KOKS Group Announces Financial Results for Six Months Ended 30 June 2013

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KOKS Group Announces Financial Results for Six Months Ended 30 June 2013

Operating expenditure reduction programme continued. - Lower 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 results for the six months ended 30 June 2013.

Key KOKS Group Financials

RUBm     1H 2013     1H 2012    

1H 2013/1H 2012, %

Revenue     21,046     23,480     (10)
Cost of sales     15,535     17,807     (13)
Operating profit     1,510     2,426     (38)


    2,588     3,752     (31)
EBITDA margin     12%     16%    


Adjusted EBITDA2 LTM

    5,635     8,363     (33)
(Loss) / Profit     (833)     899    


Purchase of property, plant and equipment     (3,803)     (4,160)     (9)
Net cash from operating activities     3,011     6,062     (50)
Debt3     30,538     27,1804     12

1 EBITDA based on IFRS consolidated financial statements for six months ended 30 June 2013.

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

3 End-of-period.

4 As at 31 December 2012.

  • Revenue fell by 10% y-o-y mainly due to a decrease in coke and pig iron prices.
  • Cost of sales improved by 13%, largely due to a drastic reduction in feedstock procurement costs, which, in turn, were affected by lower prices for key raw materials and greater own coal output following the commissioning of Butovskaya mine in May 2013. The company also benefited from its ambitious productivity enhancement and operating expenditure reduction policy.
  • Operating profit went down by 38% due to lower revenues and growing transportation costs, which increased by 20% on the back of rail tariff inflation. The transportation expenses were also influenced by the fact that KOKS Group had agreed with its trading partners to arrange for transportation of a part of its finished products inside Russia and included these costs in its trading contracts.
  • EBITDA based on IFRS consolidated financial statements decreased due to lower revenues from sale of major products. This was partially offset by the economic effect of higher coal production and lower feedstock costs. However, IFRS-based consolidated EBITDA margin declined from 16% in 1H 2012 to 12% in 1H 2013.
  • PP&E acquisition costs in 1H 2013 were down by 9% y-o-y as a result of a thorough revision of the Group's capex programme based on strategic importance and payback periods of investment projects.
  • Net cash from operating activities decreased by 50%, mainly due to the falling prices of the Company's key products.
  • The Company's debt as at 30 June 2013 rose by 12% as compared to 31 December 2012. One of the reasons for this was the peak of investments in the Butovskaya project in 1Q 2013. The mine construction project was financed by long-term investment loan facilities obtained from Sberbank.

Financial Performance by Key Segments


RUBm     1H 2013     1H 2012    

1H 2013/1H 2012, %

Segment revenue5

    3,589     4,042     (11)
EBITDA based on IFRS consolidated financial statements     575     780     (26)
EBITDA margin based on IFRS consolidated financial statements     16%     19%    


5 Segment revenue includes inter-segment sales.

The downward trend in the coking coal price continued throughout 1H 2013, bringing down the Coal segment's revenue and consolidated IFRS-based EBITDA by 11% and 26%, respectively.

In May 2013, the company commissioned Butovskaya mine, which is expected to produce up to 500,000 tonnes of coal by the year-end. Uchastok Koksoviy and Romanovskaya mines increased their coal output, while Vladimirskaya mine's production declined as it encountered unfavourable geological conditions in the current seam and passed on to tapping the new Lutuginsky seam, where production is scheduled to start in the 4th quarter this year. Coal concentrate production went up by 2% in 1H 2013. Toll processing volumes were down by 12%, while production of concentrate from own coal grew by 8%.

In total, the Coal segment produced 0.8 million tonnes of coal and 1.2 million tonnes of coal concentrate in 1H 2013. KOKS Group's total coal production increased by 8% y-o-y.


RUBm     1H 2013     1H 2012    

1H 2013/1H 2012, %

Segment revenue     9,534     13,722     (31)
EBITDA based on IFRS consolidated financial statements     467     896     (48)
EBITDA margin based on IFRS consolidated financial statements     5%     7%     -

Coke prices in 1H 2013 decreased y-o-y due to a weaker demand, as a number of Russian consumers who had purchased coke from the open market were shut down. In these circumstances, OAO Koks reduced its output by 3%, and its revenue and consolidated IFRS-based EBITDA contracted by 31% and 48%, respectively. The company is taking active steps to expand its market niche and improve its competitive position, primarily by focusing on quality and production costs. In particular, production of higher-grade coke was launched in 1H 2013, enabled by commissioning of a new covered automated blending facility in late 2012, the commissioning of Butovskaya mine, and better opportunities for purchasing of high-quality coal grades from the market.

Ore & Pig Iron

RUBm     1H 2013     1H 2012    

1H 2013/1H 2012, %

Segment revenue     13,439     14,310     (6)
EBITDA based on IFRS consolidated financial statements     1,376     1,707     (19)
EBITDA margin based on IFRS consolidated financial statements     10%     12%     -

Pig iron prices in 1H 2013 were volatile but remained below the level of 1H 2012. The Ore & Pig Iron segment's revenue and consolidated IFRS-based EBITDA went down by 6% and 19%, respectively. The segment's financials were affected by the temporary shut-down for maintenance of Tulachermet's Blast Furnace №2 in May to July 2013, which drove finished product output down by 4% y-o-y. The company remained focused on production of higher-margin special grades of pig iron, increasing their share from 9% in 1H 2012 to 22% in 1H 2013. In addition, owing to its high quality and low impurity content, even the company's basic pig iron is sold as a premium product and is successfully used by foundries. Penetration into new niches was made possible by the Company's efficient marketing policy, competitor shutdowns in Russia and abroad, and reduction of merchant pig iron supply in the market.

Debt Portfolio Management

The Company's debt grew by 12%, driven by the need to commission Butovskaya mine, which was being finished off intensively in 2012 and 1H 2013, and the continued Tikhova mine construction. These projects are financed by long-term investment loan facilities provided by Sberbank and Gazprombank. A slight increase in the share of secured borrowings in the Company's debt portfolio is due to the fact that the investment loans use purchased equipment and constructed infrastructure as collateral.

Sergey Cherkaev, Chief Financial Officer of OOO Management Company Industrial Metallurgical Holding (KOKS Group's management company), commented on the 1H 2013 results:

"The first half of 2013 saw a worse market environment than the same period of last year. Yet we have maintained an acceptable EBITDA margin and successfully completed the first stage of Butovskaya mine, one of our most important capex projects.

"Remaining focused on ensuring maximum financial stability, we have thoroughly revised our investment and development plans. We have also pursued our cost cutting policy. For example, in an environment of rising rail tariffs we agreed on reduced lease rates for railcars and changed the logistic arrangements to achieve substantial savings. We seek to be flexible and to find the most lucrative markets. In particular, we have commenced production of higher-grade coke and increased the output of special grades of pig iron.

"We remain cautiously optimistic with regard to our growth prospects in the second half of the year. We expect an increase in free cash flow as a result of growing production volumes at Butovskaya and first coal from Vladimirskaya mine's Lutuginsky seam in 4th quarter this year. Besides, we see pig iron consumers' activity resuming after the usual summer standstill, as the end of summer is always the time when they seek to secure pig iron supplies for the autumn season, when the demand for our customers' end products usually peaks. This implies a favourable market for the Group."

Full unaudited condensed consolidated interim IFRS financial statements of KOKS Group for the six months ended 30 June 2013 are available at: http://www.koksgroup.ru/en/investor-relations/information-disclosures/financials/

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.

KOKS Group
Sergey Frolov, +7 495 725 5680 ext. 156
Investor Relations Director

KEYWORDS:   United Kingdom  Europe  Russia


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