OREANDA-NEWS. November 26, 2012. OJSC “Kuzbasskaya Toplivnaya Company” (RTS/MICEX: “KBTK”), one of the fastest-growing thermal coal producers in Russia, is pleased to announce the unaudited consolidated IFRS financial results for Q3 and 9 months ended September 30, 2012.

Financial highlights
RUB mln. Q31 2012 Q21 2012 Ch. 9M1 2012 9M1 2011 Ch.
Revenue 5,370 4,853 11% 16,875 16,389 3%
Cost of sales 4,335 4,451 -3% 14,144 13,361 6%
Production cash costs per tonne, RUB 561 875 -36% 729 633 15%
Gross profit 1,035 402 157% 2,731 3,028 -10%
Gross profit margin 19.3% 8.3%   16.2% 18.5% 
Distribution, administrative and other costs 406 416 -2% 1,270 1,200 6%
Operating profit 629 -14   1,461 1,828 -20%
Operating profit margin 11.7% -   8.7% 11.2% 

EBITDA2 905 259 249% 2,281 2,551 -11%
EBITDA margin 16.9% 5.3%   13.5% 15.6% 
EBITDA per tonne, RUB 404 136 196% 360 413 -13%
Net profit 608 -391   1,113 1,242 -10%
Net profit margin 11.3%     6.6% 7.6% 

Due to seasonal increase in demand in the domestic market in Q3 2012 revenue increased 11% to RUB 5,370 mln., compared to RUB 4,853 mln., received in Q2 2012. Revenue for 9M 2012 amounted to RUB 16,875 mln., 3% higher than the same period last year (9M 2011 RUR 16,389 mln.).

Due to the growth in production, increase in the average selling price and reduced operating cash costs per tonne of coal, EBITDA in Q3 2012 increased by 249% compared to Q2 2012 and amounted RUB 905 mln. (Q2 2012: RUR 259 mln.). EBITDA for 1 tonne of coal increased by 196% from RUB 136 in Q2 to RUB 404 in Q3 2012.

Key performance indicators (gross profit, operating income, EBITDA, net income) for 9M 2012 show a decrease compared to the same period of 2011, due to lower coal prices on the global market. It should be noted that with reduction of CIF ARA 6,000 index by 24% and FOB Indonesia 5,800 index by 17%, decrease of the company's key performance indicators went in a smooth manner pace. This is made possible by the management's work to reduce the cost of transportation and coal mining. 9M 2012 EBITDA decreased by 11% to RUB 2,281 mln. (9M 2011: RUB 2,251 mln.).

In Q3 2012, net income amounted to RUB 608 mln. after USD 391 mln. loss, recorded in Q2 2012. For 9M 2012 the Company received RUB 1,113 mln. net income, which is 10% lower than the same period in 2011 (9M 2011: RUB 1,242 mln.).RUB mln. 30.09.12 30.06.12 Ch. % of total 30.09.11 Ch.3
Long term loans 5,318 5,414 -2% 73% 2,358 126%
Short term loans 1,953 1,333 47% 27% 1,722 13%
Total debt, incl.: 7,271 6,747 8%   4,080 78%
Ruble-denominated 3,823 2,452 56% 53% 1,898 101%
Foreign currency-denominated 3,448 4,295 -20% 47% 2,182 58%
Cash and cash equivalents 2,114 1,146 84%   1,812 17%
Term deposits4 371 470 -21%     
Net debt 4,786 5,131 -7%   2,268 111%
Net debt / EBITDA5 1.31 1.35 -2%   0.66 101%


Net debt as of 30 September 2012 amounted to RUB 4,786 mln. As compared to June 30, 2012, it decreased by 7% (30 June 2012: RUB 5,131 mln). As compared to September 30, 2011, increased by 111% (30 September 2011: RUB 2,268 mln). The net debt to EBITDA at the end of the reporting period was 1.31.

Operational highlights 6 mln. tonnes Q3 2012 Q2 2012 Ch. 9M 2012 9M
2011 Ch.
Coal production, incl.: 2.24 1.90 18% 6.33 6.18 2%
Karakansky South 0.78 0.72 8% 2.25 2.37 -5%
Vinogradovsky 0.55 0.28 96% 1.20 1.17 3%
Cheremshansky7 0.92 0.91 1% 2.90 2.66 9%
Sorted coal 1.37 1.41 -3% 4.37 4.03 8%
Enriched coal 0.21 0.21 - 0.62 0.55 13%
Stripping, mln. cbm. 13.81 19.42 -29% 52.52 49.27 7%
Blasted rock mass8, mln. cbm. 7.01 9.43 -26% 25.98 22.07 18%
Stripping ratio9 6.16 10.21 -40% 8.30 7.98 4%
Average stripping transportation distance, km 3.20 3.04 5% 3.05 2.83 8%

In Q3 2012, coal production increased by 18% quarter-on-quarter and totaled 2.24 mln. tonnes (Q2 2012 1.90 mln. tonnes). During the first 9M 2012, the Company has increased its level of production to 6.33 mln. tonnes, up 2% from the same period of the previous year (6.18 mln. tonnes).

In Q3 2012, the volume of coal sorting decreased by 3% to 1.37 mln. tonnes (Q2 2012: 1.41 mln. tonnes) due to high seasonal demand for raw coal from customers of Company’s retail network in Western Siberia. In the first 9M 2012 the company increased volumes of coal sorting and washing. Sorting volume increased by 8% to 4.37 mln. tonnes (9M 2011: 4.03 mln. tonnes), which corresponds to 69% of total production for the period.

Coal production at the washing plant "Kaskad-1" corresponds to the level of Q2 2012 and amounted to 0.21 mln. tonnes. During the first 9M 2012, the output of washed coal rose 13% to 0.62 mln. tonnes (9M 2011: 0.55 mln. tonnes), which corresponds to 10% of total production for the period.

Salesmln. tonnes Q3 2012 Q2 2012 Ch. 9M 2012 9M.  2011 Ch.
Sales10, incl.: 2.42 2.04 19% 7.27 7.32 -1%
Export sales 1.36 1.45 -6% 4.42 4.68 -6%
Domestic sales 1.06 0.59 80% 2.85 2.64 8%
Own coal 2.10 1.80 17% 6.07 5.99 1%
Coal re-sale 0.32 0.24 33% 1.20 1.34 -10%
Average selling price11, RUB/tonne 1,301 1,271 2% 1,312 1,202 9%
Average export price, RUB/tonne 1,333 1,259 6% 1,347 1,188 13%
Average domestic price, RUB/tonne 1,259 1,302 -3% 1,257 1,225 3%

Due to the traditional growth in trading activity in the Russian market of thermal coal in Q3, the Company increased its sales compared to Q2 2012 to 19% by implementing the 2.42 mln. tonnes (Q2 2012: 2.04 mln. tonnes). It sold 2.10 mln. tonnes of own coal and 0.32 mln. tonnes of coal purchased from third parties. Sales in Russia grew by 80% to 1.06 mln. tonnes (Q2 2012: 0.59 mln. tonnes), and the volume of export shipments fell 6% to 1.36 mln. tonnes (Q2 2012: 1.45 mln. tonnes).

Coal sales for 9M2012 decreased by 1% to 7.27 mln. tonnes (9M 2011: 7.32 mln. tonnes), while the volume of exports decreased by 6% to 4.42 mln. tonnes (9M 2011: 7.32 mln. tonnes) and sales of coal in the domestic market increased by 8% to 2.85 mln. tonnes (9M 2011: 2.64 mln. tonnes).

In the third quarter of 2012, the average selling price10 of coal increased by 2% quarter-on-quarter and reached RUB 1,301 per tonne (Q2 2012: RUB 1,271 per tonne). Average price in Russia decreased by 3% and amounted RUB 1,302 per tonne (Q1 2012: RUB 1,233 per tonne). This decrease was due to a seasonal increase in the proportion of raw coal in total sales. Average selling price of export coal, net of railroad cost in Q3 increased by 6% quarter-on-quarter to RUB 1,333 per tonne (Q2 2012: RUB 1,259 per tonne).

For 9M 2012 the average price10 of the Company's coal sales amounted to RUB 1,312 per tonne, 9% higher than the same period last year (RUB 1,202 per tonne). Average selling price of coal in the domestic market increased by 3% and amounted RUB 1,257 per tonne (9M 2011: RUB 1,225 per tonne). The average export price for 9M 2012 amounted RUB 1,347 per tonne increased on 13% over 9M 2011 (RUB 1,188 per tonne).

Cost of sales RUB mln. Q3  2012 Q2  2012 Ch. 9M  2012 9M  2011 Ch.
Railway tariff and transportation
 services 2,243 2,251 - 7,198 7,426 -3%
Coal purchased 267 345 -23% 1,324 1,393 -5%
Extraction, processing and sorting of
 coal 192 577 -67% 1,374 1,138 21%
Fuel 364 394 -8% 1,219 906 35%
Wages, salaries and social charges 348 354 -2% 1,042 888 17%
Depreciation 259 255 2% 771 681 13%
Spare parts 168 170 -1% 473 427 11%
Repair and maintenance 114 117 -3% 322 284 13%
Mining and environmental taxes 66 61 8% 195 200 -3%
Other materials 38 43 -12% 122 120 2%
Other services 38 35 9% 115 44 161%
Electricity 17 17 - 54 55 -2%
Operating leases 16 15 7% 53 56 -5%
Security services 13 12 8% 36 28 29%
Other costs 7 0 133% 18 10 80%
Land rent 2 2 - 5 3 67%
Change in coal stock 183 -197 - -177 -298 -41%
Cost of sales 4,335 4,451 -3% 14,144 13,361 6%


In the third quarter of 2012, the cost of sales decreased by 3% quarter-on-quarter and reached RUB 4,335 mln. (Q2 2012: RUB 4,451 mln.). For the 9M 2012 cost of sales increased by 6% year-on-year amounted RUB 14,144 mln. (9M 2011: RUB 13,361 mln.).
Costs extraction, processing and sorting of coal declined in Q3 2012 by 67% to RUB 192 mln. (Q2 2012: RUB 577 mln.). This is due to the radical stripping ratio decreased by 40% from 10.21 to 6.16, and the implementation of the decision to refuse the services of stripping works contractors, adopted as a package of measures to optimize costs at the end of the first half of 2012.
In Q3 2012, the Company has reduced the volume of purchases of coal from third parties, replacing it with own coal. This has resulted in lower costs for the purchase of coal by 23% to RUB 267 mln. (Q2 2012: RUB 577 mln.).
The entire mining equipment of Company continue to work for the summer diesel fuel that along with summer fuel consumption norms and reduced amount of stripping works resulted in a decline in fuel costs in the amount of 8% to RUB 364 mln. in Q3 2012 (Q2 2012: RUB 394 mln.).

Production cash costs
RUB mln. Q3 2012 Q2 2012 Ch. 9M2012 9M 2011 Ch.
Consolidated cost of sales 4,335 4,451 -3% 14,144 13,361 6%
Excluding cost of sales of subsidiaries 691 244 183% 1,640 1,321 24%
OJSC “KTK” cost of sales 3,643 4,207 -13% 12,503 12,040 4%
Excluding:           
Depreciation (in cost of sales) -240 -238 1% -717 -628 14%
Purchased coal -1 -170 -99% -405 -416 -3%
Change of inventory balances -41 45 - 93 98 -5%
Railroad tariffs and transportation costs -2,106 -2,179 -3% -6,861 -7,189 -5%
Production cash costs 1,256 1,664 -25% 4,613 3,905 18%
Share of production cash costs in consolidated cost of sales 29% 37%   33% 29% 
Coal production, mln. tonnes 2.24 1.90 18% 6.33 6.18 2%
Total cash costs per 1 tonne of coal, RUB 561 875 -36% 729 633 15%

In Q3 2012 the Company's production cash cost decreased by 36% quarter-on-quarter (Q2 2012: RUB 875 per tonne) and reached RUB 561 per tonne due to lower stripping ratio. 9M 2012 production cash cost amounted to RUB 729 per tonne, which is 15% higher than in 2011 (RUB 633 per tonne).

Igor Prokudin, CEO of the Company, commented:

"In general, the results of Q3 are positive. Despite the decline in the market, we were able to make a profit, compared with a loss in Q2. This is because the anti-crisis measures taken in a timely manner, which were made according to the plan as soon as possible, and a seasonal increase in sales of 19%. Also the reduce of stripping ratio by 40% to 6.16 positively affected production cash costs.

During the quarter a very fast pace is building the washing plant "Kaskad-2", which is scheduled to launch at the end of the year, and the opening of the washing plant will take place in early 2013. The main part of the work on the project is completed, now is the final stage of construction.

Following the period I want to note that the results of the quarter show that Company's management made a lot of work, resulted that the company was able to significantly reduce costs. Also, due to the competent policy of management, we have time to shift the focus in sales to the domestic market and to reduce export sales with low profitability for this period."

Key events in the Q3 and after reporting date
The company is to complete construction of the second washing plant “Kaskad-2” on the open-pit mine "Vinogradovsky" with capacity of 4.0 mln. tonnes per year. The construction works are in accordance with the plans of management. Launch of processing plant is scheduled for December 2012.
The construction of a 6 rail ways overhead contact system for electric locomotives of “Russian Railways” at Uba sorting station. Оverhead contact system is required for fulfillment of the technical conditions needed to increase the capacity of the sorting station.
Company's retail network in the Altai complemented 5 new retail coal warehouses. The total size of the retail network in the Western Siberia, is 76 thermal coal points of sales.

Outlook for Q4 and full 2012
In accordance with the production plan, the coal production in Q4 2012 will grow by 8% to 2.41 mln. tonnes. (Q2 2012: 2.24 mln. tonnes).
According to the estimates of management, stripping ratio in Q4 will continue to decline.
In December 2012 investment program for 2013 will be adjusted.

Management is optimistic about the prospects of the company in Q4 2012. Based on the price situation on export markets, the management of KTK expects the decline in revenue, EBITDA and net profit in 2012 compared to 2011.