2014 Annual report

Business Plan Fulfillment

Analysis of fulfillment of the Company’s business plan for 2014
Indicator 2014, RUB million Deviation
target actual absolute, RUB million relative,%
Total revenue 43,769 44,262 493 1
Electricity transmission revenueThe revenue by the electricity transfer and electricity sales business types is shown in accordance with management accounting and business plan development methods of the Company. Revenue under electricity supply contracts is included in the electricity transfer revenue. 32,295 32,759 464 1
Electricity transmission revenue according to accounting statements 30,970 31,343 373 1
TC revenue 826 882 56 7
Electricity resale revenueThe revenue by the electricity transfer and electricity sales business types is shown in accordance with management accounting and business plan development methods of the Company. Revenue under electricity supply contracts is included in the electricity transfer revenue. 9,674 9,601 –73 –1
Electricity and capacity resale revenue according to accounting statements 11,000 11,017 17 0.2
Revenue from other activities 974 1,020 46 5
Total net cost 39,837 40,030 193 1
Purchased power for loss compensation 4,294 4,341 47 1
Purchased power for sale 6,073 6,037 –36 –1
Raw and other materials 1,723 1,753 30 2
Production works and services 1,107 1,041 –66 –6
Services of JSC FGC UPS 8,442 8,439 –3 –0.1
Services of distribution grid companies 4,041 4,045 4 0.1
Labor costs with deductions 8,232 8,489 257 3
Other expenses 5,925 5,885 –40 –1
Total gross profit 3,932 4,232 300 8
Commercial expenses 503 487 –16 –3
Management expenses 810 853 43 5
Profit (loss) on sales 2,620 2,892 272 10
Interest receivable 222 237 15 7
Interest payable 1,480 1,395 –85 –6
Income from participation in other organizations 0 2 2 100
Miscellaneous earnings 3,021 3,396 375 12
Miscellaneous costs 3,116 5,659 2,543 82
Profit (loss) before tax 1,267 –529 –1,796 –142
Profit taxation 436 91 –345 –79
Net profit 831 –620 –1,451 –175

In 2014, the total revenue of JSC IDGC of the North-West amounted to RUB 44,262 million, which is RUB 493 million or 1.1% greater than the target. In addition:

The revenue from grid connection services was RUB 56 million or 6.8% greater than the target; the excess of the target was mainly due to the revenue increase at Komienergo branch by RUB 90 million (closing of contracts for grid connection of 110/6 Yarvozh substation, closing of contract with JSC Vorkutaugol) and Novgorodenergo for RUB 28 million (JSC Druzhba Main Pipelines and the Administration of the Ministry of Interior of Russia in the Novgorod Region). At the same time, the revenue at Arkhenergo branch decreased by RUB 57 million in comparison with the target.

The revenue from electricity sales was RUB 17 million greater than the target (according to accounting statements) or 0.2%, which is due to the increase of electricity sales at Kolenergo branch.

The revenue from other activities increased by RUB 46 million or 4.7%, which is due to the increase of revenue from transfer of electricity facilities (Vologdaenergo branch, contract with JSC Yamalgazinvest, + RUB 42 million) in comparison with the target, and the increase of the amount of services of operating and technical maintenance and repair of electric grid equipment.

Total actual net cost for 2014 amounted to RUB 4,030 million, which is more than the target level by RUB 193 million, or 0.5%. The greatest increase of expenses is noted in the following items:

At the same time, there were savings on the cost items entitled Purchased electricity for sale, Jobs and services related to production, and miscellaneous costs.

The actual gross profit amounted to RUB 4,232 million, which is RUB 300 million greater than the target.

The selling costs of JSC IDGC of the North-West in 2014 amounted to RUB 487 million while the target was RUB 503 million; the savings amounted to RUB 16 or 3.2%. These savings were achieved by the sales departments mainly in the Materials and Payroll items.

The increase of management costs in comparison with the 2014 target amounted to RUB 43 million or 5.3%, which is due to higher costs in payroll with allowances (RUB 28 million); the exceeding of the planned amounts is due to an objective inability to provide leave during preparations for the fall and winter period, development of the 2015-2019 business plan, and, consequently, classification unused leave in the form of regular salaries as costs).

There was also an increase of management costs of property lease (+ RUB 6 million), traveling and representation services (+ RUB 5 million), transport services (+ RUB 2 million), and legal services (+ RUB 2 million).

The balance of miscellaneous earnings and costs amounted to — RUB 3,421 million, in particular:

The increase of miscellaneous earnings amounted to RUB 375 million (12.4%) and was due to the following cost items:

Other miscellaneous earnings decreased by RUB 200 million as compared to the target. This reduction is due to changes in accounting according to the auditor’s recommendation to provide summary presentations of earnings and costs posted due to the same event. The Company made adjustments to its financial result statement for specifying the presentation of earnings and costs under contracts of assignment of claim rights after the payment date in the part where they should be presented in the summary form. There were no deviations in the balanced value of earnings and costs under contracts of assignment.

The increase of miscellaneous costs amounted to RUB 2,543 million (81.6%) and was provided for by the following cost items:

The amounts of established provisions were due to the following reasons:

At Vologdaenergo branch, as at 01.01.2015, bad debt provisions were established for RUB 1,000 million as follows:

In addition, at Vologdaenergo branch, an estimated liabilities provision was established for the amount of claims of JSC Vologda Sales Company for payment of RUB 1 million as unjustified profit and state duty.

At Karelenergo branch, the amount of provisions established as at 31.12.2014 amounted to 386 million, in particular:

At Kolenergo branch, as at 31.12.2014 the bad debt provision amounted to RUB 261 million including the debt of JSC Kolenergosbyt on electricity transfer services in the amount of RUB 213 million, the debt of JSC Teplovodosnabzhenie in the amount of RUB 6 million, the debt of the counterparty entitled A.O. and O.B. Taranov, 10 rubles, the debt of other counterparties on electricity transfer services, RUB 30 million; and the debt on business from electricity sales, RUB 12 million (legal entities and individual entrepreneurs).

At Komienergo branch, the established provisions amounted to RUB 69 million (the provision as at 31.12.2014 was RUB 52 million):

At Novgorodenergo branch, pursuant to a protocol of liability inventory No. 1 dated 22.01.2015, a provision was established as at 31.12.2014 in the amount of RUB 349 million including the following:

Establishment of a provision for impairment of financial investments in the amount of RUB 1,665 million. This provision was established on the grounds of discovery of signs of impairment of deposits of JSC IDGC of the North-West with the St. Petersburg Shareholder Commercial Bank Tavrichesky.

At the same time, other miscellaneous costs were RUB 227 million less than the target, which, similarly to miscellaneous earnings, is primarily explained by change of the accounting of contracts of claim right assignment. There were no deviations of the net value of earnings and costs under assignment contracts.

On the results of the reported period, the loss amounted to RUB (-620) million, the impairment of the financial result in comparison with the actual amount of 2013 amounted to — RUB 1,451 million or 175%.