KOKS Group announces FY2013 financial results
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
|Cost of goods sold||30,842||34,765||(11)|
|Adjusted LTM EBITDA||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|
- Revenue fell by 6%
y-o-ymainly 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-offevents, 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-marginassets. 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-coreassets. 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-basedconsolidated 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-marginspecial 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-basedconsolidated EBITDA rose from 13% in 2012 to 15% in 2013.
- Net profit was mainly impacted by several
one-offfinancial 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-yas 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-partytrading 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
In addition to lower coal product prices, the Coal segment’s revenue was also negatively impacted by declining output at the Romanovskaya mine. However, this impact was offset by the commissioning of the Butovskaya mine in May 2013. The shutdown of the Romanovskaya mines were due to deteriorating geological conditions, requiring extra capex for further mine development. The updated plan for KOKS Group’s strategic development provides for capex only on major production assets with higher margins, while production margins at the Romanovskaya mine are a lot lower than those of the existing Butovskaya mine and the Uchastok Koksoviy
The Coal segment’s higher operating expenses were mostly due to the impairment of OOO Gornyak’s assets (the Romanovskaya mine). Per unit production costs at the Uchastok Koksoviy
In 2013, the total output at the Coal segment’s facilities was 1,661 thousand tonnes of coal (+4%
|Segment revenue||19 668||24 655||(20)|
||1 570||1 988||(21)|
The coke market shrank gradually throughout 2013. The downward trends were attributed to lower consumption volumes caused by negative market fundamentals in steel indastry. Besides, Ukraine banned coking coal imports as of June 2013. Demand for coke from Russian companies was also declining as operations at blast furnaces were suspended for maintenance and coke consumption cutting Pulverised Coal Injection (PCI) technology was gaining ground. With prices falling in the Russian market, OAO Koks ramped up its export business. In 2013, export supplies grew 31%
In 2013, OAO Koks produced a total of 2,552 thousand tonnes of coke (-2%
During 2H 2013, pig iron prices were slowly recovering but still failed to fully return to the early 2013 levels. The Ore & Pig Iron segment’s revenue grew by 3%, due to the removal of own trading company from the sales process, with its subsequent liquidation and sale of its inventories. The segment’s EBITDA and EBITDA margin were up, mainly due to lower rouble exchange rates and cuts in production costs (-7%
Debt Portfolio Management
The Group’s debt as at 31 December 2013 was RUB 27,074 million, i. e. remained virtually flat
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,
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
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
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-
- On 15 March 2013, we successfully completed the approval request procedure to amend covenants under the terms of our USD 350 million
five-yearEurobond placement. The Bondholders Meeting, with 88% of bondholders or their representatives in attendance, approved an extraordinary resolution allowing the expansion of the covenant package, with 99.8% of voting bondholders casting their votes in favour of the resolution. OOO Butovskaya Mine and OOO Tikhova Mine were included in the list of guarantors on the Eurobond loan.
- In April 2013, OAO Koks launched production of new coke products with improved consumer properties. Overall, three new products (CSR 62%, 64% and 65–67%) were successfully introduced to the market in 2013.
- On 22 May 2013, we completed the first phase of the Butovskaya mine project. Measured according to the JORC Code, the Butovskaya mine’s reserves are estimated at 111.1 million tonnes of coal, mostly represented by КО and К Russian grades. Expected mine life is c. 40 years.
- On 28 May 2013, operations at OAO Tulachermet’s Blast Furnace 2 were suspended to perform scheduled maintenance. The project took over a month to complete, with the plant’s production taking place only at Blast Furnace 3 during the period. Despite the long maintenance period, in 2013, the overall pig iron output at OAO Tulachermet declined by a mere 1%.
- On 18 August 2013, we successfully completed a test programme on pig iron marking moulds in OAO Tulachermet’s casting machines to prevent counterfeit copies of Tulachermet’s products from being sold in the European markets. In 2014, all casting machines will be gradually outfitted with the new moulds and by 2015, 100% of OAO Tulachermet’s pig iron will have been produced with the manufacturer’s markings. All projects to develop, test and install marking moulds were implemented using the plant’s own resources without attracting additional investment.
- On 28 November 2013, OAO Koks’s public tender offer to buy back irrevocably and on a voluntary basis its
interest-bearingcertificated BO-02series bonds expired. A total of 518,534 bonds worth RUB 506.9 million were bought back out of the 2,500,000 outstanding bonds, with a total of 46 orders placed by investors.
- On 6 December 2013, the 167,762 shares of SIJ — Slovenska Industrija Jekla d. d. (SSG, or The Slovenian Steel Group d. d.) owned by OAO Koks were sold to OAO Koks’s shareholders. The deal size was over RUB 1,100 million.
- In December 2013, we completed the early repayment of the credit facility from ОАО Gazprombank. The total repayments towards the loan were in excess of RUB 1,400 million.
- In late December 2013, we made up the list of potential buyers for the Romanovskaya and Vladimirskaya mines, a licence to develop the Biryulinskaya mine, and OOO Inertnik, an inert dust producer.
- In March 2014, KOKS Group was awarded a tender to develop the Koksoviy Glubokiy deposit. The deposit’s
high-gradecoal is mostly represented by process grade coals of К and КО Russian grades, used in the by-productcoking industry. According to preliminary estimates, the deposit’s reserves are approximately 27 million tonnes of coking coal. The Koksoviy Glubokiy deposit spans the fields of the former Cherkasovskaya, Surtaikha and Vakhrusheva mines and shares mining allotments with KOKS Group’s another company, OOO Uchastok Koksoviy. The price the Group paid in the bidding process was RUB 88 million. Mining operations at the Koksoviy Glubokiy deposit are expected to start in 2020.
Full audited condensed consolidated IFRS financial statements of KOKS Group for the full year ended 31 December 2013 are available at:
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
Sergey FrolovVice President for Strategy and Communications
 EBITDA based on IFRS consolidated financial statements for the full year ended 31 December 2013. Adjusted EBITDA is calculated as earnings before income tax, interest expense, exchange gain/loss, depreciation, amortisation, impairment, and other
 As at 31 December 2012.
 Segment revenue includes