GOGC released strong audited FY17 results. Revenue remained largely flat, standing at US$ 267.7mn, while the reduction in the average gas purchase price contributed to the decline in operating expenses (-7.9% y/y to US$ 188.9mn). As a result, adjusted EBITDA reached US$ 93.7mn, up 17.7% y/y. Higher adjusted EBITDA and the considerable cash balance drove the net-debt-to-adjusted EBITDA ratio to 0.9x as of end-17 compared to 2.2x a year before. With significant capital expenditures planned for 2018-20, we expect this ratio to temporarily deteriorate in 2018 but remain comfortably below the 3.75x Eurobond covenant. The commissioning of the Gardabani II CCPP from 2019 is expected to generate an additional steady cash flow stream for GOGC and bring this ratio close to 1.0x.
Revenue flat
FY17 revenue remained flat at US$ 267.7mn. Gas and electricity sales – two major revenue streams accounting for 86.3% of the total revenue – remained relatively stable, growing 2.8% y/y and 2.2% y/y, respectively. Revenue from rent of pipelines was down 17.6% y/y to US$ 23.9mn while crude oil sales rose 27.4% y/y, helped by increased oil prices worldwide.
Operating expenses down
The cost of gas, the largest expense category accounting for 82.9% of total operating expenses, was down 4.8% y/y to US$ 157.4mn. Other operating expenses were also down (-18.5% y/y). The strengthening of the GEL against the US$ between end-16 and end-17 led to a non-cash FX gain of US$ 2.7mn in the reporting period compared to a US$ 21.3mn loss last year.
EBITDA and profitability improved
Reduced operating expenses coupled with stable revenue stream translated into a 17.7% y/y increase in adjusted EBITDA, which came in at US$ 93.7mn. The adjusted EBITDA margin also improved to 35.0% in 2017 from 29.7% a year before. Appreciation of the local currency in 2017 helped the bottom line, which more than doubled to US$ 87.9mn in 2017.
Major capital projects planned over 2018-20
China Tianchen Engineering Corporation was chosen to construct the Gardabani II CCPP with installed capacity of 230MW. The active phase of construction began in spring 2018 and completion is scheduled for winter 2019-20. The construction will be fully funded from GOGC’s internal sources.
Construction of the underground gas storage reservoir is planned for 2019-20. The German Development Bank (KfW) and European Investment Bank (EIB) are among the international organizations being considered for financing the US$ 300mn project.
Compliant with Eurobond covenants
With significant growth of adjusted EBITDA, the net-debt-to-adjusted EBITDA ratio improved considerably from 2.2x in 2016 to 0.9x in 2017. This ratio is expected to remain comfortably below the Eurobond covenant of 3.75x over the medium term.
