OREANDA-NEWS. OJSC "Kuzbasskaya Toplivnaya Company" (RTS/MICEX: "KBTK"), one of the largest producers and exporters of thermal coal in Russia, is pleased to announce its financial statements under IFRS for the year 2012. Independent auditors of the financial statements is ZAO "KPMG".

Revenue

Revenues for Q4 2012 increased by 16% to RUB 6,229 mln under the influence of a seasonal increase in demand for coal, caused by the heating season, revenue in the segment of own coal sales in the domestic market increased by 32% to RUB 1,466 mln Gross profit margin in this segment demonstrated record quarterly figure for the last three years, comprising 34%. In the segment of coal resale revenue increased by 52% to RUB 724 mln.

Revenue for the entire year 2012 decreased by 3% to RUB 23,104 mln due to reduction of revenue in the segment of own coal export sales by 7% to RUB 15,858 mln. This was caused by the deterioration of market conditions in the global coal energy markets coal. Revenues from export sales decreased by 5 percentage points to 69%.

Operating profit and EBITDA

Due to the seasonal increase in demand for coal, the operating profit in Q4 2012 increased by 40% to RUB 880 mln. Production cash costs in Q4 increased by 9% to RUB 1,365 mln as a result of increased production volume. Cost of sales in Q4 rose to RUB 4,838 mln due to an increase in transportation costs and the purchase price of coal for resale, as well as production cash costs, which increased following the increase of production. The level of commercial, administrative and other expenses in Q4 2012 increased by 26% to RUB 511 mln due to the increase in sales volumes. EBITDA in Q4 increased by 32% to RUB 1,197 mln.

Operating profit in 2012 decreased by 19% to RUB 2,341 mln This measure was impacted by deterioration of the situation in the world markets of thermal coal, which was partially offset by lower cost of sales. Production costs in 2012 increased by 5% to RUB 5,978 mln. Cost of sales decreased by 2% as a result of the cost cutting program undertaken in the second half of 2012. Commercial, administrative and other expenses in 2012 increased by 9% to RUB 1,781 mln due to the indexation of salaries to personnel. EBITDA in 2012 decreased by 11% to RUB 3,479 mln.

Net profit

Net profit in Q4 was RUB 697 mln, an increase of 15% compared to the previous quarter. Positive impact on net profit was due to high seasonal sales in domestic market, characterized by high marginality.

Net profit for the entire year of 2012 amounted to RUB 1,810 mln, decreasing by 10% under the influence of reduced revenue from export coal sales.
Net debt as at 31 December 2012 amounted to RUB 4,681 mln, decreasing by 2% in comparison with net debt as at 30 September 2012. The net debt to EBITDA ratio was 1.35. Under the terms of the existing loan agreements with banks, this ratio should not exceed the level of 3.50 - 4.00.

The company maintains an effective financial and investment policy, and as a result the average interest on borrowings denominated in rubles at the end of 2012 was 8.45%4, and for loans denominated in U.S. dollars — 4.80%.
In Q4 2012, operating cash flow increased by 3% to RUB 940 mln Total investment cash flow decreased by 41% to RUB 468 mln while cash flow used in acquisition of property, plant and equipment amounted to RUB 713 mln  most of which related to the completion of construction of the washing plant, "Kaskad-2." Net cash outflow from financial activities in Q4 2012 amounted to RUB 161 mln mainly due to the repayment of financial obligations.

At the end of 2012 operating cash flow increased by 11% to RUB 2,332 mln. Investment cash flow increased by 54% to RUB 3,944 mln, of which RUB 3,847 mln relates to cash flow used in acquisition of property, plant and equipment. Key investment projects in 2012 consisted of construction of the washing plant, "Kaskad-2", construction of the fuel storage, investment in rail infrastructure and expansion of the retail network. Net cash flow from financial activities in 2012 increased by 11% to RUB 2,125 mln.

 Igor Prokudin, CEO of the Company, commented:

 "2012 was difficult for Kuzbass coal companies due to the sharp fall in prices in the world market. However, thanks to coordinated team work, clear and timely anti-crisis measures, including large-scale cost cutting, changes in financial and investment policies, Kuzbasskaya Toplivnaya Company managed to prevent most of the negative effects.

Without a doubt, the main event for Kuzbasskaya Toplivnaya Company in 2012 was the completion of construction works on the second washing plant. At the moment the washing plant "Kaskad-2" undergoes comprehensive testing, planning to start work at its full capacity at the beginning of Q2 2013. The products produced by the factory will significantly increase the company's competitiveness.

At the same time, one of the most important results in 2012 includes the development and implementation of a new strategy for coal transportation. At the beginning of 2013, the KTK has structured its own transport assets and signed a beneficial five-year contract with a new supplier, which will allow for a significant cost reduction in the next reporting period.

I emphasize that the present condition of the markets has not changed the basic direction of our strategy. This is, first of all, the policy of improving the quality of products, development of mineral resource base, and modernization of the production process.

We also maintain the main direction of the dividend policy. Based on the results of 2012 the Board of Directors recommended for General Meeting of Shareholders to pay more than RUB 496 mln in dividends, which amounted to 27% of the Company’s net profit.

Overall, despite the difficulties, I believe that 2012 has served as another important step in the implementation of the Company’s development strategy. It is important for our investors, customers and the public to understand, that we continue to move forward in the chosen direction."


Key events in Q4 and after reporting date
The company completed construction of the second washing plant "Kaskad-2" next to open-pit mine "Vinogradovsky" with capacity of 4.0 mln tonnes per year. Presently, the washing plant is working in the test mode. In February 2013, the washing plant was presented to existing and potential partners in the international coal market and has received favorable international feedback.
The construction of overhead contact system to be used on six railway tracks for electric locomotives of “Russian Railways” at Uba sorting station. Оverhead contact system is required to increase the capacity of the sorting station. As of today, there are 15 railway tracks with overhead contact system, serving more than 700 railcars per day. The capacity of the sorting station is 16.7 mln tonnes per year, with possibility to increase capacity up to 20 mln tonnes per year.
Management continues to implement a cost cutting program, which affects all types of input resources and services. In February 2013, the Company withdrew from the associate members of LLC "Kuzbass Transport Company" (“KTrK”) and signed a long term service contract for the transportation of coal for 2013-2018 with the new owner of the rail car fleet LLC "ZapSib-Transservice". At time of the transaction, KTrK’s fleet was 3,128 rail cars, and its total debt was RUB 7 bln., including financial leasing and bank loans. The contract guarantees the supplier a minimum of 5,000 rail car dispatches per month, which amounts to 65% of the Company’s shipment volumes. Cost of services will be based on the average market prices.
On March 13, 2013 the Board of Directors approved a recommendation to pay dividends of RUB 5 per share. Total dividends for the year 2012 would be RUB 496,291,775, which amounts to 27.4% of the net profit under IFRS. Dividend yield is 4.9% (2011: 3.4%). The final approval of dividend payment by AGM will take place on April 15, 2013.

Outlook for Q1 and full 2013
In accordance with the production plan, the coal production in Q1 2013 will remain at the level of Q4 2012 amounting to 2.40 mln tonnes.
According to the estimates of management, stripping ratio in Q1 continued to decline.
In Q1 2013 the Company froze all investments under the approval of the adjusted investment program for 2013.

Management of KTK tracks the prices in world markets, which in the recent year have remained at a stable low level, and does not expect any increase of thermal coal price in Q2 and Q3 2013. However, the price trends of past periods raise can expectations of rising prices in the medium term.