Kemerovo, Russian Federation – OJSC “Kuzbasskaya Toplivnaya Company” (“KTK”; RTS, MICEX: “KBTK”), one of the fastest-growing thermal coal producers in Russia, is pleased to announce the unaudited IFRS financial results for the 3rd Quarter and 9 months ended 30 September 2010.
Financial highlights
| RUR mln. | Q3 2010 | Q2 2010 | Change, % | 9M 2010 | 9M 2009 | Change, % |
| Revenue | 3 925 | 2 733 | 44% | 9 576 | 7 450 | 29% |
| EBITDA | 683 | 12 | - | 1 224 | 1 543 | -21% |
| EBITDA margin1, % | 29% | 1% | - | 21% | 31% | - |
| Net profit (loss) | 349 | (275) | - | 353 | 490 | -28% |
| Net profit margin, % | 15% | -17% | - | 6% | 10% | - |
| Net Debt2 | 2 311 | 2 613 | -12% | 2 311 | 3 886 | -41% |
| Net Debt / EBITDA3 | 1,2 | 1,5 | -17% | 1,2 | - | - |
Operational highlights
| Q3 2010 | Q2 2010 | Change, % | 9M 2010 | 9M 2009 | Change, % | |
| Coal production (mln. tonnes) | 1,87 | 1,23 | 52% | 4,59 | 4,38 | 5% |
| Sorted coal (mln. tonnes) | 1,16 | 0,87 | 33% | 2,94 | 2,20 | 34% |
| Enriched coal (mln. tonnes) | 0,03 | - | - | 0,03 | - | - |
| Sales volume (mln. tonnes), incl.: | 2,27 | 1,59 | 43% | 5,79 | 5,08 | 14% |
| Average price6(RUR per tonne) | 1 010 | 946 | 7% | 947 | 920 | 3% |
3rd Quarter 2010 overview
Post period end
Igor Prokudin, CEO of the Company, commented:
“We are satisfied with the Company’s results in Q3 and 9M 2010. We have succeeded in making the next important step towards the implementation of the KTK strategy focused on further increases in coal extraction, the upgrade of product quality and raising the effectiveness of our business.
In August, on the eve of 10th anniversary of the Company, we launched our first enrichment plant “Kaskad”, which will help to reduce the production waste and contribute to expanding our export markets. We believe that it will reach its design capacity by the end of this year.
Thanks to investments in production expansion in H1 2010, KTK reached the highest coal extraction and processing volumes in its history. Accordingly, the cash cost[7] per 1 tonne of produced coal decreased by 37% quarter-on-quarter to RUR 471. The reduction of this cost reduction along with increasing production volumes and higher average coal sale prices led to a significant improvement of all key quarterly financial indicators compared to Q2 2010.
According to the management expectations, the development of 2 new sectors on “Cheremshanskiy” and “Vinogradovskiy” open-pit mines, which started in Q2 2010, as well as expanded modern machinery and equipment fleet, will help the Company to continue the growth of its production volumes in Q4 and reach the yearly production target – 6.8 mln. tonnes. In addition to this, the production growth should lead to reduction of production cash costs per 1 tonne of coal compared to Q3 2010.
We are optimistic about the Company’s Q4 2010 performance and believe that high volumes of production together with further increase in the average coal sale price will help us to achieve even stronger production and financial results than in Q3 2010.”
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 dial-in details are:
| Date: | Monday, 22 November 2010 |
| Time: | 09.00 New York / 14.00 London / 17.00 Moscow* |
| Title: | 9M 2010 IFRS Statements Conference Call of KBTK |
| Conference ID: | 881129 |
| International/UK Dial in: | + 44 (0) 20 7162 0025 |
| USA Dial in: | + 1 334 323 6201 |
* We recommend that participants start dialing in 5-10 minutes prior to ensure a timely start to the conference call.
You can also join the conference call by registering on-line.
A live webcast of the presentation will be available
The conference call replay will be available through 24 November 2010.
| International Replay Number: | + 44 (0) 20 7031 4064 |
| US Toll Replay Number: | + 1 88 365 02 40 |
| Replay Access Code: | 881129 |
For more information please contact:
Financial Dynamics Moscow
Tatiana Kosheleva
Leonid Solovyev
+7 495 795 06 23
OJSC "Kuzbasskaya Toplivnaya Company" Kemerovo
Elena Sarycheva
Head of public affars department
+7 384 236 47 62
For investor enquiries please contact:
OJSC "Kuzbasskaya Toplivnaya Company" Moscow
Anton Rumyantsev
Investor relatinons manager
+7 495 787 68 05
Financial overview
| Q3 2010 | Q2 2010 | Change, % | 9M 2010 | 9M 2009 | Change, % | |
| Revenue | 3 925 | 2 733 | 44% | 9 576 | 7 450 | 29% |
| Cost of sales | -3 123 | -2 551 | 22% | -7 968 | -5 564 | 43% |
| Gross profit | 802 | 183 | - | 1 608 | 1 886 | -15% |
| Commercial, administrative and other costs | -331 | -366 | -10% | -930 | -850 | 9% |
| Operating profit | 471 | -183 | - | 678 | 1 036 | -35% |
| EBITDA | 683 | 12 | - | 1 224 | 1 543 | -21% |
| Net profit | 349 | -275 | 43% | - | 490 | -28% |
Revenue
In Q3 2010 the Company’s revenue increased by 44% quarter-on-quarter to RUR 3,925 mln. (Q2 2010: RUR 2,733 mln.) primarily due to the growth of sales volume and average realized prices[8] by 43% and 7% quarter-on-quarter, respectively. Revenue net of rail road costs increased by 48% comparing to Q2 2010.
Export revenue in Q3 increased by 24% quarter-on-quarter to RUR 2,312 mln. (Q2 2010: RUR 1,868 mln.) as a result of 12% export shipment volumes growth and 13% increase of average realized prices10. The price increase was caused by a change in export shipments structure in favor of H1 2010 contracts, signed at higher prices. The quarter-on-quarter increase in export revenue net of transportation costs was 26%.
The Q3 revenue from the own coal sales in Russia accounted for RUR 919 mln., being 2.3 times higher than Q2 2010 revenue (RUR 399 mln.) Such strong pick up was driven by the traditional growth of demand for coal among Russian customers before the start of the heating season and partial replacement of purchased coal by KTK own products.
Despite the significant increase in own coal sales, the Company continued to build-up the sales of coal purchased from the third parties. As a result of sales volumes growth and seasonal internal price growth, Q3 2010 revenue in coal resale segment increased by 70% quarter-on-quarter and amounted to RUR 605 mln. (Q2 2010: RUR 355 mln.).
In general, the domestic sales revenue in Q3 (RUR 1,525 mln.) was 2 times higher comparing to Q2 2010 (RUR 752 mln.). At the same time, 9M 2010 domestic sales revenue net of rail road costs increased by 88% quarter-on-quarter.
During Q3 2010 the revenue from other activities reduced by 21% to RUR 89 mln. quarter-on-quarter. The decline was mainly caused by the seasonal fall in sales of electric and heating power produced by Anzhero-Sudzhensk power plant, owned by KTK.
In 9M 2010 the consolidated revenue of the Company increased by 29% to RUR 9,576 mln. year-on-year. (9M 2010: RUR 7,450 mln.). The increase in revenue net of rail road costs was 16% compared to the same period last year, while the share of export revenue in the sales structure increased to 44% (9M 2010: 39%).
Cost of sales
| Q3 2010 | Q2 2010 | Change, % | 9M 2010 | 9M 2009 | Change, % | |
| Rail road tariff and transportation | 1 538 | 1 117 | 38% | 3 699 | 2 398 | 54% |
| Purchased coal | 341 | 292 | 17% | 988 | 616 | 60% |
| Labor compensation and social payments | 223 | 243 | -8% | 658 | 532 | 24% |
| Fuel | 185 | 181 | 2% | 517 | 467 | 11% |
| Depreciation | 197 | 185 | 6% | 568 | 402 | 41% |
| Extraction, processing and sorting of coal | 212 | 160 | 33% | 544 | 448 | 21% |
| Spare parts | 168 | 177 | -5% | 401 | 251 | 60% |
| Extraction and environment payments | 70 | 45 | 56% | 162 | 146 | 11% |
| Repair and maintenance | 70 | 75 | -7% | 165 | 92 | 79% |
| Other costs | 71 | 116 | -39% | 284 | 248 | 15% |
| Change in coal remains | 48 | -41 | - | -18 | -36 | -50% |
| Cost of sales | 3 123 | 2 551 | 22% | 7 968 | 5 564 | 43% |
The increasing of production and sales volumes in Q3 2010 resulted in a 22% growth in cost of sales to RUR 3,123 mln. comparing to Q2 2010 (RUR 2,551 mln.).
During the quarter cost of sales increased at a slower rate than revenue. The increase in cost of sales was caused mainly by increasing transportation expenses and the cost of coal purchased for resale due to increasing sales volumes. Also, the capital expenditure on the equipment fleet led to higher depreciation costs and the growth of coal extraction volumes resulted in higher extraction tax.
Given the 43% growth of sales volume in Q3, transportation expenses increased by 38% quarter-on-quarter to RUR 1,538 mln. (Q2 2010: RUR 1,117 mln.) The increase in transportation costs was slower than the growth of sales as a result of domestic sales volume characterized by the smaller transportation distance to clients as opposed to export shipments.
The boost of extraction volumes allowed the Company to satisfy the demand of its retail chain customers by providing own coal. Therefore, the 83% growth of internal market sales volumes was attended only by 14% increase in expenses for purchased coal. In Q3 these costs accounted for RUR 341 mln. compared to RUR 292 mln. in Q2 2010.
During Q3 the production costs9 which accounted for 27% of costs of sales, have been in line with management expectations - they reduced by 2% quarter-on-quarter to RUR 833 mln. (Q2 2010: RUR 861 mln.). The key coal production indicators, which affect the Company’s production costs, are presented in the table:
Key coal production indicators
| Q3 2010 | Q2 2010 | Change, % | 9M 2010 | 9M 2009 | Change, % | |
| Coal production (mln. tonnes) | 1,87 | 1,23 | 52% | 4,59 | 4,38 | 5% |
| Stripping, (mln. cub. m), incl: | 13,29 | 13,00 | 2% | 35,86 | 32,97 | 9% |
| Stripping ratio | 7,21 | 10,62 | -32% | 7,86 | 7,52 | 5% |
| Exploded rock (mln. cub. m)10 | 4,85 | 7,38 | -34% | 18,66 | 14,60 | 28% |
| Average stripping transportation distance (km.) | 2,98 | 2,80 | 6% | 2,85 | 2,30 | 24% |
Owing to of the lower stripping ratio and the decreasein rock explosion costs, the Company’s Q3 production cash costs11 per 1 tonne of coal decreased by 37% to RUR 741 comparing to RUR 479 in Q2. The main items of the production expenditures changed in the following manner:
n Q3 all other costs, including operating leases, electric power, security and others, reduced by 39% quarter-on-quarter to RUR 71 mln. (Q2 2010: RUR 116 mln.)
Reflecting the fact that during Q3 2010 the growth of revenue has been outperforming the growth of cost of sales, gross profit for Q3 amounted to RUR 802 mln., being 4.4 times higher than the result of the previous quarter (RUR 183 mln.)
Following the results of 9M 2010 cost of sales grew by 43% year-on-year to RUR 7,968 mln. (9M 2009: RUR 5,564 mln.). The main reason for that was significant growth in transportation costs, an increase in production costs due to change in mining and geological conditions of extraction process and readjustment of salaries, as well as increase in costs for third party coal for resale. However, the increase in production cash costs was not so significant because cost of sales growth was only partly related to production drivers. As the result, 9M 2010 production cash costs accounted for RUR 542 per tonne, being 25% higher than 9M 2009 figure (RUR 437).
Gross profit for the reporting period decreased by 15% year-on-year and amounted to RUR 1,608 mln. (9M 2009: RUR 1,886 mln.).
Commercial, management and other operating costs
Commercial, administrative and other costs in Q3 decreased by 10% to RUR 331 mln. (Q2 2010: RUR 366 mln.) mainly due to the absence of one-off services and staff expenses. In Q2 these costs included non-capitalized IPO related costs reflected in administrative costs, as well as IPO and the Company’s 10th anniversary related bonuses paid to administrative personnel.
Despite the 29% year-on-year revenue growth during 9M 2010, commercial, administrative and other costs for this period increased by only 9% to RUR 930 mln. (9M 2009: RUR 850 mln.)
Operating profit, EBITDA and net profit
Operating profit for Q3 2010 increased to RUR 471 mln. compared to the Q2 operating loss, which accounted for RUR 183 mln. During Q3 EDITDA amounted to RUR 683 mln. (Q2 2010: RUR 12 mln.), and its margin net of rail road costs amounted to 29%. Following the results of the quarter, the Company earned RUR 349 mln. of net profit as against a Q2 2010 net loss of RUR 275 mln.
During 9M 2010 operating profit of the Company decreased by 35% to RUR 678 mln. compared to result of the same period last year (RUR 1,036 mln.). 9M 2010 EBITDA was RUR 1,224 mln. or 21% lower than RUR 1 543 mln. during 9M 2009. Net profit for the same period decreased by 28% year-over-year and reached RUR 353 mln. (9M 2009: RUR 490 mln.) The decline in the major profitability indicators in the reporting period was in accordance with management expectations and was caused by lower export coal prices in H1 2010, an increase in production costs due to launching of new mining sectors and an increase in the overall stripping ratio.
Debt load
| Mln. RUR | З0 Sep. 2010 | З0 Jun. 2010 | Change, % | 30 Sep. 2009 | Change12% |
| Long term loans and credits | 2 156 | 2 331 | -8% | 2 657 | -19% |
| Short term loans and credits | 420 | 537 | -22% | 1 312 | -68% |
| Total debt, including: | 2 576 | 2 868 | -10% | 3 969 | -35% |
| Ruble-denominated | 320 | 840 | -62% | 3 789 | - |
| Foreign currency-denominated | 2 256 | 2 028 | 11% | 180 | - |
| Cash and cash equivalents | 265 | 255 | 4% | 83 | - |
| Net debt | 2 311 | 2 613 | -12% | 3 886 | -41% |
In Q3 2010 the Company reduced its net debt level to RUR 2,311 mln. and the net debt to EBITDA ratio was 1.2. Net debt decreased by 12% quarter-on-quarter and 41% year-on-year. The share of short term debt reduced by 22% and 68% comparing to Q2 2010 and 9M 2009, respectively, and accounted for 16% of the total credit portfolio. As of September 30, 2010 88% of the Company’s loans were denominated in US dollars and the remaining 12% were denominated in Russian rubles. During 9M 2010 the Company spent RUR 148 mln. for interest payments, which was 3 times lower than in 9M 2009 (RUR 460 mln.) The average interest rate of the obtained loans and credits in the reporting period amounted to 7.4% per anuum.
Cash flow
During Q3 2010 the Company received RUR 925 mln. of positive operating cash flow before tax and interest, comparing to RUR 137 mln. of cash outflow in Q2, mainly due to 37% quarter-on-quarter reduction of production cash costs per 1 tonne of coal. Net operating cash flow for Q3 reached RUR 863 mln., while Q2 2010 cash outflow has amounted to RUR 156 mln.
For the 9M 2010 period operating cash flow before tax and interest was RUR 1,059 mln., or 7% higher than the figure of 9M 2009 (RUR 991 mln.). Owing to reduction of interest and tax expenses, net operating cash flow for 9M 2010 (RUR 866 mln.) exceeded the result of 9M 2009 by 3 times.
Capital expenditures
In Q3 СAPEX decreased by 15% quarter-on-quarter to RUR 572 mln. (Q2 2010: RUR 671 mln.) mainly due to prepayments decrease. During the quarter the Company finished the construction of “Kaskad” enrichment plant, and successfully put it into operation on August 24. KTK also continued to purchase mining machinery and equipment and put into operation 10 loaders, 5 BelAz trucks, 2 shovels and other machines. The Company proceeded with construction of the heated repair bay for BelAz trucks, which is planned to be commissioned by the end of the 2010.
The volume of expenses on acquisition of property, plant and equipment during 9M 2010 has been 2.3 times higher year-on-year and accounted for RUR 1,919 mln. (9M 2009: RUR 821 mln.) The entire amount has been spent within the Company’s long-term investment program.
Current trading and outlook 2010
After the reporting period end the Company continued to increase its monthly coal production volumes. According to the management’s expectations, Q4 production volume is likely to exceed the volume of Q3 2010 by more than 15%. Thus, the Company is planning to reach its annual production target - 6.8 mln. tonnes, including 0.2 mln. tonnes of enriched coal, produced at “Kaskad” plant.
The management believes that growth of average realized prices will continue in Q4. The Company plans to finish all of its shipments under 2009 and H1 2010 export contracts and start to deliver coal by the contracts signed in November at the beginning of the next year.
The management has positive views on the Company development perspectives in Q4 2010. Based on predicted dynamics in coal sales price growth on domestic and export markets, and as a result of planned growth of production and decline of stripping ratio, the management expects that EBITDA for Q4 and 2010 will increase both quarter-on-quarter and year-on-year.
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. “OJSC “Kuzbasskaya Toplivnaya Company” does not intend to change these statements to reflect actual results.
| RUR Mln. | Q3 2010 | Q2 2010 | 9M 2010 | 9M 2009 |
| Operating profit (loss) | 471 | -183 | 678 | 1 036 |
| Amortization for a period | 226 | 179 | 594 | 500 |
| Losses (profit) from disposals | -12 | 16 | -47 | 7 |
| EBITDA | 685 | 12 | 1 225 | 1 543 |
| RUR Mln. | Q3 2010 | Q2 2010 | 9M 2010 | 9M 2009 |
| Consolidated cost of sales | 3 123 | 2 551 | 7 968 | 5 564 |
| Excluding affiliated companies cost of sales | -545 | -327 | -1 702 | -2 482 |
| OJSC КТК cost of sales | 2 578 | 2 223 | 6 266 | 3 082 |
| Excluding: | ||||
| Amortization (cost of sales) | -195 | -144 | -494 | -397 |
| Purchased coal | -100 | -97 | -331 | -188 |
| Change of commodities and materials remains | -17 | 45 | 78 | 43 |
| Railroad tariffs and transportation costs | -1 386 | -1 110 | -3 033 | -627 |
| Cash costs allocated to cost of sales | 880 | 917 | 2 485 | 1 913 |
| Consolidated commercial costs | 157 | 102 | 378 | 262 |
| Less: distribution expenses of subsidiaries | -86 | -102 | -307 | -262 |
| Distribution expenses of KTK | 71 | 0 | 71 | 0 |
| Depreciation (allocated to distribution expense) | 0 | 0 | 0 | |
| Customs expenses and export related services | -71 | 0 | -71 | 0 |
| Cash costs allocated to distribution expense | 0 | 0 | 0 | 0 |
| Total cash costs | 880 | 917 | 2 485 | 1 913 |
| Coal production, mln. tonnes | 1,87 | 1,23 | 4,59 | 4,38 |
| Total cash cost per 1 tonne of coal, RUR | 471 | 749 | 542 | 437 |
| RUR Mln. | Q3 2010 | Q2 2010 | 9M 2010 | 9M 2009 |
| Revenue | 919 | 399 | 2,131 | 2,539 |
| Cost of sales | -675 | -401 | -1,660 | -1,779 |
| Gross profit | 244 | -2 | 471 | 760 |
| Gross margin,% | 27% | -1% | 22% | 30% |
| RUR Mln. | Q3 2010 | Q2 2010 | 9M 2010 | 9M 2009 |
| Revenue | 2 312 | 1 868 | 5 585 | 3 584 |
| Cost of sales | -1 883 | -1 737 | -4 784 | -2 742 |
| Gross profit | 429 | 131 | 801 | 842 |
| Gross margin,% | 19% | 7% | 14% | 23% |
| RUR Mln. | Q3 2010 | Q2 2010 | 9M 2010 | 9M 2009 |
| Revenue | 605 | 355 | 1 471 | 952 |
| Cost of sales | -470 | -327 | -1 239 | -784 |
| Gross profit | 135 | 28 | 232 | 168 |
| Gross margin,% | 22% | 8% | 16% | 18% |
| RUR Mln. | Q3 2010 | Q2 2010 | 9M 2010 | 9M 2009 |
| Revenue | 89 | 112 | 389 | 375 |
| Cost of sales | -95 | -85 | -285 | -259 |
| Gross profit | -6 | 27 | 104 | 116 |
| Gross margin,% | -7% | 24% | 27% | 31% |
1 Net debt calculated on page 10
2 Расчет чистого долга приведен на странице 10.
3 For the purpose of the Q3 2010 ratio calculation the aggregate of EBITDA for 9M 2010 and Q4 2009 was used. For the Q2 2010 ratio the aggregate of EBITDA for H1 2010 and H2 2009 was used
4 Production cash costs calculated in Appendix, Table 2
5 Net of VAT and rail road tariffs
6 Net of VAT and rail road tariffs
7 Production cash costs calculated in Appendix, Table 2
8 Net of VAT and rail road tariffs
9 Production costs include production personnel salaries, fuel, extraction and sorting costs, spare parts purchasing costs, repair and maintenance costs
10 Included in stripping volume
11 Production cash costs calculated in Appendix, Table 2
12 Change to 30 September 2010
13 EBITDA for each period is defined as results from operating activities, adjusted for amortisation and depreciation, impairment loss and loss on disposal of property, plant and equipment. EBITDA is not a measurement of the 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 a measure of the Company’s liquidity
