OREANDA-NEWS. June 02, 2009. DTEK, the fuel and energy industry leader in the Ukraine today announces its consolidated audited financial results for the full year ended December 31, 2008.

Key financial highlights:

o   Consolidated revenue increased 44.6% to 12,969m. UAH (2007: 8,969m UAH)
o   Gross profit increased 50.8% to 3,048m UAH (2007: 2,021m UAH)

 - Gross Profit margin increased to 23.5% (2007: 22.5%)
 - Net profit decreased from 1,193m UAH to 119m UAH principally due to the company’s foreign-currency debt revaluation. This resulted in non-cash foreign exchange losses of 1,307m UAH
 - Adjusted[1] net profit from continuing operations increased 66.4% to 1,985m UAH (2007: 1,193m UAH)
 - Adjusted net profit margins from continuing operations increased to 15.3% (2007: 13.3%)

Operational highlights:

DTEK’s share of Ukraine total coal production increased to 22.6%.
Coal production volumes increased by 11.4% to 17.6m tonnes.
Thermal coal production volumes increased by 10% to 14.5m tonnes.
Continued progress was made in the implementation of large-scale projects such as methane drainage and utilisation at the Komsomolets Donbassa mine as well as the installation of new equipment at Pavlogradugol.
DTEK maintained its leadership position in the Ukrainian thermal generation sector with 47.5% of market share, including results of an affiliate company Dneproenergo[2].
The 7 year modernization program of the generating units was launched with current investment of 305m UAH (approximately US\\$40m). This will update the power generating units at the Kurakhovskaya and Zuevskaya plants.
DTEK’s Ukrainian wholesale electricity market share increased from 5.4% to 6.5% in 2008.
Record-low network losses of 1.6%

Post period end:


Fitch Ratings upgraded the company’s national long-term rating from ‘АА-’ to ‘АА+’ with a ‘Stable’ outlook
 
Commenting on the results Maxim Timchenko, Chief Executive Officer of DTEK, said:
 
“I am pleased to report DTEK’s solid 2008 financial results. Despite a challenging economic environment we have achieved everything we had planned at the beginning of the year. We have demonstrated strong growth in all three business lines and progressed further in our goal of strengthening our position as one of leading energy companies in Europe.
 
“All three of our business segments demonstrated a strong performance in 2008. We have increased our coal production volumes by 11.4% and DTEK’s share of Ukraine total coal production has increased to 22.6%. We have retained our leadership position with 47.5% market share of Ukrainian thermal generation market,  including results of our  affiliate company Dneproenergo,  and we have increased our wholesale electricity market share from 5.4% to 6.5%.
 
In 2008 we have achieved growth in almost all of our key performance indicators:  consolidated revenue increased 44.6% to 12,969m UAH; adjusted net profit from continuing operations increased 66.4% to 1,985m UAH; our annual average total assets increased 42% to 15,736m UAH; and our return on assets increased to 12.6%.
 
We expect 2009 to be a challenging year for DTEK.  slowdown of Ukraine’s economy will dampen domestic electricity demand and coal demand will also decrease. However we will continue to extend the geographical reach of our coal and electricity sales whilst keeping strong control over our costs. We expect 2009 production costs to remain stable in comparison to 2008.
 
We are confident that DTEK’s vertically integrated business model, the unique geographical location of its main production units, and the skills and experience of our professional management team will help us to overcome market turbulence and provide value for our shareholders in 2009 and beyond.”
 

For IFRS financial statements and independent auditors report, please visit http://dtek.com/en/investor_relations/reports/ 
 
Reference
 
DTEK is the first private vertically-integrated power company in Ukraine. It belongs to the financial and industrial group System Capital Management (SCM). The enterprises of DTEK build up an efficient operational chain of coal production and enrichment, electricity generation and distribution.
 
The coal business of DTEK includes Pavlogradugol (consisting of ten coal mines), Komsomolets Donbassa Mine and five enrichment plants. According to 2008 performance results, the Company’s share in the Ukrainian coal mining industry was 22.6%.
 
The generation business of DTEK is represented by Vostokenergo and the associated Dneproenergo Company, in which DTEK owns 47.46%. According to 2008 performance results, the share of Vostokenergo and Dneproenergo in thermal generation of Ukraine was 25.4% and 22.4% respectively.
 
Service-Invest and PES-Energougol represent the electricity distribution business of DTEK. Their share of electricity purchase from Energy Market SC in 2008 made 6.5%.
 
Financial Overview
 
DTEK demonstrated strong performance in 2008. Consolidated revenues increased by 44.6% from 8,969m UAH to 12,969m UAH. Gross profit increased by 50.8% from 2,021m UAH to 3,048m UAH while gross profit margin increased from 22.5% to 23.5%. EBITDA increased by 43.3% to 3,453m UAH (2007: 2,410m UAH) while EBITDA margin decreased slightly from 26.9% in 2007 to 26.6% in 2008. EBIT increased by 23.2% to 2,019m UAH (2007: 1,639m UAH) while EBIT margin decreased from 18.3% to 15.6%.  Adjusted[1]  net profit from continuing operations increased by 66.4% to 1,985m UAH (2007: 1,193m UAH).

Revenue composition by segment
 
Our operations are structured in three segments: coal production and enrichment, electricity generation and electricity distribution.
 
Revenue from the coal production and enrichment division is generated from sales of thermal coal to power generation companies and sales of coking coal to metal companies. In 2008 it accounted for 26.3% (2007: 17.9%) of DTEK’s total revenue. During the year, sales of coal increased by 112% to 3,407m UAH (2007: 1,607m UAH) as a result of strong market prices during the first half of 2008, an increase in production, and a decrease in inter-company sales.
 
Revenue in the electricity generation division is derived from sales of electricity to the electricity system operator SE Energorynok. In 2008, despite the decrease in electricity production by 7.3%, the division’s revenue increased by 26.2% from 4,489m UAH to 5,665m UAH and it accounted for 44% of total sales (2007: 50%). The revenue growth was driven primarily by a 34.1% increase in the electricity supply tariff. A further 93,4m UAH was received as an investment multiplier in the electricity supply tariff.
 
Cost of sales
 
In 2008 DTEK’s cost of sales increased by 42.8% to 9,921m UAH from 6,948m UAH while consolidated revenue increased by 44.6%. Consequently, 2008 gross profit increased by 50.8% to 3,048m UAH (2007: 2,021m UAH) and gross profit margins increased to 23.5% from 22.5%. The largest proportion of the Company’s costs of sales came from electricity purchased by DTEK from SE Energorynok for further resale to end customers (35%). The rest came from staff costs (27%), raw materials (18%) and depreciation (11%).
 
In 2008, the cost of electricity purchased by DTEK from SE Energorynok increased by 57.5% to 3,482m UAH from 2,211m UAH in 2007 due to the growth of volumes and increase in tariffs. Staff costs increased by 59.2% to 2,675m UAH (2007: 1,680m UAH) as a result of the increased salaries in the coal industry which came about as a result of volume growth and changed legislation.
 
Net Profit
 
In 2008, net profit decreased significantly from 1,193m UAH to 119m UAH primarily due to non-cash currency losses of 1,307m UAH, revaluation of production assets (354m UAH) and a one-off non-cash pension loss of 205m UAH which resulted from changes to Ukrainian legislation.
 
Cash flow
 
In 2008 cash flow from operating activities increased by 92% to 2,892m UAH from 1,509m UAH in 2007. Free Cash flow[4] increased by 115.4% to 1,159m UAH (2007: 538m UAH).
 
Net cash generated from financing activities decreased by 80% to 434m UAH (2007: 2,167m UAH). This decrease was driven by an issue of 1bn UAH share capital in 2007, as well as by an increase in debt services costs from 940m UAH in 2007 to 2,275m UAH. Proceeds from loans received increased from 2,129m UAH in 2007 to 2,713m UAH in 2008.
 
Current debt
 
In 2008 the Company’s total debt was 3,731m UAH including long term debts (26.6% of total debt) of 992m UAH and short term debts (73.4%) of 2,739m.  64% of total debt was denominated in USD and 27% was denominated in EUR.
 
Current trading
 
In the first quarter of 2009, DTEK’s share of Ukrainian coal production increased to 23.4%, its proportion of total electricity generation reached 15.5% (Vostokenergo accounted for 8.6% and Dneproenergo for 6.9 %) and its position in distribution further improved to 7.0 %. DTEK’s mines produced 4.25m tonnes of coal, a decline of just 3.8% compared with the first three months of 2008 whereas total coal output across the sector dropped by 10.8%.

This document may contain forward-looking statements related to the planned measures or future financial indicators of DTEK. Words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,” “should” and “will” or the negatives of these terms or variations of them and similar expressions are intended to identify such forward-looking statements. Accordingly, actual results may differ materially from those expressed or implied by the forward-looking statements.
 

We undertake no obligation and do not intend to update these forward-looking statements to reflect events or circumstances occurring after this press release. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. By their nature, forward-looking statements are subject to numerous assumptions, risks and uncertainties. Such risks include concerns over the general economic status, environment and risks associated with the doing business in Ukraine, significant technological and environmental changes in our sector, as well as many other risks specifically applicable to DTEK and its business.

[1] Adjustments done for Net foreign exchange loss on non-operational activities, revaluation of property, plant and equipment and past service cost arose as a result of changes in 2008 in the pension legislation, which increased the benefits payable
 
[2] DTEK owns 47,5% shares of Dneproenergo
 
[3] Adjustments done for Net foreign exchange loss on non-operational activities, revaluation of property, plant and equipment and past service cost arose as a result of changes in 2008 in the pension legislation, which increased the benefits payable
 
[4] Cash flow from operating activities minus  capex on property, plant and equipment