About the Report
This is the first public annual report of Russian Utilities Systems Limited Liability Company (hereinafter also referred to as ’Russian Utilities Systems’, the ’Group’ or the ’Company’).
This document represents financial and non-financial results gained by the Group in 2017 and outlines the Company’s strategic development areas as well as long-, mid- and short-term work plans.
Our report includes the assessments and forecast of the Company’s authorized management bodies regarding future events and/or actions, prospects for the development of the industry within which the Company carries out its core activity and the Company’s performance, including the probability of certain events and actions. The users of the report should not rely fully on the assessments and forecast of the Company’s management bodies because the factual results of its operations may differ from the forecast for many reasons.
The reporting boundaries: Russian Utilities Systems, including the companies within the Group’s control loop*.
Our report has been prepared in accordance with the requirements of Federal Law 14-FZ of 08.02.1998 On Limited Liability Companies, Regulation No. 454-P of 30.12.2014 On Information Disclosure by Issuers of Securities approved by the Bank of Russia and the Global Reporting Initiative Standards of Sustainability Reporting (GRI Standards 2016) — Core Option. In preparing this report, we also took into account the guidelines of the Corporate Governance Code approved by the Board of Directors of the Bank of Russia on March 21, 2014 and used the elements of the International Integrated Reporting Framework.
* The reporting boundaries is shown in Section 1.2 (Organization Chart).
The key topics of this report are as follows:
- Company’s investment program focusing on the creation of a reliable and solid system of housing and utilities in the regions of the Russian Federation, modernization and capital construction of various facilities of the housing and utilities complex;
- Company’s operating activity is aimed at ensuring the high-quality of its services.
To determine the content of its report, the Group identified material topics using the procedure recommended in the Global Reporting Initiative Standards of Sustainability Reporting. Following the report content determination procedures, the map of material topics to be disclosed in the report was drawn up. We carried out a questionnaire survey of stakeholders’ representatives to determine how an particular topic impacts the stakeholders’ assessments and decisions. The significance of the Group’s economic, environmental and social impact was identified based on the questionnaire survey of its executives and on the analysis of its development strategy.
The information about the stakeholder involvement in preparing this report is disclosed in Section 3.7 (Stakeholder Involvement)
This report was reviewed by the Company’s Board of Directors on April 12, 2018 (Minutes No. 13/12 dated April 12, 2018) and approved by the General Meeting of the Company’s Shareholders on April 28, 2018.
Key Events in 2017
- To improve the capabilities of its repair teams and the efficiency of emergency response, Tambov Utilities JSC purchased new machinery and equipment amounting to over 3 million rubles.
- February 24, PKS — Heat Network JSC celebrated its 55th anniversary. This is one of model organizations in Karelia. It maintains 18 steam plants and 277 km of two-pipe heat supply networks.
- Bereznikovskaya Water Supply Company LLC (a subsidiary company of Russian Utilities Systems) acquired the concession rights to the water and sewer enterprise in Berezniki by entering into the concession agreement with respect to the town’s entire water supply and sewerage complex, the second-largest in Perm Krai. 969.199 million rubles will be invested in the modernization of the water supply and sewerage system in Berezniki in the period from 2017 to 2036.
- Tambov Utilities JSC installed new Russianmanufactured pumps on artesian water wells that are expected to ensure up to 3.4 million kW electricity saving in aggregate (12.8 million rubles in monetary terms).
- Kirov Utilities JSC launched the construction of a water supply ring network to deliver water to consumers in Urvantsevo residential microdistrict in the south-west of the city of Kirov.
- The water quality testing center of Amur Utilities JSC was the first among nonpublic organizations in Blagoveshchensk to get the accreditation.
- NOVOGOR-Prikamye LLC commenced the overhaul of the water and sewerage networks in Perm.
- Kirov Utilities JSC launched the new system of water supply and distribution into the water mains of Kirov, which will allow a significant reduction in the power consumption and saving of over 12 million rubles per year, which, among other things, will help to prevent the rise in water utility tariffs.
- Grigory Teryan, General Director of Russian Utilities Systems, became the member of the Advisory Board of the Housing Policy and Housing & Utilities Committee of the Russian State Duma.
- The Utilities Calendar and the newspaper of Russian Utilities Systems won the contest held by the Association of Communications and Corporate Media Directors in the 2017 Best Corporate Media nomination.
- The Calendar of Russian Utilities Systems was awarded with the top honor in the B2C & B2B — Client Media / utilities Calendar nomination; the newspaper Utilities Standard won in a special nomination called ’For Efficient Tool of Corporate Culture Development and Corporate Citizen Principle Promotion’.
- As part of its program for municipal water supply and sewerage system automation, Volzhskie Utilities LLC deployed data collection and management systems at four water intake facilities to enable their remote control.
- The DOKA VI Interregional Occupational Excellence Contest took place. The Group has been holding this contest since 2012 for major specialties in the housing and utilities sector to support the development of occupational skills, encourage best tradesmen and enhance the prestige of the utility enterprises.
- NOVOGOR-Prikamye LLC installed new equipment at its biological treatment plants to reduce their operation costs and increase the efficiency of the treatment plants in Perm. Jule 24, 2017
- The combined team of Russian Utilities Systems JSC participated in Master 2017, the 8th open occupational excellence competition of workers of the water supply and sewerage industry. A worker from Samara Utilities LLC won the third prize in the nomination called ’2017 Best Young Emergency Technicians at Sewage Networks’.
- Ulyanovsk Regional Water and Sewer Enterprise LLC started its preparation for the replacement of some sections of the water supply mains. Three of the most worn-out sections (239 meter long in aggregate) will be modernized in July—August 2017.
- PKS — Water and Sewer Enterprise JSC and PKS — Heat Network JSC entered the TOP 50 list of largest taxpayers to the budget of the Republic of Karelia. The list was published by the Ministry of Finance of the Republic of Karelia.
- Kirov Utilities JSC completed the installation of the environmental monitoring complex at the sewage treatment plant in Kirov, which will improve the reliability of the city’s sewage treatment plants and contribute to the environmental stability of the Volga River.
- Kirov Utilities JSC transferred 600 corporate subscribers to e-services.
- At the International Baikal Ecological Water Forum, Russian Utilities Systems entered into the agreement on strategic partnership with VOMM, an Italian company, and the agreement strategic partnership for preparing and implementing investment projects in Irkutsk Region.
- Russian Utilities Systems entered the TOP 600 list of Russia’s largest companies according to Expert — RAEX-600, ranked 362nd, with the revenue of over 30 billion rubles in 2016.
- The launch ceremony of modernized sewage treatment plants took place in Petrozavodsk. These facilities helped to increase the quality of sewage treatment significantly and reduce the amount of aluminum, nitrogen and phosphorus discharged into Lake Onega.
- Russian Utilities Systems won the prize of Expert RA in the Social Partnership nomination at the 13th Annual Forum of Large Enterprises called ’Who Creates the Russian Economy’.
- Kirov Utilities JSC celebrated the 80th anniversary since the commissioning of the treatment plants and the launch of first sewerage system line in Kirov. Since the commencement of its operations in 2003, the Company has already invested 543 million rubles in the construction of urban water supply facilities.
- The Trade Union Federation of Kirov Region awarded Kirov Utilities JSC as the Best Community-Focused Employer in the housing and utilities industry.
- PKS — Water and Sewer Enterprise JSC entered the TOP-7 short list of environmental projects in the Eco Technology nomination of ERAECO, an annual national prize.
- The Department of Natural Resources, Forestry and Environment of Perm Krai awarded NOVOGORPrikamye LLC for its successful environmental activities carried out in Perm Krai during the Year of Ecology.
- The excavator operator from Kirov Utilities JSC was awarded with the diploma and the badge of honor at the regional 2017 Best in Occupation competition.
Important events in post-reporting period
- The Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing conducted an examination as part of the federal sanitation and epidemic control of the potable water quality in the constituents of the Russian Federation and granted the "green" water quality status to four regions where Russian Utilities Systems carries out its operations, namely: Amur Region, Kirov Region, Ulyanovsk Region and Perm Krai.
- Russian Utilities Systems won the national ROSINFRA award in the infrastructure field for the best public-private partnership project in the housing and utilities sector, i.e. the project for modernization of water and sewerage system facilities in Berezniki (Perm Krai) with the project value being 970 million rubles.
- The Analytical Credit Rating Agency assigned the A- (Ru) credit rating to Russian Utilities Systems with the stable outlook due to very low industrial risks and strong market positions of the Group.
- Russian Utilities Systems acquired the water and sewer system in Penza by closing the transaction of acquisition of Investresurs LLC and Water and Sewer Enterprise LLC that own a 51% interest in Urban Water and Sewer Enterprise LLC.
- The Group’s Utilities Calendar became the winner in the Corporate Calendar nomination at the 15th Annual National Corporate Media Competition held by the Association of Communications and Corporate Media Directors.
Key indicators in 2017
|Revenue, million RUB*||30,657||32,693||+7%|
|Net profit, million RUB*||637||1,907||+199%|
|EBITDA, million RUB**||2,379||3,799||+60%|
|EBITDA margin, %*||8%||12%||+50%|
|Production of water, thousand cubic meter||459,968||448,645||Optimization by 11,323 thousand cubic meters***|
|Daily average production of potable water, thousand cubic meters***||1,260||1,229||Optimization by 31 thousand cubic meters per day|
|Number of subscribers – individuals, personal account||696,000||917,500||+31%|
|Number of subscribers – legal entities, unit||30,014||36,129||+20%|
|Regions of operation, unit||7||8||+15%|
|Worker productivity, thousand RUB / person||3,390.59||3,113.87||8% optimization****|
** Water supply to the network.
*** The reduced water production (supply to the network) was caused by the reduction in losses (by 777 thousand cubic meters), productive supply (by 1.405 thousand cubic meters) and expenses related to the operating needs (by 9.142 thousand cubic meters).
**** The robotic process automation made it possible to reduce the work burden on employees.
Address of the Chairman of the Board of Directors of Russian Utilities Systems
We would like to bring our first annual public report to your attention. It is intended to provide all our stakeholders – partners, members, clients and employees – with the information about our performance in 2017, strategic development areas of Russian Utilities Systems and its short- / long-term business operations plans.
When preparing this document, we tried to consider the interests of various groups of the stakeholders and disclose, to the fullest extent possible, the information about our financial and non-financial performance, including environmental and social issues and corporate governance aspects.
The corporate governance became particularly topical for us in 2017 as the Board of Directors of Russian Utilities Systems was created that year. That was a successive step in the development of the Company's corporate governance system intended to ensure our publicity and transparency, efficient interactions with our key stakeholders, the rights of the members, efficiency and end-to-end management of all organizations within the control loop of Russian Utilities Systems. As of the end of 2017, 1 we had 18 such organizations. But the Group's reach is constantly expanding; our strategic goal is to consolidate our leadership in the industry and to expand to new regions while remaining unfailing compliant with corporate standards and ensuring high quality of our services. That is why we need a solid and effective system of corporate governance.
In 2017, we also established the Board Audit Committee, a collective advisory body assisting the Board of Directors in controlling the Group's financial and business operations.
The Board of Directors of Russian Utilities Systems understands and accepts its responsibility for improving the corporate governance system. Further down the road, we are going to make efforts to introduce the best corporate governance practices and procedures and to constantly develop our competence and collective knowledge.
Best regards,Igor Dibtsev, Chairman of the Board of Directors of Russian Utilities Systems
Address of the General Director
of Russian Utilities Systems
In 2017, Russian Utilities Systems continued its efforts to strengthen the Group's leadership in the Russian water supply and sewerage sector by increasing its territorial presence and implementing a large-scale program for investing in modernization of utilities facilities.
For example, in 2017 the municipal government of Berezniki, the second largest town in Perm Krai, and Russian Utilities Systems signed the concession agreement for the period until 2036. Pursuant to that document, about 1 million rubles will be invested in the development and modernization of the water supply and sewerage systems in Berezniki. According to the concession agreement in Perm Krai, the new pumping station was built to supply water to the residents of Lyubimov Microdistrict. That is the district where the local authorities move the residents whose houses are within the area of the cavity in the surface over the mines. The success and significance of that project was confirmed in February 2018: it won the national ROSINFRA award in the infrastructure nomination at the Russian Investment Forum as the best public-private partnership project in the housing and utilities sector. This award again confirmed the Company's status as the largest private investor operating successfully in the housing and utilities sector.
The year of 2017 became a jubilee year for many subsidiaries of the Russian Utilities Group of Companies: Petrozavodsk Heat Network celebrated its 55th anniversary, NOVOGOR-Prikamye LLC celebrated the 100th anniversary of the Perm sewerage system, and Kirov Utilities JSC celebrated the 80th anniversary since the commissioning of its treatment plants and first sewerage system line in Kirov.
In general, 2017 became a landmark for Russian Utilities Systems in implementing the largest investment project in Karelia, i.e. the construction and reconstruction of sewage treatment plants in Petrozavodsk. The project amounting to 670 million rubles was implemented in cooperation with the Government of the Republic of Karelia. December 11, 2017, the municipal government of Petrozavodsk authorized PKS — Water and Sewer Enterprise JSC to commission the reconstructed sewage treatment plants. This project implementation ensured that the amount of nitrogen and phosphorus discharged into and affecting Lake Onega is compliant with the international standards provided for by the Baltic Marine Environment Protection Commission (also known as the Helsinki Commission). The project for sewage treatment plants reconstruction in Petrozavodsk became the example of efficient publicprivate partnership and international environmental cooperation.
Samara is the only city within the Company’s control loop, in which 2018 FIFA World Cup matches take place. In 2017, Samara Utilities LLC completed the key sections of the investment program related to the preparation for the 2018 FIFA World Cup. Despite the numerous difficulties, including weather conditions, the company managed to build two water pipe-lines with the diameter of 1,000 and 1,200 meters, 4.7 km long in aggregate. Not only they ensure the reserve water supply to the Samara Arena Stadium where six 2018 FIFA World Cup matches take place in summer of 2018, but also create the foundation for long-range residential building in that district. The project value was 300 million rubles.
In 2017, the business community again recognized the important contribution of Russian Utilities Systems to the development of the social sphere. On the 27 of September, RAEX awarded Russian Utilities Systems with a prize in the Social Partnership nomination at the 13th Annual Forum of Large Enterprises called 'Who Creates the Russian Economy' (Moscow). According to the organizers, that prize was awarded to the largest private federal company that operates in such socially significant sphere as the housing and utilities system and is actively involved in its reformation. In addition, Russian Utilities Systems entered the TOP 600 list of Russia's largest companies according to Expert Rating Agency. The Company confirmed its reputation as the largest private water and sewerage system operator in Russia, being ranked 362nd with the revenue of 30 billion rubles in 2016.
In 2018, Russian Utilities Systems is going to continue the implementation of its long-term strategy setting the following objectives: to improve the reliability and uninterrupted operations of water supply and sewerage systems in the markets of operation; to improve the operational efficiency and the energy performance in production; to apply innovative technological solutions and to carry out the activities included in its long-term and large-scale investment program by modernizing and reconstructing the production facilities.
Best regards,Grigory Teryan, General Director of Russian Utilities Systems