Inter RAO YEES : Group Announces Consolidated IFRS Financial Results for the First Nine Months of 2014

Inter RAO Group announced consolidated IFRS financial results for the first nine months of 2014:

* billion RUB unless indicated otherwise. Financial indicators are provided according to financial statements in billion rubles rounded to one decimal place. Percentages are calculated using resulting rounded values. Financial performance of LLC Kvarz Group and JSC Tomskenergosbyt subsidiaries is included in the statements from the day when controlling stakes in them were acquired (August-September 2013), thus the group statements reflect their performance in full only for the first nine months of 2014.

Adjusted net income excludes provisions and impairments (5.4 billion rubles in the first 9 months of 2014 compared to 18.6 billion rubles in the first 9 months of 2013), and revaluation of put and call options under the agreement with Vnesheconombank (2.7 billion rubles in the first 9 months of 2014 compared to 9.2 billion rubles in the first 9 months of 2013).

Detailed EBITDA formula is provided in the presentation of consolidated financial and operating results of Inter RAO Group for the First 9 Months of 2014.

• Addition of 1.3 GW of new and rehabilitated power generation capacity under Capacity Delivery Agreements (CDA) in 2013 and early 2014, including power generation units at Gusinoozyorskaya TPP, Yuzhnouralskaya TPP-2, Omskaya TPP-3, the Olympic Dzhubginskaya TPP, and Nizhnevartovskaya TPP.
• Optimization of capacity utilization to maximize the profit margin on electricity sales.
• Fuel cost optimization by JSC Inter RAO - Electric Power Plants.
• Electricity prices rose by 8% in the first pricing zone of the day-ahead market year to year.
• Acquisition of controlling stakes in LLC Kvarz Group and JSC Tomskenergosbyt in the third quarter of 2013, and the acquisition of the status of «guarantee supplier» on the territory of Omsk and Oryol regions.
• Increased retail premiums of the Group's guaranteeing suppliers.

Group revenue increased by 11.0% (52.1 billion rubles) to 526.0 billion rubles.

Revenue from the supply segment increased by 36.8 billion rubles (12.8%) to 325.0 billion rubles, largely due to increased premiums for guaranteeing suppliers, larger customer base following the acquisition of the status of guarantee supplier in Omsk and Oryol regions, and inclusion of JSC Tomskenergosbyt, with 7.3 billion rubles of revenue in the first 9 months of 2014, in consolidated reporting.

Revenue from the generation segment increased by 10.3 billion rubles (8.2%) to 135.7 billion rubles reflecting larger proceeds from capacity sales due to addition of new CDA power generation capacity (except for Nizhnevartovskaya TPP, its performance figures are reflected in the net profit report of associated and joint companies). Other favorable factors included increased electricity prices in the first pricing zone and indexation of heat tariffs on July 1, 2013.

Revenue from Armenia segment increased by 2.8 billion rubles (39.9%) to 9.8 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 Moldavia segment increased by 1.8 billion rubles (59.0%) to 4.9 billion rubles due to increased electricity sales made possible by transition to natural gas.

Other foreign assets also increased their revenue with exception of Turkey segment where revenue reduced by 0.7 billion rubles (7.0%) to 9.6 billion rubles due to long scheduled maintenance downtime in the second quarter of 2014.

The revenue of engineering segment increased by 0.7 billion rubles to 1.2 billion rubles. This growth reflects the integration of LLC Kvarz Group into Inter RAO Group as a subsidiary on August 1, 2013.

Revenue from the trading segment reduced by 0.3 billion rubles (0.9%) to 35.1 billion rubles due to smaller deliveries to domestic market, Belarus, Finland and Norway reflecting the combination of unfavorable pricing environment in Scandinavian energy markets and growing electricity prices in the Russian domestic market. However, this reduction was partially offset by growth in the contract currency rates to ruble.

Operating expenses increased by 4.8% to 513.3 billion rubles.

Cost of purchased electricity and capacity increased by 20.4 billion rubles (11.5%) to 197.1 billion rubles due to integration of JSC Tomskenergosbyt into the Group, acquisition of the status of guarantee supplier in Omsk and Oryol regions, and electricity price hikes in the wholesale market compared to the same period a year ago.

Electricity transmission fees increased by 11.2 billion rubles (9.3%) to 132.1 billion rubles in the reporting period, reflecting grid operator price increases from January 1, 2014, and increased transmission volumes due to the assignment of the status of guarantee supplier in Omsk and Oryol regions and the inclusion of JSC Tomskenergosbyt in Group reporting.

Fuel costs increased by 5.1 billion rubles (5.3%) to 102.2 billion rubles due to the indexation of gas tariffs on July 1, 2013, and addition of new power generation capacities in the fourth quarter of 2013 and the first quarter of 2014. A relatively minor increase in fuel costs compared to revenue growth reflects the optimization of capacity utilization, the offloading of inefficient power generation facilities, the optimization of fuel costs due to coal price reductions for Russian power generation assets, and increased utilization of power plants purchasing gas from an independent supplier.

As the result, Group EBITDA was 40.7 billion rubles, up 48.0%.

The largest share of EBITDA is attributable to the Generation - Russian Assets segment, which contributed 28.4 billion rubles. This segment grew 28.3% (6.3 billion rubles) due to addition of new CDA capacities.

EBITDA of the supply segment increased by 3.9 billion rubles (88.9%), reflecting increased the retail premiums for the guaranteeing suppliers within Inter RAO Group, which more than offset increased electricity transmission fees. Increased customer base in Tomsk, Omsk and Oryol regions, which we added to our retail sales geography, was another EBITDA growth factor.

EBITDA of the trading segment increased by 0.04 billion rubles (1.6%) due to significant reduction of deliveries to Belarus, Finland and Norway and significant increase in contract currency rates resulting in increased revenue in ruble terms.

EBITDA of foreign assets segment reduced by 0.07 billion rubles (1.6%) to 4.0 billion rubles. This reduction is mostly attributable to recognition of foreign exchange losses on the US dollar loan taken by Ekibastuzskaya TPP-2 to finance its investment program. This factor was offset by an increased EBITDA of Moldavia segment, which resulted from the transition of CJSC Moldavskaya GRES from coal to natural gas, together with growth of Armenia segment reflecting price increases and increased production.

Group share of profit of associates and joint ventures dropped by 45.7% to 1.4 billion rubles. Group share of profit of associates and joint ventures was 1.4 billion rubles.

The 1.1 billion drop from the first 9 months of 2013 reflects significantly lower financial performance of Ekibastuzskaya TPP-2, whose debt is denominated in US dollars, due to devaluation of Kazakh tenge and reduced output. The drop in financial performance of Ekibastuzskaya TPP-2 was partially offset by increased share in profit of NVGRES Holding Limited joint venture and its CJSC Nizhnevartovskaya GRES subsidiary due to the addition of the third CDA power generation unit in March of 2014.

Net income for the first 9 months of 2014 was 11.0 billion rubles compared to net loss of 13.9 billion rubles for the first 9 months of 2013.

The Group reported 11.0 billion rubles of net income for the first 9 months of 2014 due to improved efficiency of the generation segment, addition of new CDA capacity, and significant geographic expansion of the supply segment.

Therefore, the adjusted net income of the Group exclusive of non-cash items (reserves and impairmentsand revaluation of the option agreement with Vnesheconombank) was 19.0 billion rubles in the first 9 months of 2014 compared to 13.8 billion rubles in the first 9 months of 2013. Thus the adjusted net income increased by 5.2 billion rubles (37.7%).

Non-current assets increased by 6.8 billion rubles (2.0%) to 349.6 billion rubles.

Non-current assets mostly increased due to development and rehabilitation of power generation units at Yuzhnouralskaya TPP-2, Permskaya TPP and Verkhnetagilskaya TPP.

Current assets increased by 34.8 billion rubles (20.5%) to 204.6 billion rubles.

The largest contributor to the increase in current assets is the consolidation of temporarily free cash from the operating cash flow, cash proceeds from a loan taken to exercise the Vnesheconombank's option, proceeds from the sale of 7.50% stake in Volzhskaya TGK, and 2013 dividends in bank deposits.

Equity increased by 13.8 billion rubles (4.1%) to 348.4 billion rubles.

The largest contributor to equity increase is the retained earnings for the first 9 months of 2014.

Total liabilities increased by 27.8 billion rubles (15.6%) to 205.8 billion rubles.

The increase in total liabilities mostly reflects the loans taken to settle the liabilities on the option agreement with Vnesheconombank and to replenish working capital and finance the investment program.

Total debt inclusive of Group share of the debt of joint ventures increased by 40.2% to 83.5 billion rubles.

Total loans and borrowings of Group subsidiaries, excluding Group share of the debt of joint ventures, increased by 23 billion rubles (43.6%) to 75.7 billion rubles reflecting new loans taken to settle Group liabilities under the option agreement with Vnesheconombank, finance the investment program and replenish working capital.

The split between non-current and current debt (excluding loans and borrowings of joint ventures) was 59.1% and 40.9% as of September 30, 2014, compared to 76.2% and 23.8% as of December 31, 2013. Share of current debt increased following the reclassification of the 15.3 billion ruble 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 7.8 billion rubles of the total debt. Of those, 6.8 billion rubles are attributable to the Group share of the debt portfolio of Ekibastuzskaya TPP-2 used to finance its investment program.

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Inter RAO Group is a diversified energy holding company serving various segments of the Russian and international electric power industry. The Group is the leading importer and exporter of electricity in Russia and is actively stepping up its presence in electricity generation and sales and developing new business streams. Inter RAO's corporate strategy is focused on becoming an international energy company, a key player in the global power market, and the leading Russian energy company in terms of efficiency. Inter RAO Group owns and operates approximately 35 GW of installed power generation capacity. For more information, please visit the company's website at www.interrao.ru

State Corporation Vnesheconombank purchased 529.303 billion shares of JSC Inter RAO for 21.3 billion rubles on June 18, 2010 to finance the development of a 450 MW power generation unit at Urengoyskaya TPP. This transaction included provisions for an agreement between Inter RAO Group and Vnesheconombank for delivery of put and call options. In July 2014, Vnesheconombank notified Inter RAO Group that it was exercising its call option in its entirety. In October 2014, Inter RAO Group purchased 5.073% of its own shares from Vnesheconombank for 31.4 billion rubles upon the approval from the Board.

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