In 2018, PJSC Evropeyskaya Elektrotekhnica increased the deliveries of engineering and technological equipment by 1.5 times

In 2018, PJSC Evropeyskaya Elektrotekhnica increased the deliveries of engineering and technological equipment by 1.5 times

March 18, 2019. Moscow — PJSC Evropeyskaya Elektrotekhnica (hereinafter — the "Company") publishes its operational results for 2018.

The Production segment allows the Group to participate in the initial stage of the value creation chain in specialized markets, developing and offering customers its own advanced developments and engineering solutions. According to the results of the reporting period, engineering products made by the company accounted for a total of around 35% of the Group's deliveries.

The Activity of Engineering Centers segment allows the Group to generate revenue and attractive profitability from its engineering projects; this is based on the Group's own engineering products as well as those of third-party vendors. As of the end of 2018, the Group implemented 497 projects via 16 of its own engineering centers.

The updated list of completed projects with industry reference is published on the Company website.

Key operating indicators of PJSC Evropeyskaya Elektrotekhnica:

Note: * The amount includes both investment in production assets and expenses related to working capital formation of the subsidiary ROG-Engineering

Ilya Kalenkov, General Director of PJSC Evropeyskaya Elektrotekhnica, commented on the published results:

“We assess the results of the Company's operational activities in 2018 as positive. The volume growth of our deliveries to Customers in physical terms (+48%) significantly surpassed the growth of both the Russian economy as a whole and our specialized markets, which allows us to gradually increase our market share.

The continuous emphasis on wide diversification of the customer base, our successful entry into the market of technological equipment, and the development and expansion of the types and output of our own production are the basis of the progressive profitable growth of our Company's business.

We are expecting positive results for the Company's business development in 2019 and in the future. A number of factors contribute to these expectations. External factors include: positive macroeconomic trends in the country, active investment programs in the key domestic sectors, large-scale state programs to modernize and expand infrastructure, import substitution and economy digitalization. We are focused on a number of areas: continuous expansion of the portfolio with both long-standing and new customers, continuation of our own R&D program, effective development of key vendor relations on the engineering market, bringing our subsidiary ROG-Engineering to nominal production volumes in 2019, expanding the export of our high technology products to the Middle East, Central Asia, Southeast Asia and North Africa.”

Macroeconomic situation and investment demand in the Russian Federation

Dynamics of key macroeconomic indicators in the Russian Federation

GROWTH OF INVESTMENT DEMAND SIGNIFICANTLY SURPASSES GROWTH OF THE ECONOMY AS A WHOLE

The growth rate of fixed capital investments in Russia at + 4.3% (2018, CPPY) is ahead of both the growth rate of Russia's GDP (2.3% in 2018) and the growth rate of industrial production (+ 2.8% in January-October 2018). The overall economic recovery in the country stimulates the demand for engineering equipment, which is an integral part of any investment program, regardless of the economy sector or ownership of companies and organizations.

In 2019, economists predict that investments in Russia will grow by 2% (according to the consensus forecast of Interfax, prepared in early February) [4], in 2020 — by 3.5%, while the Ministry of Economic Development is expecting investment growth of 3.1% in 2019, followed by a boost to 7.6% in 2020.

The rise of the Russian economy to record levels in terms of electricity production and consumption by the end of last year, even taking into account the much wider use of energy-saving technologies in investment programs (compared to the Soviet period), shows the real economic growth in the country as well.

HIGH DEPRECIATION OF FIXED ASSETS — STILL A PRESSING ISSUE FOR RUSSIA

Depreciation of fixed assets in Russia as of 2017 is estimated at 47.3% (Rosstat estimates) [5]. This indicator is still very close to the poorest reading of 49.7%, which was recorded in 2014. In addition to the construction of new production facilities, Russian enterprises are forced to invest heavily in the renovation of existing fixed assets, using advanced engineering and technological solutions.

REAL IMPORT SUBSTITUTION

Implementation of import substitution programs or at the very least, production localization of imported equipment samples in Russia, continues. For example, the largest Russian consumers of electrical technological equipment — Rosseti and FSK — have already managed to reduce the import share in procurement to less than 15% as of 2018. In addition, Rosseti aims to reduce this indicator to 5% by 2030.[6] First and foremost, this trend is profitable for domestic companies on the electrotechnical market that have managed to launch their own production of engineering equipment. This includes Evropeyskaya Elektrotekhnica.

A significant trend for the domestic market is the growth in the number of large customers whose suppliers are required to promote import substitution and have their own production capacities to be admitted to procurement procedures. In June 2018, based on the results of 2017, the Company was named Import Substitution Leader at the Leader of Competitive Sales annual all-Russian awards, in which 450 domestic suppliers from various industries participated.

SPECIFICATION OF NEW LARGE-SCALE DEMAND SOURCES FOR THE ENGINEERING INDUSTRY IN RUSSIA

•    Comprehensive plan for development and expansion of the main infrastructure in the Russian Federation for the period up to 2024 with investment to the amount of RUB 6.3 trillion,

•    Restart of the investment cycle in the Russian electric power sector — a new program to upgrade thermal power plants in Russia (CDA-2) with RUB 1.9 trillion investment,

• Oil and gas chemistry projects with total declared investment of more than USD 40 billion,

• Large-scale projects co-financed by major corporations from "Belousov's list": 981 applications made by Russian businesses, with a total investment volume of about RUB 81 trillion,

• Infrastructure development for liquefied natural gas (LNG) deliveries with a total capacity of no less than 13.7 million tons per year.

Own production: engineering equipment

In 2018, the Group continued to supply engineering equipment of its own production:

1.    Electric switchboard equipment

In 2018, the Company produced 220 distribution switchboards (columns) of the Prisma series, with Schneider Electric hardware components, 157 distribution switchboards (columns) with DKS design, and 185 distribution switchboards with Rittal coating during the implementation of projects for more than 80 customers.

R&D:

• An album of generic solutions was developed for the Moscow Metro substations,

• Generic solutions were developed for systems for own needs for Rosseti substations,

• Generic solutions were developed to provide power supply to the Data Centers for financial infrastructure facilities.

2.    Complete transformer substations for a voltage of up to 35 kV

In 2018, the Company produced transformer substations with a total installed capacity of 105 MVA for 16 customers.

R&D:

• Substations for power supply and management of drilling pumps were developed for customers in the oil and gas industry,

• An enhanced anti-vandal case design was developed for container substations,

• A complete solution was developed for electricity transformation and distribution as part of WPPs (wind power plants).

3.    Industrial electric heating systems

In 2018, the Company designed and developed project solutions for the implementation of industrial electric  heating systems for more than 50 customers. 

R&D:

• An album of standard units demanded by designers was developed,

• Fitting elements for industrial electric heating systems  were developed and successfully implemented, enhancing their installation speed and quality, as well as other accessories,

• In 2018, the Company's own development project — special kits for connection, input and termination of a self-regulating heating cable, was fist introduced to the market. The kits help customers to decrease the labor intensity of cable dressing mounting by 30%.

4.    Lighting equipment

In 2018, the Company applied lighting equipment of its own production in projects for more than 21 customers.

R&D:

• In 2018, a series of energy efficient LED illumination was designed and developed for large retail spaces. Combined lighting algorithms were developed, allowing to reduce daily energy consumption.

• Non-typical units for mounting spotlights on mast-type supports were developed and manufactured for the landscape garden at Mega Yekaterinburg.

• Disability glare reducing devices for the general spotlight illumination system were developed and produced for common trading areas at Mega Khimki.

• Customized designs for architectural suspension lighting systems were developed and produced for the food court at Mega Kazan.

• Thermal management schemes for trading area accent lighting fixture cases of HSL, ES, CP series were improved.

• Projects for external architectural lighting control systems were developed for the Hills Apartment Complex of City XXI Vek, and an internal RGB lighting control system was developed for the food court at Mega Kazan.

• LED illumination was developed and produced for the reconstruction of Lotte Plaza.

• Research was conducted on the influence of new spectral types on cultivation of current crop varieties in greenhouses.  Phytolighting with optimized spectral characteristics was manufactured for protected ground.

Own production: equipment for the Oil&Gas industry

The Group's subsidiary ROG-Engineering successfully launched its business in 2018, which involves the development, engineering and manufacturing of equipment for the Oil&Gas and petrochemical industries. In 2018, the customer base of ROG-Engineering totaled about 30 companies from Russia and Uzbekistan.

LAUNCH OF NEW PRODUCTS

Implementation of the early oil and early preliminary water separation principles.

Modular container-type equipment used for an oil and gas discharge and treatment system.

DEVELOPMENT OF VENDOR RELATIONS

In 2018, the Company procured materials and components from 32 counterparties in the following areas: Measuring and regulation equipment, metal rolling, shut-off valves, fittings, consumables, specialized equipment, filters.

CERTIFICATION/AUDITS

Certification of the main product categories in this area was completed: Mobile well-test and development units, preliminary water knock-out units, open flowing units, gas fractionation units, filtration units, modular pumping stations, end-of-pipeline tubular phase splitter, vessels and machinery made of welded steel and their modules, fuel gas treatment units, mobile well products research, gathering and processing units.

Certificates of conformity were also obtained: ISO 9001:2015, ISO 14001:2004, OHSAS 18001:2007.

In 2018, ROG-Engineering LLC successfully completed technical audits initiated by following organizations: Enter Engineering, JSC RN-Snabzhenie, IT-Service LLC, Torgovyy Dom Klaster LLC, RITEK LLC.

TEAM DEVELOPMENT

Automation department: In 2018, design works were carried out for 22 contracts; inspection, erection supervision and pre-commissioning work was carried out for 4 contracts. The deadline for completing documentation was reduced for a number of equipment items, for instance, for the igniting operating box. Innovations related to measuring and regulation equipment and controller and box equipment are regularly reviewed, as well as for cable products and wiring products and materials.

Design department: Implementation and launch of the register and storage system for original copies of paper design documentation. Development of container mobile equipment for the needs of the Oil&Gas industry. Container design and equipment arrangement principles were developed.

Technology department: Technical inspection (in cooperation with the industry research department):

1. Kumkol oil processing and pumping plant in Kazakhstan (recommendations regarding its modernization were given);

2. Yakushinskaya oil treatment plant and well product gathering system of Yakushinskaya area of JSC Samaraneftegaz.

R&D program: specialists of the department took part in the development of container modular process equipment, as well as in the product certification process.

Activities of engineering centers

Throughout 2018, the Company implemented over 497 projects for over 750 customers from the following economic sectors in Russia:

• Oil&Gas complex;

• Steel and mining industry;

• Electric power sector;

• Engineering;

• Chemical industry;

• Telecommunications (including Data Centers);

• Transport infrastructure;

• Offices and shopping centers;

• Institutions for science, education, culture and sport;

• Food and agricultural industry;

• Infrastructure, housing and utility sector;

• Other industries.

During the reporting year, the Company mostly implemented projects in the Russian Federation. Projects are also being carried out in countries in Central Asia, including Uzbekistan (a significant increase in oil and gas equipment supplies), Kyrgyzstan, Kazakhstan, and also in countries in the Middle East.

ENGINEERING CENTER NETWORK DEVELOPMENT

The total number of the Company's regional engineering centers amounted to 16 as of the end of the reporting year.

In 2018, the Group established new engineering centers in the cities of Tyumen, Lipetsk and Nefteyugansk in Russia. In addition, the Group also stepped up efforts to find new business opportunities in Azerbaijan and Morocco.

The established network of centers allows to efficiently provide for the accumulated customer base in volumes corresponding to the infrastructural capabilities of the Company (taking into account the possibility of involving qualified technical and management personnel in the corresponding regions, as well as the logistics and capacity of the Company's own production facilities).

LAUNCH OF NEW PRODUCTS AND SERVICES

Krasnodar: Services for installation of automation and power systems are now available.

St. Petersburg:

1. In Q2 2018, the production of a line of industrial electric heating systems (EHS) was launched under the brand Evropeyskaya Elektrotekhnica.

The products sparked the interest of industrial customers. For example, during the construction of the main gas pipeline Power of Siberia, cable electric heating systems supplied by the Company will provide year-round heating for the linear pumping units of the gas pipeline.

2. Electric engineering services to a capacity of 0.4 kW are now available in full: power and low current systems.

Moscow: the ITS lighting fixture range was expanded; in St. Petersburg, reconstruction of the TBS shop was carried out, replacing the outdated MHL lighting fixtures (without ceiling replacements) with ITS LED lighting fixtures.

Moscow: Specialized cable penetrations were used in projects for the first time. In 2018, the Group became the main partner on the market for the development of Roxtec (Sweden), which produces cable and tube modular penetration systems in Russia. In addition, cable and tube input shippings were increased.

DEVELOPMENT OF RELATIONS WITH VENDORS AND OTHER PARTNERS

Moscow: [Event took place after the reporting date] the multistage selection and certification process was successfully passed for inclusion in the Golden Club Prisma – the club for the best partners of Schneider Electric in Russia.

Moscow: In August 2018, an express partnership agreement was concluded with the European concern ABB Ltd.

Moscow: In November 2018, the Company's experts took part in a workshop by Roxtec (Sweden) on Sealing Pipes and Cable Inputs Technology in the Oil&Gas Industry.

Moscow: The Company officially became a member of the Franco-Russian Chamber of Commerce and Industry, which unites more than 450 French, Russian and international companies. Participation in business missions of the Chamber with visits to Russian regions and CIS countries significantly complements the Company's own marketing efforts.

Moscow: The Company starts to apply high-tech fireproofing products by Atominoprom in its projects.

Krasnodar: joint meetings with customers and representatives of LEDEL were held.

Kazan: a trip to Tver took place to the DKS production facilities, including trainings for employees.

CERTIFICATION/AUDITS

Moscow: Licenses were obtained for the delivery of equipment and performance of work at SC Rosatom's facilities. These licenses allow for manufacturing and assembling in the first and second zones of the NPP.

Kazan: The Cable Support Systems And Low Voltage DKS Equipment course was taken in Tver.

St. Petersburg:

1. Full certification for EHS was acquired.

2. Technical conditions for EHS were acquired.

3. The THK Kabel plant successfully passed a technical audit by Sakhalin Energy. The Company's cable product was authorized for use in Sakhalin Energy's projects.

4. Certification of industrial safety for THK Kabel's cables was acquired.

TEAM DEVELOPMENT, ENHANCEMENT

Krasnodar: a construction department was formed.

Ufa: an additional Sales Manager and a Logistician were employed.

St. Petersburg:

1. A lighting solutions department was created. Lighting engineers and designers were employed.

2. An industrial electric heating system department was created.

3. A larger office was commissioned, computing capacity was increased.

REFERENCES:

[1] CPPY stands for "to the corresponding period of the previous year"

[2] Calculation procedure: a) Calculate 23.2% of [3] — the share of the total investment volume in the fixed assets of the Russian Federation (2016) allocated to fossil fuels mining, coke and oil production, and chemical production (source: http://www.gks.ru/free_doc/doc_2017/invest.pdf); b) Take RUB 150 bln of investment into the coal industry from [a] (source: http://www.finmarket.ru/news/4938385); c) Calculate 20% of [b]

[3] Source: http://www.yuresk.ru/about/press-service/news/industry-news/12487

[4] Source: https://www.interfax.ru/business/652970

[5] Source: http://www.gks.ru/free_doc/new_site/business/osnfond/STIZN_ved.htm

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):

The personnel headcount is around 400 people. Since September 2017, common shares of PJSC Evropeyskaya Elektrotekhnica are traded on the Moscow Exchange with trading code EELT.

In June 2018, the company was named Import Substitution Leader at the Leader of Competitive Sales annual national awards, in which 450 domestic suppliers from various industries took part.

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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