Industrial Metallurgical Holding
KOKS GROUP ANNOUNCES FY2013 FINANCIAL RESULTS
KOKS Group / Final Results 14.04.2014 11:43 Dissemination of a Regulatory Announcement, transmitted by EquityStory.RS, LLC - a company of EQS Group AG. The issuer is solely responsible for the content of this announcement. --------------------------------------------------------------------------- KOKS GROUP ANNOUNCES FY2013 FINANCIAL RESULTS Moscow, 14 April 2014 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 full year ended 31 December 2013. Key Group Financials RUBm 2013 2012 2013/2012, % Revenue 43,036 45,704 (6) Cost of goods sold 30,842 34,765 (11) Gross profit 12,194 10,939 11 Operating profit 1,568 3,382 (54) EBITDA [1] 6,595 6,107 8 EBITDA margin 15% 13% - Adjusted LTM EBITDA [2] 7,016 6,651 5 Net (loss) / profit (2,436) 1,997 - Purchase of property, plant and equipment (6,007) (7,875) (24) Net cash from operating activities 9,797 7,085 38 Debt [3] 27,074 27,180[4] - - Revenue fell by 6% y-o-y mainly due to a decrease in coke and сoal concentrate prices. - Cost of goods sold improved by 11% due to lower feedstock prices and the implementation of the Company's productivity enhancement and opex reduction policy. - The Groups' gross profit was up 11%, with gross profit margin of 28% compared to 24% in the previous period. - Operating profit was down by 54% due to several one-off events, most importantly the impairment of OOO Gornyak's (Romanovskaya mine) assets as coal production was discontinued at this mine. The mine closed its operations as further capex on its development was recognized as counter to the Group's strategy, with a focus on developing higher-margin assets. The second biggest factor driving down the operating profit was the adjustment of the fair value of the 167,762 shares owned by OAO Koks in the Slovenian Steel Group (SSG), prompted by the decline in the market for metallurgical products. The shares were subsequently sold to OAO Koks' shareholders to reduce the risks of owning interests in non-core assets. The aggregate loss under the two items (loss from the asset impairment and loss from revaluation of the interest in SSG) was RUB 2,606 million. Reductions in the costs of sales for finished products and other operating costs were among the key drivers of the operating profit. - IFRS-based consolidated EBITDA was up due to the successful implementation of projects to improve production margins. In particular, the Group started selling premium grades of coke and increased the share of higher-margin special grades of pig iron in its total output volume. The EBITDA was also positively impacted by higher own coal production due to the commissioning of the Butovskaya mine and lower feedstock costs as export revenues from pig iron sales grew. The IFRS-based consolidated EBITDA rose from 13% in 2012 to 15% in 2013. - Net profit was mainly impacted by several one-off financial events - mostly by higher costs of servicing the debt, including a premium paid in March 2013 to OAO Koks Eurobond holders for giving their consent to amendments to the covenants under the terms of the loan. Lower rouble exchange rates were another factor driving the costs of servicing the Eurobond loan up. Financing costs also grew in 2013 due to the inclusion of interest on the loan facility obtained for the construction of the Butovskaya mine following its commissioning in May 2013. Previously the interest on the loan was classified as capex. The third event driving down the net profit was the exchange loss in amount of 1,155 million. The aggregate loss under the two items (interest expense and exchange loss) was RUB 3,329 million in 2013, a significant growth to compare with the 2012 when it was RUB 1,015 million. - PP&E purchase costs in 2013 were down by 24% y-o-y as a result of changes to the Group's development strategy and the review of its capex programme to reflect new strategic objectives. - Net cash flow from operations grew by 38% mainly due to advance payments received from third-party trading companies and because of decrease in trade and other receivables. - The Company's debt as at 31 December 2013 remained virtually flat as compared to 31 December 2012 due to the implementation of the Group's financial sustainability policy. Financial Performance by Key Segments Coal RUBm 2013 2012 2013/2012, % Segment revenue [5] 6,812 8,274 (18) IFRS-based consolidated EBITDA 1,097 1,310 (16) IFRS-based consolidated EBITDA margin 16% 16% _ In addition to lower coal product prices, the Coal segment's revenue was also negatively impacted by declining output at the Romanovskaya mine. However, this impact was offset by the commissioning of the Butovskaya mine in May 2013. The shutdown of the Romanovskaya mines were due to deteriorating geological conditions, requiring extra capex for further mine development. The updated plan for KOKS Group's strategic development provides for capex only on major production assets with higher margins, while production margins at the Romanovskaya mine are a lot lower than those of the existing Butovskaya mine and the Uchastok Koksoviy open-pit mine, as well as the Tikhova mine currently under construction. The Coal segment's higher operating expenses were mostly due to the impairment of OOO Gornyak's assets (the Romanovskaya mine). Per unit production costs at the Uchastok Koksoviy open-pit mine were essentially flat from 2012, while coal concentrate production costs at TSOF Berezovskaya were down by 24%. At the same time, coal processing costs were reduced by 17%. In 2013, the total output at the Coal segment's facilities was 1,661 thousand tonnes of coal (+4% y-o-y) and 2,403 thousand tonnes of coal concentrate (+11% y-o-y). Coke RUBm 2013 2012 2013/2012, % 19 668 Segment revenue 24 655 (20) IFRS-based consolidated EBITDA 1 570 1 988 (21) IFRS-based consolidated EBITDA margin 8% 8% - The coke market shrank gradually throughout 2013. The downward trends were attributed to lower consumption volumes caused by negative market fundamentals in steel indastry. Besides, Ukraine banned coking coal imports as of June 2013. Demand for coke from Russian companies was also declining as operations at blast furnaces were suspended for maintenance and coke consumption cutting Pulverised Coal Injection (PCI) technology was gaining ground. With prices falling in the Russian market, OAO Koks ramped up its export business. In 2013, export supplies grew 31% y-o-y due, in particular, to the production of higher-grade cokes, enabled by the commissioning of a new covered automated coal loading and unloading facility, launching of high-quality coal production at the Butovskaya mine, and purchasing of higher quality coal at reduced prices from the open market. At the same time, the production costs of finished products were cut by 13%. The Coke segment's EBITDA margin remained flat from 2012 at 8%. In 2013, OAO Koks produced a total of 2,552 thousand tonnes of coke (-2% y-o-y). The total sales to third-parties in 2013 grew 13% y-o-y. The declines in coke output were due to sinking demand from OAO Tulachermet, where operations at Blast Furnace 2 were suspended in 2013 for a long period to perform scheduled maintenance. Demand from OAO Tulachermet also shrank as the company implemented its production costs cutting programme, including cuts to coke consumption. Ore & Pig Iron RUBm 2013 2012 2013/2012, % Segment revenue 28,105 27,374 3 IFRS-based consolidated EBITDA 3,681 2,288 61 IFRS-based consolidated EBITDA margin 13% 8% - During 2H 2013, pig iron prices were slowly recovering but still failed to fully return to the early 2013 levels. The Ore & Pig Iron segment's revenue grew by 3%, due to the removal of own trading company from the sales process, with its subsequent liquidation and sale of its inventories. The segment's EBITDA and EBITDA margin were up, mainly due to lower rouble exchange rates and cuts in production costs (-7% y-o-y). The segment's margins were also driven by the increased production of higher-margin special grades of pig iron. In 2013, the total pig iron output was 2,098 thousand tonnes (-1% y-o-y), with special grades of pig iron representing 15% of the total. Debt Portfolio Management The Group's debt as at 31 December 2013 was RUB 27,074 million, i. e. remained virtually flat y-o-y. If compared to the 30 June 2013 level (RUB 30,538 million), however, it was cut by 11%. The Group has been consistently implementing its debt reduction programme, including the early redemption of BO-02 series rouble-denominated bonds for a total of RUB 506.9 million in 2H 2013 and the early repayment of the credit facility from ОАО Gazprombank to finance capex. The total repayments towards Gazprombank's loan were in excess of RUB 1,400 million. KOKS Group's total withdrawals from the credit facility had been capped at RUB 9,800 million. In addition, in 2H 2013, KOKS Group kept on repurchasing its Eurobonds and by December 2013, the total Eurobond buyback volume amounted to 20 million bonds. Sergey Cherkaev, Vice President, Chief Financial Officer of Industrial Metallurgical Holding (KOKS Group's management company), commented on 2013 results: 'Currently, we feel a high level of confidence and comfort in the way the Group operates. Although the prices for metallurgical products have not shown a clear upward trend, margin-wise KOKS Group has virtually recovered its 2011 levels, when prices in the market for metallurgical products were much more favourable. The external factors contributing to the Group's financial stability include lower RUB/USD exchange rates and freezes on transport tariffs and power rates with effects mostly seen in 2014. In addition, we ramped up our production of premium grades of pig iron and coke and successfully filled the market niches vacated by rivals shutting down production. The internal factors contributing to the Group's financial stability include production deleveraging program, optimisation efforts and resource savings across the board. In 2H 2013, we spent RUR 3.084 billion to cut down our leverage. We consider our debt level could be at least RUB 1 billion lower than the current value in case of stability of the national currency exchange rate. Given that above 50% of the Group's debt portfolio is denominated in US dollars, decline in rouble exchange rate made our deleveraging results less sizable. In terms of operating expenses, we successfully cut their level across each of our segments. Savings were achieved not only due to lower feedstock procurement costs but also due to cuts in production costs. To cite but a few examples of such projects: we implemented new zero waste technology solutions at a number of our facilities; improved controls over resource allocation, cut logistics costs by revising contracts with railcar companies, and reviewed logistic schemes. Still, the biggest saving gains are expected in the current year as many projects launched in 2013 are only now nearing their completion. These will include discontinuation of power purchases from third parties at OAO Tulachermet as Turbine Generator Unit 2 capital project is completed and repairs are performed on Turbine Generator Unit 5. OAO Koks will also become fully energy self-sufficient when its own generation capacity building programme is completed within the next two years. Another important driver is the optimisation of KOKS Group's business structure. We have revised the Group's development strategy and shifted our focus towards higher-margin and strategically important assets. As a result, a number of our assets such as the Romanovskaya and Vladimirskaya mines, and OOO Inertnik were slated for disposal. The Romanovskaya and Vladimirskaya mines contain significant reserves of valuable coking coals and we see them as a potentially attractive opportunity requiring extra capex. In the context of low coal prices, we will be comfortable enough sourcing our needs in quality coke feedstock from external suppliers without compromising our production cost cutting effort. In 2014, we intend to maintain focus on our initiatives to achieve further cuts in production costs and quality gains in finished products, in particular, by improving controls over production processes via the introduction of state-of-the-art IT solutions, encouraging in-house innovations to improve performance, etc.' *** Key highlights of 2013 and beyond: - On 15 March 2013, we successfully completed the approval request procedure to amend covenants under the terms of our USD 350 million five-year Eurobond placement. The Bondholders Meeting, with 88% of bondholders or their representatives in attendance, approved an extraordinary resolution allowing the expansion of the covenant package, with 99.8% of voting bondholders casting their votes in favour of the resolution. OOO Butovskaya Mine and OOO Tikhova Mine were included in the list of guarantors on the Eurobond loan. - In April 2013, OAO Koks launched production of new coke products with improved consumer properties. Overall, three new products (CSR 62%, 64% and 65-67%) were successfully introduced to the market in 2013. - On 22 May 2013, we completed the first phase of the Butovskaya mine project. Measured according to the JORC Code, the Butovskaya mine's reserves are estimated at 111.1 million tonnes of coal, mostly represented by КО and К Russian grades. Expected mine life is c. 40 years. - On 28 May 2013, operations at OAO Tulachermet's Blast Furnace 2 were suspended to perform scheduled maintenance. The project took over a month to complete, with the plant's production taking place only at Blast Furnace 3 during the period. Despite the long maintenance period, in 2013, the overall pig iron output at OAO Tulachermet declined by a mere 1%. - On 18 August 2013, we successfully completed a test programme on pig iron marking moulds in OAO Tulachermet's casting machines to prevent counterfeit copies of Tulachermet's products from being sold in the European markets. In 2014, all casting machines will be gradually outfitted with the new moulds and by 2015, 100% of OAO Tulachermet's pig iron will have been produced with the manufacturer's markings. All projects to develop, test and install marking moulds were implemented using the plant's own resources without attracting additional investment. - On 28 November 2013, OAO Koks's public tender offer to buy back irrevocably and on a voluntary basis its interest-bearing certificated BO-02 series bonds expired. A total of 518,534 bonds worth RUB 506.9 million were bought back out of the 2,500,000 outstanding bonds, with a total of 46 orders placed by investors. - On 6 December 2013, the 167,762 shares of SIJ - Slovenska Industrija Jekla d. d. (SSG, or The Slovenian Steel Group d. d.) owned by OAO Koks were sold to OAO Koks's shareholders. The deal size was over RUB 1,100 million. - In December 2013, we completed the early repayment of the credit facility from ОАО Gazprombank. The total repayments towards the loan were in excess of RUB 1,400 million. - In late December 2013, we made up the list of potential buyers for the Romanovskaya and Vladimirskaya mines, a licence to develop the Biryulinskaya mine, and OOO Inertnik, an inert dust producer. - In March 2014, KOKS Group was awarded a tender to develop the Koksoviy Glubokiy deposit. The deposit's high-grade coal is mostly represented by process grade coals of К and КО Russian grades, used in the by-product coking industry. According to preliminary estimates, the deposit's reserves are approximately 27 million tonnes of coking coal. The Koksoviy Glubokiy deposit spans the fields of the former Cherkasovskaya, Surtaikha and Vakhrusheva mines and shares mining allotments with KOKS Group's another company, OOO Uchastok Koksoviy. The price the Group paid in the bidding process was RUB 88 million. Mining operations at the Koksoviy Glubokiy deposit are expected to start in 2020. *** Full audited condensed consolidated IFRS financial statements of KOKS Group for the full year ended 31 December 2013 are available at: http://www.koksgroup.ru/_upload/docs_lang/filename_document2_2497.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 Vice President, Strategy & Communications Tel.: +7 495 725 5680 (ext. 156) E-mail: frolov@metholding.com 2nd Verkhniy Mikhailovskiy proezd 9, Moscow, 115419, Russia [1] EBITDA based on IFRS consolidated financial statements for the full year ended 31 December 2013. [2] Adjusted EBITDA is calculated as earnings 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. [5] Segment revenue includes inter-segment sales. Contact: Sergey Frolov Vice President, Strategy & Communications Tel.: +7 495 725 5680 (ext. 156) E-mail: frolov@metholding.com 2nd Verkhniy Mikhailovskiy proezd 9, Moscow, 115419, Russia 14.04.2014 EquityStory.RS, LLC's Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases. Media archive at www.dgap-medientreff.de and www.dgap.de --------------------------------------------------------------------------- Language: English Company: KOKS Group 2nd Verkhniy Mikhailovskiy proezd, 9 115419 Moscow Russia Phone: +7 495 725 56 80 Fax: +7 495 633 13 12 E-mail: info@km.metholding.ru Internet: www.koksgroup.ru ISIN: US482637AA33, XS0640334768 Category Code: FR TIDM: IRSH Sequence Number: 1988 Time of Receipt: Apr 14, 2014 11:43:41 End of Announcement EquityStory.RS, LLC News-Service ---------------------------------------------------------------------------
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