KOKS Group Announces FY2012 Financial Results

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KOKS Group Announces FY2012 Financial Results

  • Lower cost of sales.
  • Growing cash flow from operating activities.
  • Construction of new mines resulting in marginally higher CAPEX.

MOSCOW--(BUSINESS WIRE)-- KOKS Group, a vertically integrated company comprised of the world's largest exporter of merchant pig iron, a leading Russian producer of merchant coke, and coking coal and iron ore assets, announces its financial and operating results for the full year ended 31 December 2012.

Key Group Financials

             
RUBm   2012   2011   2012/2011, %
Revenue   45,704   55,589   (18)
Cost of sales   34,765   39,570   (12)
Operating profit   3,382   5,743   (41)

EBITDA1

   6,107   8,283   (26)
EBITDA margin   13%   15%   -

Adjusted EBITDA2

   6,651   8,846   (25)
Net profit   1,997   1,227   63
Net cash used in investing activities   7,718   6,251   23
Net cash from operating activities   7,085   4,856   46
Total Debt   27,180   25,566   6

1EBITDA based on IFRS consolidated financial statements for the full year ended 31 December 2012.


2Adjusted EBITDA is calculated as earnings before income tax, interest expense, exchange gain/loss, depreciation, amortisation, impairment, and other non-cash items.

  • Revenue fell by 18% y-o-y mainly due to lower coke and pig iron prices. Cost of goods sold went down by RUB 1,883 million, while inventories of finished goods were also depleted by RUB 574 million, which were sold throughout 2012. This became possible largely through sales having been redirected to third-party traders.
  • Cost of sales declined by 12%, mainly due to a drastic reduction in procurement costs which, in turn, were affected by lower prices for key raw materials. In addition, the Group undertook a number of efficient cost cutting initiatives.
  • Profitability ratios saw mixed performance, affected by a variety of factors: IFRS-based consolidated EBITDA contracted due to lower prices for key merchant products (coke and pig iron), with losses partially offset by falling prices for key raw materials such as coking coal and iron ore. IFRS-based consolidated EBITDA was also positively affected by an increase in own coking coal production. However, IFRS-based consolidated EBITDA margin declined from 15% in 2011 to 13% in 2012.
  • Net cash used in investing activities grew 23% y-o-y and was mainly channelled into the construction of Butovskaya and Tikhova mines, with debt increasing by a marginal 6% only.
  • Net cash flow from operating activities went up by 46% on the back of decreasing of trade and other receivables, depleting inventories and rising profit before tax. The higher cash flow was mainly driven by growing volumes of own-produced coal combined with better efficiency of sales efforts and a rising share of third-party traders in the sales breakdown.

Financial Performance by Key Segments

 

Coal

          
RUBm   2012  2011  2012/2011, %

Segment revenue3

   8,274  10,681  (23)
EBITDA based on IFRS consolidated financial statements   1,310  1,820  (28)
EBITDA margin based on IFRS consolidated financial statements   16%  17%  -

3Segment revenue includes inter-segment sales.

The downtrend in coking coal prices persisted throughout most of 2012, which translated into a decline in the Coal segment's revenue and IFRS-based consolidated EBITDA by 23% and 28%, respectively.

Major progress was achieved in terms of operating results, with KOKS Group's Uchastok Koksoviy, Vladimirskaya mine and Romanovskaya mine increasing their 2012 coal production by 39%, 31% and 4% y-o-y, respectively.

TSOF Berezovskaya saw a marginal decline in its output of coal concentrate, mainly due to lower third-party coal volumes processed. The Coal segment produced a total of 1.6 million tonnes of coal and 2.2 million tonnes of coal concentrate.

Coke

                
RUBm   2012   2011       2012/2011, %
Segment revenue   24,655   35,883       (31)
EBITDA based on IFRS consolidated financial statements   1,988   2,563       (22)
EBITDA margin based on IFRS consolidated financial statements   8%   7%       -

In 2012, coke prices stood below the 2011 level. As a result, the Coke segment's revenue contracted by 31% while the IFRS-based consolidated EBITDA declined by 22%.

On the back of the challenging market environment, some Russian facilities downsized their existing furnace capacities. However, as a result of KOKS Group's flexible and efficient sales policy, the lower demand had only a marginal impact on the coke output. In 2012, the Coke division produced a total of 2.6 million tonnes of coke with 6% moisture content.

Ore and pig iron

            
RUBm   2012   2011   2012/2011, %
Segment revenue   27,374   30,784   (11)
EBITDA based on IFRS consolidated financial statements   2,288   3,645   (37)
EBITDA margin based on IFRS consolidated financial statements   8%   12%   -

In 2012, pig iron prices were highly volatile but remained below those of 2011. The segment's revenue fell by 11% while the IFRS-based consolidated EBITDA declined by 37%.

As far as operating results are concerned, the equipment upgrade initiative resulted in record-high volumes of ferruginous quartzite production both in 2011 and 2012. Pig iron output remained virtually flat in 2012 vs. 2011 while 2012 saw larger volumes of own-produced iron ore raw materials (sinter) and own-processed slam. These initiatives helped the Group enhance its economic efficiency in merchant pig iron production, maintain its market niche, and reduce the environmental footprint.

Debt portfolio management

Despite the vigorous implementation of the Group's investment programme, particularly the construction of Butovskaya and Tikhova mines, in the market context limiting our financing capacity, the Group's credit portfolio showed no significant growth. As of 31 December 2012, the Group's debt was RUB 27,180 million, up only 6% y-o-y.

In February 2013, KOKS Group obtained major creditors and investors' consent to extend covenants of its loan agreements and the Eurobond loan. Of 88% of noteholders that voted during the meeting, 99.8% supported the respective covenant resolution proposed by KOKS Group. This should enable us to timely complete our investment programme, developing the Group's self-sufficiency in raw materials and cutting operating expenses. The high rate of investor approval indicates that the market supports the company's ambitions and plans to decrease its leverage through the generation of extra cash flows from the newly commissioned assets.

President - Chairman of the Management Board of Industrial Metallurgical Holding Management Company (KOKS Group's management company) commented on FY2012 results:

"Throughout 2012, we saw a deteriorating market environment that affected both revenues and margins of our company. Under these circumstances, we had to be more flexible in finding new approaches to better manage production and distribution. In autumn 2012, we revamped the key positions within the Management Board of Industrial Metallurgical Holding Management Company and started implementing a set of stringent resource saving and cost cutting initiatives. The improved COS performance is the logical result of our cost optimisation efforts, also reflecting the impact of falling coal and iron ore prices. In addition, we re-engineered the distribution channels, boosting our cash inflow while reducing receivables and inventories of finished goods. We continue to maintain high operating profit and EBITDA margins, though at a lower level than in 2011.

"We remain cautiously optimistic with regard to market growth prospects. In late 2012, pig iron prices started rising steadily, a trend which has persisted. The current supply and demand balance in the pig iron market gives us grounds to expect further improvement.

"The adverse market environment forced us to review our investment programme. Under the optimised programme, we managed to obtain significant discounts from our contractors. Some initiatives had to be suspended. In general, our 2013 CAPEX plan is somewhat 20% to 25% less than in 2012.

"In the meantime, we have made a significant progress in achieving our key strategic tasks. The construction of Butovskaya and Tikhova mines goes on as scheduled, with Butovskaya mine soon set to enter the commercial production stage. We are very comfortable with financing the mine construction: as of 31 December 2012, our unused credit line limits exceeded RUB 49 billion.

"In early 2013, we obtained consent from our largest creditors and investors to extend covenants of our loan agreements, with our B2 credit rating with a stable outlook from Moody's remaining unchanged. We appreciate the understanding and support that the investor community gave us. Going forward, we are committed to implementing the chosen strategy and have every confidence that we will be able to leave up to investors' expectations."

Full IFRS consolidated financial statements and independent auditor's report for the full year ended 31 December 2012 are available at: http://www.koksgroup.ru/_upload/docs_lang/filename_document1_2038.pdf

About the Company:

KOKS Group is a vertically integrated business that produces merchant pig iron and coke and mines and processes coking coal and iron ore. KOKS Group is the world's largest exporter of merchant pig iron and Russia's largest manufacturer of merchant coke. KOKS Group's four operating divisions are Coal, Coke, Ore & Pig Iron, and Polema. Key production facilities are located in Russia's Kemerovo, Belgorod, and Tula regions.

For more details, please visit our corporate web site at www.koksgroup.com or address any inquiries to:

Sergey Frolov
Investor Relations Director
Tel.: +7 495 725 5680 (ext. 156)

E-mail: frolov@metholding.com

2nd Verkhniy Mikhailovskiy proezd 9, Moscow, 115419, Russia



KOKS Group
Sergey Frolov
Investor Relations Director
+7 495 725 5680 (ext. 156)
frolov@metholding.com

KEYWORDS:   United Kingdom  Europe  Russia

INDUSTRY KEYWORDS:

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