GOGC has released its 1H15 unaudited results. Sale of gas drove up 1H15 revenue 4.5% y/y, despite a drop in income from crude oil. Operating expenses increased 19.1% y/y and led to a 28.2% y/y drop in adjusted EBITDA. Lower finance income, coupled with FX loss-inflated finance costs, weighed on the bottom line. We expect operating performance to recover from 4Q15 onwards thanks to Gardabani CCPP’s more profitable electricity generation business.
We expect adjusted EBITDA to grow 3.3% y/y in FY15 and 62.4% y/y in FY16 (the first fully operational year of Gardabani CCPP). On the back of the recent loan repayment of US$ 60.0mn from the Partnership Fund, we expect end-FY15 net debt-to-EBITDA to improve to 1.9x, providing ample headroom up to the Eurobond covenant of 3.5x.
1H15 revenue showed a growth of 4.5% y/y (down 4.3% y/y in 1H14) to US$ 107.6mn (US$ 103.0mn in 1H14). The increase was driven by sale of gas and pipeline rental, growing 11.7% y/y (down 4.9% y/y in 1H14) and 8.1% y/y (up 13.7% y/y in 1H14), accounting for US$ 86.0mn (US$ 77.0mn in 1H14) and US$ 15.4mn (US$ 14.2mn in 1H14), respectively. Income from crude oil dropped off 73.4% y/y due to lower exploration activity and lower oil prices. In line with WREP pipeline throughput volume and an augmented tariff, oil transportation fee increased 11.9% y/y and reached US$ 4.2mn. In FY15, we project a growth of 9.3% y/y in revenue and 3.3% y/y in adjusted EBITDA, thanks to electricity sales from Gardabani CCPP.
1H15 operating expenses increased 19.1% y/y (down 1.2% y/y in 1H14) to US$ 87.7mn (US$ 73.6mn in 1H14), on the back of a 24.1% y/y increase (down 0.7% y/y in 1H14) in cost of gas. Per company guidance, average gas purchase price increased 8.0% y/y as GOGC tapped higher gas volumes from the more expensive contract with SOCAR in 1H15. We expect GOGC’s breakdown of gas sources to stay largely the same in FY15 as it was in FY14; therefore, cost of gas on an annual basis should not go up significantly as a lower average purchase price in the second half should partly compensate for the spike in the first half. All other operating expenses decreased y/y as they are mostly denominated in GEL.
1H15 adjusted EBITDA shrank 28.2% y/y (down 12.2% y/y in 1H14) to US$ 24.4mn (US$ 34.0mn in 1H14), on the back of lower income from crude oil and higher operating expenses. A significant FX loss, non-cash and unrealized, triggered by the sharp GEL depreciation, weighed on net income, bringing it down to US$ 1.4mn (US$ 29.7mn in 1H14).
