IMH 1H 2015 financial results
Moscow, Russia – IMH, 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 2015.
IMH Key Financials
|RUBm||1H 2015||1H 2014||
1H 2015 /
1H 2014, %
|Cost of goods sold||17,849||14,854||+20|
|Adj. EBITDA margin, %||28||21||-|
|Adjusted EBITDA under the terms and conditions of the Eurobond agreement||9,072||4,855||+87|
|Purchase of property, plant and equipment||(3,706)||(2,459)||(51)|
|Net cash from operating activities||6,015||2,747||+119|
|Cash and cash equivalents3||3,672||8554||+329|
- IMH's revenue increased by 37% y-o-y primarily due to higher coke sales, increased coke prices and the weakening Russian rouble, which drives export margins up.
- COGS went up by 20%, prompted mostly by growing coal prices, higher coal output and coke production coupled with a y-o-y increase in the payroll.
- The Company's gross profit was up 76%, with gross profit margin of 39% vs. 31% in the previous period.
- IMH's operating profit improved almost fourfold, with operating profit margin of 23% vs. 9% in the previous period. A positive effect on margins is produced by revenue growth and operational excellence programmes which help the Company offset some growing coal prices, railway rates and payroll.
- Adjusted IFRS-based consolidated EBITDA for 1H 2015 grew 79% y-o-y. Adjusted EBITDA margin rose to 28% to materially exceed the 1H 2014 figure. This sizeable upturn was driven primarily by growing export margins, increasing coke prices and coke sales to third parties, and improved operational performance.
- Net debt grew 14% against the year end 2014 as the Company needed to finance its working capital and investment projects. This need arose amidst the growth of receivables and inventory, coupled with a simultaneous decrease in payables.
- Capital costs in 1H 2015 grew 51% y-o-y as the Company continues with the construction of the second phase at the Butovskaya mine, construction of the second mining level at the Gubkin mine, and reconstruction of Blast Furnace 1 at Tulachermet. In addition, capital costs are associated with operational excellence projects with short payback periods, such as construction of a desulphurisation facility at Tulachermet and modernisation of a flotation machine at TSOF Berezovskaya.
- Net cash flow from operations rose by 119%. The key driver behind this figure was sales revenue from finished products growing on the back of expanding export margins.
Financial Performance by Key Segments
|RUBm||1H 2015||1H 2014||
1H 2015 /
1H 2014, %
|IFRS-based consolidated EBITDA||1,411||416||+239|
|IFRS-based consolidated EBITDA margin, %||27||11||_|
The Coal segment increased revenue in 1H 2015 by 40% due to higher sales of coal concentrate to third parties and an upward price trend. Another driver of the segment revenue was the coal concentrate price picking up on the Russian market since late 2H 2014. On the contrary, the global market was dominated by downward price trends in 1H 2015.
EBITDA and EBITDA margin also demonstrated notable growth prompted by increasing sales prices, larger processing volumes of high-quality coal produced at the Butovskaya mine and the Uchastok Koksovy open-pit mine, and improved operational performance of all the companies of the segment.
In 1H 2015, the total output at the Coal segment facilities was 1,067 thousand tonnes of coal (+18% y-o-y) and 1,130 thousand tonnes of coal concentrate (-5% y-o-y). A decrease in the output of coal concentrate produced by TSOF Berezovskaya in 1H 2015 is attributed to much higher coal ash levels in coal received from third parties for processing.
|RUBm||1H 2015||1H 2014||1H 2015 / 1H 2014, %|
|IFRS-based consolidated EBITDA||2,777||1,016||+173|
|IFRS-based consolidated EBITDA margin, %||20||12||-|
The Coke segment (OAO Koks) increased the output of finished products in 1H 2015. Coke exports improved, mostly to Europe, as the weak Russian rouble offers good export opportunities. In addition, Koks is expanding the output of high-margin coke grades with low ash, sulphur and phosphorus content and improved strength after reaction (62% and 64%). These properties are attributed to the use of coal concentrate made from high-quality, low-phosphorus coal from the Butovskaya mine.
Coupled with operational excellence programmes, the above factors secured the y-o-y growth of revenue (+62%), EBITDA (+173%) and EBITDA margin (up to 20%).
In 1H 2015, OAO Koks produced a total of 1,390 thousand tonnes of coke (+14% y-o-y).
|RUBm||1H 2015||1H 2014||1H 2015 / 1H 2014, %|
|IFRS-based consolidated EBITDA||4,116||2,918||+41|
|IFRS-based consolidated EBITDA margin, %||22||19||-|
The Ore & Pig Iron segment is still experiencing the impact of positive trends which formed in late 2014. First, it is a favourable environment for merchant pig iron exports supported by the depreciating national currency. Lower feedstock (iron ore) prices are another factor to add to the favourable conditions on external markets. Although market prices of pig iron gave in a little, the segment's revenue increased by 18% while EBITDA grew 41%, with EBITDA margin having reached 22%.
However, a key driver behind the improved financials of the segment are our operational excellence efforts. For example, KMAruda has increased production of iron ore concentrate, and Tulachermet is expanding the share of premium pig iron grades in the total output. Additionally, Tulachermet is carrying out a number of energy efficiency improvement projects which have brought about a sharp decline in third-party energy consumption.
The total pig iron output in 1H 2015 was 1,058 thousand tonnes, a decrease of 3% y-o-y. The decrease is attributable to the growing output of premium pig iron grades, which require more processing time during production. Production of iron ore reached 2,405 thousand tonnes (+2% y-o-y) while the output of iron ore concentrate was 1,094 thousand tonnes (+4% y-o-y).
Debt Portfolio Management
On 19 June 2015, the Company made an exchange offer with regard to its 7.75% Eurobonds maturing in June 2016. The deal was closed on 2 July 2015 when a total of 150,845,000 Eurobonds were exchanged for 136,496,000 new 10.75% Eurobonds maturing in December 2018. The Eurobonds repurchased by the Company earlier were also exchanged for the new bonds and still part of its debt portfolio.
To diversify the debt portfolio and reduce loan interest rates, the Company has obtained loans from new lending banks.
As at 30 June 2015, the Company's debt was RUB 47,603 million (+20% against 31 December 2014). End-of-period cash on bank accounts totalled RUB 3,672 million. Therefore, net debt was RUB 43,931 million.
As at 30 June 2015, the undrawn committed credit facilities amounted to RUB 9,689 million. The average interest rate in 1H 2015 was 11.01%.
Evgeny Zubitskiy, President and Chairman of the Management Board of Industrial Metallurgical Holding Management Company, commented on 1H 2015 results:
«The last six months were very successful and effective for us. Our flexible business model enables us to adapt to a fast changing market, securing a stable cash flow and some of the highest margins in the industry.
We have made good progress in carrying out our priority investment projects. I am not speaking here about formal figures, such as length of new mine shafts or weight of new steel structures installed. It is more important that we have changed our approach to assessing investment value, with their rate of return now our key criterion of efficiency, as well as our expenses for materials and equipment matching market prices. Since demand for construction services and equipment is low, we are in a strong position to negotiate contractor prices.
We are reviewing costs of each facility under construction and finding lots of cost-saving opportunities. In certain cases, we have managed to cut project costs by a third or even by a half. We will continue our effort and plan to keep annual capital investments within RUB 4–5 billion while reducing our debt portfolio stepwise.
Another strategic task of the Company is to gradually scale up the output of end products with high added value. This is why we are focused on development of our pig iron manufacturer Krontif-Tsentr and our metal powder producer Polema.
We continue investments in improving operational excellence. An example of our efforts is construction of a desulphurisation facility at Tulachermet to reduce low-sulphur pig iron production costs. An in-house power plant to be built at Koks will run on coke gas and reduce the facility's expenses for electric power.
Investment in human resources is another strategic focus of the Company. We have increased salaries and launched a number of social projects to support young talents. We invest in education and better workplace conditions. All these measures help us recruit the best and most active professionals, and improve motivation and labour productivity. An excellent example is our Total Manufacturing Optimisation programme. As part of it, we endorsed 62 improvement proposals with an aggregate economic effect of over RUB 600 million.
We have laid a solid ground for ongoing successful development and will keep up the pace.»
Sergey Cherkaev, Vice President and Chief Financial Officer of Industrial Metallurgical Holding Management Company, commented on 1H 2015 financial results:
«Despite a certain increase in production costs on the back of growing coal prices and payroll, the Company showed record high financial performance. We generate sizeable cash flow and enter new market segments.
Our financial stability is confirmed by international rating agencies. In April 2015, Fitch upgraded the rating on our Eurobonds from B- to the corporate B level. Before that, Standard & Poor's upgraded OAO Koks's rating from B- to B and the rating on our Eurobonds from CCC+ to B-.
We also consider our Eurobonds exchange to be quite successful. Almost all foreign investors agreed to the exchange. And it was only technical barriers that prevented some of the Russian banks to take part in the deal. We are thankful to our investors for their trust and hope that our future initiatives will receive as much support and appreciation. If the financial market turns positive, we may consider another exchange of our securities.»
Full unaudited consolidated IFRS financial statements for six months ended 30 June 2015 are available at:
About the Company
The Industrial Metallurgical Holding (IMH, former 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 PopovaDirector for Integrated Communications
 Adjusted EBITDA based on IFRS consolidated financial statements for 6 months ended 30 June 2015.
 Adjusted EBITDA is calculated as earnings before income tax, interest expense, FX gain/loss, depreciation, amortisation, impairment, and other non-cash items.
 4 As at 31 December 2014.
 Segment revenue includes inter-segment sales.
 Including repurchased Eurobonds which can be sold on the free market.