OREANDA-NEWS. Kuzbasskaya Toplivnaya Company OJSC (KTK, MICEX: KBTK), one of the largest producers and exporters of thermal coal in Russia, today announced its unaudited condensed interim consolidated financial results under IFRS for the nine months ended September 30, 2014.

In the nine months of 2014 the Company posted revenue of RUB 14,520 million, 9% lower than in the same period of 2013. Revenue reduction was mainly influenced by own coal export sales segment which declined by 7% year-on-year to RUB 11,040 million due to a warm winter in Europe where heating season 2014 will start in the fourth quarter. Such a decline in revenue year-to-year was due to lower sales volumes in the domestic and European markets because of the warm winter.

Revenue in the third quarter rose by 49% to RUB 5,799 million. Under the influence of the seasonal growth in demand for coal, quarterly revenue increase in the sales of own coal in the domestic market segment amounted to 139%. Revenue from export sales grew by 27% compared with the previous quarter and stood at RUB 4,179 million. Coal resale segment revenue showed a considerable seasonal gain of 503% to RUB 464 million. Purchases from third-party producers are being done in order to provide resources to retail network warehouses in Western Siberia.

Operating profit and EBITDA

In the first nine months of 2014 operating income decreased by 62% compared to the year-ago period to RUB 326 million. This decline is a consequence of gross profit decrease, caused by a faster pace of reduction in revenue compared to that of cost of sales. Gross profit for the nine months of 2014 fell by 25% to RUB 1,622 million. EBITDA showed a year-on-year decline of 33%, reaching RUB 1,167 million. Cost of sales in the nine months of 2014 dropped by 6% to RUB 12,898 million as a result of optimization measures carried out by the management. Production cash costs saw a 2% decline and stood at RUB 596 per tonne of coal. Level of commercial, administrative and other expenses for the first nine months of 2014 fell by 1% to RUB 1,296 million.

After an operating loss showed in the second quarter, the Company showed an operating income of RUB 81 million in the third quarter of 2014. Gross profit rose by 79% to RUB 558 million. Quarterly EBITDA amounted to RUB 382 million showing a 129% quarterly increase. Cost of sales in the third quarter grew by 47% to RUB 5,241 million. Production cash costs fell by 9% to RUB 554 per tonne. Commercial, administrative and other expenses increased by 17% to RUB 477 million.

Net profit

The Company shows a net loss in the nine months of 2014, amounting to RUB 469 million. The main factors influencing the financial result were negative currency differences, RUB 491 million for the nine months, and a continued decline in the Asian markets. At the current price level export sales to the Asia-Pacific region bring the Company minor losses, but these shipments can not be interrupted in order to avoid the loss of a long-term attractive market and established customer base in South Korea and Japan. The management is convinced that if the global coal price trend changes, key thermal coal shipment increase opportunities will be concentrated in this very region. At the same time, thanks to the warm winter of 2014, the seasonal decline in demand for coal in the domestic market and in Poland turned out to be more significant than in the past years. System changes in the Polish market, capable in the medium term may have a positive impact on the Company's business. The domestic market, despite increased competition among Russian producers, remains stable due to the existing distribution infrastructure of KTK. Gross margin in the domestic market remained at the level of the nine months of 2013, at 33%. The Company is implementing a number of projects to improve the domestic market share in the total volume of sales. The third quarter of 2014 recorded a net loss of RUB 393 million.

Net debt at September 30, 2014 stood at RUB 6,042 million, decreasing by 1% compared to June 30, 2014. Year-on-year it grew by 17%. The net debt to 12-month EBITDA ratio showed a 21% quarterly growth and stood at 3.29. The year-on-year growth of this indicator by 88% is caused by an EBITDA drop of 33% and a total debt growth of 53%. In agreements with banks the threshold level for this indicator is 4.00-4.50. The management is planning to bring it below 3.00 by the end of 2014. With this in mind a pool of cash and cash equivalents of RUB 4,886 million was formed.

The company is one of the most reliable and efficient borrowers in the sector, which is reflected by the current interest rates for loans and credits. As of September 30, 2014, the average effective rate was 10.96% for loans denominated in RUB and 4.35% for loans denominated in USD. The loan portfolio is distributed among 10 Russian and foreign banks.

In the nine months of 2014 operating cash flow amounted to RUB (607) million. Investment cash flow fell by 38% to RUB (454) million. Investment in fixed assets stood at RUB 586 million, most of which focused on the Kaskad 1 washing plant modernization and retail network development. Net cash flow from financial activities for the nine months of 2014 amounted to RUB 2,866 million. Net increase in cash and cash equivalents stood at RUB 1 805 million.

In the third quarter of 2014 operating cash flow stood at RUB 783 million. Investment cash flow in this period was RUB (198) million, RUB 190 million were spent on investment in fixed assets. Net cash flow from financial activities amounted to RUB 1,891 million. Net increase in cash and cash equivalents stood at RUB 2,476 million.

Key events in the third quarter and after the reporting date

Maxim Ovcharov, former Head of retail sales in the Kemerovo Region and the Altai, was appointed Deputy CEO for retail network. His area of responsibility will include coordination and development of retail network in four regions of Western Siberia and Poland. Harmonization and standardization of retail network business processes will provide synergies and allow KTK to get to a new level of customer service.

Outlook for the fourth quarter of 2014

In accordance with the production plan, the volume of coal production and average stripping ratio in the fourth quarter of 2014 will stay on the level of the 2 quarter and amount 2.80 million tonnes and 5,20.