OREANDA-NEWS. July 05, 2010. Chelyabinsk Zinc Plant (LSE, RTS, MICEX: CHZN), Russia's largest producer of zinc and zinc alloys, announces its IFRS financial results for the three months ended March 31, 2010 (Unaudited accounts).

1Q 2010 HIGHLIGHTS

.   Chelyabinsk Zinc Plant’s (CZP) revenue for the 1Q2010 totaled RUB 2,685 million compared to RUB 1,565 million for the same period last year.

.   1Q2010 EBITDA amounted RUB 752 million and was equivalent to 28% of revenue compared to an EBITDA of RUB 154 million, equivalent of 10% of 1Q2009 revenue.

.   Net profit for the 1Q2010 was RUB 458 million compared to RUB 224 million loss for the 1Q2009.

Consolidated interim financial results for the three months ended March 31

 

2010

2009

Change

(in millions of Russian Roubles)

(%)

Revenue

2,685

1,565

72

Gross profit

792

161

N/A

Gross margin

29%

10%

 

EBITDA

752

154

N/A

EBITDA margin

28%

10%

 

Profit/(loss) before income tax

551

(289)

N/A

Net income/(loss)

458

(224)

N/A

Net margin

17%

N/A

 

(1) EBITDA, for any relevant period, represents operating profit before depreciation and amortization. EBITDA is presented because CZP considers it an important supplemental measure of CZPs operating performance and believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in CZP's industry. EBITDA has limitations as an analytical tool, and it should not be considered in isolation, or as a substitute for the analysis of CZP's operating results as reported under IFRS. Some of these limitations are as follows:

EBITDA does not reflect the impact of financing costs, which are significant and can

further increase if CZP incurs more debt .     EBITDA does not reflect the impact of income taxes on CZP's operating performance. .     EBITDA does not reflect the impact of depreciation and amortization on CZP's operating performance. The assets of CZP's business which are being depreciated and/or amortized will have to be replaced in the future and such depreciation and amortization expense may approximate the cost to replace these assets in the future.

By excluding this expense from EBITDA, EBITDA does not reflect CZP's future cash requirements for these replacements. .     Other companies in CZP's industry may calculate EBITDA differently or may use it for different purposes than CZP does, limiting its usefulness as a comparative measure.

CZP compensates for these limitations by relying primarily on its IFRS operating results and using EBITDA only as a supplemental measure. Please refer to the consolidated statements of income and consolidated statements of cash flows of CZP included in the current press release.

EBITDA is a measure of CZP's operating performance that is not required by, or presented in accordance with, IFRS. EBITDA is not a measurement of CZP's operating performance under IFRS and should not be considered as an alternative to profit for the period, operating profit or any other performance measure derived in accordance with IFRS or as an alternative to cash flow from operating activities or as a measure of CZP's liquidity. In particular, EBITDA should not be considered as a measure of discretionary cash available to CZP to invest in the growth of its business.

Reconciliation of EBITDA to net income is as follows for the periods indicated:

 

Three months ended

31 March

2010

2009

(in millions of Russian

Roubles)

Profit/(loss) for the period

458

(224)

Add:

Depreciation and amortization

192

240

Finance income and costs, net

3

38

Foreign currency exchange loss, net

3

165

Income tax expense/(credit)

93

(65)

Exploration and evaluation costs

3

-

EBITDA

752

154

Production and Sales

For the 1Q2010 CZP produced 38.6 thousand tonnes of salable SHG zinc and zinc based alloys, an increase of 59% as compared to the same period of 2009 (24.3 thousand tonnes). CZP sales for the period were 38.2 thousand tonnes, which is 56% more than for the same period of 2009 (24.5 thousand tonnes). 44% (16.7 thousand tonnes) of zinc and zinc alloys was supplied to the domestic market. 53% (20.4 thousand tonnes) – was supplied under a tolling contract; export – 1.1 thousand tonnes or 3% (1Q2009: domestic market – 12 thousand tonnes, export – 12.5 thousand tonnes of SHG zinc and zinc based alloys).

For the 1Q2010 CZP’s subsidiary, Nova Zinc LLC, operator of Akzhal zinc and lead ore mine in Kazakhstan produced 7.2 thousand tonnes of zinc in zinc concentrate (1Q2009: 8.1 thousand tonnes). Lead in lead concentrate production for the period totaled 1 thousand tones (1Q2009: 1.3 thousand tones).

CZP's subsidiary, The Brock Metal Company Limited (the leading UK supplier of zinc die-casting alloys) sold 7.1 thousand tonnes of products in the 1Q2010, 45% more than for the same period of 2009 (4.9 thousand tonnes).

Revenue

CZP's revenue increased by 72% to RUB 2,685 mln for the 1Q2010 as compared to the same period of last year – RUB 1,565 mln. Revenue from sales of zinc and zinc alloys increased by 40%; from sales of by-products - by 63%; from sales of lead concentrate    - decreased by 21%.

Revenue structure

 

Three months ended March 31

 

2010

2009

Change

(in millions of Russian Roubles)

(%)

Zinc and zinc alloys

1,825

1,302

40

Zinc tolling

491

-

N/A

Lead concentrate

56

71

(21)

Other products

313

192

63

Total revenue

2,685

1,565

72

Revenue from sale of zinc and zinc alloys increased by 40% to RUB 1,825 mln for the 1Q2010 (versus RUB 1,302 mln in the 1Q2009). It was caused by the growth of zinc and zinc alloys tonnage sales and also by increase of LME zinc prices by 95% to USD 2,288/tonne as compared to the 1Q2009 average LME price of USD 1,174/tonne. Revenue increase was not proportional due to the fact that part of zinc metal was supplied under a tolling agreement.

Zinc tolling revenue was RUB 491 mln for the 1Q2010. CZP receives RUB 24,000 per tonne of zinc according to the terms of the tolling agreement.

Revenue from sale of lead concentrate was RUB 56 mln in 1Q2010 (1Q2009: RUB 71).

Revenue from CZP’s other products increased by 63% to RUB 313 mln in 1Q2010 (1Q2009: 192). It was mainly caused by the increase of indium, sulphuric acid and zinc sulfate sales.

Cost of Sales

 

Three months ended March 31

2010

2009

(in millions of Russian Roubles)

Raw materials and consumables

used

1,108

693

Utilities and fuel

446

299

Production overheads

24

19

Mineral extraction tax

32

24

Repairs and maintenance

120

81

Depreciation and amortization

171

215

Staff cost

141

139

Change in work-in-progress

(131)

142

Change in finished goods

(4)

99

Reversal of inventory write-down

(5)

(395)

Precious metal revaluation

(8)

(35)

Cost of goods and material for resale

(1)

123

Total cost of sale

1,893

1,404

For the 1Q2010 cost of sales increased by 35% to RUB 1,893 mln from RUB 1,404 mln for the same period of 2009.

Cost of material and consumables used primarily comprises the cost of zinc concentrate, secondary raw materials and auxiliary materials used in the zinc production process. This cost increased by 60% to RUB 1,108 mln (1Q2009: RUB 693 mln) which is equal to 59% of the total cost of sales (1Q2009: 49%). The main reason is the production volumes growth and increase of LME zinc prices. Cost of material and consumables used also increased disproportionately due to the zinc tolling.

Costs of utilities and fuel increased by 49% up to RUB 446 mln in the 1Q2010 (1Q2009: RUB 299 mln). This increase was primarily due to a growth of electricity consumption at CZP's production facilities in Chelyabinsk, as a result of an increase in overall production levels.

Distribution Costs

Distribution costs include primarily transportation costs and customs duties. For the 1Q2010 these costs increased by 9% to RUB 97 mln (vs. RUB 89 mln for the 1Q2009). Such increase was mainly caused by growth of transportation costs of sulphuric acid to consumers.

General and Administrative Expenses

General and administrative expenses decreased in the 1Q2010 by 15% to RUB 134 mln from RUB 158 mln in the 1Q2009. The decrease is mainly explained by one-off income on metal scrap sales.

Profit (loss)

Net profit for the 1Q2010 was RUB 458 mln compared to RUB 224 mln loss for the 1Q2009.