DTEK reports further decline in production in 1Q15

Обзор облигаций 15.06.2015 In its 1Q15 production results released last Friday, DTEK announced that coal mining declined 18% QoQ and 35% YoY to 6.8mt, electricity generation fell 13% QoQ and 15% YoY to 10.8TWh, and electricity transmission volumes dropped 12% QoQ and 18% to 12.2TWh. Also in 1Q15, DTEK reduced its exports of electricity by 20% QoQ and 60% YoY to 0.8TWh, and coal by 38% QoQ and 78% YoY to 0.3mt, while the company's imports of coal declined 24% QoQ to 0.4mt. Investment implications: DTEK's 1Q15 electricity generation was impacted most negatively by production disruptions at Zuivska TPP, a thermal power plant located in the separatist-occupied territories, with a 53% YoY decline, and at Luganska TPP , which is located at the battle frontline, with a 69% YoY drop. Likewise, DTEK's coal mines in separatist-occupied territories reduced their 1Q15 production by 84% YoY versus a 4% YoY production increase at mines in Ukraine-controlled areas, according to Energybusiness. As a result of destroyed logistics operations and the isolation of separatist-occupied territories, DTEK's coal production may fall 20-25% and power generation may decline 15-20% in 2015, with high risks of declining even more severely should combat activities intensify. The sharp decline in export volumes may further decrease the share of exports in total revenues from 10% in 2014 and thus enhance DTEK's exposure to negative impact from the hryvnia devaluation.