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Lubelski Węgiel
Lubelski Węgiel Bogdanka S.A.

Bogdanka in the first half of 2015: results under strong pressure from complicated market situation, with reduction in costs and capital expenditures

Thursday, 2015-08-20

Bogdanka, Poland, 20th August 2015

 

PRESS RELEASE


 

LW BOGDANKA S.A. IN THE FIRST HALF OF 2015:
RESULTS UNDER STRONG PRESSURE FROM COMPLICATED MARKET SITUATION,
WITH REDUCTION IN COSTS AND CAPITAL EXPENDITURES

 

The Lubelski Węgiel BOGDANKA Capital Group, headed by LW BOGDANKA S.A., the most modern and efficient coal mine in Poland, generated sales revenue in the 1st half of 2015 of PLN 843.6m (10.8% less than in the same period of the previous year). EBITDA was PLN 291.8m, EBIT was PLN 101.3m, and net profit was PLN 75.5m. In the 2nd quarter alone, despite consolidated revenue of PLN 415.3m, 10.5% less year-on-year, the LW Bogdanka Capital Group generated results at the level of EBITDA, EBIT and net profit better than those achieved in 2nd quarter of 2014 and in the 1st quarter of 2015, with EBITDA of PLN 147.4m, EBIT PLN 53.2m, and net profit PLN 42.8m.

Considering the very difficult situation on the market, with a continuing oversupply of power coal and clearly falling prices since January, the results achieved in the 2nd quarter and the 1st half of the year should be regarded as good. Achievement of these results was made possible thanks to the flexibility of the initiatives taken by the company (which has used outsourcing for many years), strict cost controls, and optimization of capex.

Production of commercial coal in the 1st half of 2015 was 3.9m tonnes, 8.5% lower than in the first six months of 2014. Sales in the 1st half of 2015 were 3.8m tonnes of coal, down 0.5m tonnes year-on-year. The company flexibly adjusted the scale of production to match the level of sales, as provided in the schedule of shipments to customers, which in turn was affected by the relatively high level of inventories at power plants.

The company assumes coal sales in 2015 of about 8.5m tonnes, while securing production capacity for future years.

The company is continuing measures to adapt its activity to the current level of extraction, for which the sales possibilities on an increasingly difficult market are a key factor. The adjustment program includes optimization of the extraction structure, further reduction in operating costs, and reduction in capital expenditures. Realization of this program in the 1st half of 2015 generated savings in costs by nature of 11.1% compared to the same period of 2014, total production costs by 6.2%, and own costs of sold production by 8.8%. Meanwhile, the company cut its capex plan for the current year by PLN 199.4m (a reduction by a further PLN 80m as against the assumptions from June 2015).

Alongside these measures, work continues to win new customers. The company has reinforced its sales team and is working on winning contracts with small and medium-sized customers. Commercial negotiations are continuing in Ukraine.


 

FINANCIAL RESULTS—DETAILS

Selected financial information for the LW BOGDANKA Group in the 1st half of 2015 is presented in the table below:

 

PLN ’000 Q2 2015 Q2 2014 Change H1 2015 H1 2014 Change
Revenue 415 281 463 831 -10,5% 843 560 945 371 -10,8%
Gross profit on sale 53 293 49 630 7,4% 99 747 134 735 -26,0%
Gross sales margin 12,8% 10,7% 19,6% 11,8% 14,3% -17,5%
EBITDA 147 392 130 119 13,3% 291 787 304 268 -4,1%
EBITDA margin 35,5% 28,1% 26,3% 34,6% 32,2% 7,5%
Operating profit (EBIT) 53 168 40 700 30,6% 101 320 126 658 -20,0%
EBIT margin 12,8% 8,8% 45,5% 12,0% 13,4% -10,4%
Net profit 42 808 28 824 48,5% 75 498 91 424 -17,4%
Net profit margin 10,3% 6,2% 66,1% 8,9% 9,7% -8,2%

 

The main source of revenue for the group is the production and sale of power coal. In each of the comparative reporting periods this activity generated over 95% of the group’s sales revenue.

About 95% of coal sales (by value) in the period were made under long-term commercial contracts between LW BOGDANKA S.A. and its main customers, i.e. Elektrownia Kozienice S.A., GDF Suez Energia Polska S.A., ENERGA Elektrownie Ostrołęka S.A., PGNiG Termika S.A., Grupa Azoty Zakłady Azotowe Puławy S.A. and EDF Paliwa Sp. z o.o.

Sales in H1 2015 translated into a 13.5% share for LW BOGDANKA S.A. in power coal sales on the Polish market and a 20.1% share in sales to the commercial power industry (as against 16.6% and 24.9% respectively at the end of 2014). The decline in market share was connected with the sell-off of coal at reduced prices by Kompania Węglowa S.A.

The better results y/y in H1 2015 were influenced not only by outsourcing, strict cost controls and capex optimization, but also by the improved mining yield, which was 67.6%, as against 66.1% in H1 2014. In the 2nd quarter alone mining yield was 68.3%, compared to 65.2% in Q2 2014.


 

CONSISTENT IMPLEMENTATION OF SAVINGS PROGRAM

With forecasts calling for further pressure on global coal prices and an oversupply on the Polish market, the company set a fundamental goal for 2015 of securing cash through significant savings in costs and investment plan.

As part of the optimization of its operations, the company took the following measures in the 1st half of 2015:

  • Reduced preparation work to 10.2 km of workings in 1H 2015, compared to 16.4 km in 1H 2014, based on a production plan for about 8.5m tonnes. Meanwhile, production capacity was maintained for future years.
  • A decline in headcount by 210 was achieved through 30 June 2015, and 300 as of the end of July 2015 (4,630 employees vs. 4,930 at the beginning of the year).
  • The investment plan for 2015 was cut further, to PLN 361m, i.e. PLN 80m below the assumptions from June 2015 and PLN 200m less than the original plan.

If the negative market situation continues, the company plans to implement the 2nd phase of the restructuring program, which calls for continuing of optimization and savings measures, concentrating on the elements listed above.

 

Zbigniew Stopa, CEO of LW BOGDANKA S.A., commented: “The operations of LW BOGDANKA S.A. and its financial results have been influenced by the difficult situation on the coal market, which made it necessary to adjust our production to fit the sales capabilities on the market. Unfortunately, the risk involving reduction in volumes covered by contracts with entities controlled by the Polish Treasury materialized. This fact, combined with the continuing oversupply of power coal, the high levels of coal inventories at major customers, and strong pressure to reduce prices forced us to revise our sales plans downward, and consequently our production plans as well. As a result of this, there was another significant reduction in the capital expenditures planned for 2015. We cannot count on state aid, which our competitors in Silesia generously benefit from. We compete through efficiency guided by economic calculations. This also dictates the optimization and savings measures undertaken by us in the complicated market situation, thanks to which we can regard the results achieved in the 2nd quarter and the 1st half of this year as good. I believe that this is one reason investors value our company.”

 


For more information please contact:

Magda Kołodziejczyk, M+G

phone (+48) 22 416 01 02, 501 16 88 07

e-mail: magda.kolodziejczyk@mplusg.com.pl  

 


 

LW BOGDANKA – HIGHLIGHTS

Lubelski Węgiel BOGDANKA S.A. is the most modern coal mine in Poland and one of the largest. In 2014 Bogdanka produced 9.19m tonnes of commercial coal.

LW BOGDANKA primarily conducts mining activity in the area of extraction, enrichment and sale of bituminous coal. The BOGDANKA mine supplies mainly industrial customers in eastern and north-eastern Poland. The customer base is stable, and sales are mainly conducted under long-term contracts. The main sales outlets for commercial coal from LW BOGDANKA are the commercial power industry and industrial power.  

The company stands out within the coal industry for its financial results, the efficiency of its extraction of coal, and its investment plans. The LW Bogdanka Capital Group employs about 5,400 people.

More information at www.bogdanka.eu

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