Management Discussion & Analysis Semester I 2014
Toba Bara Sejahtra Tbk and Subsidiaries
SUMMARY
Over quarter-on-quarter (q-o-q) period from 1Q14 to 2Q14, the bearish sentiment on the global coal prices continued to deteriorate as reflected by Newcastle (NEWC) Index price falling by 6.5% from US$ 78.1/ton to US$ 73.1/ton. Meanwhile on year-on-year (y-o-y) basis, the price corrected 14,2% from US$ 85.9/ton in 2Q13 to US$ 73.1/ton in 2Q14. The major causes of this included, among others, the combination of China’s slowing demand growth and its relatively high inventory level resulting in domestic coal price cuts, as well as lack of supply discipline from major producers such as Indonesia and Australia.
Given the current global coal price condition, Toba Bara Sejahtra (The Company) continues to be well positioned to keep its costs structure relatively stable for the year post a series of cost efficiency initiatives conducted over 2013 period, hence enabling it to focus on profitable production growth. As a case in point, 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$ 7-10/ton.
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 45.9% to 4.07 million tons and 37.5% to 3.85 million tons y-o-y in 1H14 respectively. On quarterly basis, the total production volume of 2.16 million tons in 2Q14 was in line with those of previous quarters of 1Q14 and 4Q13. The 2Q14 production volume was also the highest in its corporate history.
Financially, the Company increased its sales by 31.2% y-o-y from 1H13 to 1H14. Despite a 15.6% correction in the NEWC Index price, the Company only posted a decline of 4.9% in its average selling price (ASP) over the same period. On the cost side, the Company lowered its FOB (Free On Board) vessel cash cost by 5.0% 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 74.7% y-o-y higher EBITDA at US$ 38.3 million. This, in turn, translated to a more favorable income of US$ 20.72 million for 1H14, or up by 63.8% 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 45.9% y-o-y from 2.79 million tons in 1H13 to 4.07 million tons in 1H14 on the back of significantly higher volume contributions from TMU and IM. The production volume of 4.07 million tons in 1H14 resulted from operations of all three operating subsidiaries with the following respective contributions: around 2.22 million tons from ABN, around 1.12 million tons from IM, and around 0.74 million tons from TMU. The Company’s y-o-y production growth of 45.9% 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 1H14, ABN remains to be the
Company’s main volume contributor of all three subsidiaries accounting for 54.5% of total production, its contribution has, in fact, fallen from 68.8% as of 1H13. On the other hand, the contribution of TMU to total production has surged significantly from 8.2% in 1H13 to 18.2% in 1H14. On stand alone basis, the contributions of IM and TMU were crucial as they posted y-o-y production volume growth of around 75.0% % and 221.7% in 1H14 respectively.
Changes in Production and SR at ABN, IM and TMU
ABN IM TMU
As compared to 1H13, SR in 1H14 declined 4.7% from 14.3x to 13.6x reflecting the Company’s continued efforts in improving its operational performance amidst the low coal price environment. On q-o-q though, SR slightly rose by 2.1% from 13.5x in 1Q14 to 13.8x in 2Q14 due to pre-stripping activities across the board at all subsidiaries. SR is expected to normalize in the subsequent quarters 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 low as possible, given that these two cost components typically account for around 65%-70% of cash cost.
Average Production, SR, and Dump Distance
Average Production and SR Dump Distance (in meters)
The Company’s ASP only contracted by 4.9% y-o-y from US$ 67.20/ton in 1H13 to US$ 63.88/ton in 1H14, which compared favorably with NEWC Index price that fell 15.6% 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
Coal Production ('000) Stripping Ratio (SR)
640 1.116
Coal Production ('000) Stripping Ratio (SR)
230 740
Coal Production ('000) Stripping Ratio (SR)
1.298 1.501 1.802 1.950 1.911 2.160
15,1x 13,6x
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Production volume ('000) Stripping Ratio (SR)
1.681 1.741 1.785 1.675
1.899 1.816
1.000 2.000 3.000
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
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. The terms of payment were favorable to the Company such that the typical buyers, who are notably international traders, would prepay around 30% of contract value upfront. In doing so, this enabled the Company to maximize its pricing structure relative to any adverse coal market condition. By the end of 1H14, the Company has sold ~80%-90% of its 2014 sales volume at fixed price.
FINANCIALS
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
All figures are in million US$
unless otherwise stated
1Q14
2Q14
Changes
1H13
1H14
Changes
Operation
Sales Volume
Mn ton
1.93
1.92
(0.5%)
2.80
3.85
37.5%
Production Volume
Mn ton
1.91
2.16
13.1%
2.79
4.07
45.9%
Stripping Ratio (SR)
x
13.50
13.79
2.1%
14.30
13.63
(4.7%)
FOB Vessel Cash Cost*
US$/ton
48.90
52.32
7.0%
55.00
52.26
(5.0%)
NEWC Index Price
US$/ton
78.10
73.05
(6.5%)
89.54
75.55
(15.6%)
Average Selling Price (ASP) US$/ton
62.90
64.81
3.0%
67.20
63.88
(4.9%)
Financial Performance
Profit (Loss)
1Q14
2Q14
Changes
1H13
1H14
Changes
Sales
US$ Mn
122.00
124.83
2.3%
188.10
246.83
31.2%
Cost of Goods Sold
US$ Mn
98.40
103.77
5.5%
156.99
202.17
28.8%
Gross Profit
US$ Mn
23.60
21.06
(10.8%)
31.10
44.66
43.6%
Operating Profit
US$ Mn
17.67
14.75
(16.5%)
17.82
32.42
81.9%
EBITDA**
US$ Mn
21.10
17.20
(18.5%)
21.92
38.30
74.7%
Profit for the Period
US$ Mn
12.80
7.92
(38.1%)
12.65
20.72
63.8%
Capex
US$ Mn
5.50
2.27
(58.7%)
9.62
7.77
(19.2%)
Balance Sheet
FY13
1H14
Changes
Interest Bearing Debt
US$ Mn
49.90
57.83
55.90
57.83
3.5%
Cash and Cash Equivalents
US$ Mn
47.40
53.30
63.30
53.30
(15.8%)
Net Debt***
US$ Mn
2.50
4.53
Net Cash
4.53
N/A
Total Assets
US$ Mn
300.00
331.31
311.60
331.31
6.3%
Total Liabilities
US$ Mn
162.20
191.61
181.20
191.61
5.7%
Total Equity
US$ Mn
137.90
139.70
130.50
139.70
7.0%
Financial Ratios
Gross Profit Margin
%
19.4%
16.9%
16.5%
18.1%
EBITDA Margin
%
17.3%
13.8%
11.7%
15.5%
Operating Profit Margin
%
14.5%
11.8%
9.5%
13.1%
PROFIT (LOSS)
SALES
Although the weaker NEWC Index price impacted the Company’s overall ASP by 4.9% from US$ 67.20/ton in 1H13 to US$ 63.88/ton in 1H14, the Company booked a 31.2% rise in sales from US$ 188.10 million in 1H13 to US$ 246.83 million in 1H14 on the back of a solid 37.5% increase in sales volume over the same period.
COST OF GOODS SOLD
A 28.8% y-o-y rise in cost of goods sold from US$ 156.99 million in 1H13 to US$ 202.17 million in 1H14 reflected the Company’s significant increase in production volume by 45.9% despite lower cash cost from favourable 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 74.7% y-o-y from US$ 21.92 million in 1H13 to US$ 38.30 million in 1H14, 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 boosted EBITDA margin from 11.7% in 1H13 to 15.5% in 1H14.
The first graph below depicts the EBITDA evolution on q-o-q basis from US$ 9.40 million in 1Q13 right through to US$ 17.20 million in 2Q14 and the NEWC Index price from US$ 93.0/ton to US$ 73.05/ton over the same period. Over the past six quarters, the company has successfully booked stronger and stable EBITDA and cash margin during continued weaker coal price environment.
Quaterly EBITDA vs NEWC Index 1Q13 – 2Q14
ASP vs FOB Vessel Cash Cost 1Q13 – 2Q14
PROFIT FOR THE PERIOD
The Company booked total profit for the period (before minority interest) of US$ 20.72 million in 1H14, up by a 63.8% from US$ 12.65 million in 1H13. The US$ 20.72 million figure already factored in a series of one-off expenses consisting mainly of tax expense resulting from tax audit, totaling US$ 2.24 million out of US$ 2.96 million.
BALANCE SHEET
ASSETS
The Company’s assets as at 30th June 2014 stood at US$ 331.31 million, or up by 6.3% from US$ 311.6 million as per 31st December 2013.
9,0 12,0 18,0 18,0 21,0 17,2
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
EBITDA (US$ Mn) NEWC (US$/ton)
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
LIABILITIES
Total liabilities as at 30th June 2014 rose by 5.7% to US$ 191.61 million from US$ 181.2 million as per end-December 2013 and interest bearing debt increased by 3.5% to US$ 57.83 million from US$ 55.90 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 EBITDA to Interest Expense
EQUITY
Total equity in 1H14 slightly increased 7.0% to US$ 139.70 million from US$ 130.50 million as of 31st December 2013, and this was attributable to additional profit for the period.
CAPITAL EXPENDITURE (CAPEX)
Until 1H14, the Company has realized total CAPEX of around US$ 7.77 million, which is mainly allocated for the land compensation at IM and TMU.
MARKETING
During 1H14, 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 1H14, the Company has secured ~80-90% of its 2014 total sales volume.
-17,0
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Net Debt (Cash) (US$ Mn) EBITDA (US$ Mn) Ratio (x) (1,8) 0,2 0,7 (0,4) 0,1 0,3
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
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.
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.
40,2%
13,6% 19,3%
13,4% 6,7% 1,9%
0,5% 0,5% 0,5% 3,4%
China
Taiwan
Korea
India
Philippines
Thailand
Malaysia
Japan
Domestic
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
