Adaro Energy (ADRO), second largest coal producer in Indonesia, booked net profit of US$178.16 million last year, declined by 23.85% from 2013 due to falling prices and higher finance costs.
ADRO’s sales revenue inched up 1.23% last year as higher volume offset the falling prices. International coal prices (Global Coal Newcastle) declined 17% last year due to a persistent oversupply. ADRO’s average selling price (ASP), however, declined 5% only from 2013, while sales volume grew 7% to 57 million tons.
“The weak Chinese domestic demand, depreciation of key coal export countries’ currencies against the USD and Australian take-or-pay contracts were the lead factors behind the decline in international coal prices,” Adaro said Tuesday.
Gross profit declined slightly because of 5% decline in cash cost to US$33.03 per ton, even though strip ratio was slightly higher than 2013, among others due to lower fuel costs, freight & handling.
Operating profit declined 8.48% to US$493.55 million, but net profit dropped 23.85% because of 62% jump in finance costs to US$189.72 million.
ADRO also reported US$52.04 million losses on hedging instruments designated as cash flow hedges.
Like other coal producers, ADRO suffered more in the last quarter of 2014, with sales revenue falling 3.8% from the corresponding period in 2013, while gross profit slashed by 37% to US$133.94 million.
Going forward, thermal coal prices and demand would remain weak. Last year, net cash flows provided from operating activities dropped 18% to US$592.1 million only, thanks to US$88.73 million receipts on income tax refund.
ADRO, however, might report lower cash cost from weak crude oil prices and a persistent low strip ratio. ADRO and its partners can also jump start construction of 2000 MW coal-fired power plant in Batang Regency, Central Java province soon after completing the land acquisition. The project, however, will only start to generate revenues three years from now.
Finance costs?
Well, ADRO expects lower burdens after receiving US$1 billion of new loan in August 2014 to refinance the US$750 million 2011 facility and US$800 million Senior Notes 2009. ADRO will pay instalment of US$44 million for the US$1 billion facility this year. ADRO is also scheduled to pay US$34 million from US$380 million facility secured in 2013. The biggest might be US$87.5 million payment for the 2007 syndication loan scheduled this year. So, finance cost would still be high.
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