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Unaudited Financial Statements for the Period Ended 30 June 2017

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Unaudited Financial Statements for the Period Ended 30 June 2017



Statement of Comprehensive Income for the Period Ended 30 June 2017



Balance Sheet




Review of Performance


Revenue

The Group's revenue comprises revenue generated from Coal Mining, Coal Trading and Forestry Divisions. Revenue from the Group increased from US$90.14 million in 2Q16 to US$139.64 million in 2Q17. The increase was mainly due to an increase in revenue from the Group's Coal Mining, Coal Trading and Forestry Divisions.

Coal Mining Division

The Group's Coal Mining Division reported an increase in revenue from US$78.95 million in 2Q16 to US$124.4 million in 2Q17. The increase was mainly due to higher sales volume and higher average selling price achieved as compared to the corresponding reporting period. Average realised selling price increased from US$31.56 per metric ton in 2Q16 to US$42.58 per metric ton in 2Q17. The average Indonesia Coal Index 4 ("ICI4") in 2Q17, a better proxy for the majority of the Group's coal quality, stood at US$40.12 per metric ton.

Coal Trading Division

Revenue generated by the Group's Coal Trading Division increased from US$9.4 million in 2Q16 to US$13.5 million in 2Q17. The increase was mainly due to higher average sales realisation price and an increase in sales volume as compared to the corresponding reporting period.

Forestry Division

Revenue generated by the Group's Forestry Division increased from US$1.29 million in 2Q16 to US$1.73 million in 2Q17 due to higher average realised selling price partially offset by lower sales volume.

Cost of Sales

The Group reported an increase in cost of sales from US$61.63 million in 2Q16 to US$74.4 million in 2Q17. This was mainly due to an increase in mining production and coal purchases offset by lower amortisation of exploration and stripping cost.

Gross Profit

The Group's gross profit increased from US$28.51 million in 2Q16 to US$65.24 million in 2Q17 . The increase in gross profit was mainly due to the above factors.

Other income

The Group's other income increased from US$1.61 million in 2Q16 to US$2.16 million in 2Q17, mainly due to an increase in interest income of US$0.64 million, an increase in miscellaneous income of US$0.25 million and an increase in compensation income of US$0.09 million offset by a decrease in foreign exchange gain of US$0.45 million.

Expenses

Selling and distribution expenses

The Group's selling and distribution expenses increased from US$13.79 million in 2Q16 to US$18.81 million in 2Q17 mainly due to increase in freight expenses as a result of higher sales volume.

Administrative expenses

The Group's administrative expenses increased from US$9.92 million in 2Q16 to US$16.51 million in 2Q17 mainly due to an increase in repair & maintenance expenses, manpower costs and mining operational expenses as a result of higher coal mining production and higher sales activities.

Other operating expenses

The Group's other operating expenses increased from US$0.76 million in 2Q16 to US$2.23 million in 2Q17 mainly due to foreign exchange loss and withholding tax offset by a decrease in depreciation and amortisation.

Finance costs

The Group's finance costs decreased from US$5.06 million in 2Q16 to US$2.94 million in 2Q17 due mainly to the settlement of certain loans in December 2016.

Income tax expenses

Income tax expenses increased from US$1.06 million in 2Q16 to US$7.8 million in 2Q17 as a result of higher taxable profits in 2Q17.

Profit for the period

Due to the factors above, the Group recorded a net profit of US$19.1 million in 2Q17 as compared to net loss of US$0.46 million in 2Q16, and a profit attributable to owners of the Company of US$11.76 million in 2Q17 as compared to a loss attributable to owners of US$1.17 million in 2Q16.

Review of Statement of Financial Position

Non-current assets

  • The decrease in trade and other receivables of US$0.05 million was due to increased receivables collection.
  • The increase in restricted fund of US$0.62 million was due to reclamation guarantee placed with a bank.

Current assets

  • The increase in trade and other receivables of US$24.67 million was mainly due to higher sales in 2Q17.
  • The increase in advances to suppliers and other current assets was mainly due to an increase of advance payment of US$18.5 million to coal suppliers for advances paid for coal purchases and an advance payment of US$8.0 million relating to the proposed acquisition of interest in coal concession held by BSL respectively.

Current liabilities

  • Provision for taxation increased by US$7.82 million as a result of the increase in taxable profit during the period under review.
  • Loans and borrowings increased by US$38.54 million as a result of drawdown of a working capital loan facility during the period under review.

As at 30 June 2017, the Group has net current assets of US$197.39 million and the Company has net current assets of US$18.88 million. The Group has loans and borrowings totalling US$87.72 million out of which US$40.81 million are due within the next 12 months.

Review of Statement of Cash Flows

For 2Q17, the Group had net cash inflows of US$17.78 million mainly due to the following:

Net cash used in operating activities of US$5.08 million comprised operating cash inflow before working capital changes of US$30.66 million, net working capital outflow of US$26.91 million, income tax paid as well as interest and other financial charges paid amounting to US$8.31 million and US$2.39 million respectively and interest income received of US$1.88 million.

The networking capital out flow of US$26.91 million was mainly due to an increase in trade and other receivables, advances and other current assets of US$19.79 million, a decrease in trade and other payables of US$5.59 million and an increase in inventories of US$1.53 million.

Net cash flows used in investing activities of US$4.37 million was mainly due to (1) additions to mining properties of US$1.22 million; (2) purchase of property,plant and equipment of US$1.11 million; (3) additions to biological assets of US$0.38 million ; and (4) an increase in other non-current assets of US$1.65 million.

Net cash flows generated from financing activities of US$27.23 million was due to proceeds from loans and borrowings of US$40.62million offset with repayment of loans and borrowings of US$8.31 million and payment of dividend to non-controlling interest of subsidiaries of US$5.09 million.

Commentary


Coal demand in GEAR's key export markets, China and India, remain robust in the first half of 2017. Short-term supply issues in China were exacerbated by weaker-than-expected hydropower brought about by the closure of up to two thirds of hydropower plants capacity to limit damage due to flooding as a result of higher rain fall. This continued to lend support to global import demand for thermal coal in the period under review. Reflecting this, the price of FOB Kalimantan 4,200 kcal/kg GAR coal rose 3.6% to US$42.50/MT at end July.

The Group continues to maintain a positive outlook for its coal business as the global reliance on coal is set to remain for decades despite the growth in renewable energy sources.

New industry data on the world's biggest developers of coal-fired power plants showed that China's energy companies will make up nearly half of the new coal generation expected to go online in the next decade.

On the domestic front, the Indonesian government's electrification programme to add 35,000 megawatts (MW) in power generation capacity across the country by 2019 continues to be a key driver for demand.

In the current operating landscape, GEAR believesthat it is well-positioned to capture opportunities brought about by the increasing coal demand with its raised production capacity and established branding of its BIB 4,000 – 4,200 GAR coal.

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