Management Discussion & Analysis
–
Third Quarter (3Q) 2014
Toba Bara Sejahtra Tbk and Mining Subsidiaries
SUMMARY
Over quarter-on-quarter (q-o-q) period from 2Q14 to 3Q14, the bearish sentiment on the global coal prices continued to deteriorate as reflected by Newcastle (NEWC) Index price falling by 6.4% from US$ 73.1/ton to US$ 68.4/ton. Meanwhile on year-on-year (y-o-y) basis, the price corrected 14.6% from US$ 85.7/ton in 3Q13 to US$ 73.2/ton in 9M14. This was attributable to among others, the combination of
China’s slowing demand growth and lack of supply discipline from major producers such as Indonesia
and Australia.
Given that the global coal market has been under pressure for the past two years, PT Toba Bara Sejahtra Tbk (The Company) continues to be well positioned to maintain its costs structure relatively stable for the year post a series of cost efficiency initiatives conducted over 2013 period. This has enabled the Company to focus on profitable production growth. Over the last three quarters since 4Q13, the Company has continued on the positive momentum of its operational performance by successfully maintaining a quarterly production run-rate of 1.90-2.15 million tons, while generating EBITDA/ton of around US$ 8-10/ton.
As the Company’s three concessions are located adjacent to each other, for the past year, the Company
has been able to maximize cost efficiency initiatives through joint mine plan and infrastructure sharing. This has allowed the Company to successfully boost production volume and sales volume by 39.4% to 6.40 million tons and by 37.9% to 6.08 million tons y-o-y in 9M14 respectively. On quarterly basis, the total production volume of 2.33 million tons in 3Q14 surpassed those of previous quarters of 1Q14 and 2Q14 at 1.91 million tons and 2.16 million tons respectively. The 3Q14 production volume proved to be the highest in its corporate history.
Financially, the Company increased its top line sales by 31.0% y-o-y from 9M13 to 9M14. Despite a 14.6% correction in the NEWC Index price, the Company posted a decline of 5.0% in its average selling price (ASP) over the same period. On the cost side, the Company lowered its FOB (Free on Board) cash cost by 5.4% over the same period. A combination of stronger sales efforts through higher sales volume backed by higher quality buyers and lower overall costs resulted in a 44.0% y-o-y higher EBITDA in 9M14 at US$ 57.80 million. This, in turn, translated to a more favorable income of US$ 30.91 million for 9M14, or up by 59.8% from the previous year.
Special Note: The following discussion on the Company’s performance is based on the Consolidated Financial
PRODUCTION & OPERATION
The Company’s coal production volume expanded 39.4% y-o-y from 4.59 million tons in 9M13 to 6.40
million tons in 9M14 on the back of significantly higher volume contributions from TMU and IM. The production volume of 6.40 million tons in 9M14 resulted from operations of all three operating subsidiaries with the following respective contributions: ~3.49 million tons from ABN, ~1.77 million tons from IM, and ~1.14 million tons from TMU. The Company’s y-o-y production growth of 39.4% mainly derived from TMU’s substantial production ramp up post the earlier-than-expected completion of its hauling road in 2Q13 connecting TMU and IM via ABN. While as of 9M14, ABN remains to be the Company’s main volume contributor of all three subsidiaries accounting for 54.5% of total Company production, its contribution has fallen from 67.7% as of 9M13. On the other hand, the contribution of TMU to total Company production has surged significantly from 11.0% in 9M13 to 17.9% in 9M14. On stand alone basis, the contributions of IM and TMU were crucial as they posted y-o-y production volume growth of around 81.3% and 125.9% in 9M14 respectively.
Changes in Production and SR at ABN, IM and TMU
ABN IM TMU
As compared to 9M13, SR in 9M14 declined 3.5% from 13.7x to 13.2x reflecting the Company’s continued efforts in improving its operational performance amidst the low coal price environment. On q-o-q though, SR fell much more by 9.4% from 13.8x in 2Q14 to 12.5x in 3Q14 due to SR normalization post pre-stripping activities during the earlier quarters. SR is expected to stabilize going into the subsequent quarter of this year. In line with the strategy to continually lower overall costs towards maintaining profitability margin, the Company strives to always keep its SR and overburden (OB) dump distance as stable as possible, given that these two cost components typically account for around 65%-70% of cash cost.
Average Production, SR, and Dump Distance
The Company’s ASP only contracted by 5.0% y-o-y from US$ 67.47/ton in 9M13 to US$ 64.10/ton in
9M4, which compared favorably with NEWC Index price that fell 14.6% over the same period. The ASP outperformance over that of NEWC Index was due to the Company’s ability to capitalize on securing its coal sales based more on fixed pricing rather than index-linked during the latter part of 2013. (When entering into a fixed-priced contract with a buyer, the Company typically would secure it in the very early part of the year or the latter part of the preceeding year during a relatively higher NEWC Index price). In the case of 2014 sales volume, the Company sold in advance the majority of its 2014 sales volume to its
3,108 3,489
Production Volume ('000 ton) Stripping Ratio (x)
976 1,769
Production Volume ('000 ton) Stripping Ratio (x)
506 Production Volume ('000 ton) Stripping Ratio (x)
1,298 1,501 1,802 1,950 1,911 2,160 2,330
15.1x
13.6x
12.7x 12.7x 13.5x 13.8x 12.5
0.0
1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014
Production Volume & SR
Production Volume ('000 ton) Stripping Ratio (x)
1,681
1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014
quality buyers by entering into fixed-priced contracts over the end periods of 2013. The terms of payment were favorable to the Company such that the typical buyers, notably international traders, would prepay certain percentage of the contract values. In doing so, this enabled the Company to maximize its pricing structure relative to any adverse coal market condition. By the end of 9M14, the Company has sold ~90%-95% of its 2014 sales volume at fixed price.
Financial and Operational Highlights
All figures are in million US$
unless otherwise stated 2Q14 3Q14 Changes 9M13 9M14 Changes
Operation
Sales Volume Mn ton 1.92 2.23 16.1% 4.41 6.08 37.9%
Production Volume Mn ton 2.16 2.33 7.9% 4.59 6.40 39.4%
Stripping Ratio (SR) x 13.79 12.50 (9.4%) 13.69 3.21 (3.5%)
FOB Cash Cost* US$/ton 52.32 52.55 0.4% 54.40 51.46 (5.4%)
NEWC Index Price US$/ton 73.05 68.35 (6.4%) 85.70 73.20 (14.6%)
Average Selling Price (ASP) US$/ton 64.81 64.09 (1.1%) 67.47 64.10 (5.0%)
Financial Performance
Profit (Loss) 2Q14 3Q14 Changes 9M13 9M14 Changes
Sales US$ Mn 124.83 142.90 14.5% 297.50 389.73 31.0%
Cost of Goods Sold US$ Mn 103.77 121.10 16.7% 244.70 323.27 32.1%
Gross Profit US$ Mn 21.06 21.81 3.6% 52.80 66.47 25.9%
Operating Profit US$ Mn 14.75 15.41 4.5% 29.28 47.83 63.4%
EBITDA** US$ Mn 17.20 19.51 13.4% 40.15 57.80 44.0%
Profit for the Period US$ Mn 7.92 10.19 28.7% 19.34 30.91 59.8%
EBITDA/ton US$/ton 8.96 8.75 (2.3%) 9.11 9.51 4.4%
Capex US$ Mn 2.27 2.46 8.4% 15.39 10.23 (33.5%)
Balance Sheet FY13 9M14 Changes
Interest Bearing Debt US$ Mn 57.83 57.83 55.86 57.83 3.5%
Cash and Cash Equivalents US$ Mn 53.30 64.31 63.30 64.31 1.6%
Net Debt*** US$ Mn 4.53 Net Cash Net Cash Net Cash N/A
Total Assets US$ Mn 331.31 329.62 311.65 329.62 5.8%
Total Liabilities US$ Mn 191.61 185.47 181.17 185.47 2.4%
Total Equity US$ Mn 139.70 144.15 130.48 144.15 10.5%
Financial Ratios
Gross Profit Margin % 16.9% 15.3% 17.7% 17.1%
EBITDA Margin % 13.8% 13.7% 13.5% 14.8%
Operating Profit Margin % 11.8% 10.8% 9.8% 12.3%
Notes:
*FOB Cash Cost = COGS including royalty and selling expense – depreciation and amortization **EBITDA = Gross Profit – selling expenses – G&A + depreciation and amortization
PROFIT (LOSS)
SALES
Although the weaker NEWC Index price impacted the Company’s overall ASP by 5.0% from US$ 67.47/ton in 9M13 to US$ 64.10/ton in 9M14, the Company booked a 31.0% rise in sales from US$ 297.50 million in 9M13 to US$ 389.73 million in 9M14 on the back of a solid 37.9% increase in sales volume over the same period.
COST OF GOODS SOLD
A 32.1% y-o-y rise in cost of goods sold from US$ 244.70 million in 9M13 to US$ 323.27 million in 9M14 reflected the Company’s significant increase in production volume by 39.4% despite lower cash cost from favorable SR over the same period. Higher production volume typically increases such mining costs as OB removal and OB dump distance as well as fuel, while accounting for the largest components of production cost.
EBITDA
EBITDA surged by 44.0% y-o-y from US$ 40.15 million in 9M13 to US$ 57.80 million in 9M14, resulting from predominantly higher sales volume and better mine plan execution amidst the weaker ASP, while lowering mining costs in the process. Such a combination between the Company’s on-going cost efficiency initiatives and improvement in sales and marketing activity positively improved EBITDA margin from 13.5% in 9M13 to 14.8% in 9M14.
The first graph below depicts the EBITDA evolution on q-o-q basis from US$ 9.0 million in 1Q13 right through to US$ 19.51 million in 3Q14 and the NEWC Index price from US$ 93.0/ton to US$ 68.4/ton over the same period. Over the past seven quarters, the company has successfully booked stronger EBITDA and stable cash margin during continued weaker coal price environment.
Quaterly EBITDA vs NEWC Index 1Q13 – 3Q14
ASP vs FOB Cash Cost 1Q13 – 3Q14
PROFIT FOR THE PERIOD
The Company booked total profit for the period (before minority interest) of US$ 30.91 million in 9M14, up by 59.8% from US$ 19.34 million in 9M13.
BALANCE SHEET
ASSETS
The Company’s assets as at 30th September 2014 stood at US$ 329.62 million, or up by 5.8% from US$
311.65 million as per 31st December 2013.
LIABILITIES
Total liabilities as at 30th September 2014 rose by 2.4% to US$ 185.47 million from US$ 181.17 million as per end-December 2013 and interest bearing debt increased by 3.5% to US$ 57.83 million from US$
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 EBITDA (US$ Mn) NEWC (US$/ton)
55.1 54.9 53.4
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
55.86 million over the same period. Meanwhile, leverage metrics such as Net Debt to EBITDA ratios have constantly recorded stability from quarter to quarter at way below 2x.
Net Debt to EBITDA
EQUITY
Total equity in 9M14 slightly increased 10.5% to US$ 144.15 million from US$ 130.48 million as of 31st December 2013, and this was attributable to additional profit for the period.
CAPITAL EXPENDITURE (CAPEX)
Until 9M14, the Company has realized total CAPEX of around US$ 10.23 million, which is mainly allocated for land compensation and operational facilities and equipment.
MARKETING
During 9M14, the Company sold its coal mainly to Asian countries, such as China, Korea, Taiwan, and India. Some of the large reputable international traders and end-users such as power generation companies make up the Company’s main customers. 2013 was a marketing milestone for the Company as it successfully garnered a more diversified and higher quality customer base, expanded export market coverage, while maximizing its pricing mechanism through various hedging strategies. The Company also utilized its own in-house marketing team to tap into high quality end users such as in Japan without incurring any significant marketing costs. From 4Q13 until 9M14, the Company has secured ~90-95% of its 2014 total sales volume.
Sales Destinations by Country
9M13
Total Sales Volume: 4.41 Mt
9M14
Total Sales Volume: 6.08 Mt
-17.0
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Net Debt (Cash) (US$ Mn) EBITDA (US$ Mn)
OPERATIONAL UPDATE
Initiative Achievement
IM Construction of Coal Processing Plant (CPP) is expected to boost coal production capacity at IM from 3 million tons per annum (tpa) to 6 million tpa. This new CPP not only will process TMU’s coal, but also will create more cost efficiency and increase coal stockpile capacity. Overall, the
Company’s total production/infrastructure capacity is
expected to expand significantly from currently 13 million tpa to 16 million tpa.
Construction of CPP is in finalization stage
SNAPSHOT OF PT TOBA BARA SEJAHTRA TBK
PT Toba Bara Sejahtra Tbk (“The Company”) is one of the major competitive producers of thermal coal in Indonesia. The Company has grown into a major coal producer operating 3 (three) coal mine concessions in East Kalimantan. These adjacent coal mining concessions, which are held through various operating companies, all enjoy highly favorable mine locations, with close proximity to local river ports. The Company’s concession areas total approximately 7,087 hectares.
The Company currently has four operating subsidiaries, three in coal mining namely PT Adimitra Baratama Nusantara (ABN), PT Indomining (IM), PT Trisensa Mineral Utama (TMU) and one in palm oil namely PT Perkebunan Kaltim Utama I (PKU). The Company’s ownerships in ABN, IM, TMU and PKU are 51.00%, 99.99%, 99.99% and 90.00% respectively.
On 6th July, 2012, the Company listed its shares at the Indonesia Stock Exchange (IDX) under the ticker ‘TOBA’ and released as many as 210,681,000 shares or 10.5% of its paid up capital with an IPO proceed of IDR 400.3 billion.
Loc
ations of Toba Bara’s Concessions
ABN is located in Sanga-Sanga, Kutai Kartanegara, East Kalimantan and is operated under the IUPOP permit. It started operations in September 2008. ABN covers an area reaching 2,990 hectares, and has estimated coal resources of around 156 million tons.
IM is located in Sanga-Sanga, Kutai Kartanegara, East Kalimantan and is operated under the IUPOP
TMU - IM Hauling Road
permit. It started operations in August 2007. IM covers 683 hectares of land, and has estimated coal resources of 37 million tons.
Meanwhile, TMU is located in Loa Janan, Muara Jawa and Sanga-Sanga, Kutai Kartanegara, East Kalimantan. With IUPOP permit, TMU started operations in October 2011. TMU covers 3,414 hectares of land, and has estimated coal resources of 43 million tons.
Altogether, the total coal resources of the Company are currently estimated at 236 million tons.
For further information, please contact: PT Toba Bara Sejahtra Tbk
Pandu P. Syahrir Corporate Secretary (Sekretaris Perusahaan) Email: corsec@tobabara.com
Iwan Sanyoto
Head of Investor Relations (Kepala Hubungan Investor)
Email: iwan.sanyoto@tobabara.com
Priambodo
