News and events

26 August 2013

Financial results of OJSC “Kuzbasskaya Toplivnaya Company” under IFRS for the 2 quarter and 6 months 2013

OJSC "Kuzbasskaya Toplivnaya Company" (RTS/MICEX: «KBTK»), one of the largest producers and exporters of thermal coal in Russia, is pleased to announce its unaudited condensed interim consolidated financial statements under IFRS for the 6 months 2013 ended June 30, 2013.

Financial highlights

RUB mln. Q21
2013
Q11
2013
Ch. 6M1
2013
6M1
2012
Ch.
Revenue 4,657 4,927 -5% 9,584 11,505 -17%
Cost of sales 4,096 4,277 -4% 8,373 9,6882 -14%
Production cash costs per tonne, RUB 586 559 -4% 573 788 -27%
Gross profit 561 650 -14% 1,211 1,8172 -33%
Gross profit margin 12% 13% - 1 ppts 13% 16% -3 ppts
Distribution, administrative and other costs 383 417 -8% 800 864 -7%
Operating profit 178 233 -24% 411 953 -57%
Operating profit margin 4% 5% -1 ppts 4% 8% -4 ppts

EBITDA3

478 509 -6% 987 1,479 -33%
EBITDA margin 10% 10% - 10% 13% -3 ppts
EBITDA per tonne, RUB 191 213 -10% 202 368 -44%
Net profit -42 86 n.a. 44 602 -93%
Net profit margin - 2% n.a. 1% 5% -4 ppts

Eduard Alexeenko, First Deputy CEO, commented:

"In H1 2013, the Company showed lower revenues, EBITDA and net profit due to low prices in export markets and traditional seasonal decline in demand for thermal coal in the domestic market. However, due to lower production cash costs and cost of sales, the Company shows a positive financial result for the first half of the year. The main impact on the net profit had a loss in Q2 related to the foreign exchange differences on loans denominated in foreign currency, which totaled RUB 228 mln., which is more than 2 times higher than in 2012 (RUB 73 mln.). The Company previously showed a loss of RUB 275 mln. in Q2 2010 and RUB 294 mln. in Q2 2012."

Revenue

At the end of H1 2013, revenue decreased by 17% to RUB 9,584 mln. compared to the same period in 2012. The decrease in revenues occurred in all key segments of the Company’s business, but the major impact on this indicator had a segment of export sales of own coal, which had shown a decline of 14%.

Revenue in Q2 2013 decreased by 5% to RUB 4,657 mln. Under the influence of the seasonal decline in demand for coal, the reduction in revenue in the segment of own coal sales in the domestic market amounted to 64%. Due to contracts with the buyers of washed coal in the Asia-Pacific region in a segment of export sales of own coal quarter-on-quarter revenue rose by 20% to RUB 3,924 mln., which is equivalent to 84% of consolidated quarterly revenue of the Company.

Operating profit and EBITDA

Compared to H1 2012, for 6 months in 2013 operating income decreased by 57% to RUB 411 mln., with EBITDA and gross profit declined by 33% to RUB 1,211 mln. and 987 mln. respectively. The main influence on the reduction of these indices had a reduction of gross margin in the segment of the export sales of own coal from 16% in H1 2012 to 9% in H1 2013. Some support has had a rise in gross margin in the segment of the of own coal sales in the domestic market from 17% in H1 2012 to 28% in H1 2013 and the reduction of production cash costs by 27% to RUB 573 per tonne of produced coal. Cost of sales in H1 2013 decreased by 14% to RUB 8,373 mln. as a result of lower production cash costs and the coal purchased for resale. The level of commercial, administrative and other expenses in H1 2013 decreased by 7% to RUB 800 mln.

In Q1 2013, operating income decreased by 24% compared to the same period in 2012 and amounted RUB 178 mln. Gross profit decreased 14% to RUB 561 mln. Quarterly EBITDA amounted to RUB 478 mln. showing decrease by 6% compared to Q1 2013. Production cash costs and cost of sales were reduced in Q2 by 4% to RUB 4,096 mln. and RUB 586 per tonne respectively. Commercial, administrative and other expenses decreased by 8% to RUB 383 mln.

Net profit

Net profit in H1 2013 amounted RUB 44 mln. showing a decrease by 93% compared to the same period in 2012. Despite a significant reduction in thermal coal prices on world markets and the declining profitability of export sales, the Company's business in the domestic market is stable and shows an increase in gross margin. This is due to the own distribution network of coal warehouses which is unique for the Russian market, serving more than 400,000 individuals and more than 1,000 legal entities and municipal customers of thermal coal. Gross margin of this segment is growing thanks to strong demand for sorted coal and the introduction of additional services for the customers. Management plans to continue the development and expansion of the retail network.

Due to the seasonality of consumption of coal in the domestic market, Q2 is traditionally the weakest in the annual business cycle of the Company. In Q2 2013, the Company recorded a loss of RUB 42 mln., which is 149% lower than the loss incurred in Q2 2012. As in Q2 last year, the loss is due to foreign exchange differences on loans denominated in foreign currency in the amount RUB 228 mln.

Debt portfolio management

RUB mln. 30.06.13 % of
total
31.03.13 Ch. 30.06.12 Ch.4
Long term loans 4,859 61% 3,411 42% 5,414 -10%
Short term loans 3,097 39% 4,765 -35% 1,333 132%
Total debt, incl.: 7,956   8,176 -3% 6,747 18%
RUB loans 4,210 53% 4,107 3% 2,452 72%
Average interest rate for RUB loans 8.97%   9.06% -0.09 ppts 10.00% -1.03 ppts
Subsidized interest for RUB loans5 8.67%   8.53% 0.14 ppts 9.40% -0.73 ppts
USD loans 3,746 47% 4,069   4,295 -13%
Average interest for USD loans 4.74%   4.80% -0.06 ppts 4.80% -0.06 ppts
Cash and cash equivalents 1,993   1,858 7% 1,6166 23%
Net debt 5,963   6,318 -6% 5,131 16%
Net debt / 12M EBITDA 2.00   2.20 -9% 1.31 52%

Net debt at 30 June 2013 amounted RUB 5,963 mln. showing a decrease by 6% compared with the figure as at 31 March 2013. The net debt to 12M EBITDA ratio reached a comfortable level for the management and amounted 2.00. Under the terms of loan agreements with banks, net debt to EBITDA ratio should not exceed the level of 3.50 - 4.00.

The company is one of the most reliable and efficient borrowers in the sector, which reflect the current interest rates for loans. As of June 30, 2013, the average effective rate was 8.67% for loans denominated in RUB and 4.74% for loans denominated in USD. In Q2 2013, VTB Bank (Austria) AG confirmed a new credit line to refinance the costs incurred by the Company in the implementation of the investment project for the construction of the washing plant "Kaskad-2" in the amount USD 60 mln. for a period of 5 years. Previously, the Company raised loans for up to 3 years, and received credit line allowed to effectively restructure existing debt portfolio, together with a reduction in the effective interest rate on borrowings in USD by 0.06 percentage points.

Cash flow and investments

RUB mln. Q2
2013
Q1
2013
Ch. 6M
2013
6M
2012
Ch.
Operating cash flow 1,128 -1,354 n.a. -226 567 n.a.
Investment cash flow: -109 -180 -39% -289 -2,821 -90%
Acquisition of property, plant and
equipment
-145 -199 -27% -344 -2,318 -85%
Financial cash flow -924 1,032 н.п. 108 1,514 -93%
Net increase / (decrease) in cash and cash
equivalents
95 -502 n.a. -407 -740 -45%

In H1 2013, operating cash flow amounted RUB -226 mln. Investment cash flow decreased by 90% to RUB -289 mln because the Company has fully completed the investment cycle of 2012. Investments in acquisition of property, plant and equipment amounted RUB 344 mln., most of which focus on the completion of the financing made earlier work on the construction of the washing plant "Kaskad-2." Net cash outflow from financing activities for H1 2013 amounted to RUB 407 mln. Net decrease in cash and cash equivalents slowed down by 45% to RUB 344 mln.

In Q2 2013, operating cash flow amounted RUB 1,128 mln. by reducing the trade receivables to RUB 2,165 mln, which is 38% lower than in Q1 2013. These trade receivables included receivables from LLC "ZapSib-Transservice" on the transaction of sale of rail cars. This batch of rail cars was purchased by the Group from LLC "Kuzbasskaya Transport Company" with the aim of further resale. The carrying value of this debt amounted to RUB 1,017 mln. In May 2013 this debt was repaid in full by the buyer. Investment cash flow in Q2 2013 amounted RUB -109 mln., investments in acquisition of property, plant and equipment were RUB 145 mln. Net cash outflow from financing activities amounted RUB 924 mln. Net increase in cash and cash equivalents amounted RUB 95 mln.

Key events in Q2 and after reporting date

  • Washing plant "Kaskad-2" has entered the design level of washing quality and produced in Q2 0.53 mln tonnes of high quality washed coal. In view of the fact that today the demand for sorted coal is much higher than on washed coal, in order to maximize profit in Q2 management decided to reduce the plan for a coal washing and lead mining predominantly selective method.
  • As a result of the closing of the sale of the associated LLC "Kuzbasskaya Transport Company" ("KTrK") in February 2013 to the new owner of rail car fleet LLC "ZapSib-Transservice", average railroad tariff on export routes dropped in Q2 to RUB 1,282. That 10% lower than in Q1 2013 and 6% lower than in Q2 2012.
  • At the April 15 took place an annual general meeting of shareholders of the Company. The shareholders approved the payment of dividends in the amount of RUB 5 per share. Total dividend payments for 2012 will be RUB 496 mln., which corresponds to 27.4% of net profit under IFRS. The dividend yield amounted 7.5% (2011: 3.4%).
    As a result of the voting shareholders formed a new Board of Directors of OJSC "Kuzbasskaya Toplivnaya Company": Ivan Gepting, Deputy CEO Sales; Vadim Danilov, Chairman of the Board of Directors; Igor Prokudin, CEO; Alexander Arthur John Williams, Independent Director; Yuriy Fridman, Independent Director.
  • At the August 20, 2013 was signed a collective agreement between the union of miners and the management of OJSC "Kuzbasskaya Toplivnaya Company". The accepted document outlines social benefits and guarantees provided to employees and their families, as well as all social groups included the new edition of the "Federal agreement on the coal industry".

Outlook for Q3 2013

  • In accordance with the production plan, the coal production in Q3 2013 will decrease by 7%, to 2.33 mln. tonnes.
  • According to the expectations of management, the stripping ratio in Q3 will decline by 1% to 5.85.
  • In Q3 2013 the Company plans to expand its retail network in the Altai region by 15 mobile seasonal points of sales due to the rising profitability of domestic sales and future purchases of coal due to oncoming heating season in Russia. Expected sales volume through these mobile points of sales is 60 thsd. tonnes per season. Deployment of mobile seasonal point of sales is much cheaper then purchasing of existing stationary warehouse, the required investments amounts RUB 1 mln. per point of sales.

Management of the KTK tracks the performance of prices in world markets, which in the last year stays at the low level, and does not expect significant price increases in the international thermal coal market in Q3 and Q4 2013. However, the price trends of past periods augur well for the growth of prices in the medium term.

6M 2013 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 Alexeenko – First deputy CEO
Vasily Rumyantsev – Head of Moscow office, IRO

Monday, August 26 2013
9:00 New York (UTC -4:00)
14:00 London (UTC +1:00)
17:00 Moscow (UTC +4:00)
20:00 Kemerovo (UTC +7:00)

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

Presentation will be available starting in 1 hour before the conference call at:
www.oaoktk.ru/en/investors/present
www.slideshare.net/oaoktk

You can join the conference call by dial-in:
International: +44 (0) 1452 555566
Russia (toll free): 81080020972044
Conference ID: 37089330

In 2 weeks the record and transcript of the conference call will be published on KTK website:
www.oaoktk.ru/en/investors/audio

The conference call replay will be available for 2 weeks:
International: +44 (0)1452550000
Conference ID: 37089330?

Contacts for analysts and investors:

OJSC "Kuzbasskaya Toplivnaya Company", Moscow
Vasily Rumyantsev
Head of Moscow office, IRO
Tel.: +7 (495) 787-68-05
E-mail: vkr@oaoktk.ru

Contacts for press:

OJSC "Kuzbasskaya Toplivnaya Company", Kemerovo
Elena Sarycheva
Head of public affairs department
Tel.: +7 (3842) 36-47-62 (Russian only)
E-mail: es@oaoktk.ru

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

Company at a glance:

OJSC "Kuzbasskaya Toplivnaya Company" is one of the largest manufacturers7 and exporters of thermal coal in Russia. Production assets of the Company include three current and one projected opent-pit mines, two washing plants located in the same industrial cluster in the Kemerovo region. The company employs over 4,000 employees. Shares of OJSC "Kuzbasskaya Toplivnaya Company" are traded on the RTS/MICEX, the free float is 34.39%.

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

Presentations www.slideshare.net/oaoktk

Video www.youtube.com/oaoktkru

FY 2012 Financial Highlights under IFRS:

 RUB mln.
2012
2011
2010

Revenue

23,104
23,939
14,160

Cost of sales

18,982
19,404
11,457
Production cash costs per tonne, RUB
690
653
509

EBITDA

3,479
3,911
2,134
EBITDA margin
15%
16%
15%
EBITDA per tonne, RUB
399
448
304

Net profit

1,810
2,018
823
Net profit margin
8%
8%
6%

Net debt

4,681
2,663
1,754
Net debt / EBITDA
1.35
0.68
0.82

 

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

Production cash costs

RUB mln. Q2
2013
Q1
2013
Ch. 6M
2013
6M
2012
Ch.
Consolidated cost of sales 4,096 4,277 -4% 8,373 9,6888 -14%

Excluding cost of sales of subsidiaries

264 585 -55% 850 9688 -12%
Cost of sales of KTK, excluding: 3,832 3,692 4% 7,523 8,7198 -14%
Depreciation allocated to cost of sales -319 -248 29% -567 -4588 24%
Cost of coal for resale & coal for reprocessing -14 -14 - -28 -405 -93%
Change in inventories 129 -16 n.a. 114 134 -15%
Railway tariff and transportation services -2,334 -2,186 7% -4,520 -4,755 -5%
Production cash costs 1,294 1,228 5% 2,522 3,2158 -22%
% of production cash costs in consolidated cost of sales 32% 29% -3 ppts 30% 33% -3 ppts
Production cash costs per tonne, RUB 586 559 5% 573 788 -27%
Production cash costs per tonne, USD 19 18 3% 19 26 -27%

Segments

RUB mln. Q2
2013
Q1
2013
Ch. 6M
2013
6M
2012
Ch.
Revenue 4,657 4,927 -5% 9,584 11,505 -17%
Domestic sales of coal produced 391 1,074 -64% 1,465 1,767 -17%
Export sales of coal produced 3,924 3,272 20% 7,196 8,412 -14%
Resale of coal purchased 189 348 -46% 537 960 -44%
Other operations 153 233 -34% 386 366 5%
Cost of sales 4,096 4,277 -4% 8,373 9,6888 -14%
Domestic sales of coal produced 304 746 -59% 1,050 1,4588 -28%
Export sales of coal produced 3,489 3,053 14% 6,542 7,0318 -7%
Resale of coal purchased 161 299 -46% 460 916 -50%
Other operations 142 179 -21% 321 283 13%
Gross profit 561 650 -14% 1,211 1,817 -33%
Domestic sales of coal produced 87 328 -73% 415 3098 34%
Export sales of coal produced 435 219 99% 654 1,3818 -53%
Resale of coal purchased 28 49 -43% 77 44 75%
Other operations 11 54 -80% 65 83 -22%
Gross profit margin 12% 13% -1 ppts 13% 16% -3 ppts
Domestic sales of coal produced 22% 31% -9 ppts 28% 17% 11 ppts
Export sales of coal produced 11% 7% 4 ppts 9% 16% -7 ppts
Resale of coal purchased 15% 14% 1 ppts 14% 5% 9 ppts
Other operations 7% 23% -16 ppts 17% 23% 6 ppts

Production

  Q2
2013
Q1
2013
Ch. 6M
2013
6M
2012
Ch.
Coal production, mln. tonnes, incl.: 2.50 2.39 5% 4.89 4.08 20%
Karakansky South 0.75 0.77 -3% 1.47 1.52 3%
Vinogradovsky 0.90 0.69 30% 1.59 0.65 145%
Cheremshansky9 0.86 0.93 -8% 1.79 1.98 -10%
Coal processing10,
mln. tonnes, incl.:
2.14 1.77 21% 3.91 3.41 15%
Sorted coal 1.43 1.41 1% 2.84 3.00 -5%
Washed coal 0.71 0.36 97% 1.07 0.41 161%
Stripping, mln. cbm., incl.: 14.78 14.70 1% 29.48 38.71 -24%
Blasted rock mass11, mln. cbm 6.64 6.37 4% 13.01 18.97 -31%
Average stripping transportation distance, km 2.40 2.60 -15% 2.50 3.19 -22%
Average stripping ratio12 5.90 6.10 -3% 6.00 9.49 -37%

 Sales

  Q2
2013
Q1
2013
Ch. 6M
2013
6M
2012
Ch.
Sales volume13 mln. tonnes, incl.: 2.16 2.38 -9% 4.54 4.85 -6%

Export sales volume

1.74 1.40 24% 3.14 3.06 3%
Domestic sales volume 0.42 0.98 -57% 1.40 1.79 -22%
Own coal 2.02 2.12 -5% 4.14 3.97 4%
Coal re-sale 0.14 0.26 -46% 0.40 0.88 -55%
Average selling price, RUB/tonne14 1,025 1,028 - 1,027 1,318 -22%
Average export price 980 900 9% 945 1,354 -30%
Average domestic price 1,207 1,211 - 1,210 1,256 -4%

 

1 Here and below are unaudited figures for Q1 and Q2 2013, 6M 2013, 6M 2012

2 Recalculated data in accordance with the new standards and interpretations. Read more on pages 10-12 of financial statements.

3 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.

4 Change 30.06.13 / 30.06.12

5 Including subsidy of Belarus Republic for purchasing BelAZ mining trucks

6 Including term deposits

7 Metal Expert, January 2013.

8 Recalculated data in accordance with the new standards and interpretations. Read more on pages 10-12 of financial statements.

9 Including “Kaskad” washing plant

10 Coal washing and sorting.

11 Included in stripping.

12 Share of coal produced in stripping.

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

14 Excluding rail tariffs and VAT.