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Hayır (No)
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12.11.2018
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The outline of "2018 Overview Teleconference", which has been held today, is presented below to our stakeholders and the presentation in English is available at http://www.aksainvestorrelations.com/presentations/financial-presentations/.
The Sector
The total installed capacity of Turkey increased YoY by 5.251 MW, reaching 88.526 MW in 2018. Thus, the installed capacity of Turkey increased by 38% with the commissioning of 24.518 MW new capacity in the last 5 years. When new and decommissioned capacities are netted off, there is an increase of 1.135 MW in coal, 1.079 MW in hydro and 486 MW in wind capacities in 2018. The installed capacity of natural gas power plants, on the other hand, decreased by 670 MW. The most notable capacity increase has been realized in unlicensed power plants, which rose from 2.633 MW in 2017 to 5.376 MW in 2018.
In 2018, electricity generation and consumption throughout the country increased by 0.8%, well below the GDP growth of 2.6%. Generation from natural gas decreased by 18% YoY while the generation from coal & lignite made up for this decrease by increasing 17% YoY due to lower cost of production. Hydroelectric power plants have the largest share in the installed capacity with 32%, followed by natural gas with 29%, coal with 22%, wind with 8% and others with 9%. In terms of generation by fuel type, generation from coal was the highest with 37%, followed by natural gas with %31, hydroelectric with 20% and wind with 7%. The remaining 4% was generated by other resources.
The cost of natural gas, which was TRY 800/thousand m3 at the beginning of 2018, surged to TRY 1.755/thousand m3 in July and closed the year at TRY 1.550 TRY/thousand m3, corresponding to an increase of 94%. The spot market energy prices, on the other hand, increased by 40% to TRY 234 in 2018. The main factor for the price increase was the increase in cost of natural gas. The spot energy prices, which were high, particularly during the period August-September due to the increasing natural gas prices, started to fall as of October 2018. The driving force behind the decrease in spot energy prices was heavy rainfall, which was above seasonal levels, increasing the low-cost electricity generation by hydroelectric power plants. (The graph of natural gas costs and weighted average spot market energy prices is presented in the PDF attached.) Operations As at YE2018, Aksa Energy's total installed capacity is 2.061 MW. However, as we submitted an application to Energy Market Regulatory Authority to revoke the generation license of Manisa Combined Cycle Natural Gas Power Plant in 2018, our active portfolio is 1.946 MW. Despite the decrease in total sales volume due to the sale of the HEPP and WPPs, the revenue of Aksa Energy increased by 30% YoY in 2018 to TRY 4.7 billion thanks to the increase in spot energy prices in Turkish market and the guaranteed sales of hard currency denominated contracts in TRNC and African PPs. The high profit margns of the Northern Cyprus and African PPs, which were in operation in the full 12 months had a positive impact on EBITDA and the net profit, despite the negative impact of increased natural gas prices on the profit margns of domestic natural gas power plants. In 2018, Aksa Energy recorded TRY 1.033 million of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and TRY 150 million of net profit. In 2018, Aksa Energy recorded 15.14 TWh of energy sales, 13.43 TWh of which was generated by the power plants in Turkey and 1.72 TWh by the overseas PPs in Northern Cyprus, Ghana, Mali and Madagascar. Domestic Sales In 2018, Aksa Energy's total electricity sales volume in Turkey decreased by 17% YoY from 16.2 KWh to 13.4 KWh, reflecting the changes in market dynamics and the effect of the sale of the HEPP and WPPs. Nevertheless, the Company generated TRY 3.04 billion of revenues from Turkish operations in 2018 thanks to the agile and effective management of the power plants in its portfolio and the increase in spot energy prices. In 2018, electricity prices in the spot market increased significantly, as the increase in natural gas prices due to the devaluation of Turkish Lira was reflected into the costs particularly as of August. Although Aksa Energy's sales depended heavily on bilateral agreements in previous years due to the lower and fluctuating price environment in the spot market; the Company reduced its bilateral sales in 2018 to benefit from higher spot prices. In 2018, Aksa Energy recorded a sales volume of 13.4 billion KWh in Turkey, a considerable portion of which was sold on the spot market. Pursuing a strategy focused on profitability rather than sales volume, the Company significantly aligned its power plant operations with the peak-price periods in the spot market. Accordingly, spot market sales constituted 68% of the total domestic sales, OTC and bilateral agreements 28% and the remaining 5% was sold to group companies. The average annual sales price of OTC and bilateral agreements was TRY 182-184 in 2018, as these contracts were executed early in the year when the prices were lower. The Company significantly reduced its energy sales to group companies as well as the OTC and bilateral sales in tandem with the increasing spot market prices, and made no energy sales to group companies in the last quarter of the year. The spot price increase has improved the profitability of the local coal fired Bolu Göynük Thermal Power Plant. In 2018, nearly half of the production of Bolu Göynük Thermal Power Plant was sold on the spot market. The increase in natural gas costs due to the increase in FX rates in the second half of the year caused a sharp increase in spot energy prices, leading to a positive impact on our coal fired power plant. Bolu Göynük Thermal Power Plant started to sell electricity as part of the tender for the "Purchase of Electricity from Private Companies Operating Only Domestic Coal-Fired Power Plants" in 2017; and in 2018, it sold half of its production to EUAS as part of the tender. The Cabinet Decree on Procedures and Principles Regarding Purchase of Electricity from Private Companies Operating Only Domestic Coal-Fired Power Plants was amended in 2017, giving a 7-year power purchase guarantee, starting from 2018, for domestic coal-fired power plants and for power plants operating on a mixture of domestic and imported coal. The purchase price for the first quarter of 2017 was determined as TRY 185/MWh, which was revised every quarter in accordance with a price index based on PPI and CPI throughout 2018. The purchase price was set at TRY 201.35/MWh for 1Q2018, TRY 209.46/MWh for 2Q2018, TRY 226.16/MWh for 3Q2018 and rose to TRY 259.68/MWh as of the last quarter of 2018. Furthermore, as part of the Regulation on the Electricity Market Capacity Mechanism issued by the Energy Market Regulatory Authority (EPDK), EUAS makes a capacity payment within the scope of its annual budget, to the licensed power plants which meet the determined efficiency and age criteria in order to establish a sufficient installed power capacity, including the reserve capacity, for the assurance of security of supply in electricity market and/or to protect the installed reliable power capacity for the assurance of long term system security. In 2018, Ali Metin Kazancı Antalya Natural Gas Combined Cycle Power Plant and Bolu Göynük Thermal Power Plant were deemed eligible to benefit from the capacity mechanism and received capacity payments. Overseas Sales
Aksa Energy boasts four power plants in TRNC, Ghana, Madagascar and Mali. Additionally, the rehabilitation of a 24 MW power plant (CTA-2) in Madagascar was carried out on behalf of the country, which became operational with the commissioning of 12 MW on 6 December 2018 and the remaining 12 MW on 8 January 2019. The electricity generated at CTA-2 Power Plant is being sold to Jirama via guaranteed sales (take-or-pay) in US Dollars for a duration of 5 years.
The purchase tariffs of Aksa Energy's overseas power plants, including the one in TRNC and CTA-2 Power Plant, which is operated on behalf of Madagascar, consist of two components:
The first component is the guaranteed purchase tariff (take-or-pay) that yields a fixed income on the basis of a guaranteed capacity held at disposal for electricity generation on behalf of the country. This component, called capacity payment, yields a fixed income through guaranteed payments received based on the contracts of individual power plants, regardless of their actual energy production or the country's current energy needs. The guaranteed (take-or-pay) capacity of Ghana HFO Power Plant is 332 MW out of 370 MW installed capacity, while 60 MW of the 66 MW installed capacity of Madagascar HFO Power Plant and 30 MW of the 40 MW installed capacity of Mali HFO Power Plant are covered by guaranteed capacity payments. Guaranteed capacity payments of CTA-2 HFO Power Plant, which is operated by Aksa Energy for five years until January 2024, are not collected on the basis of a guaranteed capacity but at a fixed monthly amount set forth in the contract.
The second component of the tariff is set up in the same way in all overseas power plants, including TRNC and CTA-2. This component encompasses the sale of electricity generated at the hard currency denominated price set in the contracts signed with each country. Production dispatch sent to the power plants vary according to the energy needs of the countries, seasonality or electricity generation of their renewable power plants. Therefore, this component of the tariff generates a variable income.
Despite potential negative impact of the changing energy demands of the countries, seasonality and electricity generation by renewable power plants, the contribution of the overseas power plants to Aksa Energy's profitability continues to be high, as the guaranteed (take-or-pay) purchases constitute the larger portion in Aksa Energy's sales tariffs.
Having been commissioned gradually in 2017 and been operational for 12 months in 2018, Ghana, Madagascar and Mali HFO power plants have a positive effect on the profitability of the Company, which is also reflected in the year-end financial statements. Having recorded a generation volume of 963.832 MWh in 2017, the African power plants generated 1.011.412 MWh of electricity in 2018.
Moreover, the profitability created by take-or-pay sales regardless of the electricity generated at the African power plants, increased as these power plants were operational for the whole year. Additionally, take-or-pay capacity of Ghana HFO Power Plant rose from 223.5 MW to 332 MW as of December 2018 as a result of a 90 MW capacity increase. Aksa Energy boosted its sales volume in Africa and TRNC by 10% to 1.715.725 MWh in 2018.
The African power plants recorded a sales volume of 432.987 MWh in the first quarter, 255.902 MWh in the second quarter, 152.419 MWh in the third quarter and 170.104 MWh in the fourth quarter of 2018. The main reason for the decrease in sales volume is the increase in low-cost electricity generation by hydroelectric power plants due to heavy rainfall. In these periods of low sales volume, African PPs continued to generate revenue from guaranteed take or pay sales, however these are not included in the sales volume as they cannot be expressed in MWh. Despite decreasing sales volume, the average sales price of TRY 732 in the first quarter surged to TRY 1.669 in the fourth quarter due to the increase in exchange rates and the guaranteed capacity invoices collected independently of sales volume.
Summary on the Developments in Overseas Contracts
Ghana: The installed capacity of Ghana HFO Power Plant rose from 280 MW to 370 MW, while the guaranteed capacity rose from 223.5 MW to 332 MW thanks to the 90 MW extension. As of the date of capacity increase (19 November 2018), capacity fees are charged on 332 MW.
Increase in fuel prices combined with liquidity issues resulted in distortion in regular payments but the invoices are being collected with some delays. The standby Letter of Credit (SBLC) continues to provide payment guarantee in case needed. The SBLC confirmation is confirmed with Abu Dhabi Commercial Bank until the end of the current PPA.
In 2018, Ghana raised $2 billion after issuance of 10y and 30y Eurobonds, with 7.62% and 8.62% interest rates respectively. In March 2019, the country issued $3billion Eurobond in three tranches with maturity of 7 years, 12 years and 31 years. Following such successful issuances, the Government is planning to finalize and end a long lasting IMF standby deal in April 2019, which should improve public spending starting from 2H2019. This is expected to positively impact the public spending and the energy demand in the country.
Mali: 40 MW installed capacity is up and running since September 2017. Negotiations to extend the duration and capacity have been suspended due to the changes in the top management of Aksa Energy and the office changes in Mali following the general elections. Negotiations are expected to resume in the 2nd quarter of 2018.
Madagascar: 66 MW installed capacity has been up and running since August 2017. We do not foresee any developments before 2021 concerning the Government's plan to build transmission lines for the installation of 54 MW capacity as part of the second phase of our agreement. Installed Capacity Changes/Portfolio Efficiency Ali Metin Kazancı Antalya Natural Gas Combined Cycle Power Plant - As per the license revision application submitted to the Energy Market Regulatory Authority, the installed capacity of Ali Metin Kazancı Antalya Combined Cycle Natural Gas Power Plant has been reduced from 1,150 MW to 900 MW, therefore the power plant's annual production capacity is also reduced from 9 billion KWh to 7 billion KWh. Since the cancelled production unit has not contributed to the actual energy generation in 2018, the license revision had no effect on the energy generation or operating income of Ali Metin Kazancı Antalya Combined Cycle Natural Gas Power Plant in 2018. Manisa Natural Gas Combined Cycle Power Plant - Aksa Energy submitted an application to Energy Market Regulatory Authority (EMRA) to revoke the generation license of Manisa Combined Cycle Natural Gas Power Plant, which has an installed capacity of 115 MW. Madagascar CTA-2 Power Plant – CTA-2 Power Plant, owned by Madagascar, was rehabilitated on behalf of the country. The 24 power plant became operational with the commissioning of 12 MW on 6 December 2018 and the remaining 12 MW on 8 January 2019. Gana HFO Power Plant – The installed capacity rose from 280 MW to 370 MW following a capacity increase of 90 MW. Corrections to the Financial Statements for Q1, Q2 and Q3 2018 As the corrections to the depreciation expense for African power plants in the Interim Consolidated Financial Statements for the period January 1 - September 30, 2018 together with the footnotes, which was disclosed on the Public Disclosure Platform on the 9th November 2018 also affect our results in Q1 and Q2 2018; the revised and audited Financial Statements for Q1, Q2, Q3 and Q4 2018 were issued simultaneously in March 18, 2018. As a result of the aforementioned depreciation corrections, the net profit was revised from TRY 68.2 million to TRY 48.3 million for 1Q2018 and from TRY 65.1 million to TRY 36.4 million for 2Q2018. Furthermore, the previously announced net loss of TRY 8.1 million for 3Q2018 was revised as net profit of TRY 45.3 million. The corrections to the Interim Financial Statements also caused changes in the net profit attributable to the non-controlling interests and the figures were revised in the financial statements announced on March 18, 2019. Depreciation of the tangible assets registered under our African power plants are calculated according to the contract durations and the currency set in the contracts of individual power plants. The FX-based depreciation figures are then converted into Turkish Lira and are reflected in our consolidated financial statements. Therefore, depreciation figures increase or decrease relative to the devaluation/appreciation TRY against USD and Euro. Financial Statements for 31.12.2018 (As per IFRS Results) The positive effect of power plants in Africa on Aksa Energy's profitability can be seen in 4Q2018 financials. The revenue of Aksa Energy increased by 30% to TRY 4669 mn, while EBITDA rose by %110 to TRY 1.033 mn YoY. In addition, gross profit and operating income increased 2.3x and 2.4x YoY, respectively. Aksa Energy, which recorded a total net profit of TRY 290 million as of YE2017, including one-off gains from the sale of the HEPP and WPP assets, realized TRY 179.78 million of earnings before tax in 2018. The Company recorded TRY 29.3 million of net tax expenditure and closed the year with a total net profit of TRY 150 million. EBITDA margn in 2018 rose from 13.7% to 22.1%.
In the breakdown of the net profit for 2018, the net profit attributable to "non-controlling interests" is TRY 124.38 million whereas the profit attributable to the main company (Aksa Energy) is TRY 26.09 million. In 2017, the net profit attributable to non-controlling interests was realized at TRY 32.26 million whereas the profit of the main company was TRY 357.31 million. However, the primary reason for the increase in the total profit of the main company in the financial statements for the period ended 31 December 2017 is the significant one-off income recorded as a result of the WPP and HEPP asset sales completed during that year, followed by the relatively smaller net profit contribution of African PPs in 2017. The profit from the African operations constitutes a large portion of our total profit, particularly due to the high USD exchange rate. Aksa Energy has a participation rate of 75% in Ghana and 58.35% in Madagascar, while the remaining portions are owned by minority shareholders. As the profit from our operations in Ghana and Madagascar is denominated in USD, the profit attributable to the non-controlling interests increases in tandem with the appreciation of USD against Turkish Lira. While Aksa Energy has 100% ownership in its Mali power plant, the PP constitutes only 8% of the installed capacity in Africa, and its contribution to the total profit is relatively low. As the operations in Ghana and Madagascar are more profitable compared to domestic operations, the profit attributable to the non-controlling interests is higher. The profit attributable to the non-controlling interests has changed as a result of prior period revisions which have been reflected in the financial tables disclosed on March 18, 2019. Turkey and Northern Cyprus operations account for 75% of our sales revenue, while the operations in Africa account for 65% of EBITDA. In addition, as our power plant in Northern Cyprus sells the energy generated on a guaranteed basis in USD denomination; our overseas power plants in Africa and Northern Cyprus generate foreign exchange denominated sales. Therefore, in 2018, 75% of our EBITDA was USD-based while 25% was TRY-based. "Net financial debt/EBITDA" ratio decreased from 8.6x in 1Q2017 to 3.6x in 4Q2018, thanks to strong contribution of African sales. (The net financial debt/EBITDA graph showing the quarterly evolution is presented in the PDF file attached.) As YE 2018, 57% of our liabilities is denominated in TRY, 41% in USD and 2% in EUR. We have hedged all our USD debt payment commitments due in 2018 back in 2017 and realised a profit of TRY 66.9 mn as a result of the settled hedges. Accordingly, 54% of FX-based loans due in 2019 are fully hedged as at YE2018. Developments in 2019 Bolu and Antalya - Pursuant to the "Purchase of Electricity from Private Companies Operating Only Domestic Coal-Fired Power Plants" agreement announced on January 23, 2019, Turkish Lira-denominated power purchases are partially pegged to US Dollar including an additional 3% incentive for the power plants that have acquired the necessary permits in accordance with the environmental legislation and completed their investments. As per the agreement, for the remaining 6 years of the 7-year power purchase guarantee given within the framework of Cabinet Decree numbered 2017/11070, the purchase price for the first quarter of 2019 has been determined as 285 TRY/MWh, to be revised in accordance with a price index based on PPI, CPI, and USD in the following months. The price of TRY 285 set for the first quarter of 2019 is 15% higher than the weighted average market clearing price of TRY 248 for January and February 2019. The sales volume of Bolu Goynuk Thermal Power Plant has been determined as 1.14 TWh. Accordingly, a revenue of USD 58.5-64.3 million is anticipated for 2019, and if the sales volume and price range remain the same, the revenues of 2020 and the next five years are projected to be at the same level. In addition to the USD-denominated energy sales to EUAS, Bolu Goynuk Thermal Power Plant will continue to sell the remaining portion of the energy it generates in Turkish Lira via spot market operations and/or bilateral agreements, while generating additional revenues within the framework of capacity mechanism together with Ali Metin Kazancı Antalya Natural Gas Combined Cycle Power Plant. CTA-2 Madagascar – The rehabilitation of CTA-2 Power Plant was carried out on behalf of Madagascar and the power plant became operational with the commissioning of 12 MW on 6 December 2018 and the remaining 12 MW on 8 January 2019. The electricity generated at CTA-2 Power Plant is being sold to Jirama via guaranteed sales (take-or-pay) in US Dollars for a duration of 5 years. Respectfully announced to the public and our esteemed investors. |
We proclaim that our above disclosure is in conformity with the principles set down in “Material Events Communiqué” of Capital Markets Board, and it fully reflects all information coming to our knowledge on the subject matter thereof, and it is in conformity with our books, records and documents, and all reasonable efforts have been shown by our Company in order to obtain all information fully and accurately about the subject matter thereof, and we’re personally liable for the disclosures.