News and events

27 November 2014

Kuzbasskaya Toplivnaya Company OJSC Reports Financial Results under IFRS for the Third Quarter and Nine Months of 2014

KEMEROVO, Russian Federation — August 27, 2014 1:00 PM (UTC +7:00) — Kuzbasskaya Toplivnaya Company OJSC (KTK, MICEX: KBTK), one of the largest producers and exporters of thermal coal in Russia, today announced its unaudited condensed interim consolidated financial results under IFRS for the nine months ended September 30, 2014.

Financial highlights

in millions of RUB Q31
2014
Q21
2014
Chg 9M1
2014
9M1
2013
Chg
Revenue 5 799 3 887 49% 14 520 15 931 (9%)
Cost of sales 5 241 3 575 47% 12 898 13 754 (6%)
Production cash costs per tonne, RUB 554 599 (9%) 596 607 (2%)
Gross profit 558 312 79% 1 622 2 177 (25%)
Gross profit margin 10% 8% 2 ppts 11% 14% (3 ppts)
Distribution, administrative and other
costs
477 372 17% 1 296 1 314 (1%)
Operating profit 81 (60) n.a. 326 863 (62%)
Operating profit margin 1% - n.a. 2% 5% (2 ppts)

EBITDA2

382 167 129% 1 167 1 754 (33%)
EBITDA margin 7% 4% 3 ppts 8% 11% (3 ppts)
EBITDA per tonne, RUB 137 67 103% 154 237 (35%)
Net profit (393) (91) 332% (469) 329 n.a.
Net profit margin - - - - 2% -

Revenue

In the nine months of 2014 the Company posted revenue of RUB 14,520 million, 9% lower than in the same period of 2013. Revenue reduction was mainly influenced by own coal export sales segment which declined by 7% year-on-year to RUB 11,040 million due to a warm winter in Europe where heating season 2014 will start in the fourth quarter. Such a decline in revenue year-to-year was due to lower sales volumes in the domestic and European markets because of the warm winter.

Revenue in the third quarter rose by 49% to RUB 5,799 million. Under the influence of the seasonal growth in demand for coal, quarterly revenue increase in the sales of own coal in the domestic market segment amounted to 139%. Revenue from export sales grew by 27% compared with the previous quarter and stood at RUB 4,179 million. Coal resale segment revenue showed a considerable seasonal gain of 503% to RUB 464 million. Purchases from third-party producers are being done in order to provide resources to retail network warehouses in Western Siberia.

Operating profit and EBITDA

In the first nine months of 2014 operating income decreased by 62% compared to the year-ago period to RUB 326 million. This decline is a consequence of gross profit decrease, caused by a faster pace of reduction in revenue compared to that of cost of sales. Gross profit for the nine months of 2014 fell by 25% to RUB 1,622 million. EBITDA showed a year-on-year decline of 33%, reaching RUB 1,167 million. Cost of sales in the nine months of 2014 dropped by 6% to RUB 12,898 million as a result of optimization measures carried out by the management. Production cash costs saw a 2% decline and stood at RUB 596 per tonne of coal. Level of commercial, administrative and other expenses for the first nine months of 2014 fell by 1% to RUB 1,296 million.

After an operating loss showed in the second quarter, the Company showed an operating income of RUB 81 million in the third quarter of 2014. Gross profit rose by 79% to RUB 558 million. Quarterly EBITDA amounted to RUB 382 million showing a 129% quarterly increase. Cost of sales in the third quarter grew by 47% to RUB 5,241 million. Production cash costs fell by 9% to RUB 554 per tonne. Commercial, administrative and other expenses increased by 17% to RUB 477 million.

Net profit

The Company shows a net loss in the nine months of 2014, amounting to RUB 469 million. The main factors influencing the financial result were negative currency differences, RUB 491 million for the nine months, and a continued decline in the Asian markets. At the current price level export sales to the Asia-Pacific region bring the Company minor losses, but these shipments can not be interrupted in order to avoid the loss of a long-term attractive market and established customer base in South Korea and Japan. The management is convinced that if the global coal price trend changes, key thermal coal shipment increase opportunities will be concentrated in this very region. At the same time, thanks to the warm winter of 2014, the seasonal decline in demand for coal in the domestic market and in Poland turned out to be more significant than in the past years. System changes in the Polish market, capable in the medium term may have a positive impact on the Company's business. The domestic market, despite increased competition among Russian producers, remains stable due to the existing distribution infrastructure of KTK. Gross margin in the domestic market remained at the level of the nine months of 2013, at 33%. The Company is implementing a number of projects to improve the domestic market share in the total volume of sales. The third quarter of 2014 recorded a net loss of RUB 393 million.

Debt portfolio management

in millions of RUB 30.09.14 % of
total
30.06.14 Chg 30.09.13 Chg3
Long-term loans 7 199 66% 3 615 99% 5 308 36%
Short-term loans 3 729 34% 4 558 (18%) 1 842 102%
Total debt, incl.: 10 928   8 173 34% 7 150 53%
RUB loans 4 591 42% 3 858 19% 3 526 30%
Average interest rate for RUB loans 10,96%   10,52% 0,44 ppts 9,19 1,77 ppts
USD loans 6 338 58% 4 315 47% 3 634 75%
Average interest for USD loans 4,35%   4,76% 0,41 п.п. 4,80% (0,45 ppts)
Cash and cash equivalents 4 886   2 056 138% 1 986 146%
Net debt 6 042   6 117 (1%) 5 164 17%
Net debt / 12M EBITDA 3,29   2,71 21% 1,75 88%

Net debt at September 30, 2014 stood at RUB 6,042 million, decreasing by 1% compared to June 30, 2014. Year-on-year it grew by 17%. The net debt to 12-month EBITDA ratio showed a 21% quarterly growth and stood at 3.29. The year-on-year growth of this indicator by 88% is caused by an EBITDA drop of 33% and a total debt growth of 53%. In agreements with banks the threshold level for this indicator is 4.00-4.50. The management is planning to bring it below 3.00 by the end of 2014. With this in mind a pool of cash and cash equivalents of RUB 4,886 million was formed.

The company is one of the most reliable and efficient borrowers in the sector, which is reflected by the current interest rates for loans and credits. As of September 30, 2014, the average effective rate was 10.96% for loans denominated in RUB and 4.35% for loans denominated in USD. The loan portfolio is distributed among 10 Russian and foreign banks.

Cash flow and investments

in millions of RUB Q3
2014
Q2
2014
Chg 9M
2014
9M
2013
Chg
Operating cash flow 783 (643) n.a. (607) 982 n.a.
Investment cash flow (198) (59) 236% (454) (736) (38%)
Acquisition of property, plant and
equipment
(190) (182) 4% (586) (815) (30%)
Financial cash flow 1 891 535 253% 2 866 (659) n.a.
Net increase / (decrease) in cash and cash
equivalents
2 476 (167) n.a. 1 805 (413) n.a.

In the nine months of 2014 operating cash flow amounted to RUB (607) million. Investment cash flow fell by 38% to RUB (454) million. Investment in fixed assets stood at RUB 586 million, most of which focused on the Kaskad 1 washing plant modernization and retail network development. Net cash flow from financial activities for the nine months of 2014 amounted to RUB 2,866 million. Net increase in cash and cash equivalents stood at RUB 1 805 million.

In the third quarter of 2014 operating cash flow stood at RUB 783 million. Investment cash flow in this period was RUB (198) million, RUB 190 million were spent on investment in fixed assets. Net cash flow from financial activities amounted to RUB 1,891 million. Net increase in cash and cash equivalents stood at RUB 2,476 million.

Key events in the third quarter and after the reporting date

  • Maxim Ovcharov, former Head of retail sales in the Kemerovo Region and the Altai, was appointed Deputy CEO for retail network. His area of responsibility will include coordination and development of retail network in four regions of Western Siberia and Poland. Harmonization and standardization of retail network business processes will provide synergies and allow KTK to get to a new level of customer service.

Outlook for the fourth quarter of 2014

  • In accordance with the production plan, the volume of coal production and average stripping ratio in the fourth quarter of 2014 will stay on the level of the 2 quarter and amount 2.80 million tonnes and 5,20.

6M 2014 IFRS Financial results conference call details

KTK’s management will host a conference call for investors and analysts followed by a Q&A session on the day of the results.

The Company will be represented by:
Eduard Alekseenko – First deputy CEO
Vasily Rumyantsev – Head of Moscow office, IRO

Thursday, November 27 2014
4:00 PM Moscow time (UTC +3:00)

We recommend that participants start dialing in 10 minutes before the indicated time to ensure a timely start to the conference call.

You can join the conference call by dial-in:
Russia: +7 (495) 705 94 72
Great Britain: +44 20 30 43 24 39
USA: +1 8669075925

Within two weeks the conference call record will be published on KTK website:
www.oaoktk.ru/investors/audio

Contacts for analysts and investors in Moscow:
Vasily Rumyantsev
Head of Moscow office, IRO
+7 (495) 787-68-05
vkr@oaoktk.ru

Contacts for press in Kemerovo::
Elena Sarycheva
Head of public affairs department
+7 (3842) 36-47-62
es@oaoktk.ru

Company at a glance:

Kuzbasskaya Toplivnaya Company OJSC (KTK, MICEX: KBTK) is one of the largest manufacturers4 and exporters of thermal coal in Russia. Production assets of the Company include three current and one projected opent-pit mines in Kemerovo region, two washing plants and own railroad infrostructure located in the same industrial cluster. The Company operates a retail network in 4 regions of Siberia, supplying over 400 thousands households and over thousand of public and commercial boilers. The company employs over 4,400 people. Shares of KTK are traded on MICEX, the free float is 34.39%.

Additional information about the Company and investor calendar: www.oaoktk.ru/en/investors

News and announcements (Russian only): www.facebook.com/oaoktk

Presentations: www.slideshare.net/oaoktk

Video: www.youtube.com/oaoktkru

Financial highlights under IFRS:

 RUB mln
2013
2012
2011

Revenue

22 490
23 104
23 939

Cost of sales

19 523
18 982
19 404
Production cash costs per tonne, RUB
611
690
653

EBITDA

2 422
3 479
3 911
EBITDA margin
11%
15%
16%
EBITDA per tonne, RUB
239
399
448

Net profit

640
1 810
2 018
Net profit margin
3%
8%
8%

Net debt

3 917
4 681
2 663
Net debt / EBITDA
1,62
1,35
0,68

Rounding and errors:

Certain numerical figures included in this press release have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that preceded them. Calculations of change in % are made after rounding of figures.

We make every effort to check and verify the materials, but if you find any errors or inaccuracies please report it to vkr@oaoktk.ru.

 

Appendix

Segments

RUB mln. Q3
2014
Q2
2014
Ch. 9M
2014
6M
2013
Ch.
Revenue 5 799 3 887 49% 14 520 15 931 (9%)
Domestic sales of coal produced 1 026 430 139% 2 222 2 177 2%
Export sales of coal produced 4 179 3 303 27% 11 040 11 814 (7%)
Resale of coal purchased 464 77 503% 778 1 418 (45%)
Other operations 130 77 69% 480 522 (8%)
Cost of sales 5 241 3 575 47% 12 898 13 754 (6%)
Domestic sales of coal produced 713 306 133% 1 482 1 451 2%
Export sales of coal produced 4 052 3 101 31% 10 412 10 682 (3%)
Resale of coal purchased 367 70 424% 608 1 190 (49%)
Other operations 109 98 11% 396 431 (8%)
Gross profit 558 312 79% 1 622 2 177 (25%)
Domestic sales of coal produced 313 124 152% 740 726 2%
Export sales of coal produced 127 202 (37%) 628 1 132 (45%)
Resale of coal purchased 97 7 1 286% 170 228 (25%)
Other operations 21 (21) n.a. 84 91 (8%)
Gross profit margin 10% 8% 2 ppts 11% 14% (3 ppts)
Domestic sales of coal produced 31% 29% 2 ppts 33% 33% -
Export sales of coal produced 3% 6% (3 ppts) 6% 10% (4 ppts)
Resale of coal purchased 21% 9% 13 ppts 22% 16% 6 ppts
Other operations 16% - n.a. 18% 17% 1 ppts

Production

  Q3
2014
Q2
2014
Ch. 9M
2014
9M
2014
Ch.
Coal production, mln. tonnes, incl.: 2,79 2,48 13% 7,59 7,39 3%
Karakansky South 0,88 0,76 16% 2,36 2,34 1%
Vinogradovsky 1,19 0,90 32% 2,90 2,48 17%
Cheremshansky5 0,72 0,82 (12%) 2,34 2,57 (9%)
Coal processing6,mln. tonnes, incl.: 2,51 2,07 21% 6,29 6,05 4%
Sorted coal 1,72 1,27 35% 3,97 4,17 (5%)
Washed coal 0,79 0,80 (1%) 2,32 1,88 23%
Stripping, mln. cbm., incl.: 14,54 15,36 (5%) 45,04 44,29 2%
Blasted rock mass7 ,mln cbm. 9,15 8,88 3% 26,81 20,50 31%
Average stripping transportation
distance, km.
2,80 2,80 - 2,70 2,70 -
Average stripping ratio 8 5,20 6,20 (16%) 5,90 6,00 (2%)

Sales

  Q3
2014
Q2
2014
Ch. 9M
2014
9M
2013
Ch.
Sales volume9 ,
mln. tonnes, incl.:
2,89 1,89 53% 6,89 7,52 (8%)
Export sales volume 2,00 1,61 24% 5,08 5,10 -
Domestic sales volume 0,89 0,28 218% 1,81 2,42 (25%)
Own coal 2,61 1,85 41% 6,42 6,53 (2%)
Coal re-sale 0,28 0,04 600% 0,47 0,99 (53%)
Average selling price,
RUB/tonne
10
1 059 894 18% 1 041 1 074 (3%)

 

1 Here and below are unaudited figures for Q2 and Q3 2014, 9M 2014, 9M 2013

2 EBITDA for each period is defined as results from operating activities, adjusted for amortization and depreciation, impairment loss and profit or loss on disposal of property, plant and equipment. EBITDA is not a measurement of Company’s operating performance under IFRS and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with IFRS or as an alternative to cash flow from operating activities or as measure of the Company’s liquidity.

3 Change 30.09.14 / 30.09.13

4 Metal Expert, January 2013

5 Including Kaskad 1 washing plant

6 Sorted and washed coal

7 Included in stripping

8 Share of coal produced in stripping

9 Sales for the group of companies, including third parties coal resale

10 Excluding rail tariffs and VAT