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Lubelski Węgiel
Lubelski Węgiel Bogdanka S.A.

Bogdanka after Q1 2015: results affected by market situation, cost optimisation and investment programme underway

Thursday, 2015-04-30

Bogdanka, 30 April 2015



PRESS RELEASE



LW BOGDANKA S.A. AFTER Q1 2015: RESULTS AFFECTED BY MARKET SITUATION, COST OPTIMISATION AND INVESTMENT PROGRAMME UNDERWAY

MANAGEMENT RECOMMENDS 37.5% OF CONSOLIDATED NET PROFIT BE USED FOR DIVIDEND PAYMENTS

 

The Lubelski Węgiel BOGDANKA Group, with its parent  company, Lubelski Węgiel BOGDANKA S.A., the most modern and most efficient hard coal mine in Poland and leader in the Polish power coal production market, recorded a Q1 2015 revenue figure of PLN 428.3 million (down by 11.1% compared to the same period of last year). EBITDA amounted to PLN 144.4 million, EBIT reached PLN 48.2 million and net profit was PLN 32.7 million. The results, while making the Company stand out positively in its industry, are lower than the figures for the same period of last year, which is a result of revising the Company’s production plans to reflect the present coal selling situation on the market.

Commercial coal production in the first quarter of 2015 amounted to 1.99 million tonnes, which means that it was lower by 11.1% than in the first quarter of 2014 (2.24 million tonnes). The achieved coal production (extraction) is in line with this year’s customer delivery schedule, affected by the mild winter and large stocks of coal in storage yards. Q1 2015 sales of coal arrived at 1.95 million tonnes, compared to 2.23 million tonnes a year before. Despite the falling prices in the coal market, the Company managed to keep its Q1 coal price per tonne similar to the average price for 2014, by selling coal with a higher calorific value.

The Company confirms its coal sales forecast at 9.3 to 9.5 million tonnes for all of 2015.

The Company continues its efforts to revise its business operations to reflect its present coal production levels (which depend on the Company’s ability to sell its coal) by optimising its coal production structure, continuing to cut its running costs and reducing its capital expenditure.
As a result of the efforts, the Company reduced its costs by type for Q1 2015 by 9.7% against the figure for the same period of 2014. Also, the Company reduced its capital expenditure for 2015 by PLN 77.6 million.

Following an analysis of the market situation and Company’s situation, the Management Board has decided to recommend that 37.5% of the Group’s consolidated net profit for 2014, i.e. PLN 102 million, be used for dividend payments. This means a dividend of PLN 3.00 per share and a dividend rate of 3.5%. The Management Board believes that the recommended dividend level will enable the Company to keep enough cash in its pocket to secure its financial stability and credibility.  

The Company continues work to revise its strategy to reflect the market conditions as they are today and anticipated for the years to come. The revised strategy will be published by the end of June this year.

 

FINANCIAL RESULTS – DETAILS

Selected financial figures of the LW BOGDANKA Group after the first quarter of 2015 are presented in the table below:

PLN’000 Q1 2015 Q1 2014 Change 
Sales revenue 428 279 481 540 -11,1%
Profit on sales 46 454 85 105 -45,4%
Gross margin on sales 10,8% 17,7% -39,0%
EBITDA 144 395 174 149 -17,1%
EBITDA margin 33,7% 36,2% -6,9%
Operating profit (EBIT) 48 152 85 958 -44,0%
EBIT margin 11,2% 17,9% -37,4%
Net profit for the financial year 32 690 62 600 -47,8%
Net margin 7,6% 13,0% -41,5%

        

In the first quarter of 2015, LW BOGDANKA’s revenue reached PLN 428.3 million, which was a decrease of 11.1% compared to the same period a year before.

Approximately 95% of coal sales in the reporting period (in terms of value) was achieved under long-term sales agreements concluded between LW BOGDANKA S.A. and its key customers, i.e. Elektrownia Kozienice S.A., GDF Suez Energia S.A., ENERGA Elektrownia Ostrołęka S.A., PGNiG Termika S.A., Zakłady Azotowe Puławy S.A., and EDF Paliwa Sp. z o.o.  

The financial results for Q1 2015 were affected by the prevailing market situation and the resulting need for the Company to revise its coal production levels to reflect its ability to sell its coal.

The Company continues measures to reduce its running costs. As a result, its costs by type in Q1 2015 were down by 9.7% compared to the same period a year before. Not adjusted for depreciation and amortisation, the Company reduced its costs by type by as much as 13.6%, with gross production (coal extraction) down by 11% and preparation work down by 44.1%.   

 

PRODUCTION AND SALE OF COAL

Commercial coal production in the first quarter of 2015 amounted to 1.99 million tonnes, which means it was lower by 11.1% than in the first quarter of 2014 (2.24 million tonnes). The achieved coal production (extraction) is in line with this year’s customer delivery schedule, affected by the mild winter and large stocks of coal in storage yards.

The coal yield figure for Q1 2015 was 66.6%, which was similar to the level for the same period of last year (66.9%).

Q1 2015 sales of coal arrived at 1.95 million tonnes, compared to 2.23 million tonnes a year before. Despite the falling prices in the coal market, the Company managed to keep its Q1 coal price per tonne similar to the average price for 2014, by selling coal with a higher calorific value.

Having to revise its coal production levels to reflect its ability to sell the coal it produces, the Company decided to make fewer new drifts or galleries. As a result, the total length of new drifts and galleries made in the first quarter of 2015 was 5.2 km, compared to 9.3 km in the first quarter of 2014 (down by 44.1%). The reduction in preparation work will affect the length of new workings made in 2015, by 5.1 km compared to 2014. As a result, the Company will make a total of 24.7 km of workings, instead of the planned 31.3 km.

The Company’s coal stocks of 350 thousand tonnes as at the end of March 2015 (up by 52.8% from the end of March 2014 and by 14.4% from the end of December 2014) were equivalent to approx. 11 days of the Company’s production and were in line with the customer delivery schedule.

 

THE STRATEGY

Following a significant change of the market situation, affected by factors such as a considerable decline in coal prices, large stocks of coal in the storage yards of Silesia’s mines and power plants, as well as the government’s plans to respond to the situation faced by the mining and power engineering industries, the Company’s Management Board has decided to revise the objectives in the Company’s strategy for 2015-2010. Work on the new strategy is underway, and the revised version will be published by the end of June 2015.

Main objectives in the Strategy:

  • to keep LW BOGDANKA’s position as the leader in terms of cost efficiency – creating conditions for keeping its low coal production costs in the long term, by optimising the coal production structure and levels and continuing to reduce the Company’s running costs;
  • to sell coal for use in power production, heat production and the chemical industry, by expanding the Company’s customer base and branching out into new, attractive market segments;
  • to expand the Company’s operations in the Polish market – continuing to keep track of new investment programmes and projects in the region;
  • to expand the Company’s operations into international markets.

    .

Strategic goals:

  • Pto prepare the Company to operate in the dramatically changing market situation affected by external factors and growing competition;
  • to make the conceptual, organisational and investment efforts needed to find new resources that would enable the Company to continue its operations far beyond the period covered by the strategy;
  • to continue implementing the Company’s cost optimisation programme (covering production as well as personnel costs) in the mid-term and to optimise the Company’s capital expenditure;
  • to keep LW BOGDANKA’s position as the leading hard coal producer in Poland, by increasing its share in the market for fine grade power coal to 30% and increasing its sales to medium-sized and small customers;
  • to ensure a return on the capital employed by the Company’s investors.

 

In order to enable the Company to operate in the changing market, the Company has analysed various alternative scenarios for its operation and development based on the possible changes in Poland’s coal market.

The optimal scenario involves:

  • continuing to extract coal from the Bogdanka and Stefanów fields and making new areas of the Ostrów-Orzechów field and, in the long term, the K6-K7 area, accessible for coal extraction, using the mine’s existing infrastructure (without building new shafts and/or increasing production levels);
  • limiting the Company’s development expenditure to what is required for access to new deposits, especially in 2015-2017, and reviewing the Company’s capital expenditure on increasing the mine’s production capacity by 2020;
  • revising the Company’s production levels to reflect the market situation,  especially in 2015-2017, while increasing production from thicker coal seams (using the cutter-loader technology);
  • optimising the long-term return on the capital employed by the Company’s investors, taking into account the risks related to the market situation.

 

The scenario adopted by the Management Board is believed to be the most flexible and will allow the Company to restore its plans to increase its production levels or even to expand its production capacity.

At present, the Management Board is in the process of carrying out a multi-option analysis of the Company’s operation, taking into account the possible developments in the coal market (demand and prices) by 2020. The Company will use the analysis to revise the Strategy.

As part of its work to revise the Strategy and having to change its capital expenditure plans to reflect the present market situation and the Company’s ability to sell its coal, the Management Board revised the Company’s capital expenditure plan for 2015. As a result, the Company’s capex figure for 2015 has been reduced by PLN 77.6 million to PLN 503.1 million. The Company’s capex expenditure in the first quarter amounted to PLN 82.5 million.

In accordance with its cost-cutting plan, the Company is working to reduce its staff levels to what is required given the Company’s planned coal production levels. In 2015, the Company expects to reduce its staff levels by 145 people by the middle of the year and 350 people by the end of the year. The reduction in staff levels will involve certain employees taking retirement (the employees eligible for retirement) and not renewing the Company’s fixed-term employment contracts. As part of the cost-cutting plan, in 2015 the Company will also reduce the use of third-party services, including on an outsourcing basis, and revise its preparation work to reflect the planned coal production levels.

At the same time, the Management Board is reviewing its dividend policy for the years to come, taking into account both local and global trends and price conditions. It is a key priority for the Company to secure its financial liquidity and stability. The dividend policy for the years to come will be adopted and announced by 30 June 2015, together with the revised business strategy for 2015-2020.

 

“The first quarter of the year was affected by the difficult situation in the coal market, which made us have to revise our production plans to reflect our ability to sell our coal on the market. Apart from the large stocks of coal in the storage yards (7.5 million tonnes at the end of 2014 and 8.5 million tonnes at the end of February), the mild winter has also resulted in movements in our customer delivery schedules. We can confirm our sales forecast for 2015 at 9.3 to 9.5 million tonnes of coal. We expect to use our full production capacity in the second half of the year, which means that our production levels may be similar to those we achieved in the fourth quarter of last year. Our priorities today are to optimise our production structure and levels and to continue reducing our running costs and capital expenditure so that the company is able to operate in the present and anticipated difficult market conditions – since January 2013, the prices of fine power coal grades for commercial power plants have fallen by over 20%”, said Zbigniew Stopa, president of the Management Board of LW BOGDANKA S.A.

“Following an analysis of the market situation and Company’s situation, the Management Board has decided to recommend that 37.5% of the Group’s consolidated net profit for 2014 be used for dividend payments, which is less than what has been planned in the strategy we are revising now. We believe that the recommended dividend level will enable the Company to keep enough cash in its pocket – it is the Company’s priority to secure its financial stability and credibility”, Zbigniew Stopa added.

For enquiries, contact:

Magda Kołodziejczyk, M+G
Phone. +48 22 416 01 02, +48 501 16 88 07
e-mail: magda.kolodziejczyk@mplusg.com.pl  
 



LW BOGDANKA – HIGHLIGHTS
Lubelski Węgiel Bogdanka S.A. is the most advanced and one of the largest hard coal mines in Poland and the leader in the domestic market for power coal producers. In 2014, Bogdanka’s production of commercial coal amounted to 9.19 million tonnes.

LW BOGDANKA conducts primarily mining operations with respect to extraction, agglomeration and sale of hard coal.

First and foremost, the BOGDANKA coal mine sells its coal to industrial customers based in eastern and north-eastern Poland. Bogdanka’s customer base is stable and sales are made primarily under long-term contracts. The main sectors where LW BOGDANKA supplies its commercial coal include commercial and industrial power sectors.  

The Company stands out in its industry in terms of financial results, efficiency of hard coal extraction and investment plans. The LW Bogdanka Group employs approx. 5,600 people.   

For further information visit: www.bogdanka.eu.

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