The Lubelski Węgiel BOGDANKA Group, with its Parent being Lubelski Węgiel BOGDANKA S.A. – the most modern and efficient hard coal mine in Poland and domestic leader on the market of power coal producers, showed in the first quarter of 2014 good results, in spite of difficult situation in the market. Revenue amounted to PLN 481.5 million (increase of 11.8%), EBITDA was PLN 174.1 million (increase of 0.9%) and EBIT was nearly PLN 86 million (decrease of 4.2%). The net profit reached PLN 62.6 million (decrease of 10.7%). Although decreased prices of coal affected profitability, the Company’s profitability ratios have remained at a level higher than average in the industry, which is shown for example by EBITDA margin of 36.2% after the first quarter.

The level of commercial coal production in the first quarter of 2014 was in line with the plan and amounted to 2.24 million tonnes, which means that it was higher by 10.2% than a year before and higher by 6.2% than in the fourth quarter of 2013. LW BOGDANKA upholds production assumptions for the entire 2014 at a level of 9.3 to 10 million tonnes.   

The levels of coal extraction and sales as realised translate into a strong market position of the Company. At the end of the first quarter of 2014 the market shares of LW BOGDANKA reached 18.6% for power coal market in Poland (compared to 14.8% at the end of 2013) and 24.8% for market of power coal sold to commercial power industry (compared to 19.3% at the end of 2013).

The Company consistently continues to implement its strategy for the years 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.

FINANCIAL PERFORMANCE - DETAILS

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

        
In the first quarter of 2014 the revenue obtained by LW BOGDANKA reached PLN 481.5 million, so it was higher by 11.8% than in the same period a year before.

Approximately 90% of coal sales during the first quarter 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, 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.

The first and second quarters of 2014 are difficult periods in the industry in view of negotiations regarding volumes of coal to be supplied to power plants, because of decreased power production and large quantities of coal piled on heaps in power plants and in Silesia mines. Consequently, the Company’s profitability ratios in the first quarter of 2014 were pressured by falling coal prices (which have decreased by 15% since the beginning of 2013). It is, however, worth noting that the ratios are at a level higher than average in the industry, which is shown for example by EBITDA margin of 36.2%.

The Company is consistently implementing the process of cost optimisation in order to achieve the level assumed in the strategy. Total costs were higher by 6.5%, whereas gross production went up by 12.8% and the length of completed gallery excavations increased by 36.8%.

COAL PRODUCTION AND SALES

In the first quarter of 2014 the level of commercial coal production by the Company increased by 10.2% compared to the same period a year before and reached 2.24 million tonnes.

The level of output in the first quarter of 2014 amounted to 66.9% compared to 68.6% in the first quarter of 2013 and 66.4% in the fourth quarter of 2013.

The sales of commercial coal in the first quarter of 2014 were in line with the customer delivery schedules and reached a level of 2.23 million tonnes, i.e. by 19.7% 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 quarter of 2014, the Company completed 9.3 kilometres galleries compared to 6.8 kilometres a year before, which means an increase by 36.8%.

The coal inventories at a level of 229,300 tonnes at the end of March 2014 corresponded more or less to 8 days of production and to the Company’s assumptions.

STRATEGY

The Company consistently follows its development strategy for 2013-2020. The most important components of this strategy include completion, by 2015, of the investment programme with a view to doubling the production capacities compared to 2011 and increasing two-fold the Company’s operating resources in the Lublin Coal Basin, and thus extending of the mine’s operating life to around 2050. As a result of increasing the extraction, the Company’s intention is to reach a share of 20% in the market of power coal sales in Poland by 2015.

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. Combined with continuous improvements in organisation of work and development of outsourcing, this should result in lowering the unit mining cash cost by 15% to 2017 (in real terms).
 

Zbigniew Stopa, President of Management Board of LW BOGDANKA S.A.: “The first quarter of this year was a very difficult period for the industry, characterised by decreased production of energy based on hard coal, which was caused, among other things, by a mild winter and decreased energy consumption in the first quarter, as well as increased production of energy based on cheaper lignite. Although inventories on coal heaps in Silesia coal mines slightly decreased, we could observe increased inventories on coal heaps in the commercial power industry. Consequently, the first and second quarters of 2014 are difficult periods in the industry in view of negotiations regarding volumes of coal to be supplied to power plants, which was accompanied by falling coal prices – since the beginning of 2013 the prices have decreased by as much as 15%. I think that Bogdanka has coped well with that difficult situation, generating solid 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 Q1 of 2014 our shares in the market of power coal sold to commercial power industry reached 24.8% compared to 19.3% at the end of 2013. We are consistent in our focus to carry out our strategic plans – the priority for this year is to commence the operation of the Mechanical Coal Processing Plant, scheduled for September 2014. We continue actions with a view to acquiring new licences for excavation works, in order to increase our operating resources from current 237 million tonnes to approximately 450 million tonnes. We also uphold our assumptions regarding production in 2014 at a level of 9.3 to 10 million tonnes, i.e. higher by at least 1 million tonnes than extraction in 2013.”