THE MODERN COMPANY SHOULD BE TRANSPARENT ANNUAL REPORT of JSC IDGC of the North-West As of the End of 2011
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ANNUAL REPORT of JSC IDGC of the North-West as of the end of 2011 THE MODERN COMPANY SHOULD BE TRANSPARENT The modern company should be transparent in: ”goals setting and achievement, communication with customers and partners, treatment of internal processes, information supply, analysis of the results and discussion of new ideas. Today, transparency is one of the basic principles and critical success factor. Openness in cooperation, mutual confidence, compliance with legal provisions, professional obligations and established ethical rules are the precondition to long-term and success development. MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS Dear shareholders, partners and colleagues! JSC IDGC of the North-West is a member of the JSC IDGC Holding Group of Companies, the largest infrastructure organization of Russia” owning 80% of distribution grid complex of the country. JSC IDGC of the North-West remains the key element in the public infrastructure of regional centers of the North-West Federal District, which ensures reliable and uninterrupted power supply to consumers. In accordance with IFRS statements, proceeds of JSC IDGC of the North-West for 2011 grew by 15% and amounted to RUR33,288 mln. The growth of proceeds is, in particular, due to the increase of net supply of electric power. Based on the results of the year, net profit amounted to RUR802 mln. The Board of Directors of JSC IDGC of the North-West has a good balance of executive and non-executive directors and thoroughly monitors how the Company’s management achieves identified objectives. During 2011 the Board of Directors of the Company held 20 meetings, where it reviewed 206 relevant issues for the Company’s strategic development; they included: programs of innovative development for 2011-2016 and perspective development of the electric power metering system in the retail electricity market in the Company’s distribution grids; the energy-saving and energy efficiency program for 2011-2015, the long-term program of consolidation of power supply network assets of JSC IDGC of the North-West for the period of 2011-2015; the system of major investment projects construction management is being currently implemented. Increase of operational efficiency and investment attractiveness is the major component of JSC IDGC of the North-West’s development, therefore, at the beginning of 2012, the Board of Directors of JSC IDGC of the North-West developed and approved the Plan of Implementation of IDGC Holding Development Strategy within JSC IDGC of the North-West till 2015 and prospectively till 2020. During preparation of the Plan of Implementation of the Development Strategy, the Company took into account minority shareholders’ interests to the fullest extent. Under the Plan of Implementation of the Development Strategy, it is envisaged to increase the level of quality and reliability of power supply to end consumers, keep tariff sources of investments in renewal and development of grids unchanged and increase operational and investment efficiency. With listings passed to RTS and MICEX in 2008, the history of JSC IDGC of the North-West as a public company has started. Listing in May 2011 in Quotation List A of the second level certainly confirmed the Company’s reliability and respect of its shareholders’ rights. In accordance with Federal Law No. 261-FZ “On Energy Saving and Energy Efficiency Enhancement and Amending Certain Legislative Acts of the Russian Federation”, dated 23.11.2011, which has entered into legal force, the commitment to increase energy efficiency of production and economic activity of the Company has been acknowledged as a priority. In January 2011, JSC IDGC of the North-West founded the wholly-owned branch JSC Energoservice of the North-West. Energoservice of the North-West was created to carry out energy studies (energy audit), technical works related to formation of electric power metering systems and increase of their efficiency, as well as energy saving activities. In 2011, the Company issued its first social report for 2010 prepared in accordance with GRI (Global Reporting Initiative) standards, thereby confirming its commitment to sustainable development principles. In the reporting year JSC IDGC of the North-West continued to operate as a socially responsible Company which takes care of its production safety, supports local communities in regions it operates in, builds its activity based on long-term interests of everybody who is directly or indirectly involved in the activity of JSC IDGC of the North-West. To sum up the results of 2011, it should be mentioned that the activity of the Board of Directors not only facilitated efficient work of the Company in 2011, determining the development strategy, but also was aimed at forming a long-term perspective of the activity of JSC IDGC of the North-West. Sincerely, Chairman of the Board of Directors JSC IDGC of the North-West A.V. Demidov MESSAGE FROM DIRECTOR GENERAL OF THE COMPANY Dear shareholders, colleagues and partners! I present to you a report on performance of JSC IDGC of the North-West, one of the largest state infrastructure companies in the North-West Federal District,” in 2011. This year our task was maximum implementation of the investment program under the tariff limitation conditions by the Decision of the Government of the Russian Federation and achieving the Company’s break-even operation, which we were able to do. Based on the results of 2011, JSC IDGC of the North-West gained a positive financial result. Proceeds grew by 15.7% and amounted to RUR30.8 billion, profit - RUR408 million as compared to the loss for the previous year. Feasibility grew by 4.2% as compared to the previous year and amounted to 9.9%. EBITDA grew by RUR1.3 billion and amounted to almost RUR4 billion. Among positive indicators are also increase in the fixed assets value by RUR2.4 billion, decrease in accounts payable by RUR204 million. Capital investments for the passed year were RUR5.2 billion. Most of major and large projects were implemented in the Vologda Region. In particular, reconstruction of 110/35/10 kv SS “Antushevo” was completed with replacement of physically worn-out and outdated equipment, which allowed to increase reliability of energy supply to consumers in Belozerskiy District of the Vologda Region. Reconstruction of 110/10 kv SS “Iskra” enabled to develop the northern part of Cherepovets. Works on reconstruction of the 42.178 km long 35 kv OL “Belousovo-Annenskiy Most” in Vytegorskiy District were completed, which increased reliability of energy supply of six gates of water facilities of Volga Baltic Waterway in Vytegorskiy District, Belorucheyskiy mine group JSC Severstal. A large part of the investment program, almost RUR2 billion, accounts for services on technological connection of consumers to electric grids. The largest projects are reconstruction of SS-102A in Mirny of the Arkhangelsk Region, which supplies energy to the only launch complex in our country Plesetsk; construction of 110 kv DSS to connect 110 kv combined-cycle gas turbine of Vologda TPP to electric grids; construction of 35 kv OL and reconstruction of 220/35/6 kv SS “Promyslovaya” to connect LLC RN-Severnaya Neft in the Komi Republic; construction of infrastructure to supply power to 150/35/6 kv SS “Oleniy Ruchey” mining and concentrating complex in the Murmansk Region. In order to prepare network infrastructure to uninterrupted operation in autumn and winter, the Company spent over RUR1.6 billion to repair and renew the electric grid complex. The largest part of funds (40%) of the annual repair program of JSC IDGC of the North-West is allocated for the repair of 0.38-20 kv distribution grids. Tariffs for electric energy transmission services have been regulated in three subsidiaries of the Company (Novgorodenergo, Vologdaenergo, Pskovenergo) using the RAB method since January 1, 2011. In the Murmansk Region and the Komi Republic, where JSC IDGC of the North-West carries out its activity, tariffs were implemented using the method of long-term parameters, and in the territory of the Republic of Karelia, tariffs for electric energy transmission services were set by the method of economically feasible expenses for the period of one year. The volume of electric energy transmission by electric grids of JSC IDGC of the North-West has reached 40.2 billion kWh of energy; the loss index amounted to 6.4%. The purchase amount of equipment, materials and services exceeded RUR37.4 billion. In order to increase ecologic safety in the North-West Region, the Company has developed the Program of implementation of environmental policy for 2010-2012. In 2011, the Company spent approximately RUR22 million, including payments for the negative environmental impact. Environmental care of JSC IDGC of the North-West is not limited to the Program activities only. Personnel of all of the Company’s subsidiaries has actively joined social project “Save Forest Energy”, initiated by JSC IDGC Holding. Over 17 thousand of trees were planted in the territory of JSC IDGC of the North-West’s presence in 2011. A lot of attention of the Company is paid to personnel and professional resources training. Over 66% of the company’s employees were trained in 2011, both at workplaces and in licensed training centers. Professional skill competitions are held regularly. Our site in Vologda became the venue of the All-Russia Competition in Professional Skills of Operation and Maintenance Personnel of Electricity Distribution Grids, in which 13 companies of JSC IDGC Holding took part. Today JSC IDGC of the North-West is one of strategic players of the power supply market at the North-West Federal District. Priorities for 2012 remain the strengthening of financial stability, gaining of target profit, informational openness, accuracy and coordination of business processes, increase of energy efficiency and energy saving, improvement of quality of services rendered by the Company, and, which is the most important, uninterrupted, reliable and high-quality electric power supply to consumers within the responsibility zone of JSC IDGC of the North-West.