Coal Energy 1HFY13 revenue rises on trading, profitability falls

Coal Energy (CLE PW) reported a 5% yoy revenue increase to USD 86.7 mln in 1HFY13 on Feb. 28. Thermal coal sales increased 20.2% yoy to 803 kt and coking coal sales grew 8.7% yoy to 142 kt, both owing to brisk trading activity, which surged fourfold to 12.6% of total revenue, compared to 3.3% a year ago. EBITDA fell 27% yoy to USD 24 mln, while net income plummeted 42.5% yoy to USD 11.9 mln.

The company disclosed it received the first tranche of a USD 70 mln loan from the EBRD in February. Coal Energy plans to use it to finance the development of its waste recovery business and the construction of its enrichment facility, as well as fund a working capital increase.

The company reported a significant increase in working capital compared to the start of the financial year: its finished goods inventories grew 44% while trading receivables jumped 37%. Coal Energy provided a cautious outlook for 2HFY13, stating that worsening market conditions is the key factor that can spoil the result.

Roman Topolyuk: Without the boosted coal trading activity, we estimate that Coal Energy’s revenue would have fallen 5% yoy in 1HFY13 to USD 75.8 mln. The boost in trading was reflected in a reduction in its operating margin, as this business is less profitable compared to mining. Coal Energy’s cautious outlook confirms our expectations that in the currently tough market conditions (with coal oversupply), the company will have to cut coal mining compared to its initial FY2013 plan.

Annualized mining in 7M of FY13 was 1.8 mmt, compared to the company’s full-year guidance of 2.2 mmt, and the launch of its planned new long walls may be deferred. The reason for the company’s switch to trading activity, amidst boosted mined coal inventories, remains unclear.