How is this possible and what will happen to dividends
OGK-2 (MCX: OGKB) - large energy holding, which operates thermal power plants throughout Russia. Leader in the field of thermal generation in Russia in terms of installed capacity.
In March, the company published consolidated financial statements for 2020 year. The results were unexpected and contradictory: despite the drop in revenue by 10% year to year, the holding's net profit increased by 10% - and this is against the backdrop of a record low power generation by OGK-2 power plants.
I suggest you figure it out, how an energy holding managed to earn the maximum profit in its history in a crisis 2020 year, taking into account the decline in the effective supply of electricity during 5 of recent years.
How and why generation falls
Over the past few years, OGK-2 management has been improving business efficiency. To do this, the company reduces the generation of inefficient capacities and sells low-profit assets..
At the beginning of last year, the holding sold the Krasnoyarsk GRES-2 coal-fired power plant for 10 billion rubles. Before the sale, it accounted for about 7% the entire electrical capacity of the company and about 25% thermal.
As a result, the volume of electricity generation and the volume of productive supply in 2020 fell. In addition to Krasnoyarskaya GRES-2, the decrease in generation volumes last year was influenced by low demand for electricity from consumers due to a decrease in business activity amid the coronavirus pandemic and the introduction of restrictive measures.
Dynamics of generation and effective supply of electricity, billion kWh
| Working out | Useful vacation | |
|---|---|---|
| 2016 | 67,09 | 63,03 |
| 2017 | 63,43 | 59,25 |
| 2018 | 58,92 | 55 |
| 2019 | 54,69 | 51,05 |
| 2020 | 44,25 | 41,23 |
Working out
2016
67,09
2017
63,43
2018
58,92
2019
54,69
2020
44,25
Useful vacation
2016
63,03
2017
59,25
2018
55
2019
51,05
2020
41,23
Financial results
Revenue. The company produces and sells less electricity from year to year. Based on the results of 2020 year, OGK-2's revenue decreased by 10% year to year - before 120,7 billion rubles.
Operating expenses. Along with the drop in revenue, the cost of electricity production also decreases due to lower costs of purchasing fuel for thermal power plants.. IN 2020 year, the company's operating expenses decreased by 13% - to 101,5 billion rubles.
Operating profit the company has grown by 3% - up to record 18,4 billion rubles.
Net finance costs OGK-2 decreased by 27% year to year - before 2 billion rubles - due to the reduction of expenses on loans and borrowings. The management used part of the money from the sale of the power plant to reduce the debt burden.
Besides, in December 2019 OGK-2 acquired a stake in GEH Industrial Assets, which owns a package of a large power engineering association "REP Holding" - is developing, manufacturing and sale of modern power equipment. The profit from participation in this enterprise amounted to 2020 of the year 0,8 billion rubles.
Net profit by the end 2020 years was record 13,3 billion rubles and has been growing over the past 6 years.
Dynamics of financial indicators of the company, billion rubles
| Revenue | Operating profit | Net profit | |
|---|---|---|---|
| 2016 | 134,4 | 9,4 | 3,1 |
| 2017 | 141,3 | 15,6 | 7,2 |
| 2018 | 143,2 | 14,1 | 8,3 |
| 2019 | 134,6 | 17,8 | 12,0 |
| 2020 | 120,7 | 18,4 | 13,3 |
Revenue
2016
134,4
2017
141,3
2018
143,2
2019
134,6
2020
120,7
Operating profit
2016
9,4
2017
15,6
2018
14,1
2019
17,8
2020
18,4
Net profit
2016
3,1
2017
7,2
2018
8,3
2019
12,0
2020
13,3
Debts
OGK-2's net debt for 31 December 2020 years decreased by 14% - to 44,9 RUB bln - due to the reduction of short-term loans and borrowings after the sale of Krasnoyarskaya GRES-2. Net debt ratio / EBITDA "continues to decline and at the end reached 2020 year minimum 1,29, what speaks about the good financial stability of the business.
Dynamics of debt indicators, billion dollars
| net debt | net debt / EBITDA | |
|---|---|---|
| 2016 | 62,511 | 3,3x |
| 2017 | 54,194 | 2,02x |
| 2018 | 40,493 | 1,5x |
| 2019 | 52,539 | 1,46x |
| 2020 | 44,935 | 1,29x |
net debt
2016
62,511
2017
54,194
2018
40,493
2019
52,539
2020
44,935
net debt / EBITDA
2016
3,3x
2017
2,02x
2018
1,5x
2019
1,46x
2020
1,29x
Dividends
OGK-2's dividend policy was last updated in 2017 year, and there are no clear criteria for calculating dividends. Nose 2020 of the year OGK-2 switched to payment of at least 50% of net profit under IFRS and paid based on the results 2019 of the year 0,0544 P per share - 50% from net profit.
In March of this year, the management of OGK-2 announced, as in the end 2020 year dividends are expected at the level 50% from net profit. Shareholders can count on at least 0,06 P per share, unless management changes its mind.
Dynamics of dividend payments
| Dividend per share | Share of profit under IFRS | |
|---|---|---|
| 2015 | 0,0057 R | 23% |
| 2016 | 0,0083 R | 29% |
| 2017 | 0,0163 R | 24% |
| 2018 | 0,0368 R | 47% |
| 2019 | 0,0544 R | 50% |
| 2020 | 0,06 R | 50% |
Dividend per share
2015
0,0057 R
2016
0,0083 R
2017
0,0163 R
2018
0,0368 R
2019
0,0544 R
2020
0,06 R
Share of profit under IFRS
2015
23%
2016
29%
2017
24%
2018
47%
2019
50%
2020
50%
What's the bottom line?
OGK-2 is an example of good business optimization. The company reduced production capacity and received an increase in profits. Even in a crisis for the energy industry 2020 year it has demonstrated strong financial results.
The reporting shows, as with 2016 the volume of electricity production and revenue of OGK-2 are falling, but this allows the company to update its net profit records annually and reduce the level of debt burden. Similarly, the size of dividends per share is growing and may again renew the record based on the results 2020 of the year.
Any optimization has its own reasonable limits., therefore, it is important, so that management in a timely manner shift the focus from cost optimization to investment in new efficient production facilities.
