1. IR PRESENTATION
Key strategic priorities for 2011-2015,
financial results for 2010 & 1H 2011 (IFRS)
8th Annual Emerging European Investment Conference
London, September 7-8 2011
2. Disclaimer
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 the accuracy of the given information, which may be short or incomplete.
All opinions and estimations contained in the present material reflect our opinion at the date of publication, and are
subject to the change without any 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.
2
3. I.
Key strategic priorities for 2011-2015
Chief Executive Officer – Dmitry Gudzhoyan
3
4. Introduction
Service area–
10 2010
458 000 8
km2 11
IDGC of Center 2 4 MCap, RUR billion 36
15% of the as at September 02, 2011
1 Belgorodenergo Russian
2 Bryanskenergo population Revenue (IFRS) 61
RUR billion
3 Voronezhenergo
Length of lines, 365
4 Kostromaenergo Yaroslavl km thousand*
Smolensk Tver
5 Kurskenergo Substation capacity,
MWA
6 Lipetskenergo Bryansk IDGC of Centre Kostroma 31 404
35-110 kV
Kursk Orel
7 Orelenergo Lipetsk
6-10/0.4 kV 15 192
Belgorod
8 Smolenskenergo
Tambov
Voronezh
9 Tambovenergo Staff number 30 906
10 Tverenergo
11 Yarenergo 5 7 Number of 16 775
9 shareholders**
6
The Company is a monopolist –
tariffs are regulated by the State
1
3
*- overhead power lines 0.4-110 kV
** - as at 12.05.2011 – the date of registry closed
4
5. Story line 2010-2011
09.2010 11.2010 12.2010 01.2011 06.2011 08.2011
12.2004 –
2009
Board of directors approved 5 years RAB tariff system Successful The AGSM approved USD 20.1
the Regulations had been adopted in implementation of the million (RUR 611 million) of
on the dividend policy Orelenergo and business plan and the dividend payment (the pay-out
based on a system Bryanskenergo investment program for ratio – 12.6%).
executing a set of criteria iRAB amounts USD 3.9 billion 2010, the actual volume The Company fulfilled its
(RUR 118 bln) of CAPEX amounted to obligations to pay dividends
December’04 103% of the plan –USD on 17.08.2011
As part of RAO UES reforming 401 million (RUR 12
IDGC of Centre and North billion)
Caucasus had been registered for Company stocks moved across
RGC integration to MICEX quotation list А2.
April ‘07 The first stage of The company acquired 5 years RAB tariff Company confirmed 7+ rating
The final structure of the Company Smart Grid 100% of Yargorelectroset , system adopted in of corporate governance (on
had been accepted, including program is the share of IDGC of Kostromaenergo, the national scale) the highest
11 regional grid companies completed in Centre in regional grid Tambovenergo, among all IDGCs.
of central Russia (the decision of
The board of directors of RAO Belgorod assets increased to Voronezhenergo, Company reported 1H2011
UES) 90% Smolenskenergo IFRS financials,
and Yargorelectroset demonstrating material
March ‘08 Affiliation of RGCs growth throughout
May ‘08 Listing on MICEX and RTS the reporting period across
key financial indicators
5
6. Strategic goals
• Consolidation of TGCs and abandoned power grids in
Consolidation of regions
power grid assets • Management of inefficient owners’ power grids
• Settlement of the "last mile" and the tariff rates growth in
1 the regions of TGCs
• Reliable sources of technical and commercial losses
calculation system established
Improvement of
quality and reliability • Replacement of lines and transformers on the basis of
of customer services economic expediency
• Implementation of the innovative projects (smart
2 grid, smart metering)
• Increasing of the reliability indicators (SAIDI, SAIFI)
Improving the
efficiency of operating • Working in accordance with the RAB methodology
activities • Assets management program (unified technical policy)
• Improving the procurement process
3 • Optimization of the management structure
Improvement of the Company’s equity story
• Shareholder value growth through meeting strategic goals 1-3;
• Share liquidity program implementation;
• Possible privatization in 2013-2014
6
7. Company structure and key shareholders
Russian Federation Share capital
53.69% structure, %
IDGC Holding Minor shareholdres 50.23 15.90
50.23% 49.77%* % %
Group of companies
Free float
IDGC of Center, JSC 30% 8.40%
3.20%
Subsidiaries – 100% 2.73%
18.09 1.45%
% Others
Yargorelectroset, Energy service
Energetik, JSC ОАО «Холдинг МРСК»
IDGC Holding, JSC
JSC company, JSC
Jamica Limited
Jamica Limited
Yargoreletroset, JSC is the The main activities are
51% largest Territory Grid providing saving energy
Organization in the Central services , energy THE BANKof New York Mellon
The Bank OF NEW YORK
MELLON
11 operating YarESK, JSC Federal Region. The result of
acquisition of the 100%
efficiency
IMMENSO Enterprises Limited
Immenso ENTERPRISES
business stake is that IDGC of Center LIMITED
now controls more than 90%
units -November of power grid assets in the
Energosoyuz Holdings Limited
ЭНЕРГОСОЮЗ
ХОЛДИНГС ЛИМИТЕД
11, 2009 Yaroslavl region
Rusenergo Fund Limited
Energetik, JSC acquired
the controlling stake of
YarESK, JSC, which is
target company for
consolidation of power grid
assets in Yaroslavl region
* - including the State share 0.46%
7
8. Share capital structure and
corporate governance
Supreme governing body:
General Meeting of
Auditor Shareholders
Developed corporate
Strategic
governance Audit
governing body:
practice, leading posit Commission
ion Outer control for financial
Board of Directors 5 Committees:
among IDGCs - activities of the Company
Committee
Management board on Strategy
Chairman of the Committee
Management Board–
History of IDGC of Center corporate on Audit
General Director
rating on the national scale
Committee
on personnel
NRCG**
Confirmed (7+) August’ 11
Internal Control and Committee
Upgraded (7+) January ’ 11
Audit Department on reliability
Confirmed July’ 09
Confirmed February’ 09
Committee
Assigned September’ 08 Inner control for financial
on TC*
activities of the Company
** National rating of corporate governance * - technological connection
8
9. M&A projects - grid assets integration
TGCs in IDGC of Centre service area
Amount of other TGCs = 441
120
• The other TGCs’ average share in revenue 102
in IDGC of Centre service areas – 20%; 100
80 70
• Required Gross Revenue (RGR) of the 62
60 53
Company due to the assets consolidation 39
in regions may increase to RUR 10 billion 40
25 26
by 2015, RGR share may grow by 97%; 14 18 23
20 9
0
• One of the key goals of the Company is the
Belgorod
Voronezh
Bryansk
Tambov
Smolensk
Kursk
Tver
Lipetsk
Kostroma
Orel
Yaroslavl
integration of power grid assets that will
allow:
• increasing the reliability level of power supply
• enlarging the power distribution sales market Share of the Company in the power
• improving the quality of customer service transmission market, 2007-2015F
• balancing the tariff on power distribution
2007 2008 2009 2010 2015F
Market
share in
83% 83.6% 83.8% 84% 97%
terms of
money
9
10. Integration key steps
• Providing monopoly on power grid services market in the regions of
presence with more than 97% share;
Target/ • Long-term target program for the consolidation of power grid assets have
Program
been developed and approved (power grid assets consolidation plan for
2011 - 2015)
• Company consolidates the assets primarily in 3 ways: acquisition of
power grid, long term property rent, purchase of shares of power grid
Methods and companies;
advantages • The basic advantages of consolidation are as follows: implementation
of consolidation of a unified technical policy, the development of a unified scheme
of long-term development of power grids, improving the reliability
of electricity supply to consumers of all categories, increasing of
power grid capacity
• It is planned in 2011 to consolidate municipal power grid assets of the
Plans for Voronezh region, to acquire the property in the Lipetsk region and to
2011-2015 consolidate the assets in the Tver region;
• Program provides working with more than 5 thousand owners
10
11. Dynamics of losses
Output Change, Dynamics of losses,
Year % 2006-2011 (F)
kW (thousand) p.p.
12%
2006 6 238 10.35 10.35% 10.11%
9.52% 10.01% 9.93%
10% 9.40%
2007 5 932 9.52 (0.83)
8%
2008 5 875 9.40 (0.12)
6%
2009 5 977 10.11 0.71 4%
2010 6 230 10.01 (0.10) 2%
0%
2011F 6 237 9.93 (0.08)
2006 2007 2008 2009 2010П 2011F
2010 2011П
Reduction of losses – the priority target for
the management Increase of losses was a result of
implementation of integration
Implementation of renovation program and modern program, introduction of common
metering systems will allow IDGC to reduce losses by technical requirements for all
1% by 2015 subsidiaries will allow to reduce
losses!
11
12. Expected CAPEX for 2011-2015
amounts to RUR 102 billion*
Uses of CAPEX in 2011
10.7% 100%
Development, Commissioning,
Year 1.6
RUR billion RUR billion 1.0%
4.0 %
6.0% 0.6 0.15
2011F 14.95 15.68
17.58 18.84 0.9
2012F 7.4%
2013F 20.82 20.82 1.1
32.8% 14.95
2014F 23.92 23.93
2015F 24.57 24.15
4.9
38.1%
Sources of finance in 2011
5.7
1,1% 0,1% Borrowed sources RUR billion
Tariff sources - Replacement of the main power equipment
- New construction(substations, overhead и cable lines)
49,7%
49,1% Payments for connection - ASMD systems, connection, IT
services - Developing/Modernization of accounting systems
Others - Modernization and reconstruction
- Acquisition of power grid systems
- Others
* - in accordance with the adjusted IP, planned for approval in September, 2011
12
13. The development of energy-saving
technologies –Energy Service Company, JSC
The Program of the RF Government -“Energy-saving and enhancement of power efficiency for the period up to 2020”
Share in the authorized
capital -100%
Energy Service Company, JSC
Key goals of establishment Key tasks
Diversification of the Company’s Conducting energy audits, evaluation and
1 operations, strengthening its market reduction of energy losses of consumers;
positions, increase of revenues; Implementation of service and maintenance
Formation of the competence center for the functions to ensure stable and reliable
implementation of measures for energy- operation of power facilities;
saving and power efficiency based on Work on the analysis of new projects and
Energy Service Company (design and
2 construction of facilities using energy-
existing utility systems and equipment
(expert review);
efficient technologies);
Development of design and estimate
Formation of the resource base of highly documentation and its coordination
qualified personnel and technology for (examination) in the supervisory bodies;
3 implementation of the repair program and
The activities within energy service
the program of energy-saving and power
efficiency of IDGC of Centre. contracts.
13
14. Attractive target for investments
• Transition to RAB is a vigorous driver for increase in operational
efficiency and decrease in costs per unit
RAB regulation • The first IDGC among others which transferred all its branches to RAB:
2009: 3 branches, 2010: 4 branches, since 01.01.2011: 4 branches
• High level of RAB - USD 4.0 billion (RUR 121 billion as at
01.01.2011)
• Capital formation rate is lower than profitability rate of invested capital
• Developed and implemented KPI system
Strong team • Strong financial performance - positive dynamics on all key financial
of managers and operating indicators for 4 years
• Transparent system of corporate management (7+ corporate governance
rating on national scale)
• Investment history of distribution grid complex attracts
high attention of analysts and investors:
Prospects
of growth - on 21.06.2011 Annual General Meeting of Shareholders approved
dividend payments for 2010 in amount of USD 20.05 million
(RUR 610 million)
- sector is significantly undervalued as compared to foreign
peers
14
15. II.
Financial results for 2010 & 1H2011 (IFRS)
Chief Financial Officer - Konstantin Orlov
15
16. Key IFRS financial indicators
2008 - 2011
Key indicators 2008-2010 and 1H2011 (IFRS)
RUR billion 2008 2009 2010 CAGR 1H2010 1H2011 Growth, %
Revenue 43.7 49.3 60.6 17.8% 29.5 35.2 19.2%
Revenue growth 12.8% 22.9% 28.6 33.6 17.6%
EBITDA 8.8 8.6 12.4 18.7% 5.7 8.6 49.9%
EBITDA margin 20.2% 17.4% 20.5% 19.3% 24.3% 5 p.p.
Net Income 2.8 2.1 5.1 35.0% 2.3 3.8 63.7%
Net margin 6.4% 4.3% 8.4% 7.9% 10.9% 3 p.p.
Net Debt 9.3 10.8 14.7 25.6% 14.7 11.4 -22.4%
Net Debt/EBITDA 1.1 1.3 1.2 5.8%
Sources: Company’s data
Sources: Company’s data, KPMG auditor
Key operating drivers in 1H2011:
•The control for final commercial and procurement procedures
•The economy on procurement for 1H2011 amounts about RUR 1.9 billion
(about 14% of all procurement procedures)
• Staff optimization
•The number of employees reduced by 148 in 1H2011
•The conclusion of the single contract between FGC UES and IDGC of Centre
• In April 2011 the working group between UES FGC and IDGC of Centre was created – the single contract on providing the services has been concluded. The
principle advantage is that the payment for the services provided is based on balanced capacity. The estimated economical effect is about RUR 1.4 billion per
year of reducing the tariff
16
17. Loan portfolio structure & credit rating
Net debt/EBITDA, RUR billion Credit rating history
40 22
1.94
35
30 1.5
1,5
1.25 1.18 23.2
25 21.9
1.06
20 11
14.7 14.9
15 10.8 11.1
9.3 9.4
10 0,5
0.5 History of IDGC of Centre credit rating
5
0 0 Standard&Poor’s
2008 2009 2010 2011П
2011F Confirmed February’11
Net debt долг
Чистый Долг
Loan portfolio net Debt/EBITDA Confirmed July ’10
Assigned November‘09
Recommended NRА*
ratio Net Debt/EBITDA = 3 Upgraded to АА- December ‘10
Confirmed October’10
Structure of loan portfolio (%),
2011 Confirmed September’09
Upgraded (level A+) September’08
7%
Sberbank Upgraded (level А) August‘07
17% Rosbank
48%
Alfabank
27%
Gazprombank
* National Rating Agency
17
19. Stock performance and liquidity increase
05.2008 04.2009 09.2010
08.2010 2Q2011 3Q2011 4Q2011
Company ‘s Company’s Company’s Confirmation of Dividends payment Launch of option
shares were shares were shares were presence in RTS EU USD 20.05 million program
listed on included in the included in and RTS-2 (RUR 610 million), DR program
MICEX index: RTS EU* MICEX A2
(quotation list MICEX PWR inclusion
B), RTS
Dividends for 2010: Company’s priorities for the stock performance
improvement:
Total (RUR million) 610.9 • Stable dividend policy
• Quotation list update (MICEX A1)
Net profit share 12.6%
• Depositary receipts launching
• Inclusion in international indexes
Dividend yield 1.37%
- forecast * - RTS energy utilities
19
20. Company’s shares and sector indexes dynamics
Beginning of trading:
Stock market indicators,multipliers May 21, 2008
Quotation list:
TSR (2010) 66% Peer companies Company reports the good
financials for 2009 and plans «А2» MICEX
P/E 4,5 6,6 8,8* on all the branches to adopt Shares of IDGC of Centre are part of the
RAB after Jul 01, 2010 calculation base in indices:
70%
EV/ 3,2 3,2 5,1* - MICEX PWR
60% EBITDA - RTS-electricity
50% - RTS-2
40%
EV/S 0,8 0,6 1,2*
30% EV/RAB 0,44 0,41 1,29* Feb 17. Head of
20% Russian Government
announced the need to
10% curb the growth rate of
0% tariffs on power
-10%
-20%
-30% Remaining branches to adopt
RAB (Nov’10, Jan’ 11) Shares of the
-40% Company have been
-50% included into MICEX
The information that government A2 quotation list
-60%
intends to adopt RAB Company reports
-70% good IFRS financials
-80% on 1H2011
-90%
Февраль 2011
Декабрь 2009
Декабрь 2008
April 2010
Октябрь 2008
Август 2010
Февраль 2009
Октябрь 2009
June 2010
Август 2008
April 2011
April 2009
Февраль 2010
Август 2009
Декабрь 2010
June 2011
Август 2011
Октябрь 2010
Июнь 2009
Апрель2009
Апрель2010
October 2008
August 2008
October 2009
August 2010
October 2010
December 2010
Июнь2010
February 2010
February 2011
Апрель2011
Июнь2011
August 2011
December 2008
February 2009
August 2009
December 2009
June 2009
MICEX PWR MRKC of Centre MICEX
* - Average international peer companies
20
21. THANK YOU
FOR YOUR ATTENTION!
IR specialists will provide you with any additional information upon your request:
ir@mrsk-1.ru
IDGC of Center
4/2, Glukharev Lane, Moscow, Russia 129090
T: +7 495 747 9292 F: +7 495 747 9292
www.mrsk-1.ru
Tickers:
MICEX: MRKC
RTS: MRKC, MRKCG
21
23. RAB adoption. Results
Date of Subsidiaries Total value IRAB,
transition of invested RUR million
Full value of IC and iRAB
capital 400
RUR
million 350
Belgorodenergo 50 609 19 930
300
115
from 01.01.2009 Lipetskenergo 250
25 726 10 030
Tverenergo 55 276 14 366 200
Kurskenergo 30 782 10 802 150
from 01.01.2010
Yarenergo 21 586 8 968 100 226
42
Bryanskenergo
20 045 5 989 50
from 01.11.2010 76
Orelenergo 0
21 571 6 407
Полная величина ИК
Full value of Остаточная величина ИК
Value of «new»
Kostromaenergo invested capital
(ПИК) invested capital
(ОИК)
17 058 7 603 IRAB
(IRAB)
Tambovenergo 18 609 5 515
Филиалы перешедшие01.01.2011
RAB subsidiaries after на RAB после 01.01.2011
from 01.01.2011 Voronezhenergo RAB subsidiaries before 01.01.2011
Филиалы перешедшие на RAB до 01.01.2011
38 110 12 650
Smolenskenergo
37 041 13 735 Approved iRAB on subsidiaries –
Yargorelectroset* USD 3.9 billion
3 969 2 168
(RUR 118 billion)*
Total 340 382 118 162 *Including Yargorelectroset 100% stake is owned by IDGC of Center
23
24. Structure and dynamics of the tariff on
power distribution
Revenue dynamics by power distribution tariff
2008-2010, RUR billion
70
60 57.56
23%
9.23
50 46.87 37% Federal factors
15% + 35%
40.84 6.76 11.01
40
5.43
25% 40%
7.84
6.38 23% 9.44
30
8.01 18%
6.63 21% Regional factors
20 + 65%
15%
8% 24.25
27.87
10 22.40
0
2008
2008г. 2009
2009г. 2010
2010г.
"Собственная" НВВ МРСК
Required revenue ТСО
TGO ФСК
FGC Потери э/э
Losses
of IDGC of Centre
24
25. Decrease in RGR
Decrease in RGR in accordance to Government Regulation №1172
offset by lower costs in 2011
75,00
73,00 -3.90
-5.87
71,00
74.02
69,00 -2.73
67,00
68.15
65,00
Revenue 2011
Выручка 2011г. (ТБР Decrease in OPEX
Сокращение Revenue 2011
Decrease in CAPEX Выручка 2011г. (ТБР
Сокращение
(TBS* 01.01.2011)
на 01.01.11) операционных капитальных с учетом ПП №1172)
(TBS* taking into
расходов расходов account GR №1172)
Figures Revenue from services OPEX CAPEX
2011
74.02 68.77 17.68
(TBS* 01.01.2011)
2011
68.15 64.87 14.95
(TBS* taking into account GR №1172)
Absolute CHNG -5.87 -3.90 -2.73
*Tariff Balanced Solutions
25
26. Benchmark among IDGCs ‘11
MCap, RUR billion Revenue, RUR billion
МОЭСК
MOESK 75 МОЭСК
MOESK 110,6
IDGC of Centre
МРСК Центра IDGC of Центра
МРСК Centre 60,4
36
#2 #2
IDGCМРСК ЦентраVolga Region
of Centre and и Приволжья 19 IDGC of Centre and и Приволжья
МРСК Центра Volga Region 54,4
ЛенЭнерго
Lenergo 17 IDGC ofУрала
МРСК Urals 49,8
IDGC of Урала
МРСК Urals 17 IDGC of Сибири
МРСК Siberia 43,4
IDGC ofСибири
МРСК Siberia 15 МРСК Волги
IDGC of Volga 39,4
IDGC of Волги
МРСК Volga 15 Lenergo
ЛенЭнерго 34,2
МРСК Северо-Запада
IDGC of North-West 11 МРСК Северо-Запада
IDGC of North-West 26,7
Company IDGC of South
МРСК Юга 5 МРСК Юга
IDGC of South 22,0
obtains leading IDGC of North Caucasus
МРСК Северного Кавказа 3 IDGC of North Caucasus
МРСК Северного Кавказа 10,5
positions
among IDGCs Net profit, RUR billion RAB, RUR billion
MOESK
МОЭСК 15,6 MOESK
МОЭСК 205,3
IDGC of Центра
МРСК Centre
МРСК Центра
IDGC of Centre 4,7 #2 118,2
#2
Lenergo
ЛенЭнерго 3,8 IDGC of Centre and и Приволжья
МРСК Центра Volga Region 84,8
IDGC of Урала
МРСК Urals 1,7 ЛенЭнерго 78,6
Lenergo
IDGCМРСК Центра Volga Region
of Centre and и Приволжья 1,4 МРСК Волги 77,0
IDGC of Volga
IDGC of North Caucasus
МРСК Северного Кавказа 0,6 IDGC of Урала
МРСК Urals 57,2
IDGC of Volga
МРСК Волги 0,3 IDGC of Сибири
МРСК Siberia 51,6
МРСКof North-West
IDGC Северо-Запада -0,8 IDGC of North-West
МРСК Северо-Запада 22,9
МРСК Сибири
IDGC of Siberia -2,8 МРСК Юга
IDGC of South 22,5
26 IDGC ofМРСК Юга
South -3,6
2 позиция IDGC of North Caucasus
МРСК Северного Кавказа 18,0
2 позиция