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Unaudited Financial Statements for the Period Ended 31 March 2019

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Unaudited Financial Statements for the Year Ended 31 March 2019


Profit & Loss Statement


Statement of Comprehensive Income for the 3 months ended 31 March 2019 and 31 March 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 increased by US$3.24 million or 1.2% from US$273.00 million in 1Q18 to US$276.24 million in 1Q19. 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$12.07 million or 5.1% from US$237.29 million in 1Q18 to US$249.36 million in 1Q19. The increase was mainly driven by higher sales volume partially offset by lower average selling price as compared to the corresponding period. Average selling price showed a decline of 26.8% from US$47.35 per metric tonne in 1Q18 to US$34.68 per metric tonne in 1Q19. The average Indonesia Coal Index 4 ("ICI4") in 1Q19, a better proxy for the majority of the Group's coal quality, was US$35.23 per metric tonne. The Group's coal production volume increased by 2.46 million tonnes or 52.9% from 4.66 million tonnes in 1Q18 to 7.12 million tonnes in 1Q19.

Coal Trading Division

Revenue generated by the Group's Coal Trading division decreased by US$8.74 million or 24.7% from US$35.32 million in 1Q18 to US$26.58 million in 1Q19. The decrease was mainly due to lower sales volume and average selling price as compared to corresponding reporting period.

Non-coal Businesses

Revenue in 1Q19 comprises plywood sales. Revenue decreased by US$0.10 million from US$0.39 million in 1Q18 to US$0.29 million in 1Q19 due to decrease in plywood sales as compared to corresponding reporting period.

Cost of Sales

The Group reported an increase in cost of sales by US$27.71 million or 17.6% from US$157.07 million in 1Q18 to US$184.78 million in 1Q19. This was mainly due to increase in mining services costs, royalty expenses, mining overheads, coal freight, fuel costs and as a result of coal production ramp up and sales activities from the Coal Mining division. The increase was partially offset by lower coal purchases from Coal Trading Division and a decrease in equipment rental. Cash cost (excluding royalty) from Coal Mining division decreased from US$25.56 per tonne in 1Q18 to US$23.29 per tonne in 1Q19.

Gross Profit

Due to the factors above, the Group's gross profit decreased by US$24.47 million or 21.1% from US$115.93 million in 1Q18 to US$91.46 million in 1Q19.

Other income

The Group's other income increased by US$3.07 million or 99.8% from US$3.08 million in 1Q18 to US$6.15 million in 1Q19, mainly due to an increase in miscellaneous income of US$3.95 million arising from transfer of coal sales quota under Domestic Market Obligation and an increase in interest income of US$0.21 million derived from bank deposits and advances, partially offset by absence of compensation income.

Expenses

Selling and distribution expenses

The Group's selling and distribution expenses increased by US$11.17 million or 32.6% from US$34.23 million in 1Q18 to US$45.40 million in 1Q19 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 increased by US$1.60 million or 9.6% from US$16.74 million in 1Q18 to US$18.34 million in 1Q19 mainly due to increase in (i) salaries, benefits and employee welfare expenses, (ii) taxes and stamp duty fee (iii) corporate social responsibilities expense and (iv) legal and professional fees relating to corporate exercises.

Other operating expenses

The Group's other operating expenses decreased by US$0.68 million from US$3.21 million in 1Q18 to US$2.53 million in 1Q19 mainly due to a lower foreign exchange loss and exploration expenses partially offset by an increase in amortisation expenses.

Finance costs

The Group's finance costs increased by US$2.07 million or 41.6% from US$4.96 million in 1Q18 to US$7.02 million in 1Q19 mainly due to an increase in interest expenses resulting from the issuance of the Company's bond in February 2018 and an increase in interest expenses from new loan facility for investment purposes.

Income tax expenses

Income tax expenses decreased by US$6.69 million or 40.9% from US$16.34 million in 1Q18 to US$9.65 million in 1Q19 as a result of lower operating profit.

Profit after tax

Due to the factors above, the Group's net profit decreased by US$28.87 million or 66.3% to US$14.66 million in 1Q19 as compared to US$43.53 million in 1Q18, and profit attributable to owners of the Company decreased by US$19.58 million or 73.1% to US$7.21 million in 1Q19 as compared to US$26.78 million in 1Q18.

Other comprehensive income

The Group's other comprehensive income increased by US$28.97 million from a loss of US$9.58 million in 1Q18 to a gain of US$19.39 million in 1Q19 mainly due to (i) Westgold share price recovery from AUD0.88 as at 31 December 2018 to AUD1.26 as at 31 March 2019, (ii) an increase in Stanmore share price from AUD1.00 as at 31 December 2018 to AUD1.16 as at 31 March 2019, and (iii) the effect of the strengthening Australia Dollar against United States Dollar.

Review of Statement of Financial Position

Assets and liabilities

Non-current assets

  • Property, plant and equipment increased by US$4.46 million to US$84.83 million at 31 Mar 2019 as a result of additions to property, plant and equipment partially offset by depreciation.
  • The increase in investment in securities of US$27.44 million to US$85.15 million at 31 Mar 2019 was due to US$9.6 million related to 5.5% Stanmore Coal Limited's ("Stanmore") shares acquired in take-over offer and US$17.8 million due to higher market value for Stanmore and Westgold shares.

Current assets

  • The decrease in inventories of US$3.56 million to US$16.08 million at 31 Mar 2019 was due to inventories sold during the period under review.
  • The increase in trade and other receivables of US$19.56 million to US$144.45 million at 31 Mar 2019 was mainly due to higher sales volume in 1Q19.
  • The decrease in advances to suppliers/vendors of US$5.28 million to US$99.53 million at 31 Mar 2019 was mainly due to decrease in advance payment of US$6.26 million to coal suppliers partially offset by the increase in advances to fuel vendors.
  • The increase in other current assets of US$6.88 million to US$41.95 million at 31 Mar 2019 was mainly due to advance down payment of US$3.00 million to a coal supplier under a coal offtake agreement and an increase in prepayment of royalty.

Current liabilities

  • Trade and other payables decreased by US$14.39 million to US$188.85 million at 31 Mar 2019 mainly due to decrease in (i) coal purchases in line with decreased activity and (ii) other payables as a result of payment of accrued interest on loan.
  • Provision for taxation increased by US$2.18 million to US$3.93 million at 31 Mar 2019 as a result of corporate tax charged during the period under review offset by tax payment.

Non-current liabilities

  • Loans and borrowings increased by US$37.88 million to US$260.74 million at 31 Mar 2019 as a result of drawdown of a new loan facility for investment purposes.

As at 31 Mar 2019, the Group has net current assets of US$182.46 million and the Company has net current assets of US$83.87 million. The Group has loans and borrowings totalling US$307.00 million of which US$46.26 million is due within the next 12 months. The Group's cash and cash equivalents stood at US$119.29 million as at 31 Mar 2019.

Review of Statement of Cash Flows

For 1Q19, the Group had net cash inflows of US$5.26 million mainly due to the following:

Net cash used in operating activities of US$11.13 million which comprised of operating cash inflow before working capital changes of US$34.06 million, net working capital outflow of US$31.87 million, various taxes paid of US$12.41 million and interest and other financial charges paid of US$2.99 million respectively. The Group also recorded interest income received of US$2.09 million. The net working capital outflow of US$31.87 million was mainly due to decrease in trade and other payables of US$15.26 million and an increase in trade and other receivables, advances and other current assets totalling US$20.18 million, partially offset by a decrease in inventories of US$3.56 million.

Net cash flows used in investing activities of US$21.21 million mainly due to (i) settlement of US$9.63 million related to 5.5% Stanmore shares acquired in takeover offer; (ii) purchase of property, plant and equipment of US$6.06 million; (iii) additions to mining properties of US$2.69 million; and (iv) increase in other non-current assets of US$2.48 million.

Net cash flows generated from financing activities of US$37.60 million was mainly due to proceeds from loans and borrowings of US$61.20 million, partially offset by repayment of loans and borrowings of US$23.36 million.

Commentary


GEAR continues to experience thermal coal demand from its key export markets, such as China, India and South Korea, where coal remains an important source of primary energy despite the ongoing efforts to promote the use of gas and renewable energy.

China's total coal imports surged in January 2019 as the tight import restrictions imposed in December last year were lifted. Supported by Chinese tenders seeking lower grade coal, the price of FOB Kalimantan 4,200 kcal/kg GAR coal gained 4% to date, reaching US$38 per metric tonne in April 2019. Notwithstanding China's shift towards natural gas, coal consumption increased by 1% while the nation's coal-fired power generation increased by 5.3% in 2018.

Indonesian coal prices are expected to remain firm due to tightened supply as the government upped its stance on domestic market obligations ("DMO"). DMO sales for 2018 was estimated to reach only 21.7% of domestic production, indicating that several coal miners could not meet their DMO requirement of 25%. This could lead to sanctions on non-compliant companies, resulting in a reduction of their production quota in 2019. GEAR exceeded the DMO in FY2018 with domestic customers accounting for 32.4% of total sales.

For 2019, the Indonesian government has set a coal production target of 480 million metric tonnes, compared to a target of 485 million metric tonnes in 2018. The government also requires coal miners to allocate about 26% of the production for the domestic market in 2019. Indonesia's coal consumption is expected to be driven by the commencement of operations of newly constructed coal-fired power plants under the 35,000-megawatt program.

GEAR looks forward to expanding the processing capacity at its key mine BIB to support the continued production ramp-up to remain ahead of the competition while harnessing the economies of scale.

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