Positive results of PJSC Evropeyskaya Elektrotekhnica business development in Q2 2019: progressive development of Engineering Systems, active growth of Technological Systems

Positive results of PJSC Evropeyskaya Elektrotekhnica business development in Q2 2019: progressive development of Engineering Systems, active growth of Technological Systems

July 22, 2019. Moscow – PJSC Evropeyskaya Elektrotekhnica (hereinafter the "Company") publishes its operation results for the second quarter of 2019.

The Company presented its results and business development prospects in its key areas:

• Engineering Systems;

• Technological Systems.

The business model of the Company was published in the Annual Report for 2018 (see pages 26–27).

Key operating indicators of PJSC Evropeyskaya Elektrotekhnica:

Statement from Management

Ilya Kalenkov, General Director of PJSC Evropeyskaya Elektrotekhnica, commented on the published results: "During the first half of the year, the Company's business development continued to progress according to our plans and the state of our core markets.

The Engineering Systems area demonstrates predictable evolutionary development and stable implementation of the contracts previously obtained with both long-standing and new customers. The Project Sales Department of our Company and the network of engineering centers successfully compete for new business in Russia and neighboring countries. Close interaction with the project organizations lets us understand more quickly and fully the prospects of implementing engineering projects, thus, we are able to take part in preparing for tender offers, to plan our capacity utilization of our team, to involve suitable partners. The Company's accumulated positive reputation and successful implementation of high profile projects for large domestic companies/customers provide us with new orders and confidence from clients from the entire spectrum of sectors of the Russian economy.

An example of expanding our geographical footprint of export deliveries in the reporting quarter was the contract for supply of electrical equipment for the city boiler stations in Yerevan, the capital of Armenia.

In the first half of the year, there was moderate growth of the economy and of investments in fixed assets in Russia. The launch of the investment projects specified in national projects and the comprehensive plan for modernization and expansion of the main infrastructure will give the domestic economy a new boost in 2019–2020.

We still expect the Technological Systems area to be the main source of revenue growth and profitability of Evropeyskaya Elektrotekhnica Group of Companies in the foreseeable future. We are continuing the active development of both segments in this direction:

• the Company continues production and delivery of conventional equipment for the Oil&Gas and petrochemical industry — oil/gas/water treatment systems and flare systems. In the reporting quarter, the goods were shipped mainly to Russian customers;

• we continue to build an order portfolio for innovative equipment for the oil refining and electric power sector in order to satisfy the significant effective demand among customers in Russia and neighboring countries.

A number of customers interested in the Company have already received confirmation of the performance parameters of our equipment with respect to the hydrocarbon raw materials used by them. This refers to plants for increasing the octane number of gasoline and oil treatment units. Our calculations show: each of these units will generate about RUB 100–150 million EBITDA per year. At present, we handle the task of large-scale increase in production of these innovative products.

Parameters of the blocks to prepare fuel oil for use as fuel were previously confirmed for over three years of operation at CHPP in the Middle East. Negotiations regarding this equipment are currently underway with interested customers."

Macroeconomic dynamics and investment demand in Russia

Investment demand: pause in the first half of 2019

The growth rate of fixed capital investment in Russia at +0.5% (Q1 2019, CPPY) creates a more tense competitive position in the domestic engineering market.

At the same time, Evropeyskaya Elektrotekhnica has more sustainable and reliable market positions thanks to specializing in project sales, handling customers' turnkey tasks (including EPC contracts), developing a regional presence (the Company specialists cooperate with customers at the project implementation sites), and developing its own production of key types of supplied equipment. The choice of supplier for dealing with tasks in engineering and technological directions is dictated not only by offering low prices. Customers demand both a full range of competences such as engineering and large project management, along with proven successful experience in implementing significant and often geographically remote projects.

Russia has favorable short and medium-term prospects of recovering investment demand: The Ministry of Economic Development forecasts investment growth by 3.1% in 2019 and by 7.0% in 2020 in Russia. We consider such expectations quite reasonable based on the information given below.

Large-scale sources of demand for engineering 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 projects with co-financing 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 deliveries of liquefied natural gas (LNG) with a total capacity of no less than 13.7 million tons per year

Dynamic import substitution

The increase in demand for products and services of domestic engineering companies is facilitated by measures implemented by the Russian government with regard to large-scale import substitution in the fuel and energy complex:[10]

• in order to support the State Program, the Ministry of Industry and Trade of the Russian Federation has developed 20 sectoral plans, including more than 2,000 high priority items for import substitution with a total declared value of RUB 2.5 trillion;

• at the first stage of the implementation of the State Program, financial assistance was offered to manufacturing companies through the Industrial Development Fund (IDF), on the terms of co-financing by the companies. The IDF has provided a total of RUB 3,267 million in loans to domestic companies to implement the projects, which make it possible to eliminate foreign counterparts on the Russian market and introduce competitive products in foreign markets;

• the total volume of attracted investments in real economy for the implementation of these projects will exceed RUB 9,270 million;

• as a result of the planned import substitution policy in the Russian fuel and energy complex for 2014–2018, the domestic share in the procurement of the largest state companies in the fuel and energy complex increased from 50–60% to 85–95%. In 2018 in particular, 19 major companies in the fuel and energy complex implemented over 100 import substitution projects.

The fixed national policy on import substitution is beneficial, first and foremost, to these domestic companies, which were successful in launching their own production of engineering and technological equipment. This includes Evropeyskaya Elektrotekhnica.

High depreciation of fixed assets of Russia: data from 2018 have not yet shown improvements

The depreciation of fixed assets of the Russian Federation at the end of 2018 was estimated at 47.4% according to data from Rosstat, which indicates the lack of progress for this indicator over the past year. This value is still close to the lowest recorded value of 49.7%, seen in 2014. Further modernization of funds in the Russian manufacturing industry and infrastructure is still highly relevant.

Own production: engineering equipment

In the first quarter of 2019, the Group continued to supply engineering equipment produced by the Company. Examples of implemented projects:

1. Electric switchboard equipment

• Delivery of an energy-saving engine control system based on ABB components including a reactive power compensation device for city boiler stations in Yerevan, Armenia

• Delivery of 50 power switchboards based on Schneider Electric components for the Data Center of the Bank of Russia in the Siberian Federal District

• Commencement of delivery of parts for assembling switchboard equipment (based on Schneider Electric components) for various facilities including for Belorussian NPP

• Commencement of delivery of Schneider Electric parts for assembling switchboard equipment to facility "New airport terminal for domestic/international airlines at Chelyabinsk International Airport (Balandino). First stage, terminal for domestic airlines"

2. Complete transformer substations for voltage up to 35 kV

• Delivery of motor control centers based on Schneider Electric and Rittal components for Nestlé Group enterprises

3. Industrial electric heating systems

• Project implemented to install electric heating systems at industrial sites of the Cherepovets metallurgical plant (PJSC Severstal)

• Project implemented to arrange for an electric heating system at industrial facilities of Interfill company (Fareva Group, France)

4. Lighting equipment

• Delivery of lighting equipment ES-SYSTEM, IGUZZINI, BEGA, VIBIA for public areas and landscape lighting at NEVATOWERS multifunctional complex in Moscow City for JSC Renaissance Construction

• The results of the tender for delivery of lighting equipment for the Federal Trade Network Karusel (X5 Retail Group) were prolonged for 1 year; delivery of lighting equipment commenced for two Karusel hypermarkets in Vidnoye, Moscow Region and near Otradnoye metro station in Moscow; the Karusel Otradnoye hypermarket is a flagship store where the new lighting system Domino will be used, produced by the company Lighting Technologies

• Delivery of Komled lighting fixture to Kazan Dairy Plant (through the contractor)

• Delivery of Kabeltec cable and Komled lighting fixtures to Danaflex industrial site recovery facility (through the contractor)

Own production: Equipment for the Oil&Gas industry

Examples of implemented projects:

• fabrication and delivery of preliminary gas extraction units for Sladkovsko-Zarechnoye LLC (SAFMAR FG);

• fabrication and delivery of internal devices of oil and gas separator for Gazpromneft-Hantos LLC;

• fabrication and delivery of flares for Small Oil Company of Tatarstan (Malaya Neftyanaya Kompaniya Tatarstana) LLC;

• fabrication and delivery of equipment for flare systems for Irkutsk Oil Company LLC.

Equipment is being produced for delivery to new customers:

• RN-Snabzheniye Nefteyugansk LLC;

• SIBUR-Kstovo LLC.

New products of the Company:

[R&D] A technological breakthrough was made in Oil&Gas equipment, as the Company brings a range of its own innovative developments to the market:

• octane number increase unit;

• residue desulfurization unit;

• facility for deep refining of fuel oil;

• the block of fuel oil preparation for power and hot-water boilers, furnaces for industrial purposes;

• petroleum treatment unit.

Technical audits were successfully completed according to the requirements of the following customers:  PJSC Gazprom Neft, SIBUR.

The Company launched a new website, http://www.rogeng.ru, which provides accurate, complete and specific information about the opportunities and advantages of the technological equipment produced by ROG-Engineering LLC for the Oil&Gas and petrochemical industries.

Participation in field-specific exhibitions and conferences:

• the Company presented a wide range of its own developments at Yamal Oil and Gas Forum 2019 (Novy Urengoy, Yamalo-Nenets Autonomous Okrug);

• the Company presented its innovative solutions: technological equipment of its own development (flare systems, gas discharge systems) at the SIBUR all-Russian meeting on import substitution (Tyumen);

• the Company took part in the 27th international exhibition "Gas. Oil. Technologies" (Ufa), and also participated in a conference as part of the Russian Petroleum and Gas Chemical Forum on the topic: "Development concept for high-viscosity and heavy oil preparation technology";

• the Company took part in the 2nd international congress and exhibition "Syngas. Nitrogen. Russia and CIS" (Moscow).

The Company started working on launching its own production of technological equipment in the Russian Industrial Zone in Egypt, which will allow to make use of the logistic and economic advantages of the site in the Suez Canal Economic Zone.

Activities of engineering centers

The Company has continued its systematic work with customers throughout Russia, based on the federal network of 16 engineering centers. Cooperation with Clients from neighboring countries is also developing, including Armenia, Uzbekistan and Azerbaijan.

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 350 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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