News and events

27 August 2014

Financial results of Kuzbasskaya Toplivnaya Company OJSC under IFRS for the 2 quarter and 6 months 2014

Kuzbasskaya Toplivnaya Company OJSC (KTK, 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 2014.

Financial highlights

RUB mln. Q21
2014
Q11
2014
Ch. 6M1
2014
6M1
2013
Ch.
Revenue 3 887 4 834 (20%) 8 721 9 584 (9%)
Cost of sales 3 575 4 082 (12%) 7 657 8 402 (9%)
Production cash costs per tonne, RUB 599 644 (7%) 621 582 7%
Gross profit 312 752 (59%) 1 064 1 182 (10%)
Gross profit margin 8,0% 15,6% (7.6) ppts 12,2% 12,3% (0.1) ppts
Distribution, administrative and other
costs
372 447 (17%) 819 800 2%
Operating profit (60) 305 n.a. 245 382 (36%)
Operating profit margin - 6,3% - 2,8% 4,0% (1.2) ppts

EBITDA2

167 618 (73%) 785 952 (18%)
EBITDA margin 4,3% 12,8% (8.5) ppts 9,0% 9,9% (0.4) ppts
EBITDA per tonne, RUB 67 268 (75%) 164 195 (16%)
Net profit (91) 15 n.a. (76) 21 n.a.
Net profit margin - 0,3% - - 1,0% -

Revenue

In H1 2014, revenue decreased by 9% to RUB 8,721 mln compared with the same period of 2013. 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.

Revenues in Q2 2014 decreased by 20% to RUB 3,887 mln. Under the influence of the seasonal decline in demand for coal, the reduction in revenue in the segment sales of own coal in the domestic market amounted to 44%. Revenue from export sales decreased by 7% compared with Q1 2014 and amounted to RUB 3,303 mln. Decrease in export revenue in Q2 due to structural changes in the model of coal sales on the Polish market. Management decided not to work with local traders in favor of a direct interaction with the end buyers. In consequence of these changes, KTK do not receive prepayments for coal from this market.

Operating profit and EBITDA

Compared with H1 2013, for first 6 months in 2014 operating income decreased by 36% to RUB 245 mln, and gross profit decreased by 10% to RUB 1,064 mln. The EBITDA showed a decline of 18%, reaching RUB 785 mln. The main influence on the above figure was a reduction in revenue. Cost of sales in H1 2014 decreased by 9% to RUB 7,657 mln as a result of optimization measures, carried out by the management. Cost of sales reduction occurred despite decline in coal production in comparison with the volume for H1 2013. Level of commercial, administrative and other expenses for H1 2014 increased by 2% to RUB 819 mln.

In Q2 2014, the Company showed an operating loss of RUB 60 mln. Gross profit decreased by 59% to RUB 312 mln. Quarterly EBITDA amounted RUB 167 mln. Together with income from sold unused land amounted RUB 88 mln that is enough to pay loans interest. Production cash costs and cost of sales decreased in Q2 by 12% to RUB 3,575 mln and RUB 599 per tonne, respectively. Commercial, administrative and other expenses decreased by 17% to RUB 372 mln.

Net profit

The Company shows a net loss in H1 2014, amounting to RUB 76 mln. The main factors influencing the financial result was a continued decline in the Asian markets. At the current price level of export sales to the Asia-Pacific region brings Company minor losses, but this shipments can not be interrupted in order to avoid the loss of an long-term attractive market and established customer base in South Korea and Japan. Management is convinced that if the global trend will change, key opportunities will be concentrated on this market. 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 much more significant than in past years. System changes on 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 increased from 28% in H1 2013 to 36% in H1 2014 the Company is implementing a number of projects to improve the domestic market share in the total volume of sales.

Due to the seasonality of coal consumption in the domestic market, Q2 is traditionally the weakest in the annual business cycle of the company. In Q2 2014, recorded a loss of RUB 91 mln. The company shows losses in Q2 for the third year in a row.

Debt portfolio management

RUB mln. 30.06.14 % of
total
31.03.14 Ch. 30.06.13 Ch.3
Long term loans 3 615 44% 5 029 (28%) 4 859 (26%)
Short term loans 4 558 56% 2 368 92% 3 097 47%
Total debt, incl.: 8 173   7 397 10% 7 956 3%
RUB loans 3 858 47% 3 161 22% 4 210 (8%)
Average interest rate for RUB loans 10,63%   9,51% 1.12 ppts 8,97% 1.66 ppts
Subsidized interest for RUB loans4 10,52%   9,37% 1.15 ppts 8,67% 1.85 ppts
USD loans 4 315 53% 4 236 2% 3 746 15%
Average interest for USD loans 4,76%   4,84% (0.08) ppts 4,74% 0.02 ppts
Cash and cash equivalents 2 056   2 316 (11%) 1 993 3%
Net debt 6 117   5 081 20% 5 963 3%
Net debt / 12M EBITDA 2,71   2,01 35% 1,91 42%

Net debt at 30 June 2014 amounted RUB 6,117 mln increasing by 20% compared to the March 31, 2014. The net debt to EBITDA for the 12 months was 2.71. The main reasons for the growth of debt, including the short term part of the loan portfolio was the creation of its own coal reserves in warehouses in Poland, to be sold in Q3 2014 and cover the increased trade receivables. Management plans to decrease net debt to EBITDA in H2 2014.

The company is one of the most reliable and efficient borrowers in the sector, that reflect current interest rates for loans and credits. As of June 30, 2014, the average effective rate was 10.52% for loans denominated in RUB and 4.76% for loans denominated in USD.

Cash flow and investments

RUB mln. Q2
2014
Q1
2014
Ch. 6M
2014
6M
2013
Ch.
Operating cash flow (643) (747) (14%) (1,390) (226) 515%
Investment cash flow (59) (197) (70%) (256) (289) (11%)
Acquisition of property, plant and
equipment
(182) (196) (7%) (378) (346) 9%
Financial cash flow 535 440 22% 975 108 803%
Net increase / (decrease) in cash and cash
equivalents
(167) (504) (67%) (671) (407) 65%

In H1 2014 operating cash flow amounted RUB (1,390) mln, increasing by 515% compared to the same period in 2013. Investment cash flow decreased by 11% to RUB (256) mln. Investment in fixed assets amounted RUB 378 mln, most of which focus on modernization of the washing plant Kaskad 2 and retail network development. Net cash outflow from financial activities for H1 2014 amounted to RUB 975 mln. Net decrease in cash and cash equivalents raised by 65% to RUB 671 mln.

In Q2 2014 operating cash flow amounted RUB (643) mln. Investment cash flow in Q2 2013 amounted RUB (59) mln, for investment in fixed assets was spent RUB 182 mln. Net cash outflow from financial activities amounted RUB 975 mln. Net decrease in cash and cash equivalents amounted RUB 167 mln.

Key events in Q2 and after reporting date

  • Equipment modernization at washing plant Kaskad 1 is completed. Implemented a new technology of heavy medium separation, which will allow to receive stable quality of washed coal and increase the competitiveness of the product.
  • Maxim Ovcharov, the former Head of retail sales in the Kemerovo Region and the Altai appointed Deputy CEO for retail network. His area of responsibility includes the coordination and development of retail network in 4 regions of Western Siberia and Poland. Harmonization and standardization of business processes retail network will provide synergies and allow KTK to get to a new level of customer service.
  • The company has sold unused land assets and received RUB 88 mln on the result of closing the deal.
  • Commissioned an additional railway line from the station of Vinogradovsky open-pit mine with the inclusion of electric interlocking station.

Outlook for Q3 2014

  • In accordance with the production plan, the volume of coal production in the Q3 2014 will increase by 13%, to 2.81 mln tonnes, which is 12% higher than the same period of 2013. Such an increase in production is due to pent-up demand, which will increase its sales in Q3 2014.
  • Management expects the stripping ratio in Q3 to decline by 17% to 5.12.

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

Wednesday, August 27 2014
17:00 Moscow (UTC +4:00)

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) 646 91 72
Great Britain: +44 20 33 67 94 56
USA: +1 8554027762

In 2 weeks the record and transcript of the conference call will be published on KTK website:
www.oaoktk.ru/en/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 manufacturers5 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. Q2
2014
Q1
2014
Ch. 6M
2014
6M
2013
Ch.
Revenue 3 887 4 834 (20%) 8 721 9 584 (9%)
Domestic sales of coal produced 430 766 (44%) 1 196 1 465 -18%
Export sales of coal produced 3 303 3 558 (7%) 6 861 7 196 (5%)
Resale of coal purchased 77 237 (68%) 314 537 (42%)
Other operations 77 273 (72%) 350 386 (9%)
Cost of sales (3 575) (4 082) (12%) (7 657) (8 402) (9%)
Domestic sales of coal produced (306) (463) (34%) (769) (1 057) (27%)
Export sales of coal produced (3 101) (3 259) (5%) (6 360) (6 564) (3%)
Resale of coal purchased (70) (171) (59%) (241) (460) (48%)
Other operations (98) (189) (48%) (287) (321) (11%)
Gross profit 312 752 (59%) 1 064 1 182 (10%)
Domestic sales of coal produced 124 303 (59%) 427 408 5%
Export sales of coal produced 202 299 (32%) 501 632 (21%)
Resale of coal purchased 7 66 (89%) 73 77 (5%)
Other operations (21) 84 n.a. 63 65 (3%)
Gross profit margin 12% 12% - 8% 16% (8) ppts
Domestic sales of coal produced 29% 40% (11) ppts 36% 28% 8 ppts
Export sales of coal produced 6% 8% (2) ppts 7% 9% (2) ppts
Resale of coal purchased 9% 28% (19) ppts 23% 14% 9 ppts
Other operations - 31% - 18% 17% 1 ppts

Production

  Q2
2014
Q1
2014
Ch. 6M
2014
6M
2014
Ch.
Coal production, mln. tonnes, incl.: 2,48 2,31 7% 4,80 4,89 (2%)
Karakansky South 0,76 0,71 7% 1,48 1,52 (3%)
Vinogradovsky 0,90 0,80 13% 1,70 1,59 7%
Cheremshansky6 0,82 0,80 2% 1,62 1,79 (9%)
Coal processing7,mln. tonnes, incl.: 2,07 1,71 21% 3,78 3,91 (3%)
Sorted coal 1,27 0,98 30% 2,25 2,84 (21%)
Washed coal 0,80 0,73 10% 1,53 1,07 43%
Stripping, mln. cbm., incl.: 15,36 15,14 1% 30,50 29,48 3%
Blasted rock mass8 ,mln cbm. 8,88 8,78 1% 17,66 13,01 36%
Average stripping transportation
distance, km.
2,80 2,60 8% 2,70 2,60 4%
Average stripping ratio 9 6,20 6,50 (5%) 6,40 6,00 7%

Sales

  Q2
2014
Q1
2014
Ch. 6M
2014
6M
2013
Ch.
Sales volume10 ,
mln. tonnes, incl.:
1,89 2,12 (11%) 4,01 4,54 (12%)
Export sales volume 1,61 1,47 10% 3,08 3,14 (2%)
Domestic sales volume 0,28 0,64 (56%) 0,93 1,40 (34%)
Own coal 1,85 1,96 (6%) 3,81 4,14 (8%)
Coal re-sale 0,04 0,15 (73%) 0,19 0,40 (53%)
Average selling price,
RUB/tonne
11
894 1 146 (22%) 1 027 1 027 -

 

1 Here and below are unaudited figures for Q1 and Q2 2014, 6M 2014, 6M 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 30.06.14 / 30.06.13

4 Including subsidy of Belarus Republic for purchasing BelAZ mining trucks

5 Metal Expert, January 2013

6 Including «Kaskad» washing plant

7 Coal washing and sorting

8 Included in stripping

9 Share of coal produced in stripping

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

11 Excluding rail tariffs and VAT