Daily analyst comments

On June 21, OGK-4 released 2010 financial results, based on IFRS.

Табл. 1. OGK-4: key income statement indicators, mn RUB

Indicator	2008	2009	2009/2008
Revenue	38 013	42 890	+12.8%
Operating expenses	35 459	37 160	+4.8%
EBIT	2 554	5 730	+124.4%
Depreciation	2 463	2 349	-4.6%
EBITDA	5 017	8 079	+61.0%
Net income	6 187	5 515	-10.9%

Source: OGK-4 data

Electricity generation by the genco declined 5% in the reporting period in the report, while revenues climbed 12.9%, largely on electricity tariff growth.

Table 2. OGK-4: key components of operating expenses, mn RUB

Indicator	2008	2009	2009/2008
Fuel costs	21 631	22 770	+5.3%
Cost of purchased electricity	2 417	3 546	+46.7%
Depreciation	2 463	2 349	-4.6%
Payroll costs	4 021	3 490	-13.2%
Other costs	4 927	5 005	+1.6%
Operating expenses	35 459	37 160	+4.8%

Source: OGK-4 data

Operating expenses by OGK-4 increased 5% in 1Q, lagging behind revenue growth. The rise in operating expenses is attributable to growth in fuel costs, driven by a raise in fuel prices. On the other hand, the genco managed to curtail its payroll costs through job cuts.

Faster revenue growth resulted in expansion of operating and EBITDA margins, while the decrease in net income, which has caused net margin contraction, is linked to cuts in financial income.

Table 3. OGK-2: profit margins

Indicator	2008	2009	2009/2008
Operating margin	6.72%	13.36%	6.64%
EBITDA margin	13.20%	18.84%	5.64%
Net margin	16.28%	12.86%	-3.42%

Source: Finam estimates

We regard the financials released as positive. OGK-4 has once again reaffirmed its status as a highly efficient company with a permanent focus on business efficiency growth, as is evidenced by cuts in staff costs and moderate growth in all of its other spending items. In our view, the financials released, which have mostly met market expectations, will have a neutral effect on the OGK-4 stock valuations.