RusHydro announces 9M 2019 IFRS results.

On December 12, 2019, the RusHydro group announced its condensed consolidated interim unaudited financial information prepared in accordance with International Financial Reporting Standards (IFRS) for the third quarter and the initial nine months of 2019.

Q3 & 9M 2019 key highlights

Total revenue in the first nine months of 2019 was flat to the first nine months of 2018 and came in at RUB287,620 million (minus 0.4 percent). In the third quarter of 2019, total revenue was RUB87,486 (plus 0.1 percent).

The EBITDA in the first nine months of 2019 was RUB70,429 million (minus 13.1 percent year-on-year); in the third quarter of 2019, it reached RUB19,659 million (minus 6.7 percent year-on-year).

Operating expenses increased in the nine-month period and the third quarter of 2019 by 5.2 percent year-on-year and 1.9 percent year-on-year, respectively, mostly as a result of a fuel cost increase, as well as an increase in the electricity purchased and capacity costs.

The adjusted net profit in the first nine months of 2019 stood at RUB39,842 million (minus 22.1 percent year-on-year); and the net profit in the first nine months of 2019 was RUB35,157 million (minus 23.5 percent year-on-year).

Financial results reflected a decrease in electricity production during the first nine months of 2019 on the back of reduced water inflows to the majority of reservoirs of the HPPs (hydro power plants) in the first half of the year. In the third quarter of 2019, production increased on the back of rainfall flooding and increased water inflow to the reservoirs.

Operating results

Total electricity generation by RusHydro group’s power plants amounted to 33,295 GWh (gigawatt hours) in the third quarter of 2019, an increase of 3.3 percent as compared to the corresponding period of the previous year. In the first nine months of 2019, total electricity generation stood at 91,888 GWh (minus 7.7 percent). In the third quarter of 2019, total electricity generation by RusHydro group’s hydropower and pumped storage plants increased by 4.6 percent to 27,168 GWh; electricity generation by the RusHydro group’s thermal power plants decreased by 2.6 percent to 6,036 GWh, and electricity generation by renewables increased by 4.5 percent to 91 GWh as compared to the corresponding period of 2018. Consequently, in the first nine months of 2019, total electricity generation by RusHydro group’s hydropower and pumped storage plants decreased by 10.1 percent to 68,824 GWh. Generation by renewable sources went down by 2.0 percent to 308 GWh, while electricity generation by the RusHydro group’s thermal power plants increased by 0.1 percent to 22,755 GWh as compared to the corresponding period of 2018. Total electricity generation by the Boguchanskaya hydropower plant in the third quarter of 2019 amounted to 4,426 GWh, an increase of 7.4 percent as compared to the third quarter of 2018; in the nine-month period, electricity generation by the Boguchanskaya HPP was 11,785 GWh (plus 14.6 percent).

Heat output by RusHydro group’s thermal plants in the Far Eastern Federal District in the third quarter of 2019 increased by 13.2 percent to 2,168 Gcal (gigacalories) as compared to the corresponding period of the previous year. In the first nine months of 2019, heat output decreased by 3.1 percent against the first nine months of 2018 to 18,967 Gcal.

Total electricity output by RusHydro’s retail companies operating in Chuvashia, Ryazan, and the Krasnoyarsk region in the third quarter of 2019 decreased by 1.6 percent to 4,127 GWh as compared to the third quarter of 2018. In the first nine months of 2019, total output decreased by 4.5 percent as compared to the corresponding period of the previous year, amounting to 14,051 GWh.

Key 2019 events 

On January 2, 2019, the Central and Western districts of Yakutia were connected to the Unified Energy System of Russia. PJSC Yakutskenergo, a subsidiary of RusHydro, transferred the supervision and control of the territory to the system operator.

On February 8, 2019, RusHydro divested its 40-percent share in VolgaHydro, LLC, a hydropower equipment manufacturing joint venture in the Saratov region, to Voith RusHydro group for RUB450 million.

On March 29, 2019, RusHydro and UC RUSAL commissioned the first stage of the Boguchany aluminum smelter (BoAZ), a part of the Boguchanskiy Energy and Metals Complex (BEMO). Total funding of the smelter’s first phase with annual operational capacity estimated at 298 thousand tons of aluminum amounts to USD1.69 billion. It is being financed by direct monetary outlays of two partners in the BEMO project, along with project financing from VEB (formerly, Vnesheconombank).

On April 19, 2019, RusHydro’s board of directors approved the company’s dividend policy, which provides for a base scenario of the dividend payout ratio at 50 percent of the company’s IFRS net profit. At the same time, a minimal payout level is set at the average amount of dividends paid over the last three years. Such a measure guarantees shareholders a minimal dividend amount and improves the company’s investment attractiveness. The changes to the dividend policy will be in effect for three years.

On April 29, 2019, RusHydro issued additional shares as part of the first phase to raise capital for the construction of the Pevek-Bilibino 110-kV high-voltage overhead lines needed for the upcoming reconstruction of the Chaun-Bilibino power system following the decommissioning of the Bilibino nuclear power plant. RusHydro placed 7,000,092,298 shares, including 7,000,000,000 shares in favor of the Russian Federation represented by the Federal Agency for State Property Management (Rosimushchestvo) at one ruble per share.

On June 28, 2019, RusHydro’s annual general meeting elected the new board of directors and approved 2018 dividends of RUB0.0367388 per share in the total amount of RUB15.9 billion (50 percent of the RusHydro group’s net profit for 2018 under IFRS, an increase of 42 percent over the amount distributed in dividends for 2017).

On July 17, 2019, the government of the Russian Federation approved all projects submitted by RusHydro for the construction and modernization of thermal power plants in the Far East, including the construction of the combined heat and power Artyomovskaya CHP-2, the Khabarovskaya CHP-4, the second phase of the Yakutskaya GRES-2, and the modernization of the Vladivostokskaya CHP-2. Returns on the projects will be guaranteed by the mechanism provided for in the government’s program on thermal power modernization.

On September 7, 2019, RusHydro put into commission the Nizhe-Bureyskaya HPP in the Amur region. The facility’s installed capacity and the average annual electricity output stands at 320 MW (megawatt) and 1.67 TWh (terawatt hours), respectively. The HPP will supply power to customers in the Unified Energy System of the East.

Revenue

In the first nine months of 2019, total revenue of the RusHydro group amounted to RUB287,620 million as compared to RUB288,670 in the first nine months of 2018. The change is associated with a number of key factors. First, there was a decrease in revenue from electricity sales of RusHydro by RUB7,652 million due to a decline in hydropower plant production by 11 percent. Revenue from electricity of RAO UES East subgroup (including government subsidies) increased by RUB2,014 million on the back of rate increases and a sales volume growth. Revenue from electricity sales in the ESC RusHydro subgroup increased by RUB969 million following new supply agreements, the increase of rates on electricity sales, as well as electricity sales volume growth on the wholesale market. Also, capacity sales revenue increased by RUB2,907 million on the back of sales volume growth of PJSC DEK. Heat and hot water sales revenue rose by RUB115 million following rate hikes. Finally, the group experienced a decrease in other sales revenue by RUB764 million, mainly driven by declines in revenue from grid connections and electricity distribution services at PJSC Yakutskenergo and PJSC Magadanenergo.

Operating expenses

Total operating expenses in the first nine months of 2019 amounted to RUB236,621 million as compared RUB225,005 million in the first nine months of 2018 due to an increase in the electricity and capacity purchased by RUB4,821 million partially accounted for by additional revenue at the RAO UES East subgroup following rate increases. Additional important factors included an increase in fuel expenses mainly at JSC DGK by RUB2,938 million as a result of a fuel purchase price increase following procurement results and at PJSC Kamchatskenergo by RUB674 million, as well as a purchase price increase for heating oil and its increased consumption due to restrictions on the consumption of other types of fuel (gas, coal). Another driver for operating expenses was the increase in depreciation expenses following the commissioning of the Vostochnaya CHP and off-site construction of the Sakhalinskaya GRES-2 in the second half of 2018, the commissioning of the Nizhne-Bureyskaya HPP in the second half of 2019, and the adoption of IFRS 16 Leases standard as of January 1, 2019. Increases in employee benefit expenses by RUB2,200 in accordance with existing collective agreements were also contributing factors in rising expenses.

Profit

In the first nine months of 2019, the RusHydro group’s EBITDA decreased by 13.1 percent to RUB70,429 million as compared to RUB81,016 million in the corresponding period of 2018.

The RusHydro group’s net profit decreased by 23.5 percent to RUB35,157 million. The adjusted net profit in the reporting period amounted to RUB39,842, a 22.1-percent decrease as compared to the corresponding period of the previous year.

The difference between the reported and the adjusted profit is attributed mainly to the following non-cash effects (before income tax) and the recognition of a change in the fair value of the derivative financial instruments: (1) income in the amount of RUB995 million as a result of a change in the fair value of non-deliverable forward contracts following an increase of the market price of RusHydro’s shares in the reporting period; (2) impairment of financial assets in the amount of RUB1,503 million resulting from measuring expected credit losses of receivables; (3) impairment of property, plant, and equipment, as well as unfinished construction in the amount of RUB2,414 million; (4) impairment of other assets in the amount of RUB2,045 million.

Financial position

As of September 30, 2019, the RusHydro group’s assets increased by RUB25,417 million, or 2.7 percent, to RUB957,348 million against RUB931,931 as of December 31, 2018. The change in assets is primarily attributable to: (1) an increase in property, plant, and equipment following the execution of the RusHydro group’s investment program; and (2) an increase in inventories. As of the end of the reporting period, the RusHydro group’s liabilities increased by RUB7,077 million or 2.0 percent, to RUB352,789 million against RUB345,712 as of December 31, 2018. The structure of liabilities has changed accordingly: long-term liabilities decreased by RUB11,151 million and short-term liabilities increased by RUB18,228 million due to an increase of accounts payable, current debt, and the current portion of non-current debt.

As of September 30, 2019, the group’s liability on the shares issued in the amount of RUB7,000 million is reflected as additional share issuance in the course of exercising preemptive rights, under which RusHydro placed 7,000,092,298 shares among shareholders.

The fair value of the non-deliverable forward contracts, recognized under the terms of the group’s transaction with VTB Bank, decreased from RUB31,896 million (as of December 31, 2018) to RUB27,170 million (as of September 30, 2019) following an increase of the market price of RusHydro’s shares in the first nine months of 2019.

Events after reporting date

On November 18, 2019, RusHydro has placed loan participation notes issued by RusHydro Capital Markets DAC in the amount of RUB15 billion. The LPNs will mature in 2024 and bear an interest of 6.8 percent per annum payable twice per year.

On November 21, 2019, RusHydro and PJSC VTB Bank signed a supplementary agreement to improve the terms of the forward contract. The supplemental agreement provides for lowering the forward rate by 0.5 percent p.a. and extending the agreement for three years through 2025  to allow sourcing a strategic investor and jointly working on increasing RusHydro’s share price.

On November 22, 2019, RusHydro inaugurated Sakhalinskaya GRES-2 in the Sakhalin region of the Far East to replace the obsolete Sakhalinskaya GRES. The power plant’s installed capacity and its long run electricity output stand at 120 MW and 0.84 TWh, respectively.

On November 28, 2019, RusHydro commissioned a 300 GCal peaking boiler plant at the Yakutskaya GRES. The new facility will increase the reliability of heat supply in the capital of Yakutia and partially substitute the capacity of the Yakutskaya GRES, which will be gradually phased out.

On December 5, 2019, JSC Hydroinvest, a 100-percent subsidiary of RusHydro, entered into a share sale agreement with PJSC Hrazdan Energy company (HrazTES, Tashir RusHydro group), to divest CJSC MEK, a company operating Sevan-Hrazdan cascade of hydropower plants in Armenia for RUB172.96 million.