General Director of PJSC "MOESK" Peter Sinyutin: "From the electricity grid company to the energy services company"

PJSC "MOESK", serving electric energy consumers in Moscow and the Moscow Region, showed a significant increase in net profit in 2018 (from 2.67 billion rubles in 2017 to 4.04 billion rubles in 2018). This allowed the company to double dividend payouts. About what financial indicators "MOESK" intends to achieve this year, rebranding, capitalization and priorities of the company in an interview with "Interfax", said CEO Peter Sinyutin.

- Petr Alekseevich, at the last annual general meeting of "MOESK" shareholders, it was announced that the company would be transformed and it would switch from a grid company to a power supply company. Could you tell us more about these changes?

- Transformation is a natural reaction of the company to the challenges it faces: introduction of inflation-minus tariffs, which limit our profitability, and the absence of dividend payments in the tariff. To ensure further growth in financial performance and meet the expectations of our shareholders, we must look for new growth points. That's why we set the goal to move from an electric grid company to a power supply company.

Today "MOESK" is the leader among the subsidiaries of the "Rosseti" group of companies both in terms of revenue from the provision of non-tariff services (more than 2 billion rubles) and in net profit (1.1 billion rubles, a doubling in three years). But the potential of this market is huge. We will significantly expand the list of services provided, a full range in the field of energy supply will be presented, from consulting and ending with servicing electrical installations of consumers, services in the field of energy conservation and energy efficiency. Services will no longer be an additional activity, but will become as important in importance as the transmission of electricity and technical connection. By 2023, services will generate more than 18 billion rubles of revenue and about 5 billion rubles of net profit - 40% of the total net profit of "MOESK".

- Since June, PJSC "MOESK" has been operating under the brand name "Rosseti Moscow Region". Will it affect the development of the company, doing business?

- The transition to a new brand will not entail changes in the conduct of business and will not lead to an increase in expenses beyond those recorded in the approved business plan. The new name reflects our relationship with the largest infrastructure company of the Russian Federation - PJSC "Rosseti", our goals remain the same.

- Are the company waiting for changes in the activities of electricity transmission and technological connection?

“We will continue to work on reducing losses, terms for restoring power supply, terms for implementing technical connections, and simplifying procedures for interacting with the company for customers. Our most important priority continues to be the digital transformation of "Rosseti Moscow Region": automation and digitalization of the company’s activities, reducing the impact of the human factor, increasing efficiency.

In terms of financial results, several aspects are important to us. First: ensuring break-even of transfer activities under any tariff conditions. The company has tight control over operating expenses, optimizes administrative and other expenses not related to core business.

We look forward to the positive effects of the implementation of initiatives to reform the regulatory field (long-term regulatory agreement, benchmarks, reservation fees). As a result, according to our estimates, these steps will allow us to add about 3 billion rubles a year to net profit and cash flow.

Second: growth of financial indicators for technological connection. In 2019, we set ourselves the task of going beyond 5 billion rubles in net profit.

And in this case, we also expect that the initiative to adjust the tariff system for preferential technical connection will be implemented in the near future. This will allow the company to receive additional income and offset the cost of providing preferential technical connection in the amount of about 3 billion rubles a year.

As part of the approved business plan, in 2019, net profit from all types of activities according to RAS is planned at 5.6 billion rubles, and 7.2 billion rubles - under IFRS. In addition, we are now completing the adjustment of the business plan for 2020-2024, where we fix more ambitious goals for financial results. He will be considered on the board of directors in the fall.

- Do you plan to increase the capitalization of "MOESK"?

- Of course, neither the management nor the shareholders were satisfied with the situation with the company's capitalization that had developed in the previous two years. Therefore, we have made the necessary conclusions, and since the beginning of the year we have been taking steps aimed at increasing profitability and increasing investment attractiveness. And the result is already visible: in the first quarter, we have a good profit growth, since the beginning of the year, stocks added about 10%. This is a normal indicator, especially against the background of most other interregional distribution network companies (IDGCs). We are also developing a program to increase capitalization, by September the document will be presented to the board of directors.

The key drivers of stock growth we see the implementation of initiatives to change the tariff setting system (regulatory agreements, the standard cost mechanism, adjusting the tariff system for consumers to 150 kW, payment of unused capacity), optimizing costs, including FSK services through redistribution of cross-subsidization, reduction electricity losses, effects of the implementation of the digital transformation program, growth in financial results and dividends, attractive dividend yield, increased liquidity shares, ensuring transparency and openness of the company.

- Will the digital transformation program affect the company's investment plans?

- Digital transformation activities are included in the investment program without increasing volume of expenses. Of course, this required its review and updating of the company's investment plans. But we did this through the redistribution of costs, we looked at what projects can be postponed in time without violating contractual obligations and risks to reliability. Sources of financing for the investment program are fully provided by the approved tariff decisions, and we do not need to attract borrowed funds for investment purposes.

All projects implemented as part of the digital transformation of "Rosseti Moscow Region" are cost-effective. The payback period of each of them does not exceed 10 years. Net discounted income for all projects of the program for the period 2019-2029 is more than 1.5 billion rubles, the average annual project ROIC exceeds the cost of capital (WACC) of the company.

- Is there a deal with the United Energy Company (OEC) still on your agenda?

- Conceptually and strategically, we have a common opinion with the Moscow government: association is necessary. Theoretically, it is beneficial to all participants in the process, consumers, shareholders, the network complex of the Moscow region.

However, questions remain regarding the mechanisms for implementing the association. It is important to ensure maximum synergy and effects within the framework of the transaction, guarantee the stability and reliability of the operation of a single company, develop mutually beneficial conditions, primarily in terms of concluding a regulatory contract. Joint work in these areas continues.

- At the annual general meeting of shareholders the target indicator was announced - debt / EBITDA 1.5x. When to expect its achievement?

- The company's debt burden is at an acceptable level, net debt / EBITDA is in the 2.0x region, which is significantly lower than the 3.0x border level. High creditworthiness of the company is confirmed by the assigned ratings of the largest rating agencies We will continue to pursue a balanced financial policy and optimize financial expenses. So, this year the debt was refinanced by 13 billion rubles with a decrease in the rate by almost 2 percentage points, which will save up to 260 million rubles a year on interest expenses.

When distributing cash flow, we prioritize operational reliability, servicing current liabilities and paying shareholders. Early repayment of debt will occur due to additional income from unregulated services and the effects of the digitalization program. So we will gradually move towards this goal, and the result will be visible in the next 3-4 years.

- According to the results of 2018, the company doubled its dividends. Should shareholders expect dividend growth in the future?

- The implementation of all the plans that we have set for ourselves will allow us to ensure good growth in the financial indicators of the company, which means the growth of dividends, and to continue to form dividend profitability attractive to investors in the future.