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Unaudited Financial Statements for the Period Ended 31 December 2018

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Unaudited Financial Statements for the Year Ended 31 December 2018


Profit & Loss Statement


Statement of Comprehensive Income for the 12 months ended 31 December 2018 and 31 December 2017



Balance Sheet




Review of Performance


Revenue

The Group's revenue comprises of revenue generated from Coal Mining and Coal Trading divisions as well as from Non-coal Businesses. Total revenue increased from US$763.81 million in FY17 to US$1,048.48 million in FY18. The increase was mainly due to increase in revenue from the Group's Coal Mining division, partially offset by a decrease in revenue from Coal Trading division and Non-coal Businesses.

Coal Mining Division

The Group's Coal Mining division reported an increase in revenue by US$297.78 million or 46.1% from US$645.42 million in FY17 to US$943.20 million in FY18. The increase was mainly driven by higher sales volume partially offset by lower average selling price as compared to the corresponding reporting year. Average selling price showed a marginal decline of 2.6% from US$42.49 per metric ton in FY17 to US$41.39 per metric ton in FY18. The average Indonesia Coal Index 4 ("ICI4") in FY18, a better proxy for the majority of the Group's coal quality, was US$42.00 per metric ton.

Coal Trading Division

Revenue generated by the Group's Coal Trading division decreased by US$10.41 million or 9.1% from US$114.03 million in FY17 to US$103.62 million in FY18. The decrease was mainly due to lower sales volume partially offset by higher average selling price as compared to corresponding reporting year.

Non-coal Businesses

Revenue comprises plywood sales as well as management fee income. Revenue decreased by US$2.70 million from US$4.36 million in FY17 to US$1.66 million in FY18 due to absence of log sales and decrease in management fee income which was partially offset by an increase in plywood sales as compared to corresponding reporting year.

Cost of Sales

The Group reported an increase in cost of sales by US$238.79 million or 53.3% from US$447.90 million in FY17 to US$686.69 million in FY18. This was mainly due to increase in mining services costs due to higher stripping ratios and longer overburden hauling distance, coal freight for increased usage of equipments for transporting of coal, mining overheads comprising road repair and maintenance, fuel costs and royalty expenses as a result of coal production ramp up and sales activities from the Coal Mining division. The increase was partially offset by a decrease in amortisation expenses related to depletion of mine properties for stripping activity and lower coal purchases from Coal Trading Division.

Gross Profit

The Group's gross profit increased by US$45.88 million or 14.5% from US$315.91 million in FY17 to US$361.79 million in FY18. The increase was mainly due to the above factors.

Other income

The Group's other income decreased by US$3.57 million or 20.6% from US$17.35 million in FY17 to US$13.78 million in FY18, mainly due to a decrease in miscellaneous income of US$1.07 million, absence of reversal of prior year withholding tax provision and compensation income partially offset by an increase in interest income of US$4.02 million derived from bank deposits and advances.

Expenses

Selling and distribution expenses

The Group's selling and distribution expenses increased by US$52.1 million or 52.5% from US$99.20 million in FY17 to US$151.3 million in FY18 mainly due to increase in (i) stockpile expenses (ii) freight expenses which is in line with our coal production ramp up and (iii) the increase in coal sales volume from the Coal

Administrative expenses

The Group's administrative expenses increased by US$21.82 million or 39.6% from US$55.11 million in FY17 to US$76.93 million in FY18 mainly due to increase in (i) repair and maintenance expenses for road development in our coal concessions, (ii) salaries, benefits and employee welfare expenses, (iii) taxes and stamp duty fee and (iv) legal and professional fees incurred relating to corporate exercises.

Other operating expenses

The Group's other operating expenses increased by US$1.86 million from US$8.72 million in FY17 to US$10.57 million in FY18 mainly due to an extraordinary item recognized on impairment of goodwill of US$6.51 million which was partially offset by decrease in foreign exchange losses.

Fair value gain on biological asset

The Group recorded a fair value gain on our biological assets of approximately US$2.55 million in FY18 as a result of increase in plantation area and higher selling price.

Finance costs

The Group's finance costs increased by US$12.16 million or 101.8% from US$11.95 million in FY17 to US$24.11 million in FY18 mainly due to an increase in interest expenses resulting from the issuance of the Company's bond in February 2018.

Income tax expenses

Income tax expenses decreased by US$11.69 million or 22.0% from US$53.21 million in FY17 to US$41.51 million in FY18 as a result of (i) lower taxable profit in FY18 and (ii) decrease in withholding tax expenses due to lower dividend income from subsidiary company.

Profit after tax

Due to the factors above, the Group's net profit decreased by US$30.76 million or 29.4% to US$73.68 million in FY18 as compared to US$104.44 million in FY17, and profit attributable to owners of the Company decreased by US$23.63 million or 37.5% to US$39.32 million in FY18 as compared to US$62.95 million in FY17.

Other comprehensive income

The Group's other comprehensive income decreased by US$33.82 million from gain of US$3.71 million in FY17 to loss of US$30.11 million in FY18 mainly due to fall in Westgold share price from AUD 1.77 as at 31 December 2017 to AUD 0.88 as at 31 December 2018, and the effect of the weakening Australia Dollar against United States Dollar.

Review of Statement of Financial Position

Assets and liabilities

Non-current assets

  • Biological assets increased by US$3.07 million to US$3.38 million at 31 December 2018 due to fair value gain during the year.
  • Property, plant and equipment increased by US$15.94 million to US$80.38 million at 31 December 2018 due to acquisition of PT Barasentosa Lestari ("BSL") and additions during the year, partially offset by depreciation.
  • Mining properties increased by US$141.81 million to US$227.66 million at 31 December 2018 primarily on account of additions to mining properties from the acquisition of BSL, offset by amortisation during the period under review.
  • Goodwill on consolidation increased by US$10.06 million to US$113.74 million at 31 December 2018 as a result of additions arising from the acquisition of BSL, partially offset by impairment of goodwill arising from the reverse take-over in 2015 and amortisation during the period under review.
  • The increase in investment in securities of US$34.26 million to US$57.60 million at 31 December 2018 was due to the second and third tranche payments for investment in Westgold Resources Limited ("Westgold") and investment in Stanmore Coal Limited ("Stanmore"). This increase was partially offset by a marked to market loss recognised on the Westgold shares.
  • The increase in deferred tax assets of US$1.36 million to US$6.02 million at 31 December 2018 was due to higher tax losses in subsidiaries.
  • The increase in restricted fund of US$10.14 million to US$14.80 million at 31 December 2018 was mainly due to fund deposited in the interest reserve account relating to the Company's bond and an increase of reclamation guarantee money placed with banks, partially offset by a decrease in the interest reserve account relating to a loan which was repaid in February 2018.
  • The increase in other non-current assets of US$23.24 million to US$46.38 million at 31 December 2018 was mainly due to increase in prepaid land exploitation as a result of acquisition of BSL, deferred expenses related to the bond issuance during the period under review and an increase in prepaid expenses and guarantee deposit relating to road maintenance.

Current assets

  • The increase in inventories of US$3.51 million to US$19.65 million at 31 December 2018 was due to an increase in coal production during the period under review and as a result of additions arising from the acquisition of BSL.
  • The increase in advances to suppliers/vendors of US$14.93 million to US$104.73 million at 31 December 2018 was mainly due to increase in advance payment of US$22.05 million to coal suppliers offset by realisation of advance payment made for BSL acquisition which was completed in Aug 2018.
  • The increase in other current assets of US$33.46 million to US$35.15 million at 31 December 2018 was mainly due to advance down payment of US$33.91 million to a coal supplier under a coal offtake agreement partially offset by decrease in prepaid insurance and building rental.
  • The decrease in cash and cash equivalents of US$75.59 million to US$113.11 million at 31 December 2018 was mainly due to payment made for the acquisition of BSL, investment in Westgold, investment in Stanmore, repayment of a loan facility, payment of income taxes, payment of advances to suppliers and vendors, payment of trade and other payables and dividend payments, partially offset by the proceeds from the Company's bond issuance and collections from trade and other receivables.

Current liabilities

  • Trade and other payables increased by US$41.23 million to US$203.23 million at 31 December 2018 mainly due to increase in (i) mining services and coal purchases in line with increased activity; (ii) other payables as a result of acquisition of BSL and partially offset by payment of dividend which was declared in December 2017 by a subsidiary.
  • Provision for taxation decreased by US$33.60 million to US$1.75 million at 31 December 2018 as a result of tax payment during the period under review offset by the corporate tax charged during the period under review.
  • Loans and borrowings increased by US$20.96 million to US$46.17 million at 31 December 2018 mainly due to the drawdown of working credit facility partially offset by the repayment of loans during the period under review.

Non-current liabilities

  • Non-current trade and other payables increased by US$33.91 million to US$34.04 million at 31 December 2018 as a result of additional other payables arising from the acquisition of BSL.
  • Loans and borrowings increased by US$153.09 million to US$222.86 million at 31 December 2018 as a result of the issuance of the Company's bond, additional loan arising from BSL acquisition and drawdown of working credit facility partially offset by the repayment of certain loan facility.
  • Deferred tax liabilities increased by US$16.53 million to US$29.54 million at 31 December 2018 as a result of the additional deferred tax liabilities arising from BSL acquisition.
  • Provision for mine closure increased by US$0.28 million to US$2.00 million at 31 December 2018 as a result of additional proviSion during the period under review.

As at 31 December 2018, the Group has net current assets of US$148.37 million and the Company has net current assets of US$65.11 million. The Group has loans and borrowings totalling US$269.03 million of which US$46.17 million is due within the next 12 months. The Group's cash and cash equivalents stood at US$113.11 million as at 31 December 2018.

Review of Statement of Cash Flows

For FY18, the Group had net cash outflows of US$80.08 million mainly due to the following:

Net cash generated from operating activities of US$28.83 million which comprised of operating cash inflow before working capital changes of US$139.54 million, net working capital outflow of US$12.32 million, income taxes paid of US$101.47 million and interest and other financial charges paid of US$9.65 million respectively. The Group also recorded interest income received of US$12.73 million. The net working capital outflow of US$12.32 million was mainly due to a increase in trade and other receivables, advances and other current assets totalling US$68.02 million and an increase in inventories of US$0.42 million, partially offset by an increase in trade and other payables of US$56.13 million.

Net cash flows used in investing activities of US$167.26 million mainly due to (i) net cash outflows on acquisition of BSL of US$64.99 million; (ii) purchase of investment securities of US$63.38 million; (iii) purchase of property, plant and equipment of US$18.00 million; (iv) additions of other investment of US$2.06 million; (v) increase in other non-current assets of US$8.56 million; and (vi) increase in restricted fund of US$10.04 million.

Net cash flows generated from financing activities of US$58.35 million was mainly due to proceeds from issuance of bonds of US$149.70 million, proceeds from loans and borrowings of US$105.52 million, partially offset by repayment of loans and borrowings of US$110.80 million, payment of dividend of US$41.71 million and payment of dividend of US$44.36 million by a subsidiary to non-controlling shareholder of the Group.

Commentary


Global coal demand is expected to remain volatile in 2019 due to uncertainty over China's import restrictions along with stricter environmental policies. China remains key to the seaborne coal market, with imports of over 281 million metric tonnes ("MT") in 2018, up 3.8% year-on-year. According to the International Energy Agency's World Energy Outlook for 2018, under the "New Policies" scenario, coal consumption in China is expected to drop 15% by 2040 .

Challenges remain for Indonesia's coal industry as domestic market obligations may impact coal prices in 2019. In an effort to stabilise the global coal price, the Indonesian government has lowered its 2019 coal production target to 480 million MT, while seeking to add 35 gigawatts of power, two-thirds of which could be coal-fired. Domestic coal consumption is expected to reach 128 million MT in 2019, up 11.3% from 115 million MT in 2018.

The benchmark reference price set by the Ministry of Energy and Mineral Resources fell to US$91.80 in February 2019 , decreasing 8.8% from US$100.69 in February 2018 . Spot prices for FOB Kalimantan 4200 thermal coal recovered to US$33 in mid-January 2019, up from a multi-year low of US$28.30 in November 2018, as bad weather in the region affected production and loading schedules.

Coal usage is yet to peak in Asia, and continue to be one of the most important energy components given its affordability and availability. Growth in global seaborne demand for the year is expected to be driven by India and Southeast Asia. Vietnam is likely to lead the regions demand growth with 2 gigawatts of new coal-fired power plants.

Following the acquisition of 25.5% in Australia's Stanmore Coal, GEAR continues to diversify and expand its coal product suite and geographical presence.

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