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KOKS Group announces FY2013 financial results

14 April 2014

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 full year ended 31 December 2013.

Key Group Financials

RUBm 2013 2012 2013/2012, %
Revenue 43,036 45,704 (6)
Cost of goods sold 30,842 34,765 (11)
Gross profit 12,194 10,939 11
Operating profit 1,568 3,382 (54)
EBITDA[1] 6,595 6,107 8
EBITDA margin 15% 13% -
Adjusted LTM EBITDA[2] 7,016 6,651 5
Net (loss) / profit (2,436) 1,997 -
Purchase of property, plant and equipment (6,007) (7,875) (24)
Net cash from operating activities 9,797 7,085 38
Debt[3] 27,074 27,180[4] -
  • Revenue fell by 6% y-o-y mainly due to a decrease in coke and сoal concentrate prices.
  • Cost of goods sold improved by 11% due to lower feedstock prices and the implementation of the Company’s productivity enhancement and opex reduction policy.
  • The Groups’ gross profit was up 11%, with gross profit margin of 28% compared to 24% in the previous period.
  • Operating profit was down by 54% due to several one-off events, most importantly the impairment of LLC Gornyak’s (Romanovskaya mine) assets as coal production was discontinued at this mine. The mine closed its operations as further capex on its development was recognized as counter to the Group’s strategy, with a focus on developing higher-margin assets. The second biggest factor driving down the operating profit was the adjustment of the fair value of the 167,762 shares owned by JSC Koks in the Slovenian Steel Group (SSG), prompted by the decline in the market for metallurgical products. The shares were subsequently sold to JSC Koks’ shareholders to reduce the risks of owning interests in non-core assets. The aggregate loss under the two items (loss from the asset impairment and loss from revaluation of the interest in SSG) was RUB 2,606 million. Reductions in the costs of sales for finished products and other operating costs were among the key drivers of the operating profit.
  • IFRS-based consolidated EBITDA was up due to the successful implementation of projects to improve production margins. In particular, the Group started selling premium grades of coke and increased the share of higher-margin special grades of pig iron in its total output volume. The EBITDA was also positively impacted by higher own coal production due to the commissioning of the Butovskaya mine and lower feedstock costs as export revenues from pig iron sales grew. The IFRS-based consolidated EBITDA rose from 13% in 2012 to 15% in 2013.
  • Net profit was mainly impacted by several one-off financial events — mostly by higher costs of servicing the debt, including a premium paid in March 2013 to JSC Koks Eurobond holders for giving their consent to amendments to the covenants under the terms of the loan. Lower rouble exchange rates were another factor driving the costs of servicing the Eurobond loan up. Financing costs also grew in 2013 due to the inclusion of interest on the loan facility obtained for the construction of the Butovskaya mine following its commissioning in May 2013. Previously the interest on the loan was classified as capex. The third event driving down the net profit was the exchange loss in amount of 1,155 million. The aggregate loss under the two items (interest expense and exchange loss) was RUB 3,329 million in 2013, a significant growth to compare with the 2012 when it was RUB 1,015 million.
  • PP&E purchase costs in 2013 were down by 24% y-o-y as a result of changes to the Group’s development strategy and the review of its capex programme to reflect new strategic objectives.
  • Net cash flow from operations grew by 38% mainly due to advance payments received from third-party trading companies and because of decrease in trade and other receivables.
  • The Company’s debt as at 31 December 2013 remained virtually flat as compared to 31 December 2012 due to the implementation of the Group’s financial sustainability policy.

Financial Performance by Key Segments

Ore & Pig Iron

Debt Portfolio Management

The Group’s debt as at 31 December 2013 was RUB 27,074 million, i. e. remained virtually flat y-o-y. If compared to the 30 June 2013 level (RUB 30,538 million), however, it was cut by 11%. The Group has been consistently implementing its debt reduction programme, including the early redemption of BO-02 series rouble-denominated bonds for a total of RUB 506.9 million in 2H 2013 and the early repayment of the credit facility from ОАО Gazprombank to finance capex. The total repayments towards Gazprombank’s loan were in excess of RUB 1,400 million. KOKS Group’s total withdrawals from the credit facility had been capped at RUB 9,800 million. In addition, in 2H 2013, KOKS Group kept on repurchasing its Eurobonds and by December 2013, the total Eurobond buyback volume amounted to 20 million bonds.

Sergey Cherkaev, Vice President, Chief Financial Officer of Industrial Metallurgical Holding (KOKS Group’s management company), commented on 2013 results:

«Currently, we feel a high level of confidence and comfort in the way the Group operates. Although the prices for metallurgical products have not shown a clear upward trend, margin-wise KOKS Group has virtually recovered its 2011 levels, when prices in the market for metallurgical products were much more favourable. The external factors contributing to the Group’s financial stability include lower RUB/USD exchange rates and freezes on transport tariffs and power rates with effects mostly seen in 2014. In addition, we ramped up our production of premium grades of pig iron and coke and successfully filled the market niches vacated by rivals shutting down production.

The internal factors contributing to the Group’s financial stability include production deleveraging program, optimisation efforts and resource savings across the board. In 2H 2013, we spent RUB 3.084 billion to cut down our leverage. We consider our debt level could be at least RUB 1 billion lower than the current value in case of stability of the national currency exchange rate. Given that above 50% of the Group’s debt portfolio is denominated in US dollars, decline in rouble exchange rate made our deleveraging results less sizable. In terms of operating expenses, we successfully cut their level across each of our segments. Savings were achieved not only due to lower feedstock procurement costs but also due to cuts in production costs. To cite but a few examples of such projects: we implemented new zero waste technology solutions at a number of our facilities; improved controls over resource allocation, cut logistics costs by revising contracts with railcar companies, and reviewed logistic schemes. Still, the biggest saving gains are expected in the current year as many projects launched in 2013 are only now nearing their completion. These will include discontinuation of power purchases from third parties at JSC Tulachermet as Turbine Generator Unit 2 capital project is completed and repairs are performed on Turbine Generator Unit 5. JSC Koks will also become fully energy self-sufficient when its own generation capacity building programme is completed within the next two years.

Another important driver is the optimisation of KOKS Group’s business structure. We have revised the Group’s development strategy and shifted our focus towards higher-margin and strategically important assets. As a result, a number of our assets such as the Romanovskaya and Vladimirskaya mines, and LLC Inertnik were slated for disposal. The Romanovskaya and Vladimirskaya mines contain significant reserves of valuable coking coals and we see them as a potentially attractive opportunity requiring extra capex. In the context of low coal prices, we will be comfortable enough sourcing our needs in quality coke feedstock from external suppliers without compromising our production cost cutting effort.

In 2014, we intend to maintain focus on our initiatives to achieve further cuts in production costs and quality gains in finished products, in particular, by improving controls over production processes via the introduction of state-of-the-art IT solutions, encouraging in-house innovations to improve performance, etc».

Key highlights of 2013 and beyond

Full audited condensed consolidated IFRS financial statements of KOKS Group for the full year ended 31 December 2013 are available at:

IFRS (563 KB)

Presentation available (638 KB)

Conference call replay available

Web cast replay available


Web cast replay available

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. KOKS Group’s four operating divisions are Coal, Coke, Ore & Pig Iron, and Polema. Key production facilities are located in Russia’s Kemerovo, Belgorod, and Tula regions.

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

Sergey Frolov
Vice President for Strategy and Communications

Тел.: +7 (495) 725 56 80 (ext. 156)
2nd Verkhniy Mikhailovskiy proezd, d. 9, Moscow 115419, Russia

[1] EBITDA based on IFRS consolidated financial statements for the full year ended 31 December 2013.

[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 2012.

[5] Segment revenue includes inter-segment sales.

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