Pre-approved by Approved by the Board of Directors of the Annual General Meeting E.ON Russia JSC of Shareholders of E.ON Russia JSC 21 April 2016 15 June 2016 (Minutes No. 229) (Minutes No. 16) Chairman of the Annual General Meeting of Shareholders ______________ B. Reutersberg ANNUAL REPORT E.ON Russia JSC FOR 2015 Validity of information of the Annual Report is certified by the opinion of the Audit Commission of E.ON Russia JSC No. w/n dated 31 March 2016 CEO ______________ /M.G. SHIROKOV/ 2016 1 TABLE OF CONTENTS 1. KEY PERFORMANCE INDICATORS ..................................................................................... 3 2. ADDRESS OF THE CHAIRMAN OF THE BOARD OF DIRECTORS AND CEO TO SHAREHOLDERS ............................................................................................................................................. 4 3. GENERAL INFORMATION ABOUT THE COMPANY ............................................................... 6 4. REPORT OF THE BOARD OF DIRECTORS ON THE COMPANY’S DEVELOPMENT IN ITS PRIORITY AREAS OF ACTIVITIES ....................................................................................... 16 5. FINANCIAL PERFORMANCE REVIEW ............................................................................... 21 6. CORPORATE GOVERNANCE ............................................................................................. 30 7. SHARES AND STOCK MARKET ......................................................................................... 49 8. OPERATIONS OVERVIEW ................................................................................................ 52 9. POWER MARKETS ........................................................................................................... 56 10. INVESTMENT PROGRAM ............................................................................................... 60 11. PROCUREMENT ACTIVITIES .......................................................................................... 65 12. INFORMATION TECHNOLOGIES .................................................................................... 68 13. RISKS AND RISK MANAGEMENT SYSTEM ...................................................................... 69 14. CORPORATE AND SOCIAL RESPONSIBILITY ................................................................. 72 15. CONTACT INFORMATION .............................................................................................. 88 ANNEX 1 – FINANCIAL STATEMENTS OF E.ON RUSSIA JSC FOR 2015................................. 90 ANNEX 2 INFORMATION ON INTERESTED PARTY TRANSACTIONS AND MAJOR TRANSACTIONS EFFECTED BY THE COMPANY IN 2015 ..................................................... 110 ANNEX 3 REPORTON COMPLIANCE WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE CODE OF CORPORATE GOVERNANCE ................................................................................ 125 2 1. KEY PERFORMANCE INDICATORS 2015/2014 Revenue 78.6 bln roubles -1.7% EBITDA1 24.3 bln roubles -3.7% EBIT2 17.6 bln roubles -5.5% Net profit 15.5 bln roubles -11.2% Assets value 127.4 bln roubles 1.6% Electric power generation 53.77 GW/h -9.2% Electric power sales3 56.69 GW/h -8.6% ICUF 58.0 % -7.3% (installed capacity utilisation factor) Information presented in this Report is based on accounting reports drawn up in accordance with the Russian Accounting Standards (RAS). 1 EBITDA = Profit (loss) from sales + Other income - Other expenses – Net balance of exchange rate differences + depreciation 2 EBIT = Profit (loss) from sales + Other income - Other expenses – Net balance of exchange rate differences 3 including the volumes purchased on the market 3 2. ADDRESS OF THE CHAIRMAN OF THE BOARD OF DIRECTORS AND CEO TO SHAREHOLDERS ADDRESS OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Dear Shareholders, Investors and Colleagues! In 2015, E.ON Russia JSC demonstrated stable results in operating activities. The total output of the Company’s plants amounted to 53.8 bln KWh. The electric power sales volumes reached 56.7 bln kWh. Despite difficult market conditions due to the overcapacity E.ON Russia JSC has managed to achieve stable financial results. The level of gross profit corresponds to that of 2014. The EBITDA indicator has dropped by 4% to 24.3 bln. roubles mainly for the reason of the shutdown of power unit No. 4 of Surgutskaya GRES-2 in the first half year of 2015, and imposing of penal sanctions for delay in commissioning of new power unit No. 3 of Berezovskaya GRES. Both events are of non-recurrent nature. In February 2016 the fire occurred on recently commissioned power unit No. 3 of Berezovskaya GRES, that caused a material damage to it. According to the results of the preliminary investigation, the fire occurred due to the leakage in the pipeline supplying fuel oil to the boiler. The fire damaged mostly the boiler steel structure, the major part of which is to be replaced, according to the latest information. According to our forecasts, power unit No. 3 of Berezovskaya GRES will be out of operation for at least the following 20 months. The explicit task of recommissioning power unit No. 3 of Berezovskaya GRES is set to the management, all other business projects are suspended. Despite the damage caused to Berezovskaya GRES, E.ON Russia will pay dividends in 2016. However, it is clear that their amount will be influenced by the damage caused by the fire. Positive events for the Company: in December 2015 all our facilities built before 2007 successfully passed a competitive capacity takeoff (CCT) with the capacity supply for the following four years. In comparison with the previous annual competitive capacity takeoff the new version of CCT differs by a higher stability and predictability level in respect of expected incomes. On behalf of the Board of Directors of E.ON Russia JSC, I would like to express my gratitude to each of you for your substantial contribution to the operational and financial activities of the Company in 2015. I would also like to thank our shareholders for their trust and confidence that our Company has significant potential for the long term development. We will make every effort to meet your expectations! Best regards, Chairman of the Board of Directors of E.ON Russia JSC Dr. Bernhard Reutersberg 4 ADDRESS OF THE CHIEF EXECUTIVE OFFICER Dear Colleagues, Shareholders, Despite the complex macroeconomic situation, E.ON Russia JSC remains one of the most stable companies in the industry, promptly solving problems and developing promising areas of business. The investment program of E.ON SE in Russia was completed by commissioning of new facilities at Berezovskaya GRES in 2015. The Company successfully implemented a project on participation of power unit No. 1 of Berezovskaya GRES in the market of system services as related to the Rated Primary Frequency Control (RPFC). From 15 December 2015 the power unit actually started participating in the provision of this service that is crucial for the energy system of Russia. It is important to mention that power unit No. 1 of Berezovskaya GRES is the first and currently the only pulverised coal power unit in Russia participating in RPFC. Certification testing of CCGT-400 power unit of Shaturskaya GRES was successfully completed for the purpose of participation in RPFC. E.ON Engineering, a subsidiary company, was registered in October 2015 for the purpose of business diversification and maintaining the dominant position on the power market, which tasks include, apart from completion of projects at Berezovskaya GRES, development of engineering business on new grounds. The own engineering company serves E.ON Russia to accumulate experience and technical competence gained in the course of implementation of its investment program. A special attention is paid in the Company to development of business in the sphere of distributed generation. Currently the assets of E.ON Connecting Energies LLC, our subsidiary company responsible for this area, include a combined heat and power plant with the capacity of 30 MW servicing the Noginsk Industrial Park, as well as several minor experimental projects with the capacity of 800 kW each for Metro Group. At present the transaction on acquisition of a new plant is being completed. Specialists of the Company are actively working over creation of a package of new projects for implementation in 2016. A lot of work was done in the sphere of social responsibility and preparation of young specialists in the regions of the Company’s presence. Besides, E.ON Russia continued its activities for financial support of national and international cultural projects. I am convinced that the accumulated knowledge and experience will help us to overcome difficulties. I express my thanks to the Company’s shareholders for their trust. Best regards, CEO of E.ON Russia JSC Maksim Gennadyevich Shirokov 5 3. GENERAL INFORMATION ABOUT THE COMPANY Open Joint Stock Company Full name E.ON Russia Date of state registration 4 March 2005 Primary State Registration Number (OGRN) 1058602056985 23 bldg. 34, Energostroiteley street, Surgut, Legal Address of the Company Khanty-Mansi Autonomous District - Yugra, Tyumen Region 10 Presnenskaya emb, bld. V, floor 23 Address of the Moscow Representative Office Moscow, 123317 Contact phone (495) 545-38-38 Fax (495) 545-38-39 E-mail: [email protected] Core business Generation and sales of electric and heat power and capacity Total installed capacity, MW 11,145 Authorised capital, roubles 25,219,482,458.37 Total number of shares, pcs 63,048,706,145.92 Nominal