Godman Sachs EEMEA one-on-one Conference November 2010
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Transcript of Godman Sachs EEMEA one-on-one Conference November 2010
1
IDGC OF CENTER:
RESULTS OF 9 MONTHS,
FORECAST FOR 2010
2
The information in this presentation was received from the sources which, in opinion of IDGC of Centre (“the Company”), are reliable.
Nevertheless, we do not guarantee accuracy of the given information which may be short or incomplete. All opinions and estimations
containing in the present material reflect our opinion at the date of publication and are subject to change without notice.
This presentation does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase
or subscribe for, any shares or other securities representing shares in the Company, nor shall it or any part of it nor the fact of its
presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision.
The information in this presentation includes forward-looking statements. These forward-looking statements include all matters that
are not historical facts, statements regarding the Company’s intentions, beliefs or current expectations concerning, among other
things, the Company’s results of operations, financial condition, liquidity, prospects, growth, strategies, and the industry in which the
Company operates. By their nature, forward-looking statements involve risks and uncertainties, including, without limitation, the risks
and uncertainties to be set forth in the prospectus, because they relate to events and depend on circumstances that may or may not
occur in the future. The Company cautions you that forward looking statements are not guarantees of future performance and that its
actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may
differ materially from those made in or suggested by the forward-looking statements contained in this presentation. In addition, even if
the Company’s results of operations, financial condition and liquidity and the development of the industry in which the Company
operates are consistent with the forward-looking statements contained in this presentation, those results or developments may not be
indicative of results or developments in future periods
The Company does not bear the responsibility for consequences of use of opinions containing in the present report or applications, or
for incompleteness of the information. No person is under any obligation to update or keep current the information contained herein.
By attending the presentation you agree to be bound by the foregoing limitations..
Disclaimer
IDGC of Center - an attractive target for investments
Prospects of growth
Strong team of managers
Leader in the transition toRAB-based regulation
• The transition to a new system of tariff regulation - RAB;• The first IDGC which has completely transited to the RAB-based regulation (11
branches):2009 - 3 branches2010 - 8 branches
• Maintained a high level of iRAB – RUR 116 billion
Achievements of the management team:• Developed and implemented a system of KPI, matrix management;• Good financial condition, positive dynamics on all key financial and operating
indicators;• A transparent system of corporate governance;• Implementation of stock option plan in 2011
• Investment "history" of the network complex attracts attention of analysts and investors:
- since the beginning of the year capitalization of the Company increased by 82%; - sector is significantly undervalued - the growth potential according to estimations of analysts of major investment banks in relation to their foreign counterparts;
• Reducing losses and increasing reliability of the network assets of the Company in medium term due to the transition to RAB-based regulation and on-time implementation of large-scale investment program
3
Company‟s storyline
2004-2005 2006 2007 2008 2009 2010
4
December „04IDGC of Centre and North Caucasus is registered aimed at further interregional integration through merger with the Companies of DGC
„06 Enhancement of DGC management system. Transferring of powers of the DGC sole executive body to the Company
April „07The final structure of the Company was approved, the Company now includes 11 regional grid companies in Central Russia (decision of the Board of Directors of RAO UES of Russia)
January„09 3 branches of the Company transferred to RAB;April „09 Company‘s shares were included into quotation list ―B‖ of MICEXNovember „09 The Company was assigned Standard & Poor's credit rating "BB-"
January „10 Another 2 branches transferred to RAB: Kurskenergo, YarenergoJuly „10 Rating Agency S&P approved the Company‘s credit rating ―BB-‖, forecast―Stable‖Nov – Dec „10 FST of Russia approved the transition to RAB of the remaining6 branches (Bryanskenergo, Orelenergo, Kostromaenergo, Tambovenergo, Voronezhenergo, Smolenskenergo)
March „08 Adherence of DGCs to IDGC of CentreMay „08 Company‘s shares were launched for trading at MICEX (MRKC) and RTSJuly „08 JSC ―IDGC Holding‖ became the majority shareholder of the CompanyOctober „08 Shares of IDGC of Centre were included in calculation base of MICEX PWR
5
Key indicators
The Company is a natural monopoly, tariffs are regulated by state
Capitalization (as of 23.11.2010)
RUR 56.15 blnUSD 1.81 bln
Amount of shareholders(as of 12.05.2010)
15,157
Revenue(RAS 2009) RUR 49.1 bln(RAS 9months 2010) RUR 43.4 bln
Net profit(RAS 2009) RUR 1.3 bln(RAS 9months 2010) RUR 3.8 bln
Net assets(RAS as of 30.09.2010)
RUR 45.1 bln
Output(2009 )(as of 30.09.2010
53.1 bln kWh40.68 bln kWh
Length of power lines (overhead 0.4 — 110 kV power lines as of 30.09.2010)
376.9 thousand km
Capacity of substations(as of 30.09.2010)
35 — 110 kV 31.2 GVA
6 — 10/0.4 kV 15.0 GVA
Number of personnel(as of 30.09.2010)
27,920
JSC “IDGC Holding”*
JSC “IDGC of Center”
Minority shareholders
50.23% 49.77%*
JSC “YarESK”
JSC “Energetik”
51%
Belgorodenergo
Брянскэнерго
Воронежэнерго
Kostromaenergo
Kurskenergo
Lipetskenergo
Orelenergo
Smolenskenergo
Tambovenergo
Tverenergo
Yarenergo
Branches Subsidiaries
Group of Companies
- November 11, 2009Subsidiary company JSC "Energetik" acquired a controlling stake in JSC ―YarESK‖- the target company for the consolidation of power grid assets in the Yaroslavl region
100%
* - taking into account the State‘s share 0.46%
Structure of Group of Companies IDGC of Center . Key shareholders
JSC “Yargorelektroset”
51%+49%
- August 3, 2010
JSC “IDGC of Center” signed a contract for the acquisition of a controlling stake in JSC “Yargorelektroset” - one of the largest TSO in CFD. As a result of the transaction under the control of JSC “IDGC of Center” will be more than 90% of the assets of the power grid complex of the Yaroslavl region (the deal is on the completion stage)
Operational business units11 branches
State
52.69%
6
Share capital structure
* - as of 12.05.2010
IDGC of Center has a diversified share capital structure. Free float according to the Company‟s management estimations is about 30%.
7
Developed structure of management bodies…
General Meeting of Shareholders
Board of Directors
Committee on Technological Connection (5)
Committee on Strategy and Development (1)
Internal Audit Commission
Auditor
Internal Control and Audit Department
Reliability Committee(2)
Committee on Personnel and Remuneration (3)
Committee on Audit(4)
Chairman of the MB–Director General
Management Board
Executive bodies:
High authority:
Strategic management body:
Committees (5):
Internal control bodies over business activity
External bodies responsible for monitoring financial and economic activities:
Control bodies over the Company’s business activity
Bodies providing recommendations for the Board of Directors over the Company’s strategic development
formed in 2009
8
…meets international corporate governance standards
Target subsystems of the management:
• Growth and changes• Finance• Consumers• Main business processes• Management system• Personnel
Strategic vision of the Company‟s management – industry leadership…
Challenges of the top level
Goals of the Company
Growth Finance Consumers
Industry leadership
Management PersonnelProcesses
Ensure long- term growth of
shareholder capital value
Enhance the efficiency of
business
Ensure effective sales of
services
Realize efficient and safe functioning and
innovative development of
electricity network complex
Ensure development and
efficient functioning of management
system
Enhance efficiency of
human resources
9
... a tool to achieve - the project approach, KPI system
Credit rating
The level confirms the Company‟s ability to extend credit
History of credit rating
Confirmed July „10
Assigned November ‗09
Scale of international rating(in foreign currency)
IDGC of
Centre
Mosenergo
MUEC
Outlook (C-Stable)(Н-Negative)
In 2009 Standard&Poor‟s assigned credit rating to the
Company «ВВ-/В/ruAA-» forecast «Stable»,
In July 2010 the rating was confirmed on the same level
10
National rating of CG
History of RCG of IDGC of Center
Confirmed July‟ 10
Assigned September ‗08
“7” Developed practice of
corporate governance. Leading position
among IDGCs
Rating NRCG 7 indicates low risks of corporate
governance, compliance with the RF legislation
and the Code of Corporate Behavior
Developed practice of corporate governance
11
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
31
.12
.09
25
.01
.10
09
.02
.10
26
.02
.10
15
.03
.10
30
.03
.10
14
.04
.10
29
.04
.10
14
.05
.10
31
.05
.10
15
.06
.10
30
.06
.10
15
.07
.10
30
.07
.10
16
.08
.10
31
.08
.10
15
.09
.10
30
.09
.10
15
.10
.10
29
.10
.10
МРСК ЦентраMicexPWRИндекс Сети
c 31.12.09
Stock market
Dynamics of changes in IDGC of Centre share price, MicexPWR
and Network Index for 10 months 2010
Start of trading:May 21, 2008
Quotation list:«B» MICEX
IDGC of Centre shares are included in MICEX PWR, RTSeu index calculation base
Ticker symbols
MICEX MRKC
RTS classic MRKC
RTS stock MRKCG
IDGC of Center
MICEX-PWR
Index “Network”
From 31.12.2009
12
Key indicators of stock market:2nd place on capitalization among IDGCs…
Market multiples on IDGCs and foreign companies-analogues *
Capitalization of distribution grid companies as of31.12.10 and of 29.10.10, RUR bln (MICEX)
**
1,0
5,5
12,9
0,9
5,8
22,2
2,2
11,210,2
0,00
5,00
10,00
15,00
20,00
25,00
EV/S 2010П EV/EBITDA 2010П P/E 2010П
МРСК Центра
Среднее по российским аналогам
Среднее по развивающимся странам
13
… potential of growth relative to foreign companies-peer group
53
34
21 23 22 26 23 22
94
78
62
33 30 29 28 26 21
9 6
0
10
20
30
40
50
60
70
80
90
МО
ЭС
К
МР
СК
Цен
тра
МР
СК
Цен
тра
и П
ри
вол
жья
МР
СК
Си
би
ри
МР
СК
Ур
ала
Лен
Эн
ерго
МР
СК
Во
лги
МР
СК
Сев
еро-З
апад
а
МР
СК
Юга
МР
СК
Сев
ерн
ого
Кав
каза
Капитализация на 31.12.09, млрд. руб.
Капитализация на 29.10.10, млрд. руб.
IDG
C o
f C
entr
e a
nd
Volg
a
MO
ES
K
IDG
C o
f C
entr
e
Lenenerg
o
IDG
C o
f S
iberia
IDG
C o
f U
rals
IDG
C o
f N
ort
h-W
est
IDG
C o
f V
olg
a
IDG
C o
f S
outh
IDG
C o
f N
ort
h C
aucasus
IDGC of Center
Average on Russian companies
Average on developing countries
Capitalization as of 31.12.2009, bln.RUR
Capitalization as of 29.10.2010, bln.RUR
* Calculations of the Company, data of investment banks covering the activities of IDGCs
** Calculations of the Company, data of investment banks covering the activities of IDGCs (foreign analogues: Eletropaulo, Compania General de Electricidad, Aksu Enerji ve Ticaret, etc.)
4,86%
0,36%
0,00%
1,00%
2,00%
3,00%
4,00%
5,00%
6,00%
7,00%
20
283
0
100
200
300
400
500
600
700
800
900
1000
28,74%
3,06%
0%
5%
10%
15%
20%
25%
30%
35%
40%
НДЦ (% от УК)
ДКК (% от УК)
3 050
0500
1 0001 5002 0002 5003 0003 5004 000
14
… significant decrease of bid-ask spread
Key indicators of stock market:2nd place on volumes of trades among IDGCs…
Average bid-ask spread of MRKC at MICEX (%) , 2009-2010
Day-average number of contracts at MICEX.pcs.Stock turnover at MICEX, Jan- Oct 2010, RUR mln
Proportion of shares in the nominal holding by depository exchanges 2009-2010gg:
15
IDGC of Centre
• RAS: 9 months 2010, forecast for 2010
• Transit to RAB-based regulation
Revenue by activities: results, forecast (RAS)
TECHNOLOGICAL CONNECTION REVENUE, RUR BLN0
510152025303540455055606570
29,3
32,6
46,9
57,1
‗07 ‗08 ‗09 ‘10(п)
ELECTRICITY DISTRIBUTION REVENUE, RUR BLN
‗07 ‗08 ‗09 ‘10(п)0123
2,62 2,51,65
2,30
0
10
20
30
40
50
60
70
REVENUE, RUR BLN
32,4035,66
49,05
60,12
‗07 ‗08 ‗09 ‘10(п)
16
OTHER ACTIVITY
TECHNOLOGICAL CONNECTION
ELECTRICITY TRANSMISSION
OTHER TGC‟S REVENUE TRANSIT
REVENUE W/O OTHER TGC‟S
TECHNOLOGICAL CONNECTION
RUR bln 30.09.2009 30.09.2010 Change
Revenue 36.05 43.38 20.3%
Cost 31.28 36.65 17.2%
Gross profit 4.77 6.73 41.1%
Gross profit margin 13.2% 15.5% 2.3 p.p.
EBITDA 6.74 8.72 29.4%
EBITDA margin 18.7% 20.1% 1.4 p.p.
Net profit 2.01 3.80 89.1%
Net profit margin 5.8% 8.8% 3.0 p.p.
08.72
6.74
+29.4%
EBITDA, RUR bln
9M2009
19M2010
9 months 2010 performance (RAS)
… significant growth of all key indicators
17
Structure of capital
RUR bln 31.12.2009 30.09.2010 Change
Equity 41,23 45,04 9.24%
Long-term liabilities 10,73 11,69 8.95%
Short-term liabilities 0,40 0,00 -100%
Accounts payable 8,69 11,29 42.04%
Other 61,05 68,02 11.42%
Decrease of average interest rate on credits in
2010 by 5.0%
Management of loan portfolio –absence of short-term credits and loans…
12.93%
10.99%
8.63% 8.41%
18
31.12.09 31.03.10 30.06.10 31.10.10 31.12.10F
8.00%
34%
30%
20%
8%3% 5%
Financing support, as of October 31, 2010
Sberbank
Rosbank
Alfa Bank
Gazprombank
Nordea Bank
Others
Year EBITDA Net Profit Net Debt Net debt/
EBITDA
2006 4.74 1.31 3.27 0.69
2007 6.83 1.98 6.14 0.90
2008 7.49 0.87 9.31 1.24
2009 7.64 1.33 10.76 1.41
2010F 11.27 4.07 14.88 1.32
9M 2009 6.74 2.01 9.34 1.39
9M 2010 8.72 3.80 10.11 1.16
RUR bln
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
0
2
4
6
8
10
12
2006 2007 2008 2009 2010(П)
EBITDA Net debt/EBITDA
19
Debt position –low indicator of Net debt/EBITDA
EBITDA vs. Net Profit, RUR blnRatio Net Debt/EBITDA
NET PROFIT
0
2
4
6
8
10
12
Освоение К
В
Вво
д О
Ф
Осво
ен
ие
КВ
Вво
д О
Ф
Осво
ен
ие
КВ
Вво
д О
Ф
Осво
ен
ие
КВ
Ввод
ОФ
Осво
ен
ие
КВ
Вво
д О
Ф
2006 2007 2008 2009 2010
Прочее
Новое строительство и расширение действующих объектов
Техперевооружение и реконструкция
YearVolume of capital
investments,RUR bln w/o VAT
Commissioning of fixed assets. RUR bln w/o
VAT
2006 4.509 4.350
2007 7.839 6.372
2008 9.071 7.739
2009 6.529 7.687
2010F* 11.820 11.797
RUR bln
www.mrsk-1.ru 20
Investment activity
Others
New construction and expansion
of existing facilities
Modernization and reconstruction
CI
FA CI
FA CI
FA CI
FA CI
FA
forecast
0
50
100
150
200
250
300
350
Полная величина ИК
Остаточная величина ИК
226
76
111
39
RAB филиалы
Филиалы по которым планируется переход на RAB
21
Transition to RAB
IC full value IC residual value
RAB planned branches
RAB branches
Expected IRAB on all branches –
RUR 115.83 bln
Date of transition
Branch Total value of invested
capitalRUR mln
IRAB,RUR mln
from 01.01.2009 Belgorodenergo
50 609 19 930Lipetskenergo
25 726 10 030Tverenergo
55 276 14 366
from 01.01.2010 Kurskenergo
30 782 10 802Yarenergo
21 586 8 968
from 01.11.2010 Bryanskenergo
20 045 5 989Orelenergo
21 571 6 407
From 01.01.2011 Kostromaenergo
16 892 7 437
Tambovenergo
18 609 5 515
Voronezhenergo
38 110 12 650
Smolenskenergo
37 041 13 735
Contact information
JSC “IDGC of Center”
129090 Russia, Moscow, Glukharev per., 4/2Tel./fax: +7 (495) 747 9292www.mrsk-1.ru
Director on Corporate RelationshipsTatiana A. [email protected]
Head of Department for Shareholders RelationshipTatiana N. [email protected].: +7 (495) 747 9292, ext. 3181
22
23
Appendix
24
Investment activity*
Year
Volume of capital investments,
RUR bln w/o VAT
Commissioning of fixed assets. RUR bln w/o
VAT
2009 6,529 7,687
2010F 11 820 11 797
2011F 18 929 17 895
2012F 22 717 21 457
2013F 33 622 32 653
2014F 33 231 33 983
0
5
10
15
20
25
30
35
40
Ос
во
ен
ие
КВ
Вв
од
ОФ
Ос
во
ен
ие
КВ
Вв
од
ОФ
Ос
во
ен
ие
КВ
Вв
од
ОФ
Ос
во
ен
ие
КВ
Вв
од
ОФ
Ос
во
ен
ие
КВ
Вв
од
ОФ
Ос
во
ен
ие
КВ
Вв
од
ОФC
I
FA CI
FA CI
FA CI
FA CI
FA CI
FA
RUR bln
2009 2010 2011 2012 2013 2014
*Presented data on investment program have been formed without taking into account changes made by FTS Order from 01.09.2010 N 218-E / 5 «On Amendments to the Order of the Federal Tariff Service of 15.08.2008 N 152-e/15 «On approval of the rate of return on invested capital».
(Registered by Ministry of Justice on 21.09.2010 N 18491).
Perhaps there will be changes in the middle of October 2010, when approving theadjusted investment program by the Board of Directors of IDGC of Centre.
25
Productive supply, forecast on 2010-2014
50,00
51,00
52,00
53,00
54,00
55,00
56,00
57,00
58,00
59,00
‗09
Bln KWh
‘10F ‘11F ‘12F ‘13F ‘14F
53,13
56,21
55,14
57,89
57,05
58,48
+3.8%
+1.9%
+1.5%
+1.5%
+1.0%
www.mrsk-1.ru 26
200
250
300
350
400
450
500
550
600
20
25
30
35
40
45
50
55
60
2006 2007 2008 2009 2010
MVBln KWh
Полезный отпуск э/э, млрд. кВтч Объемы ТП, МВт
YearProductive supply, bln
kWh
Growth rate,
%
Volume of technological
connection, MV
Growth rate,
%
2006 54.0 - 280.47 -
2007 56.4 4.4% 481.28 71.6%
2008 56.6 0.4% 479.84 -0.3%
2009 53.1 -6.2% 445.62 -7.1%
2010(F) 55.2 0.8% 531.55 19.3%
Appendix 1Sales of services (RAS)
Productive supply, bln KWh Volume of
TC, MW
1,00
3,00
5,00
7,00
9,00
11,00
13,00
15,00
2006 2007 2008 2009 2010F
www.mrsk-1.ru 27
Period kWh (th.) %Change,
p.p.
2006 6.238 10.35
2007 5.932 9.52 (0.83)
2008 5.875 9.40 (0.12)
2009 5.977 10.11 0.71
2010F 6.154 10.03 (0.08)
10.4
Dynamics of Electricity Losses, 2006-10F (%)
Appendix 2Dynamics of Electricity Losses 2006-2010
9.59.4
10.1 10.03
www.mrsk-1.ru 28
Power transmission share market in 2010 (in terms of money)
Technological connection share market in 20 (in terms of money)
Appendix 3Market share in 1H 2010
OWN REVENUE
REVENUE OF TGCs
OWN REVENUE
REVENUE OF TGCs
Bryanskenergo
Voronezhenergo
Tambovenergo
Yarenergo
Lipetskenergo
Tverenergo
Orelenergo
Kurskenergo
Smolenskenergo
Belgorodenergo
Kostromaenergo
Company‟s share in the power transmission market in regions, % (2009)
www.mrsk-1.ru 29
Tariffs
Average distributional tariffs, kop/kWh
Branch 2006 2007 2008* 2009* 2010*
Belgorodenergo 48,4 52,4 65,2 80,8 100,1
Bryanskenergo 40,5 74,9* 86,9 106,0 130,5
Voronezhenergo 38,2 45,5 74,0 91,1 102,4
Kostromaenergo 64,3 76,2 91,1 106,4 130,8
Kurskenergo 46,4 47,6 59,1 69,1 98,7
Lipetskenergo 33,5 42,3 64,8 82,2 111,1
Orelenergo 48,3 66,5 105,6 117,0 140,5
Smolenskenergo 65,4 73,0 90,3 110,4 123,8
Tambovenergo 47,0 49,3 87,3 100,3 108,3
Tverenergo 52,7 58,4 103,4 138,3 154,2
Yarenergo 48,4 43,3 59,8 74,0 86,2
* Tariffs are inclusive of the territorial network organizations
www.mrsk-1.ru 30
Tariffs
Average distributional tariffs w/o TNO, kop/kWh
Branch 2008 2009 2010
Belgorodenergo 64,5 79,8 98,9
Bryanskenergo 55,4 70,3 83,8
Voronezhenergo 52,8 62,6 71,5
Kostromaenergo 90,2 104,5 126,7
Kurskenergo 52,0 60,4 65,8
Lipetskenergo 52,9 68,9 91,8
Orelenergo 79,6 91,1 108,2
Smolenskenergo 85,7 105,3 118,0
Tambovenergo 51,8 62,6 70,9
Tverenergo 72,4 102,2 119.8
Yarenergo 42,1 51,2 60,6