OREANDA-NEWS.  Kuzbasskaya Toplivnaya Company OJSC (MICEX: "KBTK"), one of the largest producers and exporters of thermal coal in Russia, is pleased to announce its audited consolidated financial statements for the year 2013 under IFRS.

Commenting on the financial results of the Company's CEO Igor Prokudin said:

I rate the financial results of KTK for the 2013 as positive. All the goals the company faced in the past year have been fully completed. We managed to overcome the negative market changes, which were observed for the past year, due to the optimization of the sales strategy, timely sale of Kuzbasskaya Transportation Company LLC and the organization of the optimal logistics scheme, which significantly reduced the transportation costs. As a result, we ended the year with a profit, we managed to maintain revenues at the 2012 level, despite a decrease in average selling price of our products to more than 15% over this period. Moreover, the level of EBITDA remains higher than in 2010, when the Company conducted IPO, and net debt/EBITDA ratio is now in a comfort zone amounted 1.62. KTK - one of the few mining companies in the global market, which could increase EBITDA as compared to 2010, which allows it to fulfill the promises that were announced during the IPO and keep the payment of dividends to shareholders at the level of 2012.

I want to thank management and all the staff for their excellent work and our shareholders for their trust and support of the Company, which allows us to remain stable and profitable in a difficult period for the coal industry.

Revenue

At the end of 2013 revenue decreased by 3% to RUB 22,490 mln compared to the 2012. The decrease in revenue was due to the reduction of sales of own coal in domestic market. Compared with 2012, this segment's revenue decreased by 34% to RUB 2,880 mln. At the same time by 21% - to RUB 2,623 mln increased revenue in the segment of coal resale, which partially offset the decline in the segment sales of own coal in the domestic market.

Revenue in Q4 2013 increased by 3% to RUB 6,559 mln. Under the influence of the traditionally high seasonal increase in coal demand, revenue growth in the segment of the coal resale was 37%, while revenues totaled RUB 1,205 mln. Revenues from export sales decreased by 5% to RUB 4,382 mln, which is 67% of consolidated quarterly revenues of the Company.

Cost of sales and production cash costs

Cost of sales2 in 2013 increased by 3% to RUB 19,523 mln, while production cash costs2 decreased by 11% to RUB 611 per tonne. Level of commercial, administrative and other expenses for the 12 months 2013 decreased by 11% to RUB 1,579 mln, equivalent to 8% of total revenue.

Cost of sales in Q4 grew by 7% to RUB 5,769 mln and production costs decreased by 6% to RUB 623 per tonne. Quarterly commercial, administrative and other expenses decreased by 48% to RUB 265 mln.

Operating profit and EBITDA

Compared to the level of 2012, in 2013 operating income decreased by 41% to RUB 1 388 mln, EBITDA and gross profit decreased by 30% to RUB 2,422 mln and by 28% to RUB 2,967 mln respectively. The main impact on the reduction of these indicators had a reduction in gross margin in all key segments of the Company business associated with low thermal coal prices in the Asia-Pacific region and the concomitant increase in competition in the domestic market. Gross margin decreased from 18% in 2012 to 13% in 2013 primarily due to export sales segment.

In the Q4 2013, operating income increased by 16% compared to the Q3 2013 and amounted RUB 525 mln. Gross profit decreased by 18% to RUB 790 mln. Quarterly EBITDA amounted to RUB 668 mln, decreasing by 13% compared to Q3 2013.

Net profit

Net income for 2013 amounted RUB 640 mln, decreasing by 65% compared with the figure for 2012. Despite a significant decline in prices for thermal coal in global markets and declining profitability of export sales, the Company's business in the domestic market is stable. This is due to the unique for the Russian market distribution network of coal warehouses, supplying more than 400,000 individuals and more than 1,000 industrial and municipal consumers of thermal coal. Gross margin of this segment in 2013 was 24% due to strong demand for sorted coal produced by the Company and the introduction of additional services for the clients. Management plans to continue the development and expansion of the retail network.

Due to seasonal demand for the thermal coal on the domestic market in Q4 2013, the Company shows a net profit of RUB 311 mln, which is 9% higher than in Q3 2013.
Net debt at 31 December 2013 amounted RUB 3,917 mln, decreasing by 24% compared to 30 September 2013. Significant reduction in net debt due to the increased volume of term deposits. The net debt to EBITDA ratio was 1.62, down by 8% in the Q4 which is comfortable level for management. Under the terms of loan agreements with banks, net debt to EBITDA ratio should not exceed the level of 3.50 - 4.00.

The Company is one of the most reliable and efficient borrowers in Russian mining sector that reflect current interest rates on loans. As of December 31, 2013, the average effective rate on loans denominated in RUB, was 8.71%, down for the Q4 by 0.64 percentage points. For loans denominated in USD, the average interest rate increased by 0.05 percentage points to 4.85%.
In 2013 operating cash flow was USD 2,127 mln, decreasing by 9%. Investment cash decreased by 84% to RUB 638 million, because after the completion of large-scale investment cycle in 2012, the Company implements a shortened investment program for 2013. Investments in fixed assets amounted RUB 902 mln, mainly used to finance construction of washing plant Kaskad 2. Net cash outflow from financing activities in 2013 amounted RUB 1,221 mln. Net increase in cash and equivalents amounted RUB 268 mln.

In the Q4 2013, operating cash flow amounted RUB 1,145 mln, which is 5% lower than in Q3 2013. Investment cash flow in Q4 2013 amounted RUB 98 mln, investments in fixed assets were RUB 89 mln. Net cash outflow from financing activities amounted RUB 562 mln, which is 27% lower than in Q3 2013. Net increase in cash and cash equivalents was RUB 681 mln.

Key events after reporting date

In February 2014, the Company signed cooperation agreement with the Administration of the Kemerovo region for 2014. Tax payments in the consolidated budget will be RUB 563 mln. To social benefits for workers and retirees Company will direct RUB 45 mln. Targeted funding of regional social programs will amount RUB 27 mln.
In March 2014 the Company won an auction for Listvenichny license with 56 mln tonnes of coal reserves for RUB 42 mln. This license is located in the center of the existing industrial cluster and do not require the construction of additional infrastructure for production and transportation of coal. Under the terms of the license, mining at the site should be started in 2021. After acquiring a new license, proven and probable reserves of the Company is 605 mln tonnes. At current production levels, the Company’s resources are enough for 60 years.
In March 2014 the Board of Directors recommended shareholders to pay a RUB 5 per share dividend, which corresponds to the payments for the financial year2012. 77.5% of the net profit for 2013 under IFRS will be allocated to pay dividends.
In March 2014 the controlling shareholder of the Company announced its intention to conduct an SPO and sell at least 15.6% of shares owned by management. The transaction is expected to hold in 3 years in case of favorable market conditions. Half of the Company’s shares will be in the free float.
Outlook for Q1 2014

In accordance with the production plan, coal production in the Q1 2014 will be 2.44 mln tonnes, reducing by 12% compared to Q4 2013.
According to the expectations of management, stripping ratio in Q1 2014 will grow by 14% to 6.28. This increase is due to the influence of seasonality. Traditionally, the company produces a large volume of stripping operations in Q1 and Q2. According to the figure for the Q1 2013, the stripping ratio will increase by 3%.
The volume of coal washing in Q1 2013 will be 0.93 mln tonnes, which is 16% higher than in Q4 2013. To the washing plant Kaskad 2 will produce 0.71 mln tonnes, which corresponds with 76% of the planned quarterly washing volume.
Management of KTK tracks the performance of prices in world markets, which in the last year are at a stable low level, and does not expect significant price increases in the international thermal coal market in Q1 2014. However, the price trends of past periods augur well for the growth of prices in the medium term.