OREANDA-NEWS. November 27, 2012. Federal Grid Company of Unified Energy System (Federal Grid Company or the Company, LSE and Moscow Exchange ticker: FEES), the operator and manager of Russia's Unified National Electric Grid, and its subsidiaries, together referred to as FGC UES Group (the Group), announces its unaudited consolidated financial results for the six months ended 30 June 2012 prepared in accordance with International Financial Reporting Standards (IFRS).

Key Highlights

Financial:

Revenue of RUB 66,909 million

Adjusted EBITDA* of RUB 37,761 million

Operating profit of RUB 15,039 million

Profit for the period of RUB 3,914 million

Adjusted Profit** for the period of RUB 13,997 million

* Adjusted EBITDA is calculated as conventional EBITDA (profit for the period before income tax expense, finance income and costs, depreciation and amortisation) adjusted to exclude an impairment of available-for-sale investments, a reversal of impairment of investments in associates, and a non-specific impairment of property, plant and equipment, and to include finance income

** Adjusted profit for the period is calculated as profit for the period adjusted to exclude an impairment of available-for-sale investments, a reversal of impairment of investments in associates, a non-specific impairment of property, plant and equipment, and related deferred income tax effects

Operational:

Electricity transmission as at 30 June 2012 amounted to 248.656 billion kWh (+4.8% compared to 1H 2011)

Total number of substations*** as at 30 June 2012 amounted to 858

Total transformer capacity - 323 MVA

*** Including leased assets and ORU and cells on substations owned by third parties

Key developments in 1H 2012

On 27 April 2012, the Board of Directors of Federal Grid Company approved three long-term debt instruments in order to diversify the Company's debt financing sources:

Russian bonds totaling up to RUB 125 billion

Stock-exchange authorised rouble bonds totaling up to RUB 100 billion

Eurobonds totaling up to RUB 100 billion

On 11 May 2012, the Ministry of Energy of the Russian Federation approved the RUB 505 billion 2012-2014 investment program for Federal Grid Company

On 21 May 2012, the Federal Tariff Service approved electricity transmission tariffs for 2012-2014. According to the decision, starting in 2H 2012, the tariff will be increased by 11% with subsequent 9% tariff increases slated for mid-2013 and mid-2014

Andrey Kazachenkov, First Deputy Chairman of the Management Boardof Federal Grid Company, commented:Federal Grid CompanyЃfs principal financial results for 1H 2012 are adjusted EBITDA of RUB 37,761 million and adjusted Profit for the period of RUB 13,997 million.

The Company continues pursuing its long-term development programme to improve operational and investment efficiency.

Federal Grid Company is thus continuing to pursue balanced financial policies to support the long-term development of RussiaЃfs backbone electricity gridЃh.

Operating expenses

1H 2012 (RUB million)

% of total expenses

1H 2011 (RUB million)

% of total expenses

% change

Depreciation and amortisation*

20,464

38

16,113

35

27

Employee benefit expenses and payroll taxes

13,033

24

12,850

28

1

Purchased electricity

6,432

12

6,750

15

(5)

Accrual / (reversal) of allowance
for doubtful debtors

1,933

4

(124)

0

-

Repairs and maintenance of equipment (by contractors)

1,567

3

1,511

3

4

Other expenses

10,155

19

8,557

19

19

Total

53,584

100

45,657

100

17

*includes amortisation of intangible assets of RUB 0.5 bn in 1H 2011 and RUB 0.3 bn in H1 2012

The GroupЃfs total operating expenses in 1H 2012 amounted to RUB 53,584 million, up 17% year-on-year (y-o-y). The growth was largely due to an increase in depreciation expense and an accrual of allowance for doubtful debtors.

Depreciation accounted for 38% of total costs in 1H 2012, and increased by 29% y-o-y to RUB 20,186 million, primarily due to the commissioning of new property, plant and equipment.

Personnel costs, which accounted for 24% of total costs in 1H 2012, increased by just 1% y-o-y to RUB 13,033 million.

Electricity purchase costs in 1H 2012 decreased by 5% y-o-y to RUB 6,432 million primarily due to reduction of actual volumes of electricity losses during transmission owing to increased UNEG efficiency as well as a result of decreased wholesale electricity prices.

An accrual of allowance for doubtful debtors amounted to RUB 1,933 million in 1H 2012, compared with a reversal of allowance of RUB 124 million in 1H 2011.

Repairs and maintenance costs accounted for 3% of total costs, and increased by 4% y-o-y to RUB 1,567 million.

Other expenses increased by 19%, primarily due to 50% increase of taxes, other than income tax, 77% increase of research and development costs and 40% growth of fuel costs.

Debt

The GroupЃfs net debt as at 30 June 2012 amounted to RUB 106.8 billion, compared with RUB 85.2 billion as at 31 December 2011. The portion of the long-term debt amounted to RUB 150.7 billion. The increase in the long-term debt was primarily due to the successful placement of long-term rouble-denominated bonds totalling RUB 10 billion with an average coupon of 8.1% during 1H 2012.

The Group's net debt to adjusted EBITDA for the last 12 months ratio amounted to 1.40 as at 30 June 2012, compared to 1.02 as at 31 December 2011.

Investment and Capital Expenditure

Federal Grid Company continues to adhere to the five-year investment programme approved by the Ministry of Energy of the Russian Federation.

Capital expenditure during the reporting period decreased by 15% y-o-y to RUB 59,685 million.