1  The Organisation and its Operations

DTEK RENEWABLES B.V. ("the Company") is a private limited liability company incorporated on 9 September 2013, under the laws of The Netherlands, with its corporate seat in Amsterdam, The Netherlands. The Company is controlled by DTEK B.V., which is the holding company of a vertically integrated power generating and distribution and gas production business of Joint Stock Company "System Capital Management Limited" ("SCM"). SCM and DTEK RENEWABLES B.V. are ultimately controlled by Mr. Rinat Akhmetov who has a number of other business interests outside of the Company. Related party transactions are detailed in Note 7.

The Company's and its subsidiaries' (together referred to as "the Group" or "DTEK Renewables") principal activity is the production and sale of electricity generated at wind and solar power plants in Ukraine.

At the reporting date, the principal subsidiaries are as follows:

Name	% interest held as at		Country of incorporation
	30 June 2020	31 December 2019
PRIMORSKAYA WEP B.V.	100.00	100.00	The Netherlands
DTEK RENEWABLES FINANCE B.V. (previously named DTEK FINANCE B.V.)	100.00	100.00	The Netherlands
DTEK BERDYANSKA WEP LLC (previously named SOLAR FARM - 9 LLC)	100.00	100.00	Ukraine
DTEK CONSTRUCTION SOLUTIONS LLS (previously named SOLAR FARM - 2 LLC)	100.00	100.00	Ukraine
DTEK RES LLC	99.90	99.90	Ukraine
DTEK TILIGUL WEP - 2 LLC (previously named SOLAR FARM - 12 LLC)	100.00	100.00	Ukraine
DTEK TILIGUL WEP LLC (previously named SOLAR FARM - 10 LLC)	100.00	100.00	Ukraine
ORLOVSKAYA WEP LLC	87.00	87.00	Ukraine
PRIMORSKAYA WEP - 2 LLC	94.00	94.00	Ukraine
PRIMORSKAYA WEP LLC	100.00	100.00	Ukraine
SOLAR FARM - 1 LLC	100.00	100.00	Ukraine
SOLAR FARM - 3 LLC	100.00	100.00	Ukraine
SOLAR FARM - 4 LLC	100.00	100.00	Ukraine
SOLAR FARM - 5 LLC	100.00	100.00	Ukraine
SOLAR FARM - 6 LLC	100.00	100.00	Ukraine
SOLAR FARM - 7 LLC	100.00	100.00	Ukraine
SOLAR FARM - 8 LLC	100.00	100.00	Ukraine
SOLAR FARM - 11 LLC	100.00	100.00	Ukraine
SOLAR FARM - 13 LLC	100.00	100.00	Ukraine
SOLAR FARM - 14 LLC	100.00	100.00	Ukraine
SOLAR FARM - 15 LLC	100.00	100.00	Ukraine
TILIGUL WEP LLC	100.00	100.00	Ukraine
TRYFANOVKA ENERGY LLC	100.00	100.00	Ukraine
WIND POWER LLC	99.90	99.90	Ukraine
WIND TECH LLC	100.00	100.00	Ukraine

 

The Group is registered at Strawinskylaan 1531, Tower B, Level 15, grid TB-15-046/089, 1077XX Amsterdam, the Netherlands. The principal place of business of its operating subsidiaries is 57 Lva Tolstogo str, 01032 Kyiv Ukraine.

2  Operating Environment of the Group

The spread of the COVID-19 pandemic in the world and imposed quarantine restrictions by local governments, led to a sharp decrease in global economic activity, including in Ukraine. In the second quarter of 2020 the decline of Ukraine GDP was 11% in contrast to 4.6% growth in the second quarter of 2019. In April 2020 Fitch Ratings affirmed Ukraine's sovereign rating at 'B' and revised Outlook to Stable from Positive.

Due to the slowdown in economic activity and increase in demand there was devaluation of Ukrainian Hryvnia by 13.4% towards Euro (as at 30 June 2020, the official NBU exchange rate of Hryvnia against EUR was UAH 29.95 per EUR 1, compared to UAH 26.42 per EUR 1 as at 31 December 2019).

In order to support Ukrainian economy, in June 2020 the National Bank of Ukraine ("NBU") reduced its discount rate to 6% per annum, thereby continuing easing its monetary policy following a gradual decrease of the discount rate of 18% per annum in April 2019 to 11% per annum in January 2020.

 

 

2  Operating Environment of the Group (continued)

In recent years there was easing of currency control restrictions that were introduced in 2014-2015. Namely, starting from July 2019 NBU allowed Ukrainian companies to pay dividends to non-residents without any limits regardless of the period to which they relate.

In June 2020, the IMF Board of Directors approved an 18-month Stand-by Arrangement (SBA) for Ukraine, totalling USD 5 billion. The new arrangement succeeds the 14-month SBA that was approved in December 2018, and focused on maintaining stability during 2019, when Ukraine faced presidential and parliamentary elections. Policies under the new arrangement aims to help Ukraine to cope with COVID-19 pandemic challenges by providing balance of payments and budget support, while safeguarding achievements to date and advancing a small set of key structural reforms, to ensure that Ukraine is well-positioned to return to growth when the crisis ends.

In 2020 Ukraine faces major public debt repayments, which will require mobilising substantial domestic and external financing in an increasingly challenging financing environment for emerging markets.

The events which led to annexation of Crimea by the Russian Federation in February 2014 and the conflict in the east of Ukraine which started in spring 2014 have not been resolved to date. The relationships between Ukraine and the Russian Federation have remained strained. There have been no major developments in the recent years and at the reporting date, approximately 38% of the Group's property, plant and equipment are located near Nikopol, Dnipropetrovsk region, 280 kilometres away from the current ceasefire line, 46% of the Group's property, plant and equipment are located in Botievo, Zaporizhzhya region, 180 kilometres away from the current ceasefire line, 15% of the Group's property, plant and equipment are located in Primorsk, Zaporizhzhya region, 125 kilometres away from the current ceasefire line and the remaining 1% of the Group's property, plant and equipment are located elsewhere, on territories under control of the Ukrainian authorities. There were no direct material consequences from these events for the Group.

Following the Electricity Market Law introduced on 13 April 2017, the electricity market of Ukraine was under transformation during 2017-2019. Changes were aimed at bringing liberalization of the market, removing the state monopoly on the electricity wholesale held by the state-owned Energorynok SE and enhancing competition among participants. Within the first part of the transformation during 2018, all regional distribution companies (oblenergos) were divided into distribution system operators and electricity service suppliers. This liberalization allowed new market players (independent suppliers) to enter the electricity market and consumers to choose their own electricity supplier. Within the second part of the transformation, started from 1 July 2019, the new "wholesale" electricity market was introduced. The new electricity market is to imply five formats - bilateral agreements, a day-ahead market, an intra-day market, a balancing market, and an additional services market.

The Group works under long-term power purchase agreements (PPAs). As at 30 June 2020, the Group had PPAs for all its currently operating subsidiaries until 1 January 2030, which is the same duration of the Ukrainian fixed FiT regime. Pursuant to the Group's PPAs, tariff rates for wind and solar energy projects are determined under a fixed FiT denominated in Euro for each project. For the Group's wind projects, the FiT ranges from €102 per MWh to €113 per MWh and for all of the Group's solar energy projects, the FiT is €150 per MWh. The National Energy and Utilities Regulatory Commission adjusts the effective FiT on a quarterly basis to track the UAH/Euro exchange rate.

During 2019, according to State Agency on Energy Efficiency and Energy Saving of Ukraine, renewable energy producers commissioned a record total of 4,505 MW of installed capacity of renewable energy generating facilities in Ukraine. Such a rapid increase in capacity led to liquidity problems of the general Energy Market and Guaranteed Buyer SE in particular, so that the latter was not able to timely settle its payables to renewable electricity producers. In June 2020, total debt of Guaranteed Buyer SE to renewable electricity producers approximated UAH 14 billion. On 10 June 2020, the Cabinet of Ministers of Ukraine signed a Memorandum of Understanding on the Settlement of Problematic Issues in the Renewable Energy Sector (further referred as "the Memorandum"). The Memorandum stipulates that the State Authorities of Ukraine shall ensure full and timely settlement of payables on future supply by renewables energy producers to Guaranteed Buyer SE. Further, the State Authorities of Ukraine will ensure that existing outstanding indebtedness of Guaranteed Buyer SE for electricity supplied should be settled according to the agreed schedule prior to 31 December 2021. The schedule assumes that 40% of the existing debt is paid in the 4^th quarter of 2020 and 15% of the debt is paid on a quarterly basis during 2021. Renewable electricity producers, for their end, accept the conditions for the voluntary restructuring of the feed-in tariffs. In particular, tariffs for solar power plants with installed capacity equal to or exceeding 1 MW commissioned from 1 July 2015 to 31 December 2019 are expected to be reduced by 15.0%; for wind power production facilities commissioned from 1 July 2015 to 31 December 2019 and consisting of wind turbines with a unit installed capacity equal to or exceeding 2,000 kW - by 7.5%; for both, solar power plants and wind power plants commissioned from 1 January 2020 - by 2.5%. 

Further, according to the Memorandum, renewable manufacturers accept the terms of limiting the commissioning of new facilities at the feed-in tariffs. Thus, from 1 August 2020, new solar power plants with a capacity of more than 1 MW will be eligible to be put into operation only via participating in auctions. The above-mentioned conditions of the Memorandum will come into force starting from the month following in which the State Authorities of Ukraine adopts the relevant law on the agreements.

 

 

2  Operating Environment of the Group (continued)

On 31 July 2020, the President of Ukraine signed the Law No 810-І "On the Amendments to Certain Laws of Ukraine on Improving the Conditions of Support for Electricity Production from Alternative Energy Sources". The Law is based on the provisions of the Memorandum signed on 10 June 2020 and assumes reduction of the feed-in tariff (FiT) for wind and solar plants, determines renewable electricity producers' liability for imbalances and introduces the "green" auctions. The Law provides for the following restructuring of FiT:

● The reduction of the feed-in tariff for solar power plants and wind power plants, commissioned from 1 July 2015 to 31 December 2019, by 15% and - 7.5% accordingly;

● For wind power facilities commissioned since 1 January 2020, the feed-in tariff is reduced by 2.5%;

● For solar power plants commissioned from 1 January 2020 to 31 October 2020 the feed-in tariff is reduced by 2.5%;

● For solar power plants commissioned since 1 November 2020, the feed-in tariff is reduced by 60%.

The renewable electricity producers - members of the balancing group of Guaranteed Buyer SE shall bear financial liability for imbalances between the projected / submitted to the regulator and actual generation of electricity in the day at the rate of: 50% starting from 1 January 2021; 100% starting from 1 January 2022. The Cabinet of Ministers of Ukraine also committed to envisages in the state budget expenditures on financial support of Guaranteed Buyer SE to pay for current payables for electricity produced by renewable energy producers in the amount of not less than 20 percent of the projected generation of electricity from "green" sources for the year.

With purpose of debt repayment by the Guaranteed Buyer SE to renewable electricity producers within 2021-2022, the Ukrainian government must submit a draft law by 1 November 2020 to issue five-year domestic government bonds.

Thus, starting from 1 August 2020, for all of the Group's wind power plants (except WIND POWER LLC) the feed-in tariff was reduced by 7.5% and all solar power plants by 15%. There was no change in feed-in tariff for WIND POWER LLC as it was commissioned before 1 July 2015.

The Group considers implications of the signed Law to be a non-adjusting post balance sheet event.

Impact of COVID-19 pandemic:

In addition, negative trends in global markets due to the Coronavirus epidemic (COVID-19) may further affect the Group`s operations. Late 2019 news about Coronavirus emerged from China. The situation at year end, was that a limited number of cases of an unknown virus had been reported to the World Health Organization. In the first few months of 2020 the virus had spread globally and its negative impact has gained momentum. While this is still an evolving situation, the future effect cannot be precisely predicted. Management continues to monitor the potential impact of governmental restrictive measures and takes all steps possible to mitigate any negative effects. At the date of these unaudited condensed consolidated interim financial statements, the Group continues to operate. Production facilities are operating at their planned capacity, administrative activities are mostly being managed remotely to ensure that critical activities for the Group are maintained, e.g. reporting and treasury functions. Management does not expect a material impact of the COVID-19 pandemic on the liquidity and continuity of the Group.

3  Basis of preparation

These unaudited condensed consolidated interim financial statements for the six months ended 30 June 2020 have been prepared in accordance with IAS 34 Interim financial reporting as adopted by the European Union. These unaudited condensed consolidated interim financial statements do not include all the information and disclosures required for a complete set of annual financial statements and should be read in conjunction with the Group's financial statements for the year ended 31 December 2019 prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The accounting policies adopted are consistent with those of the Group's annual financial statements for the year ended 31 December 2019.

Income tax expense in the interim period is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. Effective tax rate for six months ended 2020 includes the net effects of non-taxable foreign exchange gains of the Parent and its Dutch subsidiaries (UAH 175 million post tax) and non tax-deductible expenses of ECL charge (UAH 51 million post tax) of these companies.

Exchange rate fluctuations . As at 30 June 2020, the exchange rates used for translating foreign currency balances were EUR 1 = 29.95 UAH (31 December 2019: EUR 1 = 26.42 UAH); USD 1 = UAH 26.69 (31 December 2019: USD 1 = UAH 23.69).

Going concern. As of 30 June 2020 the Group had net current assets of UAH 8,483 million (31 December 2019: net current assets of UAH 6,359 million) and earned a net profit of UAH 440 million for the year ended 30 June 2020 (30 June 2019: net profit of UAH 1,467 million). For the six months ended 30 June 2020, the Group received positive cash flows generated from its operations in the amount of UAH 981 million (for the six months ended 30 June 2019: UAH 1,467 million).

The Group management is currently in active discussions with Bayerische Landesbank regarding an alleged breach of certain non-financial covenants as of 30 April 2020 in relation to EUR 90,305,000 Facility Agreement of PRIMORSKAYA WEP LLC as well as regarding a potential modification of the Facility restrictions in place.

3  Basis of preparation (continued)

In September 2020 the Group received from the Bank a confirmation of a stand still period in relation to the alleged breaches for the period until 15th October 2020 by which the commercial negotiations on modification of the Facility restrictions are expected to be finalised between the Group and the Bank. 

In the management's view from a legal standpoint there has been no breach of covenants. Consequently the management classified the respective facility as a non-current liability. The outstanding balance on this facility and the other facility held by PRIMORSKAYA WEP - 2 LLC with the same Bank which contains a relevant cross-default provision in total amount of EUR 166 million (equivalent of UAH 4,967 million) would be classified as current liabilities because of unremediated default as of 30 June 2020 if the breach actually occurred before 30 June 2020. No other debt facilities contain relevant cross-default clauses, while the Green Bonds contain a cross-acceleration default provision which becomes effective if the above debt is accelerated which means that the total amount outstanding on Green Bonds of EUR 325 million (equivalent of UAH 9,734 million) would, if the covenants were treated as having being breached, also need to be presented as a current liability as of the reporting date. 

Considering the Group's legal position that there has been no breach of covenants and the positive developments in on-going discussions with Bayerische Landesbank up till the date of issuance of these financial statements, as well as sufficient available current liquidity of the Group, management considers that the application of the going concern assumption for the preparation of these condensed consolidated interim financial statements is appropriate.

4  Critical Accounting Estimates and Judgements

Critical accounting estimates and judgements applied are consistent with those followed in the preparation of the Group's annual consolidated financial statement for the year ended 31 December 2019, except for the additional ones described below.

ECL measurement. Following signing of the Memorandum described in Note 2, management has reassessed the settlement period of receivables from Guaranteed Buyer SE. As at 30 June 2020 the gross carrying amount of trade receivables from Guaranteed Buyer SE comprises UAH 3,188 million (31 December 2019: UAH 821 million). Based on the Memorandum signed with the state authorities, management anticipates that Guaranteed Buyer SE will repay its obligations to the Group in cash prior to 31 December 2021, where 40% of the receivables will be settled in the 4^th quarter of 2020 and 15% on a quarterly basis during 2021. Change in estimate resulted in UAH 338 million of additional provision for financial assets recognised for the six months ended 30 June 2020. If the actual settlement is made 50% by the end of the year ended 31 December 2021 and 50% by the end of year ended 31 December 2022, this would have required an increase in the provision by UAH 320 million.

As at 30 June 2020 trade receivables from Energorynok SE carrying a balance of UAH 73 million were not paid (31 December 2019: UAH 83 million). Based on some legislative improvements aimed at settling receivables from Energorynok SE to renewable electricity producers, the management has reassessed the settlement period of receivables from Energorynok SE. The management anticipates that Energorynok SE will repay its obligations to the Group in cash prior to 31 December 2021. For the six months ended 30 June 2020 the Group charged UAH 11 million of additional provision for trade receivables from Energorynok SE.

5  Adoption of New or Revised Standards and Interpretations

The following new amendment, which is relevant to the Group's financial statements, have been issued, but have not been endorsed by European Union:

● Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for annual periods beginning on or after 1 January 2020).

The amendment did not have any impact on the Group's accounting policies and did not require retrospective adjustments.

6  Segment information

The Management Board is the Group's chief operating decision-maker.

The management has determined the operating segments used for disclosure by the Group based on reports reviewed by the Management Board for the purposes of assessing performance.

The Management Board assesses the performance of the operating segments based on a measure of Adjusted EBIT. This measurement basis represents profit for the year after excluding the following income statement items: foreign exchange losses or gains, income tax expense, impairment of property, plant and equipment, impairment / reverse of impairment of financial assets and finance income and expenses except for interest accrued on current accounts or short-term deposits and except for a coupon paid on bonds issued to a related party.

The Management Board considers the business from type of production facilities perspective and aggregates operating segments for presentation purposes based on the nature of the production facility - wind or solar power plant facilities.

 

6  Segment information (continued)

The following operating segments are analysed by the Management Board being also the reportable segments:

● Wind power plants facilities (both currently operating and under construction or development);

● Solar power plants facilities (both currently operating and under construction or development);

● Corporate overheads.

'Corporate overheads' segment refers to administrative and financing support entities and a production facilities servicing unit.

The Group's business is managed centrally and there is no significant interdependence between the segments. The reporting format is based on the Group's management and internal reporting structure. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Those transfers are eliminated on consolidation. There are no revenues between business segments. All revenues are recorded from customers in Ukraine. Revenues of both wind and solar power plants are recognised from Guaranteed Buyer SE (Energorynok SE prior to 1 July 2019).

Segment information for the reportable segments of the Group for the six months ended 30 June 2020 is as follows:

 

In millions of Ukrainian Hryvnia	Wind power plants	Solar power plants	Corporate overheads	Elimi-nation	Total
Sales - external	2,413	1,689	1	-	4,103
Segment result	1,725	1,261	(258)	(7)	2,721
Net operating foreign exchange gain					426
Foreign exchange losses less gains on financing and investing activities					(1,734)
Finance costs net of finance income not included in Segment result					(544)
Net impairment of financial assets					(508)
Other					71
Profit before income tax					432
Material non-cash items included into segment result:
Net impairment losses on trade receivables	(160)	(189)	-	-	(349)
Depreciation and amortisation	(467)	(353)	1	-	(819)
Capital expenditure	18	12	1	-	31

 

Segment information for the reportable segments of the Group for the six months ended 30 June 2019 is as follows:

In millions of Ukrainian Hryvnia	Wind power plants	Solar power plants	Corporate overheads	Elimi-nation	Total
Sales - external	1,411	660	1	-	2,072
Segment result	897	486	(101)	(1)	1,281
Net operating foreign exchange loss					(46)
Foreign exchange gains less losses on financing and investing activities					282
Finance income net of finance costs not included in Segment result					155
Net reverse of impairment losses on financial assets					118
Profit before income tax					1,790
Material non-cash items included into segment result:
Net impairment losses on trade receivables	-	-	-	-	-
Depreciation and amortisation	(250)	(130)	-	-	(380)
Capital expenditure	3,608	4,131	1	-	7,740

7  Balances and Transactions with Related Parties

Related parties are defined in IAS 24 Related Party Disclosures. Parties are generally considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

The nature of the related party relationships for those related parties with whom the Group entered into significant transactions or had significant balances outstanding are detailed below:

 

	30 June 2020			31 December 2019
In millions of Ukrainian Hryvnia	DTEK B.V. (Immediate Parent)	DTEK B.V. Group Subsidiaries	Entities under common control of SCM	DTEK B.V. (Immediate Parent)	DTEK B.V. Group Subsidiaries	Entities under common control of SCM
Prepayments for property, plant and equipment and intangible assets	-	112	-	-	112	-
Trade and other receivables	-	7	-	-	4	6
Loans receivable from related party	2,336	3,557	551	2,035	3,937	495
Cash and cash equivalents	-	-	204	-	-	249
Bonds issued	-	(1,430)	-	-	(474)	-
Borrowings	-	(1,324)	-	-	(2,734)	-
Trade and other payables	-	(92)	-	-	(93)	(13)
Dividends payable	(223)	(2)	-	(198)	(2)	-

 

 

The income and expense items with related parties for the six months ended 30 June were as follows:

		Six months ended 30 June 2020				Six months ended 30 June 2019
In millions of Ukrainian Hryvnia	DTEK B.V. (Immediate Parent)		DTEK B.V. Group Subsidiaries	Entities under common control of SCM	DTEK B.V. (Immediate Parent)		DTEK B.V. Group Subsidiaries	Entities under common control of SCM
Revenue	-		-	-	-		2	-
Purchase of services	(3)		(48)	(4)	(3)		(37)	(29)
Other income	-		1	-	-		-	-
Interest income on bank deposits	-		-	2	-		-	3
Interest expense on borrowings	-		(79)	-	-		(67)	(4)
Interest income on loans receivable	55		47	19	57		54	18

 

Changes in share premium contribution are disclosed in Note 15.
 

8  Property, Plant and Equipment

Movements in the carrying amount of property, plant and equipment were as follows:

In millions of Ukrainian Hryvnia	Buildings and structures	Plant and machinery	Furniture, fittings and equipment	Construction in progress	Total
Net book value as at 1 January 2019	670	5,193	12	9,708	15,583
Additions	3	404	2	7,331	7,740
Depreciation charge	(43)	(336)	(1)	-	(380)
Transfer	-	8,549	9	(8,558)	-
Net book value as at 30 June 2019	630	13,810	22	8,481	22,943
Net book value as at 1 January 2020	5,081	19,676	32	254	25,043
Additions	1	-	2	28	31
Disposals	-	(5)	-	(74)	(79)
Depreciation charge	(109)	(698)	(5)	-	(812)
Transfer	15	3	2	(20)	-
Net book value as at 30 June 2020	4,988	18,976	31	188	24,183

During the six months ended 30 June 2020, the depreciation expense of UAH 811 million (during the six months ended 30 June 2019: UAH 379 million) was included in cost of sales and UAH 1 million (during the six months ended 30 June 2019: 1 million) in general and administrative expenses.

As at 30 June 2020 the Group's property, plant and equipment carried at UAH 17,287 million have been pledged as collateral for borrowings (31 December 2019: UAH 17,868 million) (Note 13).

During the six months ended 30 June 2020, the Group has not capitalised borrowing costs. During the six months ended 30 June 2019, the Group has capitalised borrowing costs in the amount of UAH 228 million using rate of 6.9% per annum.

9  Financial investments

In millions of Ukrainian Hryvnia	30 June 2020	31 December 2019
Non-current
Equity financial instruments	2	-
Restricted cash	1,326	1,114
	1,328	1,114
Current
Restricted cash	10	16
	10	16
Total non-current and current financial investments	1,338	1,130

In May 2020, the Group acquired from a related party 1.07% of shares PJSC "LOWER DNIESTR HPSS", this equity financial instrument is treated as a strategic investment carried at fair value through other comprehensive income.

The restricted cash, which represents non-current financial investments ("Debt Service Account", or DSA and "Debt Service Reserve Account", or DSRA), is the cash under the requirements of the Novation Agreement with Landesbank Berlin AG, Facility Agreements with Bayerische Landesbank and Trust Deed with BNY Mellon. The restricted cash is pledged throughout the bank borrowings repayment periods and Green Bonds redeem period (Note 13). During 2020, the Group has placed additional EUR 2 million (or equivalent of UAH 64 million at UAH/EUR exchange rate effective on 30 June 2020) on DSA of PRIMORSKAYA WEP - 2 LLC.

Current financial investments are represented by restricted cash placed in Ukrgasbank to comply with requirements of a bank borrowing (Note 13).

The restricted cash is a non-interest-bearing asset. Financial investments are neither past due nor impaired. The carrying amounts of financial assets approximate their fair values.

As at 30 June 2020, non-current financial investments in the amount of UAH 1,326 million were denominated in EUR and UAH 2 million were denominated in UAH (as at 31 December 2019 all non-current financial investments were denominated in EUR). Both as at 30 June 2020 and 31 December 2019 all current financial investments were denominated in EUR.

10  Loans receivable

Loans receivable were as follows:

 

In millions of Ukrainian Hryvnia	30 June 2020	31 December 2019
Non-current
Loans receivable from related parties	311		163
	311		163
Current
Loans receivable from related parties	5,729		6,055
Loans receivable	6		6
Interest receivable	404		249
	6,139		6,310
Total non-current and current loans receivable	6,450		6,473

 

Amounts on loans receivable were denominated in the following currencies:

In millions of Ukrainian Hryvnia	30 June 2020	31 December 2019
EUR	3,026	2,530
UAH	1,633	2,286
USD	1,791	1,657
Total loans receivable	6,450	6,473

Loans receivable were granted to related parties to place temporarily available cash in EUR and USD and to earn interest. The effective interest rates of loans receivable denominated in EUR both as at 30 June 2020 and 31 December 2019 were in the range of 5.0% - 7.0% per annum, in USD in the range of 5.0 - 7.1% per annum. For loans receivable denominated in UAH, which were granted to a related parties and are receivable on demand - nil (31 December 2019: nil). Non-current loans granted to related parties mature in less than three years. The Group does not hold any collateral for these financial assets.

Credit loss allowance both as at 30 June 2020 and 31 December 2019 was charged as 12-months expected credit losses. Expected credit loss rate for loans receivable from related parties was determined based on adjusted yield to maturity of corporate bonds and as at 30 June 2020 was in range from 7.67% up to 10.62% (31 December 2019 in range from 2.86% up to 4.09%). Total loss allowance as at 30 June 2020 was UAH 412 million (31 December 2019: UAH 234 million).     Increase of loss allowance resulted in additional charge during the six month ended 30 June 2020 in the amount of UAH 159 million (six month ended 30 June 2019: net reverse of loss allowance in the amount of UAH 118 million).During the six months ended 30 June 2020, the Group posted net foreign exchange loss related to loss allowance denominated in EUR and USD in the amount of UAH 19 million (for the six months ended 30 June 2019: net foreign exchange gain in the amount of UAH 17 million).

Loans receivable have the character of revolving credit lines subject to further changes for parties involved. The carrying amounts of loans receivable approximate their fair values.

11  Trade and Other Receivables

Trade and other receivables were as follows:

 

In millions of Ukrainian Hryvnia	30 June 2020	31 December 2019
Non-current
Long-term part of trade receivables	900	-
Total non-current receivables	900	-
Current
Trade receivables	1,968	858
Total financial assets	1,968	858
VAT recoverable	178	470
Prepayments to suppliers	49	55
Total non-financial assets	227	525
Total current receivables	2,195	1,383

As at 30 June 2020 and as at 31 December 2019, all trade and other receivables are denominated in UAH.

 

 

11  Trade and Other Receivables (continued)

As at 30 June 2020, based on circumstances described in Note 2 and Note 4, the management has reassessed settlement period and the impairment provision on trade receivables from SE Guaranteed Buyer. Expected credit loss rate for trade receivables was determined based on adjusted yield to maturity of government bonds and as at 30 June 2020 was 11.87% per annum (31 December 2019: 5.00% per annum).

Management anticipates that Guaranteed Buyer SE will repay its obligations to the Group in cash prior to 31 December 2021, where 40% of the receivables will be settled in the 4^th quarter of 2020 and 15% on a quarterly basis during 2021.

Trade receivables from SE Guaranteed Buyer and Energorynok SE in the amount UAH 900 million, which, as expected, will be settled in more than 12 month after 30 June 2020, were classified as long-term trade receivables.

Total loss allowance as at 30 June 2020 was UAH 395 million (31 December 2019: UAH 46 million). Increase of loss allowance resulted in additional charge during the six month ended 30 June 2020 in the amount of UAH 349 million (six month ended 30 June 2019: nil).

As at 30 June 2020, the Group has pledged UAH 1,786 million (31 December 2019: UAH 667 million) of trade receivables due at that dates, as well as rights to future trade receivables to be due for selling contracts with the State Enterprise Guaranteed Buyer, as collateral for certain bank and non-bank borrowings (Note 13).

12  Cash and Cash Equivalents

Cash and cash equivalents were as follows:

In millions of Ukrainian Hryvnia	30 June 2020	31 December 2019
Bank balances payable on demand	4,315	4,221
Cash in transit	15	-
Restricted cash on escrow accounts	1	73
Short-term deposits	151	-
Total cash and cash equivalents	4,482	4,294

 

As at 30 June 2020 the larger part of cash and cash equivalents were represented by cash received from the Green Bonds. The Group has certain restrictions on use of proceeds from the Green Bonds. The Group may use the proceeds received from the issue for the following purposes:

● to repay existing deferred vendor financing and shareholder and affiliate loans, each relating to past capital expenditure;

● to finance the capital expenditure and working capital of some the Group's subsidiaries;

● to finance the ongoing and future expenditure of development green projects.

Restricted cash on escrow accounts represents cash on dedicated accounts, from which the Group settles its payables connected with construction of power generation facilities. The funds on these accounts are used to fund capital expenditures of the Group and therefore included into cash and cash equivalents in the Unaudited Condensed Consolidated Interim Statement of Cash Flows.

As at 30 June 2020 cash and cash equivalents in the amount UAH 601 million (31 December 2019: UAH 641 million) and future rights with respect to certain bank accounts and bank account agreements were pledged as collateral for certain bank and non-bank borrowings. The pledge of cash and cash equivalents is effective throughout the borrowings repayment periods and do not restrict the use of cash and cash equivalents (Note 13).

 

 

13  Borrowings

Borrowings and interest payables were as follows:

In millions of Ukrainian Hryvnia	30 June 2020	31 December 2019
Non-current
Green bonds	9,506	8,425
Bank borrowings	5,492	5,477
Non-bank borrowings	3,074	2,878
Bonds issued to related parties	1,340	450
	19,412	17,230
Current
Borrowings from related parties	1,324	2,734
Bank borrowings	1,328	1,153
Non-bank borrowings	373	326
Green bonds coupon accrual	111	100
Interest accrual to related parties	90	24
Interest accrual to non-bank borrowings	67	91
Interest accrual to bank borrowings	9	9
	3,302	4,437
Total borrowings	22,714	21,667

 

In June 2020 the Group issued bonds with a carrying value of UAH 890 million, which were bought by related parties. The bonds mature on 30 September 2030 and bear an effective interest of 18.0% per annum.

During the six months ended 30 June 2020, the Group has settled the debt of interest-free financial aid in UAH from its related party repayable on demand. Total amount of such borrowings as at 30 June 2020 has decreased to UAH 1,324 million (31 December 2019: has increased up to UAH 2,734 million).

During the six months ended 30 June 2020, the Group has withdrawn EUR 589 thousand (or equivalent of UAH 18 million at UAH/EUR exchange rate effective on 30 June 2020) under its existing Facility Agreement with Bayerische Landesbank.

In February 2020 the Group signed an Addition Agreement with Bayerische Landesbank in respect of Facility Agreement signed by PRIMORSKAYA WEP LLC. The agreement changed the floating interest rate of borrowing from 2.5% per annum + EURIBOR to fixed interest rate of 1.2% starting 31 March 2020. In May 2020 the Group signed an Addition Agreement with Bayerische Landesbank in respect of Facility Agreement signed by PRIMORSKAYA WEP - 2 LLC. The agreement changed the floating interest rate of borrowing from 1.98% per annum + EURIBOR to fixed interest rate of 0.96% starting 30 June 2020. The difference in present value between bank borrowings as a result of changes under Fixed Rate Amendment Agreements and the present value of old cashflows is less than 10%. The modification was not accounted as an extinguishment and modification effect was recognised directly in consolidated interim income statement (Note 19).

The effective interest rates of borrowings denominated in EUR as at 30 June 2020 were in the range of 4.49% - 9.5% per annum (31 December 2019: in the range of 4.6% - 9.5% per annum). For interest-free financial aid denominated in UAH, which was received from a related party and repayable on demand - nil (31 December 2019: nil) and in the range of 18.0% - 30.0% per annum for bonds issued in UAH to a related party (31 December 2019: 30.0% per annum).

There were no other borrowings withdrawals during the six months ended 30 June 2020 except from the mentioned above.

The Group's borrowings were denominated in the following currencies:

In millions of Ukrainian Hryvnia	30 June 2020	31 December 2019
Borrowings denominated in: - EUR	19,960	18,459
- UAH	2,754	3,208
Total borrowings	22,714	21,667

As at 30 June 2020, borrowings totalling UAH 19,960 million (31 December 2019: UAH 18,459 million) were secured with property, plant and equipment (Note 8), financial investments (Note 9), trade and other receivables (Note 11) and cash and cash equivalents (Note 12).

 

 

13  Borrowings (continued)

Movements in borrowings during the period are as follows:

	Six months ended 30 June
In millions of Ukrainian Hryvnia	2020	2019
Opening balance as at 1 January	21,667	12,035
Cash movements
Proceeds from borrowings	930	2,288
Repayment of borrowings	(2,293)	(385)
Interest and withholding tax paid during the period	(612)	(248)
Debt attraction fees paid	(19)	(347)
Non-cash movements
Recognition of supplier's loan	-	795
Recognition of suppliers' invoices paid directly from borrowings account	-	211
Debt attraction fees accrued but not paid	(45)	-
Interest and withholding tax accrued during the period	645	233
Foreign exchange loss / (gain)	2,411	(625)
Gain on modification of a financial liability that does not result in derecognition	(163)	-
Gain on recognition of borrowings from related parties	-	(23)
Amortisation of discount and commitment fees accrued	193	121
Closing balance as at 30 June	22,714	14,055

 

Covenants. The Group's bank borrowings and Green Bonds contain specific covenants, including but not limited to limitations on distribution to shareholders, requirement to perform transactions on an arm's length basis, requirement to make periodic disclosure of financial information, permissible levels of additional financial indebtedness. The Group management is currently in active discussions with Bayerische Landesbank regarding an alleged breach of certain non-financial covenants as of 30 April 2020 in relation to EUR 90,305,000 Facility Agreement of PRIMORSKAYA WEP LLC as well as regarding a potential modification of the Facility restrictions in place. In September 2020 the Group received from the Bank a confirmation of a stand still period in relation to the alleged breaches for the period until 15th October 2020 by which the commercial negotiations on modification of the Facility restrictions are expected to be finalised between the Group and the Bank. 

In the management's view from a legal standpoint there has been no breach of covenants. Consequently the management classified the respective facility as a non-current liability. The outstanding balance on this facility and the other facility held by PRIMORSKAYA WEP - 2 LLC with the same Bank which contains a relevant cross-default provision in total amount of EUR 166 million (equivalent of UAH 4,967 million) would be classified as current liabilities because of unremediated default as of 30 June 2020 if the breach actually occurred before 30 June 2020. No other debt facilities contain relevant cross-default clauses, while the Green Bonds contains a cross-acceleration default provision which becomes effective if the above debt is accelerated which means that the total amount outstanding on Green Bonds of EUR 325 million (equivalent of UAH 9,734 million) would, if the covenants were treated as having being breached, also need to be presented as a current liability as of the reporting date. 
 

14  Trade and Other Payables

 

In millions of Ukrainian Hryvnia	30 June 2020	31 December 2019
Non-current
Liabilities for acquisition of intangibles	124		106
Total non-current payables	124		106
Current
Liabilities for purchased property, plant and equipment	5		334
Trade payables	182		222
Liabilities for acquisition of intangibles	44		39
Other financial payables	13		23
Total financial payables	244		618
VAT payable	462		93
Wages and salaries payable	61		63
Other	14		20
Total non-financial payables	537		176
Total current payables	781		794

 

15  Share capital, Share premium and Dividends payable

Both as at 30 June 2020 and as at 30 June 2019 the authorised and issued ordinary share capital amounted to EUR 1,010 divided into 101 shares with a par value of EUR 10 per share each. All issued shares were fully paid. All shares carry one vote.

During six months ended 30 June 2019 DTEK B.V. made an additional voluntary contribution to the share premium in the amount of UAH 3,003 million. Later, in November 2019, the Group returned DTEK B.V. the amount of UAH 1,456 million of share premium earlier contributed. During six months ended 30 June 2020 there were no changes in share premium of the Group.

Movements in the dividends payable balance in Ukrainian Hryvnia equivalent during the period are as follows:

	Six months ended 30 June
In millions of Ukrainian Hryvnia	2020	2019
Opening balance as at 1 January	200	232
Dividends declared	-	-
Payment of dividends	-	-
Foreign exchange gains less losses	25	(12)
Closing balance as at 30 June	225	220

 

16  Revenue

	Six months ended 30 June
In millions of Ukrainian Hryvnia	2020	2019
Sale of electricity, generated at wind power plants	2,413	1,411
Sale of electricity, generated at solar power plants	1,689	660
Services provided to third parties	1	1
Total	4,103	2,072

 

 

 

17  Cost of Sales

	Six months ended 30 June
In millions of Ukrainian Hryvnia	2020	2019
Depreciation of property, plant and equipment and amortisation of intangible assets	818	379
Maintenance and repairs	186	105
Production overheads	98	32
Staff cost, including payroll taxes	22	8
Transportation services and utilities	5	1
Raw materials	2	1
Reversal of impairment of property, plant and equipment and intangible assets	(6)	-
Other costs	-	7
Total	1,125	533

 

18  General and Administrative Expenses

	Six months ended 30 June
In millions of Ukrainian Hryvnia	2020	2019
Staff cost, including payroll taxes	113	90
Professional fees	43	42
Bank charges	13	5
Transportation	2	3
Depreciation of property, plant and equipment and amortisation of intangible assets	1	1
Other costs	18	10
Total	190	151

 

19  Finance Income and Costs

	Six months ended 30 June
In millions of Ukrainian Hryvnia	2020	2019
Finance income
Gain on modification of a financial liability that does not result in derecognition	163	-
Interest income on loans provided to related parties	121	129
Interest income on bank deposits and current accounts	32	36
Unwinding of discount on loans provided to related parties	-	24
Gain on recognition of borrowings from related parties	-	23
Total finance income	316	212
Finance costs
Interest expense accrued on:
-  Unwinding of discount on borrowings and commitment fees accrued	193	121
-  Interest expense on bank borrowings	102	72
-  Interest expense on non-bank borrowings	66	94
-  Interest expense on Green bonds	398	-
-  Interest expense on bonds issued to a related party	79	67
-  Less interest expense capitalised in the cost of qualifying assets	-	(228)
Unwinding of consideration for the acquisition of intangible assets	4	-
Total finance costs	842	126

 

20  Financial Risk Management

The Group's activities expose it to financial risks: market risk (including cash flow and fair value interest rate risk) and liquidity risk. The Group's overall risk management policies seek to minimise the potential adverse effects on the Group's financial performance for those risks that are manageable or noncore to the power generating business.

Market risk. The Group takes on exposure to market risks. Market risks arise from open positions in (a) foreign currencies, and (b) interest bearing assets and liabilities, all of which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.

 

 

20  Financial Risk Management (continued)

Credit risks concentration. As at 30 June 2020 the Group had five counterparties (as at 31 December 2019: five counterparties) with aggregated loans receivable from related party balances amounting to UAH 6,444 million (as at 31 December 2019: UAH 6,467 million).

As at 30 June 2020, Group's financial investments, which are represented by restricted cash, are held within four banks (as at 31 December 2019: four banks).

There are counterparties to the Group, with which accounts receivable balances individually represents 10% or more of the Group's trade accounts receivable. As at 30 June 2020 the Group had two counterparties (as at 31 December 2019: two counterparty) with aggregated receivables balance amounting to UAH 2,868 million (as at 31 December 2019: UAH 858 million) or 100% of the total amount of trade receivables (as at 31 December 2019: 100%).

As at 30 June 2020 Group's cash and cash equivalents are mainly held within seven banks (as at 31 December 2019: three banks).

As at 30 June 2020 the maximum exposure to credit risk at the reporting date is UAH 15,137 million being carrying value of trade receivables, financial investments, loans receivable and cash (31 December 2019: 12,755 million). The Group does not hold any collateral as security.

Interest rate risk. As the Group has substantially more interest bearing liabilities than assets, the Group's income and operating cash flows are substantially dependent of changes in market interest rate. The Group's interest rate risk arises from borrowings and from loans receivable from related parties. Borrowings issued at variable interest rates expose the Group to cash flow interest rate risk. Borrowings at fixed rate and loans receivable from related parties expose the Group to fair value interest rate risk.

At 30 June 2020 and 31 December 2019, the Group's variable interest debt is EUR denominated. As at 30 June 2020, 27% of the total borrowings was provided to the Group at floating rates (31 December 2019: 35%).

The Group's exposure to fixed or variable rates is determined at the time of issuing new debt. Management uses its judgment to decide whether fixed or variable rate would be more favourable to the Group over the expected period until maturity. The risk of increase in market interest rates is monitored by the Finance Department of the Group. The Finance Department is responsible for planning the financing structure (levels of leverage) and borrowing activities. The key objectives to financing is obtaining debt to finance capital expenditures at applicable interest rates.

Obtaining debt financing for each of the Group's project is considered separately. Re-pricing for fixed rate financial instruments occurs at maturity. Re-pricing of floating rate financial instruments occurs continually.

If as at 30 June 2020, interest rates on EUR denominated borrowings with variable rates had been 200 basis points higher (as at 30 June 2019: 200 basis points higher) with all other variables held constant, profit or loss and equity before tax for the six months period ended 30 June 2020 would have been UAH 71 million lower (profit or loss and equity before tax as at 30 June 2019 would have been UAH 54 million lower).

Currency risk. The Group operates within Ukraine and accordingly its exposure to foreign currency risk is mainly determined by borrowings, loans receivable and cash balances, which are denominated in EUR and USD. Domestic uncertainty of 2014-2015, which led to volatility in the currency exchange market and resulted in significant downward pressure on the Ukrainian Hryvnia relative to major foreign currencies in those years, though to a much lesser extent in recent years.

The following table presents sensitivities of profit or loss and equity before tax to reasonably possible changes in exchange rates applied at the balance sheet date with all other variables held constant:

	At 30 June 2020		At 31 December 2019
In millions of Ukrainian Hryvnia	Impact on profit or loss	Impact on equity	Impact on profit or loss	Impact on equity
EUR strengthening by 10%	(1,213)	(1,213)	(1,122)	(1,122)
EUR weakening by 10%	1,213	1,213	1,122	1,122
USD strengthening by 10%	140	140	149	149
USD weakening by 10%	(140)	(140)	(149)	(149)

 

Liquidity risk. Prudent liquidity management implies maintaining sufficient cash and the availability of funding to meet existing obligations as they fall due. Management monitors liquidity and cash collections on a daily basis to ensure liquidity targets are actively monitored.

 

 

20  Financial Risk Management (continued)

The following table analyses the Group's financial liabilities by maturity grouping based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are the undiscounted cash flows. The maturity analysis of financial liabilities as at 30 June 2020 was as follows:

In millions of Ukrainian Hryvnia	Up to 6 months	6 -12 months	1 - 2  years	2 - 5  years	Over 5 years	Total
Borrowings	3,241	1,621	3,367	16,972	6,127	31,328
Other payables	44	-	-	134	-	178
Trade and other payables	200	-	-	-	-	200
Total future payments, including future principal and interest payments	3,485	1,621	3,367	17,106	6,127	31,706

 

The maturity analysis of financial liabilities as at 31 December 2019 was as follows:

In millions of Ukrainian Hryvnia	Up to 6 months	6 -12 months	1 - 2  years	2 - 5  years	Over 5 years	Total
Borrowings	4,107	1,571	2,931	15,407	4,680	28,696
Other payables	39	-	59	59	-	157
Trade and other payables	579	-	-	-	-	579
Total future payments, including future principal and interest payments	4,725	1,571	2,990	15,466	4,680	29,432

 

After putting into operation the first and the second stages of Primorskaya Wind Farm (registered as PRIMORSKAYA WEP LLC and PRIMORSKAYA WEP - 2 LLC), in order to comply with requirements of the Facility Agreement with Bayerische Landesbank, the Group monitors theirs Debt Service Cover Ratio. The Debt Service Cover Ratio is calculated as a ratio of Net Cashflow, which refers to operating cash flows before interest, but including capital investments, to Finance Cost, which refers to principal repayments of borrowings and paid borrowing costs, as it was determined in the Facility Agreement with Bayerische Landesbank. The Debt Service Cover Ratio for the six months ended as at 30 June 2020 has reached 2.3 for the first stage of Primorskaya Wind Farm (PRIMORSKAYA WEP LLC) and 2.3 for the second stage of Primorskaya Wind Farm (PRIMORSKAYA WEP - 2 LLC).

21  Management of capital

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns and benefits for stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return on capital to shareholders, issue new shares or sell assets to reduce debt. Additionally, management may defer certain capital spending to enhance its debt position. Consistent with others in the industry, the Group monitors capital on the basis of gearing ratio (Debt/Equity). Total debt equals nominal amount of the bank borrowings less the Debt Service Accounts (Note 9). The equity is calculated as total equity in the consolidated balance sheet excluded other reserves plus bonds from related parties.

Group's debt to equity ratio as at 30 June 2020 has reached 54/46, Debt/Equity (31 December 2019: 53/47). Group's total liabilities to total assets ratio as at 30 June 2020 has reached 60.5% (31 December 2019: 60.2%).

22  Fair Value of Assets and Liabilities

This note provides an update on the judgements and estimates made by management in determining the fair values since the last annual consolidated financial statements.

Property, plant and equipment at fair value. Property, plant and equipment are carried in the statement of financial position at their fair value. Group's property, plant and equipment are all categorised as Level 3 in the fair value hierarchy.

The estimated fair values of financial instruments are determined with reference to various market information and other valuation methodology as considered appropriate. However considerable judgement is required in interpreting market data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts that the Group could realise in a current market situation.

Financial instruments carried at amortised cost. Majority of the Group's financial assets and liabilities are carried at amortised cost using the effective interest method. These assets are not measured at fair value in the balance sheet. For the majority of these instruments, the fair values are not materially different to their carrying amounts, since the interest receivable/payable is either close to current market rates or the instruments are short-term in nature.

 

 

22  Fair Value of Assets and Liabilities (continued)

Significant differences were identified for the following instruments:

	30 June 2020		31 December 2019
In millions of Ukrainian Hryvnia	Level 2	Carrying amount	Level 2	Carrying amount
Financial liabilities
Borrowings	21,720	22,714	21,760	21,667
TOTAL LIABILITIES	21,720	22,714	21,760	21,667

 

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

23  Subsequent events

The developments after the balance sheet date which are related to the change in legislation and reduction of the feed-in tariffs are disclosed in the Note 2.

On 10 July 2020 the Group fully repaid early the loan received from Ukrgasbank. The amount of this repayment being EUR 4,604 thousand (or equivalent of UAH 141 million at UAH/EUR exchange rate effective on date of repayment).