Inter RAO YEES : Group Publishes Consolidated IFRS Financial Statements for the First Six Months of 2017

Inter RAO Group published interim condensed consolidated IFRS financial statements for the first six months of 2017.

- Financial indicators are provided according to financial statements in billion rubles rounded to one decimal place. Percentages are calculated based on IFRS statements data expressed in million rubles.

Including the share of debt in joint ventures.

Including deposits maturing in 3 to 12 months.

Operating expenses do not include release of impairment of property, plant and equipment amounting to 4.4 billion rubles in the first six months of 2016 and charge of impairment of property, plant and equipment amounting to 2.4 billion rubles in the first six months of 2017. The adjusted operating and net income does not include the impact of accrual/reversal of impairment of property, plant and equipment, and income from sale of assets classified as held-for-sale in the first six months of 2016, amounting to 31.9 billion rubles. The adjusted net income also takes into account the impact of recognition of deferred tax on charge/release of impairment of property, plant and equipment.

EBITDA for the first six months of 2016 does not include disposed assets in Armenia and Georgia and the figure of Ekibastuzskaya TPP-2 as it has been reclassified as held-for-sale.

The changes in the Group's financial performance were significantly influenced by the following key factors and events:

• Commissioning of 567 GW of new and upgraded power generation capacity under Capacity Delivery Agreements (CDA);
• Increase in average heat sales prices for end consumers across Russian assets of the Group;
• Optimization of capacity utilization in the Electric Power Generation Segment, including retirement of inefficient power generation equipment;
• Increase in average end consumer sales prices in the Supply Segment of the Group;
• Strengthening of the ruble against the U.S. dollar and euro;
• Complete sale of a stake in Electric Networks of Armenia and Razdan Energy Company (Razdan TPP) in December 2016; consequently, these companies did not deliver financial performance in 2017.

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Group revenue increased by 4.0% (16.9 billion rubles) to 437.3 billion rubles

The increase in revenue in the Supply Segment by 29.7 billion rubles (10.9%) to 301.4 billion rubles is related both to higher average sales prices of guaranteeing suppliers for end consumers, and the acquisition of new customers by independent retailers.

Revenue in the Thermal Power Generation Segmentwhich includes TGK-11 Group and Bashkir Generation Company Group, increased by 1.5 billion rubles (4.1%) to 37.6 billion rubles. Revenue increased mainly due to higher average heat prices in Bashkortostan, the Omsk Region and the Tomsk Region, compared to the previous reporting period. This was partially offset by a reduction in power generation by power plants in the segment given a decline in margin.

The increase in revenue in the Electric Power Generation Segment by 1.0 billion rubles (1.7%) to 57.5 billion rubles is related to higher output, primarily that of Permskaya TPP: in the previous reporting period there were scheduled and unscheduled equipment repairs. Besides, contributing factors included the growth of installed capacity due to relabeling of equipment at several plants and scheduled decommissioning of inefficient capacity at Cherepetskaya TPP and Verkhnetagilskaya TPP.

Revenue of the Trading Segment decreased by 12.7 billion rubles (34.0%) compared to the previous reporting period and amounted to 24.7 billion rubles in the first six months of 2017 against 37.4 billion rubles in the first six months of 2016. The revenue decreased due the strengthening of the ruble against the main currencies of export contracts (U.S. dollar and euro), as well as to a reduction in supply to Georgia, Finland, China, Estonia, etc. in accordance with market conditions.

A decrease in the revenue in the Foreign Assets Segment by 4.3 billion rubles (25.4%) to 12.5 billion rubles is related primarily to the impact of the strengthening of the ruble against the U.S. dollar and the Georgian lari in the first six months of 2017, which caused a decline in the revenue expressed in rubles; besides, the main factors contributing to the decline included a shutdown of one of the three power units at Trakya Elektrik plant in Turkey for repairs in May and June 2017, and disposal of Mtkvari Energy of the Group in June 2016.

Operating expenses increased by 23.7 billion rubles (6.1%) to 412.0 billion rubles compared to the previous reporting period. At the same time, expenses adjusted for the impact of charge/release of impairment of property, plant and equipment amounted to 409.7 billion rubles (4.3%) which is comparable to changes in the revenue.

An increase in electricity transmission fees amounted to 10.0 billion rubles, or 8.9% (the costs increased to 123.2 billion rubles); this is related primarily to the performance of the Group's supply assets and the increase in electricity consumption and electricity transmission fees.

Cost of purchased electricity and capacity increased by 6.9 billion rubles (4.4%) to 164.4 billion rubles compared to the previous reporting period. This was related primarily to the growth of market prices for purchased capacity compared to the previous reporting period, as well as to the increase in sales in the Supply Segment partially offset by a decrease in trading activity.

Fuel costs declined by 0.6 billion rubles (0.9%) compared to the previous reporting period and amounted to 59.5 billion rubles. This was caused by the disposal of Mtkvari Energy of the Group in June 2016, as well as by reduction in the output at Trakya Elektrik plant due to repairs and the strengthening of the ruble against the U.S. dollar and euro. This was partially offset by an increase in fuel costs related to increased output in the Electric Power Generation Segment.

The charge/release of impairment of property, plant and equipment: the impairment of property, plant and equipment of TGK-11 amounting to 2.4 billion rubles was recognized, while in the previous reporting period was recognized partial release of previously recognized impairment of property, plant and equipment of Verkhnetagilskaya TPP totaling 4.4 billion rubles.

EBITDA totaled 47.4 billion rubles, having decreased by 11.8%. At the same time, a decline in EBITDA (adjusted for the impact of disposal of the Group's assets in Armenia and Georgia and reclassification of an asset in Kazakhstan) amounted to 7.7%.

EBITDA decreased mainly in the Foreign Assets Segment. The figure in the segment amounted to 1.9 billion rubles, which is 4.6 billion rubles less than in the previous reporting period. The decrease was related to the disposal of Electric Networks of Armenia, Razdan Energy Company (Razdan TPP) and Mtkvari Energy of the Group (last year, the impact of these assets on EBITDA totaled 1.7 billion rubles) and classification of a 50% stake in the Ekibastuzskaya TPP-2 joint venture as assets classified as held-for-sale ( in the previous reporting period, the impact on EBITDA was 0.7 billion rubles), as well as the strengthening of the ruble against the U.S. dollar and euro, which resulted the a reduction in financial performance of foreign assets expressed in rubles. In addition, the indicator declined due to the decrease in the output of Trakya Elektrik related to repairs.

In the Trading Segment, EBITDA decreased by 2.3 billion rubles and amounted to 2.8 billion rubles. This was caused by the strengthening of the ruble and the reduction of supply to Georgia and Belarus in accordance with the current market conditions.

In the Supply Segment, EBITDA increased by 1.3 billion rubles (17.9%) to 8.6 billion rubles. This was related mainly to the fact that the revenue from electricity sales grew stronger than the cost of purchased electricity and its transmission, which is due to the nature of tariff regulation.

In the Thermal Power Generation Segment, EBITDA increased by 0.1 billion rubles (1.5%) to 9.7 billion rubles. A positive impact of the growth of heat prices was offset by the reduction of power generation as a result of operating a smaller amount of power generation equipment due to the decrease in margins.

In the Electric Power Generation Segment, EBITDA decreased by 0.1 billion rubles to 27.6 billion rubles. The decline in the indicator was influenced by the increase in spending on repairs, including major and medium inspections of turbines and generator of Yuzhnouralskaya TPP. At the same time, a positive impact was related to the increase in the amount of generation equipment compared to the previous reporting period, due to the downtime caused by scheduled and unscheduled repairs at Permskaya TPP in the first six months of 2016. Besides, the increase in the indicator was influenced by the increase in installed capacity of plants due to relabeling of power units, and commissioning of Unit 12 at Verkhnetagilskaya TPP with the installed capacity of 447 MW under CDAs in June 2017, as well as by scheduled decommissioning of inefficient capacity.

The share of profits in associates and joint ventures declined by 1.5 billion rubles and amounted to 1.9 billion rubles.

The reduction in the share of profits in associates and joint ventures is related primarily to the fact that there was no profit from participation in joint ventures of Electric Networks of Armenia and Razdan Energy Company (Razdan TPP) due to the sale of a 50% stake in these companies in December 2016, as well as classification of the 50% stake in the Ekibastuzskaya TPP-2 joint venture as assets classified as held-for-sale starting from December 1, 2016.

Net income for the first six months of 2017 amounted to 29.9 billion rubles, having decreased by 32.0 billion rubles. Adjusted net income amounted to 31.8 billion rubles, having increased by 19.7%.

Net income for the first six months of 2017 was 29.9 billion rubles. The better result of the previous reporting period of 2016 includes income from the sale of the Group's stake in PJSC Irkutskenergo amounting to 31.9 billion rubles and recognized partial release of impairment of property, plant and equipment of Verkhnetagilskaya TPP.

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Total assets increased by 17.1 billion rubles (3.0%), amounting to 588.7 billion rubles.

Total assets of the Group increased mainly due to accumulation of funds generated by the Group in the reporting period on settlement accounts and deposits, and due to the acquisition of rights to claim on CDAs for CCGT-420 of Unit 12 of Verkhnetagilskaya TPP.

Equity increased by 15.9 billion rubles (3.8%), amounting to 435.1 billion rubles.

The increase in equity due to the recognition of net income for the reporting period amounting to 29.9 billion rubles was partially offset by an impact of distribution of dividends for 2016 totaling 15.3 billion rubles

Total liabilities amounted to 153.6 billion rubles, having increased by 1.2 billion rubles (0.8%).

The increase in total liabilities is mostly attributable to the fact that companies of the Supply Segment raised short-term loans in order to repay debt on the wholesale market for payment for electricity transmission services. At the same time, there was a considerable reduction in accounts payable as a new procedure for paying for services of grid companies was established.

Debt load including the Group's share of the debt of joint ventures increased by 51.7% to 27.0 billion rubles.

Total loans and borrowings of the Group's subsidiaries, not including the share of the debt of joint ventures, increased by 9.2 billion rubles (52.2%) to 26.8 billion rubles as a result of raising loans for operation activity, primarily in the Supply Segment.

The ratio of long-term debt to short-term debt as of June 30, 2017 (not including the share of loans and borrowings of joint ventures) amounted to 25.2% versus 74.8% (on December 31, 2016, it was 50.4% versus 49.6%).

The amount of external loans and borrowings of joint ventures in the structure of consolidated debt amounted to 0.2 billion rubles and is represented by the debt of CSJC Kambaratinskaya HPP-1.

GTK-11 Group is represented by heat producers such as JSC TGK-11 (Omsk) and JSC Tomsk Generation, and heat distribution network operators such as JSC Tomsk RTS and JSC OmskRTS.