INTER RAO EES : Group Announces Consolidated Interim IFRS Financial Statements for the First Six Months of 2014

Inter RAO Group announced consolidated interim IFRS financial statements for the first six months of 2014. The statements were reviewed by Ernst & Young.

* billion RUB unless indicated otherwise. Financial indicators are provided according to financial statements in billion rubles rounded to one decimal place. Percentages are calculated from rounded figures.

Financial performance of LLC Kvarz Group and JSC Tomskenergosbyt subsidiaries is included in the statements from the day when the Group established control over them (August-September 2013), thus their performance is reflected in group reporting in its entirety starting from the first six months of 2014.

Adjusted net income excludes provisions and impairments (4.8 billion rubles in the first six months of 2014 compared to 17.1 billion rubles in the first six months of 2013), and revaluation of put and call options under the agreement with SC Vnesheconombank (1.6 billion rubles in the first six months of 2014 compared to 7.6 billion rubles in the first six months of 2013).

Detailed EBITDA formula is provided in the Consolidated Financial and Operating Results of Inter RAO Group for the First Six Months of 2014 presentation.

• Addition of 1.4 GW of new and rehabilitated power generation capacity under Capacity Delivery Agreements (CDA) in the second half of 2013 and early 2014, including power generation units at Gusinoozyorskaya TPP, Yuzhnouralskaya TPP-2, Omskaya TPP-3, Nizhnevartovskaya TPP and the Olympic Dzhubginskaya TPP
• Fuel cost optimization by JSC Inter RAO - Electric Power Plants
• Favorable pricing on the Wholesale Electricity and Capacity Market in the first pricing zone
• Acquisition of control over LLC Kvarz Group and JSC Tomskenergosbyt in the third quarter of 2013, and the assignment of guaranteeing supplier status for Omsk and Orel regions
• Increases in retail premiums for guaranteeing suppliers of the Group on July 1, 2013 and January 1, 2014
• Rise of euro and US dollar against ruble and other national currencies of the countries where the Group operates

Group revenue increased by 11.1% (35.2 billion rubles) to 352.9 billion rubles.

Revenue from Supply segment increased by 29.9 billion rubles (15.6%) to 221.3 billion rubles, largely due to increased retail premiums for suppliers of guaranteeing suppliers, larger customer base due to the assignment of guaranteeing suppliers status in Omsk and Orel regions, and the inclusion of JSC Tomskenergosbyt, with 5.1 billion rubles of revenue for the first six months of 2014, in consolidated reporting.

Revenue from Generation segment increased by 7.5 billion rubles (8.8%) to 92.8 billion rubles reflecting increased capacity sales due to addition of new CDA power generation in late 2013 and early 2014, including the Olympic Dzhubginskaya TPP, Unit 4 of Gusinoozyorskaya TPP, Unit 1 of Yuzhnouralskaya TPP-2, and PGU-90 of Omskaya TPP-3. Consolidated revenue from capacity sales to third parties under Capacity Delivery Agreements for the first six months of 2014 was 7.8 billion rubles, up 44.7% compared to the previous six-month period. Other favorable factors included higher electricity sales prices in the first pricing zone and indexation of heat tariffs on July 1, 2013.

Revenue from Armenia segment increased by 2.0 billion rubles (47.3%) to 6.2 billion rubles reflecting an average 30% increase in electricity prices in Armenia in July 2013 enacted by the national regulatory authority, larger customer base and higher electricity transmission volumes.

Revenue from other foreign operations also increased, with an exception of Turkey segment whose revenue fell by 1.2 billion rubles (17.6%) due to scheduled repairs at Trakia TPP in the second quarter of 2014.

Revenue from Trading segment reduced by 5.2 billion rubles (20.8%) to 19.9 billion rubles due to smaller deliveries to domestic market, Belarus and Finland reflecting the combination of unfavorable pricing environment in Scandinavian energy markets and growing electricity prices in the Russian domestic market.

Operating expenses increased by 3.7% to 343.5 billion rubles.

Electricity transmission fees increased by 9.6 billion rubles (11.9%) to 90.3 billion rubles in the reporting period, reflecting grid operator price increases from January 1, 2014, and increased transmission volumes due to the assignment of guaranteeing supplier status for Omsk and Orel regions and the inclusion of JSC Tomskenergosbyt in Group reporting.

Cost of purchased electricity and capacity increased by 10.3 billion rubles (8.7%) to 129.7 billion rubles due to higher wholesale electricity prices than in the same period a year ago, and also due to inclusion of JSC Tomskenergosbyt in Group reporting.

Fuel costs increased by 4.0 billion rubles (6.2%) to 68.3 billion rubles in the first six months of 2014. This marginal increase reflects the indexation of gas tariffs on July 01, 2013, which was partially offset by fuel cost optimization resulting in lower coal costs of Russian power generation assets, and reduced utilization of inefficient generation assets. Increased utilization of power plants firing gas supplied by independent suppliers was another contributing factor to higher fuel costs.

As the result, Group EBITDA was 28.1 billion rubles, up 30.1%.

The largest share of EBITDA is attributable to Generation - The Russian Federation segment, which contributed 20.6 billion rubles. This segment grew 21.6% (3.7 billion rubles) due to addition of new CDA capacities, higher electricity and capacity prices, and marginal fuel cost increases achieved through selection of coal and gas suppliers with the most favorable pricing policies.

EBITDA of Supply segment increased by 4.1 billion rubles (195.6%), reflecting increased retail premiums for guaranteeing suppliers within Inter RAO Group, that more than offset increased electricity transmission costs. Increased customer base in Tomsk and Omsk regions, that we added to our supply network, and Orel region as well was another EBITDA growth factor.

EBITDA of Trading segment decreased by 0.6 billion rubles (29.2%) due to unfavorable pricing environment in international markets. Our exports to Belarus and Finland.

EBITDA of foreign assets segment fell by 0.8 billion rubles (32.8%) to 1.7 billion rubles. This reduction is mostly attributable to recognition of foreign exchange losses on US dollar and ruble loans taken by JSC Stantsiya Ekibastuzskaya GRES-2 to finance its investment program. Scheduled maintenance downtime of Trakia TPP in the second quarter of 2014 also contributed to this reduction. These factors were partially offset by increased EBITDA from Moldavia segment, which resulted from higher electricity deliveries and lower specific fuel costs of CJSC Moldavskaya GRES due to larger share of gas in 2014 fuel mix, and also by positive trend in Armenia segment reflecting higher sales prices and larger consumption volumes.

Group's share in profits of associated entities and joint ventures fell by 98.3% to 0.03 billion rubles.

The 1.9 billion reduction of this line from the first six months of 2013 reflects significantly lower financial performance of JSC Stantsiya Ekibastuzskaya GRES-2, whose debt is denominated in US dollars and Russian rubles, following the devaluation of Kazakh tenge.

As the result, Inter RAO Group reported net income of 6.9 billion rubles for the first six months of 2014, compared to net loss of 13.8 billion rubles for the first six months of 2013.

The Group reported net income of 6.9 billion rubles for the first six months of 2014 due to improved efficiency of generation segment, additions of CDA capacity and significant expansion of the supply segment.

Excluding non-financial items, provisions and revaluation of the option agreement with Vnesheconombank, adjusted net income of the Group for the first six months of 2014 was 13.3 billion rubles, a 2.4 billion ruble (22.0%) increase from 10.9 billion rubles of adjusted net income for the first six months of 2013.

Consolidated interim statement of financial position

Non-current assets reduced by 4.6 billion rubles (1.3%) to 338.3 billion rubles.

Reduced value of investments in associates and jointventures due to foreign exchange losses of JSC Stantsiya Ekibastuzskaya GRES-2triggered by the devaluation of tenge, and accrual of dividends from NVGRES Holding Limited and other joint ventures were the largest contributing factors to the reduction of non-current assets.

Current assets increased by 14.4 billion rubles (8.5%) to 184.1 billion rubles.

Increased bank deposits-made possible by stronger operating cash flow of the Group, sale of 7.5% ownership stake in Volzhskaya TGK, and 2013 dividends-was the strongest contributing factor to the increase in current assets.

Equity increased by 6.3 billion rubles (1.9%) to 340.9 billion rubles.

Higher retained earnings reflecting the net income the Group generated for the first six months of 2014 was the primary driver of equity increase.

Total liabilities increased by 3.5 billion rubles (2.0%) to 181.5 billion rubles.

Higher total liabilities are the result of the Group's attracting loans to finance their operations and investment program.

Net debt inclusive of Group's share of the debt of joint ventures increased by 9.2% to 65.1 billion rubles.

Total loans and borrowings of Group subsidiaries, excluding Group's share of the debt of joint ventures, increased by 5.2 billion rubles (9.8%) to 57.9 billion rubles due to attraction of new loans to finance their operations and investment program.

The split between non-current and current debt (excluding loans and borrowings of joint ventures) was 43% and 57% as of June 30, 2014, compared to 76% and 24% on December 31, 2013. Share of current debt increased following the reclassification of the long-term loan from JSC Mezhregionenergostroy (with consideration for factoring services provided by VTB Factoring) into short-term debt according to its repayment schedule.

Loans and borrowings of joint ventures represent 7.2 billion rubles of total debt. Of those, 6.2 billion rubles are attributable to the Group's share of the debt portfolio of JSC Stantsiya Ekibastuzskaya GRES-2used to finance its investment program.

***

Inter RAO Group  is a diversified energy holding serving various segments of Russian and international electric power industry. The Group is the leading exporter and importer of electricity in Russia actively increasing electricity generation and sales, and developing new lines of business. Its corporate strategy is focused on making Inter RAO a global energy enterprise and a key player in the global energy market. Inter RAO Group owns and operates over 34.3 GW of installed power generation capacity. www.interrao.ru