DTEK cuts power production 11%, raises coal processing 10% in 1Q13

Обзоры по компаниям и отраслям 14.05.2013 Integrated coal and power holding DTEK (DTEKUA) reported a 10.9% yoy decline in power generation to 13.3 TWh in 1Q13, according to the holding’s statement released on May 13. It explained the decline was the result of smaller domestic power demand in 1Q13 (-6% yoy on a warmer winter and decreased industrial demand for power). On top of that, the warm and wet winter created higher-than-usual availability of cheap hydro power in the energy system (HPPs increased power production 58% yoy in 1Q13). DTEK was able to increase coal mining 1.4% yoy to 10.3 mmt and power distribution 74.2% yoy to 16.3 TWh in the quarter, while the increases had a non-organic nature. Meanwhile, spectacular results were achieved in coal processing (+10.1% yoy to 7.2 mmt) and export operations: coal exports increased 23.5% yoy to 0.7 mmt and power exports grew 24.8% yoy to 2.3 TWh (mainly due to a recovery of demand in Poland). Alexander Paraschiy: On the positive side, DTEK seems to be taking advantage of excess coal supply on the market and its strong market position in the sector (the holding controls 9 out of 13 currently operating large coal-fired power plants in Ukraine). In particular, DTEK’s noticeable increase in coal processing suggests the holding was more active in purchasing raw coal on the open market (for value-added processing at its own facilities). However, the increased added value in its coal segment, as well as the growth in its low-margin power distribution operations, are unlikely to prevent a yoy decline in DTEK’s 1H13 EBITDA (which would be the first drop since the 2008-09 crisis) due to falling revenue from power generation, the holding’s key segment. We expect the decline will be minimal, given the high chance that DTEK will increase power production in 2Q13, with its facilities working to at least partially substitute the Centrenergo’s damaged Uglegorsk thermal power plant.