017 relative to 2016.

·        The growth of revenue from technological connection services relative to 2016 was due to the fulfilment in 2017 of obligations above the planned level, as well as the fulfilment of commitments under technological connection agreements concluded by JSC St. Petersburg Electric Networks and JSC Petrodvorets Power Grid.

·        The decline of revenue from other activities in 2017 compared to 2016 by 15.2% was due to a decrease in income from compensation contracts by 83.8%.

 Operating expenses of the Group

 Operating expenses of the Group for the reporting period amounted to RUB 64,555 mln, which is 11.3% higher than in 2016.

	2017	2016	Change
Total operating expenses	64,555	58,007	11.3%
Expenses for employee benefits	7,673	6,877	11.6%
Depreciation of property, plant and equipment and intangible assets	12,951	13,506	(4.1%)
Impairment of property, plant and equipment and intangible assets	6,870	623	1002.7%
Material costs:	10,987	10,040	9.4%
Electricity for technological loss compensation	10,013	9,087	10.2%
Purchased electricity and heat for own needs	483	439	10.0%
Other material costs	491	514	(4.5%)
Works and services of production nature:	20,701	19,025	8.8%
Electricity transmission services	17,800	16,109	10.5%
Repair and maintenance services	1,708	1,331	28.3%
Lease	447	771	(42.0%)
Insurance	104	103	1.0%
Other works and services of production nature	641	711	(9.9%)
Other third party services:	960	884	8.6%
Security	263	228	15.4%
Expenses for software and technical support	188	131	43.5%
Consulting, legal and auditing services	168	166	1.2%
Communication services	85	92	(7.6%)
Transport services	18	17	5.9%
Other services	239	250	(4.4%)
Provision for impairment of inventories	18	69	(73.9%)
(Recovery)/impairment of accounts receivable	(130)	2,366	(105.5%)
Reserves	888	543	63.5%
Taxes and levies, other than income tax	1,418	1,342	5.7%
Other expenses	2,219	2,732	(18.8%)

 Comments on the dynamics of the most significant cost items:

 ·        Depreciation of property, plant and equipment and intangible assets

The cumulative effect of reducing the item Depreciation of property, plant and equipment and intangible assets by 4.1% was caused by a decrease in depreciation costs of intangible assets for 2017 and a simultaneous increase in depreciation costs of property, plant and equipment.

 - Reduction of the expenses for depreciation of intangible assets by RUB 1,295 mln was due to the fact that a large part of depreciated intangible assets belonging to the group of Profitable contracts that have been recognized in the consolidated financial statements for the companies of JSC SPb EN and JSC PES at the time of purchase was depreciated in 2016.

- The increase in depreciation costs of property, plant and equipment by RUB 740 mln was due to an increase in their book value as a result of the commissioning of property, plant and equipment in 2017 for RUB 30,835 mln.

·        Expenses for employee benefits

Increased expenses for employee benefits by 11.6% occurred in connection with the indexation (from 01.09.2016 – by 2.2% and from 01.07.2017 – by 4.7%), and the alignment of salaries within the consolidation of SDCs on the basis of grid assets of PJSC Lenenergo.

·        Impairment of property, plant and equipment and intangible assets

The fair value of property, plant and equipment was measured as of 31 December 2017 on the basis of independent appraisers ' reports. As of 31 December 2017, an impairment loss for RUB 7,061 mln was recognised in the CGU St. Petersburg as a result of testing, as well as income from the recovery of the loss of previous years for RUB 191 mln in the IA Access permission.

·        Reserves

The increase in expenses on court cases and claims by 63.5% was due to the creation of a reserve in part of a future settlement of litigation not in favour of the Group.

·        Impairment of accounts receivable

The recovery of the provision for impairment of accounts receivable was due to a decrease in the number of bad accounts receivable that require provision.

 Financial result of the Group

 Operating profit of the Group in 2017 amounted to RUB 12,482 mln, which is 19.6% higher than in 2016.

 At the end of 2017, the Group received Net profit of RUB 8,227 mln (RUB 7,703 mln in 2016). The favorable dynamics of the financial result for 2017, in addition to the increase in revenue for electricity transmission by 9.8%, was significantly influenced by the growth of revenue for technological connection by RUB 6,311 mln (71.6%).

 EBITDA

 EBITDA in 2017 was RUB 25,433 mln, which is 6.2% higher than the same indicator for 2016 (RUB 23,944 mln).

The calculation of EBITDA, RUB mln

EBITDA	25,433
Profit before tax	9,842
Depreciation of property, plant and equipment and intangible assets	12,951
Financial income	(825)
Financial expenses	3,465

 EBITDA margin in 2017 decreased by 3.41 percentage points and amounted to 32.75%.

 Loan portfolio and debt position

 The loan portfolio in the form of short-term and long-term credits and loans of the company at the end of the reporting period amounted to RUB 36,925 mln, which is 6.9% higher than at the end of 2016.

 The increase in debt on the principal amount relative to the beginning of the year was due to the attraction of loans in 2017 to finance the investment program.

 The debt on interest decreased due to the reduction of the interest rate on the exchange bonds of the BO-05 series as a result of the completion of offers as of 23.01.2017 and 24.07.2017, as well as due to the work carried out in 2017 to optimise the loan portfolio and minimise the cost of debt servicing in the form of refinancing of the loans with a higher interest rate by the loans with a lower rate.

 Net debt at the end of 2017 amounted to RUB 33,493 mln, which is 39.03% higher than in 2016. The increase in Net debt was due to an increase in the loan portfolio, as well as due to the cash outflow from investment activities.

 Net debt/EBITDA for the period was 1.32 at the end of the reporting period against 1.01 at the end of 2016.