DTEK Energy presents unaudited consolidated financial statements for HY1 2015
Brief overview of DTEK Energy financial results
|
UAH mln |
HY1 2015 |
HY1 2014 |
Change, +/- |
Change, % |
|
Revenues* |
45,728 |
43,715 |
2,013 |
+4.6 |
|
EBITDA (adj.)* |
2,950 |
7,020 |
-4,070 |
-57.9 |
|
EBITDA margin (adj.) |
6.5% |
16.1% |
-9.6 b.p. |
- |
|
Net profit/loss* |
-20,794 |
-4,925 |
-15,869 |
-322.2 |
|
Capital expenditure |
1,875 |
2,800 |
-925 |
-33 |
*Data on the Revenue, EBITDA (adj.) and Net loss (from continuing operations) does not include results of DTEK Oil&Gas and DTEK Renewables.
Revenue structure by segment
|
UAH mln |
HY1 2015 |
HY1 2014 |
Change, +/- |
Change, % |
|
Electricity sales to end consumers |
22,763 |
21,680 |
1,083 |
5 |
|
Including electricity exports |
1,447 |
2,678 |
-1,234 |
-46 |
|
Electricity sales to Energorynok SE |
16,058 |
14,922 |
1,136 |
7.6 |
|
Steam coal sales |
1,954 |
3,274 |
-1,320 |
-40.3 |
|
Including coal exports |
1,661 |
2,370 |
-709 |
-29.9 |
|
Heat sales |
2,976 |
1,723 |
1,253 |
72.7 |
|
Others |
1,977 |
2,116 |
-139 |
-6.6 |
|
Total |
45,728 |
43,715 |
2,013 |
4.6 |
DTEK Energy’s revenue is formed by the wholesale sales of electricity to the state-owned enterprise Energorynok, electricity and heat distribution to end consumers and coal sales.
In HY1 2015, the overall share of electricity sales to Energorynok SE, end consumers, as well as of electricity exports in the consolidated revenue of the company amounted to 85% (84% in HY1 2014), coal sales — 4% (7%), heat sales — 7% (4%).
1. Overview of the financial results
The company’s consolidated revenue for January-June 2015 increased by 4.6%, or UAH 2 bln YoY, while the overdue debt of Energorynok SE to the generating companies in the reporting period increased by UAH 3.5 bln.
High inflation growth rates resulted in the increased cost of process fuel, equipment and consumables. Those factors — despite the production decline — resulted in the production cost growth by 10% (or UAH 4 bln) in absolute terms YoY. In particular, the cost of materials increased by 19%, or UAH 1.1 bln, and the electricity purchase prices grew by 14%, or UAH 2.7 bln.
Due to the current economic situation in Ukraine the company is revising the retrofit and upgrade plans for its operating companies in order to optimize capital expenses to the level necessary to maintain the business’ production plans. Capital expenditures dropped by 33%, or UAH 925 mln, to UAH 1,875 mln.
In January-June 2015, the net loss of the company amounted to UAH 20,794 mln, out of which UAH 9,014 mln is the net loss caused by the foreign exchange differences.
Debt liabilities
As of 30 June 2015, the company’s debt was UAH 53,471 mln. The share of loans in foreign currencies made 95% of the loan portfolio. Not taking into account the national currency devaluation, the loan portfolio in the dollar equivalent decreased mainly due to DTEK Energy’s disposal of the assets in the renewable energy sector — Wind Power LLC — along with the raised loan with outstanding amount UAH 5,549 mln to DTEK Renewables in line with the business governance reorganization plan.
The net debt (in line with IFRS) to EBITDA (adj.) ratio is 5.24x. The indicator deterioration compared with the beginning of the year is explained by further national currency devaluation, which in January-June 2015 reached 33%.
As international capital markets are closed for the majority of the Ukrainian companies, DTEK Energy has been negotiating its loan portfolio restructuring since late 2014. In HY1 2015 the lenders expressed their support of the company, which allowed deferring 90% of the principal payments for later period and exchanging the USD 200 mln Eurobonds for new securities amounting to USD 160 mln with maturity in March 2018. The macroeconomic conditions continue to remain unfavourable for the business and affect its liquidity, which is why the company has not been paying the loan principal since the beginning of HY2 2015. This is in line with the terms and conditions of the debt restructuring documents being discussed with the lenders. We expect to finalise negotiations and sign the respective documents in the near future.
Current credit ratings
|
Credit agency |
Rating |
|
Fitch |
|
|
LT FC IDR |
Ñ |
|
LT LC IDR |
C |
|
Moody’s |
|
|
LT CFR |
Ñà |
Piotr Fokow, DTEK Energy Finance Director, commented:
’The armed conflict in Donbass, national currency devaluation, as well as persistent non-payments in the energy sector, and inaccessibility of refinancing opportunities resulted in a significant drop in the company liquidity in HY1 2015. Cash balances at the end of the reporting period amounted to UAH 1.2 bln, which is considerably lower than at the beginning of the year. Nevertheless, in the first half-year of 2015 the company continued to pay loan interest. Starting from HY2 2015, the company has been working on the strategy for re-profiling debt liabilities with maturities in Q4 2014 and during 2015. We managed to reach a deal with the key lenders to defer a considerable part of payments and also restructure the liabilities under the USD 200 mln Eurobonds. We highly appreciate the support of our lenders and investors during these difficult times, which is extremely important to successfully overcome the challenges and reach stability.’
2. Overview of the operating results
Key Production Indicators:
|
Indicators |
Unit |
HY1 2015 |
HY1 2014 |
Change (+/-) |
Change (%) |
|
Coal mining |
ths tonnes |
14 002,4 |
20 656,6 |
-6 654,2 |
-32,2% |
|
Coal processing: |
|||||
|
ROM coal processing |
ths tonnes |
9 585,0 |
16 156,2 |
-6 571,2 |
-40,7% |
|
Concentrate production |
ths tonnes |
5 709,1 |
10 577,5 |
— 4 867,4 |
-46,0% |
|
Electricity generation (supply) |
mln kWh |
18 908,5 |
24 295,5 |
-5 387 |
-22,2% |
|
Electricity transmission by networks |
mln kWh |
23 054,6* |
27 891,3 |
-4 836,7 |
-17,3% |
|
Electricity export |
mln kWh |
1 749,0 |
4 639,4 |
-2 890,4 |
-62,3% |
|
Coal exports** |
ths tonnes |
755,6 |
2 703,4 |
-1 947,8 |
-72,0% |
|
Coal imports |
ths tonnes |
404,1*** |
0,0 |
404,1 |
- |
*DTEK Krymenergo not included.
**Including trading operations of Obukhovske mine group.
***Taking into account adjustments made after the actual supply had taken place.
2.1 Coal production and processing
In January-June 2015 the company’s mines produced 14 mln tonnes of coal, which is 32.2% lower than YoY. The processing of run-of-mine coal at the coal processing plants dropped and, consequently, production of concentrate decreased by 46% to 5.7 mln tonnes.
Main factors influencing the production performance:
· DTEK Pavlogradugol and DTEK Dobropolyeugol increased the production of gas coal grades by 3.0%, or 318.6 ths tonnes. DTEK Pavlogradugol increased the labour productivity to 99.5 tonnes/man/month, which is by 2.2% higher than the previous year’s indicator. In order to stabilise the electricity production, DTEK continued to increase the gas coal production volume despite the loss-making tariff of thermal power plants and a growing debt of state enterprise Energorynok to generators, which considerably worsens the settlements for supplied coal;
· DTEK Rovenkyanthracite, DTEK Sverdlovanthracite and DTEK Komsomolets Donbassa Mine’s aggregate production of anthracite and lean coal dropped by 79.5% or 6.9 mln tonnes, respectively. At that the companies increased the production by 35.8% or 270 ths tonnes in 2Q vs 1Q 2015. For further production increase, the government should solve in a consistent way problems relating to the coal haulage from Donbass and delivery of the materials required for mining operations. At the end of the reporting period 2.3 mln tonnes of coal remains blocked at the companies’ sites.
Key projects in progress during the reporting period:
Construction of a fresh-air shaft at Yuvileina mine: first project stage completed — the shaft drilled, head frame erected, and fan launched. The implemented project will provide the mine with the required air volume, which will ensure stable operations and an increase in the annual coal production to 1.4 mln tonnes. The project budget totals UAH 235 mln.
Increasing the conveying capacity of the winder set at the Geroiv Kosmosu mine. The project is aiming to increase the capacity of the coal winder to 3 mln tonnes per year. The project budget totals over UAH 150 mln.
Pavlogradskaya CCM re-retrofit: we started upgrading the plant’s first section (second stage), which will increase the processing of ROM coal to 7 tonnes per year and cut costs for coal processing by external CPPs. The project budget exceeds UAH 360 mln.
2.2 Electricity generation
In January-June 2015, the company’s thermal power plants reduced electricity supply by 22.2% to 18.9 bln kWh YoY.
Main factors influencing the production performance:
· increased electricity output by DTEK Zakhidenergo plants fired by gas coal by 14.5%, or 1.0 bln kWh, to make up for the shortage of capacities and maintain stable operation of the Unified Energy System of Ukraine;
· restriction of capacities of DTEK Dniproenergo’s anthracite-fired thermal power plants. The company reduced electricity generation by 40%, or 2.9 bln kWh, due to the lack of required supplies from the Ukrainian mines located in the ATO zone;
· reduced electricity generation by DTEK Skhidenergo TPPs and DTEK Donetskoblenergo Myronivska TPP in total by 40.8%, or 3.4 bln kWh, due to military hostilities in Donbass.
Key projects in progress during the reporting period:
The company continues its activities in retrofitting generating unit No. 1 of Kryvorizka TPP. It is planned to increase the capacity of the generating unit by 33 MW to 315 MW and transfer it to the flexible mode of operation (the generating unit was designed for base-load operation). The project budget totals over UAH 800 mln.
Kyivenergo continues the retrofit of generating unit No.1 of CHPP-5 aiming to increase both the unit’s electricity output by 12.9 MW to 112.9MW and heat output by 14.9 Gcal/h to 174.9 Gcal/h. The retrofit will also allow a reduction of the specific fuel consumption for energy generation by 10.2%. The project budget exceeds UAH 450 mln.
2.3 Electricity transmission by networks
In HY1 2015, DTEK’s distribution companies reduced electricity transmission by networks by 17.3% YoY to 23.0 bln kWh.
Main factors influencing the production performance:
· DTEK Krymenergo was excluded from the production results due to the lack of operational control over the company (electricity transmission by DTEK Krymenergo in HY1 2014 was 2.1 bln kWh);
· DTEK Power Grid, DTEK Donetskoblenergo and DTEK Energougol ENE decreased electricity transmission by 23% or 2.3 billion kWh in total due to the military hostilities, which entailed reduced production by industrial enterprises, suspended activities of small and medium-sized businesses, people leaving the ATO area as well as interruptions in the power supply and under-supply of electricity to customers.
Main projects being implemented during the period:
· Kyivenergo: The company has completed the retrofit of the 330 kV outdoor switchgear at CHPP 5 aimed at covering the capacity deficiency in the central districts of Kyiv and creating a reserve for connecting new consumers;
· The company continues the retrofit of 110kV outdoor switchgears involving replacement of power transformers at the ST-2 substation, which will ensure reliable power supply to consumers in the central part of Kyiv and Podol under increased loads.
· DTEK Power Grid: The company has completed the retrofit of the Dniprovska substation supplying electricity to some mines, enterprises and households of Petropavlovsk district of Dnipropetrovsk Region. The activities were conducted without interrupting the electricity supply to consumers.
· DTEK Dniprooblenergo: The implementation of an automated commercial electricity metering system in the cities of Dnipropetrovsk, Kryvyi Rih, and Dniprodzerzhynsk is under way. By the year end, the system will cover over 100,000 households’ metering points.
In April, the company’s contact centre completely covered Dnipropetrovsk region (about 1.5 mln of clients). By the end of the year we plan to increase the number of services, and the contact centre will monthly process up to 150 thousand of clients’ requests.
2.4 Commercial activities
Coal supplies to domestic and external markets
In the first half of the year, DTEK reduced coal supplies to external markets by 72% YoY up to 756 ths tonnes.
Main factors influencing the production performance:
· destruction of the railway infrastructure caused by military hostilities resulted in the limitation of shipment of anthracite and lean coals from DTEK Rovenkyanthracite, DTEK Sverdlovanthracite, and DTEK Mine Komsomolets Donbassa. In HY1 2015, the above mentioned mining companies supplied 1.2 mln tonnes of coal to DTEK’s TPPs, which 71% less YoY;
· shortage of flexible capacities in the UES of Ukraine throughout the heating season: in 1Q the company redirected produced anthracite to in-house TPPs and imported 0.4 mln tonnes, mostly from the RSA and Australia. In 2Q coal was not imported as the tariff set for TPPs does not cover the costs for coal purchase abroad and electricity generation.
Electricity supplies to domestic and external markets
In January to June 2015, the company decreased electricity exports by 62.3% up to 1.7 bln kWh.
The main factors influencing the production performance are: no electricity supplies to Belarus, Moldova and Poland (since August 2014, the decision of the Ministry of Energy and Coal Industry limiting electricity exports has been in force).
3. Key events in the reporting period
April
· DTEK successfully negotiated the restructuring of USD 200 mln Eurobonds originally due in April 2015. The Exchange was approved by 91.14% of the Eurobonds holders who have the right to participate in the tender for securities restructuring. All Eurobond holders were offered equal terms: the redemption of 20% of the nominal value of the securities and exchange of the old Eurobonds for new ones to be fully redeemed in 2018.
· The Company, together with the Institute of Geotechnical Mechanics under the National Academy of Sciences of Ukraine, the National Mining University, and the Donetsk Coal Research and Development Institute, prepared ’Instructions for Designing a Combined Type of Arch and Roof Bolting Supports for Mine Workings." The Instructions were put in force by the resolution of the Ministry of Energy and Coal Industry of Ukraine. Now, mining companies have the right to design the advanced type of combined arch and roof bolting support for their mines.
May
· Retrofitted unit No.9 of DTEK Kurakhivska TPP was reconnected to the grid. The retrofit increased the installed capacity of the unit by 15 MW to 225 MW, expanded the flexibility range by 40 MW, while reducing its specific fuel consumption for electricity generation by 10%.
4. Sustainable development
In the first half of 2015, DTEK Energy allocated UAH 1.23 bln for sustainable development projects, including those related to social partnership with the towns of the company’s operations, occupational safety, environmental protection, maintenance of social assets, and personnel development. Out of the above amount, social investments in the development of the regions where our companies are located amounted to UAH 8.2 mln. Our environmental costs amounted to UAH 846.2 mln, out of which the environmental tax accounts for UAH 454.8 mln. We also used UAH 204.4 mln for the maintenance of social and non-industrial assets.
The company continued implementing its humanitarian initiatives to help the internally displaced persons (IDPs) and civilians in the areas close to the line of contact: restoration of destroyed houses, provision of potable water, and arrangement of back-up heat and water supply to local communities. DTEK is assisting with accommodating IDPs at its social facilities. The company has been helping the employees who were wounded in hostilities and families of the deceased: such payments amounted to over UAH 2 mln for the first six months of 2015.
Key social partnership initiatives
January
· DTEK Energy together with the Health Department of the Lviv Municipality and the Municipal Emergency Care Hospital provided advanced equipment for an intensive care ward of the coronary care unit for patients who suffered from acute myocardial infarction. This enabled to provide advanced and efficient intensive care treatment for such patients: the hospital has about
February
· We refurbished and provided modern equipment for the Pershotravensk Town Hospital. Comfortable conditions were created in the hospital both for the patients and personnel. The hospital’s procedure room was provided with modern medical furniture and equipment for disinfection.
March
· DTEK Energy stated the preparation of the
April
· Seven thousand of our employees took part in the annual initiative “Clean Town”, which took place in 31 populated areas across Ukraine. The volunteers collected 525 tonnes of household garbage and planted 390 trees and bushes. Our employees also glassed flats and houses damaged during hostilities for 30 retired employees of the DTEK Luganska TPP (the town of Shchastia).
May
· DTEK Energy and the Halytskyi District of Ivano-Frankivsk region signed a memorandum of cooperation. The company will finance projects aimed at the social and economic development of the villages of Bovshiv, Demeshkivtsi, Demianiv, Korostovychi, Prydnistrovia, Zadnistrianske.
June
· We completed the third phase of the “Energy-Efficient School” project in 14 populated areas. The company allocated UAH 1.6 mln for energy efficient projects for 50 participating schools.
Main social achievements
· A back-up water supply system was built for the boiler houses of Bilytske, Bilozerske, Novodonetske and Vodianske settlements (Donetsk region, in the area around the town of Dobropillia). A total of 40 thousand local residents are provided with uninterrupted municipal heating and process water supply. An individual heating plan was designed for each town: supply of water was arranged from various water reservoirs, abandoned mines, and a number of wells were drilled.
· In June, the annual recreation season started at the company’s social facilities. We arranged holidays for 7 to 16 year-old children at our children recreation centres. Our employees and their family members restored their health and rested at our recreation centres. We plan to restore health of 18,500 of our employees and their family members and 4,340 children at our rehabilitation facilities in this season.
Main achievements in occupational safety
· In February 2015, DTEK Skhidenergo and DTEK Dniproenergo completed recertification audits of their corporate occupational safety management systems.
· In March 2015, a compliance audit of the occupational safety management system (SMS) took place at DTEK Dniprooblenergo confirming the company’s compliance with OHSAS 2015:2007 standard.
· We launched the ’Common Monitoring System’ programme at our electricity generating companies. The programme’s objective is to set up an automated platform to constantly monitor SMS performance and remotely control measures aimed at the improvement of occupational safety and implementation of corrective measures.
Main achievements in environmental protection
· In April 2015, DTEK Skhidenergo and DTEK Dniproenergo completed the compliance audits of their environmental management systems. DTEK Donetskoblenergo also successfully completed the certification audit of its environmental management system for its compliance with ISO 14001.
· In HY1 2015, all DTEK Energy generating companies proceeded with the implementation of the Programme for Reducing the Impact on Water Bodies till 2030. Priority projects are retrofits of the storm water drainage systems and treatment facilities, as well as fish protection systems.
· In HY1 2015, at all TPPs of DTEK Energy we continued to implement the Programmes aimed at increasing the utilisation of coal combustion products (CCP) in
· To prevent the need for allocation of new land plots for storage of ash and slag waste, DTEK Kurakhivska TPP, DTEK Zaporizka TPP, and DTEK Ladyzhynska TPP continue expanding the ash and slag waste dumps. To prevent emergencies we are replacing some sections of the ash-slag pipelines at DTEK Ladyzhynska TPP, DTEK Prydniprovska TPP, DTEK Kryvorizka TPP, and DTEK Kurakhivska TPP.
Notice
1) The semi-annual Financial Report of DTEK ENERGY B.V. has been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm.do and on DTEK’s web site at: http://www.dtek.com/en/investor-relations/financial-data/hy-2015
2) The Financial report was also sent to FCA
Profile
DTEK is a strategic holding company that manages three operational sub-holding companies with the assets in coal production, thermal energy generation and distribution as well as alternative energy and gas production. It is part of the financial and industrial group System Capital Management (SCM). The shareholder of the group is Rinat Akhmetov. Maxim Timchenko is the Chief Executive Officer of DTEK. Currently, DTEK employs 127 thousand people.
The portfolio of coal production, thermal energy generation and distribution assets is represented by 10 thermal power plants and 2 combined heat and power plants with 18.6 GW of total installed capacity; five electricity distribution enterprises, which provide services to over 5.2 million customers — both individuals and legal entities; 31 mines and 13 coal-processing plants. The alternative energy sector is represented by one wind farm with the designed installed capacity of 200 MW. DTEK produces hydrocarbons at two fields with proven natural gas reserves of 20 bln cubic metres.
In 2014, DTEK’s enterprises generated 47.8 bln kWh, including 651.5 mln kWh generated by the wind farm; transmitted 53.8 bln kWh of electricity; coal output equalled 37.1 mln tonnes and natural gas — 752 mln cubic metres.
To learn about the social partnership projects in progress in the towns and cities of DTEK’s companies’ operations and get a detailed status report on their implementation, visit www.spp-dtek.com.ua
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