In 9M 2019, PJSC Evropeyskaya Elektrotekhnica increased its profit volume by 6.6%, and revenue decreased by 1.6% (IFRS)

In 9M 2019, PJSC Evropeyskaya Elektrotekhnica increased its profit volume by 6.6%, and revenue decreased by 1.6% (IFRS)

December 10, 2019. Moscow — PJSC Evropeyskaya Elektrotekhnica, one of the leaders on the Russian engineering market, has published its IFRS consolidated financial results after 9M 2019.

Financial statements are published on the corporate website, in the “For Investors” section, under the “Financial Statements” subsection: http://euroetpao.ru/eng/investors/.

Consolidated revenue has decreased slightly in the reporting period to RUB 2,561.0 million, which is 1.6% lower year-over-year, and profit increased by 6.6% to a total of RUB 239.2 million. EBITDA amounted to RUB 329 million (+11.9% Y-o-Y), and its margin increased to 12.8% (+1.5 p.p.).

Key financial indicators:

Source: PJSC Evropeyskaya Elektrotekhnica's Consolidated Financial Statement for 9M 2019 as reviewed by FBK Grant Thornton audit company.

Notes:

[1] Non-IFRS indicators; the calculation procedure is given below in this press release.

[2] Non-IFRS indicators.

Statement from Management

Sergey Dubenok, Head of PJSC Evropeyskaya Elektrotekhnica Board of Directors, commented on the financial results shown:

“The Company has shown positive financial results in the first 9 months of 2019. The Company's profitability is increasing, with the profit margin for the period amounting to 9.3% which is 0.7 p.p. higher year-over-year. Therefore, the effects of the decision to focus on high-margin activities and on increasing the Company's profit are reflected in the financial results.

We are expanding a highly profitable leasing business in the Oil&Gas market. Material financial results will be shown in the Company's statements starting from 2020. An additional source of income for the Company is the export of high-tech products.

The Company continues production and installation of various innovative units at Customers' facilities on leasing terms. For example, installation of our equipment is currently being completed at three CHPPs in Ecuador, which allows to save fuel oil (energy) significantly. Launch of this equipment is scheduled for March 2020.

One of the largest companies in the Russian Oil&Gas market decided to buy a mobile preliminary water knock-out unit which had previously been leased by us. We put the unit into operation in August 2019, and the equipment fully confirmed the declared operational parameters.

The share of the Process Systems line of business in the Company's revenue structure rose to 20%, with profitability exceeding the Engineering Systems line of business’ indicators. These dynamics correspond to our original plans. At the same time, revenue generated from the operation of innovative equipment will be reflected appropriately in the PJSC Evropeyskaya Elektrotekhnica Consolidated Financial Statement starting from Q4 2019 to Q1 2020.”

Factors of change in the Company's key financial indicators

Consolidated revenue

The Company's consolidated revenue amounted to RUB 2,561.0 million, which is 1.6% lower year-over-year.

Contribution of key areas of activity

to the Company's financial indicators, 9M 2019

The largest share of the Group's contracts (in terms of delivery costs) in recent years has been for customers from the Oil&Gas complex. The second sector with a significant share in the Company's supply volume is the chemical and food indusrty:

Key factors of consolidated revenue change:

·         The deferred income from the new business for leasing innovative units for oil refining and the electric power sector had a deterrent effect on revenue in the reporting period. The Company publicly announced the launch of a new area of activity in May 2019, even though significant revenue had not yet been received in the reporting period. The corresponding investment and expenses, however, had already been carried out.

·         In the reporting period, the revenue structure contained 10.0% of revenues from deliveries of engineering and technological products for export to customers from Uzbekistan, Azerbaijan.

·         The concentration level of the Company's income has practically has changed in the reporting period: the number of contracts with top 10 customers in the Company's consolidated revenue structure amounted to 49.6% (49.7% in the previous year).

·         In the reporting quarter, the Company opened another engineering center in the city of Quito, the capital of the Republic of Ecuador (South America). The new center will specialize in the provision of services in the Process Systems field, and it will also participate in the development of the country's oil industry and the introduction of environmentally friendly technologies. Cooperation with customers from Ecuador and neighboring countries has major potential for our business. We are also planning to enter the Colombian market in the near future.

Dynamics of the Company's key financial indicators

Cost of Sales and Gross Profit

The cost of sales in the reporting period amounted to RUB 1,953.3 million. The introduction of scientific developments allows the Company to produce more process equipment (for example, metal consumption for structures is significantly reduced), which provided a decrease in its cost by 3.2%. Gross profit increased to RUB 607.7 million (+4.0% compared to 9M 2018). The Company's gross profit margin grew to 23.7% (+1.3 p.p.).

Administrative and Selling Expenses

The increase in expenses on wages and social contributions by 2.1 times in the reporting period was due to the 200% increase in the number of personnel of Evropeyskaya Elektrotekhnica Group of Companies since the consolidation of the controlled company, ROG-Engineering LLC, in H2 2018.

ROG-Engineering produces equipment for the Oil&Gas and petrochemical industries. The team of professionals is formed at the production site in Bashkortostan.

The reduction in transport expenses (-35.2%) was due to the fact that delivery expenses can be paid either by the Group's company or the customer, depending on the contractual terms. In addition, the geographical location of customers' facilities varied drastically in different reporting periods. These factors mean that the total amount of transport expenses may vary considerably in different periods.

Significant reductions in other types of administrative and selling expenses made it possible to keep their growth rate at a moderate level (+8.9%).

Operating profit

The Company's operating profit grew by 12.1% to RUB 318.7 million. Operating profit margin increased to 12.4% (+1.5 p.p.).

This was due to the growth in other proceeds (RUB +38.2 million), which exceeded the increase in administrative and selling expenses (RUB -27.3 million).

EBITDA

EBITDA reached RUB 329.0 million (+11.9% y-o-y). The profit margin for this indicator increased to 12.8% in the reporting period (11.3% for 9M 2018).

Profit Before Tax

Profit before tax increased by 9.9% to RUB 300.0 million.

Profit for the period

In the reporting period, the Company's profit rose to RUB 239.2 million, which is 6.6% higher compared to 9M 2018. The profit margin increased to 9.3% from 8.6% in the previous year. 

ROE

The Company's return on equity (ROE) decreased to 40.8% (51.0% in the previous year). Factors that have affected the reduction in ROE: a reduction in the turnover rate of the Company's assets, as well as in the level of financial leverage.

The growth of fixed assets reflects the appearance of innovative oil and gas equipment on the Company's balance sheet, which is leased out to customers and generates rental income. Part of this equipment will be sold in early 2020 to a customer from the Oil&Gas sector, who was satisfied with the positive results obtained during the initial operating period.

DuPont model components (DuPont equation) *

Note: * Balance sheet amounts averaged over the respective reporting periods are used; ROE and profit and loss report indicators are adjusted to annual scale.

Dividends

In 2018, the total amount of dividends (RUB 150.1 million) amounted to 51.22% of the Company's profit for 2018, calculated in compliance with the financial statements according to IFRS (RUB 293.1 million). The share of dividends paid out significantly exceeded the minimum level of 20% of the net profit as prescribed by the Company's Dividend Policy (approved by the Board of Directors in April 2019).

Free Cash Flow

The amount of the Company's free cash flo          w according to 9M 2019 was negative.

The amount of cash flows from operations (before changes in the working capital, payment of profit tax and change in other assets and liabilities) increased to RUB 339.3 million in the reporting period (by 66.1% compared to the indicator for 9M 2019).

The key reason for the negative free cash flow in the reporting period was an increase in accounts receivable to RUB 1,129.2 million (+72.9% y-o-y). These accounts receivable are not problematic (overdue), and the Company expects to receive corresponding receipts from customers either before the end of 2019 or in the first months of 2020.

Net debt and debt load indicators

Net debt/12M EBITDA ratio is at a comfortable level for the Company of 0.29.

About Evropeyskaya Elektrotekhnica Group of Companies

• Evropeyskaya Elektrotekhnica Group of Companies (MOEX: EELT) offers comprehensive solutions in the field of engineering and technological systems for industrial, construction and infrastructural purposes: low and medium voltage distribution equipment, low current systems, lighting systems, industrial electric heating systems and equipment for the Oil&Gas and petrochemical industries.

• As a Russian joint-stock company with high corporate governance standards and financial sustainability, the Company's Mission is to improve people's quality of life with its entrepreneurial vigour and engineering competencies.

• The Company was founded in 2004 and unites a distribution center, engineering departments, an electrical laboratory and specialized production facilities. The company is one of the largest electrical equipment distributors in the Russian Federation and an industrial partner of leading companies on the international engineering market.

• The Company's logistics capabilities include delivery (including non-standard and oversize load) to customers throughout Russia, including hard-to-reach Northern areas, as well as to Central Asia, North Africa and the Middle East.

• The Company has its own production of the following equipment:

• Complete transformer substations;

• Medium voltage units;

• Low voltage panels of up to 6,300A (including metro solutions);

• Electric lighting systems;

• Industrial electric heating systems;

• Cabling and wiring products.

• Areas of application of the Company's competences:

• Oil&Gas industry;

• Electric power sector;

• Peaceful atom,

• Steel and mining industry;

• Engineering;

• Transport infrastructure, water supply and sanitation.

• Evropeyskaya Elektrotekhnica's customers include major Russian companies: Rosneft, Gazprom, NOVATEK, LUKOIL, Sibur and Nizhnekamskneftekhim. Supplies were successfully implemented for the following projects: Power of Siberia, Yamal LNG, Smolensk NPP, Data Center of Sberbank of Russia, the Domodedovo, Sheremetyevo, and Pulkovo Airports, etc.

• New areas of Company activity starting from 2018 include development and production of the following:

• Modular equipment for the Oil&Gas and petrochemical industries (Company subsidiary ROG-Engineering, Ufa, Republic of Bashkortostan, Russian Federation);

• Industrial specialized solutions for metro substations (currently being consolidated into the Group's structure: Metrotonnel, Moscow, Russian Federation);

• Industrial electric heating systems.

• Key financial indicators of PJSC Evropeyskaya Elektrotekhnica (IFRS):

350 people – the personnel headcount. 

EELT – the trading code for common shares of PJSC Evropeyskaya Elektrotekhnica on the Moscow Exchange, where shares are traded since September 2017. 

BBB- (RU), stable outlook – the credit rating of PJSC Evropeyskaya Elektrotekhnica is at the investment level; the rating confirmed by ACRA on January 30, 2020. 

Contacts:

PJSC Evropeyskaya Elektrotekhnica

Tel.: +7 (800) 600-71-18

Mailing address: 1 Lyotchika Babushkina Street, Building 3, Moscow, 129344

For more information, please contact:

Stanislav Martyushev

Director for Corporate Communications and Investor Relations

PJSC Evropeyskaya Elektrotekhnica

Tel. +7 (495) 660-71-18 ext. 164

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