90 th ANNIVERSARY of the All-russia electrification plan business report Samokhvalov A. EKATERINBURG, 2011 The Soviets and electrification are the basis of the new world 1 KEY FINANCIAL INDICATORS Contents 2010 (US$ 2010 (RUR 2009 (RUR 20082 (RUR thous.) thous.) thous.) thous.) 1. SHAREHOLDER LETTER .............................................................. 4 Total revenues, including 1 637 624.9 49 783 796 41 297 636 35 964 707 2. ABOUT US ............................................................................6 Transmission revenues 1 571 160.9 47 763 291 40 001 176 34 437 161 2.1. Our service area. ......................................................................6 Connection fee 55 451.5 1 685 727 973 985 895 581 2.2. Our regional market share . .8 Expenses 1 475 089.6 44 842 725 36 623 611 33 947 171 2.3. Our key events . 10 Operating profit 162 535.3 4 941 072 4 674 025 2 017 536 Operating margin, % 9.9% 9,9% 11,3% 5,6% 3. OUR PRIORITIES .................................................................... 14 EBITDA3 168 566.0 5 124 407 4 191 790 3 576 138 EBITDA margin, % 10.3% 10,3% 10,2% 9,9% 4. OUR RESULTS........................................................................20 Pre-tax profit 78 637.7 2 390 587 1 392 972 1 288 425 4.1. Network and Equipment ..............................................................20 Net profit 55 420.2 1 684 773 1 053 267 862 085 4.2. Connection . 23 2010 business report Net margin, % 3.4% 3,4% 2,6% 2,4% 4.3. Energy transmission ..................................................................29 Earnings per share 0.0007 0,02 0,01 0,02 4.4. Our Investments .....................................................................33 4.5. Our Tariffs .........................................................................37 Short-term loans and borrowings 0 0 0 1 200 000 Long-term loans and borrowings 182 159.0 5 537 633 5 583 562 5 161 534 5. FINANCES ............................................................................42 Including bonds 7.2 219 1 638 1 000 000 Debt/ Equity, % 19% 19% 20% 23% 6. INTERNAL CONTROL AND RISK MANAGEMENT .................................... 48 Equity/ Assets, % 67% 67% 66% 66% 7. SHAREHOLDER EQUITY AND SECURITIES ..........................................52 7.1. Shareholder Equity ...................................................................52 Energy sales 2010 2009 Change 7.2. The Company and the Stock Market ...................................................53 Energy supply, thous. kW/h 78 381 628 73 168 742 +7,12% Productive supply, thous, kW/h 72 048 385 66 712 119 +8% 8. CORPORATE GOVERNANCE ........................................................56 Losses, thous. kW/h 6 333 243 6 456 624 -0,74% 9. SOCIAL RESPONSIBILITY . 68 9.1. HR policy. ..........................................................................68 9.2. Welfare and Charity .................................................................70 Operating figures 2010 9.3. PR and GR .........................................................................71 Aerial lines (in chains), km 123 255 9.4. Ecology policy.......................................................................73 Aerial lines (in lines), km. 114 348 Cable lines, km. 4 944 10. OUR CONTACTS .....................................................................76 Transformer substations (35/110-220 kV) 1024 Capacity of transformer substations (35/110-220 kV), MVA 20 813 11. ABBREVIATIONS ....................................................................78 Transformer substations (6-20/0.4 kV) 28 046 Capacity of transformer substations (6-20/0.4 kV), MVA 7 622 12. APPENDICES .......................................................................80 12.1. Interested-party transactions . 80 12.2. Information on the observance of the Corporate Behavior Code requirements ...........83 12.3. 2010 Accounting Statements under RAS . 91 Key performance indicators, 2010 actual target 12.4. 2010 Accounting Statements under IAS . .94 Return on Equity (ROE), % 4,27 4,25 Overall losses/ Overall supply, % 8,08 8,17 Current investment efficiency (terms and costs), % 109 over 95 Prevention of incidents over ultimate limits 0 0 Supply interruption indicator under 1 under 1 Average length of supply interruption under 1 under 1 IDGC of Urals, ОАО 1 Key financial indicators are represented on the basis of 2008-2010 audited financial statements (under RAS). 2010 indicators are shown in US$ just for information (average rate in 2010 is US$ 1=RUR 30.4). 2 Here and henceforth 2008 indicators are shown as the sum of the operating results demonstrated by IDGC of Urals, OAO as a managing company and Permenergo, Sverdlovenergo and Chelyabenergo in January-April 2008 (prior to the merger) and operating results demonstrated by the united operating company in May-December 2008 (following the merger). 3 EBITDA is calculated according to the formula: net profit + income tax and other obligatory payments + interest payable + depreciation and amortization. Dear shareholders The elapsed year became the year when post-crisis recovery of the Urals economy has triggered again. After serious meltdown in 2009 energy consumption commenced to grow again on our service area. Our 2010 b management model, efficiently established and crisis-tested, enabled us to fully exploit our advantages against the backdrop of energy demand boom and to reach high results at the year-end. Generally, our 2010 energy consumption grew by 8.73% on 2009. During the reported year the volume The Chairperson of the Board of The General Director of transmitted energy totaled 70 887 mln. kW/h, thus exceeding 2009 results by 4.71%. In addition, our Directors V. N. Rodin net profit also grew up to RUR 1 684 773 thous. (+ RUR 613.5 mln. on 2009). These results allow us А. V. Demidov to contemplate a dividend pay-out for the first time since 2007. usiness report During the year the Company’s Board of Directors worked hard to increase governance efficiency. Generally, there were 16 regularly arranged sessions of the Board of Directors. The BoD reviewed and increased – 273.67 MW against 212.2 MW in 2009. Repair targets, determined by our 2010 repair approved our business plan, insurance coverage program as well as collective labor contract. Besides, the program, were accomplished by 112%. In 2010 special attention was given to buildings renovated according BoD approved the Regulations on Risk Management, Internal Control Policy and the Regulations on to defects detected during exploitation. Dividend Policy. According to a BoD resolution, IDGC of Urals joined a non-profit partnership (Union for Energy Auditors and Energy Service Companies) as well as incorporated a 100% subsidiary (Energy With a view to implement our HR policy, on June 23, 2010 the BoD approved the Program on the Service Company of the Urals, OAO). HR Endorsement and Development. The Program is focused on the preservation of staff potential and improvement of personnel training, retraining and development system. In 2010 the company implemented We commemorated the 90th anniversary of the all-Russia electrification plan by commissioning new the new Regulations on personnel training that regulate and encourage the unified approach to training objects and updating grids. In 2010 overall investments totaled RUR 4.6 bln. In the Sverdlovsk region system for all structural subdivisions. Our corporate training center obtained a new status – since we completed the reconstruction of 110/35/6 kV “Krasnouralsk” substation. This enabled us to increase September 2010 it works as Training Center of IDGC of Urals, NCHOU. supply reliability for industrial and residential consumers in Krasnouralsk and for a large copper plant Summarizing our 2010 results we can state that the Board of Directors, management team and personnel belonging to Svyatogor, OAO. In Ekaterinburg we commissioned a new substation (“90th anniversary successfully dealt with lingering signs of economy crisis that negatively affected our operations. Our of the GOELRO plan”) portraying successful implementation of the investment program by Urals course for increasing governance efficiency was fruitful: market capitalization grows, social programs subdivisions of IDGC Holding. In the Chelyabinsk region we commissioned 110/10 kV “Granitnaya” are implemented. We started 2011 with large-scale investment plans and assurance that we are able to substation designed to increase supply reliability for consumers in the Lenin district of Chelyabinsk. fulfill the plans. Grids development, quality and reliability increase, work on behalf of our shareholders In the Perm region we completed the reconstruction of 110 kV “Chusovaya – Lysva” aerial line. This will continue to be our key principles in future. modernized line considerably increased supply reliability for plants in Chusovoy and Lysva as well as facilitated energy supply for public utilities and industrial consumers. In 2011 overall investments will total RUR 7.78 bln., exceeding 2010 investments by 1.6 times. Such large- scale investments are possible due to the transition of our all branches to RAB tariffs: Sverdlovenergo and Chelyabenergo transited to RAB since January 01, 2011, Permenergo transited to RAB in 2009. We worked over the transition during the whole year. In 2010, as a result of our integration strategy (conclusion of rental contracts or purchase of grids) the company significantly increased its local communal market share. Thus, in 2010 we concluded 9 new grid rental contracts with various