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Unaudited Financial Statements for the Period Ended 30 September 2019

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Unaudited Financial Statements for the Period Ended 30 September 2019


Profit & Loss Statement


Statement of Comprehensive Income for the 9 months ended 30 September 2019 and 30 September 2018



Balance Sheet




Review of Performance


Revenue

The Group's revenue comprises of revenue generated from Coal Mining and Coal Trading divisions as well as Non-coal Businesses. Total revenue decreased by US$21.48 million or 7.5% from US$286.67 million in 3Q18 to US$265.19 million in 3Q19. The overall decrease in revenue was mainly due to a decrease in revenue from the Group's Coal Trading division, partially offset by an increase in revenue from Non-coal Businesses. Revenue from Coal Mining division remained stable.

Coal Mining Division

Revenue from the Group's Coal Mining division was stable at US$248.15 million in 3Q19 as compared to US$248.90 million in 3Q18. Average selling price showed a decline of 15.9% from US$40.80 per metric tonne in 3Q18 to US$34.30 per metric tonne in 3Q19. The average Indonesia Coal Index 4 ("ICI4") in 3Q19, a better proxy for the majority of the Group's coal quality, was US$33.10 per metric tonne. The decrease in average selling price was offset by an increase in sales volume from 6.1 million tonnes in 3Q18 to 7.2 million tonnes in 3Q19. The Group's coal production volume increased by 1.22 million tonnes or 17.7% from 6.88 million tonnes in 3Q18 to 8.10 million tonnes in 3Q19.

Coal Trading Division

Revenue generated by the Group's Coal Trading division decreased by US$25.04 million or 66.9% from US$37.42 million in 3Q18 to US$12.38 million in 3Q19. The decrease was mainly due to lower sales volume and average selling price as compared to corresponding reporting period.

Non-coal Businesses

Revenue in 3Q19 comprises dividend income, management fees and plywood sales. Revenue increased by US$4.31 million from US$0.35 million in 3Q18 to US$4.66 million in 3Q19 mainly due to dividend income from shares of Stanmore Coal Limited (“Stanmore”) and a slight increase in plywood sales as compared to corresponding reporting period.

Cost of Sales

The Group reported a decrease in cost of sales of US$7.27 million or 3.8% from US$190.60 million in 3Q18 to US$183.33 million in 3Q19. This was mainly due to decrease in coal purchases from Coal Trading division and mining services from Coal Mining division offset by an increase in coal freight, royalty expenses and overheads as a result of coal production ramp up from the Coal Mining division. Cash cost (excluding royalty) from Coal Mining division decreased from US$26.82 per tonne in 3Q18 to US$24.46 per tonne in 3Q19. This was driven by lower fuel rates, lower strip ratios and contractor rates compared to 3Q18.

Gross Profit

The Group's gross profit decreased by US$14.21 million or 14.8% from US$96.07 million in 3Q18 to US$81.86 million in 3Q19.

Other income

The Group's other income decreased by US$0.28 million or 8.5% from US$3.32 million in 3Q18 to US$3.04 million in 3Q19, due to a decrease in interest income of US$0.18 million and miscellaneous income of US$0.25 million partially offset by an increase in compensation income of US$0.14 million.

Expenses

Selling and distribution expenses

The Group's selling and distribution expenses increased by US$3.11 million or 7.9% from US$39.47 million in 3Q18 to US$42.58 million in 3Q19 mainly due to increase in freight and stockpile expenses as a result of the increase in coal sales volume from the Coal Mining division.

Administrative expenses

The Group's administrative expenses remained relatively stable at US$16.56 million in 3Q19.

Other operating expenses

The Group's other operating expenses increased by US$0.24 million or 16.7% from US$1.45 million in 3Q18 to US$1.69 million in 3Q19 mainly due to an increase in provision for mine closure, depreciation and amortisation expenses and miscellaneous expenses partially offset by a decrease in foreign exchange loss.

Finance costs

The Group's finance costs increased by US$1.92 million or 31.4% from US$6.12 million in 3Q18 to US$8.04 million in 3Q19 mainly due to an increase in interest expenses resulting from drawdown of loan.

Income tax expenses

Income tax expenses decreased by US$1.82 million or 18.0% from US$10.08 million in 3Q18 to US$8.26 million in 3Q19 as a result of lower taxable profit.

Profit after tax

Due to the factors above, the Group's net profit decreased by US$17.00 million or 68.6% to US$7.78 million in 3Q19 as compared to US$24.78 million in 3Q18, and profit attributable to owners of the Company decreased by US$10.72 million or 71.9% to US$4.18 million in 3Q19 as compared to US$14.90 million in 3Q18.

Other comprehensive income

The Group's other comprehensive income increased by US$23.82 million or 155.3% from a net loss of US$15.34 million in 3Q18 to a net gain of US$8.48 million in 3Q19 mainly due to an increase in share price of Westgold Resources Limited (“Westgold”) from A$1.88 as at 30 June 2019 to A$2.50 as at 30 September 2019 partially offset by a decrease in share price of Stanmore from A$1.43 as at 30 June 2019 to A$1.36 as at 30 September 2019.

Review of Statement of Financial Position

Assets and liabilities

Non-current assets

  • Property, plant and equipment increased by US$13.71 million to US$94.09 million at 30 September 2019 as a result of new port expansion at Bunati port partially offset by depreciation.
  • Right-of-use-assets increased by US$1.27 million at 30 September 2019 as a result of the adoption of SFRS (I) 16.
  • The increase in investment in securities of US$74.14 million to US$131.84 million at 30 September 2019 was due to (i) net increase in market value of US$52.57 million for shares of Stanmore and Westgold; (ii) US$9.63 million related to approximately 5.5% of Stanmore acquired in take-over offer; (iii) US$6.58 million related to additional purchase of shares of Stanmore during the period under review; (iv) US$1.36 million due to receipt of dividend and issue of new shares of Stanmore pursuant to the dividend reinvestment plan; and (v) an increase in investment of US$4.00 million in renewable energy project.

Current assets

  • The increase in inventories of US$8.93 million to US$28.58 million at 30 September 2019 was due to higher production during the period under review.
  • The increase in trade and other receivables of US$15.21 million to US$140.10 million at 30 September 2019 was mainly due to FY2019 final dividend receivable on shares of Stanmore and an increase in other receivables partially offset by decrease in trade receivables.
  • The decrease in other current assets of US$10.37 million to US$129.51 million at 30 September 2019 was mainly due to decrease in advance payment to coal suppliers partially offset by an increase in prepaid insurance and royalty.

Current liabilities

  • Trade and other payables increased by US$42.09 million to US$245.32 million at 30 September 2019 mainly due to increase in (i) trade payables due to increased coal production; (ii) advances from customers; and (iii) accrued expenses due to higher royalty and other tax accrued partially offset bya decrease in other payables due to payment of dividend which was declared in December 2018 by a subsidiary PT Golden Energy Mines Tbk (“GEMS”).
  • Lease liabilities increased by US$1.30 million at 30 September 2019 as a result of the adoption of SFRS(I) 16.
  • Provision for taxation decreased by US$0.89 million to US$0.86 million at 30 September 2019 as a result of tax payment and lower corporate tax charged during the period under review.

Non-current liabilities

  • Loans and borrowings increased by US$45.89 million to US$268.75 million at 30 September 2019 as a result of drawdown of term loan for operation and investment in property and equipment, and a new loan facility for investment purposes.
  • Post-employment benefits increased by US$0.57 million to US$3.55 million at 30 September 2019 due to provision for employee benefits liabilities during the current reporting period.

As at 30 September 2019, the Group has net current assets of US$172.97 million and the Company has net current assets of US$69.04 million. The Group has loans and borrowings totalling US$316.89 million of which US$48.14 million is due within the next 12 months. The Group's cash and cash equivalents stood at US$168.41 million as at 30 September 2019.

Review of Statement of Cash Flows

For 3Q19, the Group had net cash inflows of US$46.93 million mainly due to the following:

Net cash generated from operating activities of US$84.42 million comprised of operating cash inflow before working capital changes of US$31.22 million, net working capital inflow of US$81.87 million, various taxes paid of US$12.60 million and interest and other financial charges paid of US$18.74 million. The Group also recorded interest income received of US$2.67 million. The net working capital inflow of US$81.87 million was mainly due to an increase in trade and other payables of US$97.72 million partially offset by an increase in (i) inventories of US$15.07 million; and (ii) trade and other receivables, advances and other current assets totalling US$0.78 million.

Net cash flows used in investing activities of US$18.39 million mainly due to (i) purchase of investment securities of US$10.58 million including shares of Stanmore and investment in renewable energy project; (ii) purchase of property, plant and equipment of US$5.93 million; and (iii) additions to mining properties of US$3.43 million.

Net cash flows used in financing activities of US$19.11 million was mainly due to (i) repayment of loans and borrowings of US$52.05 million; (ii) dividend payments partially offset by proceeds from loans and borrowings of US$50.75 million. Part of the repayment and proceed of borrowings was due to refinancing of loan amounting to US$32 million by subsidiary GEMS.

Commentary


While the trend for global coal demand is expected to stay flat, Southeast Asian demand for coal remains robust, doubling to nearly 400 million tonnes of coal equivalent by 2040 at an annual average growth rate of 3%. With a strong presence in the region, GEAR continues to support the thermal coal demand from its key export markets in Southeast Asia.

In China, coal-fired power generation is projected to peak in 2025 but slowing demand growth and the goal of limiting CO2 emissions growth by 2030 will halt coal generation.

Southeast Asia remains a key demand driver for coal, which will continue to be the region’s dominant fuel source in power generation. Demand in the region will also be supported by the construction of new coal-fired power plants, including a new 2-GW coal-fired power capacity in Malaysia in the second half of 2019.

In May 2019, the Indonesian Coal Mining Association and China National Coal Association have signed a memorandum of understanding to strengthen cooperation in the coal mining sector. The collaboration framework, which reflects the Indonesian government's efforts to develop trade exports of both countries and also investment in developing value-added coal, could provide certainty on China’s import policy.

In India, power utilities imported 28.7 million tonnes of thermal coal over April-August 2019, representing an increase of 28% year-on-year. Going forward, India is projected to increase its annual coal production by 2.7% per year till 2050 in order to meet growing domestic demand, while consumption will grow by an average of 3.1% per year over the same period. By 2050, India is expected to be the world's largest importer, with imports growing on average 4.1% per year.

Looking ahead, GEAR remains optimistic on the near to medium term outlook for thermal coal in its key markets and believes that demand will continue to be supported by the growing energy requirements of developing countries. GEAR will continue to focus on maintaining profitability at current prices while staying on track to achieve 25 million tonnes of production in 2019.

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