PT HARUM ENERGY Tbk 1H 2018 Summary and Highlights

Transcription

1 31 July 2018 PT HARUM ENERGY Tbk 1H 2018 Summary and Highlights Important Note: The results provided below reflect the unaudited consolidated results of PT Harum Energy Tbk. ( the Company ) for the 6-month period ending 30 June 2018, which include only the results of PT Mahakam Sumber Jaya (MSJ), PT Layar Lintas Jaya (LLJ), PT Tambang Batubara Harum (TBH), PT Karya Usaha Pertiwi (KUP), PT Bumi Karunia Pertiwi (BKP), Harum Energy Australia Ltd and Harum Energy Capital Ltd. Unless otherwise noted, all coal production volume, price and sales mentioned in this report exclude coal produced and sold by PT Santan Batubara (SB). The report below is prepared by the management and unaudited. Total coal production for 2Q 2018 came at 0.8 million tonnes, or similar to the volume produced in 1Q 2018, but sales volume decreased to 0.9 million tonnes in 2Q 2018 from 1.1 million tonnes in 1Q 2018; Average Sales Price (ASP) achieved in 2Q 2018 was USD 73.1 per tonne, or slightly lower than USD 73.9 per tonne achieved in 1Q In 1H 2018, the Company s ASP rose to USD 73.6 per tonne or 17.2% higher than the ASP of USD 62.8 per tonne achieved in 1H 2017; Revenues in 2Q 2018 was USD 66.3 million or 23.6% lower from 1Q In 1H 2018, revenues declined to USD million from USD million recorded in the same period a year ago. FOB Vessel Cash 1 Cost for 2Q 2018 was USD 44.3 per tonne, or 7.7% higher from USD 41.1 per tonne in 1Q In 1H 2018, the FOB Vessel Cash Cost was USD 42.5 per tonne, or 15.2% higher from USD 36.9 per tonne in the same period a year ago; Sales volume Average Sales Price (million tonne) 1Q2018 2Q2018 Q-o-Q change 1H2017 1H2018 Y-o-Y change % % (USD/tonne) % % Revenues (USD million) % % FOB Vessel Cash Cost 1 (USD/tonne) % % EBITDA (USD million) % % Net profit attributable to the Company Operating profit margin (USD million) % % (%) 24.8% 16.4% 20.9% 21.2% 1 FOB vessel cash cost consists of mining, coal hauling, coal processing, coal purchased, coal barging and transshipment, and fixed/overhead costs, excluding depreciation and amortization, marketing, general and administrative, royalty payments and one time charges, if any 1

2 Chart 1 Sales and Production Volume (million tonne) Production Volume Sales in excess of Production Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Note: Sales volume for MSJ includes coal purchase volume of 0.2mt, 0.3mt, 0.1mt, 0.2mt, 0.2mt and 0.2mt for 1Q17, 2Q17, 3Q17, 4Q17, 1Q18 and 2Q18, respectively Chart 2 Average Sales Price and FOB Vessel Cash Cost (USD/tonne) USD/t ASP (USD/t) FOB Vessel Cash Cost (USD/t) Stripping Ratio (x) x x x 9.0x 7.8x x x Q17 2Q17 3Q17 4Q17 1Q18 2Q18 0 Chart 3 Profitability (USD million) Revenue EBITDA Net profit attributable to the Company Q17 1Q18 2Q18 2

3 Production and Sales The Company produced 0.8 million tonnes of coal in 2Q 2018, which brings its total production in the first six months of 2018 to 1.6 million tonnes. The production volume in 1H 2018 is below the Company s target due to a number of operational challenges faced in 2Q A combination of bad weather, contractors equipment availability issues, and land access delays led to lower than expected overburden removal volume and higher stripping ratios, hence lower coal production volume overall. As a result of the lower coal production, the Company s sales volume in 2Q 2018 decreased by 23.9% to 0.9 million tonnes from 1.1 million tonnes in 1Q Overall, the Company s sales volume was 2.0 million tonnes in 1H 2018, or 22.9% lower from the same period a year ago at 2.6 million tonnes (see Chart 1). The Average Sales Price (ASP) achieved during 2Q 2018 was USD 73.1/tonne compared with USD 73.9/tonne achieved in 1Q The Company s ASP was relatively flat quarter-on-quarter, because the average global coal prices dipped lower in the months of March and April 2018, which impacted the Company s realized sales price in 2Q However, for the first six months of 2018, the Company s ASP still rose 17.2% to USD 73.6/tonne from USD 62.8 per tonne in 1H 2017, which was largely in line with the increase of average global coal prices during the period (see Chart 2). Due to the lower sales volume, the Company s revenues decreased 23.6% from USD 86.8 million in 1Q 2018 to USD 66.3 million in 2Q For the first six months of the year, the Company s revenues decreased 7.4% to USD million from USD million in 1H 2017 due to the combination of higher ASP and lower sales volume. Production Cost The Company s FOB vessel cash cost in 2Q 2018 increased 7.7% to USD 44.3/tonne from USD 41.1/tonne in 1Q The higher cost was driven by the increase in SR to 11.0x in 2Q 2018 compared to 9.4x in the previous quarter, while the overall lower production volume also contributed to higher unit costs in the quarter. The Company also undertook some pre-stripping activities in the second quarter related to pre-production activities at KUP, which increased the overall overburden removal volume. For the first six months of 2018, the overall SR rose to 10.2X from 8.4X in 1H 2017, which led to a 15.2% year-on-year increase in the FOB vessel cash cost to USD 42.5/tonne from USD 36.9/tonne in 1H Another factor contributing to the increase of the production cost was the average fuel price in 1H 2018 which was 18.7% higher than the same period a year ago. The Company maintained its overall coal inventory at a normal level (raw and industrial coal) throughout 1H As at 30 June 2018, its coal inventory level was at 0.5 million tonne, slightly higher to that at the start of the year. Profitability The Company recorded a decrease of gross profit margin from 35.8% in 1Q 2018 to 29.3% in 2Q The lower gross margin was primarily due to the higher production costs, as explained above. Nevertheless, year-on-year, the Company still recorded an improvement in its gross profit margin from 32.3% in 1H 2017 to 33.0% in 1H

4 Due to the lower revenue, the Company generated an EBITDA of USD 15.4 million in 2Q 2018 or 37.7% lower from USD 24.7 million generated in 1Q Compared with the same period a year ago, the EBITDA generated in 1H 2018 was USD 40.0 million, or comparable to USD 40.7 million generated in 1H Overall, the EBITDA margin increased to 26.1% in 1H 2018 from 24.6% in 1H The Company recorded net foreign exchange loss of USD 2.1 million during the period due to depreciation of Rupiah against USD from the start of the year to the end of 1H The translation loss came since a portion of the Company s cash holding and time deposit was held in Rupiah. In 1H 2018, the Company recorded income tax expense of USD 8.2 million which included USD 1.6 million as one-off tax audit adjustment from previous fiscal years. Due to the above factors, the net profit attributable to the Company in 2Q 2018 declined to USD 4.6 million compared with USD 12.6 million in 1Q 2018 (see Chart 3). Compared with the same period a year ago, the net profit attributable to the company in 1H 2018 decreased to USD 17.2 million from USD 22.3 million in 1H As a result, the net profit margin also declined to 11.2% in 1H 2018 from 13.5% in 1H Balance Sheet As of 30 June 2018, the Company maintained its total assets at USD million or 5.4% lower from USD million at the end of The Company s current assets decreased to USD million as of 30 June 2018 compared with USD million recorded as of 31 December The decrease was largely due to lower cash and trade receivables balance, which was partially offset by the increase of inventories and prepaid expenses. As at 30 June 2018, the Company had a cash and cash equivalents balance of USD million. The net decrease in the cash balance by USD 34.5 million from USD million as at 31 December 2017 largely came from (i) net cash generated for operating activities of USD 23.3 million in 1H 2018; minus (ii) capital expenditure of USD 1.3 million; plus (iii) net cash generated from other investing activities of USD 1.7 million; minus (iv) expenditures related to acquisition of BKP of USD 11.4 million; minus (v) cash dividend distribution of USD 45.0 million in June 2018; and minus (vi) cash utilized for treasury stock acquisition of USD 1.5 million. The Company s non-current assets increased to USD million as at 30 June 2018 from USD million as at 31 December The increase of non-current assets largely came from the increase at deferred exploration and development expenditures, mining properties, stripping activity assets and other noncurrent assets which was partially offset with the decrease in advances. Total capital expenditure in the first six months of 2018 was USD 1.6 million in relation to the deferred exploration and development expenditures over certain mining areas in MSJ and KUP, maintenance expenditure for tugboats and barges in LLJ, as well as purchases of heavy equipment. The Company s total liabilities as of 30 June 2018 stood at USD 63.2 milion, similar to the position as of 31 December The amount of taxes payables decreased, but the decrease was partly offset by the increase of trade payables and estimated liability for environmental management. 4

5 The equity attributable to owners of the Company as at 30 June 2018 was USD million, or 9.3% lower than as at 31 December 2017, due to the cash dividend distribution of USD 45.0 million in June 2018, which was partially offset by income generated during the period. The current ratio (defined as the ratio of current assets to current liabilities) as at 30 June 2018 is 4.9x. Environment, Health and Safety During 2Q 2018, there was no environmental or lost time incident at MSJ and KUP. Marketing The Company s sales during the first six months of 2018 were exclusively into the Pacific region. The largest volume was sold to South Korea (38%), followed by Malaysia (27%), China (14%), India (10%), Taiwan (4%), Thailand (4%) and Bangladesh (3%). 1H 2018 Sales Volume by Destination India 10% Taiwan 4% Thailand 4% Bangladesh 3% South Korea 38% China 14% Malaysia 27% *** 5

6 3Q 2018 Outlook Operations Compared to production activity in 1H 2018, the 3Q 2018 plan will necessitate a rapid increase in both coal hauling tonnes and waste overburden removal volume. The mine plan for 4Q 2018 will again build on 3Q 2018, with a further marked climb in coal production. With the introduction of additional heavy equipment at MSJ, as well as the release of new working space in advance of the current mine high-wall, the overburden waste removal is expected to jump significantly in 3Q Nevertheless, the overall mine strip ratio (q-o-q) will remain fairly constant, because of the corresponding uplift in coal hauling. The newly mobilized heavy equipment will consist of large overburden removal excavators being twinned with off-highway dump trucks, together with an increase in the overall coal hauling fleet. A new coal hauling contractor is scheduled to mobilise and add further trucking capacity. This new contractor is expected to be established onsite and operating before the end of August As reported in previous Company updates, wet weather disruptions have adversely impacted production over the past year. However, drier weather is now anticipated for the 2H As previously reported, the Company s new mine, KUP, had commenced commercial operations in 2Q Mining operations at KUP over the next 3 months period will be held at current production levels. The full ramp up in KUP's operations will now be rescheduled to the beginning of This is primarily because of delays to land access with ground clearing taking longer than initially planned. The shortfall in tonnage will be met from the Company's neighboring mine, SB. The mining contractor's fleet is therefore being split between KUP and SB, and as new equipment arrives, the fleet will again be spread across both mines to optimise overall coal production. Pre-stripping of initial ground cover at SB will continue from the previous quarter to provide the necessary footprint for the initial pit development. The introduction of equipment ahead of schedule, both for the waste removal and coal getting operations, will allow for quick deployment in the field. After an extended 4-year period of care and maintenance, the Company is confident the SB mine can recommence coal hauling operations this quarter. The ramp up in production in 3Q 2018 will continue beyond the final quarter of the year and on into Future mine development and construction of the port facility at the Company's fourth mine, TBH, remains on hold. The Company is however evaluating the possibility of restarting construction work with the aim of producing coal by 1H 2019, subject, that is, to market conditions. Markets and Sales NEWC Global Coal Index performed well over $100 level during 1H 2018, with an average of $104, ending in June at $117. The April 2018 Japanese Reference Price between JPU s and Australian supplier also finally settled at $110, a significant increase from a year ago. While the coal industry seems to have enjoyed a very good first semester this year, the lingering question is what s next? Will China continue to drive the market? 6

7 Chinese 1Q 2018 domestic spot prices peaked at RMB 750/tonne in early February 2018, and retreated steadilly post Lunar New Year. But, in 2Q 2018, spot prices managed to rise from a subdued April 2108 to peak at RMB 710/tonne in mid-june In 1H 2018, China consumed 1.89 billion tonne (+3.1% y-o-y) of all types of coal, driven by a cold winter and a hot summer start, and a steady economic activity. During the same period, power demand grew 9.4% y-o-y, and thermal power production (which makes up around 70% of demand) was up 6.0% y-o-y. Also in the same period, total imports of thermal coal reached million tonne, up 24.0%. Starting from 3Q 2018, however, there seems to be less catalysts to support coal prices. Trade tensions between the US and China has contributed to heightened market uncertainties. The accelerated depreciation of the RMB against USD, together with the expected climb in domestic supply in coming months from the reopening of idle mines and increases in rail capacity, are some of the headwinds facing the coal market. Particularly for coal imports into China, the recent restrictions on discharging ports has increased delays on the custom process, which has given rise to higher demurrage costs. This additional cost erodes the traditional pricing edge of imports making it less competitive. Coal stocks at major ports and major power plants now appear at comfortable level, while consumption at power plants had been stable. In addition, due to the on-going US/China trade war, China s industrial production is expected to be slower in 2H 2018, which might lead to lower coal demand. As a result, in the short term, we expect spot prices to slowly trend downwards. In our case, we are fully covered for 3Q 2018, and still have some availability for sales in 4Q The recent development also suggests that the Domestic Market Obligation regulation will be terminated or at least revised, which we believe will have overall a positive impact to domestic coal producers. *** 7

8 SUMMARY FINANCIAL STATEMENTS Consolidated Statements of Profit and Loss For the six months ended 30 June 2017 and 2018 Consolidated Statements of Profit or Loss (in USD millions) Unaudited Unaudited Unaudited Unaudited Description 1Q18 2Q18 % chg 6M17 6M18 % chg Revenues % % Cost of revenues & direct costs (55.8) (46.9) -15.9% (112.1) (102.7) -8.4% Gross profit % % Operating expenses (9.5) (8.5) -9.9% (18.8) (18.0) -4.4% Operating profit % % Depreciation and amortization % % EBITDA % % Share in net loss of associate and joint venture (0.2) (0.3) 19.0% (0.1) (0.5) 247.3% Other gains (losses) (0.9) (1.1) 25.4% 1.0 (2.0) % NPBT % % Income tax expense - net (4.7) (3.5) -26.2% (8.1) (8.2) 1.4% Net profit % % Attributable to: Owners of the Company % % Non-controlling interests % % Less: MI preferred dividend % % Core net income % % Gross profit margin 35.8% 29.3% 32.3% 33.0% Operating profit margin 24.8% 16.4% 20.9% 21.2% EBITDA margin 28.4% 23.2% 24.6% 26.1% Net profit margin 14.5% 6.9% 13.5% 11.2% Sales volume (million tonne) % % MSJ (million tonne) % % KUP (million tonne) - - n/a - - n/a Coal purchase volume (million tonne) % % Production volume (million tonne) % % MSJ (million tonne) % % KUP (million tonne) n/a n/a Monthly prod. run rate (million tonne) % % Average sales price (US$/tonne) % % FOB vessel cash cost *) (US$/tonne) % % Royalty (US$/tonne) % % Commissions and G&A (US$/tonne) % % Total cash cost (US$/tonne) % % Average fuel price purchased (US$ per litre) % % Stripping ratio (times) Overburden volume (million bcm) % % MSJ (million bcm) % % KUP (million bcm) n/a n/a Total inventory Raw coal (million tonne) Industrial coal (million tonne) Note: *) FOB Vessel Cash Cost consists of mining, haulage, coal purchased, transportation and fixed/overhead costs, excluding depreciation and amortization, marketing, general and administrative, and royalty payments, as well as any one-off cost item 8

9 SUMMARY FINANCIAL STATEMENTS Consolidated Statements of Financial Position As of 31 December 2017 and 30 June 2018 Consolidated Statements of Financial Position Audited (in USD millions) Unaudited Description 31-Dec Jun-18 % change Cash and cash equivalents % Other financial assets % Trade receivables % Inventories % Prepaid Expenses % Advances % Deferred tax assets - net % Investments in an associate & joint venture % Property and equipment - net % Deferred exploration & development expenditures - net % Stripping activity assets % Mining properties % Others % Total Assets % Trade payables % Taxes payable % Accrued expenses % Payable to non-controlling interests % Estimated liability for environmental management % Post-employment benefits obligation % Other Liabilities % Total Liabilities % Total equity attributable to owners of the Company % Non-controlling interests equity % Total Equity % Net debt/(net cash)* (266.4) (231.9) Net debt/(net cash) to equity (x) (0.8) (0.8) Current ratio (x) Trade receivables days Trade payables days Notes: *) Defined as total debt, which consist of bank loans and finance lease obligations, minus cash and cash equivalents 9

10 SUMMARY FINANCIAL STATEMENTS Consolidated Statements of Cash Flows For the six months ended 30 June 2017 and 2018 Consolidated Statements of Cash Flows Unaudited (in USD millions) Unaudited Description 6M17 6M18 % chg Cash Flows From Operating Activities Cash generated from operations % Cash paid related to operations (131.9) (136.5) 3.5% Net Cash Provided by Operating Activities % Cash Flows From Investing Activities Interest received % Additional in deferred exploration and development expenditures (2.2) (0.7) -69.4% Net payment for fixed assets (0.5) (0.6) 33.0% Net cash outflow on acquisition of subsidiary - (1.0) n/a Others (1.3) (0.4) -70.3% Net Cash Used in Investing Activities (2.2) (0.6) -72.1% Cash Flows From Financing Activities Payment of dividend: The Company - (45.0) n/a Subsidiaries to non-controlling interests (0.2) (0.2) -4.6% Payment of loan to a third party - (10.4) n/a Acquisitions of treasury stock (7.3) (1.5) -79.5% Net Cash Used in Financing Activities (7.5) (57.1) 659.4% Net Increase in Cash and Cash Equivalents 16.6 (34.5) % Cash and Cash Equivalents at Beginning of the Year Cash and Cash Equivalents at End of the Period For further information, investors and shareholders can contact: PT Harum Energy Tbk Corporate Secretary corsec@harumenergy.com 10