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Annual Report 2015

Meet Expectations of Customers, Shareholders and Employees

Andrey Murov
Chairman of the Management Board

– What are Federal Grid Company’s main results in 2015?

In 2015, Federal Grid Company provided the best results over the past four years for its customers, shareholders and employees.

In the first place, we managed to achieve an even higher level of reliability. The number of accidents at our facilities was reduced by 17.3% in 2015.

The corporate investment programme has been implemented in full and on time. The Company commissioned 7,585 MVA of capacity and more than 1,100 kilometres of electricity transmission lines. The target of reducing unit investment costs relative to the 2012 level was met ahead of schedule.

Technological connection of customers amounted to 8.2 GW. Revenues from technological connection increased by twofold and reached RUB12.4 billion.

We achieved one of the best net profit figures in the industry. Net profit under RAS increased by 3.5 times and reached RUB17.9 billion. Net profit under IFRS reversed the negative trend and amounted to RUB44 billion. The operating costs were reduced by 40% relative to the 2012 reference year. Labour productivity increased by 21.5%. The Company paid dividend for the first time in three years in 2015, and we intend to increase the dividend yield further.

The main vector in our work was and is the improvement of operational excellence (i.e. reliability, quality of repairs) and financial efficiency.

– In 2015, Federal Grid Company made a transition to payment for actual capacity by the customers. How did it affect the Company and its customers?

– Customers that are connected directly to the Company’s grids were able to reduce the costs substantially after the transition was made to payment for actual capacity. Of course, cash flows from electricity transmission have reduced. But the Company’s total revenues increased because we received the fee for technological connection.

Our direct customers now have the best terms and conditions in the industry, given that the indexation of the Company’s tariff for electricity transmission is several times lower than the inflation rate.

– What are the outcomes of the first year of the Company’s Long-Term Development Programme?

– The Long-Term Development Programme for Federal Grid Company was the first among similar programmes for natural monopolies which the Government of the Russian Federation approved. The Company has been developing in accordance with the underlying principles of the Programme and has achieved tangible results. In particular, the cost reduction targets were more ambitious than those set in the Development Strategy for the Russian Electric Grid Complex. As I said, we manage to maintain outstripping development.

The Programme enables us to use new approaches to the organisation of work, think globally, and improve communication processes.

– Have any major amendments been made to the Company’s investment programme over the past few years? What are its priorities today?

The investment programme should reflect the actual needs of the economy. Of course, changes in the macroeconomic environment in late 2014 did require amendments to investment plans. The amount of funds for the programme was reduced, particularly because the construction of some facilities was postponed.

The investment programme for 2015 amounts to RUB85.9 billion. Its key priorities are to maintain UNEG reliability, provide uninterrupted power supply to customers, and ensure high quality and accessibility of services for electricity transmission and technological connection. We also pay close attention to synchronisation of the development programmes with the generating facilities and distribution grids.

By 2020, we will have to implement major projects of national significance, such as energy supply to Baikal-Amur and Trans-Siberian railways, ESPO and Power of Siberia pipelines, connection of industrial and social facilities in Siberia and the Russian Far East, and strengthening of ties between UES North-West and Centre.

— How does innovative development in Federal Grid Company progress?

— Implementation of state-of-the-art technologies and methods of operational organisation is a guarantee of high reliability and payoff of the electric grid infrastructure. We focus on cooperation with industrial enterprises, development institutions, research think-tanks, institutions of higher education, foundations, small and medium-sized businesses.

Joint tests of new technical solutions are conducted at our facilities and testing grounds. In 2015, with participation of Federal Grid Company, 30 patents were received for inventions and useful models, and 22 corporate standards were drawn up.

Federal Grid Company is proactively co-operating with CIGRE, the most reputed international industry association. This helps to take into account the global technological trends better, and promote Russian producers on the world innovations market.

— What does placing Federal Grid Company on a sustainable development trajectory mean for the company?

– We try to find a balance between reliability, economic and environmental effectiveness and sustainable development objectives in our operations: increase energy efficiency and industrial safety; minimise impact on the environment; build responsible HR management practices; and factor in the interests of stakeholders.

Since 2008, Federal Grid Company has published annual reports on social responsibility and corporate sustainability prepared in accordance with international standards for non-financial statement disclosure.

– Federal Grid Company has been implementing advanced and effective tools of corporate governance. What relevance do these tools have for the Company’s development?

Implementation of best corporate governance practices is a factor of the Company’s investment attractiveness and capitalisation growth. We develop a productive dialogue between governance bodies and use the KPI system in the Company. Of course, the overall effectiveness of our work does depend on proper management arrangements.

— What will be the Company’s most important objectives in 2016?

— The key value is to meet the high expectations of our customers, shareholders and employees. This means that we should always leave the comfort zone and move forward.

Federal Grid Company’s entire team focuses on the highest possible results, and I would earnestly like to thank our team. Of course, our cooperative trustbased relations with our customers, shareholders and partners help us very much.

Our customers should receive high-quality services on competitive terms. Federal Grid Company must implement its investment programme on time, in particular, projects of national importance. At the same time it is important to maintain financial viability, improve efficiency further, and increase dividend yield for our shareholders.

I am sure we will be able to maintain leadership in the industry if we move ahead in line with this policy.

Andrey Murov
Chairman of the Management Board

My Annual Report

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