Management Discussion & Analysis First Quarter 2014
Toba Bara Sejahtra Tbk and Subsidiaries
SUMMARY
During 1Q14, the reference NEWC Index price declined by 13.2% to US$ 74.1/ton from US$ 85.4/ton on 3rd January 2014, while the Indonesian coal reference price and China’s QHD coal price fell by 7.0% and 18.0% to USD58/ton and RMB 535/ton respectively over the same period. The market had predicted this trend as it typically coincided with the end of China’s restocking activity upon entering the New Year. The coal prices are expected to remain flat in the short term due to lack of positive catalysts such as major production cuts, while it will be in upward slope in the medium to long term as have been factored in by the forward curves.
Despite the coal industry’s continued challenging times and post its efficiency and integration intiatives of 2013, PT Toba Bara Sejahtra Tbk (“the Company”) strives to maintain competitive costs from its three adjacent mines and deliver sustainable production growth.
Taking into account the Company’s three concessions are located next to each other, the Company was able to maximize cost efficiency initiatives through joint mine plan and infrastructure sharing. As a tangible result of this set of initiatives, the Company successfully boosted production volume and sales volume by 48.5% to 1.9 million tons and 34.9% to 1.9 million tons y-o-y in 1Q14 respectively.The total production volume of 1.9 million tons in 1Q14 was in line with that of 4Q13, where the Company booked the highest quarterly production volume throughout its corporate history at 1.9 million tons. The 1Q14 production volume number is also the highest in corporate history. Given this production milestone, the Company is confident it can maintain its quarterly production run rate in the upcoming years.
Financially, the Company also increased its revenue by 28.5% y-o-y from 1Q13 to 1Q14. Despite a 16.1% correction in the NEWC Index price, the Company posted a decline of 5% in its average selling price (ASP) over the same period. On the cost side, the Company lowered its FOB vessel cash cost by 11.2% 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 123.6% y-o-y higher EBITDA at US$ 21.1 million. This, in turn, translated to a more favorable comprehensive income of US$ 12.8 million for 1Q14, or up by 114.9% from the Q1 results of the previous year.
PRODUCTION & OPERATION
The Company’s coal production volume expanded 48.5% y-o-y from 1.3 million tons in 1Q13 to 1.9 million tons in 1Q14 on the back of significantly higher volume contributions from TMU and IM. The production volume of 1.9 million tons in 1Q14 resulted from operations of all three operating subsidiaries with the following respective contributions: around 1.0 million tons from ABN, around 0.5 million tons from IM, and around 0.4 million tons from TMU. The Company’s y-o-y production growth of 48.5% mainly stemmed 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. In 1Q14 ABN is the main volume contributor with 1 million tons production, while IM and TMU posted production volume growth of around 102.6% and 330.4% y-o-y respectively.
Changes in Production and Stripping Ratio (SR) at ABN, IM and TMU
ABN IM TMU
In continuing its efforts to maintain the operational performance of 2013, in line with the strategy to continually lower overall costs towards maintaining profitability margin, the Company maintained its stripping ratio (SR) and sustained stable overburden dump distance. Typically these two cost components account for around 65%-70% of FOB vessel cash cost.
Average Production, SR, and Dump Distance
The Company’s ASP only contracted by 5.0% y-o-y from US$ 66.2/ton in 1Q13 to US$ 62.9/ton in 1Q14, which compared favorably with NEWC Index price that declined at a rate of 16.1% over the same period. The ASP outperformance over that of NEWC Index stemmed from the Company’s ability to capitalize on securing its coal sales based more on fixed pricing rather than index-linked at year end 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 quality buyers by entering into fixed-priced contracts over the end periods of 2013. In doing so, this should enable the Company to maximize its pricing structure. By the end of 1Q14, the Company has sold ~70%-80% of its 2014 sales volume at fixed price.
936 1.003 Production volume (K ton) SR (x)
270 Production volume (K ton) SR (x)
84 362 Production volume (K ton) SR (x)
1.298 1.501 1.802 1.950 1.911
15x
1Q'13 2Q'13 3Q'13 4Q'13 1Q'14
Production Volume (K tons) Stripping Ratio (SR)
1,681 1,741 1,785 1,675
1Q13 2Q13 3Q13 4Q13 1Q14
Dump Distance (in meters)
FINANCIALS
Financial and Operational Highlights
All figures are in million US$ unless
otherwise stated 1Q13 1Q14 Changes
Operational
Sales Volume Mn ton 1.4 1.9 34.9%
Production Volume Mn ton 1.3 1.9 48.5%
Stripping Ratio (SR) x 15.2 13.5 (11.5%)
FOB Vessel Cash Cost* US$/ton 55.1 48.9 (11.2%)
NEWC Index Price US$/ton 93.0 78.1 (16.1%)
Average Selling Price (ASP) US$/ton 66.2 62.9 (5.0%)
Financial Performance
Profit (Loss) 1Q13 1Q14 Changes
Revenue US$ Mn 94.9 122.0 28.5%
Cost of Goods Sold US$ Mn 80.6 98.4 22.1%
Gross Profit US$ Mn 14.4 23.6 69.2%
EBITDA** US$ Mn 9.4 21.1 123.6%
Total Comprehensive Income
For the Periods US$ Mn 6.0 12.8 114.9%
Operating Cash Flow US$ Mn 32.5 (0.1) (100.3%)
Capex US$ Mn 3.0 5.5 83.0%
Balance Sheet FY13 1Q14 Changes
Interest Bearing Debt US$ Mn 55.9 49.9 (10.6%)
Cash and cash Equivalents US$ Mn 63.3 47.4 (25.2%)
Net Debt*** US$ Mn Net Cash 2.5 N/A
Total Assets US$ Mn 311.6 300.0 (3.7%)
Total Liabilities US$ Mn 181.2 162.2 (10.5%)
Total Equity US$ Mn 130.5 137.9 5.7%
Financial Ratios Changes
Gross Profit Margin % 15.2 19.4 27.7%
EBITDA Margin % 10.0 17.3 74.0%
Notes:
*FOB Vessel Cash Cost = COGS including royalty and selling expense – depreciation and amortization **EBITDA = Gross Profit – selling expenses – G&A + depreciation and amortization
*** Net Debt = Interest bearing debt – cash and cash equivalents
PROFIT (LOSS)
SALES
COST OF GOODS SOLD
Lower cost of goods sold in 1Q13 resulted from the Company’s ability to significantly reduce FOB vessel cash cost from US$ 55.1/ton in 1Q13 to US$ 48.9/ton in 1Q14. Mining costs, such as overburden removal and dump distance as well as fuel, make up the major cash cost components.
EBITDA
EBITDA surged by 123.6% y-o-y from US$ 9.4 million in 1Q13 to US$ 21.1 million in 1Q14, resulting from predominantly the Company’s strategy in executing its mine plan 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 boosted EBITDA margin from 10.0% in 1Q13 to 17.3% in 1Q14.
The graph below depicts the EBITDA on q-o-q basis from US$ 9.4 million in 1Q13 to US$ 21.1 million in 1Q14 and the NEWC Index price from US$ 93.0/ton to US$ 78.1/ton over the same period.
Quaterly EBITDA vs NEWC Index 4Q 2012 – 1Q 2014
ASP vs FOB Vessel Cash Cost
COMPREHENSIVE INCOME
The Company booked total comprehensive income (before minority interest) of US$12.8 million in 1Q14, up by a significant 114.9% from US$6.0 million in 1Q13.
CASH FLOW
Operating cashflow as of 1Q14 was neutral due to shorter AP days and the Company’s paying down of Loan as well as prepayment that has been received in 2013.
BALANCE SHEET
ASSETS
The Company’s assets as at 31st March 2014 stood at US$ 300.0 million, or down by 3.7% from US$ 311.6 million as per end-December 2013 due to reduced cash resulting from loan repayment.
9 12 18 18 21
1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014
EBITDA (US$ Mn) NEWC. (US$/ton)
66,2
1Q13 2Q13 3Q13 4Q13 1Q14
Note: Figures are in Mn US$
LIABILITIES
Meanwhile, total liabilities as at 31st March 2014 contracted by 10.5% to US$ 162.2 million from US$ 181.2 million as per end-December 2013 and interest bearing debt dwindled by 10.6% to US$ 49.9 million from US$ 55.9 million over the same period.
EQUITY
Total equity in 1Q14 increased 5.7% to US$ 137.9 million from US$ 130.5 million as per end-2013, and this was attributable to additional income for the period.
CAPITAL EXPENDITURE (CAPEX)
Until 1Q14, the Company has realized total CAPEX of around US$ 5.5 million, which is mainly allocated for the land compensation at IM and TMU.
MARKETING
During 1Q14, the Company sold its coal to mainly Asian countries, which included China, Korea, Taiwan, India, and the Philippines. 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 1Q14, the Company has secured ~70-80% of its 2014 total sales volume.
60
40
45
63
47
43 42 47
56
50
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Sales Destinations by Country
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
PT TOBA BARA SEJAHTRA TBK at a Glance
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.
Locations
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 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)
TMU - IM Hauling Road
