OREANDA-NEWS. September 23, 2010. DTEK, Ukraine’s leading fuel and energy Company, today announces its unaudited consolidated financial results for the six months to 30 June 2010.
 
Key financial highlights:

Revenue for the period increased more than 58% to UAH10.625 billion
EBITDA increased 80% to UAH2.643 billion
Net profit increased  417% to UAH1.288
Closed inaugural USD500 million Eurobond offering with fixed coupon of 9.50% per annum

Operational highlights:

Coal output during the period increased 13.4% to 9.7 million tonnes, reinforcing DTEK’s place as Ukraine’s largest coal producer, with 26.3% of Ukraine’s total output
Continued progress across DTEK’s major projects, including the introduction of new coal extraction machinery, which has directly benefited coal production
New equipment has enabled DTEK to increase volumes extracted from single longwall by 2.5-3 times over historic levels

Maintained leadership of the Ukrainian thermal power generation sector, with 48.9% market share[1]
DTEK’s modernization programme continued in the first half with a number of major  achievements at Kurakhovskaya and Zuevskaya TPPs:
-  Luganskaya TPP now has the highest Installed Capacity Utilization Rate for 200MW facilities in Ukraine and Zuevskaya TPP for 300MW facilities
- Modernization at Unit 1 at Zuevskaya TPP completed with capacity increased by 8% to 325MW;
-   Commenced the third stage of equipment reconstruction at several units (Unit 4 at Zuevskaya TPP; Unit 8 at Kurakhovskaya TPP; and Unit 13 at Luganskaya TPP)
-  Modernization successfully increased Dneproenergo’s ICUR by more than 3% to 19.5%
DTEK’s total volume  of electricity trade  was 6.6TWh, up 19.4% on the first six months of 2009
Progress continuing to be made on the development of plans for a wind power project in Ukraine. Following a strategic assessment of the wind energy market in Ukraine in 2009, DTEK plans to start construction of its first 200 MW wind farm in 2011.
DTEK significantly increased export volume of coal, 146% up to 634 000 tonnes
DTEK became largest exporter of electricity to EU
Post period end

Modernization at Unit 7 at Kurakhovskaya TPP completed with capacity increased by 15 MW from 210MW to 225MW
Commenting on the results, Maxim Timchenko, Chief Executive Officer of DTEK, said:
 
“The first half of 2010 provides further evidence of the positive impact that our strategic asset management program is having on the Company. A brighter market outlook through the first six months has combined with the increase in capacity brought about by our major projects to deliver substantially improved results against all of our key financial indicators.
 
Core to this is our in-depth knowledge of both our domestic and targeted international markets and our ability to position our output potential against prevailing levels of demand. However, we remain cautious on the outlook for global markets amid fluctuating consumer confidence but I am confident that we have the right capabilities, expertise and team composition to deliver sustainable long term value for our stakeholders.”
 
Financial Overview
 
DTEK maintained a strong focus on fiscal and operational discipline through the first half of 2010, with emphasis on ensuring that its facilities are best positioned to meet the needs of its customers.
 
Increasingly positive sentiment in the global markets provided a sound platform for DTEK to pursue a number of initiatives, including the successful launch of its inaugural Eurobond offering and the continuing progress of the Company’s major investment programme in its operational infrastructure.
 
The Company’s consolidated revenue for the first half increased by 58% to UAH10.625 billion compared with UAH6.706 billion for the equivalent period in 2009.  The cost of sales went up by 46% to UAH8.219 billion, resulting in a gross profit of UAH2.406 billion, more than double that of the first half of 2009 (UAH1.087 billion). Gross profit margin increased by 6.4% and made up 22.64% in the 1st half of 2010.
 
Strong revenue growth is attributable to increases both our electricity output and prices as well as coal  production and export operations
Cost of sales increase is driven by increase in volumes and prices for coal purchased from the third parties, increased cost of purchasing electricity by the distribution companies, and increase in personnel costs.
 
Operating profit for the period more than doubled to UAH1.849 billion from UAH725 million at 30 June 2009, a margin of 17.4%, and reflects the enhancements that DTEK continues to make to its operating efficiency.
 
Key drivers for that were coal trading, coal and electricity generation prices, and  is caused mainly by increase in the gross profit by UAH 1.319 billion, partially offset by increase in operating costs by UAH222 million due to increase in staff costs for administrative personnel.
 
Net profit for the half year rose significantly compared with the same period in 2009 from UAH248 million to UAH1.288 billion.

DTEK’s revenues are generated by the wholesale of electricity to the Ukrainian state-owned energy company Energorynok, sale of coal to consumers and electricity transmission and supply to end customers.
 
In 1H 2010, electricity wholesale revenue accounted for 38,5% (1H 2009 -  35,3%) of the consolidated revenue, coal accounted for 38,5% (1H2009 – 31,9%) and electricity sales to final customers accounted for 27.4 % (1H2009 – 32,1%). The share of other sales did not exceed 0.7%.
 
Company Debt
 
As at 30 June 2010, the Company’s total debt was UAH4.913 billion, including current debt of UAH 382 million (7.8% of total debt) and non-current debt of UAH 4.531 billion (92.2% of total).  85% of DTEK’s total debt was denominated in USD and 10% was denominated in EUR, the rest was in UAH.
 

Operational review
 
During the first half of 2010, DTEK continued to make solid progress across its major projects, further enhancing its operational infrastructure and continuing its investment into new initiatives that will protect and enhance its long term prospects.
 
Investment projects
 
Core to DTEK’s ongoing strategy are the ongoing investments being made at several of the Company’s key facilities. They include:
 
At Stepnaya mine (Pavlogradugol), DTEK continues to introduce plough units manufactured by Bucyrus DBT Europe GmbH. These units enable the mine to deliver a daily output of approximately 3,500 tonnes of coal from a single longwall, an increase of between two and three times over historic levels, which were produced through its use of shearers.
 
Several investment projects were implemented at the Company’s enrichment plants during the first half. They included upgrades to the water-sludge scheme at Oktyabrskaya CEP, installation of new centrifuges at Dobropolskaya CEP, and major refurbishment and reconstruction of buildings at Dobropolskaya CEP and Pavlogradskaya CEP.
 
The reconstruction of DTEK’s power units, completed in 2009/2010, has enabled the Company to increase its electricity output and has ensured high levels of capacity and the ongoing reliability of Vostokenergo’s operational infrastructure. Luganskaya TPP has the highest Installed Capacity Utilization Rate (ICUR) for 200MW units in Ukraine (87%) and Zuevskaya TPP for 300 MW units (65%). Vostokenergo’s ICUR remains the highest among Ukrainian TPPs at 50.5%.
 
The Company also continued the second stage of its power equipment upgrades during the period. Works at Unit 1 of Zuevskaya TPP have been completed, with its capacity increased from 300 MW to 325 MW, while at the same time its specific fuel consumption has been reduced by 3%. The upgrading of Unit 7 at Kurakhovskaya TPP and Unit 10 at Luganskaya TPP continues, with capacity increase of Unit 7 at Kurakhovskaya TPP of 15 MW.
 
DTEK has also commenced implementation of the third stage of the reconstruction of its power equipment, which will include Unit 4 at Zuevskaya TPP; Unit 8 at Kurakhovskaya TPP; and Unit 13 at Luganskaya TPP.                                         
 
The reconstruction works on Unit 9, Pridneprovskaya TPP and Unit 3, Krivorozhskaya TPP continued through the period. These are scheduled to be finished in December 2011. The reconstruction will extend the service life of the equipment by 15-20 years and improve firing and slag yield, meaning that residual dust content will not exceed 50 mg/m3 – in line with European Union standards. It also plans to raise the installed capacity of Unit 3, Krivorozhskaya TPP, from 282 MW to 300 MW
 
At the beginning of the year, Service-Invest began the implementation of several large-scale investment projects including; the reconstruction of the Donetskaya 110kV substation; Chulkovka, Ugledar and Druzhkovka 110 kV substations; 12km-long power lines 35 kV Amvrosievka 330 Metallist; and the replacement of line transformers at Styla 110 kV substation.
 
Energougol ENE is currently implementing the Tochmash PS – RP Stratonavts cable line capital construction project. These projects will enable DTEK to improve the reliability of power supplies to industrial consumers and adjacent licensees.
 
Working with local communities
 
DTEK continues to develop its network of social partnerships.   The towns of Rovenki and Sverdlovsk joined the DTEK Social Partners Declaration during the first half, which will see local municipalities working with DTEK, supported by USAID Local Investment and National Competitiveness, to complete a programme of upgrades within the town and its local economy. DTEK sponsored the Clean Town initiative having invested 1 million UAH to Rovenki.
 
In March, DTEK signed a Memorandum of Understanding with International Resources Group, an American group that operates the Local Heating Supply Reform in the town of Kurakhovo. This project aims to improve the local heating supply system and raise the levels of energy efficiency in the town. DTEK worked with the town to put into place a strategy to accomplish this. Following an energy audit of the town’s heating system and its buildings; an energy supply plan has been created and priority projects for investment have been defined. A similar memorandum of understanding is scheduled to be signed with Pavlograd in Dnepropetrovskaya oblast in the near future.
 
Industry reform
 
DTEK has for some time been an industry authority on important measures that it believes should be put in place to encourage greater levels of competition within Ukraine. Such measures would also to enable the Company to access a wider energy framework which would enable it to play a more meaningful role within the European market.
 
DTEK has taken particular note of the President’s call for electricity energy reform as part of his Programme for Economic Reform. July 2010 saw the beginning of a promotion period for auctioning electric power in the market of bilateral contracts. This is in line with the first stages of a changeover towards the new market model and signals a move away from the outdated pool-type market model.
 
The Ukrainian President’s Programme also covers the proposed improvement of electric power industry management efficiency through the phased privatization of certain energy supplies and thermal power generation companies. The programme suggests implementing a privatization preparation stage and by the end of 2010 will have identified the electric energy supply companies and thermal power generation companies ready for privatization. By 2014, the privatization of thermal power generation companies will be completed.
 
DTEK continues to interact closely with European Union and Brussels-based energy groups to identify opportunities for DTEK to engage with continental European stakeholders and facilitate greater partnerships between the EU and Ukraine.
 
Renewable energy
 
As previously announced, DTEK is committed to identifying suitable opportunities in the renewable energy sector, particularly where it could bring its expertise to bear in developing and delivering new facilities to bring renewable energy into the Ukrainian market.
 
The Company has spent considerable time and resources developing plans for wind-powered generation facilities and it is at the advanced stages of preparation, with sites identified and initial project evaluation completed.
 
Following a strategic assessment of the wind energy market in Ukraine in 2009, DTEK plans to start construction of its first 200 MW wind farm in 2011.
 
 
Mr. Yuriy Ryzhenkov, Chief Operating Officer, commented:
 
“What continues to be very encouraging is that all three of our business segments are consistently contributing to our performance – a sign that our strategy was proven by the market and we have placed DTEK appropriately in the market.”
 
Mr. Vsevolod Starukhin, Chief Financial Officer, concluded:
 
“We are very encouraged with strong financial results in the first half of the year, which reflect excellent operational performance and sound fiscal discipline. Significant improvement in the company debt profile - average maturity extension to over 4 years along with low leverage provides DTEK with necessary financial strength to meet future challenges with confidence.”
 
Full version of Financial Statements will be published within 24 hours on
http://dtek.com/en/investor_relations/reports/