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. Last Updated: 07/27/2016

UES Generated $16.6Bln in 2002

Unified Energy Systems surprised the market Monday with a higher-than-expected 2002 net profit, but analysts were quick to play down the number due to a change in the corporate profit tax rate.

Contrary to brokerage forecasts, which ranged from $70 million to $668 million, UES reported a net profit under international accounting standards of 35 billion rubles ($1.15 billion).

Higher prices and unusually cold weather pushed the utility's revenues up nearly 10 percent on the year to 503.4 billion rubles ($16.6 billion), making it Russia's No. 2 company behind Gazprom in terms of yearly revenue.

The company also increased its operating profit to 18.3 billion rubles from 12.5 billion rubles in 2001.

UES posted a net profit of 48 billion rubles in 2001, but that included a massive one-time gain for brokering a sovereign debt payment to the Czech Republic. The company's 2002 profit rose 20 percent if that Czech debt deal is not taken into account.

Analysts said the 2002 gain was due to the reduction in the profit tax rate from 35 percent to 24 percent.

Such extraordinary items aside, real net profit should be between $200 million and $300 million, said Andrei Zubkov, utilities analyst at Trust investment bank. Zubkov said that profit remains low due to the company's cost structure, with fuel, salaries, amortization and outside power purchases equaling up to 80 percent of revenues.

However, earnings before interest, taxes, depreciation and amortization rose to $2.4 billion, beating forecasts by around 10 percent.

"It gives a better cost picture," said Hartmut Jacob, utilities analyst with Renaissance Capital.

Revenue also beat expectations by some 10 percent, Zubkov said.

Revenue from electricity was 377 billion rubles, while revenue from heating was 88 billion rubles, the company said.

Zubkov said the average price of electricity rose 27.5 percent, while fuel costs rose 23 percent.

Zubkov noted, however, that while tariffs grew, electricity production was virtually unchanged. UES first deputy chairman Leonid Melamed said demand for electricity only grew 1.1 percent last year.

The company continued to improve its collection rate and lower its debt, with accounts receivable dropping 11 percent to 93 billion rubles while accounts payable dropped 18 percent to 84 billion rubles.

Analysts said the improved financials will have little effect on the company's share price, as the amount of stock available is shrinking due to buying from cash-rich strategic investors looking to snap up UES assets in upcoming auctions, the only legal tender for which is UES shares.

UES fell 2.2 percent Thursday to close at 28.7 cents, which is still some four times higher than its low of the year.