PJSC RusHydro (OTC:RSHYY) Q4 2020 Results Conference Call March 2, 2021 8:00 AM ET
Dmitry Yakovlev - IR Manager
Sergey Terebulin - Deputy CEO
Conference Call Participants
Sergey Garamita - Raiffeisenbank
Roman Filkin - Prosperity Capital Management
Matvey Taits - Sova Capital
Igor Goncharov - Gazprombank
Vladimir Sklyar - VTB Capital
Sergey Beiden - Renaissance Capital
Welcome to the conference call of RusHydro. At our customers’ request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions].
May I now hand over to Mr. Yakovlev, who will run you through this conference. Please go ahead, sir.
Dear, ladies and gentlemen, thank you for joining us on this call following the release of consolidated financial results of RusHydro Group for 2020, most recent developments and outlook throughout the rest of the year. Participating in the call today is Deputy CEO, Sergey Terebulin; as well as line managers from sales, business planning and operations. The report and the presentation are available on our website in the IR section as well as in the Bloomberg terminal. Please note that some of the information announced during the call may contain projections or other forward-looking statements regarding future events or future financial performance of RusHydro Group. Please refer to the beginning of the presentation for a full disclaimer.
Now, I will give the floor to our speaker, Deputy CEO, Sergey Terebulin.
Thank you, Dmitry. Hi, everybody. It's a real pleasure to welcome you here at the call. So I do believe that most of you have already seen the key figures that have already been disclosed. I wouldn't go up for the whole presentation. I suggest that we spend more time on the Q&A session. So I will just simply give you, again, just a couple of highlights about the key figures and the key developments of 2020.
So on the back of the historically high-power output of  terawatt hours, we managed to achieve RUB 428 billion of revenue. And it means that our EBITDA in 2020 comprised of RUB 120 billion, meaning that EBITDA margin is at a level of 28%. It means also that our net profit managed to achieve a RUB 47 billion and the anticipated dividend payout will be RUB 23.3 billion. It seems to me it's at the historically highest ever level.
So the leverage -- the RusHydro's leverage remains pretty moderate, and the net debt-to-EBITDA ratio is below 1 at the moment. As to the projections, I can simply say that, in 2021, going forward, we do expect that our leverage will remain moderate, that our dividend policy will remain pretty stable. We expect that the Board of Directors will simply keep the dividend policy as it is right now. We do expect that dividend payments will be at a level of RUB 20 billion or RUB 20-plus billion going forward in the next few years -- in the next years. And actually, we do expect that we will keep -- that we will be still a financially stable company, with no significant changes in our core business.
So that's actually what I wanted to say at the very beginning of our discussion. So I suggest that we go to the Q&A session now. Thank you.
[Operator Instructions] We have our first question from Sergey Garamita.
Thank you for the presentation, a very good one indeed. And I have several questions, probably the most important one on impairments. Previously, the company guided for about RUB 20 billion impairments for 2020. It was increased. And could you just give an explanation? And should we expect some reversal next year or not in this impairment and -- given the new tariffs, basically? The next question is on your CapEx. In the presentation, we see some still the same level of CapEx for modernization projects. So some CapEx was already spent on modernization, right, in 2020? Or was it delayed? And do you see any CapEx or run rates for the projects? And do you have any updated figures considering that 1 station and 1 power plant was switched from coal to gas? And yes -- and this is on CapEx.
The next question is on your subsidies. Do you have any guidance for 2021 for total government subsidies? And probably the final question, considering that we have much colder weather, winter season this year and -- do you -- what level of EBITDA do you expect for this year considering hydropower generation correction? And if you see any considered risks for EBITDA from that?
Thank you for asking that many questions. So just one by one. Impairment. Actually, we gave the guidance of impairment of RUB 20 billion or RUB 20,000 million. The ultimate figure pretty close to RUB 25 billion and the difference is actually driven by deferred tax asset. So it's very difficult now to predict deferred tax liabilities and deferred tax assets. So actually, the difference between the actual figure and the guidance is here.
Then CapEx, the projections that we have at the moment are shown in the presentation. Actually, we do not have any other figures at the moment. As to the difference in CapEx of 2020, the difference between the anticipated one and the actual one, partly it's delayed, partly it was actually saved on procurement.
Then subsidies in 2021. Yes, we do have a kind of guidance, the figure -- I mean, the total amount of subsidies for 2021 is RUB 51.8 billion. And weather conditions, actually, again, the year 2020 was, historically, high in terms of water levels. At the moment, what we see in the European part of Russia, the water levels are above the normal ones -- above normal ones. In Siberia, it's pretty at the normal levels. So it's very difficult at the moment to say what's the general impact or what kind of general impact on the annual figures it might have. I think we should just wait a little bit, and then maybe we can give you better projections.
We have a next question from Vladimir.
I'm not sure if that Vladimir is me. But first of all, welcome to the company. It's great to see you here and hear you today on the call. Second, congratulations on a very strong set of results. My few questions. First one is about the Far Eastern CapEx. We're still waiting for the approval of the guaranteed level of return on investments. Maybe you can provide us some sort of expected timeline on when can we expect the approval to materialize and when the first CapEx will hit the grounds? My second question is about the mentioning of the review of the dividend policy in the presentation. Maybe you can elaborate, do you expect any changes to the dividend policy? Do you expect the dividend floor at 3-year average to stay or that will be lifted, it would be great to hear your thoughts?
Thank you. So in terms of payback, at the moment, the issue is considered by the government. We do expect it should be sorted out in the next few months, maybe. Actually, we are also waiting for that sort of decision. As for the dividend policy review, again, I have already said that we do simply expect that the Board will prolong it. So we do not expect any significant changes here.
[Operator Instructions] We have next question by Roman Filkin.
This is Roman Filkin from Prosperity Capital Management. I have 2 follow-up questions on the subsidies for 2021. You mentioned this RUB 51.8 billion as expected subsidy for 2021. And can you give us an idea of what -- how is it split between the subsidy under this government decree of 895 and some general subsidy, which we are getting in the region? That is the first one. And the second one about the CapEx. If I got it right, on the Page 12, you show your 2020 CapEx of RUB 108 billion, including VAT. But in the financials, we see just RUB 58 billion as actual number under IFRS on excluding VAT, it’s underspent. But -- so still -- could you give us some color how much was real underspending, which was deferred to 2021 or 2022? And what was some real optimization on the CapEx?
So for the first question, should I understand it correctly, the part of subsidies grown for the Far East, Far East in sub charge, it's RUB 29.8 billion. And then as to the CapEx, so again, the difference between ‘20 -- the projected, the anticipated number and the actual one in 2020 is driven by 2 factors. Something is deferred, something was saved. So mostly, it's deferred. I cannot just tell you the actual figure right now, but it seems to me that mostly it was deferred.
And just also a question about the CapEx for 2021.
Sorry, could you please repeat it? I didn't hear it.
Yes, some bad noise around, I am sorry, if it’s on my line. Anyway. So your predecessor used to say that if these numbers -- we can see on the Page 12, they going to be or likely to be underspent by some magnitude of 20%, 25%. Do you still think is it the case or not?
I think this is still the case, yes. So we still plan the CapEx program at the maximum possible levels, and then we would typically spend less due to different reasons. So I think, yes, that will still be the case.
We have the next question by Matvey Taits.
Thank you for letting me to ask the question. And my question is about the tariffs for Far East. So we're waiting not only for the guaranteed return on the modernization for the Far East but also for introduction of long-term tariff system in the region, which should result in compensation of some extra fuel expenses that were not included in previous calculation by regulators. Can you please elaborate what's the process of this reestablishing new tariff system in Far East?
So actually, this is already the case. We already have long-term tariff regulation in Far Eastern region for 5 years period. And some -- a pretty significant amount of money, more than RUB 20 billion will be compensated over the 5-years period. So the indexation will take place starting from the 1st of July this year. So this is already the case.
Our next question is from Igor Goncharov.
Congratulations with the new position. Great to be in touch with you again. My question is on the dividend comment that you gave. You said that you envision the dividend size of RUB 20 billion to RUB 25 billion. Is it like a minimum size or should we expect -- do you exclude that -- how probable is that, that the dividend can actually go beyond RUB 25 billion in -- on a couple of 3-year horizon, especially when you reduce the write-downs for the Far Eastern assets, for example, next year? So how strict is the upper bound of this range, RUB 25 billion, for the dividend payments?
Thank you for asking. Actually, you want me to predict the future. Once I manage to know how to do it, I'll tell you. Actually, at the moment, we don't have the business plan approved -- finally approved by the Board. So I think that we can give you some better guidance once it's finally approved. We do expect it to happen pretty soon. My personal opinion is that, actually, I'm optimistic. I would say so. I wouldn't actually give you the real numbers. I don't know how to calculate them because of a very, very huge variety of factors affecting the net profit in books. You know it. So again, I feel I'm optimistic. That's it by now.
And one more topic that has been raised from time-to-time, which is that, it would be logical in some sense to switch from the net profit as a dividend base -- nominal net profit as a dividend base to adjusted net profit as a dividend base so that the investors in the company would not be dependent on the fluctuations in the write-downs. For example, we know that such big companies, Gazprom has done it a couple of years ago. Do you think it can be realistic for RusHydro to switch to the nominal -- to the adjusted net profit base for the dividends in the foreseeable future?
Frankly speaking, I do not know what to say. First of all, I've never heard that the Board has discussed this issue over -- in the -- recently. Then secondly, the position of the Ministry of Finance, they say that they hate adjusted net profit because of various reasons. The Ministry of Finance simply want every state-owned company to pay 50% of the net profit according to IFRS. This is actually their position -- it's been their position over the years. And haven't heard actually that they are in a position to change it. So maybe, one, the Board decides to discuss this issue. At the moment, it's not on the table, at the moment.
We have a next question by Vladimir Sklyar.
Yes. A few follow-up questions, maybe not directly related to financials. First of all, maybe you can elaborate a bit on your recent contract with Polyus longer term on supply of green energy. What kind of financial impact do you expect from the contract? Is there a substantial premium incorporated in pricing of electricity? And generally, do you expect that RusHydro will [try to earning] more given by the drive for more greener electricity by Russian exporters to the European Union in light of the carbon border tax? My second question is about expansion of [indiscernible]. We know that government is planning to undertake an option for commissioning of capacity there already this year. Do you think RusHydro has any plans to participate in this or not? And finally, we noticed in the presentation that the Far Eastern projects, which you're planning to do are explicitly mentioned to be gas-fired. But generally, do you think there is room for further share of coals in the fuel mix of Far East generation to decrease going forward, taking into consideration that investors are very allergic to coal-fired generation these days, which lowers the profile, ESG profile of the projects?
Actually, I haven't heard a word from your first question. Sorry for that, there was something on the line. So I will start from the second one. As to [indiscernible], our second stage of [indiscernible], yes, we are expecting to participate in the project. We are considering building of 2 stations. We are now doing the feasibility study for them. And once it's approved, it might be included in the presidential decree covering the [indiscernible] issues.
Then as to switching from coal to gas, we definitely consider all the opportunities feasible in this issue. So if this kind of switch is feasible technically, economically, whatever, then we'll definitely consider this. Thank you. And if you could just repeat your first question, that will be great, I haven’t heard it.
Yes. My first question is about your recent contract with Polyus on electricity, supply of the green energy. Maybe you can elaborate what kind of premium is incorporated in pricing of what we see in that contract? And do you expect any meaningful financial impact from it?
Okay. So as to our contract portfolio, actually, we do not describe any commercial details on that. I can simply say that it was concluded on the market basis.
Our next question comes from Sergey Beiden.
I have actually 1 question left. When we talk about impairment charges with your book for Far Eastern assets, it was close to like historical average on our assets, on our estimate versus the -- in terms of cost versus the impairment. So when you're do impairment test, did you imply the new approved tariffs for the Far Eastern assets? Because from this point of view, it looks like that given that the tariffs are approved and they are likely to be with high indexations. And in previous tariff, that should have resulted in low impairments and in restoration of some impairment charges you took -- you booked previously. So could you kind of elaborate why we don't see that, or the tariffs in the Far East are not that high as hoped?
Thank you for asking this. I think that you should look at this problem at a very simple manner. Once a project is supported by the State, once a project is supported by some injection of governmental money, definitely, you will see some kind of impairment. Because, otherwise, the State shouldn't support it. Otherwise, the project would -- a project would be paid out just simply by the tariff. And this is just a very simple answer in my opinion.
No. But I understand that you should take impairments. Just when you do DCF test and the impairment test, then you calculate the cash flow with higher tariffs, and cash flow has to improve, and we don't see that in the financial reports. That was the question about.
Of course, the impairment calculations are based on DCF models. And everything that is -- that we know, everything is -- that our auditors know is in the model. So the results of the calculations are just -- show these figures of impairment. Or maybe I do not just understand your question correctly.
[Operator Instructions]. At the moment, there are no further questions. I hand back to you, Mr. Yakovlev.
Okay. So I just want to thank everybody for participating in the call today. And just as a reminder, if you have any questions, feel free to reach out to us. The contact information is available on our website, and don't hesitate if you have any questions, we'll gladly answer them.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.