Management comment: business prospects of Evropeyskaya Elektrotekhnica in the context of macroeconomic turbulence

Management comment: business prospects of Evropeyskaya Elektrotekhnica in the context of macroeconomic turbulence

The global and Russian economies have seen turbulence which has increased rapidly over the past weeks. Commodity, currency and stock markets are in a fever. Countries all over the world fight hard against the pandemic of COVID-19.

There are natural questions about the sustainability of investment process in the Russian economy, and therefore about the prospects of domestic engineering innovation business.

The management of PJSC Evropeyskaya Elektrotekhnica commented on this situation:

We have analyzed the risks and opportunities related to our current business relationship with Suppliers and Customers.

The results we have received are positive for the Company:

• Under the current contracts, our Company has no significant dependence on the value of commodities (e.g. metals) or foreign exchange rates.

• The majority of supplies from our Suppliers under the current contracts are denominated in RUB (98.9%). It includes both the Engineering Systems and Process Systems.

• The Company has no financial obligations in foreign currencies.

• The observed RUB weakening against USD and EUR leads to a sharp increase in the attractiveness of our offers for Russian/foreign Customers compared to offers of foreign companies.

We do not observe increased risks in the Process Systems field in terms of developing the equipment for Oil&Gas and power sectors.

The value of non-exchange metals does not experience as sharp fluctuations as it is observed for exchange-traded goods. When producing Oil&Gas equipment, in general, we use non-exchange metals and materials.

Due to a sharp decrease in global oil prices, oil companies are to rapidly increase the volumes of oil extraction and supplies in order to maintain total revenue.

Therefore, it is required to address the task of developing additional infrastructure in the regions of oil extraction quickly — within a few months but not years.

It is possible thanks to the following types of our process equipment providing eco-friendly separation of oil from the well fluid:

• preliminary water knock-out units,

• automated discharge phase separators.

These types of our equipment are block-modular and mobile. They are quickly launched in the fields, and their quick commissioning is possible. Besides, they provide a prompt increase in the production volumes of commercial oil.

This equipment is interesting both to Russian and, in particular, to foreign Customers from the oil industry.

We are able to convert the emerging benefit from our RUB production cost — as part of specific transactions — either to a greater margin of our business or to a price advantage over other suppliers during procurement procedures.

We assume that major investment projects being implemented in Russia and in neighboring countries in which we operate as a supplier will be continued by the initiating companies. The probability of terminating such projects is estimated as negligible. These are the long-term investment projects whose financial models initially consider the possibility of rapid changes in macroeconomic conditions both during construction and subsequent operation of the industrial assets created.

The prospects for a new area of our activities — fuel oil (fuel) saving services and oil processing on the basis of innovative installations developed and produced by our Company — are quite weakly dependent on the macroeconomic changes.

Terminating the operation of power plants is not planned, only electric power consumption fluctuations within a few percent are likely. The need for heating Russian cities does not disappear and is determined only by weather conditions but not macro-fluctuations.

Our fuel oil desulfurization services are still in high demand by bunker suppliers due to the IMO regulations for mandatory transition of ships to fuel oil with low sulphur content (0.5% max), which came into force at the beginning of 2020. The volume of services provided by our Company is currently low, compared to the total volume of the bunkering market. These services will be consumed regardless of changes in shipping volumes (even against possible significant drop in traffic). Bunker suppliers are currently more interested in cooperation with our Company: due to reduction of the oil and fuel oil cost, the possibility of obtaining higher volumes of low-sulphur fuel oil at moderate cost, when using our equipment, enables bunker suppliers to maintain their business margin at a higher level.

The current situation in the markets has a clear potential for improving the operational and financial indicators of Evropeyskaya Elektrotekhnica. 

We see new market opportunities while increasing the business margin of Evropeyskaya Elektrotekhnica.

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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