GOGC released FY16 audited results. Revenue increased 22.7% y/y to US$ 267.7mn, driven by electricity sales of US$ 77.9mn. Electricity sales, now with a sizable, 29.1% share in revenue, has helped GOGC diversify its business. Revenues from traditional sources posted low single-digit decreases, while operating expenses were up 14.2% y/y to US$ 205.0 mn. As a result, adjusted EBITDA increased 57.3% y/y to US$ 79.6mn. Higher profitability led to a significant improvement in the net debt-to-adjusted EBITDA ratio to 2.0x, well below the Eurobond covenant of 3.5x.
Sale of gas and pipeline rental revenues declined 4.5% y/y to US$ 147.1mn and 4.5% y/y to US$ 28.9mn, respectively. Due to lower oil prices, crude oil sales and transportation categories posted marginal declines as well, with revenues down 2.6% y/y to US$ 4.4mn and 3.7% y/y to US$ 7.6mn, respectively. Oil trading, a new business line for GOGC, brought in US$ 1.7mn in revenue, generated by providing logistical services for the transportation of Turkmen crude oil from Baku to Batumi. The slight underperformance in traditional business lines was compensated by a 262.9% y/y increase in electricity sales to US$ 77.9mn, as FY16 was the first fully operational year for the Gardabani combined-cycle power plant.
FY16 operating expenses increased 14.2% y/y to US$ 205.0mn. Cost of gas sold decreased 5.1% y/y to US$ 130.5mn, while cost of gas used in electricity generation grew 215.7% y/y to US$ 34.8mn, as FY16 was the first full year of electricity generation.
FY16 adjusted EBITDA increased 57.3% y/y to US$ 79.6mn, leading to a considerable improvement in the adjusted EBITDA margin to 29.7% (23.2% in FY15). EBIT grew 58.8% y/y to US$ 63.2mn. The weakening of GEL against US$ in FY16 triggered a non-cash FX loss of US$ 21.3mn, accounted for as a finance cost and dampening the bottom line performance, which was still up 141.8% y/y to US$ 33.0mn.
Operating cash flow was at a three-year high of US$ 67.2mn. A 50.0% y/y decrease in capital spending to US$ 22.4mn helped GOGC close FY16 with US$ 148.0mn in cash, which, coupled with higher adjusted EBITDA, drove a significant improvement in the net debt-to-adjusted EBITDA ratio to 2.0x, comfortably below the Eurobond covenant of 3.5x. Despite the additional interest expense on the outstanding portion of the GEOROG 05/17 Eurobond in FY16, the adjusted EBITDA coverage ratio improved from 2.7x in FY15 to 3.9x.
In Apr-16, GOGC refinanced its outstanding GEOROG 05/17 US$ 250.0mn Eurobond with a new US$ 250.0mn Eurobond maturing in five years. Approximately 78% of the outstanding bonds were purchased by GOGC, while the rest was redeemed in May-17. Construction of Gardabani CCPP II is expected to commence in 2H17, while the gas storage reservoir project is in the planning phase, as GOGC evaluates various financing options. A full report with our detailed projections will follow shortly.
