Internet conference "INTER RAO UES’s 2008 RAS results ", 14 April 2009

Inter RAO UES’s 2008 RAS results

An Internet conference with the representatives of Inter RAO UES’s financial and strategic divisions was held on 14 April 2008 from 4pm to 6 pm MSK, summarising the company’s results in 2008.

The Q&A session was handled by:

-         Alexandra Chesnokova, chief accountant;

-         Svetlana Ivanichkina, head of directorate of financial resources management;

-         Ivan Savelyev, head of capital markets and IR department;

-         Dmitry Palunin, CFO

For more details on Inter RAO UES’ 2008 operating results, please see the company’s website.

14.04 18:00, OpenUtilities team

Dear participants, our conference is over. All Q&As will be posted on: http://www.openutilities.ru/conf.asp?cnf=13

We would like to thank for your being with us and for the interest you have shown. We look forward to any queries, feedback and comments you may have.

Best regards,

OpenUtilities team

14.04 17:59, Closing remark by Inter RAO UES

Dear colleagues, the time for our conference is up. We thank you all for taking part in it and for your interesting questions. Those who missed the chance to ask questions they’re interested in are welcome to come back with them during future conferences and meetings.

14.04 17:57,  Pyotr Oparin, RMG

What part of the consolidated debt and cash of Inter RAO Group falls to the debt and cash recorded in the company’s RAS results?

14.04 18:01, Dmitry Palunin

The consolidated debt portfolio of Inter RAO Group consists to a large extent – at least 50% - of external borrowings of Inter RAO UES.   

14.04 17:55, Philip Balabanov

How much of Inter RAO’s consolidated revenue falls to electricity exports and what amount is planned for the future?

14.04 17:56, Alexandra Chesnokova

Electricity exports account for 61.28% of Inter RAO UES’s 2008 RAS revenue. The revenue share from electricity exports will be determined by the pricing environment and the energy balance on target export markets.

14.04 17:53, Leonid Khomeriki, correspondent of RBC daily

What will the company’s dividend policy look like over the next few years? How it will be influenced by the downturn?

14.04 17:54, Dmitry Palunin

There will be no dividend payments for FY08 under the provisions of sec.1 Art.43 of the Federal Law “On Stock Joint Companies”, where it is stated that “A company shall not be entitled to adopt (announce) decisions on paying out dividend on shares if as of the date on which such a decision could be taken, its net asset value is less than its share capital and its required reserve, and if the residual value of its preferred shares outstanding as stipulated in the charter exceeds the nominal value or could decrease as a result of such a decision”. The company’s future dividend policy shall be determined by its shareholders.

14.04 17:35, Pyotr

Does the company have any plans to implement an anti-crisis programme, for example, reducing its headcount and cost-cutting as it is the case in OGK-1, its subsidiary, due to the decline in electricity demand? If so, what kind of effect do you expect from it?

14.04 17:51, Ivan Savelyev

Inter RAO UES is currently going through a period of intense business expansion, so there is no need for the company to downsize staff.

14.04 17:31, Angela Sikamova, special correrspondent of Interfax – Power Industry Information Agency

Have the ways and means to finance construction works of a NPP in Turkey already been worked out if the Russian consortium wins the tender? There were reports that one third of the required funds will be provided through a state-backed loan. Is it true? If so, how will the remaining two thirds be financed?

14.04 17:32, Ivan Savelyev

The project financing issue is under scrutiny now and various options are being considered.

14.04 17:21, Anton Belyakov

At what stage is Inter RAO’s merger with TGK-11?

14.04 17:21, Ivan Savelyev

The consolidation scheme of TGK-11 is currently being worked out.

14.04 17:17, Ekaterina Tripoten, Sovlink

Could you please explain in detail what the item “Other revenues and other costs” in the P&L statement refer to?

14.04 17:17, Svetlana Ivanichkina

The answer to your question has already been given.

14.04 17:16, Ekaterina Tripoten, Sovlink

Your company’s share capital exceeds the net asset value. Are you going to lower it? When?

14.04 17:16, Svetlana Ivanichkina

This issue has been included in the AGM’s agenda in line with the applicable legislation.

14.04 17:18, OpenUtilities team

We’d like to remind you that Inter RAO UES’s AGM is scheduled for June 2009.

14.04 17:15, Ekaterina Tripoten, Sovlink

The section of the Cash Flow Statement that describes financial activities shows that the company raised a RUB7bn loan and paid off a loan of approximately the same amount. It looks like the company has taken out a new loan to pay off the old one. Were the terms of the new loan much worse than those of the old one?

14.04 17:15, Svetlana Ivanichkina

According to the Cash Flow Statement, the only conclusion that can be drawn is that the size of the loan portfolio at the end of period remained the same as it was at the beginning. In 2008, a few loans were taken out under the existing credit line, which was completely paid off in late 2008 according to the credit agreement terms. At the same time, the company successfully arranged a one-year loan backed by a pool of foreign banks, using the proceeds to pay off the company’s CLN debt. The cost of the new loan was considerably less than that of the refinanced debt and during 2009 this loan was fully repaid on schedule.

14.04 17:12, Ekaterina Tripoten, Sovlink

Do I understand correctly that gains from selling securities and costs related to their purchasing make up the bulk of other revenues and other costs in the P&L statement? If so, why do the metrics differ? As far as I know, other revenues should also reflect the effect caused by currency revaluation, if you have any cash deposits. But the figure in this line, on the contrary, is less than revenues from selling securities.

14.04 17:13, Svetlana Ivanichkina

The line item “Other revenues and other costs” reflects mainly FX gains/losses from the revaluation of assets and liabilities denominated in foreign currency. Whether gains exceed costs, or vice versa, depends on the exchange rate trends of the currency in question against the rouble.

14.04 17:11, Ekaterina Tripoten, Sovlink

What amounts are referred to in the line items “Acquisition of securities and other financial instruments”?

14.04 17:12, Alexandra Chesnokova 

Here are some explanations in the FY08 cash flow statement. The data in lines 220 and 300 of the Cash Flow Statement (Form No 4) should be read in tandem. These lines include deposit placement and refund operations, the acquisition and sale of promissory notes and shares, as well as special-purpose funding. During the reporting period, the Company allocated RUB27.7bn and RUB1.07bn in foreign currency (EUR26m) to short-term deposits. Thus, the Company received RUB26.013bn and RUB1.077bn in foreign currency (EUR26m) from refunded deposits. Operations related to the acquisition of shares in Moldavskaya TPP to raise the stake to 100% at a cost of RUB4.789bn (US$163m) were another significant cost item. In addition, in 2008 the Company received 4.745bn as funds for special-purpose financing (from MezhRegionStroi). Thus, revenue from selling equities and other financial investments stood at RUB36.654bn (line 220, Form No 4), costs for the acquisition of equities and other financial investments amounted to RUB33.573bn (line 220, Form No 4).

14.04 17:11, Tayts Matvey

What are the terms and amounts of the company’s debt repayment?

14.04 17:13, Alexandra Chesnokova

Short-term credits and loans need to be settled during 2009. Long-term credits and loans are repayable over the next 10 years.   

14.04 17:10, User

Could you name the target values for FY09 revenue, EBITDA and net income?  

14.04 17:11, Dmitry Palunin

According to the Company’s FY09 business plan, no reduction in the target value of headline financial figures is planned (revenue, EBITDA and net income).

14.04 17:09, Petr Oparin, RM&G

Do you intend to cut costs? If so, which ones and how? 

14.04 17:09, Dmitry Palunin

No reduction in funding investment projects is currently planned since financing sources are available for all projects. The amount of fixed costs is limited and is controlled by the Company’s shareholders. 

14.04 17:09, Gilyova Yulia, Interfax

Could you give us your guidance for headline FY09 RAS financial indicators? Are preliminary 1Q09 results already available?

14.04 17:10, Alexandra Chesnokova

According to the Company’s FY09 business plan, no reduction in the target values of headline financial figures (revenue, EBITDA and net income) is planned. 1Q09 results will be reported at the end of April, and accounting statements will immediately be posted on the Company’s website.  

14.04 17:07, User

What can you say about the Company’s accounts receivable? Thank you.

14.04 17:08, Dmitry Palunin

Given that the FY08 accounting statements cannot be compared at the beginning and the end of the reporting period due to the restructuring carried out during 2008, we note that a growth in accounts receivable was of organic nature, and was caused by a merger of predecessor companies.

14.04 17:07, Evgeny Olkhovich, CS

When did you decide it was possible and necessary to perform a revaluation of assets? 

14.04 00:00, Dmitry Palunin

See Sec.2.5 of the Explanatory Note to the FY08 accounting statements. A revaluation of the fixed assets of the predecessor companies was carried out as of 1 January 2007. The next revaluation  of fixed assets is to be carried out as of 31 December 2009.

14.04 17:07, Evgeny Olkhovich, CS

Could you specify how depreciation in FY08 and later years will be charged?

14.04 17:08, Alexandra Chesnokova

See Sec. 2.5 and Sec. 3.2 of the Explanatory Note to the FY08 accounting statements.

14.04 17:06, Evgeny Olkhovich, Credit Suisse

Could you clarify whether foreign assets of Inter RAO are consolidated into FY08 RAS statements? 

14.04 17:20, Dmitry Palunin

Investments in the equity capital of directly owned subsidiaries, including those located outside Russia, are consolidated in the accounting statements in accordance with accounting regulations No 19/02 “Financial investment accounting”.  

14.04 17:04, Evgeny Olkhovich, CS

Could you specify the share of Russian assets in FY08 consolidated figures? Do you have any guidance for changes in 2009?  

14.04 17:05, Dmitry Palunin

The share of Russian assets in terms of RAS financing statements implies a share of Inter RAO UES including foreign trade activities and electricity sold in Russia. The share of Inter RAO UES is expected to reach up to 50% after the restructuring carried out in 2008.

14.04 17:00, Balobanov Filipp

What assets could be of interest to Inter RAO as regarding entering authorised capital?

14.04 17:20, Ivan Savelyev

According to the development strategy of Inter RAO UES, generation assets are the top priority for the company’s activities. Meanwhile, the company is considering the acquisition of distribution and trading assets

in cases where this could make it possible to create vertically-integrated chains in target markets.

14.04 16:57, Stepanov Anton

Could you tell me whether an additional share issue or partial sale of the state’s stake will be necessary if Vnesheconombank enters the company’s authorised capital? 

14.04 17:36, Ivan Savelyev

Since the company is interested in allocating funds to its balance sheet to fund the company's business

strategy, Vnesheconombank is expected to enter the capital by launching an additional share placement.

14.04 16:57, Alexander Kuznetsov

Are energy exports to Finland expected to decline due to the downturn in industrial production this year?

14.04 17:43, Dmitry Palunin

According to our guidance, no decline in energy exports to Finland is expected. 

14.04 16:56, Maria Shishkina, BKS Express

How is remuneration to be calculated for management of OGK-1’s shares?

14.04 18:07, Ivan Savelyev

The essential terms of fiduciary agreements on OGK-1 shares are set by the board of directors of Inter RAO UES (minutes No 11 of the meeting dated 6 February 2009) are posted on the website of Inter RAO UES in the section entitled “BoD decisions”, use the link: http://www.interrao.ru/eng/investor/

14.04 16:54, Pyotr

Could you outline the company’s plans for OGK-1? Does OGK-1 have a business strategy? Are you planning to achieve any synergy effects, and if so, how?

14.04 17:21, Ivan Savelyev

This asset is strategically attractive for the company. The recent signment of trust management agreements is the first step on the road to large-scale cooperation between the two companies.  OGK-1’s business strategy focuses on cost-saving solutions during implementation of the investment programme, enhancing production efficiency  and the genco’s financial stability. The projected synergy effect may be achieved by integrating OGK-1’s Russia-based generating capacity and Inter RAO’s import-export activities, and also by establishing a more stable source of debt financing.

14.04 16:51, Filipp Balobanov

Could you tell me when you plan to start publishing IFRS statements?

14.04 16:52, Dmitry Palunin

In August 2009.

14.04 16:49, Pavel Popikov, OTKRITIE Investment Bank

Are there any changes in the breakdown of the company’s revenue and EBITDA by types of activities, compared with 2007? Has the company managed to implement its previously disclosed strategy aimed at reducing the share of revenues generated from electricity sales and at increasing the share of revenues derived from generating and grid facilities?

14.04 16:50, Dmitry Palunin

Strictly speaking, this question deals with the company’s IFRS-adjusted results, because they will also reflect the operating results of the company’s subsidiaries. As for INTER RAO’s RAS financials, it is not justified to compare the company’s revenue structures for 2007 and 2008, taking into account the company’s recent reorganization and ensuing changes in the revenue structure which were caused by the emergence of new activities and the integration of old activities into the business structure of INTER RAO (ie, Sochinskaya CHPP, as of 31 December 2008).

14.04 16:43, Marat Sarbanov

How profitable was the year 2008 for the company’s energy sales division and INTER RAO’s other business divisions?

14.04 17:30, Dmitry Palunin

For INTER RAO, the energy and capacity sales division is its operating division, both in Russia and abroad. Thus, profit from sales (entry 050 on the Profit and Loss Account) reflects earnings generated in this division.

14.04 16:43, Angela Sikamova,  special correspondent of Interfax – Energy Information Agency

Is INTER RAO satisfied with the work performed by OGK-1’s management team? Could we see any management reshuffles after INTER RAO’s accession into OGK-1?

14.04 16:43, Ivan Savelyev

The very fact that management continues to execute its functions indicates that shareholders are pleased with the company’s current results. Any reinforcement in the management structure is possible, if it is required under certain circumstances and if it is necessary in order to improve corporate governance.

14.04 16:41, Angela Sikamova, special correspondent of Interfax – Energy Information Agency

How will the deal with TGK-11 be structured: will it involve acquiring an equity stake (if so, how big will the stake be?) or placing an equity stake under management, as was the case with OGK-1?

14.04 16:42, Ivan Savelyev

The scheme of TGK-11’s consolidation is now under consideration.  

14.04 16:36, Angela Sikamova, special correspondent of Interfax – Energy Information Agency

Which energy assets (apart from TGK-11 and OGK-1) are of interest to INTER RAO? What about OGK-3, for example?

14.04 16:38, Ivan Savelyev

According to INTER RAO’s long-term business strategy, the Russian Federation is one of the company’s key target markets. Right now the company is considering a plethora of investment projects in the RF. Targeted discussions of these initiatives will become possible only when ongoing projects reach a certain stage of development.

14.04 16:30, Yana Tulchinskaya, OTKRITIE Investment Bank

What does the company’s cost structure look like and what are other operating and non-operating income, financial profits, revaluation, etc?  

14.04 16:30, Dmitry Palunin

This question seems to deal more with the company’s IFRS-adjusted results, because they will also reflect the operating results of the company’s subsidiaries. As for INTER RAO’s RAS financials, there is no way to compare the company’s revenue structures for 2007 and 2008, given the company’s recent reorganization and ensuing changes in the revenue structure which were caused by the emergence of new activities and the integration of old activities in the business structure of INTER RAO (ie, Sochinskaya CHPP, as of 31 December 2008).

14.04 16:25, Matvey Tayts, URALSIB Capital

Does the company’s RAS statement provide an appropriate assessment of INTER RAO’s debt load and its balance sheet cash position?

14.04 16:26, Alexandra Chesnokova

The 2008 accounting statement has been checked by the company’s qualified audit firm – NPI Konsult – which verified the  reliability of the newly presented financial statement and its compliance with accounting requirements specified in the RF legislation.  

14.04 16:23, Matvey Tayts, URALSIB Capital

What is the company’s long-term target level for its net debt/EBITDA ratio and/or its debt/equity ratio? 

14.04 16:24, Dmitry Palunin

Needless to say, the company keeps its net debt/EBITDA and debt/equity ratios, as well as other multiples under strict control, although they are calculated on the basis of the IFRS consolidated financial statement. In the long-term perspective, the company’s management team is committed to keeping these ratios at a level which will be conducive to further development and to an increase in INTER RAO’s shareholder value.

14.04 16:22, Yana Tulchinskaya, OTKRITIE Investment Bank

Could you clarify how the different ownership structures of INTER RAO’s various assets influence the accounting standards used to gauge the financial results of these assets in the company’s statement? It is widely known that INTER RAO has 50-100% exposure to some facilities, while other assets are under INTER RAO’s management. Also, are there any differences in the accounting policies applied to the company’s Russian and overseas assets?  

14.04 16:24, Dmitry Palunin

The financial results of INTER RAO and its subsidiaries are consolidated in accordance with international financial reporting standards (IFRS), ie, consolidated accounting principles are applied only to those companies where INTER RAO is a controlling equity stake holder, namely a holder of a 50%+1 share stake. Thus far, INTER RAO’s IFRS financial statement has not reflected financial results of those companies whose shares were placed under trust management.  

14.04 16:10, Pavel Popikov, OTKRITIE Investment Bank

What major differences do you expect to see in INTER RAO’s 2008 IFRS oncoming statement, compared with the company’s RAS statement for the same period of time, apart from differences connected with the company’s consolidation? 

14.04 16:15, Dmitry Palunin

The RAS financial statement reflects the results of INTER RAO’s business activities as a standalone legal entity, while its consolidated IFRS statement will reflect the operating results of INTER RAO, its subsidiaries and affiliated companies located both in Russia and abroad, calculated in accordance with international accounting standards.

14.04 16:02, Pavel Popikov, OTKRITIE Investment Bank

Is it possible to consolidate INTER RAO’s results, so to speak, artificially, on the basis of individual financial statements released by its subsidiaries in periods when they functioned as standalone companies?

14.04 16:06, Alexandra Chesnokova

It is possible to artificially generate the company’s 100% consolidated results for 2008 by adding the results reported by the respective subsidiaries during periods which are missing in INTER RAO’s own 2008 statement: ie, the results of North West CHPP and of Ivanovskie CCP for January-April 2008, results of Kaliningradskaya CHPP-2 for January-June 2008 and results of export-import activities for January-April 2008. 

14.04 16:01, Mikhail Rasstrygin

When does INTER RAO plan to release its 2008 IFRS statement?

14.04 16:14, Dmitry Palunin

In August 2009.

14.04 16:00, Opening remarks by INTER RAO

The company’s reorganization was a key event which shaped some of the specific features of INTER RAO’s FY2008 financial statement.

INTER RAO UES (formerly known as Sochinskaya CHPP) was reorganized through its takeovers of:

·          North West CHPP. The takeover took place on 1 May 2008. Prior to the takeover, the company’s business focus had been electricity and capacity generation and their sales on the new wholesale electricity and capacity market (NOREM), as well as heat generation and its sales in the Leningrad region.

·          Ivanovskie CCP. The takeover took place on 1 May 2008.  Prior to the takeover, the company’s business focus had been electricity and capacity generation and their sales on the new wholesale electricity and capacity market (NOREM), as well as heat generation and its sales in the Ivanovo region.

·          INTER RAO UES CJSC. The takeover took place on 1 May 2008. Prior to the takeover, the business focus had been electricity export and import supplies, as well as electricity and capacity sales transactions on the new wholesale electricity and capacity market (NOREM).

·          Kaliningradskaya CHPP-2. The takeover took place on 1 May 2008. Prior to the takeover, the company’s business focus had been electricity and capacity generation and their sales to the energy system of the Kaliningrad region of the RF. 

·          INTER RAO UES Holding. The takeover took place on 1 May 2008. It had not performed any business activities before the takeover. On 1 July 2008, the balance sheet of INTER RAO UES Holding incorporated shares of the newly merged entities, accounts receivables of the newly merged entities and some other assets.

The regional production facilities of INTER RAO were established on the basis of the property assets of Sochinskaya  CHPP, North West CHPP, Ivanovskie CCP and Kaliningradskaya CHPP-2. At present, INTER RAO carries out all business activities which had been performed by its subsidiaries before the reorganization.

The requirements which regulate the compilation of financial statements of reorganised legal entities are outlined in RF Finance Ministry Order №44н dated 20 Ma7 2003 “On Approval of Instructions to be Followed When Compiling Financial Statements During the Reorganization of Companies’. Thus, INTER RAO’s FY2008 Profit and Loss Account includes the FY2008 operating results of OAO Sochy CHPP (subsequently a branch office Sochy CHPP), the results of branch offices North West CHPP and Ivanovskie CCP for May-December 2008, as well as the results of export-import operations conducted in May-December 2008. 

14.04 15:59, OpenUtilities team

Dear participants, good afternoon! We’re opening our internet-conference “Inter RAO UES’s 2008 RAS results”. The conference is held from 16:00 to 18:00 msc. We’re awaiting your questions and remind you that they will be held by Inter RAO UES’s financial and strategic division’s representatives.

Best regards,

OpenUtilities team