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> Management Board Report on the activity of the JSW S.A. Capital Group for 2012
Management Board Report on the activity of the JSW S.A. Capital Group for 2012
3.2. Information about the Group’s current and expected financial standing
The Group's current financial standing is good. No occurrences having a negative impact on its continued operations were recorded. Anticipated for the next 12 months is the maintenance of a sound financial situation, a safe assets and capital structure and the continued ability to settle the Company’s liabilities.
In 2012, the Group developed an action plan for 2013 based on tentative results of the Group companies for 2012 and assumptions for detailed operational plans. The basic assumptions of the plan for 2013 are presented in the following table.
| 2013 | 2012 | Growth rate | |
|---|---|---|---|
| Production (in thousands of tons) | 13,525.0 | 13,462.4 | 100.5% |
| Coking coal (in thousands of tons) | 10,048.0 | 9,469.2 | 106.1% |
| Share of coking coal | 74.3% | 70.3% | 4.0 p.p. |
| Steam coal (in thousands of tons) | 3,477.0 | 3,993.2 | 87.1% |
| Production of coke (in thousands of tons) | 3,772.8 | 3,849.4 | 98.0% |
| Expenditures on non-current assets (in PLN millions) | 1,823.8 | 1,816.7 | 100.4% |
| Headcount – as at 31 December | 29.774 | 29.718 | 100.2% |
download tableThe main objective with respect to production defined in the Plan for 2013 will be the optimal utilization of the mines’ resource base and production capacity, and an increase in the share of coking coal production in total production. In 2012, the Group’s mines produced 13.5 million tons of coal compared to the planned 13.3 million tons. In 2013, the Group plans to slightly increase the production level (by 62.6 thousand tons). At the same time, it is assumed that the production volume of coking coal will increase by 0.6 million tons as compared to 2012 (an increase by 6.1%). Thus the share of coking coal in total production will increase by 4.0 percentage points to reach the level of 74.3%.
In 2013, the Group plans to incur expenditures on non-current assets in the amount of PLN 1.8 billion, including PLN 1.4 billion for the Parent Company, which will be earmarked for the following groups of activities:
- securing the mines' planned production capacities (mining work, purchase of technical equipment and upgrades of facilities),
- technical and organizational integration of the Borynia-Zofiówka and Jas-Mos mines,
- expansion of the Borynia-Zofiówka-Jastrzębie Mine, Zofiówka Section, by opening and utilization of the new “Bzie-Dębina 2-Zachód” and “Bzie-Dębina 1-Zachód” coking coal deposits,
- construction of the 1080 level in the Borynia-Zofiówka-Jastrzębie Mine, Zofiówka Section,
- expansion of the Pniówek Mine by opening and utilization of the new “Pawłowice 1” coking coal deposit,
- construction of the 1000 level in the Pniówek mine,
- construction of the 1290 level in the Budryk mine,
- opening the seams in the Zgoń section of the Krupiński mine and the reserves of part of the Żory-Suszec deposit,
- execution of necessary tasks related to environmental protection.
Also planned are capital expenditures in the energy and coke areas.
The Group's Plan for 2013 does not assume any significant changes in headcount compared to 31 December 2012. It is estimated that the headcount will increase by 56 persons by the end of 2013.
3.2.1. Financial results by operating segments
The following table presents the Group's results broken down into distinct areas (segments) of activity in 2012 and 2011:
| 2012 | 2011 (restated data) |
Growth rate | |
|---|---|---|---|
| Black coal mining and sales | |||
| Revenues on sales to external buyers | 4,134.9 | 4,943.3 | 83.6% |
| Operating profit of the segment | 1,268.6 | 2,736.3 | 46.4% |
| EBITDA | 2,074.6 | 3,422.1 | 60.6% |
| Production and sales of coke and coal derivatives | |||
| Revenues on sales to external buyers | 4,307.9 | 4,220.0 | 102.1% |
| Operating profit of the segment | (97.8) | 171.4 | (57.1)% |
| EBITDA | 103.3 | 297 | 34.8% |
| Other operations | |||
| Revenues on sales to external buyers | 378.2 | 213.5 | 177.1% |
| Operating profit of the segment | 73.7 | 20.4 | 361.3% |
| EBITDA | 139 | 57 | 243.9% |
Black coal mining and sales
In 2012, revenues on sales of coal to external buyers were PLN 4,134.9 million, down by 16.4% compared to the previous year. This decrease resulted from a change in the classification of coal deliveries from outside sales to intragroup sales (in respect of KK Zabrze and WZK Victoria) and lower prices of coking coal.
EBITDA for the 12-month period ended 31 December 2012 was PLN 2,074.6 million. To compare, the previous year’s EBITDA was PLN 3,422.1 million. The decrease in EBITDA in the segment under analysis by 39.4% compared to the previous year resulted primarily from a decrease in the segment’s operating profit despite an increase in depreciation by PLN 120.2 million (17.5%) from 2011.
Production and sales of coke and coal derivatives
In 2012, total revenues on sales of coke and coal derivatives to external buyers were PLN 4,307.9 million, up by approx. 2.1% compared to the previous year.
After four quarters of 2012, EBITDA was PLN 103.3 million compared to PLN 297.0 million in the previous year. The decrease in EBITDA in the segment under analysis by 65.2% in 2012 compared to 2011 resulted primarily from a decrease in revenues on sales of coke associated with lower selling prices obtained (down by 19%), which was the result of lower demand for coke.
Other operations
In 2012, revenues on sales to external buyers were PLN 378.2 million, up by 77.1% compared to 2011.
EBITDA for 2012 was PLN 139.0 million compared to the previous year’s EBITDA of PLN 57.0 million. The 143.9% increase in EBITDA in the segment under analysis in 2012 compared to the previous year resulted primarily from an increase in sales profit caused by higher revenues on sales, related mainly to the inclusion of PEC into the Group.
3.2.2. Financial resources management
The Group has the ability to pay its contracted liabilities. During the reporting period, no threats to the maintenance of liquidity were identified. In order to efficiently manage its financial resources, the Group prepares short-term and long-term cash flow forecasts with the help of which it controls proceeds and expenditures, including also capital expenditures.
In order to ensure current liquidity, the Group uses current account overdrafts which are repaid from current proceeds, and any generated cash surpluses are invested in bank deposits with different maturities. The Group uses a broad range of banking products through which it effectively manages its cash while minimizing transaction risk.
Credit exposure to banks is mitigated through diversification of invested funds in accordance with the internal procedures, as described in Note 3.1 to the Consolidated Financial Statements of the Jastrzębska Spółka Węglowa S.A. Capital Group for the financial year ended 31 December 2012.
3.2.3. Debt and the Capital Group’s financing structure
| 2012 | 2011 | Growth rate | ||
|---|---|---|---|---|
| Equity ratio | Equity – Intangible assets Total assets |
0.6 | 0.62 | 96.8% |
| Debt/EBITDA ratio | Loans, borrowings, financial lease liabilities EBITDA |
0.11 | 0.12 | 91.7% |
| Total debt ratio | Total liabilities Total liabilities and equity |
0.39 | 0.38 | 102.6% |
| Short-term debt ratio | Short-term liabilities Total liabilities and equity |
0.17 | 0.18 | 94.4% |
| Long-term debt ratio | Long-term liabilities Total liabilities and equity |
0.22 | 0.2 | 110.0% |
| Debt to equity ratio | Total liabilities Equity |
0.64 | 0.61 | 104.9% |
| Fixed capital to non-current assets ratio | Equity + long-term liabilities excluding long-term provisions Non-current assets |
1.13 | 1.2 | 94.2% |
As at 31 December 2012, the share of liabilities in financing the Group’s activity measured with the total debt ratio was 0.39 compared to 0.38 as at the end of 2011. In the period covered by the consolidated financial statements the Group’s debt did not constitute a threat to its operations or ability to repay its liabilities in a timely manner. The fixed capital to non-current assets ratio was 1.13, reflecting the Group’s ability to maintain long-term financial liquidity.
3.2.4. Liquidity
| 2012 | 2011 | Growth rate | ||
|---|---|---|---|---|
| Current ratio | Current assets Short-term liabilities (excluding short-term provisions) |
1.97 | 2.09 | 94.3% |
| Quick ratio | Current assets – Inventories Short-term liabilities (excluding short-term provisions) |
1.6 | 1.77 | 90.4% |
In 2012, the current ratio reached a value of 1.97, indicating the maintenance of financial balance. The correct relationship between the amount of current assets and the amount of liabilities was maintained. The quick ratio decreased by 9.6% to 1.60 as at the end of 2012 as a result of a decrease in current assets (excluding inventories) by 13.4%.
In 2012, the Group had full capability to cover its short-term liabilities with cash and quickly liquefiable current assets.
3.2.5. Profitability
| 2012 | 2011 (restated data) |
Growth rate | ||
|---|---|---|---|---|
| EBITDA | Operating result + Depreciation | 2,374.8 | 3,552.8 | 66.8% |
| Gross margin | Gross result on sales x 100 Sales revenues |
27.6% | 36.4% | 75.8% |
| EBIT margin | Operating result x 100 Sales revenues |
14.8% | 28.9% | 51.2% |
| EBITDA margin | EBITDA x 100 Sales revenues |
26.9% | 37.9% | 71.0% |
| Net return on sales | Net financial result x 100 Sales revenues |
11.2% | 22.2% | 50.5% |
| Return on Assets (ROA) | Net financial result x 100 Total assets |
7.0% | 15.3% | 45.8% |
| Return on Equity (ROE) | Net financial result x 100 Equity |
11.5% | 24.7% | 46.6% |
Analysis of profitability ratios indicates a lower efficiency of the Group’s performance in 2012 caused by the economic slowdown resulting in a decrease in unit prices of coking coal and coke and lower income from sales of coal and coke.
EBITDA for 2012 was PLN 2,374.8 million compared to PLN 3,552.8 million in 2011, down by 33.2%. EBITDA was generated in 55.1% from the operating profit while 44.9% came from depreciation. In 2011, these shares were 76.2% and 23.8%, respectively. The EBITDA margin for 2012 decreased by 11.0 percentage points from 37.9% in 2011 to 26.9% in 2012. On the other hand, in 2012 the EBIT margin was 14.8% which means that with respect to JSW S.A.'s core business, each PLN 1 million of revenues on sales generated approx. PLN 148 thousand in operating profit. Net sales profitability in 2012 was at the level of 11.2%, down by 11.0 percentage points from 2011. In 2012, the return on assets (ROA) and return on equity (ROE) ratios indicated a decrease, compared to 2011, in the efficiency of the Group’s utilization of assets and equity.
3.2.6. Mining cash cost and conversion cost
The table below presents the mining cash cost and cash conversion cost in 2012 and in 2011.
| 2012 | 2011(1) (restated data) |
Growth rate | |
|---|---|---|---|
| Mining cash cost (in PLN millions)* | 4,760.8 | 4,651.1 | 102.4% |
| Mining cash cost (in PLN/ton)(2) | 353.64 | 368.84 | 95.9% |
| Cash conversion cost (in PLN millions) | 582.3 | 427 | 136.4% |
| Cash conversion cost (in PLN/ton)(3) | 151.77 | 138.46 | 109.6% |
(1) In connection with the restatement of data in the statement of comprehensive income for 2011, the Group updated its calculation of mining cash cost.
(2) To achieve greater accuracy, the value of mining cash cost per ton of coal was calculated based on values expressed in thousands of PLN and thousands of tons.
(3) Cash conversion cost taking into account KK Zabrze for H2 2011 but without taking into account WKZ Victoria.
The methodology of calculation and presentation of mining cash cost reflects the cost from the point of view of cash consumption regardless of the period in which it was incurred. The Group calculates mining cash cost by subtracting costs not directly associated with the production of coal and costs not permanently affecting the Group’s financial flows from all costs incurred in the period.
Mining cash cost in 2012 stood at PLN 4,760.8 million, i.e. was PLN 109.7 million (2.4%) higher than in 2011. The increase in mining cash cost was caused primarily by the following factors:
- increase in personnel costs,
- increase in costs of third party services, including mostly:
- drilling and mining services, among other reasons due to a 1,840 m increase in the length of mined pits requiring additional drilling and mining services and a greater number of reconstructions,
- other services, including coal dumping services, services related to the prevention and elimination of threats, IT services and costs of tests, approvals and measurements,
- overhaul services,
- increase in costs of consumption of materials and energy, mainly due to an increase in heading works, a greater length of reconstructions by 1,634 m and an increase in unit fees for electricity, heat and cooling.
On a stand-alone basis, mining cash cost in 2012 was PLN 353.64 per ton, i.e. 4.1% higher than in 2011 as a result of both a nominal increase in expenditures on coal production by 2.4% and a greater production of coal in 2012 by 7.1%.
Cash conversion cost is a measure calculated as the sum of costs by type net of the cost of coal feedstock (including the cost of transporting the feedstock) and cost of sales net of depreciation attributable to cost of sales. Unit cash conversion cost is calculated as the value of this measure divided by the volume of coke production available for sale. The increase in cash conversion cost was affected primarily by events related to the merger of KK Zabrze and WZK Victoria into the Group. The increase in unit cash conversion cost for 2012 compared to 2011 by 9.6% results from taking into account in the calculation for 2012 of the costs of KK Zabrze and WZK Victoria, whereas in 2011 the value of cash conversion cost captured the results of KK Zabrze only for the period from 1 July 2011 to 30 December 2011.
