Sadovaya posts USD 15 mln loss in 2012, restructures its debts

Coal mining firm Sadovaya Group (SGR PW) reported a 56% yoy plunge in 2012 revenue to USD 40.0 on a 55% yoy fall in coal sales to 570 kt. The company generated an operating loss of USD 12.0 mln and a net loss of USD 14.6 mln in 2012 (vs. USD 11.6 mln in operating profit and USD 10.3 mln in net profit a year ago). Its operating loss was driven by USD 5.0 mln in expenses from financial assets impairment, USD 4.7 mln in losses from a PP&E revaluation, USD 2.2 mln in losses from inventory impairment, as well as USD 2.5 mln in costs to maintain idle mining assets.

Gross indebtedness grew to USD 42.9 mln during 2012, with minor cash amounts as of end-2012. Sadovaya stated its adjusted EBITDA in 2012 came in at USD 2 mln, compared to USD 15.7 a year before.

Sadovaya reported that it signed an additional agreement with OTP Bank to postpone a regular repayment of loan from March to for April, and it’s continuing negotiations with the bank on further repayment delay.

Independent auditor stated a qualified opinion based on its inability to confirm in full Sadovaya’s cost of sales and inventory of raw materials in 2012, with a total estimated negative effect on retained earnings of USD 3.6 mln (9% of SGR revenue in 2012). Moreover, the auditor indicated material uncertainty regarding the Sadovaya’s ability to continue as a going concern.

The company announced that it has signed an export contract to supply 500 tons of coal in April as a pilot batch, a further 2-5 kt in May and more than 5 kt starting in June. Without specifying any dates for restarting its underground coal mining, Sadovaya sees 247 kt of coal extraction in 2013 (down 39% yoy) and total sales of 400 kt (down 30% yoy).

Roman Topolyuk: With its report, Sadovaya has reported a set of disappointing financial results for 2012, with sharply deteriorating indicators of profitability and solvency, exacerbated by high leverage. The company’s production facilities spent almost two quarters idle. We expect Sadovaya to report net loss of around USD 4 mln in 1Q13, after the company sold only 4.9 kt during the quarter, with adjusted EBITDA possible only at a breakeven level.

In the current poor market (with domestic electricity production falling 10.8% yoy in 1Q13, and twice as high yoy coal stockpiles at thermal power plants of 5.1 mmt at the start of April), the possibly significant export sales contract is the last hope for the company, though current export prices may be even worse than on the internal market. We don’t expect the local market to improve significantly until 2014, and the latest operating guidance from Sadovaya may prove too optimistic.

Another key issue for the company’s management for next 2-3 quarters will be to negotiate an extension of debt repayments with its lenders, as well as debt servicing.