Inter RAO YEES : Group Announces Consolidated IFRS Financial Statements for the Full Year 2016

Inter RAO Group published consolidated IFRS financial statements for the full year 2016. Financial statements were audited by Ernst & Young.

* Financial indicators are provided according to financial statements in billion rubles rounded to one decimal place. Percentages are calculated using IFRS statement data expressed in million rubles.

Including the share of debt in joint ventures.

Including deposits maturing in 3 to 12 months.

The dynamics of the Group's financial performance was significantly influenced by the following key factors and events:

• Addition of 325 MW of new and rehabilitated generation caliacity, and recertification of existing units built to suliliort Caliacity Delivery Agreements (CDA)
• CDA caliacity lirice increases reflecting the increased lirofitability of long-term government bonds and the indexation of olierating exlienses
• Reduction in CCO (Comlietitive Caliacity Outtake) caliacity lirices
• Increase in average heat sales lirices for end consumers across Russian assets of the Grouli
• Olitimization of fuel liurchase lirices across Russian assets of the Grouli
• Increase in average end consumer sales lirices in the Sulilily Segment of the Grouli
• Sale of the 40.29% stake in liJSC Irkutskenergo
• lihased sale of the ownershili stake in Electric Networks of Armenia and Razdan Energy Comliany (Razdan Tlili) in the fourth quarter of 2015 and in December 2016, recognition of these comlianies as joint ventures starting from November 2015, and their divestment in December 2016
• Recognition of imliairment of lirolierty, lilant and equiliment at Iriklinskaya Tlili and Kostromskaya Tlili (subsidiaries of JSC Inter RAO - Electric liower lilants), and liartial reversal of earlier recognized imliairment of lirolierty, lilant and equiliment at Verkhnetagilskaya Tlili (a subsidiary of JSC Inter RAO - Electric liower lilants)
• Acquisition of 100% stake in LLC Bashkir Energy Sales Comliany retrosliectively accounted for using the liredecessor method, resulting in recalculation of certain lines of 2014-2016 statements of comlirehensive income and financial liosition

Consolidated statement of comprehensive income

Group revenue increased by 4.4% (36.2 billion rubles), to 868.2 billion rubles.

Revenue of the Supply Segment increased by 53.2 billion rubles (10.4%), to 562.9 billion rubles, primarily reflecting higher average sales prices for end consumers of guarantee suppliers, and the acquisition of new customers by the Group's independent retailers.

Revenue of the Generation Segment increased by 2.2 billion rubles (1.2%), to 188.0 billion rubles, reflecting several partially offsetting changes.

Revenue of the Thermal Power Generation Sub-Segment, which includes TGK-11 Group and Bashkir Generation Company Group, increased by 3.8 billion rubles (5.8%), to 70.3 billion rubles. This change reflects both higher average heat prices in 2015 and 2016 in Bashkortostan, Omsk and Tomsk regions, and higher prices and supply volumes in CCO (Competitive Capacity Outtake) and CDA (Capacity Delivery Agreement) segments for JSC TGK-11.

Revenue of the Electric Power Generation Sub-Segment reduced by 1.6 billion rubles (1.3%), to 117.7 billion rubles, reflecting lower electricity output of the power plants of JSC Inter RAO - Electric Power Plants attributable to the retirement of legacy equipment at Verkhnetagilskaya TPP, Cherepetskaya TPP and Yuzhnouralskaya TPP, as well as repairs of two power generation units at Permskaya TPP. This factor was partially offset with higher revenue from capacity sales due to larger volumes and higher prices in the CDA segment. The increase in sales by volume is attributable to the launch of Unit 9 at Cherepetskaya TPP in 2015 and the recertification of existing CDA units, while calculated capacity price was increased to reflect the increased profitability of long-term government bonds and the indexation of operating expenses.

Revenue of the Trading Segment stayed almost in line with the previous reporting period, at 79.0 billion rubles for the full year 2016 compared with 79.1 billion rubles for the full year 2015. The impact from the discontinuation of commercial electricity supply to Ukraine was primarily offset by larger sales by volume to Finland due to favorable market conditions.

Revenue of the Foreign Assets segment showed a significant reduction, by 20.8 billion rubles (39.3%) to 32.1 billion rubles, generally reflecting the phased sale of Armenian assets, with 50% sold in the fourth quarter of 2015 and the remaining 50% sold in December 2016. The 2016 results of Inter RAO Group do not include the revenue of these assets, while the 2015 results of the Group included their revenue for the first 9 months of that year.

Other operating income was 39.1 billion rubles, compared to 8.7 billion rubles a year ago.

In June 2016, the Group has sold its 40.29% stake in PJSC Irkutskenergo for 70 billion rubles and recognized 31.9 billion rubles of income from this transaction, with the remaining balance to be paid by mid-2018.

Operating expenses increased by 15.0 billion rubles (1.9%), to 830.0 billion rubles, from the previous reporting period.

Electricity transmission costs increased by 27.5 billion rubles (13.2%), to 234.9 billion rubles, mostly reflecting the performance of the Group's supply assets and the increases in electricity consumption and electricity transmission fees.

Cost of purchased electricity and capacity increased by 7.6 billion rubles (2.4%) year-on-year, to 327.7 billion rubles, reflecting several partially offsetting factors. Higher sales volumes and market prices of purchased electricity and capacity increased the costs of the Supply Segment. However, the divestment of Armenian assets from Group subsidiaries in November 2015 resulted in a significant cost reduction.

Fuel costs decreased by 16.7 billion rubles (11.9%), to 124.4 billion rubles. Key drivers of this change include the reduced output of the power plants of the Generation - Russian Assets Segment, partially due to repairs and retirement of low-efficiency capacity, and also the transition of Russian generation assets to the new gas supplier, NK Rosneft, as it offered more favorable conditions. Further cost reduction was achieved at our Trakya plant in Turkey following the reduction in gas prices in the global market, and the divestment of Armenian assets from the subsidiaries of Inter RAO Group.

Group EBITDA was 96.3 billion rubles, an increase of 33.0%.

The largest contribution to EBITDA is attributable to the Generation - Russian Assets Segment, which brought in 67.3 billion rubles.

EBITDA of the Electric Power Generation Sub-Segment increased by 17.6 billion rubles, to 53.7 billion rubles. This change was primarily driven by the launch of CDA Unit 9 at Cherepetskaya TPP in 2015, the recertification of existing units, and also an increase in calculated CDA capacity sales price. Savings on fuel purchases also made a significant contribution to this change. However, electricity output has reduced, partially due to repairs of power generation units and retirement of low-efficiency capacity.

EBITDA of theThermal Power Generation Sub-Segment increased by 4.0 billion rubles (41.2%), to 13.6 billion rubles, due to higher average heat sales prices in our regions and higher output of Bashkir power plants.

EBITDA of theForeign Assets Segment increased by 3.5 billion rubles, or 48.0%, to 10.8 billion rubles. This change is attributable to the stabilization of Kazakhstani Tenge exchange rate that allowed the Group to avoid losses in Kazakhstan Sub-Segment. This factor was partially offset by lower EBITDA of Armenia Sub-Segment as only 50% of the earnings of its assets were included in the 2016 statements of the Group.

EBITDA of theSupply Segment increased by 1.2 billion rubles (8.6%), to 15.1 billion rubles. This change was primarily driven by the guarantee suppliers as the revenue from electricity distribution grew stronger than variable costs due to the increase in sales premium for all consumer groups and the indexation of tariffs in 2015 and 2016.

EBITDA of theTrading Segment increased by 0.2 billion rubles, to 9.9 billion rubles. This change is attributable to several partially offsetting factors, including the discontinuation of our operations with derivatives in the electricity market, which were generating losses in the same period of the previous year, and the reduction in electricity prices in Europe.

Group's share of profits of associated entities and joint ventures increased by 5.6 billion rubles, from (0.1) billion rubles to 5.5 billion rubles.

This change is mostly attributable to the following two factors: no losses from Ekibastuzskaya TPP-2 compared to 2015 when losses were caused by devaluation of Kazakhstani Tenge, and the recognition of the Group's share of profit of Armenian joint ventures for the full year 2016 (these assets were consolidated as subsidiaries until October 2016, and their performance was apportioned respectively in the Group statements).

Net income for the full year 2016 was 61.3 billion rubles, up 37.5 billion rubles (2.6x).

Consolidated net income of the Group for the full year 2016 was 61.3 billion rubles. A significant improvement over 2015 is attributable to higher operating efficiency of the Group and the sale of the Group's stake in PJSC Irkutskenergo.

Consolidated statement of financial position

Current assets increased by 2.6 billion rubles (0.5%), to 571.6 billion rubles.

Consolidated assets of the Group were affected by several offsetting factors. The sale of 40.29% stake in PJSC Irkutskenergo made a significant positive contribution. Shares with book value of 38.3 billion rubles were sold for the total of 70.0 billion rubles. This contribution was largely offset with the use of cash for scheduled and early loan repayment. Recognition of impairment of property, plant and equipment together with negative revaluation of non-current assets also contributed to the reduction of total assets.

Equity increased by 53.0 billion rubles (14.5%), to 419.2 billion rubles.

The largest contribution to equity increase comes from the increase in the Group's retained earnings for the full year 2016.

Total liabilities were 152.4 billion rubles, down 50.4 billion rubles (24.9%).

The reduction in total liabilities is mostly attributable to scheduled and early repayment of loans taken to finance operating and investment activities and to pay the amounts due under the option agreement with SC Vnesheconombank.

Total debt including the Group's share of the debt of joint ventures reduced by 80.7%, to 17.8 billion rubles.

The Group has repaid a significant portion of its loans in the reporting period. Total loans and borrowings of Group subsidiaries, excluding the Group's share of the debt of joint ventures, decreased by 60.6 billion rubles (77.5%), to 17.6 billion rubles, due to scheduled and early repayment of certain debt items by several Group companies.

The split between non-current and current debt (excluding loans and borrowings of joint ventures) was 50.4% and 49.6% as of December 31, 2016, compared to 54.5% and 45.5% as of December 31, 2015.

Third-party loans and borrowings of joint ventures constitute 0.2 billion rubles of consolidated debt and represent the debt of CSJC Kambaratinskaya HPP-1. This amount was 13.9 billion rubles at the end of the previous reporting period, with 10.2 billion rubles attributable to the Group's share of loans of JSC Ekibastuzskaya TPP-2, our investment in which as of December 31, 2016 was classified as held for sale, and 3.1 billion rubles attributable to the Group's share of loans of Electric Networks of Armenia divested from Inter RAO Group in December 2016.

TGK-11 Group includes two heat producers, JSC TGK-11 (Omsk) and JSC Tomsk Generation, and two heat distribution network operators, JSC TomskRTS and JSC OmskRTS.