Financial results

COMPANY'S FINANCIAL RESULTS

RAO "UES of Russia" received RUB29,131 million in revenues in 2007, down RUB11,166 million, or 27.7 percent, compared to 2006. This was primarily due to the reduction in the scope of services relating to the operation and development of the UES of Russia in 2007 after the subscription fee rate for the services provided by RAO "UES of Russia" was cut from RUB48.72 per MWh in 2006 to RUB27.93 per MWh effective 1 January 2007.

FINANCIAL HIGHLIGHTS OF RAO "UES OF RUSSIA", millions OF RUB

The revenue from services to organize the operation and development of the UES of Russia accounted for 69.2 percent of the Company's total sales revenue, down 7.3 percent compared to 2006. The share of income from participation in other businesses increased by 7.2 percentage points to 30.1 percent, while the revenue from other activities changed insignificantly to 0.7 percent.

REVENUES FROM SALES, %

SALES REVENUE OF RAO "UES OF RUSSIA", millions of RUB

The Company's total profit from sales in 2007 amounted to RUB17,334 million (2006: RUB33,507 million). The profit from sales of services in 2007 totalled RUB11,929 million, which represents an increase of RUB13,728 million, or 53.5 percent over 2006. The profit from the participation in other companies amounted to RUB5,419 million (2006: RUB7,799 million). The sales of other industrial and non-industrial goods, works, and services resulted in a loss of RUB14 million (in 2006 the profit totalled RUB52 million).

The return on sales in 2007 stood at 59.5 kopecks per RUB1 of sales revenue, a decrease of 23.6 kopecks (or 28.4 percent) over 2006.

In 2007, the income from excess cash management grew by RUB1,634 million, or 151.2 percent over the year before, compared to 2006.

The debt service expenses in 2007 decreased by RUB187 million, or 67.8 percent, compared to 2006.

The book value of financial investments in subsidiaries and dependent companies and other income received by the Company in respect of 2007—RUB424,045 million—takes into account the adjustments made by RAO "UES of Russia" to the value of shares in the subsidiaries traded on the RTS and MICEX stock exchanges during the reporting period. These financial investments were recorded at their current market value as at the end of the reporting year. The Company's net income, taking into account the revaluation of shareholdings, amounted to RUB452,827 million in 2007. The actual net income earned by RAO "UES of Russia" in 2007, without taking into account the revaluation of shares (the so-called "paper profit"), amounted to RUB28,782 million, up RUB1,351 million, or 4.9 percent, compared to the same figure for 2006. The net profit margin in 2007 grew by 30.7 percentage points from the year before to 98.8 percent.

The Company's return on total assets (ROTA) in 2007 amounted to 40.7 percent, and the return on equity (ROE) was 36.6 percent.

COMPANY'S FINANCIAL PROFILE

Current financial position of RAO "UES of Russia" is characterized by the following changes in the key financial indicators.

Assets of the Company

As of 31 December 2007, the book value of total assets owned by RAO "UES of Russia" stood at RUB1,478,120 million, increasing over the reporting period by RUB393,471 million, or 36.3 percent, including as a result of revaluation of stakes in the subsidiaries traded on the RTS and MICEX stock exchanges taking into account their current market prices.

Factors influencing the financial data for the beginning of 2007 can be found in the notes to the RAO "UES of Russia" Financial Statement for 2007. The notes make part of the package of documents that shareholders may familiarize with in accordance with established order, and are included in the Company's quarterly reports posted on RAO "UES of Russia" website.

By the year end, the Company's net assets grew RUB 329,923 million, or 30.7 percent, to RUB1,403,419 million.

The Company's investments in its subsidiaries and dependent companies accounted for the bulk of the Company's total assets, standing at 81.6 percent (2006: 93.8 percent); fixed assets and construction in progress made 0.2 percent (2006: 0.6 percent), and the share of current assets grew by 8.8 percent to 13.7 percent.

STRUCTURE OF ASSETS,%

The following changes took place in the structure of non-current assets:

• the share of investments in subsidiaries and dependent companies went down 4 percentage points to 94.6 percent of the total assets;

• the share of fixed assets and construction in progress declined to 0.2 percent of the total assets after they were transferred to subsidiaries as capital contributions;

• other long-term investments and stakes in other entities increased from 0.8 percent to 5.1 percent.

The value of fixed assets and construction in progress was down RUB3,065 million, or 48.5 percent, to RUB3,249 million at end-2007.

As of end-2007, the value of long-term financial investments grew by RUB247,225 million, or 24.1 percent, to RUB1,271,851 million. Of that amount, the value of investments in subsidiaries and dependent companies climbed by RUB189,424 million, or 18.6 percent (the revaluation of shares to reflect the current market prices of the subsidiaries traded on the RTS and MICEX accounted for RUB424,045 million of the increase).

The changes in the structure of current assets in 2007 might be summed up as follows:

• Cash and short-term financial investments as a percentage of the working capital decreased by 2.2 percentage points to 28.5 percent. The Company's quick assets (cash and short-term investments) over the reporting period increased by RUB41,567 million (or 3.5-fold) to RUB57,926 million from RUB16,359 million, mostly due to increased investments in securities (promissory notes) – up RUB13,190 million – and bank deposits (up RUB29,559 million). The short-term loans granted to energy companies fell by RUB346 million;

• Accounts receivable as a percentage of the working capital were up 3.7 percentage points. The Company's total accounts receivable grew more than fourfold (by RUB108,002 million), with the long-term accounts receivable falling by RUB9,441 million due to the termination of co-investment agreements, and the short-term receivables rose up to RUB117,443 million in connection with the payments owed for the shares sold and bought by RAO "UES of Russia";

• The share of inventories declined insignificantly by 0.5 percentage points to 0.5 percent;

• The share of VAT payable in respect of items purchased and other current assets decreased from 1.2 percent to 0.2 percent.

STRUCTURE CURRENT ASSETS, %

Liabilities of the Company

In 2007, equity as a percentage of the Company's total liabilities and equity declined by 4 percentage points. The percentage of bank loans and borrowings increased accordingly.

STRUCTURE OF LIABILITIES, %

Short-term liabilities accounted for a bulk of borrowed funds, 98.5 percent, whereas long-term payables (including deferred tax liabilities) made 1 percent and the long-term debt and loans represented 0.5 percent of the total.

STRUCTURE OF BORROWINGS, %

DEBT CAPITAL STRUCTURE

The increase in the aggregate debt in absolute terms was due to increased short-term accounts payable, current payables of taxes and other mandatory payments which became payable after the sale of subsidiaries shares owned by RAO "UES of Russia" in the course of the sector restructuring, and the receipt of a short-term credit facility from OAO "Bank VTB".

Compared to 2006, the Company's short-term accounts payable grew by RUB46,490 million, with the current payables in respect of taxes and levies growing by RUB39,254 million.

As of 31 December 2007, RAO "UES of Russia" had quick assets (cash and cash equivalents) exceeding 2.6-fold the total amount of its borrowings and loans.

This means that there is no risk of default by RAO "UES of Russia" on its loans and debt.

Analysis of the Company's assets and liabilities suggests that RAO "UES of Russia" has a satisfactory balance sheet structure and a steady financial position.

FINANCIAL RATIOS OF THE COMPANY

All principal indicators characterizing the stability of the Company's financial and economic performance are within the recommended range.

Holding Company's Financial Results

The Holding Company's financial results for 2007 in accordance with the Russian Accounting Standards were obtained by consolidating the financial statements of RAO "UES of Russia" and those of its subsidiaries using the consolidation principles and excluding intragroup turnover.

The revenues received by RAO UES entities from the sale of goods, products, works and services in 2007 amounted to RUB939,671 million, up 10.9 percent over 2006. In 2007, RAO UES companies received an effective net profit of RUB82,171 million, a 1.5-fold increase to the year before.