OREANDA-NEWS. April 05, 2011.  DTEK Reports 2010 Audited Consolidated Financial Results[1]
Revenue for the period increased by 61.8% to USD 3,052m
EBITDA increased by 72.3% to USD 771m
EBITDA margin increased to 24.4%
Net profit increased by 233.8% to USD 359m
Net profit margin increased to 11.8%
Net operating cashflow increased 50.7% to USD 406m
 
 
DTEK, Ukraine’s leading fuel and energy company, today announces its audited consolidated annual financial results for 2010.
 
Commenting on the results, Maxim Timchenko, Chief Executive Officer of DTEK, said:
“The year 2010 confirmed that our strategy provides a solid basis for outstanding performance of DTEK. We have grown organically in a fast pace, and continued focus on modernization of our assets, efficiency in production, human capital management and labor safety enabled DTEK to further consolidate its leading market position in the energy sector of Ukraine. A brighter market outlook through the year was combined with the increase in capacity brought by our major investment projects to deliver substantially improved results against all our key operational and thus - financial indicators.”

DTEK’s revenues are generated by the wholesale of electricity to the Ukrainian state-owned energy company Energorynok, coal sales as well as electricity sale and supply to end customers.
 
In 2010, coal sales accounted for 39.6% (2009 – 31.4%) of the consolidated revenue, electricity wholesale revenue accounted for 32.4% (2009 - 37.3%), and electricity sales and supply accounted for 27.8 % (2009 – 31.1%). The share of other sales did not exceed 0,2%.
 
Financial Overview
 
In 2010 DTEK continued focusing on fiscal and operational discipline, with emphasis on ensuring that its facilities are best positioned to meet the demand.
 
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.
 
Consolidated revenue for 2010 increased by 61.8% to USD 3,052 million compared with USD 1,886 million in 2009. The cost of sales went up by 52.1% to USD 2,379 million, resulting in a gross profit of USD 673 million, more than double vs 2009 (USD 322 million). Gross profit margin increased by 5% and made up 22.1% in 2010.
 
Strong revenue growth was driven by both power generation output and prices as well as coal production and export operations.
Cost of sales increase reflected increase in volumes and prices for coal purchased from the third parties for resale, increased cost of purchasing electricity by the distribution companies, and raw materials inflation.
 
Operating profit for the period was USD 543 million, more than doubled from USD 235 million in 2009, operating profit margin reached 17.8% (from 12.5% year ago), reflecting price improvements, favourable segments mix and the enhancements that DTEK continues to make to its operating efficiency.
 
Key drivers for that were coal trading, electricity export, favourable movement of coal and electricity generation prices, and is caused mainly by increase in the gross profit by USD 351million, partially offset by increase in operating costs by USD 37  million due to increase in staff costs for administrative personnel.
 
Net profit rose significantly compared with 2009 from USD 108 million to USD 359 million.
 
Net operating cashflow for the year was up 50.7% at USD 406 million from USD 270 million in 2009. Capital expenditure increased by 17.0% to USD 278 million from USD 238 million year earlier. 
 
Company Debt
 
As of 31 December 2010, the Company’s total debt was USD 691 million, including current debt of USD  125 million (18.0% of total debt) and non-current debt of USD 566 million (82.0% of total debt).  82.6% of DTEK’s total debt was denominated in USD and 8.8% was denominated in EUR, 8.6% was in UAH. Net Debt to EBITDA ratio fall to 0.6 from 1.0 in 2009, Gross Debt to EBITDA ratio decreases as well from 1.2 to 0.9.

Mr. Vsevolod Starukhin, Chief Financial Officer, commented on the financial results:
“We are very encouraged by outstanding financial results in 2010; They reflect excellent operational performance and sound financial discipline. Key drivers were well targeted investments program and on-going focus on costs control. This year we saw increased positive contribution to the bottom line by our trading divisions.  Significant improvement in the company debt profile - average maturity extension to over 4 years, which along with strong balance sheet  provides DTEK with necessary financial strength to meet future challenges with confidence.”
Operational highlights:
DTEK’s modernization programme continued in 2010 with a number of major  achievements:
-          The installed capacity of unit 1 at Zuevskaya TPP increased by 8% to 325 MW, flexibility range of the power unit increased to 35 MW;
-           The installed capacity of unit 7 at Kurakhovskaya TPP increased by 7% to 225 MW, flexibility range of the power unit increased to 55 MW;
-          The third stage of equipment reconstruction commenced at several units (Unit 4 at Zuevskaya TPP; Unit 8 at Kurakhovskaya TPP; and Unit 13 at Luganskaya TPP);
Dniproenergo’s ICUR increased by more than 6% y-o-y to 34.3%[6] due to increased readiness of the equipment after repairs done.
Continued progress in the development of plans for a wind power project in Ukraine. Following the strategic assessment of the wind energy market in Ukraine in 2009-2010, DTEK plans to start construction of its first 200 MW wind farm in 2011.
DTEK significantly increased export volume of coal by 153% up to 1.962m tonnes.
DTEK became the largest Ukrainian exporter of electricity to EU and Belarus.
DTEK together with affiliate companies increased its stake in the power generating company Zakhidenergo, up to 24.9%.
DTEK increased its stake in the power utility company Kyivenergo, up to 39,98%.
 
Post period end
DTEK signs a 49-years lease agreement to rent state-owned coal mining company Dobropolyeugol. DTEK plans to invest up to USD 251 million into the mines of Dobropolyeugol during the next 5 years. The investments are expected to raise the company’s coal production from 2.8m to 5.2m tons per year by 2015.
DTEK’s Komsomolets Donbassa mine increased its recoverable coal reserves by 3.218 m tones. It was done based on the Ministry of Environmental Protection of Ukraine special permit no. 5278 of 11.01.2011 for the development of coalreservesof suspendedVinnitskaya mine.
 
Investment projects
 
Core of DTEK’s ongoing strategy are the ongoing investments at several key facilities of the Company . 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 3,000 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 coal preparation plants during 2010. 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 Eastenergo’s operational infrastructure. Zuevskaya TPP has the highest Installed Capacity Utilization Rate (ICUR) for 300MW units in Ukraine (65%). Eastenergo’s ICUR remains the highest among Ukrainian TPPs at 50.01%.
 
The Company also continued the second stage of its power equipment upgrades during the period. Works at Unit 1 of Zuevskaya TPP and Unit 7 at Kurakhovskaya TPP have been completed, with its capacity increased from 300 MW to 325 MW and from 210 MW to 225MW respectively, while at the same time its specific fuel consumption has been reduced by 3%. The upgrading of Unit 10 at Luganskaya TPP continues, with schedule to complete it in December 2011.
 
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 fourth stage of the reconstruction began at the end of 2010 with tendering procedure to choose subcontractors for reconstruction works (power unit 3, Zuevskaya TPP; power unit 6, Kurakhovskaya TPP and power unit 11, Luganskaya TPP).
                                    
The reconstruction works at Dniproenergo on Unit 9, Pridneprovskaya TPP and Unit 3, Krivorozhskaya TPP continued through the period. These are scheduled to be completed in September and December 2011 respectively. Also, reconstruction of Unit 1, Zaporozhskaya TPP is ongoing. 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 the 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(finished in December 2010) 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(finished in December 2010).
 
PES Energougol finished implementation of the Tochmash PS – RP Stratonavts cable line capital construction project in the shift of the year. These projects will enable DTEK to improve the reliability of power supplies to industrial consumers and adjacent licensees.
 
Exports
 
In 2010 DTEK Trading, coal trading arm of DTEK,- traded coal in domestic and foreign markets. Its main consumers in Ukraine are Ukrainian power generating companies, the largest iron and steel works and other industrial companies. Last year DTEK Trading exported about 2m tonnes of coal, which is twice as much as in 2009 (764,000 tonnes). Coal was supplied to consumers in Turkey, Bulgaria, Poland, Romania, India, USA and Brazil. Furthermore, the enterprise imported 1.3m tonnes of coal to be consumed by DTEK’s TPPs.
 
Starting January 2010, DTEK supplies electricity to consumers in Hungary, Slovakia, Romania and Belarus through Eastenergo and its electricity trading arm, Power Trade. Last year the Company exported 1.21 TWh of electricity.
 
 
Mr. Yuriy Ryzhenkov, Chief Operating Officer, commented:
“During 2010, DTEK continued to make solid progress across its major projects, further enhancing its operational infrastructure and continuing its investments into new initiatives that will ensure and enhance DTEK’s long term prospects. We are pleased that our ongoing modernization program together with other measures to increase operating efficiency paid us back with encouragingly growing overall company’s performance. It placed DTEK in a very favorable position for future development, and provides foundation for future growth.”
 
Working with local communities
 
DTEK continues to develop its network of social partnerships. In 2010, DTEK collaborated within framework of the Social Partnership Programme with towns where the Company runs its business. 15 towns and 4 districts of Donetsk, Dnepropetrovsk, Zaporozhye and Lugansk regions of Ukraine became participants of the Programme. In 2010, DTEK invested USD 1.5m in the social-economic development of those areas.    
 
In 2010, priority directions of DTEK’s social partnership were energy efficiency, education, health care and improvement of the  local infrastructure. Key projects included improving energy efficiency of heating networks of Kurakhovo town in the Donetsk region (implemented with support of the USAID project “Municipal Heating Reform in Ukraine”) and equipping four medical care units in the Western Donbass.   
 
 
Maxim Timchenko, Chief Executive Officer of DTEK, concluded:
 
“2010 brings DTEK to the new level. We have created solid foundation to prepare for future growth, we managed to find the right direction for the DTEK’s development. We proved our ability to turn over our assets and are ready to integrate new assets into our efficient operational and financial structure. Looking forward I am confident that we have the right capabilities, expertise and team composition to deliver sustainable long term value for our stakeholders.”
 
Key events in 2010
 
January
EURACOAL, the European Association for Coal and Lignite, has accepted DTEK as its corporate member
 March
Eastenergo, DTEK’s power generation subsidiary, announces an open tender to sale Emission Reduction Units (ERU), in line with the frameworks set out under the Kyoto Protocol.
DTEK’s corporate university (DTEK Academy) has started its work.
 April
DTEK has closed a five-year USD500 million Eurobond issue.
 July
DTEK announces that it will invest up to USD 63 million into two state-owned companies: Rovenkianthracite and Sverdlovanthracite.
DTEK has become an associate member of the European Union of the Electricity Industry (EURELECTRIC).

 September
DTEK has increased its stake in share capital of Kyivenergo up to 24,9%.
DTEK together with affiliate companies increased its stake in the total share capital of Zakhidenergo to 24.9%

October
 DTEK has paid semi-annual interest on its five-year USD500 million Eurobond issue in the total amount of USD 23,750,000.

November
 DTEK announced it will pay interim dividends of USD 80,000,000.
 DTEK started exporting electricity to Belarus.

December
 DTEK has increased its stake in share capital of Kyivenergo  to 39.98%.
 DTEK’s subsidiaries Eastenergo and PowerTrade have signed contracts with national grids operator Ukrenergo to access interborder connection to export electricity in 2011.

More detailed information -  http://dtek.com/en/press/releases/news_3930.htm