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Lubelski Węgiel
Lubelski Węgiel Bogdanka S.A.

LW Bogdanka S.A. in the 3rd quarter of 2015: EBITDA margin maintained at 34.4% despite difficult and unstable market situation

Thursday, 2015-10-29

Bogdanka, Poland, 29th October 2015

 

PRESS RELEASE


LW BOGDANKA S.A. IN THE 3RD QUARTER OF 2015: EBITDA MARGIN MAINTAINED AT 34.4% DESPITE DIFFICULT AND UNSTABLE MARKET SITUATION

 

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 3rd quarter of 2015 of PLN 483.4m. EBITDA for the period was PLN 166.3m, EBIT PLN 73.2m, and net profit more than PLN 56.6m. Despite a difficult market situation and continued downward pressure on coal prices, the company continued to achieve margins above the average for the industry, as exemplified by the EBITDA margin in the 3rd quarter of 2015 of 34.4%.

The results achieved in the 3rd quarter are decidedly improved from the previous quarters of this year. Sales revenue was 16.4% higher than in the 2nd quarter of this year and 12.9% higher than in the 1st quarter. EBITDA rose by 12.9% and 15.2% respectively, and net profit in the 3rd quarter of 2015 was 32.3% higher than in the prior three months and 73.3% higher than in the 1st quarter of 2015.

Sales revenue for the first three quarters of the year was PLN 1.3bn, EBITDA PLN 458.1m, EBIT PLN 174.5m, and net profit PLN 132.1m.

Considering the very difficult market situation, with a continuing oversupply of thermal coal and markedly falling prices since January of this year, the results achieved in the 3rd quarter and year-to-date through the first nine months should be considered good. Achievement of these results was made possible by the company’s flexibility and effective implementation of its program of cost-cutting and optimization of capex.

Thanks to consistent measures in this respect, the company reduced its total cash cost for coal extraction (UMCC + capex/tonne) by 2.6% vs. the 2nd quarter and 10.5% vs. the 1st quarter. For the first three quarters of this year it was 6.3% lower than in the same period of 2014. Costs by nature were cut during the first three quarters of this year by more than PLN 145m compared to the same period of 2014.

The company maintains its coal sales forecast for 2015 at about 8.5m tonnes, which implies a significant increase in extraction and sales in the 4th quarter of this year.

Major changes in the shareholding structure of the company occurred in October. As a result of a tender offer announced on 14 September 2015 by Enea S.A. for sale of shares of LW Bogdanka S.A., on 26 October 2015 Enea S.A. acquired 64.57% of the company’s shares. Together with its subsidiary Enea Wytwarzanie Sp. z o.o. it controls a total of 66% of Bogdanka’s shares.


 

FINANCIAL RESULTS—DETAILS

Selected financial information for the LW Bogdanka Group for the 3rd quarter and the first three quarters of 2015 are presented in the table below:

PLN ’000 3Q 2015 3Q 2014 Change 1–3Q 2015 1–3Q 2014 Change
Revenue 483,424 544,973 -11.3% 1,326,984 1,490,344 -11.0%
Gross profit on sales 74,931 106,857 -29.9% 174,678 241,592 -27.7%
Gross sales margin 15.5% 19.6% -20.9% 13.2% 16.2% -18.5%
EBITDA 166,334 198,216 -16.1% 458,121 502,484 -8.8%
EBITDA margin 34.4% 36.4% -5.5% 34.5% 33.7% 2.4%
Operating profit (EBIT) 73,225 99,950 -26.7% 174,545 226,608 -23.0%
EBIT margin 15.1% 18.3% -17.5% 13.2% 15.2% -13.2%
Net profit 56,639 79,370 -28.6% 132,137 170,794 -22.6%
Net profit margin 11.7% 14.6% -19.9% 10.0% 11.5% -13.0%

 

The main source of revenue for the group is the production and sale of thermal 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. Enea Wytwarzanie Sp. z o.o., 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 the 3rd quarter of 2015 translated into a 14.7% share for LW Bogdanka S.A. in thermal coal sales on the Polish market (1.9% higher than in the 2nd quarter) and a 24.2% share in sales to the commercial power industry (up 4.8% from the 2nd quarter). This increase in market share was connected with the limiting of sell-off of coal at reduced prices by Kompania Węglowa S.A. and increased sales by the company.

 

SAVINGS PROGRAM

Implementation of strict cost controls enabled the company to cut its costs by nature through the first three quarters of 2015 by more than PLN 145m compared to the same period of 2014.

The main effects of implementation of the program in the LW Bogdanka Group are presented in the table below:

PLN ’000 3Q 2015 3Q 2014 Change 1-3Q 2015 1-3Q 2014 Change
Total costs by nature 418,403 460,141 -9.1% 1,242,945 1,388,146 -10.5%
Total production costs 379,118 414,606 -8.6% 1,125,331 1,210,273 -7.0%
Own cost of production sold 407,382 438,670 -7.1% 1,151,570 1,254,706 -8.2%

 

COAL PRODUCTION

Production of commercial coal in the 3rd quarter of 2015 was 2.04m tonnes, 14.2% less than in the same period of 2014. In the first nine months of the year, 5.9m tonnes of coal was produced, down 10.6% year-on-year. The company sold 2.2m tonnes of coal in the 3rd quarter and somewhat more than 6m tonnes in the first nine months of 2015, down 12.3% and 11.9% respectively year-on-year.

But production was higher in the 3rd quarter than in the 1st and 2nd quarters (when it was 1.99m and 1.90m tonnes respectively). Sales in the 3rd quarter also significantly exceeded sales in the 1st and 2nd quarters (1.95m and 1.88m tonnes respectively).

 

CHANGES IN OWNERSHIP STRUCTURE

As a result of a successful tender offer to acquire shares of LW Bogdanka, the Enea S.A. Capital Group became the controlling shareholder of the company, with 66% of Bogdanka shares. The price proposed in the tender offer by Enea was found by the management board to meet the requirements for minimum price and to reflect the fair market value of the company. A similar opinion was expressed by all of the labour organizations operating at LW Bogdanka.

The management board perceives major synergies in the change in ownership structure which may have a positive impact on the company’s business. The most important of these include:

  • Stabilization of the coal sales market in terms of contracts currently in force with the majority shareholder, as well as the possibility of expanding supplies in the future pursuant to a contract for supply of coal to the new generating unit in Kozienice
  • Increased exploitation of production capacity, and consequently a reduction in costs due to economies of scale
  • Possibility of pursuing a more intensive sales policy thanks to lower extraction costs in the industry
  • Possibility of obtaining better transport prices thanks to joint negotiation of contracts for cooperation with shipping and logistics firms.

Zbigniew Stopa, CEO of Lubelski Węgiel Bogdanka S.A., commented: “For the LW Bogdanka Group the last few months have been a period abounding in events of great importance for the future of the group. I obviously have in mine first and foremost the process of acquisition by Enea of a majority stake in the company’s shares. Meanwhile, business was conducted in a very difficult market situation, which we have been facing practically since the beginning of 2015. Despite market conditions not conducive to conducting a stable business, the company continued to generate profit and maintained an EBITDA margin of nearly 35%, much higher than the average for the global mining industry. We have confirmed and reinforced our position as the most efficient mine in Poland and the most responsive to market conditions. We will do our best to ensure that it stays that way.”

 


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 5,200 people.

More information at www.bogdanka.eu

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