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 3 months 2013 ended March 31, 2013.
Financial highlights
| RUB mln. | Q11 2013 |
Q42 2012 |
Ch. | Q12 2012 |
Ch.2 |
| Revenue | 4,927 | 6,229 | -21% | 6,652 | -26% |
| Cost of sales | 4,277 | 4,838 | -12% | 5,358 | -20% |
| Production cash costs per tonne, RUB | 559 | 583 | -4% | 777 | -28% |
| Gross profit | 650 | 1,391 | -53% | 1,294 | -50% |
| Gross profit margin | 13% | 22% | - 9 ppts | 19% | -6 ppts |
| Distribution, administrative and other costs | 417 | 511 | -18% | 448 | -7% |
| Operating profit | 233 | 880 | -74% | 846 | -72% |
| Operating profit margin | 5% | 14% | -9 ppts | 13% | -8 ppts |
|
EBITDA3 |
509 | 1,197 | -57% | 1,117 | -54% |
| EBITDA margin | 10% | 19% | -9 ppts | 17% | -7 ppts |
| EBITDA per tonne, RUB | 213 | 501 | -57% | 512 | -58% |
| Net profit | 86 | 697 | -88% | 896 | -90% |
| Net profit margin | 2% | 11% | -9 ppts | 13% | -11 ppts |
During Q1 2013 the Company has been working in the face of declining prices for thermal coal in the domestic and export markets. Management continues to implement a cost cutting program, and reviewing contracts with suppliers for all types of input resources and services. Compared to Q1 2012, production cash costs4 fell by 27%, cost of sales has dropped 20%, distribution, administrative and other costs decreased by 7%. One of the key measures to reduce costs was the sale5 of the associated transportation company LLC "Kuzbass Transport Company", which reduced the cost of rail cars rent by 2 times. The above measures will enable the Company to maintain a stable position in the market and get the maximum economic benefit from possible price increases for high-quality thermal coal in the medium term.
Revenue
Revenues in Q1 2013 decreased by 21% to RUB 4,927 mln., influenced by the seasonal decline in demand for coal caused by the ending heating season. Quarter-on-quarter revenue decline occurred in all key segments of the Company’s business. In a segment of own coal exports sales revenue decreased by 14%, and in the segment of the domestic sales of coal produced by 27%.
Operating profit and EBITDA
Due to the seasonal decline in demand for coal in the domestic market and a reduction in revenue from export sales, operating income in Q1 2013 decreased by 74% and amounted RUB 233 mln. Production cash costs6 in Q1 reduced by 10% to RUB 1,228 mln. Cost of sales in Q1 decreased to RUB 4,277 mln. as a result of lower production cash costs and the purchase of coal for the resale. The level of distribution, administrative and other costs in the Q1 2013 decreased by 18% to RUB 417 mln. due to decrease in sales volume. EBITDA in Q4 declined by 54% to RUB 509 mln.
Net profit
Net profit in Q1 was RUB 86 mln., decreased by 88% quarter-on-quarter. The negative impact on net profit had a decline in gross margin in export sales of own coal segment from 18% in Q4 2012 to 7% in Q1 2013.
Debt portfolio management
| RUB mln. | 31.03.13 | % of total |
31.12.12 | Ch. | 31.03.12 | Ch.7 |
| Long term loans | 3,411 | 42% | 3,541 | -4% | 4,001 | -15% |
| Short term loans | 4,765 | 58% | 3,502 | 36% | 1,237 | 285% |
| Total debt, incl.: | 8,176 | 7,043 | 16% | 5,238 | 56% | |
| Ruble-denominated | 4,107 | 50% | 3,067 | 34% | 1,016 | 304% |
| Average interest rate for Ruble loans | 9.06% | 9.56% | -0.50 ppts | 8.66% | 0.40 ppts | |
| Subsidized interest for Ruble loans8 | 8.53% | 8.45% | 0.08 ppts | 7.68% | 0.85 ppts | |
| USD-denominated | 4,069 | 50% | 3,975 | 2% | 4,222 | -4% |
| Average interest for USD loans | 4.80% | 4.80% | - | 4.83% | -0.03 ppts | |
| Cash and cash equivalents | 1,858 | 2,362 | -21% | 1,572 | 18% | |
| Net debt | 6,318 | 4,681 | 35% | 3,346 | 89% | |
| Net debt / EBITDA | 2.20 | 1.35 | 64% | 0.82 | 168% | |
The main reason for the growth of total debt was financing the acquisition of rail car fleet from LLC "Kuzbass Transport Company", with the aim of further resale. In May 2013 deal to sell rail cars to LLC "ZapSib-Transservice" was closed9, and raised funds were returned to banks.
Net debt as of March 31, 2013 amounted to RUB 6,318 mln., increased by 35% compared with the figure as of December 31, 2012. The net debt to EBITDA ratio amounted 2.20. The ratio increase has affected the 57% quarterly reduction in EBITDA and decrease in cash and cash equivalents by 21% to RUB 1,858 mln. Under the terms of loan agreements with banks, net debt to EBITDA ratio should not exceed the level of 3.50-4.00. Management plans to work consistently to reduce debt and increase the proportion of long-term loans during 2013.
The company carries out effective financial and investment policies, resulting in the average interest rate for RUB denominated borrowings at the level of 8.53%8, and borrowings in US dollars – 4.80%.
Cash flow and investments
| RUB mln. | Q1 2013 |
Q4 2012 |
Ch. | Q1 2012 |
Ch.11 |
| Operating cash flow | -1,354 | 940 | n.a. | -35 | 3,769% |
| Investment cash flow, incl.: | -180 | -468 | -62% | -1,326 | -86% |
| Acquisition of property, plant and equipment | -199 | -713 | -72% | -991 | -80% |
| Financial cash flow | 1,032 | -161 | n.a. | 1,060 | -3% |
| Net increase / (decrease) in cash and cash equivalents |
-502 | 311 | -301 | 67% |
In Q1 2013, operating cash flow amounted to RUB 1,354 mln. Investment cash decreased by 62% to RUB 180 mln. and investment in acquisition of property, plant and equipment spent RUB 199 mln. most of which focus on the completion of the washing plant “Kaskad-2”. Net cash inflow from financing activities in Q1 2013 amounted to RUB 1,032 mln. due to increased borrowings.
Igor Prokudin, CEO of the Company, commented:
"Assessing the results of the financial statements for Q1, I want to note that these results were anticipated for us. Due to difficult market conditions, the Company's revenues decreased by 21%, EBITDA by 57%. Also, following the increased competition in the domestic market during this period, there was a decline in sales, but own sales network enabled the Company to maintain its market share in this segment. As a result, the Company was able to make a profit in Q1, which was due to the efforts of management and all of the Company's cost reduction.
I think the market situation in the near future will be difficult, so we expect performance deterioration in Q2, which also occurs on the background of the seasonal decline in sales, which is characteristic for the coal industry in the summer. In this situation, the main aim is the reduction of the Company’s debt to a comfortable level and the preservation of the course to optimize costs in the next reporting period.
Summing up the results of the last quarter, I want to thank the management and the entire staff of the Company for the well-coordinated work. I emphasize that the current situation today has not changed the basic directions of our strategy."
Key events in Q1 and after reporting date
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.
Outlook for Q2 2013
Management of KTK tracks the prices in world markets, which in the recent year have remained at a stable low level, and does not expect any increase of thermal coal price in Q2 and Q3 2013. However, the price trends of past periods raise can expectations of rising prices in the medium term.
Conference call
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
Thursday, May 23 2013
9:00 AM New York (UTC -4:00)
14:00 PM London (UTC +1:00)
17:00 PM Moscow (UTC +4:00)
20:00 PM 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.
You can download the presentation starting from 10:00 AM (UTC +4:00) May 23, 2013 using following links:
www.oaoktk.ru/investors
www.oaoktk.ru/investors/presentations
www.slideshare.net/oaoktk
You can join the conference call by dial-in:
International: +44 (0) 1452 555566
Russia (free call): 81080020972044
Conference ID: 75086961
The record and transcript of the conference call will be uploaded in 2 weeks: www.oaoktk.ru/investors
The conference call replay will be available for 2 weeks:
International: +44 (0)1452550000
Replay Access Code: 75086961
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
KTK at a glance:
OJSC "Kuzbasskaya Toplivnaya Company" is one of the largest manufacturers11 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%.
KTK in social networks:
News and announcements (Russian only) www.facebook.com/oaoktk
Presentations www.slideshare.net/oaoktk
Video www.youtube.com/oaoktkru
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 and we will provide you with the correct data and publish any correction notes on the website www.oaoktk.ru.
Forward–looking statements
This press release might contain forward-looking statements that refer to future events or forecast financial indicators for OJSC “Kuzbasskaya Toplivnaya Company”. Such statements do not guarantee that these are actions to be taken by OJSC “Kuzbasskaya Toplivnaya Company” in the future, and estimates can be inaccurate and uncertain. Actual final indicators and results can considerably differ from those declared in any forward-looking statements.
Appendix
Production cash costs
| RUB mln. | Q1 2013 |
Q4 2012 |
Ch. | Q1 2012 |
Ch.12 |
| Consolidated cost of sales | 4,277 | 4,839 | -12% | 5,358 | -20% |
|
Excluding cost of sales of subsidiaries |
585 | 851 | -31% | 705 | -17% |
| Cost of sales of KTK, excluding: | 3,692 | 3,988 | -7% | 4,653 | -21% |
| Depreciation allocated to cost of sales | -248 | -274 | -9% | -239 | 4% |
| Cost of coal for resale & coal for reprocessing | -14 | -13 | 8% | -234 | -94% |
| Change in inventories | -16 | -46 | -65% | 89 | n.a. |
| Railway tariff and transportation services | -2,186 | -2,270 | -5% | -2,576 | -15% |
| Production cash costs | 1,228 | 1,365 | -10% | 1,693 | -27% |
| % of production cash costs in consolidated cost of sales |
29% | 28% | 1 ppts | 32% | -4 ppts |
| Production cash costs per tonne, RUB | 559 | 583 | -4% | 777 | -28% |
| Production cash costs per tonne, USD | 18 | 19 | -2% | 26 | -29% |
Segments
| RUB mln. | Q1 2013 |
% of total |
Q4 2012 |
Ch. | Q1 2012 |
Ch.12 |
| Revenue | 4,927 | 6,229 | -21% | 6,652 | -26% | |
| Domestic sales of coal produced | 1,074 | 22% | 1,466 | -27% | 1,152 | -7% |
| Export sales of coal produced | 3,272 | 66% | 3,801 | -14% | 4,601 | -29% |
| Resale of coal purchased | 348 | 7% | 724 | -52% | 663 | -48% |
| Other operations | 233 | 5% | 238 | -2% | 236 | -1% |
| Cost of sales | 4,277 | 5,621 | -24% | 5,358 | -20% | |
| Domestic sales of coal produced | 746 | 17% | 974 | -23% | 904 | 17% |
| Export sales of coal produced | 3,053 | 71% | 3,103 | -2% | 3,669 | -17% |
| Resale of coal purchased | 299 | 7% | 593 | -50% | 613 | -51% |
| Other operations | 179 | 4% | 168 | 7% | 172 | 4% |
| Gross profit | 650 | 1,391 | -53% | 1,294 | -50% | |
| Domestic sales of coal produced | 328 | 50% | 492 | -33% | 248 | 32% |
| Export sales of coal produced | 219 | 34% | 698 | -69% | 932 | -77% |
| Resale of coal purchased | 49 | 8% | 131 | -63% | 50 | -2% |
| Other operations | 54 | 8% | 70 | -23% | 64 | -16% |
| Gross profit margin | 13% | 16% | -3 ppts | 19% | -6 ppts | |
| Domestic sales of coal produced | 31% | 34% | -3 ppts | 22% | 9 ppts | |
| Export sales of coal produced | 7% | 18% | -11 ppts | 20% | -13 ppts | |
| Resale of coal purchased | 14% | 18% | -4 ppts | 8% | 6 ppts | |
| Other operations | 23% | 29% | -6 ppts | 27% | -4 ppts |
Production
| Q1 2013 |
% of total |
Q4 2012 |
Ch. | Q1 2012 |
Ch.13 | |
| Coal production, mln. tonnes, incl.: | 2.39 | 2.39 | - | 2.18 | 10% | |
| Karakansky South | 0.77 | 32% | 0.84 | -8% | 0.75 | 3% |
| Vinogradovsky | 0.69 | 29% | 0.66 | 5% | 0.37 | 86% |
| Cheremshansky15 | 0.93 | 39% | 0.88 | 6% | 1.07 | -13% |
| Raw coal | 0.62 | 26% | 0.81 | -23% | 0.39 | 59% |
| Sorted coal | 1.41 | 59% | 1.38 | 2% | 1.59 | -11% |
| Washed coal | 0.36 | 15% | 0.20 | 80% | 0.20 | 80% |
| Stripping, mln. cbm., incl.: | 14.70 | 13.75 | 7% | 19.29 | -24% | |
| Autotruck transportation | 13.33 | 91% | 12.49 | 7% | 18.10 | -26% |
| Non-transportation technology | 1.37 | 9% | 1.26 | 9% | 1.19 | 15% |
| Blasted rock mass16, mln. cbm. | 6.37 | 5.87 | 9% | 9.54 | -33% | |
| Average stripping transportation distance, km |
2.60 | 2.80 | -7% | 3.33 | -22% | |
| Average stripping ratio 16 | 6.10 | 5.80 | 5% | 8.86 | -31% |
Sales
| Q1 2013 |
% of total |
Q4 2012 |
Ch. | Q1 2012 |
Ch.13 | |
| Sales volume17, mln. tonnes, incl.: | 2.38 | 2.93 | -19% | 2.81 | -15% | |
|
Export sales volume |
1.40 | 59% | 1.49 | -6% | 1.61 | -13% |
| Domestic sales volume | 0.98 | 41% | 1.44 | -32% | 1.21 | -19% |
| Own coal | 2.12 | 89% | 2.44 | -13% | 2.17 | -2% |
| Coal re-sale | 0.26 | 11% | 0.50 | -48% | 0.64 | -59% |
| Average selling price18, RUB/tonne | 1,028 | 1,269 | -19% | 1,352 | -24% | |
| Average export price | 900 | 1,228 | -27% | 1,440 | -38% | |
| Average domestic price | 1,211 | 1,312 | -8% | 1,233 | -2% |
1 Here and below are unaudited figures for Q1. 2013, Q1 and Q4 2012
2 Change, Q1 2013/Q1 2012
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 See Appendix
5 See Key events in Q1 and after reporting date
6 See Appendix
7 Change 31.03.13/31.03.12
8 Including subsidy of Belarus Republic for purchasing BelAZ mining trucks
9 See Key events in Q1 and after reporting date
10 Change, Q1 2013/Q1 2012
11 Metal Expert, January 2013
12 Change, Q1 2013/Q1 2012
13 Change, Q1 2013/Q1 2012
14 Including “Kaskad” washing plant
15 Included in stripping
16 Share of coal produced in stripping
17 Sales for the group of companies, including third parties coal resale
18 Excluding rail tariffs and VAT
