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Lubelski Węgiel
Lubelski Węgiel Bogdanka S.A.

Bogdanka after the first half of 2014

Thursday, 2014-08-28

LW BOGDANKA S.A. AFTER THE FIRST HALF OF 2014: IMPLEMENTATION OF STRATEGIC ASSUMPTIONS CONTINUES AS PLANNED, RESULTS PRESSURED BY FALLING PRICES OF COAL AND DIFFICULT MARKET CONDITIONS

EBITDA for that period amounted to PLN 304.3 million, EBIT reached PLN 126.7 million and the net profit exceeded PLN 91.4 million. Despite challenging market situation and results being under the pressure of coal price drops, the Company’s profitability ratios remain at a level higher than the average recorded in the industry.

The Company completed the process of refinancing debts for the period of 5 years. The cost optimisation process has been gradually implemented.

The level of commercial coal production in the first half of 2014 was in line with the plan and amounted to 4.25 million tonnes, which means it was higher by 4.2% than in the same period of the previous year. The deposit parameters in the walls of the Stefanów Field, however, remained below the initial expectations, which together with the pending works aimed at launching a new part of the Mechanical Coal Processing Plant had a negative impact on the generated output. Sales of coal in the first half of 2014 amounted to 4.33 million tonnes, which compared to the first half of 2013 represents a rise by 13.6%. 

The levels of coal extraction and realised sales translate into a strong market position of the Company. At the end of the first half of 2014, market shares of LW BOGDANKA reached 19.1% for power coal market in Poland (compared to 14.8% at the end of 2013) and 25.2% for market of power coal sold to commercial power industry (compared to 19.3% at the end of 2013).

After 8 months of 2014, the Company expects the production for the entire 2014 to reach 9.3-9.6 million tonnes.

Currently, LW BOGDANKA has been launching the Mechanical Coal Processing Plant. Upon the completion of works, the Company will be able to increase its production capacity and improving the quality of the commercial coal. As part of the activity aimed at extending the mine’s operating life, in June 2014 the Company obtained licence for mining in K-3 area, and to examine the “Ostrów” deposit, as well as it waits for the decision concerning a mining licence in K-6-7 area and a licence to examine the “Orzechów” deposit.

 


FINANCIAL PERFORMANCE - DETAILS

Selected financial data of the LW BOGDANKA Group after the second quarter and first half of 2014 is presented in the table below:

in PLN '000 Q2 2014 Q2 2013 Change H1 2014 H1 2013 Change
Revenue 463,831 448,146 3.5% 945,371 878,904 7.6%
Profit on sales 49,630 96,943 -48.8% 134,735 187,728 -28.2%
Gross margin on sales 10.7% 21.6% -50.5% 14.3% 21.4% -33.2%
EBITDA 130,119 173,938 -25.2% 304,268 346,550 -12.2%
EBITDA margin 28.1% 38.8% -27.6% 32.2% 39.4% -18.3%
Operating profit (EBIT) 40,700 98,442 -58.7% 126,658 188,156 -32.7%
EBIT margin 8.8% 22.0% -60.0% 13.4% 21.4% -37.4%
Net profit for the financial year 28,824 71,939 -59.9% 91,424 142,034 -35.6%
Net margin 6.2% 16.1% -61.3% 9.7% 16.2% -40.2%

* The Group has applied amendments to IAS 19 (Employee benefits) and restated the comparable data for Q1 2013, therefore data for Q2 2013 has also been restated.

In the first half of 2014 the revenue generated by LW BOGDANKA reached PLN 945.4 million, higher by 7.6% than in the same period a year before.

Approximately 95% of coal sales during the first half of 2014 (in terms of value) were carried out on the basis of long-term trade agreements concluded between LW BOGDANKA S.A. and its key customers, including Elektrownia Kozienice S.A., GDF Suez Energia S.A., PGNiG Termika S.A., Elektrownia Ostrołęka S.A. and Zakłady Azotowe Puławy S.A.

The first half of 2014 was a difficult period in the industry because of decreased power production and large quantities of coal piled on heaps in power plants and in Silesian mines. Consequently, the Company’s profitability ratios in the first half of 2014 were pressured by falling prices of coal earmarked for commercial power industry (which have decreased by 17% since the beginning of 2013).

The results in the first half of 2014 were also influenced by the generated level of output which amounted to 66.1% compared to 69.5% in the first half of 2013. In the second quarter only, the level of output was 65.2%, compared to 70.5% a year before in the same period. The level of output, lower than the one recorded in the previous periods, was due to deposit parameters in the excavated walls in the Stefanów Field being still below the initial expectations, which together with the ongoing works aimed at launching the new part of the Mechanical Coal Processing Plant had an impact on limiting the production of higher class commercial coal.

The result recorded in the second quarter 2014, and therefore in the entire first half-year, was influenced also by the creation of a provision for claims of the Social Security Institution (ZUS) for occupational injury (accident) insurance (PLN 10.4 million).

It is, however, worth noting that the financial ratios are at a level higher than average in the industry, which is shown for example by EBITDA margin after the first half of the year reaching 32.2%.

 


COAL PRODUCTION AND SALES

In the first half of 2014 the level of commercial coal production by the Company increased by 4.2% compared to the same period a year before and reached 4.25 million tonnes. 

The sales of commercial coal in the first half of 2014 were in line with the customer supply schedules and reached a level of 4.33 million tonnes, i.e. by 13.6% higher than that recorded in the same period of the previous year.

The Company continuously performs works with a view to making new excavations available. In the first half of 2014, the Company completed 16.3 kilometres of galleries compared to 13.4 kilometres a year before, which means an increase by 21.6%.

Inventory of coal standing at a level of 143,000 tonnes at the end of June 2014 (i.e. lower by 50.9% from the one recorded at the end of June 2013) corresponds to ca. five days of commercial coal production by the Company and was in line with its assumptions.

 


STRATEGY

The Company consistently pursues its development strategy for 2013-2020, the most important elements of which include the completion of the investment programme by 2015, with a view to doubling production capacities compared to 2011 as well as increasing two-fold the Company’s operating resources in the Lublin Coal Basin, and thus extending the mine’s operating life to around 2050.

LW BOGDANKA also wants to remain the leader of efficiency in the mining industry, among other things, by constructing a “smart mine.” It will be possible owing to continued development of the coal deposits management system and further application of information technology and automation solutions for the production process in the Company.

In connection with a material change in the market situation, since the date of publishing the Strategy for 2013-2020, the Management Board has commenced to work on updating the assumptions of this Strategy.

Zbigniew Stopa, President of the Management Board of LW BOGDANKA S.A.:
“The first half of this year was a very difficult period for the industry, mainly due to further drops in coal prices – the prices for the commercial power industry have decreased from the beginning of 2013 by as much as 17%. Bogdanka has coped well with that difficult situation, maintaining results and profitability ratios at a level higher than average in the industry. By following consistently the sales plan, we have also strengthened our market position – at the end of H1 of 2014 our shares in the market of power coal sold to commercial power industry reached 25.2% compared to 19.3% at the end of 2013. Our assumptions regarding production in 2014 after eight months are at a level of 9.3 to 9.6 million tonnes, i.e. higher by at least 1 million tonnes than extraction in 2013. 

Currently, our priority is to complete the launch of the Mechanical Coal Processing Plant – the completion of works will enable us to increase the production capacity and improve the quality of the commercial coal. The launch of the processing plant will allow us to use the full extraction capacity from longwall faces and to achieve the target production capacity provided for in the strategy. We also perform reinforcement of the third ploughing system delivered in June 2014, and we ordered the fourth ploughing system which will be delivered at the end of the current year. We are also happy that we obtained lately a licence for mining in K-3 area and to examine the “Ostrów” deposit. We are also waiting for the examination of applications for a mining licence in K-6-7 area and a licence to examine the “Orzechów” deposit.”

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