Industrial Metallurgical Holding (KOKS GROUP) announces 1H 2014 financial results

Industrial Metallurgical Holding (IMH, KOKS Group), a vertically integrated company comprised 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 six months ended 30 June 2014.

Key Group Financials

• IMH’s revenue increased by 2% y-o-y primarily due to higher pig iron sales on the back of the weakening Russian rouble.
• Cost of goods sold improved by 4% due to lower feedstock prices and the implementation of the Company’s productivity enhancement and opex reduction policy.
• The Groups’ gross profit was up 19%, with gross profit margin of 31% compared to 26% in the previous period.
• Operating profit was 17% up due to higher revenue, lower cost of goods sold and a 27% reduction of distribution costs resulting from improved efficiency of the IMH’s logistics function.
• IFRS-based consolidated EBITDA for 1H 2014 grew by 69%. Adjusted EBITDA for the 12 months ended 30 June 2014 was 60% up y-o-y. IFRS-based consolidated EBITDA margin for 1H 2014 reached 23% showing a considerable improvement y-o-y.
• In Q1 2014, the Company wrote off the assets of ZAO Siberian Resources (the Vladimirskaya mine) for a total of RUB 1.560 billion due to the mine close-down. This exercise resulted in a net loss of RUB 96 million for the period, an 88% reduction y-o-y. IMH’s net profit for Q2 2014 was RUB 145 million.
• PP&E purchase costs in 1H 2014 were down by 35% y-o-y as a result of the investment strategy revision and abandonment of projects with a long payback period and a relatively low rate of return. The Coal segment accounts for the major portion of the costs owing to the continuing construction of the second phase of the Butovskaya mine and construction of the Tikhova mine.
• Net cash flow from operations reduced by 9% following a significant reduction in the payables. In addition, the receivables are going up, which is attributable to the trade policy changes. In particular, some clients were allowed additional deferred payments.
• Debt was 6% up as at 30 June 2014 versus 31 December 2013, mainly due to the working capital growth. In addition, weakening of the Russian currency, which had caused the revaluation and increase of the cost of USD-denominated loans also contributed debt value growth.

Financial Performance by Key Segments

Debt Portfolio Management

As at 30 June 2014, the Company’s debt equalled RUB 28.821 billion, a 6% increase versus 31 December 2013. In May 2014, IMH refinanced its RUB 5 billion bond debt with a 3-year loan from Bank of Russia.

The Company remains committed to reducing its debt and diversifying the pool of lending banks. As at 30 June 2014, the undrawn committed credit facilities amounted to RUB 18.455 billion. The average interest rate was 7.94%.

Sergey Cherkaev, Vice President, Chief Financial Officer of Industrial Metallurgical Holding (KOKS Group’s management company), commented on 1H 2014 results:

«1H 2014 was definitely a successful period for the Company. We became an industry leader by EBITDA margin, made good progress in cutting production costs and consolidated our position in the high-margin market of premium grade pig iron and coke. Our results were of course driven by a favourable external factors such as a low RUB/USD exchange rate increasing profitability of our export supplies, frozen transport and electricity tariffs and a drop in feedstock prices. But we also undertook some major efforts internally boosting our financial results. In particular, we optimised the headcount and cut the feedstock and finished product transportation costs. The reconstruction of the turbine generator units at JSC Tulachermet to be completed shortly will let us have a considerable reduction of electricity costs.

IMH’s business structure optimisation is on track to reduce the losses caused by the maintenance of LLC Gornyak and JSC Siberian Resources, which are no longer in operation, we decided to initiate their bankruptcy and liquidation and write off the fixed assets. The total amount written off exceeded RUB 1.5 billion, which affected out net profit results. Yet, IMH was able to generate net profit in Q2 2014.

The capex programme saw a significant downward adjustment. Currently, we are financing only high-margin assets in the Coal segment, such as the construction of the second phase of the Butovskaya mine and construction of the Tikhova mine. The Butovskaya mine is financed through the cash flow it generates, with no impact on our current liabilities. Besides, we have decided to keep financing the construction of the underlying bed at KMAruda’s Gubkin mine since increased in-house output of iron ore feedstock is one of the Company’s strategic priorities.

Going forward, we intend to continue with production optimisation, roll-out of modern resource and production management solutions and personnel development. These initiatives will help us to consolidate and enhance the financial results».

Full unaudited condensed consolidated IFRS financial statements for the six months ended 30 June 2014 are available at:

IFRS (231 KB)

Presentation available (618 KB)

Conference call replay available

Web cast replay available (with registration form)

Web cast replay available (without registration form)

About the Company:

Industrial Metallurgical Holding (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:

[1]EBITDAadjusted based on IFRS consolidated financial statements for the six months ended 30 June 2014

[2]Adjusted EBITDA is calculated as earnings before income tax, interest expense, exchange 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.