DTEK EBITDA falls 6% in 1H14

Ukraine’s leading coal and electricity holding DTEK (DTEKUA) reported a 21% yoy decrease in 1H14 revenue to USD 4.3 bln in the dollar equivalent, with all core segments showing yoy declines. In local currency terms, the holding’s revenue advanced 1% yoy, with 1H14 revenue in its coal and power generating segment growing 3% yoy and its power distribution segment being flat yoy.



The holding’s 1H14 EBITDA slid 6% yoy to USD 829 mln (though it improved 21% yoy in local currency terms). Its bottom line was a USD 738 mln net loss, compared to net income of USD 150 mln in 1H13, driven by a foreign exchange loss of USD 1.0 bln. The company CapEx dropped 45% to USD 313 mln in 1H14, and it almost broke even on free cash flow at USD -39 mln of cash (vs. USD -337 mln a year before).



The holding’s gross debt remained unchanged YTD, in USD terms, at USD 3.43 bln. Gross debt-to-LTM EBITDA increased to 2.42x as of end-1H14, up from 1.86x as of end-2013.



During its Sept. 11 conference call, the company’s management disclosed that as of Sept. 1, the company had credit lines of USD 350 mln, out of which USD 100 mln is committed, with USD 183 mln in debt scheduled to be repaid by the year end. On the operating side, the company estimated 42% of its coal mining capacities, 30% of electricity generation and 36% of power distribution are in the risk zone, near the warfare in the Donbas region.



Since railway connections there have been significantly destroyed, coal shipments have been stuck and around 1 mmt of coal has been stockpiled at DTEK’s mines. The Komsomolets Donbasa mine remains idle, while other mines are operating at 80% of their capacity. DTEK expects the Komsomolets Donbasa mine to resume operations in October, and the necessary railway repairs will take around two months.



Alexander Paraschiy: The holding’s operational results for 1H14 already show the first signs of the crisis that escalated in August-September. While its UAH-denominated EBITDA (up UAH 1.8 bln yoy) and EBITDA margin (up 3pp yoy to 19%) showed solid progress in 1H14, the positive results were only due to the consolidation of a new gas production business and a positive effect from “other services”. In DTEK’s three traditional segments (coal and power generation, power distribution, and heating), UAH-denominated EBITDA decreased 16% yoy (or UAH 1.2 bln yoy) and EBITDA margin fell 3pp to 14%. 2H14 will show worse results, given the Donbas crisis.



A worrying sign for DTEK is that its leverage multiplier – gross debt-to-consolidated cash flow (which is used to calculate the covenant) – increased to 2.36x as of end-June (up from 1.78x at end-Dec.), we estimate. If this growth pace continues in 2H14 (which is likely), DTEK’s leverage will exceed its Eurobond covenant of 3.0x already in the next reporting period.



Clearly, the core question for DTEK right now is whether it will repay or restructure its USD 200 mln Eurobond maturing next spring. At the moment, the company’s performance does not allow it to repay this debt by itself, as we see it. Therefore, its ability to repay the bond on time will depend exclusively on its success in seeking adequate refinancing.

Источник: Конкорд Капитал