EquityStory.RS, LLC-News: KOKS Group / Key word(s): Final Results KOKS Group: KOKS GROUP ANNOUNCES FY2011 FINANCIAL AND OPERATING RESULTS

18.04.2012 / 13:15

PRESS RELEASE

KOKS GROUP ANNOUNCES FY2011 FINANCIAL AND OPERATING RESULTS

Moscow, 18 April 2012

KOKS Group, the world's largest exporter of merchant pig iron and a leading producer of merchant coke in Russia, announces its 2011 full year financial and operational performance.

KOKS Group's Key Financials

  • The Group's 2011 consolidated revenue grew by 26% y-o-y and reached RUB 55,589m (vs. RUB 44,259m in 2010)
  • Operating profit was RUB 5,743m, compared to RUB 6,394m in 2010
  • EBITDA decreased by 10% year-on-year to RUB 8,283m (vs. RUB 9,159m in 2010)
  • EBITDA margin was 15% (vs. 21% in 2010)
  • 2011 adjusted EBITDA* was RUB 8,846m
  • Consolidated net profit was RUB 1,227m (vs. RUB 3,027m in 2010**)
  • Capital expenditures reached RUB 6,762m, up 60% y-o-y (RUB 4,216m)
  • Cash flows from operating activities stood at RUB 4,856m (vs. RUB 7,915m in 2010**)
  • Net debt as of 31 December 2011 was RUB 25,386m, just 2% above the level reported as of 30 June 2011 (RUB 24,786m)

Key Operating Results

  • Coking coal production was 1.2 m t;
  • Coke production declined to 2.7 m t (from 2.8 m t in 2010***);
  • Pig iron production grew to 2.2 m t, (from 2.1 m t in 2010);
  • Iron ore concentrate production reached 2.3 m t (vs. 2.2 m t in 2010).
    • Adjusted EBITDA is defined as earnings before income tax, interest expense, exchange gain/loss, depreciation, amortization, impairment and other non-cash items.

** This and subsequent figures are shown for continuing operations

*** Coke with 6% moisture content, including foundry coke, furnace coke, coke nut, coke breeze and coke dust

Financial Performance by Key Segments

Coal Segment

RUBm                                2011        2010       Change, %
Segment revenue, total*             10,681      7.747      38
EBITDA                              1,820       902        102
EBITDA margin, %                    17          12         -

Most of the Coal Segment's end products are supplied to OAO Koks. As a result, its sales are predominantly inter-segment rather than external. Driven by higher coal and coal concentrate prices in the first three quarters of 2011, the Coal Segment's total revenue increased by 38% (from RUB 7,747m in 2010 to RUB 10,681m in 2011), with EBITDA up by 102%.

Coke Segment

RUBm                                2011        2010        Change, %
Segment revenue, total*             35,883      30,731      17
EBITDA                              2,563       4,652       (45)
EBITDA margin, %                    7           15          -

Domestic coke prices were volatile in 2011, seeing a confident growth in the first half before steadily declining in the second half of the year. However, the Coke Segment's annual revenue was up by 17% from RUB 30,731m in 2010 to RUB 35,883m in 2011. Domestic coke and coking products sales were up 33% in 2011. The segment's margin was depressed by high coal prices throughout the first three quarters of the year.

Ore & Pig Iron Segment

RUBm                                2011        2010        Change, %
Segment revenue, total*             30,784      25,563      20
EBITDA                              3,645       3,361       8
EBITDA margin, %                    12          13          -

Pig iron prices were steadily high for most of 2011 and did not show any downward trend until the fourth quarter. After a span of stability, the prices for iron ore concentrate, this segment's major input, fell more sharply in the fourth quarter than did the prices for pig iron. This resulted in an 8% growth in the Ore & Pig Iron Segment's EBITDA. The reduction in the segment's external sales revenue in 2011 was due to integration of Swiss trader IMT S.A. into the Group, (started operations in October 2010) causing it to gradually overtake the majority of the segment's direct export contracts.

*Including inter-segment sales

IMT

RUBm                                2011        2010       Change, %
Segment revenue, total*             24,760      1,469      1,586
EBITDA                              343         14         2,350
EBITDA margin, %                    1           1          -

In 2011, pig iron sales through IMT S.A. soared as the volumes of its contracts with end consumers and traders increased gradually since late 2010. Total revenues from third-party export sales of pig iron grew by 46% and reached RUB 29,813m, owing to both rising global pig iron prices and the inclusion of transportation expenses in the end price of the commodity, which had not been practiced by the Group before.

Debt Portfolio Management

In June 2011, KOKS Group placed USD 350m five-year Eurobonds with a coupon of 7.75%. The proceeds were used to refinance the Group's secured debt.

In the same month, the Group successfully completed the buyback of its 12% rouble bonds, retiring RUB 4.8bn out of RUB 5bn, and then placed a new RUB 5bn three-year bond loan at 8.7% coupon.

Short-term borrowings decreased from RUB 7,679m as of 30 June 2011 to RUB 4,571m as of 31 December 2011.

Outlook

Financial performance is expected to stabilise on the back of lower coal prices and recovering pig iron prices. In the medium term, we expect financial results to improve, driven by better operating efficiency and greater reliance on our own supplies. Maintenance and development capex is expected to be around RUB 9bn in 2012.

Mr. Vladimir Zhukov, KOKS Group's Chief Financial Officer, commented on the 2011 results:

'2011 has been a challenging year for us. Despite the highly stable global demand for pig iron throughout the year, feedstock prices remained record-high while pig iron prices fell in the second half of 2011. The end-of-year financial results were affected both by the market environment and geological conditions in certain areas of our coal mines (in particular, Romanovskaya mine), which prevented them from reaching production targets.

In this situation, we have nevertheless posted a 15% EBITDA margin, which is relatively high by industry standards, and have been in full compliance with all the existing covenants due to our successful, vertically integrated business model and our market niche leadership.

*Including inter-segment sales

In 2011, we saw record breaking investments, taking them to RUB 6,762m and boosted the progress of Butovskaya and Tikhova projects, our vital new mines that will bring us further

financial stability after their launch in the first quarter of 2013 and the first half of 2014, respectively.

Commissioning of these mines will be a major driver of earnings and free cash flows all along the value chain and will remain the management's top priority in the short term.'

Key Developments in 2011 and Beyond

  • In March 2011, OOO Koks-Mining was established as a subsidiary of OAO Koks to improve the Group's transparency and management. Koks-Mining became the owner of all coal-mining and processing assets of the Group (Berezovskaya washing plant, Uchastok Koksovy open pit, Vladimirskaya and Romanovskaya coal mines, and Tikhova and Butovskaya projects)
  • In 2012, OOO Uchastok Koksovy obtained a permission to the annual coal output of 850 kt from the former 600 kt. The permission is taken within the frames of the current mining licence for 'Polye shakhty Vakhrusheva' of the Prokopievsko-Kiselevskoye coal deposit.
  • In June 2011, KOKS Group placed five-year Eurobonds for USD 350m with a coupon of 7.75%. The proceeds were used to refinance the Group's secured debt
  • Construction of Butovskaya and Tikhova mines is in progress. Smooth financing of these projects is secured by long-term investment loan agreements with Gazprombank and Sberbank. Butovskaya is expected to be launched in the first quarter of 2013. The first phase of Tikhova is to be commissioned in the first half of 2014
  • In February 2011, Moody's Investors Service assigned a B2 corporate family rating to KOKS Group. The outlook on the rating is stable
  • In September 2011, Standard & Poor's left the Group's family rating unchanged at the B level. The outlook on the rating is stable
  • In December 2011, KOKS Group made a full and timely payment of the first coupon yield on its debut five-year Eurobonds. The total amount paid was USD 13.5625m
  • Renovation of Tulachermet's Blast Furnace No. 1 is underway. All construction and finishing work are to be completed by the end of 2012. BF1 is expected to be relaunched in 2014
  • Second level development continues at KMAruda mine. The second level will help the company increase raw iron ore production to 7 m tpa. The mine is expected to reach full capacity in 2020-2021.

Full audited consolidated IFRS financial statements of KOKS Group for the year ended 31 December 2011 are available at:

http://www.koksgroup.ru/en/investor-relations/information-disclosures/fina ncials/

***

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. The Group's four operational divisions are Coal, Coke, Ore & Pig Iron and Polema. Its key production facilities are located in Russia's Kemerovo, Belgorod, and Tula regions.

***

For additional details, please visit our corporate web-site www.koksgroup.com or address any information inquiries to:

Mr. Sergey Frolov

IR Director

Phone: +7 495 725 56 80 (ext. 156)

E-mail: frolov@metholding.com

2nd Verkhniy Mikhailovskiy proezd 9, Moscow, 115419, Russia

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