Financial Report 2015 shows the RAS in Appendix to this Annual Report.

Revenue

Five branches of the Company acted as guaranteeing electricity suppliers in 2013–2014 pursuant to resolutions of the Ministry of Energy of the Russian Federation.

Due to the accounting specifics, the revenue from electricity sales (data for 2013–2014)actually include a part of the Company’s revenue from electricity transmission services. The table below shows the revenue from electricity transmission and revenue from electricity sales in comparable conditions.

According to 2015 results, the Company’s revenue decreased by RUB 6,888 mln (-7.9%) compared to 2014 and amounted to RUB 79,817.2 mln. This reduction is due to the fact that IDGC of Centre gave up its functions of the guaranteeing supplier in 2014, which the Company performed since 2013. In late 2013 — early 2014, tenders were held by the Ministry of Energy of the Russian Federation to choose new guaranteeing suppliers in the regions. Starting from February 1, 2014, the functions of the guaranteeing supplier were transferred to the following companies, which won tenders:

• Orelenergo — February 1, 2014;
• Kurskenergo, Tverenergo — April 1, 2014;
• Bryanskenergo, Smolenskenergo — June 1, 2014.

According to 2014 results, revenue from electricity sales amounted to RUB 8,300.1 mln, and in particular RUB 2,402.7 mln received by Bryanskenergo, RUB 1,085.3 mln — Kurskenergo, RUB 199.6 mln — Orelenergo, RUB 2,443.2 mln — Smolenskenergo and RUB 2,169.2 mln at Tverenergo.

Revenue from electricity transmission increased by RUB 1,829.2 mln (2.4%) in 2015 compared to 2014. This increase happened due to the gain in net supply by RUB 568 mln, average tariff growth by RUB 1,459.4 mln as a result of a change in net supply structure, and load loss reduction by RUB 198.1 mln.

The revenue from grid connection services amounted to RUB 1,159.7 mln in 2015, which is down 22.5% vs. 2014. This decrease was due to the fulfilment of major contracts in 2014: Tverenergo (IIK OJSC — RUB 127.71 mln), Kurskenergo (Vozrozhdenie, LLC — RUB 148.13 mln Voronezhenergo (Rosenergoatom branch — RUB 139.05 mln).

The revenue from other activities includes the revenue from additional services and leasing revenue. Revenue from additional services amounted to RUB 923.9 mln in 2015, which is down RUB 81.3 mln (8.1%) vs. 2014. The Company (in particular the branch of Smolenskenergo) had a contract for complex maintenance of outdoor lighting grids (for technical maintenance and electricity consumption) in 2014. Starting from 2015 the Company has a new contract only for maintenance of the outdoor lighting grids.

Production costs

The production costs of electricity transmission and the production costs of electricity sales are given separately in accordance with RAS statements, and in comparable conditions, in view of the fact that some of the electricity transmission costs were included in the production costs of electricity sales.

In 2015, the total amount of production costs was RUB 70,713.9 mln. The greater part (98.6% of the total, or RUB 69,756.1 mln) consists of electricity transmission costs. The grid connection costs amounted to RUB 429.4 mln (0.6% of the total), other costs: RUB 528.4 mln (0.8% of the total). The reduction in production costs and sales costs vs. 2014 was RUB 5,993.8 mln, or 7.8%, which is due to the reduction of the cost of purchased energy for sale as the result of the transfer of the guaranteeing supplier function.

Uncontrollable costs

In 2015, the uncontrolled costs amounted to RUB 46,361.3 mln (65.6% of the total costs) which is RUB 6 711.4 mln, or a 12.9% decrease compared to 2014. The key factors that affected the reduction in costs were as follows:

• No purchased electricity for sale in 2015 as compared to RUB 7,338.3 mln in 2014, because in 2015 the functions of the guaranteeing supplier were transferred to new companies based on tender results.
• Loss compensation costs amounted to RUB 10,594.9 mln, an increase by RUB 761.2 mln. (7.7%) compared to 2014, which is due to the growth in average prices on the wholesale electricity market and integration of the power grid assets of Yargorelectroset OJSC.
• The services of PJSC FGC UES amounted to RUB 15,355.9 mln, a decrease by RUB 96.1 mln (0.6%) compared to 2014, which was mainly due to a reduction in the average rate for compensation of normative losses calculated since July 1, 2015 with the changes introduced into some acts of the Government of the Russian Federation pursuant to Decree No. 458 by the Government of the Russian Federation dated May 11, 2015 in order to improve the procedure of electricity volume purchase at the wholesale market for delivery to the households and to equivalent categories of consumers and of electricity volume purchase by the Unified National Power Grid (actual in 2014 — 1,572 RUB/kWh thous, actual in 2015 — 1,448 RUB/kWh thous).
• Reduction of costs for services of territorial grid companies by RUB 722.7 mln (5.9%) due to a reduction in the transfer balance in the grid of adjacent territorial grid companies.
• Depreciation of fixed and intangible assets amounted to RUB 9,059.5 mln, an increase by RUB 684.5 mln (8.2%) compared to 2014 based on commissioning of the fixed assets.

Controlled costs

In 2015, controlled costs amounted to RUB 24,352 mln (34.4% of the total costs), which is RUB 717.6 mln, or a 3% increase compared to 2014, including:

• Increase of material costs by RUB 34 mln (1.2%) due to growth in prices, in particular for fuel and lubricants and due to costs increase related to the integration of Yargorelectroset OJSC into the Yarenergo branch.
• Increase of production-related services by RUB 90.7 mln (13.1%) due to the increased volume of additional services provided.
• Increase of personnel expenses (payroll, mandatory social security charges, non-government pension funds) by RUB 884 mln (5.7%) due to indexation of the employees’ salaries (the minimum monthly pay rate in the Company increased by 9.7%) and changes in the remuneration scheme for managers and specialists since May 1, 2015 (transfer to a new grade system and a salary increase of for key and deficit jobs: senior specialist of the power distribution zone, power section supervisor, dispatcher, etc.).
• Reduction of other costs by RUB 291.1 mln (6.3%) due to reduction of leasing expenses and consulting services and increase of the property tax.

Profit from sales

Profit from sales amounted to RUB 9,103.3 mln in 2015, which is a RUB 894.2 mln (8.9%) reduction compared to 2014. This reduction was mainly due to revenue reduction by RUB 6.888 mln with reduction in production costs by RUB 5,427.7 mln, and due to an increase in management costs by RUB 86.3 mln (4.1%); there were no selling expenses in the reporting year (compared to RUB 652.6 mln in 2014).

Other revenues and expenses, incl. income from shareholdings, interest receivable and payable

In 2015, the balance of other revenues and expenses amounted to RUB (—7,139) mln.

Other revenues

In 2015, other revenues decreased by RUB 1,317.5 mln compared to 2014 in the following items:

• Profit of the previous years detected in the reporting period: a decrease of RUB 257 mln as a result of the adjustment postings for electricity transmission in 2014.
• Replenishment of reserves: a decrease of RUB 1,055.6 mln due to replenishment of bad debt provisions in 2014 as a result of the repayment of debts by the debtor, and signing of adjustment postings. In 2015, replenishment of reserves was done through lawsuits based on court judgements.
• Other miscellaneous revenues: a decrease by RUB 732.8 mln, mainly due to a contract for assignment of the claim between IDGC of Centre and Belgorod Energy Sales Company LLC concerning electricity transmission services rendered by OJSC Belgorodenergosbyt, and due to the recognition of the property of Yargorelectroset OJSC equal to the share of IDGC of Centre in the authorised capital of Yargorelectroset OJSC, being the subsidiary.

In 2015, other revenues increased compared to 2014 in the following items:

• Interest receivable: an increase by RUB 160.6 mln due to an increase in the key rate by the Bank of Russia and, accordingly, an increase in deposit rates in 2015. Moreover the establishment of the Unified Treasury resulted in that payment days in the Company are twice a week, which increased the average period of disposable monetary resources to 9.8 days (compared to 4 days in 2014).
• Other revenues related to assets: an increase by RUB 457.9 mln due to posting of equipment and supplies revealed during the inventory and liquidation of fixed assets, and due to higher income from the revaluation of financial assets.

Other expenses

In 2015, other expenses increased by RUB 687.9 mln compared to 2014 in the following items:

• Interest payable: an increase by RUB 1,693.8 mln related to an increase of loan rates in 2015 (including the increase in the key rate by the Bank of Russia and the situation on the financial market) and also due to increased loans receivable of the Company (by RUB 4,885 mln compared to 2014).
• Expenses related to the salaries of production employees paid from profit: an increase by RUB 407.4 mln due to the change in the procedure of vacation allowance accounting (in 2014 these expenses were charged as production costs, and in 2015 — as profit).
• Allocations to valuation reserves: an increase by RUB 356.3 mln due to the replenishment of reserves from bad debts and lawsuits.

In 2015, other expenses decreased compared to 2014 in the following items:

• Loss of the previous years detected in the reporting period: a decrease by RUB 1,053.2 mln as a result of the adjustment postings for electricity transmission in 2014.
• Other miscellaneous expenses: a decrease by RUB 961.3 mln mainly due to a contract for assignment of the claim between IDGC of Centre and Belgorod Energy Sales Company LLC concerning electricity transmission services rendered by OJSC Belgorodenergosbyt, and due to posting of expenses related to liquidation of Yargorelectroset OJSC, being a subsidiary.

Net profit

In 2015, profit before tax amounted to RUB 1,964.3 mln which is RUB 2,899.6 less compared to 2014. Income tax and other charges amounted to RUB 1,055.3 mln.

Thus, in 2015 there was net profit of RUB 909 mln, a decrease by RUB 2,416.9 mln compared to 2014.

The decision on profit distribution for 2015 will be made at the Annual General Meeting of Shareholders based on the recommendations by the Board of Directors of the Company.

EBITDA

EBITDA amounted to RUB 15,219.2 mln in 2015, which is a decrease by RUB 521.3 mln, or 3.3%, compared to 2014. This decrease happened due to:

• A decrease in revenue by RUB 6,888 mln;
• A decrease in costs (without amortisation) by RUB 6,678.3 mln, mainly for the purchased electricity (RUB —7,338.3 mln);
• An increase of the balance of other revenues and expenses (without the interest payable) by RUB 311.6 mln mainly due to the replenishment of bad debt provisions in 2014.

Liquidity ratios

In 2015, the change in liquidity ratios was due to changes in the structure of liabilities — refinancing of liabilities. In particular:

• The quick liquidity ratio represents the ability of the company to repay its current liabilities in the shortest possible time. The standard ratio is over 0.8. As of the end of 2015, this ratio was 1.38, an increase compared to the previous year which is within the normal limits.
• The current liquidity ratio as of December 31, 2015 increased up to 1.54 (in 2014, the value of this ratio was 0.96).
• Due to refinancing of liabilities the ratio of sufficiency of own working capital increased significantly to 0.35.

Ratios of financial stability

The ratio of overdue accounts payable increased by RUB 1,288.6 mln in 2015, and amounted to 31.5%, mainly due to an increase in accounts receivable by RUB 1,035.4 mln, and as a result of the inability to fulfill obligations on time.

As of December 31, 2015, the autonomy (financial independence) ratio was 0.50. This ratio characterises the share of own funds in the Company’s total assets. The standard ratio is over 0.5. As of the end of 2015, this ratio did not change significantly.

Profitability ratios

Profitability ratios characterise the efficiency of the Company’s operations. The profitability of sales by gross profit in 2015 amounted to 14.2%, with a 0.5 p.p. decrease compared to the previous year. The other profitability ratios decreased as well, in particular:

• The net profit margin amounted to 1.1%, a 2.7 p.p. decrease compared to 2014.
• The operating profit margin was 2.5%, a 3.1 p.p. decrease compared to 2014.
• The return on equity ratio (ROE) amounted to 1.6%, a 4.5 p.p. decrease compared to the previous year.
• The return on total assets (ROTA) for profit before tax was 1.7%, a 2.8 p.p. decrease compared to 2014.

The reason for the negative trends in the profitability ratios was the decrease of the Company’s net profit in 2015.

However, EBITDA margin showed positive results in 2015 compared to the previous year.

Business activity ratios

Turnover ratios are used for analysis of the efficiency of management of the Company’s liabilities. In particular:

• The turnover of assets is a financial factor of how efficiently the company uses the total of its assets. Through 2015, the turnover of assets decreased by 12.5% because revenue went down by RUB 6,888 mln. The revenue reduction was due to the fact that the functions of the guaranteeing suppliers were transferred to companies that won tenders of the Ministry of Energy of Russia.
• The turnover of accounts receivable shows the speed of repayment of accounts receivable, i.e. how quickly the Company receives payment for the services provided. The turnover of the accounts receivable based on the financial and business operation results in 2015 decreased by 20.7%, which was due to growth of the accounts receivable, which in turn was caused by poor payment discipline of consumers and sales companies.
• The turnover of accounts payable shows the speed of repayment of debt to suppliers and contractors. This ratio shows how many times the company repaid its average accounts payable. The ratio increased by 5.7% in 2015 due to an increase by RUB 931.7 mln in accounts payable.

The ratio of accounts receivable and payable decreased in 2015 due to the higher growth rate of accounts payable compared to the accounts receivable growth rate:

• The ratio of the growth rates was down 0.5.
• The ratio of total accounts receivable and payable was down 0.1.
• The ratio of the most liquid accounts receivable and payable was unchanged — 2.8.

The increase in accounts receivable by RUB 1,035.4 mln in 2015 was due to poor payment discipline of consumers and sales companies and a change in contract terms (transfer to payment for the actual consumption and refusal of advance payments), in particular:

A monthly accounts receivable statement is prepared and analysed in order to control the performance of contractual obligations. In case of a payment delay by over 30 days, the Company takes punitive measures as stated in the corresponding regulatory documents.

As a result of claims by IDGC of Centre to collect overdue payment for electricity transmission services in 2015, there were 393 positive court decisions for a total amount of RUB 2,075.4 mln and 12 refusals for an amount of RUB 159.2 mln. The proportion of the positive court decisions was 92.8%, or 36.5 p.p. higher compared to 2014.

There were 177 positive court decisions for a total amount of RUB 1,545.2 mln in 2014, and 26 refusals for a total amount of RUB 1,196.4 mln.

Pursuant to court decisions in 2015, the Company received enforcement orders for an amount of RUB 1,516.5 mln, of which RUB 1,091.3 mln, or 72%, were paid. For the same period last year, the Company had writs of execution for an amount of RUB 305.2 mln, of which RUB 111.32 mln, or 36.4%, were paid.

Thus in 2015 the Company took measures to receive 98.9% of overdue payments, showing that claim work was done at a steadily high level.

In 2015, the total amount of the written-off receivables amounted to RUB 316.4 mln: RUB 244.8 mln — to the financial result of 2015, and RUB 71.6 mln — to bad debt reserve.

As per results of the reporting year, 48.3% of the total accounts payable is to suppliers and contractors, 20.1% to advances received, and 21.0% to other creditors. Accrued dividends are quite insignificant — 0.2% of the total amount of accounts payable.

Accounts payable increased by RUB 931.7 mln in 2015 compared to 2014, mainly due to changes in the following items:

Capital

At the end of 2015, the Company’s equity amounted to RUB 56,313 mln, or 47.8% of total capital. This increase in equity by RUB 81.4 mln (0.1%) compared to the previous year was due to a positive financial result of the reporting year. In particular, profit from electricity transmission increased by RUB 8,582.1 mln.

In 2015, the share of long-term liabilities in the Company’s total capital increased to 41%, while in 2014 it amounted to 32%. The change in capital structure was mainly due to the refinancing of some loans that were due before the end of 2015. The share of short-term liabilities in total liabilities based on results of financial and business operations in 2015 amounted to 11%.

Net debt increased by 14.1% due to the increase of borrowed funds for the Company’s operating and investment activity by RUB 4,930.5 mln.

Сredit portfolio

The emphasis of the credit policy of IDGC of Centre is placed on long-term borrowings. The maximum maturity of the loans taken in 2015 was 37 months (the same as in 2014), and of the bonded loans — 84 months.

The increase in loan debt in 2015 amounted to 13.2%, or RUB 4,885 mln as compared to 2014.

The change in the structure of the credit portfolio was as follows: the share of long-term debt increased to 96.4%, compared to 74.6% in 2014.

As for the structure of the credit portfolio per maturity, 65.4% are repayable in 1 to 3 years, 31% — repayable in over 3 years.

The main creditors of IDGC of Centre are major Russian banks with a high degree of reliability. The Company takes most of its loans from Sberbank of Russia (30% of the total loans) and VTB Bank (25% of the total loans).

The credit portfolio was diversified in 2015 with BO-02, BO-03 and BO-04 stock exchange bonds placed at Moscow Exchange for a total amount of RUB 15.0 bn. The share of bonded loans in the credit portfolio in 2015 was 36%.

You can find information on stock exchange-traded bonds in the section “Corporate Governance. Securities” to this Annual Report and on the Company’s website

Weighted average rate

The weighted average rate on borrowings in 2015 increased to 11.52%, compared to 9.77% in 2014 due to national and macroeconomic factors. The increase of the average rate by 1.75 p.p. was due to the significant increase of the key rate of the Bank of Russia in December 2014 and the corresponding increase of the credit rates of banks in 2015.

The loans and borrowings of the Company are unsecured.

The loans and borrowings of the Company are unsecured

The reduction of controlled operating costs in 2015 as compared to 2012 amounted to RUB 3,444 mln, or 20.8%, which is within the terms of the Strategy for the Russian Power Grid Complex development.

In 2015, the reduction of the operating costs was RUB 1,719 mln, or 8.5%, as compared to 2014, which is in line with Decree No. 2303-P13 of the Government of the Russian Federation “On the annual reduction of operating expenses per unit by at least 2–3 % dated April 16, 2015.