DTEK’s public GenCos report heavy losses in 9M15

Zakhidenergo and Dniproenergo, the owners of six of DTEK’s (DTEKUA) nine total thermal power plants, reported an awful set of financial results for 9M15. Their combined revenue increased 6% yoy to UAH 15.45 bln on a 17% yoy decline in power generation. Despite the output decline, the companies suffered from a significant increase in material costs (mostly representing coal), which increased 45% yoy to UAH 16.1 bln. This resulted in the companies’ negative combined EBITDA at UAH 2.68 bln in 9M15, compared to positive UAH 1.62 bln in the same year-ago period. Their combined net loss jumped 4.3x yoy to UAH 4.0 bln.

On the other hand, DTEK’s leading coal producer, Pavlohradvuhillia, reported strong results for 9M15. Its revenue surged 93% yoy on just a 2% yoy increase in coal deliveries and its EBITDA amounted to UAH 2,195 mln, flat yoy. If adjusted for other operating incomes/losses, which in 9M15 brought a negative result of UAH 4,219 mln in 9M15 (vs. positive UAH 73 mln in 9M14), with the nature of this loss not being clear, the miner’s EBITDA would have increased 3x yoy to UAH 6,415 mln.

Alexander Paraschiy: The results of DTEK’s GenCos imply their coal purchase costs increased by about 75% yoy in 9M15 (to over UAH 1,800/t, we estimate), which is a radical increase as compared to its peers, Donbasenergo (estimated +20% yoy) and Centrenergo (estimated +54% yoy). Most likely, this is a result of DTEK’s internal transfer pricing, as the holding is mining by itself most of the coal consumed by its power plants. In particular, Pavlohradvuhillia is the main supplier of coal to all of Zakhidenergo’s power plants. Notably, the miner’s adjusted EBITDA per unit of coal increased to UAH 605/t in 9M15, from UAH 205/t in 9M14, we estimate. If we combine the adjusted EBITDA of Pavlohradvuhillia and the two GenCos, the resulting operating profit of the three entities would be UAH 3.7 bln, which is flat yoy.

The poor disclosed results of its GenCos are in line with DTEK’s tactics to lobby for an increase in electricity rates on Ukraine’s wholesale market (currently being artificially limited by the regulator), as well as its strategy to ask its creditors to agree to smoother debt repayment terms.