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Financial Corporation "Sistema"

April 21, 2011

Bashkirenergo initiates IFRS reporting with a 31% rise in 2010 net profit

April 21, 2011, Ufa (Russian Federation, Republic of Bashkortostan) – OJSC “Bashkirenergo” (MICEX, RTS: BEGY) – publishes consolidated financial statements for the year ended 31 December 2010 prepared in accordance with IFRS.

Key Financial Results:

The Company revenue up 25% to 62,835 mln RUR (2.1 bln USD) in 2010 compared to 2009 due to increase in volume of electricity and heat sales, as well as average sale prices.

Operating expenses up 24% to 58,719 mln RUR. (1.9 bln USD) in 2010 vs 2009 driven by increasing fuel costs and purchased electricity prices.

Operating profit increased 35% in 2010 compared to 2009 reaching 4,116 mln RUR (136 mln USD).

OIBDA of 2010 was 7,613 mln RUR (251 mln USD) or 19% higher than in 2009.

OIBDA margin was 12% in 2010, or 1 b.p. lower than in 2009.

Net profit jumped 31% to 2009 results reaching 2,791 mln RUR. (92 mln USD).

Loans and borrowings in 2010 decreased by 89% to 160 mln. RUR (5 mln USD).

Key Operating results:

OJSC “Bashkirenergo” total power generation in 2010 was 22,612 mln kWh gaining 14% from 2009 power production.

The capacity factor of OJSC “Bashkirenergo” power stations reached 61% (an increase of 11 b.p. compared to 2009) returning to the pre-crisis levels.

Heat output of the Company in 2010 was 24,128 thousand Gcal or 1% above the 2009 results.

The specific consumption of equivalent fuel for electricity generation in 2010 reduced by 3,1 g/kWh to 323.2 g/kWh.

Volumes of electricity transmission in 2010 grew 7% to 38 623 kWh to 2009.

The transmitted electricity losses both in long-range and local grid fell 10% as to 2009 to 4,9% or 1,973 kWh. 

Power supply to consumers in 2010 was 2.6% higher than in 2009 and amounted to 19,083 mln kWh.

Alexey Doronin, the CEO of OJSC “Bashkirenergo”, commenting on the 2010 results, said: “We consider the 2010 financial results as very positive. With the rising natural gas prices outpacing electricity prices growth the Company managed to increase its net profit and OIBDA compared to 2009 mostly through permanent cost control. The capacity factor, an important efficiency indicator, grew to 61% in 2010 returning to the pre-crisis levels. This important fact demonstrates that both the utilities sector and the Russian economy as a whole are on the way to full recovery. Moreover we think that the full engagement of OJSC “Bashkirenergo” at the wholesale electricity and capacity market in 2011 will contribute to the Company’s financial success in future”.

2010 results overview

One of the major challenges for the management in 2010 was setting up the procedures to “unbundle” the Company’s business model. Mostly this means that generating capacities and the power supply company LLC ESKB needed to gain separate access to the wholesale electricity and capacity market (OREM). As the result, OJSC “Bashkirenergo” has transferred its status of guaranteeing supplier to LLC ESKB, with all of the power stations with capacity over 25 MW gaining access to OREM. Moreover practically all of generating equipment (except 65 MW) passed the competitive capacity selection procedure for 2011.

In order to comply with the Russian legislation prohibiting from 2011 for the Company to combine within one price zone electricity transmission with electricity generation and supply, the Company’s management prepared for the spin-off from OJSC “Bashkirenergo” of the newly created power grid company OJSC “Bashkirian power grid” (OJSC “BPG”) composed of long-range and local power lines. In order to maximize the protection of rights of all shareholders of the reorganized OJSC “Bashkirenergo” the spin-off was planned to be made with a mirror-like distribution of shares in the charter capital of the newly created entity. However at the Extraordinary General Shareholders Meeting held on December 24, 2010 the decision to make the spin-off was not supported by the shareholders, controlling the blocking stake of voting shares. As a result the decision has not been approved and today OJSC “Bashkirenergo” in legal terms continues to function as a vertically-integrated Company. At the same time operationally it started in 2011 having an unpacked business.

Key Financial Performance Indicators, 2009-2010

Indicator

2010

2009

Change.,

%

Financial Indicators in mln RUR

 

 

 

Revenue

62,835

50 295

25%

Operating expenses

(58,719)

(47 238)

24%

Operating Profit

4,116

3 057

35%

EBIT margin, %

7%

6%

1 b.p.

OIBDA

7,613

6,423

19%

OIBDA margin, %

12%

13%

- 1 b.p.

Profit before income tax

4,077

3,068

33%

Profit for the year

2,791

2, 135

31%

Net margin, %

4%

4%

0

CAPEX (financing)

3,289

5,700

- 42%

CAPEX/Sales

5%

11%

- 6 b.p.

Key Operating Results, 2009-2010

Operating Indicators

2010

2009

Change,

%

Installed electric capacity, MW

4,248

4,556

-7%

Installed heat capacity, Gcal/h

13,255

15,204

-13%

Electricity generation, mln kWh

22,612

19,834

14%

Heat output, thousand Gcal

24,128

23,889

1%

Electric capacity factor, %

61%

50%

11 b.p.

Specific consumption of equivalent fuel for electricity generation, g/kWh

323

326

-1%

Specific consumption of equivalent fuel for heat output, kg/Gcal

145

146

-1%

Electricity supply to final customers, mln kWh

19,083

18,604

3%

Revenue

Revenues from electricity and capacity, which comprise the major part of the consolidated revenues (75% of total revenue) saw a 29% growth in 2010 up to 47,365 mln RUR (1,6 bln USD). Heat sales revenues (20% of total revenue) gained 12% to 12,280 mln RUR (404 mln USD). The total consolidated revenue from electricity, capacity, and heat sales for 2010 reached 59,645 mln RUR (2 bln USD) exceeding by 25% the 2009 result.

Consolidated revenue structure 2009-2010, mln RUR

 

2010

Share in revenue,%

2009

Share in revenue,%

Change, %

Revenue

62,835

100%

50,295

100%

25%

Electricity and capacity

47,365

75%

36,792

73%

29%

Heat energy

12,280

20%

10,983

22%

12%

Other revenue

3,190

5%

2,520

5%

27%

The main factors of revenue growth in 2010 compared to 2009 were:

- Increase by 2.57% in power output to final consumers compared to 2009 reaching 19,082.5 mln kWh;

- Growth of electricity sales at the wholesale electricity and capacity market (OREM);

- A 10.3% increase in average electricity tariffs for final consumers compared to 2009;

- A 8.5% increase in average heat tariffs for consumers to 2009 rates.

Operating expenses

Consolidated operating expenses of OJSC “Bashkirenergo” grew 24% in 2010 up to 58,719 mln RUR (2 bln USD). Variable costs represented the major part, or 68%, of total Operating expenses amounted to 39,640 mln RUR (1,3 bln USD). They mainly consisted of fuel costs, expenses on purchased electricity as well as on water usage. Total variable costs hiked 45% in 2010.

Fuel costs which increased by 35% to 23,994 mln RUR (790 mln USD) were driven by a 15% gas price indexation, as well as by the boost in electricity output by thermal power stations.

Expenses on purchased electricity showed the biggest increase of 62% up to 15,132 mln RUR (498 mln USD) mostly triggered by the rise in electricity and capacity prices at OREM. The share of purchased electricity rose up 6 b.p. to 26% in overall operating expenses.

Fixed costs which represented 32% of overall operating expenses totaling 19,079 mln RUR (628 mln USD) lost 4% compared to 2009.

Staff costs being the largest item of fixed costs (15% of total operating expenses) fell by 2% against 2009 to 8,758 mln RUR (288 mln USD). The reduction in staff costs can mostly be explained by a shift to a new staff motivation system “salary + bonus for achieving KPI”.

Repair and maintenance together with costs of materials and spare parts (8% of operating expenses) rose 3% to 2009 amounting to 4,672 mln RUR (154 mln USD) mostly due to a 7% increase in expenditure on repairs and maintenance.

Other operating expenses have grown 13% to 1,191 mln RUR (39 mln USD).

Structure of operating expenses 2009-2010, mln RUR

 

2010

äîë˙, %

2009

äîë˙, %

%

Fuel

 (23,994)

41%

(17,759)

38%

35%

Purchase of electricity

(15,132)

26%

 (9,334)

20%

62%

Water usage

 (514)

1%

 (300)

1%

71%

Variable costs

 (39,640)

68%

 (27,393)

58%

45%

Staff costs

(8,758)

15%

 (8,903)

19%

-2%

Depreciation

(3,497)

6%

(3,366)

7%

4%

Repair and maintenance

 (2,965)

5%

 (2,770)

6%

7%

Materials and spare parts

(1,707)

3%

 (1,780)

4%

-4%

Charity

 (681)

1%

 (497)

1%

37%

Taxes, other than income tax

 (399)

1%

 (403)

1%

-1%

Rent

 (143)

0%

 (137)

0%

4%

Loss on disposal of property, plant and equipment

 (132)

0%

(392)

1%

-66%

Change in provision for tax and legal contingencies

 363

-1%

(223)

0%

n.a.

Change in allowance for doubtful receivables

(40)

0%

 (200)

0%

-80%

Impairment of advances paid

  71

0%

 (116)

0%

n.a.

Other operating expenses

 (1,191)

2%

(1,058)

2%

13%

Fixed costs

(19,079)

32%

(19,845)

42%

-4%

Operating expenses

(58,719)

100%

(47,238)

100%

24%

Financial position

AS of the balance sheet date, the total assets of OJSC “Bashkirenergo” amounted to 57,806 mln RUR (1,897 mln USD).

The share of non-current assets exceeds 89% in the asset structure and totalled 51,488 mln RUR (1,689 mln USD), while the share of current assets has 11% or 6,318 mln RUR (207 mln USD).

Capital and reserves represented 87% of the total equity and liabilities amounting to 50,119 mln RUR (1,644 mln USD).

Non-current liabilities decreased 27% to 5,473 mln RUR (180 mln USD) due to a 89% reduction in current loans and borrowings. At the end of 2010 the share of total current liabilities was 9% or 5,473 mln RUR (180 mln USD) and non-current liabilities represented 4% of the total equity and liabilities or 2,214 mln RUR (73 mln USD).

The financial position of OJSC “Bashkirenergo” is stable. External financing in 2010 was cut down 89% to only 160 mln RUR (5 mln USD), resulting in a net debt indicator becoming negative -409 mln RUR (- 13 mln/ USD). Such a significant decrease in loans and borrowings compared to last year was mostly the result of a growing cashflow from operating activities coupled with the reduction in capital expenditure, 

Capital expenditure

2010 capital expenditure, including new construction as well as technical modernization and reconstruction projects, amounted to 3,289 mln RUR (108 mln USD).

In 2010, implementation of several major and mid-size investment projects took place. In particular, the construction of a 110 kW cable line “Ibragimovskaya GPP-1” was brought to an end, the new sub-stations like “Amet” in the East of the Republic and “Zaton” in Ufa were put in line, the turbine and generator of steam-gas unit PGU-60 were installed at Ufimskaya CHP-2. Among the modernization and reconstruction projects the termination of installation works of a K-45-1,6 turbine can also be singled out.

Events after the reporting date

The Board of Directors of OJSC “Bashkirenergo” on March 31, 2011 adopted a Regulation on dividends policy of OJSC “Bashkirenergo”. In accordance with the abovementioned Regulation, the Board of Directors, in their recommendations to the General Shareholders Meeting on the amount of dividend payment, will take into consideration that the level of dividend per share should not be below 10% of the amount net profit for the financial year, as determined in the consolidated financial statements prepared in accordance in IFRS.

Outlooks for 2011

According to the management forecast the OJSC “Bashkirenergo” 2011 financial results should be at the level of 2010, and subject to a noticeable growth of electricity prices at OREM they can even beat last year’s results.

The spin-off of grid assets is supposed to be completed by the end of 2011. The management is preparing its proposals for the Board of Directors and the General Shareholders Meeting.

The amount of investments in 2011 might significantly increase, mostly due to re-launching of implementation of the PGU CHP-5 project, should the Board of Directors decide to do so. Additional capital expenditure will be financed through external borrowings as well as by its own resources.

 

 

 

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