Bulgaria Puts Up for Sale 33% in Two Energo-Pro Units

Transcription

1 SPO Profile & Company Valuation Energo-Pro Grid [2EG] October 2, 2012 Energo-Pro Sales [4ES] Bulgaria Puts Up for Sale 33% in Two Energo-Pro Units Enegro-Pro Grid AD of shares outstanding Nominal value per share, BGN 1.00 of shares offered of shares offered, % of all 33% Minimum auction price Target price Upside/Downside potential 46% Estimated market cap*, BGN mln P/E ()* 7.99 P/S ()* 0.40 P/B (mrq)* 0.44 EV/EBITDA ()* 2.10 EV/Sales ()* 0.37 P/E (fwd 2012) 6.27 EV/EBITDA (fwd 2012) 1.81 * at the minimum auction price;financial data as of June 30, 2012 Enegro-Pro Sales AD of shares outstanding Nominal value per share, BGN 1.00 of shares offered of shares offered, % of all 33% Minimum auction price Target price Upside/Downside potential 67% Estimated market cap*, BGN mln P/E ()* 1.67 P/S ()* 0.02 P/B (mrq)* 0.43 EV/EBITDA ()* 1.85 EV/Sales ()* 0.04 P/E (fwd 2012) P/E (fwd 2013) neg neg P/E (fwd 2014) 3.23 EV/EBITDA (fwd 2012) EV/EBITDA (fwd 2013) neg neg EV/EBITDA (fwd 2014) 5.6 * at the minimum auction price;financial data as of June 30, 2012 Bulgaria will offer its residual 33% stakes in utility companies Energo-Pro Grid AD [2EG] and Energo-Pro Sales AD [4ES] in a public auction on Wednesday, October 3, The country will offer 434,940 shares of Energy Pro Grid and 495,533 shares of Energy Pro Sales, aiming to raise at least a combined BGN 53 mln (EUR 27 mln) from the sale. The minimum price for Energo-Pro Grid is set at BGN per share, which implies a P/E ratio of 8.0x and EV/EBITDA of 2.1x on a trailing basis. Based on our estimates, the company s forward P/E is 6.30x and its forward EV/EBITDA is 1.8x (fye Dec 31, 2012). The minimum price for Energo-Pro Sales is BGN per share, which implies a P/E multiple of 1.7x and an EV/EBITDA ratio of 1.85x on a trailing basis. For the full year 2012, we expect Energo-Pro Sales to increase revenue by 7% to BGN mln but see a loss of BGN 14.6 mln at the bottom line, translating to negative forward P/E and EV/EBITDA multiples. We used DCF and comparative valuation to calculate the fair prices for both companies. We estimate the fair value of Energo-Pro Grid at BGN per share, which implies an upside potential of 46%. Our fair value for Energo-Pro Sales is BGN per share which implies an upside potential of 67%. The method chosen for the sale is a mixed closed auction. The auction will start at a.m. on Wednesday, October 3. Bids can be submitted until a.m. The entire amount of the state-owned shares will be offered for sale in the first day of the auction. The auction will remain open until November 2, or until all shares are sold. Energo-Pro Grid and Energo-Pro Sales are natural monopolies, servicing over 1.1 million customers in northeastern Bulgaria. Energo-Pro Grid owns the power grid in that area and is responsible for network operations, while Energo-Pro Sales is licensed to supply electricity to end consumers on the regulated market. Both companies are majority owned by Energo-Pro Bulgaria, the Bulgarian unit of Czech energy group Energy-Pro, after former owner E.ON Austria sold its Bulgarian unit to Energo-Pro Bulgaria for an undisclosed amount in June 2012.

2 Factsheet Price Multiples of the Offerings Enegro-Pro Grid 0.37 Enegro-Pro Sales P/E ()* P/S ()* P/B (mrq)* EV/EBITDA ()* EV/Sales ()* Energo-Pro Bulgaria AD is the Bulgarian unit of Czech energy group Energo-Pro and, through its subsidiaries, one of the three local power distribution and supply companies, together with CEZ Bulgaria and EVN Bulgaria. Energo-Pro Bulgaria is managing the activities of its Bulgarian subsidiaries grid operator Energo-Pro Grid (former E.ON Grid), electricity supplying company Energo- Pro Sales (former E.ON Sales), and electricity trading company Energo-Pro Energy Services. Energo-Pro started operations in Bulgaria in June 2012 when its Bulgarian unit acquired E.ON Bulgaria (owner of 67% stakes in grid operator E.ON Grid and electricity supplying 1.85 company E.ON Sales) for an undisclosed 1.67 amount. E.ON Bulgaria started operations in following the acquisition of 67% of EDC Varna & EDC Gorna Oryahovitsa for a combined EUR mln. In 2004, Bulgaria sold 67% in its three power distributors to Austria's EVN, Germany's E.ON and Czech CEZ. E.ON (now Energy-Pro) services households and small business clients in North-Eastern Bulgaria, including the Black Sea city of Varna. EVN covers the south-eastern part of the country, including the cities of Plovdiv, Stara Zagora, Bourgas and the neighboring summer resorts. Czech power utility CEZ supplies power to over 2 million households and companies in western Bulgaria, including the capital Sofia. Energo-Pro Grid operates a power grid of about 42,000 km in Northeast Bulgaria and delivered around 5.6 TWh of electricity in The company services a territory of 29,000 km 2. Energo-Pro Sales services over 1.1 million retail customers in Northeast Bulgaria. With a market share of 16%, Energo-Pro Sales is the third largest power supplier in the country. The Electricity Market in Bulgaria The electricity market in Bulgaria is regulated by the State Energy and Water Regulatory Commission (SEWRC), which determines the pricing components of electricity and fixes all prices along the value chain - generation, transmission, system operations, distribution and supply on an annual basis. Price changes take effect on July 1 st each year. The generation and transmission of electricity is carried out by the stateowned central public upstream supplier NEK. The system operations are performed by its fully-owned subsidiary System Operator EAD. Distribution, grid operations and supply to end consumers is performed by the three regional network operators and electricity providers - CEZ, Energy-Pro (former E.ON Bulgaria) and EVN. 2

3 Factsheet Although the liberalization of the electricity market in Bulgaria has started in 2007, a competitive market is not present yet. There is no electricity exchange and almost all electricity provided to end customers is still being supplied by the state-owned utility company NEK via the three local network operators. There is also a free segment of the electricity market but it is only accessible for a few major industrial companies. The share of electricity traded on the free market in Bulgaria was 28% in 2011, according to data by Energo-Pro Sales. Using a profit + approach, SEWRC determines the selling prices of each grid operator, taking into account the cost of operations (including technological losses), inflation, improvements in efficiency and other variables. For power suppliers, SEWRC determines the maximum gross margin over the cost of energy bought. SEWRC determined the required return on capital (regulated asset base) for each grid operator, for each 5-year regulatory period. For the current regulatory period, the return on capital is set at 12% regardless of the capital structure. It is expected that the approved ROC for the next regulatory period, starting July 1, 2013, will be set to equal the WACC of each grid operator assuming a target debt/equity ratio of 50/50. This will probably have a negative effect on Energo-Pro Grid as the company currently has a very low level of debt financing, which implies a higher WACC compared to a 50/50 capital structure. These negative developments would be offset by a higher asset base, as E.ON Grid has been investing heavily since its market entry in Bulgaria has the lowest regulated electricity prices among the EU countries, which translates into slow revenue growth and narrow profitability for local power distributors and suppliers. Network tariffs and their components, as well as prices charged by the state-owned system operator, are often influenced by the government s social policy and the state of the country s economy, which has been influencing negatively the profitability of the energy distribution companies in recent years. For example, in the 2010/2011 pricing period the energy regulator lifted end consumer electricity prices by 2%, while the prices of the energy sources for the distribution companies, as well as the prices charged by the transmission network and the system operators, were increased by 8.0%, effective from July 1st, Market Share in Power Supply Market Share in Power Distribution 33% 16% 40% 24% 24% 27% E.ON EVN C EZ Others 36% Energo-Pro EVN CEZ 3

4 Financials There were some positive developments for the electricity distribution and supply companies in 2011 as the regulator hiked end consumer electricity prices by 1.9%, effective from July 1st 2011, while the procurement energy prices and the transmission and system operator charges remained unchanged. Financials Energo-Pro Grid and Energo-Pro Sales operate in a heavily regulated sector with a little room for growth and profitability management. The financial performance of Bulgarian electricity suppliers and grid operators is heavily dependent on regulation by the State Energy and Water Regulatory Commission (SEWRC), which settles the pricing methodology, fixes procurement and sales prices, as well as all related fees (for access to the electric grid, generation and transition of electricity, green energy changes, etc). For Energo-Pro Grid, SEWRC determines the level of revenues necessary to support the maintenance and development of the electricity grid infrastructure, as well as the level of admissible grid losses. The level of regulatory approved revenues and admissible grid losses of Energo-Pro Grid form the prices of the electricity delivery services of the company. The level of approved necessary revenues for the company for the period July 2011 June 2012 is BGN 226 mln. In 2010 the company was affected by an unexpected decision of SEWRC to reduce the level of admissible grid losses from 17% to 15%, which led to a net loss of BGN Energo-Pro Grid AD H1' e 2013e 2014e 2015e 2016e REVENUES % change (y-o-y) -5.2% -8.4% 28.0% 58.4% 25.0% 10.0% 7.0% 5.0% 4.0% EBITDA EBITDA margin 25.6% 18.3% 18.3% 19.2% 20.3% 19.3% 16.4% 16.6% 16.7% EBIT EBIT margin 16.14% 10.35% 0.58% 3.63% 13.55% 7.43% 7.13% 4.60% 5.08% 5.51% Net profit NI margin 13.26% 9.27% -0.08% 3.05% 7.39% 6.39% 6.16% 3.89% 4.32% 4.72% Debt/Assets 28.12% 25.68% 32.59% 32.88% 27.92% 33.49% 32.73% 32.24% 30.14% 27.23% Debt/Equity 39.13% 34.56% 48.34% 48.99% 38.73% 50.35% 48.65% 47.57% 43.15% 37.41% EPS (), BGN ROA () 18.61% 5.54% 0.27% 2.03% 3.84% 4.89% 4.82% 3.18% 3.58% 3.98% ROE () 23.64% 7.54% -0.06% 2.81% 5.61% 7.00% 6.92% 8.65% 4.92% 5.72% 4

5 Financials CAPEX and Grid Losses e e 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% CAPEX Grid losses Energo-Pro Grid has been investing heavily in improving the electricity distribution network. Consequently, grid losses decreased from around 16.9% in 2008 to around 13.5% in Energo-Pro Grid has an ongoing commitment to invest an average of BGN mln per year in the period July 1st 2008 July 1st The company plans to continue focusing on investments in the following years, aiming to further expand its network, to improve the security and quality of supply and, consequently, to reduce grid losses. For Energo-Pro Sales, SEWRC determines the level of revenues necessary to buy electricity to cover the needs of the consumers in the subsequent region. The level of approved necessary revenues of Energo- Pro Sales for the period July 2011 June 2012 is BGN 457 mln, based on an estimated consumption of around 5.5 TWh. As long as it is involved in the energy supply business and customer relations but not in the electricity transmission and distribution, Energo- Pro Sales has a much smaller asset base than Energo-Pro Grid but generates more than 2 times higher revenues, with very thin profitability margins. The main determinant of the company s profitability is the spread between procurement and end consumer prices of electricity, both of them determined by SEWRC. Energo-Pro Sales AD H1' e 2013e 2014e 2015e 2016e REVENUES % change (y-o-y) 5.4% 1.6% 8.4% 58.4% 7.0% 5.0% 4.0% 3.0% 2.0% EBITDA EBITDA margin 0.2% 0.1% 1.7% 0.7% -1.4% -1.3% 0.8% 0.8% 0.8% EBIT EBIT margin -0.72% 0.16% 0.04% 1.73% 0.28% -1.40% -1.28% 0.83% 0.84% 0.84% Net profit NI margin -0.08% 0.26% -0.03% 1.54% 0.50% -1.45% -1.39% 0.56% 0.61% 0.62% Debt/Assets 82.39% 81.51% 78.57% 72.27% 62.33% 81.82% 91.50% 88.20% 84.57% 80.77% Debt/Equity % % % % % % 1077% % % % EPS (), BGN ROA () -0.47% 5.16% 4.93% 5.89% -8.05% -7.53% 4.85% 4.91% 4.97% ROE () 7.81% -0.83% 39.98% 29.56% % % 35.74% 29.18% 23.29% 5

6 Valuation Energo-Pro Grid We used the following methods to derive the fair value of Energo-Pro Grid: - Discounted cash flow (DCF) analysis - Peer comparison valuation with justified multiples Our final fair price is based on the average weighted price of the two methods. As a result, we have estimated a fair value of BGN per share of Energo-Pro Grid AD, which implies an upside potential of 46.0% to the minimum auction price. DCF Fair Value Estimate of the Model Fair Value Estimate Weight 70% Peer Comparison Fair Value Estimate of the Model Fair Value Estimate Weight 30% Fair Value In order to reach our estimate for the fair price, we have given a higher weight to the DCF valuation as we find it more reliable given that most of the peers are vertically integrated companies with a diversified business profile and operate under different regulatory frameworks. Terminal growth rate 2.00% Tax rate (current) 10.00% Tax rate (terminal) 10.00% Risk-free rate 4.15% Market risk premium 8.63% Cost of equity 12.56% Cost of debt 8.00% Beta (adjusted) 0.66 D/A (current) 27.90% D/A (target) 30.00% WACC (current) 11.06% WACC (terminal) 10.95% Terminal ROIC 11.00% Discounted Cash Flows Analysis We derive a fair value estimate of BGN per share by the application of the DCF analysis. We assume a long term growth rate of 2.0% per annum, which we find reasonable given the long term perspectives for growth of the Bulgarian economy and the expected price convergence among European electricity markets. We have used an estimate for the cost of equity based on the CAPM model, with an adjusted beta of 0.66 which accounts for the company s below average D/E ratio and lower applicable tax rate. We have assumed that the company would have 30% debt in its capital structure in the long run. We use management guidelines for CAPEX for 2012 and 2013 and our own estimates for the years thereafter. Further investments in the utility infrastructure will allow the company to reduce grid losses and to maintain a secure and reliable energy supply network. 6

7 Valuation We assume that the revenues of Energo-Pro Grid will rise at a CAGR of 3.56% in the period, mainly driven by increasing prices along the electricity value chain. We expect the company s profitability to benefit from the newly introduced fee for access to the electricity grid that has been imposed to renewable energy producers recently. We also expect that the profitability will remain under pressure in the medium term as the liberalization of the electricity market continues, and to gradually improve thereafter. We assume that the company will maintain an average level of technological expenses of 38% of its revenues in the long run. Income Statement, YTD, BGN' REVENUES % change (y-o-y) 25.0% 10.0% 7.0% 5.0% 4.0% 2.0% 2.0% 2.0% 2.0% 2.0% OPERATING INCOME (EBITDA) % change (y-o-y) 38.6% 4.6% -9.1% 6.7% 4.7% 1.9% 1.9% 1.9% 1.9% 1.9% EBITDA margin 20.3% 19.3% 16.4% 16.6% 16.7% 16.7% 16.7% 16.7% 16.7% 16.7% EBIT % change (y-o-y) 155.5% 5.5% -30.9% 15.9% 12.7% 5.7% 5.5% 5.3% 5.1% 5.0% EBIT margin 7.4% 7.1% 4.6% 5.1% 5.5% 5.7% 5.9% 6.1% 6.3% 6.5% EBIT*(1-t) Depreciation CAPEX Change in WC FFCF Terminal Value Value Debt 10 Cash No of shares Price per share Peer Comparison The company is offered at a discount compared with its European peers, which can be justified by a high regulatory risk, volatile financial performance and lower average profitability and efficiency than peers. For that reason, we estimate justified multiples that account for the differences in the net profit margins and return on equity. 7

8 Valuation In this way, we arrive at a weighted average fair price of BGN per share of Energo-Pro Grid by the application of the peer comparison method. Valuation based on earnings: Sector average Energo-Pro Grid, adjusted Net profit margin 8.50% 7.39% Fair Price P/E EPS weight 33.3% Valuation based on ROE: Sector average Energo-Pro Grid, adjusted ROE 10.70% 5.61% Fair Price P/B BV per share weight 33.4% Valuation based on sales: Sector average Energo-Pro Grid, adjusted Net profit margin 8.50% 7.39% Fair Price P/S Sales per share weight 33.3% Fair Value per share With a P/E of 8.0x, P/B of 0.44x and EV/EBITDA of 2.10x, Energo-Pro Grid is offered at a premium compared to the SPO of EVN Electrorazpredelenie in December 2011, when the government offered its residual 33% stake in the power distribution unit of EVN Bulgaria at P/E of 6.7x, P/B of 0.4x, and EV/EBITDA of 1.8x. On the other hand, Energo- Pro Grid is offered at a lower P/S ratio of 0.4x (compared to 0.7x for EVN Electrorazpredelenie) and EV/Sales ratio of 0.37 (compared to 0.6x for EVN Electrorazpredelenie). Company Market cap. BGN 000 P/E PS PB mrq EV/ EBITDA EV/ sales EBITDA margin EBIT margin NI margin ROA ROE Energo-Pro Grid minimum auction price, financials as of June 30, % 7.50% 7.39% 3.84% 8.61% EVN Electrorazpredelenie minimum auction price, financials as of June 30, % 24.06% 21.81% 3.85% 6.03% EVN Electrorazpredelenie average auction price, financials as of June 30, % 24.06% 21.81% 3.85% 6.03% EVN Electrorazpredelenie last price, financials as of June 30, % 23.53% 21.97% 7.42% 11.98% 8

9 Valuation Energo-Pro Sales We used the following methods to derive the fair value of Energo-Pro Sales: - Discounted cash flow (DCF) analysis - Peer comparison valuation Our final assessment is based on the average weighted price of the two methods. As a result, we have estimated a final fair value of BGN per share of Energo-Pro Sales which implies a substantial upside potential of 67% to the minimum auction price. In order to reach our estimate for the fair price, we have given a higher weight of a DCF valuation as we find it more reliable given that most of the peers are vertically integrated companies with a diversified business profile and operate under different regulatory framework. DCF Fair Value Estimate of the Model Fair Value Estimate 16.9 Weight 80% Peer Comparison Fair Value Estimate of the Model Fair Value Estimate 25.0 Weight 20% Fair Value 18.5 Discounted Cash Flows Analysis We derive a fair value estimate of BGN per share by the application of the DCF analysis, which implies an upside potential of about 52% to the minimum auction price. We assume a long term growth rate of 2.0% per annum, which we find reasonable given the long term perspectives for growth of the Bulgarian economy and the expected price convergence among European electricity markets. We have used an estimate for the cost of equity based on a CAPM model with an adjusted beta of 1.21 which accounts for the company s D/E ratio and lower applicable tax rate compared to the industry. We have assumed that the company would have 60% debt in its capital structure in the long run. We assume a very low level of investments and depreciation expenses in the future due to the nature of the business (the company does not own the electricity grid or any part of the power facilities). We assume that the Energo-Pro Sales s revenues will rise at a CAGR of 2.4% in the period, mainly driven by increasing end consumer prices. 9

10 Valuation We expect that the company will generate losses in 2012 and 2013 due to dramatically increased expenses on green energy, which are not compensated by a relevant increase in the end consumer electricity prices. The reason behind the hike in green energy expenses is that many renewable energy producers rushed to join the power system before July 1, 2012, when the regulated prices of electricity produced by new renewable energy facilities was cut substantially by SEWRC. Energo-Pro Sales booked BGN 6.5 mln losses from higher renewable energy procurement cost in July and August, We expect the negative developments to continue in the first half in Terminal growth rate 2.00% Tax rate (current) 10.00% Tax rate (terminal) 10.00% Risk-free rate 4.15% Market risk premiuum 8.63% Cost of equity 19.65% Cost of debt 8.00% Beta (adjusted) 1.21 D/A (current) 62.33% D/A (target) 60.00% WACC (current) 11.06% WACC (terminal) 10.95% Terminal ROIC 11.00% We assume that the company will maintain an average level of COGS of about 97.1% in the long run. We also expect the company s profitability to remain under pressure in the medium term. The growth in sales will be curbed by an expected increase in the share of electricity traded in the free market, which is expected to reduce the market share of Energo-Pro Sales. In this manner, we arrive at a fair price of BGN per share of Energo-Pro Sales by the application of the DCF method. Income Statement, YTD, BGN' REVENUES % change (y-o-y) 7.0% 5.0% 4.0% 3.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% COGS % 4.9% 1.8% 3.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% EBIT % change (y-o-y) % -4.0% % 4.2% 3.2% 2.0% 2.0% 2.0% 2.0% 2.0% EBIT margin -1.40% -1.28% 0.83% 0.84% 0.84% 0.85% 0.84% 0.84% 0.84% 0.85% Depreciation CAPEX Change in WC FFCF Terminal Value Value Debt Cash No of shares Price per share

11 Valuation Peer Comparison The company is offered at a discount compared with its European peers, which can be justified by a high regulatory risk, the volatile performance of the company, and its substantially lower profitability. Accordingly, we estimate adjusted multiples for Energo-Pro Sales. We perform valuation based on ROE and sales and ignore P/E comparison, because we believe that the company s earnings are currently inflated by favorable price decisions that are not going to persist, and that the current P/E of 1.7 at the minimum auction price does not reveal the real earnings potential of Energo-Pro Sales. Furthermore, we utilize an adjusted P/S approach to normalize for Energo-Pro Sales s bellow average net profit margin as we believe that the unjustified P/S multiple would inflate the value of the company. Valuation based on ROE: Sector average Energo-Pro Sales* Fair Price P/B weight 50.0% Valuation based on sales: Sector average Energo-Pro Sales* Net profit margin 8.50% 7.39% Fair Price P/S Sales per share weight 50.0% We arrive at an weighted average fair price of BGN 25.0 per share of Energo-Pro Sales by the application of the peer comparison method. Fair Value per share 25.0 With a P/E of 1.7x and P/S of 0.02x, Energo-Pro Sales is offered at a discount compared to the SPO of EVN Electrosnabdiavane from December 2011, when the government offered its residual 33% stake in the power supply unit of EVN Bulgaria at P/E of 3.2x and P/S of 0.04x. On the other hand, Energo-Pro Sales is offered at a higher P/B ratio of 0.43x (compared to 0.3x for EVN Electrosnabdiavane), EV/EBITDA of 1.85x (compared to 0.7x for EVN Electrosnabdiavane), and EV/Sales of 0.04x (compared to 0.1x for EVN Electrosnabdiavane). Company Market cap. BGN'000 P/E PS PB mrq EV/ EBITDA EV/ sales EBITDA margin EBIT margin NI margin ROA ROE Energo-Pro Sales minimum auction price, financials as of June 30, % 3.34% 0.50% 5.89% 29.56% EVN Electrosnabdiavane minimum auction price, financials as of June 30, % -1.98% -1.81% 5.07% 11.18% EVN Electrosnabdiavane average auction price, financials as of June 30, % -1.98% -1.81% 5.07% 11.18% EVN Electrosnabdiavane last price, financials as of June 30, % 2.88% 2.63% 15.93% 32.23% 11

12 Financial Statements and Forecasts Energo-Pro Grid Income Statement, YTD 31/12/ /12/ /12/ /12/ /06/ /06/2012 REVENUES Operating expenses % change (y-o-y) -5.2% -8.4% 28.0% 58.4% COGS, incl. depreciation Depreciation Labor expenses Cost of hired services *** Grid components Technological expenses Cost of services rendered Other expenses included in COGS Administrative and other expenses Total operating expenses OPERATING INCOME (EBITDA) % change (y-o-y) -5.2% -8.4% 28.0% 58.4% EBITDA margin 0.0% 25.6% 18.3% 18.3% 21.9% 19.2% EBIT % change (y-o-y) -39.2% -94.8% 698.2% 172.9% EBIT margin 16.1% 10.4% 0.6% 3.6% 4.4% 7.5% Total financial income / expenses INCOME BEFORE TAXATION Tax expenses Minority interest NET INCOME % change (y-o-y) -33.7% 202.0% Net income margin 13.3% 9.3% -0.1% 3.0% 3.9% 7.4% Balance Sheet 31/12/ /12/ /12/ /12/ /06/ /06/2012 ASSETS Current assets Inventories ST investments in securities Receivables % Prepayments Cash and cash equivalents % Total currents assets % Non-currents assets Property, plant and equipment Intangibles LT investments in securities Long-term receivables Goodwill Investment property Other Total non-currents assets % TOTAL ASSETS % 12

13 Financial Statements and Forecasts LIABILITIES AND EQUITY Currents liabilities Accounts payable % Short-term debt % ST accrued expenses Other current liabilities Total currents liabilities % Long-term liabilities LT accrued expenses % Long-term debt Deferred taxes Financing Other long-term liabilities % Total long-term liabilities % TOTAL LIABILITIES % Health Minority interest Equity Share capital % Reserves % Retained earnings (accumulated loss) TOTAL EQUITY % TOTAL LIABILITIES AND EQUITY % Energo-Pro Grid - Forecast Financial Statements Income Statement, YTD e e e e e REVENUES Operating expenses % change (y-o-y) 25.0% 10.0% 7.0% 5.0% 4.0% COGS, incl. depreciation Depreciation Labor expenses Cost of hired services *** Grid components Technological expenses Cost of services rendered Other expenses included in COGS Administrative and other expenses Total operating expenses OPERATING INCOME (EBITDA) % change (y-o-y) 38.6% 4.6% -9.1% 6.7% 4.7% EBITDA margin 20.3% 19.3% 16.4% 16.6% 16.7% EBIT % change (y-o-y) 155.5% 5.5% -30.9% 15.9% 12.7% EBIT margin 7.4% 7.1% 4.6% 5.1% 5.5% Total financial income / expenses INCOME BEFORE TAXATION NET INCOME % change (y-o-y) 162.1% 6.0% -32.4% 16.8% 13.4% Net income margin 6.4% 6.2% 3.9% 4.3% 4.7% 13

14 Financial Statements and Forecasts Balance Sheet e e e e e ASSETS Current assets Inventories ST investments in securities Receivables Prepayments Cash and cash equivalents Total currents assets Non-currents assets Property, plant and equipment Intangibles LT investments in securities Long-term receivables Goodwill Investment property Other Total non-currents assets TOTAL ASSETS LIABILITIES AND EQUITY Currents liabilities Accounts payable Short-term debt ST accrued expenses Other current liabilities Total currents liabilities Long-term liabilities LT accrued expenses Long-term debt Deferred taxes Financing Other long-term liabilities Total long-term liabilities TOTAL LIABILITIES Health Minority interest Equity Share capital Reserves Retained earnings (accumulated loss) TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

15 Financial Statements and Forecasts Energo-Pro Sales Income Statement, YTD 31/12/ /12/ /12/ /12/ /06/ /06/2012 REVENUES % change (y-o-y) 5.4% 1.6% 8.4% 2.8% electricity services Operating expenses COGS, incl. depreciation COGS electricity COGS services GROSS INCOME % change (y-o-y) 35.7% 43.7% -2.2% gross margin 2.7% 3.7% 4.9% 4.2% 4.0% Administrative expenses Sales expenses Other operating expenses, net Total operating expenses OPERATING INCOME (EBITDA) % change (y-o-y) -69.4% % -35.5% EBITDA margin 0.2% 0.1% 1.7% 1.1% 0.7% Depreciation and amortization EBIT % change (y-o-y) -76.1% % -35.3% EBIT margin -0.7% 0.2% 0.0% 1.7% 1.1% 0.7% Other, net Total financial income / expenses Extraordinary items Income / loss from associates INCOME BEFORE TAXATION Tax expenses Minority interest NET INCOME % change (y-o-y) % -51.8% net income margin -0.1% 0.3% 0.0% 1.5% 1.1% 0.5% y-o-y change Balance Sheet 31/12/ /12/ /12/ /12/ /06/ /06/2012 ASSETS Current assets Inventories ST investments in securities Receivables % Prepayments Cash and cash equivalents % Total currents assets % Non-currents assets Property, plant and equipment Intangibles LT investments in securities Long-term receivables Goodwill

16 Financial Statements and Forecasts Investment property Other % Total non-currents assets % TOTAL ASSETS % LIABILITIES AND EQUITY Currents liabilities Accounts payable % Short-term debt % ST accrued expenses Other current liabilities Total currents liabilities % Long-term liabilities LT accrued expenses Long-term debt Deferred taxes Financing Other long-term liabilities Total long-term liabilities % TOTAL LIABILITIES % Health Minority interest Equity Share capital % Reserves Retained earnings (accumulated loss) TOTAL EQUITY % TOTAL LIABILITIES AND EQUITY % Energo-Pro Sales Forecast Financial Statements Income Statement, YTD e e e e e REVENUES % change (y-o-y) 7.0% 5.0% 4.0% 3.0% 2.0% electricity services Operating expenses COGS, incl. depreciation COGS electricity COGS services GROSS INCOME % change (y-o-y) -86.1% 24.9% 296.0% 3.4% 2.4% gross margin 0.6% 0.7% 2.9% 2.9% 2.9% Administrative expenses Sales expenses Other operating expenses, net Total operating expenses OPERATING INCOME (EBITDA) % change (y-o-y) % -4.0% % 4.2% 3.2% EBITDA margin -1.4% -1.3% 0.8% 0.8% 0.8% Depreciation and amortization EBIT

17 Financial Statements and Forecasts % change (y-o-y) % -4.0% % 4.2% 3.2% EBIT margin -1.4% -1.3% 0.8% 0.8% 0.8% Other, net Total financial income / expenses INCOME BEFORE TAXATION NET INCOME % change (y-o-y) % 0.6% % 12.7% 3.5% net income margin -1.4% -1.4% 0.6% 0.6% 0.6% Balance Sheet e e e e e ASSETS Current assets Inventories ST investments in securities Receivables Prepayments Cash and cash equivalents Total currents assets Non-currents assets Property, plant and equipment Intangibles LT investments in securities Long-term receivables Goodwill Investment property Other Total non-currents assets TOTAL ASSETS LIABILITIES AND EQUITY Currents liabilities Accounts payable Short-term debt ST accrued expenses Other current liabilities Total currents liabilities Long-term liabilities LT accrued expenses Long-term debt Deferred taxes Financing Other long-term liabilities Total long-term liabilities TOTAL LIABILITIES Health Minority interest Equity Share capital Reserves Retained earnings (accumulated loss) TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

18 The current report is prepared by licensed investment intermediary Karoll JSC. Karoll JSC works under the regulation of the Financial Supervision Commission (FSC), which does not imply that FSC approves or not investments in securities of the issuer, and it does not take responsibility for the data and conclusions, which are presented in this recommendation. The remuneration of the people who prepared the analysis is by no means related to trading with securities of the issuer, trading volumes or price levels of any securities, issued by the company, which is analyzed. The preparation of this recommendation is based on annual and interim financial statements, which are published at the web sites: x3news.com, x3аnalysis, the corporate web site of the issuer, and other information available to the public. All reasonable care has been taken to ensure the facts stated are accurate and opinions given are fair and reasonable. Our recommendations are based on information available to the public that we consider reliable and shows conflicts of interest, but for the completeness and accuracy of which we assume no liability. This recommendation is not an offer to buy or sell securities of the company analyzed. Past performance cannot be considered a guide for future results. Investors should understand that investments in securities are highly risky and can lead to significant losses. The recommendations in this analysis are not an investment advice and investment decisions should not be made because of them only. The users of this analysis should make their own decision about whether to invest in the company analyzed and what investment strategy they should follow. The securities under consideration in this analysis are not suitable for all investors. The shares of the company might experience significant changes in their price, and neither the people who have prepared the analysis, nor can Karoll JSC guarantee future results. This statement should inform the users of this analysis that it is possible that Karoll JSC, but not its employees, might have relations with the issuer, which might be expected to influence the objectivity of the recommendation. It is possible that persons related to Karoll JSC in the sense of p. 10 of DRZPZFI as well as other of its clients might own securities of the company analyzed. The remuneration of the employees who have prepared the recommendation is by no means related to the trading and price levels of the securities, issued by the company analyzed. When giving a Buy recommendation, we believe that the securities under consideration have a potential for a positive return of more than 10% in the next months. When giving a Sell recommendation, we believe that the securities under consideration have a potential for a negative return of more than 10% in the next months. When giving a recommendation Hold, we believe that the securities under consideration do not have a potential for neither a Buy, nor a Sell recommendation, based on the current financial and other publicly available information about the company at the moment of preparation of the analysis. It should be taken into consideration that companies with a Buy or a Sell recommendation bear a higher risk level. 18