DTEK Energy reports weak 2019, 1Q20 results

Ukraine’s leading coal & power producer DTEK Energy
(DTEKUA) reported a 15% yoy decline in net revenue to UAH 76.80 bln in 2019,
according to its June 5 filing. The decline was the result of 12% yoy less
electricity generated for sale and 7% less coal mined, as well as smaller
prices for power and coal. The company’s gross profit decreased 46% yoy to UAH
10.34 bln, operating profit plummeted 95% yoy to UAH 0.54 bln, and net profit
dropped 62% yoy to UAH 1.84 bln. The company’s EBITDA fell 45% yoy to UAH 13.79
bln, according to Concorde Capital calculations.

The company’s total debt decreased 19% yoy in UAH
terms to UAH 45.26 bln, while its net debt-to-EBITDA ratio worsened to 3.3x as
of end-2019, from 2.1x a year before. Its operating cash flow before working
capital changes decreased 33% yoy to UAH 17.61 bln.

In 1Q20, the company’s revenue fell 60% yoy to UAH
12.78 bln, which is a result of a 38% yoy decline in amount of power sold and
34% yoy slide in the average electricity price. The company’s operating cash
flow before working capital changes plunged 77% yoy to UAH 1.94 bln and net
cash generated from operations decreased 21% yoy to UAH 1.51 bln. DTEK Energy
paid UAH 201 mln of interest in 1Q20. The company’s end-March cash position
amounted to UAH 1.17 bln (USD 41 mln).

During the conference call on the results, management
complained about adverse regulations and falling demand for electricity. It
estimates the cash burn for April-May was USD 10 mln monthly. It also estimated
that with smooth servicing of all its debt obligations, the company would end
2020 with a cash deficit of USD 190 mln. Recall, DTEK Energy announced the restructuring of most of its debt portfolio in
late March, also announcing a standstill on
interest and coupon payments.

Alexander Paraschiy: The
company’s 1Q20 results do not look much distressed, which suggests the company
has implemented some cost optimization measures in the quarter. We also see the
company had enough cash as of end-March to service its debt (the total interest
due on long-term debt was about USD 35 mln).

On the other hand, since the end of 1Q20, the
company’s fundamentals continued to deteriorate, with power prices falling in
April-May by about 5% compared to 1Q, and power output decreasing by about 14%
compared to 1Q (and about 34% yoy). For that reason, the company’s decision to
initiate debt restructuring talks looks grounded.