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Lubelski Węgiel
Lubelski Węgiel Bogdanka S.A.

Bogdanka after three quarters of 2014

Thursday, 2014-11-06

BETTER RESULTS IN THE THIRD QUARTERIN COMPARISON WITH THE SECOND QUARTER DESPITE DIFFICULT MARKET CONDITIONS

 

The Lubelski Węgiel BOGDANKA Group, with its Parent – LW BOGDANKA S.A., the most modern and efficient hard coal mine in Poland and domestic leader on the market of power coal producers, after three quarters of 2014 generated revenue on sale amounting to PLN 1.5 billion, i.e. higher by 5.1% than the result achieved in the same period of the previous year.EBITDA for that period amounted to PLN 502.5 million, EBIT reached PLN 226.6 million and the net profit amounted to PLN 170.8 million.In the sole third quarter of 2014, revenue amounted to approx. PLN 545 million, EBITDA: to PLN 198.2 million, EBIT: to nearly PLN 100 million, and net profit: to PLN 79.4 million.

The results in the third quarter, although lower than on a year-to-year basis, were significantly better than those recorded in the second quarter of this year.Revenue increased on a quarter-to-quarter basis by 17.5%, EBIT: by 145.6%, EBITDA: by 52.3%, and net profit: by 175.4%. 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 average, which may be illustrated with EBITDA margin amounting in the third quarter of 2014 to 36.4%.

In the third quarter, the level of commercial coal production reached 2.38 million tonnes, which is a record-breaking result in the Company’s history, and translates into an increase by 10.3% compared to the third quarter of 2013, and by nearly 18% compared to the second quarter of 2014.As a result, the level of commercial coal production in the three quarters of 2014 reached 6.63 million tonnes, which represents an increase of 6.3% as compared to the same period of the previous year.The increase in net production was influenced by the launch in September 2014 of a new Mechanical Coal Processing Plant, where currently test runs are in progress.

In addition, the third quarter saw record-breaking sales of commercial coal at the level of 2.5 million tonnes, which means an increase of 9.6% as compared to the third quarter of 2013 and an increase of 18.7% as compared to the second quarter of 2014.The sales in the three quarters of 2014 reached a level of PLN 6.8 million tonnes, i.e. was higher than that recorded in the same period of the previous year by 12.1%.The achieved extraction and sales levels are reflected in the Company’s strong market position.At the end of September 2014 the market shares of LW BOGDANKA reached 18.9% for power coal market in Poland (compared to 14.8% at the end of 2013) and 25.3% for market of power coal sold to commercial power industry (compared to 19.3% at the end of 2013).

After nine months of 2014, the Company estimates that the production in 2014 will reach about 9.0 million tonnes. This is connected with the fact that the level of output is below the initial estimates, because the geological conditions in one of the currently excavated walls in the Stefanów Field are still unfavourable.


FINANCIAL PERFORMANCE - DETAILS

Selected financial data of the LW BOGDANKA Group after the third quarter and cumulatively after three quarters of 2014 is presented in the table below:

in PLN '000 Q3 2014 Q3 2013 Change Q1-Q3 2014 Q1-Q3 2013 Change
Revenue 544 973 539 395 1,0% 1 490 344 1 418 299 5,1%
Profit on sales 106 857 142 902 -25,2% 241 592 330 630 -26,9%
Gross margin on sales 19,6% 26,5% -26,0% 16,2% 23,3% -30,5%
EBITDA 198 216 201 791 -1,8% 502 484 548 341 -8,4%
EBITDA margin 36,4% 37,4% -2,7% 33,7% 38,7% -12,9%
Operating profit (EBIT) 99 950 119 403 -16,3% 226 608 307 559 -26,3%
EBIT margin 18,3% 22,1% -17,2% 15,2% 21,7% -30,0%
Net profit for the financial year 79 370 82 699 -4,0% 170 794 224 733 -24,0%
Net margin 14,6% 15,3% -4,6% 11,5% 15,8% -27,2%

During three quarters of 2014 the revenue obtained by LW BOGDANKA reached PLN 1.5 billion, so it was higher by 5.1% than in the same period a year before.

Approximately 92% of coal sales in the analysed period (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, i.e. Elektrownia Kozienice S.A., GDF Suez Energia S.A., PGNiG Termika S.A., Elektrownia Ostrołęka S.A. and Zakłady Azotowe Puławy S.A.

Three quarters of 2014 were a difficult period in the industry because of a decrease in the demand for power coal and large quantities of coal piled on heaps in power plants and in Silesian mines.Consequently, the Company’s profitability ratios remained under the pressure of falling prices of coal earmarked for commercial power industry (which have decreased by 18% since the beginning of 2013).

The results in three quarters of 2014 were also influenced by the generated level of output which amounted to 66.6% compared to 69.2% during three quarters of 2013.In the sole third quarter, the level of output was 67.5%, compared to 68.7% 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.However, it is worth emphasizing that the Company exercises strict control over its expenditures.In the third quarter of 2014, costs by type grew only by 1.8%, while net production was higher by 10.3% as compared to the third quarter of 2013.By undertaking such measures, the Company can stand out in the industry with respect to financial indicators despite the challenging market situation. To give just one example, EBITDA for the third quarter of 2014 accounted for 36.4%, and EBITDA after three quarters of 2014 in cumulative terms reached 33.7%.


COAL PRODUCTION AND SALES

In the third quarter, the level of commercial coal production reached 2.38 million tonnes, which is a record-breaking result in the Company’s history, and translates into an increase by 10.3% compared to the third quarter of 2013, and by nearly 18% compared to the second quarter of 2014.As a result, the level of commercial coal production in the three quarters of 2014 reached 6.63 million tonnes, which represents an increase of 6.3% as compared to the same period of the previous year (6.24 million tonnes).

In addition, the third quarter saw record-breaking sales of commercial coal at the level of 2.5 million tonnes, which means an increase of 9.6% as compared to the third quarter of 2013 and an increase of 18.7% as compared to the second quarter of 2014.The sales in the three quarters of 2014 reached a level of PLN 6.8 million tonnes, i.e. was higher than that recorded in the same period of the previous year by 12.1%.

The Company continuously performs works with a view to making new excavations available.During three quarters of 2014, the Company completed 24.1 kilometres of galleries compared to 21.2 kilometres a year before, which means an increase by 13.7%.In the sole third quarter of 2014, the Company completed 7.8 kilometres galleries (compared to 7.9 kilometres in the same period of 2014).

Inventory of coal standing at a level of 52,300 tonnes at the end of September 2014 (i.e. lower by 69.5% from the one recorded at the end of September 2013) corresponds to ca. two days of commercial coal production by the Company.


LICENCES

As part of its strategy to extend the operating life of the mine, the Company is pursuing the first stage of the Ostrów deposit exploration licence, which progresses as scheduled. The Company managed to obtain the licence in June 2014, and is currently making preparations to file in 2016 an application for a licence to pursue mining operations in this deposit.Moreover, this year in October, the Company obtained the exploration licence for the Orzechów deposit.

 


STRATEGY

Due to significant change in the market situation, influenced by such factors as: material drop in coal prices, maintaining coal stock in the Silesian mines and power plants, as well as plans to restructure mining industry, the Company’s Management Board has been conducting work on assumptions for the Strategy update.While reviewing the Strategy, the Company will take into considerations such factors as the results of the licensing process, development plant of the new deposits, as well as mining and geological conditions.

Zbigniew Stopa, President of the Management Board of LW BOGDANKA S.A.:

“In the third quarter of 2014, the market environment remained invariably difficult for our industry.Above-average coal reserves on mounds at Silesian mines and power plants, as well as projected restructuring processes in the mining industry are factors that cause the power industry to exert price pressure.Bogdanka has been coping well with that difficult situation, maintaining results and profitability ratios at a level higher than average in the industry, as well as persistently strengthening its market position.As planned, the Mechanical Coal Processing Plant was opened in the third quarter of 2014. The Company is now carrying out test runs.Moreover, the extraction and sales achieved in the period in question were the highest in the Company's history. This, along with the strict control of expenditures, has translated into significantly better financial results as compared to the second quarter of 2014.Unfortunately, difficult mining and geological conditions in one of the deposits are still having an influence on the level of commercial coal output.Taking this into consideration, we believe that net production in the entire 2014 may reach about 9.0 million tonnes, which is slightly lower than we estimated.

As declared, we continue to update our strategy for 2013-2010. Apart from the aspects regarding the market environment, the review of the strategy will also cover the results of the licensing process, development plans of the new deposits, as well as mining and geological conditions.”

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