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IMH (former KOKS GROUP) announces FY2014 financial results

9 April 2015

IMH (former KOKS Group), a vertically integrated business combination of the world’s largest exporter of merchant pig iron, a leading Russian producer of merchant coke, and coking coal and iron ore assets, announces its financial results for the full year ended 31 December 2014.

IMH (FORMER KOKS GROUP) ANNOUNCES FY2014 FINANCIAL RESULTS

IMH (former KOKS Group), a vertically integrated business combination of the world’s largest exporter of merchant pig iron, a leading Russian producer of merchant coke, and coking coal and iron ore assets, announces its financial results for the full year ended 31 December 2014.

Key Group Financials

RUBm 2014 2013 2014/
2013, %
Revenue 47,233 43,036 +10
COGS (30,616) (30,842) (1)
Gross profit 16,617 12,194 +36
Operating profit 8,091 1,476 +448
Adj. EBITDA[1] 11,492 6,595 +74
Adj. EBITDA margin, % 24 15 -
Adj. EBITDA[2] 12,587 7,016 +79
Net loss (7,701) (2,436) (216)
Purchase of property, plant and equipment 6,204 6,007 +3
Net cash from operating activities 12,342 9,797 +26
Debt[3] 39,552 27,074 +46
  • IMH's revenue rose by 10% y-o-y mainly due to higher pig iron and coke exports on the back of the weakening Russian Rouble.
  • COGS improved by 1%. All opex reduction initiatives are ongoing and continue to pay off. The growing payroll budget and the rising coal prices at the end of 2014 contributed to a smoother reduction in COGS vs. the previous period.
  • The Group's gross profit was up 36%, with gross profit margin of 35% vs. 28% in the previous period. Thus, margins tend to be rising.
  • Operating profit was 448% up (growing by more than five times) due to a higher revenue, lower COGS and reduction in distribution costs resulting from improved efficiency of the IMH's logistics function.
  • The adjusted IFRS-based consolidated EBITDA for FY2014 grew by 74%. The adjusted EBITDA for the full year ended 31 December 2014 was up 79% y-o-y. The adjusted EBITDA margin reached 24% showing a considerable increase y-o-y.
  • In 2H 2014, the Russian Rouble suffered from sweeping fluctuations causing material FX losses on Eurobonds and interest accrued thereon. In addition, there was a substantial increase of exchange losses on FX loans and interest accrued thereon. Total FX  losses were RUB 14,417 million. The Group's financing costs totalled RUB 18,196 million in 2014. As a result of the FX losses, the Group posted a net loss of RUB 7,701 million.
  • PP&E purchase costs in FY2014 grew 3% y-o-y, with most capex spent on the construction of the second phase at the Butovskaya mine, construction of the Tikhov mine, and construction of the lower mining level at the Gubkin mine.
  • Net cash from operating activities rose by 26%, mainly due to a higher revenue from sales of finished products and consistently stable prices for the Group's key products on the back of relatively low feedstock prices.
    • Debt was up 46% as at 31 December 2014 vs. 31 December 2013, mainly due to the weakening of the Russian Rouble, which caused the revaluation and increase in the cost of USD-denominated borrowings.

Financial Performance by Key Segments

Coal
Coke
Ore & Pig Iron

Debt Portfolio Management

The Group’s debt as at 31 December 2014 was RUB 39,552 million, a 46% increase vs. 31 December 2013. The increase was mainly driven by exchange rate effects, which resulted in the rising RUB cost of FX borrowings. In particular, exchange losses on Eurobonds and interest accrued thereon amounted to RUB 7,930 million.

In May 2014, IMH refinanced its RUB 5 billion bond debt with a 3-year loan from ROSSIYA Bank.

Since 2013 the Group repurchased its Eurobonds in the market for a total of USD 36 million.

The Group remains committed to maintaining its leverage and reducing the cost of borrowings. The Group is developing initiatives to reduce its debt going forward and is steadily working towards a more diversified debt portfolio by engaging new lending banks. As at 31 December 2014, undrawn committed credit facilities amounted to RUB 18,751 million. The average interest rate in FY2014 was 7.55%.

Sergey Cherkaev, Vice President, Chief Financial Officer of the Industrial Metallurgical Holding (IMH’s management company), commented on the 2014 results:

«2014 favoured the Group very much. We greatly enhanced our margins, revenues and operating profits. We achieved our targets on margins thanks to such external factors as higher revenues from exports on the back of a weaker RUB/USD exchange rate, lower feedstock prices, the reopened Ukrainian market for our coke and by-products as well as freezes on transport and electricity tariffs in 1H 2014.

Our internal efforts in FY2014 were focused on further opex cuts, operational excellence, increased production of higher-margin products and capex rationalisation.

OAO Tulachermet launched its upgraded Turbine Generator Unit 2, which is just one example where we achieved success in cutting opex. This project resulted in a considerable reduction in power purchases. In the nearest future, after repairs are finalised at Turbine Generator Unit 5, power purchases will be discontinued, with excess power to be sold externally. The turbine generator units at Tulachermet are driven by the steam produced through blast furnace gas utilisation. Thus, repairs at the turbine generator units will result in a fully closed power supply cycle.

OAO Koks will capitalise on this success, having already put in the pilings for own coke-oven gas power plant. The project will be implemented in 1H 2016 and will pay off within 5 years.

We continuously find new opportunities to optimise our business processes. In 2014, we embarked on efficiency improvement initiatives which won international renown. In particular, the 5S programme is ongoing, while the Total Manufacturing Optimisation programme (aimed at encouraging labour-saving innovations) is gaining momentum. The Group keeps on implementing new systems to automate process management, accounts and records, reporting and document flow.

The increased sales of premium grades is just one way to drive margins. Our success particularly relies on the coal produced by the Butovskaya mine, which is low in sulphur and phosphorus. Pig iron based on low-phosphorus coke is in great demand in the international market.

Despite changes to the capex programme, our priorities remain as before. We are financing only high-margin assets which require the shortest time to pay off such as the construction of the second phase at the Butovskaya mine, construction of the Tikhov mine, and construction of the underlying bed at KMAruda's Gubkin mine. The construction of the second phase at the Butovskaya mine is financed through the cash flow the mine generates, with no impact on our current liabilities. Preparation is ongoing for the construction of a desulphurisation facility at Tulachermet to enhance the Group’s capacity to produce premium grades of pure pig iron.

We made great progress optimising our debt portfolio. Our most important achievements include refinancing of our RUB-denominated bonds with a long-term loan from ROSSIYA Bank and buyback of our Eurobonds for a total of USD 36 million. We consider financial sustainability a top priority for the Group. Going forward, we intend to keep our leverage stable or reduce it should the opportunity arise.»

Full audited annual consolidated IFRS financial statements for the full year ended 31 December 2014 are available at:

IFRS (995 KB)

Key highlights of 2014 and beyond
Operating results in Q1 2015

Presentation available (659 KB)

Conference call replay available

Web cast replay available

About the Company:

IMH (KOKS Group) is a vertically integrated business that produces merchant pig iron and coke and mines and processes coking coal and iron ore. IMH is the world’s largest exporter of merchant pig iron and Russia’s largest manufacturer of merchant coke. IMH’s four operating divisions are Coal, Coke, Ore & Pig Iron, and Polema. Key production facilities are located in Russia’s Kemerovo, Belgorod, Kaluga and Tula regions.

For more details, please visit our corporate website www.koksgroup.com or address any inquiries to:

Ekaterina Popova
Director for Integrated Communications

popova@metholding.com
Тел.: +7 (495) 725 56 80 (ext. 405)
2nd Verkhniy Mikhailovskiy proezd, d. 9, Moscow 115419, Russia



[1] Adjusted EBITDA based on IFRS consolidated financial statements for the full year ended 31 December 2014.

[2] Adjusted EBITDA is calculated as earnings before income tax, interest expense, FX gain/loss, depreciation, amortisation, impairment, and other non-cash items.

[3] End-of-period.

[4] As at 31 December 2013.

[5] Segment revenue includes inter-segment sales.

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