DTEKs listed GenCos post deeply negative EBITDA, profit in 1Q12

Dniproenergo (DNEN UK) and Zakhidenergo (ZAEN UK), two power generators acquired by DTEK this year, reported very weak financials for 1Q12. Dniproenergo reported a 3% yoy increase in net revenue in 1Q12, caused solely by growth in its achieved power tariff. The company’s coal costs grew 13% yoy to USD 113/t, which made operations loss-making: negative EBITDA amounted to USD 356 mln (vs. positive USD 23 mln in 1Q11), losses before tax totaled USD 66 mln, while net losses amounted to USD 45 mln (in 1Q11, there was a USD 5 mln profit). Zakhidenergo reported 44% growth in revenue to USD 296 mln, while both its EBITDA and bottom line were negative at USD 40 mln; pre-tax losses were USD 54 mln (vs. USD 5 mln in 1Q11).

Alexander Paraschiy: In addition to sticky power tariffs that did not allow the companies to cover its increased production costs, Dniproenergo and Zakhidenergo suffered from high coal procurement prices. For instance, Dniproenergo purchased coal (mainly from related DTEK-controlled traders) at a 16% premium to peer Centrenergo in 1Q11. We therefore warn that the bottom lines of Dniproenergo and Zakhidenergo are fully under the control of DTEK, with consequences related to their stability, sustainability and predictability.