Consolidated Financial Statements for 1H2019
Operating and financial review for 1H2019
JSC National Atomic Company “Kazatomprom” (“Kazatomprom”, “KAP” or “the Company”) announces its consolidated financial results for the first half-year ended 30 June 2019, prepared in accordance with International Financial Reporting Standards (IFRS).
“Despite the continued uncertainty in the uranium market through the first six months of 2019, Kazatomprom continued to deliver strong results that are in-line with our expectations,” said Galymzhan Pirmatov, Kazatomprom’s Chief Executive Officer. “And importantly, we have remained consistent and transparent with the strategy that underlies those expectations.”
“With Kazatomprom representing over 20% of primary uranium supply, we have been following a disciplined approach as a responsible, pure-play market participant. On the production side, that discipline led to our recently announced decision to extend the 2018 to 2020 production curtailment plan out an additional year through 2021. And on the sales side, while we have continued to work with utilities amid the uncertainty, our discipline has also meant that we are only committing to contracts that align with our value strategy.”
“As we move into the second half of the year, with the possibility of disruptive US trade actions in the nuclear fuel cycle now being less of a threat, we are seeing a market that is generally more positive, with an increase in productive customer discussions. However, both suppliers and customers remain cautious, and today, supply and demand remain roughly balanced. So while the recovery continues to be slow, we are confident in the long-term prospects for our industry, and we believe that Kazatomprom, with our flexible, low-cost assets and a commitment to a value-driven strategy, remains uniquely positioned to realize significant benefits and deliver strong returns as the uranium market strengthens.”
Key Financial Metrics
| Six months ended 30 June | |||
| (KZT billion) | 2018 | 2019 | Change |
| Group’s consolidated revenue | 145.0 | 176.6 | 22% |
| Operating profit | 16.0 | 27.1 | 69% |
| Net profit | 326.4 | 104.0 | (68)% |
| Gain from reversal of liability under joint operations (one-time effect)1 | 17.0 | 100% | |
| Gain from business combinations (one-time effect) | 313.5 | 54.6 | (83)% |
| Adjusted net profit | 12.9 | 32.3 | 151% |
| Earnings per share attributable to owners (basic and diluted), KZT/share | 1,255.4 | 358.2 | (71)% |
| Adjusted EBITDA2 | 38.8 | 73.0 | 88% |
| Adjusted attributable EBITDA3 | 45.6 | 58.5 | 28% |
| Operating cash flow | (45.0) | 111.4 | 347% |
1 Gain from reversal of liability under joint operations relates to volumes of uranium that were not purchased from joint operations in 2018, and which the Group does not plan to acquire in future, hence this liability, which initially recorded at 31 December 2018,was derecognised in the first half 2019.
2 Adjusted EBITDA is calculated by excluding from EBITDA all items not related to the main business and having a one-time effect.
3 Adjusted Attributable EBITDA is calculated as an adjusted EBITDA less the share of the results in the net profit in JVs and Associates plus the share of adjusted EBITDA of JVs and Associates engaged in the uranium segment (except Budenovskoye JV LLP’s EBITDA due to minor effect it has during each reporting period) less non-controlling share of adjusted EBITDA of Appak LLP, Inkai JV LLP, Baiken-U LLP and Khorasan-U JV LLP less any changes in the unrealized gain in the Group.
Operating and Financial Review and Financial Statements
The Operating and Financial Review and Consolidated Financial Statements (unaudited, reviewed) provide detailed explanations of Kazatomprom’s results for the half-year ended 30 June 2019, as compared to the same period in 2018, with guidance for 2019. This press release should be read alongside these documents, all of which are available at www.kazatomprom.kz.
Business Combination Changes to Note
In the first half of 2019, as part of its corporate restructuring program developed in connection with the public offering of its securities, the Group completed several transactions that had a significant impact on reported results.
In the first half results for 2019:
- the Group’s ownership interest in Baiken-U LLP, Kyzylkum LLP and JV Khorasan-U LLP increased to 52.5%, 50% and 50%, respectively – before the transaction, those ownership interests were 14.45%, 33.98% and 33.98%, respectively.
- as of 31 December 2018 the Group obtained control over Baiken-U LLP through having majority of the voting rights and representation in the Supervisory Board.
- the Group maintained significant influence over Kyzylkum LLP and JV Khorasan-U LLP as at 31 December 2018 and the Group concluded at that date that no control was obtained over JV Khorasan-U LLP pending participants’ approval of changes in the charter of the investee that will enable the Group to exercise the majority of votes.
- in February 2019, the owners of JV Khorasan-U LLP approved changes to the charter documents of that entity, which gave the Group the ability to cast a majority vote at the supervisory board. As a result, the Group obtained control over JV Khorasan-U LLP from that date.
The acquisition of Baiken-U LLP as well as the increase in ownership interest in Kyzykum LLP and Khorasan-U LLP were reflected in the consolidated financial statements for the year ended 31 December 2018 at provisional (carrying) values. The valuations by an independent appraiser were finalised in the first half 2019. As a result, the statement of financial position as of 31 December 2018 was restated in condensed interim consolidated financial statements.
As at 30 June 2019, the fair value appraisal for the acquired assets and liabilities of JV Khorassan-U LLP was completed and the Group recorded a net gain of KZT 54.6 billion in profit and loss for the six months ended 30 June 2019.
In total, the number of the Group’s subsidiaries, Joint ventures (JVs), Joint operations (JOs) and Associates decreased from 44 as at 31 December 2018, to 43 as at 30 June 2019.
- In January 2019, the General Meeting of Participants approved the interim liquidation balance of “ULBA Conversion” LLP. The legal entity is expected to be dissolved by the end of 2019.
Revenue, Net Profit, EBITDA
Consolidated revenue was KZT 176.6 billion as at 30 June 2019, an increase of 22% compared to 30 June 2018, mainly due to an increase in average sales price due to higher spot prices for U3O8 and the weakening of the KZT against the USD. This was partially offset by lower sales volumes in 2019 compared to 2018 as described below.
The operating profit as at 30 June 2019 was KZT 27.1 billion, an increase of 69% compared to 30 June 2018. The increase in operating profit was mainly due to the weakening of the KZT against the USD and higher average sales price. The increase was also due to the change in the Group structure, which led to an increase in the share of uranium produced by the Company, consolidated subsidiaries and JOs. For those sales, the full mining margin is therefore captured in the consolidated results of the Group.
Net profit for the 2019 half year was KZT 104.0 billion, a decrease of 68% compared to 30 June 2018. A significant portion of the year-over-year decrease is associated with one-time effects of transactions in both years, particularly the inclusion of JV Inkai LLP, Karatau LLP, JV Akbastau JSC in the consolidation in 2018 and JV Khorasan-U LLP in 2019. The one-time effects of these transactions increased net income by KZT 313.5 billion and KZT 54.6 billion as at 30 June 2018 and 30 June 2019 respectively. Also, as of 30 June 2019 there was a gain from reversal of a liability, which was initially recorded at 31 December 2018, under joint operations in the amount of KZT 17.0 billion. This gain related to volumes of uranium that were not purchased from JOs in 2018, and which the Group does not plan to acquire in the future, hence this liability was reversed in the first half of 2019. Adjusting for those effects, adjusted net profit was KZT 32.3 billion, an increase of 151% compared to 30 June 2018.
Adjusted EBITDA totaled KZT 73.0 billion as at 30 June 2019, an increase of 88% compared to 30 June 2018, while adjusted attributable EBITDA was KZT 58.5 billion as at 30 June 2019, an increase of 28% compared to 30 June 2018. The changes were mainly driven by increased operating profit and the change in the Group structure.
Operating cash flows totaled KZT 111.4 billion, a significant increase from a negative cash flow of KZT 45 billion reported in the first half of 2018, mainly due to changes in working capital, an increase in the spot price for U3O8, and the weakening of the KZT against the USD.
Cost of sales
Cost of sales totaled KZT 129,596 million as at 30 June 2019, an increase of 15% compared to 30 June 2018. The increase was mainly due to the change in the Group structure and the consequent recognition of acquired assets at fair values that led to higher depreciation and amortisation of property, plant and equipment.
Selling Expenses
Selling expenses totaled KZT 4,108 million as at 30 June 2019, an increase of 22% compared to 30 June 2018, mainly due to the commission charged for the delivery of fuel pellets in accordance with 2018 contractual obligation of UMP JSC, and due to a JV Inkai LLP radiation safety charge for a change of destination point for the delivery of uranium products. The shipping, transportation and storing expenses did not change significantly.
General and Administrative Expenses (G&A)
G&A expenses totaled KZT 15,757 million as at 30 June 2019, an increase of 25% compared to 30 June 2018. The increase was primarily influenced by the change in the Group structure.
Depreciation and amortisation was KZT 788 million, 85% higher than as at 30 June 2018, mainly due to the acquisition of a new office building, which was offset by lower rent expenses in comparison to 30 June 2018.
Debt Leverage Ratios
The following table summarizes the key ratios used by the Company’s management to measure its financial stability as at 30 June 2018 and 2019:
| Six months ended 30 June | ||||
| (KZT millions unless noted) | 2018 | 2019 | Change | |
| Total debt | 91,115 | 145,801 | 60% | |
| Total cash | 108,160 | 60,067 | (44)% | |
| Net debt | (17,045) | 85,734 | 603% | |
| Adjusted EBITDA1 | 79,747 | 165,492 | 129% | |
| Net debt / Adjusted EBITDA (ratio) | (0.2) | 0.5 | 350% | |
1 Adjusted EBITDA for the six months ended 30 June 2018 and 30 June 2019 calculated as for the 12 months (first half of the reporting period plus second half of the last period).
The above indicators are in line with expectations previously communicated by management to investors. They indicate the creditworthiness of the Company.
Liquidity
The Group manages its liquidity requirements to ensure sufficient funds are available for operations and for settlement of financial obligations using, amongst other sources, short-term and long-term corporate credit lines without collateral.
| Six months ended 30 June | ||||
| (KZT millions) | 2018 | 2019 | Change | |
| Cash and cash equivalents | 100,542 | 60,012 | (40)% | |
| Current term deposit | 7,618 | 55 | (99)% | |
| Total cash | 108,160 | 60,067 | (44)% | |
The Group’s cash and cash equivalents as at 30 June 2019 were KZT 60,012 million, compared to KZT 100,542 million as at 30 June 2018. The decrease was mainly the result of the payment of dividends to shareholders during the first half of 2019, and the scheduled repayment of debt.
Corporate credit lines are an additional liquidity source for the Company. As at 30 June 2019, the Company, with certain subsidiaries, had total available revolving credit facilities of USD 275 million (denominated in USD). Approximately USD 265 million (96%) remained undrawn at 30 June 2019.
Production metrics
| Six months ended 30 June | ||||
| (KZT billion unless noted) | 2018 | 2019 | Change | |
| Production volume of U3O8 (100% basis) | tU | 10,905 | 10,800 | (1)% |
| Production volume of U3O8 (attributable basis)1 | tU | 5,771 | 6,226 | 8% |
| Attributable Cash cost (C1) | USD/lb | 12.2 | 9.86 | (19)% |
| Attributable All-In Sustaining cost (AISC) | USD/lb | 16.28 | 13.27 | (18)% |
| Group inventory of finished goods (U3O8) | tU | 11,635 | 10,374 | (11)% |
| KAP inventory of finished goods (U3O8)2 | tU | 10,095 | 8,407 | (17)% |
| Capital expenditures of mining companies (100% basis)3 | USD/lb | 30.5 | 26.0 | (15)% |
1 the Group production volumes as U3O8 (attributable basis) is not equal to the volumes purchased by Company and THK
2 KAP inventory of finished goods (incl. in Group): includes the inventories of KAP HQ and Trade House KazakAtom AG (THK). Intercompany transactions between KAP HQ and THK are not included.
3 Excludes liquidation funds and closure costs and includes expansion investments.
Production volumes of U3O8 on a 100% basis decreased by 1% as at 30 June 2019, compared to 30 June 2018. Production was lower as was expected based upon the production plans at various operations. Production attributable to Kazatomprom was higher in 2019 due primarily to higher 2019 production levels set by subsoil use contracts (as expected and previously disclosed), different production levels at various assets and the mix of ownership interest in each asset, and the change in the Group structure.
Attributable Cash Cost (C1) and All-In-Sustaining Costs (AISC) (in USD equivalent) decreased by 19% and 18% respectively as at 30 June 2019, compared to 30 June 2018. The decreases were primarily due to weakening of the KZT against the USD, the change in the Group structure and continued cost optimization efforts.
Consolidated Group inventory of finished U3O8 products at 30 June 2018 amounted to 10,374 tonnes, which was 11% lower than at 30 June 2018. At the KAP level, inventory of finished U3O8 products was 8,407 tonnes, a decrease of 17% compared to 30 June 2018. The lower inventory levels are in line with the Company’s target to maintain an optimum inventory level of approximately six to seven months of annual attributable production.
Capital expenditures of mining companies (on 100% basis) totaled KZT 26.0 billion, a decrease of 15% compared to 30 June 2018, mainly due to the changes in the timing of spending for projects to future expansion at some of the mining assets and continued cost optimization.
Sales metrics
| Six months ended 30 June | ||||
| (KZT billion unless noted) | 2018 | 2019 | Change | |
| Uranium segment revenue | 113.7 | 145.1 | 28% | |
| Including U3O8 sales proceeds (across the Group) | 111.9 | 144.4 | 29% | |
| U3O8 sales volume (consolidated) | tU | 5,579 | 5,425 | (3)% |
| Including KAP U3O8 sales volume2 | tU | 5,167 | 4,608 | (11)% |
| Average sales price of the Group | KZT/kg | 20,063 | 26,620 | 33% |
| Average sales price of the Group | USD/lb | 23.64 | 26.99 | 14% |
| Average weekly spot price | USD/lb | 22.14 | 26.47 | 20% |
| Average month-end spot price | USD/lb | 21.78 | 25.92 | 19% |
1 KAP sales volume (incl. in Group): includes only the total external sales of KAP HQ and Trade House KazakAtom AG (THK). Intercompany transactions between KAP HQ and THK are not included.
* Note that the conversion of kgU to pounds U3O8 is 2.5998.
Consolidated U3O8 sales were KZT 144.4 billion as at 30 June 2019, an increase of 29% compared to 30 June 2018, mainly due to an increase in average sales price reflecting a higher spot price for U3O8 and weakening of the KZT against the USD.
Consolidated U3O8 sales volumes as at 30 June 2019 totaled 5,425 tonnes, a decrease of 3% compared to 30 June 2018. Sales volumes through the first half of 2019 were lower than 2018, but in line with 2019 annual expectations. Allocation of sales volumes between fiscal quarters can vary substantially, due to variable timing of customer delivery requests and physical delivery dates.
The average sales price in KZT realized by the Group in the first half of 2019 was KZT 26,620 per kg ($26.99 USD/lb), an increase of 33% compared to 30 June 2018 due to an increase in the average spot price for uranium products and the weakening of the KZT against the USD.
Health, Safety and Environment Results
Kazatomprom continuously works with employees of subsidiaries at all levels to improve safety culture and increase compliance with the requirements of industrial safety. Special attention is paid to the use of preventive measures, such as identifying and responding to potentially dangerous situations, as well as conducting behavioral safety audits.
During the first half of 2019 there were two incidents registered at the Group's entities as a result of which four people received minor injuries. There were no incidents that resulted in complete disability or a fatality, and no industrial accidents (uncontrolled explosions, emissions of hazardous substances, or destruction of buildings) occurred during the reviewed period.
To assess the effectiveness of industrial safety measures, the Company uses the LTIFR indicator (Lost-Time Injury Frequency Rate), which reflects the number of incidents that led to the loss of working time per 1,000,000 hours worked.
| Six months ended 30 June | |||
| Indicator | 2018 | 2019 | Change |
| LTIFR (per million man-hours) | 0.45 | 0.25 | (44)% |
| Number of accidents | 9 | 4 | (56)% |
| Fatal case | 1 | - | (100)% |
All activities in the first half of 2019 were carried out in compliance with environmental legislation and in accordance with permits issued by authorized state bodies.
Radiation exposure and nuclear safety remained stable in the first half of 2019, with no exceedances or radiation accidents. All activities were carried out in compliance with the regulatory requirements and guidance on nuclear and radiation safety.
2019 Guidance
| (exchange rate 370 KZT/1USD) | 2019 |
| Production volume U3O8 (tU) (100% basis)1 | 22,750 – 22,800 |
| Production volume U3O8 (tU) (attributable basis)2 | 13,000 – 13,500 |
| Group sales volume (tU)3 | 15,000 – 16,000 |
| KAP sales volume (incl. in Group) (tU)3 | 13,500 – 14,500 |
| Revenue - consolidated (KZT billions)4 | 485 – 505 |
| Revenue from Group U3O8 sales, incl. in consolidated sales of U3O8 (KZT billions)4 |
392 – 408 |
| C1 cash cost (attributable basis) (USD/lb)* | $11.00 – $12.00 |
| All-in sustaining cash cost (attributable C1+capital cost) (USD/lb)* | $15.00 – $16.00 |
| Total capital expenditures (KZT billions) (100% basis)5 | 80 – 90 (previously 85 – 95) |
1 Production volume (100% basis): Amounts represent the entirety of production of an entity in which the Company has an interest; it therefore disregards that some portion of production may be attributable to the Group’s JV partners or other third-party shareholders.
2 Production volume (attributable basis): Amounts represent the portion of production of an entity in which the Company has an interest, which corresponds only to the size of such interest; it excludes the remaining portion attributable to the JV partners or other third-party shareholders.
3 KAP sales volume: includes only the total external sales of KAP HQ and THK. Intercompany transactions between KAP HQ and THK are not included.
4 Revenue expectations are based on uranium prices taken at a single point in time from third-party sources. A spot price of approximately US$26/lb U3O8 was published in Q3, 2018 and used for 2019 revenue estimates. Revenue could therefore be impacted by how actual uranium prices vary from that assumption.
5 Total capital expenditures (100% basis): includes only capital expenditures of the mining entities.
* Note that the conversion of kgU to pounds U3O8 is 2.5998.
Kazatomprom’s production expectations remain unchanged from previous guidance, consistent with the intention to flex down planned production volumes by 20% for 2018 through 2021 (versus consolidated planned production levels under Subsoil Use Agreements). With the flex down, under the existing Subsoil Use Agreements, production is expected to total approximately 22,750 to 22,800 tU (100% basis) in 2019; without the reduction, production would have exceeded 28,500 tU (100% basis) in 2019.
Expectations for sales volumes and revenue also remain unchanged.
Guidance for C1 cash cost (attributable basis) and all-in sustaining cash cost (attributable C1 + capital cost) are unchanged. However, throughout the first half of the year, the KZT has been weaker against the US dollar than the 2019 budget assumption. As a result, both C1 and all-in sustaining cash costs have trended to the bottom of their expected ranges.
The expectation for total capital expenditures (100% basis) in 2019 has decreased to KZT 80 to 90 billion (previously KZT 85 to 95 billion), related to changes in the timing of spending for projects related to future expansion at some of the mining assets.
The Company continues to target an ongoing inventory level of approximately six to seven months of annual attributable production.
Conference Call Notification - 2019 Half-Year Operating and Financial Review
Kazatomprom has scheduled a conference call to discuss the 2019 half-year operating and financial results, on Tuesday, 27 August, 2019. The call will begin at 17:00 (AST)/12:00 (GMT)/07:00 (EST). Following management remarks, an interactive English Q&A session will be held with investors (remarks in Russian with a simultaneous Russian translation of the Q&A available on a listen-only line).
Interested parties are invited to join the call using the following dial-in details. If calling from:
- United Kingdom: +44 (0) 80 0408 7373 or +44 (0) 20 3991 1888
- United States: +1 833 661 7897
- Kazakhstan: +7 (8) 7172 69 67 38
To join the English call (participate in live Q&A), enter conference room number 813569, with PIN 5207 when prompted. To receive a reminder at the time of the call, participants may now pre-register for the English call at:
https://www.speakservecloud.com/register-for-call/1eaba28d-5b43-4b54-b0ea-0f14b1e3fbd5.
To join the call in Russian (listen-only Q&A), enter conference room number 357958, with PIN 6326. To receive a reminder at the time of the call, participants may now pre-register for the Russian call at:
https://www.speakservecloud.com/register-for-call/aca09126-16e6-4a1d-9750-191e3e4156d3
A live webcast of the conference call will be available from a link at www.kazatomprom.kz home page on the day of the call. A replay will be made available after the call.
For further information, please contact:
Kazatomprom Investor Relations Inquiries
Cory Kos, Head of Investor Relations
Tel: +7 (8) 7172 45 81 80
Email: ir
kazatomprom.kz
Kazatomprom Public Relations and Media Inquiries
Torgyn Mukayeva, Head of Public Relations and Internal Communication
Tel: +7 (8) 7172 45 80 63
Email: prkazatomprom.kz
Powerscourt – London (Giles Read)
Tel: +44 20 7250 1446
Email: Kazatomprompowerscourt-group.com
About Kazatomprom
Kazatomprom is the world's largest producer of uranium, with the company’s attributable production representing approximately 23% of global primary uranium production in 2018. The Group benefits from the largest reserve base in the industry and operates, through its subsidiaries, JVs and Associates, 26 deposits grouped into 13 mining assets. All of the Company’s operations are located in Kazakhstan and mined using ISR technology with a focus on maintaining industry-leading health, safety and environment standards.
Kazatomprom securities are listed on the London Stock Exchange and Astana International Exchange. As the national atomic company in the Republic of Kazakhstan, the Group's primary customers are operators of nuclear generation capacity, and the principal export markets for the Group's products are China, South and Eastern Asia, Europe and North America. The Group sells uranium and uranium products under long-term contracts, short-term contracts, as well as in the spot market, directly from its headquarters in Nur-Sultan, Kazakhstan, and through its Switzerland-based trading subsidiary, Trade House KazakAtom AG (THK).
For more information, please see our newly updated website at http://www.kazatomprom.kz
Forward-looking statements
All statements other than statements of historical fact included in this communication or document are forward-looking statements. Forward-looking statements give the Company’s current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance and business. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,” “anticipate,” “estimate,” “plan,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company’s control that could cause the Company’s actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which it will operate in the future. THE INFORMATION WITH RESPECT TO ANY PROJECTIONS PRESENTED HEREIN IS BASED ON A NUMBER OF ASSUMPTIONS ABOUT FUTURE EVENTS AND IS SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTY AND OTHER CONTINGENCIES, NONE OF WHICH CAN BE PREDICTED WITH ANY CERTAINTY AND SOME OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. THERE CAN BE NO ASSURANCES THAT THE PROJECTIONS WILL BE REALIZED, AND ACTUAL RESULTS MAY BE HIGHER OR LOWER THAN THOSE INDICATED. NONE OF THE COMPANY NOR ITS SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, ADVISORS OR AFFILIATES, OR ANY REPRESENTATIVES OR AFFILIATES OF THE FOREGOING, ASSUMES RESPONSIBILITY FOR THE ACCURACY OF THE PROJECTIONS PRESENTED HEREIN. The information contained in this communication or document, including but not limited to forward-looking statements, applies only as of the date hereof and is not intended to give any assurances as to future results. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to such information, including any financial data or forward-looking statements, and will not publicly release any revisions it may make to the Information that may result from any change in the Company’s expectations, any change in events, conditions or circumstances on which these forward-looking statements are based, or other events or circumstances arising after the date hereof.