“Samruk-Energy” JSC | Integrated annual report
Management discussion and analysis

Liquidity and financial sustainability indicators

Performance of covenants from external creditors

Covenant Standard 2016 actual Devia­tion Notes
Debt/EBITDA (ЕBRD) Not more than 4.5 5.4 0.90 The established limit is exceeded, but the Company received a letter-consent (waiver) for this covenant for 2016 from the EBRD
EBITDA/interest (EBRD Shardarinsk HPP) Not less than 3 3.77 0.77 Observed
Debt/Equity (KDB) Not more than 1 0.75 0.25 Observed
Consolidated adjusted EBITDA / Net consolidated financial payments (Eurobonds) Not less than 3 5.05 2.05 Observed
Description 2015 2016 2017 (forecast) 2018 (forecast)
Debt/EBITDA 5.26 5.41 4.78 3.35
Debt/equity 0.83 0.75 0.68 0.69
Current liquidity 1.39 0.66 1.56 0.76

In general, the change in key financial and operating figures as follows influenced the liquidity and financial stability figures.

The debt / EBITDA indicator for 2016 was 5.41, which exceeds the covenant established by the European Bank for Reconstruction and Development, that is not more than 4.5, under the Loan agreement with Shardarinsk HPP, where the Company is a co-borrower.

As part of activities on meeting the covenant, in 2016, after a series of negotiations with the EBRD, the Company received a letter of consent (Waiver) to exceed the set value for the covenant Debt / EBITDA for the first half and the end of 2016 without specifying a threshold.

In order to ensure financial stability and compliance with the Company’s covenant in the conditions of unstable economic situation and volatility of financial market, the Company regularly monitored the attraction of funding across the group during 2016. As a result of actions taken, the Company managed to ensure compliance with financial covenants, reduce the debt burden and improve financial stability.

The debt / EBITDA indicator is planned at 4.78 in 2017. The change in the indicator was due to an increase in EBITDA by 3.6 % and a decrease in debt by 8.5 % compared to 2016. The reduction in debt is due to the refinancing of the Company’s Eurobonds. In 2018 this indicator improves up to 3.35 due to repayment of Eurobonds.

The financial leverage ratio (Debt/Equity) was 0.75 in 2016, the decrease in the indicator compared to the fact for the same period (by 0.08) was due to the increase in equity capital by 34,076 mln. tenge due to the increase in retained earnings owing to 2016 profit in the amount of 17,759 mln. tenge and a decrease in the borrowed capital by 15,111 mln. tenge in respect of Head office including payment of principal on short-term loans and a decrease in the principal debt on Eurobonds due to the depreciation of the US dollar and in respect of “MHPP” JSC owing to reduction in US dollar exchange rate as well as the repayment of principal.

This indicator is planned to improve to the level of 0.68 in 2017, the indicator is projected to increase to 0.69 by the end of 2018, which is due to a decrease in equity capital in connection with the sale of assets.

Current liquidity indicator for 2016 was 0.66, a decline is observed in comparison with the same period due to the allocation of the current portion of the long-term loan on Eurobonds to short-term obligations, this indicator improves to 0.76 until 2018.

 Actions to improve financial stability taken by “Samruk-Energy” group of companies

  • Debt disposal of assets sold as part of privatization – 1–3Q of 2017;
  • Securing an additional funding from loan institutions for refinancing of Eurobonds – 1–3 of 2017;
  • Refinancing of internal bonded loans of the group ( “APP” JSC, “AZhC” JSC) – 1–3 of 2017;
  • Obtaining a letter of consent (waiver) from the European Bank for Reconstruction and Development (EBRD) for the covenant Debt / EBITDA, EBITDA / Interest of the Company for 2017 – not earlier than 3rd –4th quarter of 2017;
  • the Company’s Eurobonds repayment- 4th quarter of 2017;
  • Attracting funds through IPO and debt repayment in 2019–2020;
  • Reduction of investment and running costs in 2017–2021

These actions will ensure the performance of financial covenants and financial stability of the company as a whole.

PERFORMANCE OF “SAMRUK-ENERGY” JSC STRATEGIC KPI

KPI name Measurement unit 2015 2016 2017 2018
actual * actual plan plan
Financial performance
Net profit mln. tenge –77,835 17,759 10,393 19,321
Debt/EBITDA not more than 5.0 5.26 5.41 4.78 3.35
Debt/Equity not more than 0.75 0.83 0.75 0.68 0,69
EBITDA mln. tenge 76,496 71,581 74,171 97,603
Free funds for dividend payment mln. tenge 24,201 24,232 57,793
Social indicators
Social stability rating  % 72 72

* As of December 31, 2016, all assets and liabilities of EK REC, SHET, MDPGC, Aktobe CHP, Tegis-Munay, Mangyshlak-Munayi were included in the disposal group intended for sale, and therefore, for comparative purposes, the year 2015 was recalculated and presented in compliance with the presentation of the current year.

Strategic indicator Net profit in 2016 amounted to 17,759 mln. tenge, while the actual loss for the previous 2015 was (–77,835mln. tenge, the deviation is due to the reflection of exchange rate differences of 106.9 bln. tenge in 2015. Excluding the impact of exchange rate differences, the decrease in net profit in 2016 is due to a decrease in sales volumes and tariffs in “Ekibastuz SDPP-1” LLP which is associated with crisis phenomena in the economy. The net profit in 2017 is planned at 10,393 mln. tenge, the decrease is explained by the growth of “Ekibastuz SDPP-1” LLP expenses for services in the transmission of electricity sold for export, as well as due to the increase in the cost of refinancing of the Head office’s bonded loan. The net profit is projected to reach 19,321 mln. tenge in 2018.

The Debt / EBITDA indicator according to the fact of 2016 was 5.41 at 5.26 in 2015, a 3 % increase. The deterioration is mainly due to a 6 % decrease in EBITDA because of a decrease in electricity sales volumes at SDPP-1 at a 4 % decrease of debt. The figure is improves to 3.35 by 2018 due to the annual debt repayment and EBITDA growth owing to the increase in electricity sales volumes.

The Debt / Equity ratio was 0.75 in 2016 at 0.83 in 2015. The change in the indicator is mainly due to the decrease in loans due to the decrease in the cost of foreign currency loans (a decrease in the dollar / tenge rate), as well as due to repayment of the principal debt under loans. In the plan for 2017–2018, the Debt / equity ratio is 0.68–0.69 due to the annual repayment of loans.

The indicator “Free funds for development and dividends” reflects the degree of availability of own funds at the company for investing in new projects as well as for paying dividends to shareholders. This indicator in 2016 amounted to 24,201 mln. tenge and in the forecast for 2017 will remain at the level of 2016. The indicator is expected to significantly improve to 57,793 mln. tenge in 2018, which is connected with the increase in operating flows owing to the growth in electricity generation volumes, as well as owing to a decrease in investments for maintenance of assets due to the planned sale of several subsidiaries of the Company in 2017.

The “Social stability rating” is determined on the basis of results of sociological survey of employees and a comparative analysis of the company’s social indicators, a survey is conducted during the research. Social stability index is defined as weighted average arithmetic value ​​of the Social Sentiment Index and the Social Development Index.

The rating of social stability is a strategic KPI for “Samruk-Kazyna” JSC. A rating of 63 % (medium level) was determined across “Samruk-Energy” JSC group of companies in 2013, in 2014 – 69 % (above the average), in 2015 – 72 % (above the average), in 2016 remained at the level of 2015 at a rate of 72 %.

“Samruk-Energy” JSC | Integrated annual report
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