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Unaudited Financial Statements for the Period Ended 30 September 2018

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Unaudited Financial Statements for the Period Ended 30 September 2018


Profit & Loss Statement


Statement of Comprehensive Income for the 9 months ended 30 September 2018 and 30 September 2017



Balance Sheet




Review of Performance


Revenue

The Group's revenue comprises revenue generated from Coal Mining and Coal Trading divisions as well as Non-coal Businesses. Total revenue increased by US$107.35 million or 59.9% from US$179.32 million in 3Q17 to US$286.67 million in 3Q18. The increase was mainly due to increase in revenue from the Coal Mining and Coal Trading divisions.

Coal Mining Division

The Group's Coal Mining division reported an increase in revenue by US$94.07 million or 60.8% from US$154.83 million in 3Q17 to US$248.90 million in 3Q18. The increase was mainly driven by higher sales volume as compared to the corresponding reporting period. Average selling price showed a marginal decline of 1.5% from US$41.41 per metric ton in 3Q17 to US$40.80 per metric ton in 3Q18. The average Indonesia Coal Index 4 ("ICI4") in 3Q18, a better proxy for the majority of the Group's coal quality, was US$41.70 per metric ton.

Coal Trading Division

Revenue generated by the Group's Coal Trading division increased by US$13.81 million or 58.50% from US$23.61 million in 3Q17 to US$37.42 million in 3Q18. The increase was mainly due to higher sales volume and higher average selling price as compared to the corresponding reporting period.

Non-coal Businesses

Revenue in 3Q18 comprises plywood sales. Revenue decreased by US$0.53 million from US$0.87 million in 3Q17 to US$0.35 million in 3Q18 due to absence of log sales which was partially offset by an increase in plywood sales.

Cost of Sales

The Group reported an increase in cost of sales by US$85.04 million or 80.6% from US$105.56 million in 3Q17 to US$190.60 million in 3Q18. This was mainly due to increase in (i) mining services due to higher stripping ratios, coal freight, mining overheads, fuel costs, royalty expenses as a result of higher coal production and sales activities from the Coal Mining division; and (ii) coal purchases from the Coal Trading division in line with the higher sales volume. The increase was partially offset by a decrease in amortisation expenses related to depletion of mine properties for stripping activity.

Gross Profit

The Group's gross profit increased by US$22.32 million or 30.3% from US$73.75 million in 3Q17 to US$96.07 million in 3Q18. The increase was mainly due to the above factors.

Other income

The Group's other income decreased by US$3.19 million or 49.0% from US$6.51 million in 3Q17 to US$3.32 million in 3Q18, mainly due to a decrease in miscellaneous income of US$4.37 million as a result of the absence of reversal of prior year withholding tax provision partially offset by an increase in interest income of US$1.28 million.

Expenses

Selling and distribution expenses

The Group's selling and distribution expenses increased by US$15.27 million or 63.1% from US$24.20 million in 3Q17 to US$39.47 million in 3Q18 mainly due to increase in freight and stockpile expenses in line with the increase in coal sales volume from the Coal Mining and Coal Trading divisions.

Administrative expenses

The Group's administrative expenses increased by US$3.66 million or 26.4% from US$13.83 million in 3Q17 to US$17.49 million in 3Q18 mainly due to increase in (i) repair and maintenance expenses for road development in our coal concessions, (ii) salaries, benefits and employee welfare expenses, and (iii) legal and professional fees incurred relating to corporate exercises.

Other operating expenses

The Group's other operating expenses decreased by US$1.58 million from US$3.03 million in 3Q17 to US$1.45 million in 3Q18 mainly due to decrease in foreign exchange loss and other miscellaneous operating expenses.

Finance costs

The Group's finance costs increased by US$3.53 million or 136.7% from US$2.58 million in 3Q17 to US$6.12 million in 3Q18 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$7.78 million or 43.6% from US$17.87 million in 3Q17 to US$10.08 million in 3Q18 as a result of a decrease in withholding tax expense partially offset by an increase in income tax due to higher taxable profits in 3Q18.

Profit after tax

Due to the factors above, the Group's net profit increased by US$6.03 million or 32.1% to US$24.78 million in 3Q18 as compared to US$18.76 million in 3Q17, and profit attributable to owners of the Company increased by US$4.98 million or 50.2% to US$14.90 million in 3Q18 as compared to US$9.92 million in 3Q17.

Review of Statement of Financial Position

Assets and liabilities

Non-current assets

  • Property, plant and equipment increased by US$9.22 million to US$73.65 million at 30 Sep 2018 due to additions to property, plant and equipment as a result of the acquisition of PT Barasentosa Lestari ("BSL"), partially offset by depreciation.
  • Mining properties increased by US$150.14 million to US$235.99 million at 30 Sep 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$16.23 million to US$119.91 million at 30 Sep 2018 as a result of additions arising from the acquisition of BSL, offset by amortisation during the period under review.
  • The increase in investment in securities of US$9.68 million to US$33.02 million at 30 Sep 2018 was due to the second and third tranche payments for investment in Westgold Resources Limited ("Westgold"). This increase was partially offset by a marked to market loss recognised on the Westgold shares.
  • The increase in deferred tax assets of US$1.04 million to US$5.70 million at 30 Sep 2018 was due to higher tax losses in subsidiaries.
  • The increase in restricted fund of US$7.35 million to US$12.02 million at 30 Sep 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$21.81 million to US$44.94 million at 30 Sep 2018 was mainly due to the acquisition of BSL, deferred expenses related to the bonds 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$14.94 million to US$31.08 million at 30 Sep 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.
  • Trade and other receivables remained relatively stable.
  • The increase in advances to suppliers/vendors of US$32.63 million to US$122.43 million at 30 Sep 2018 was mainly due to increases in advance payment of US$37.60 million to coal suppliers offset by a decrease in advance payment of US$8.00 million to the vendors for the acquisition of BSL as a result of the completion of the acquisition.
  • The increase in other current assets of US$24.82 million to US$26.51 million at 30 Sep 2018 was mainly due to advance down payment of US$23.91 million to a coal supplier under a coal offtake agreement.
  • The increase in investment in securities of US$0.93 million was a result of an addition of a short-term investment partially offset by a disposal in the short-term investment.
  • The decrease in cash and cash equivalents of US$20.64 million to US$168.06 million at 30 Sep 2018 was mainly due to payment made for the acquisition of BSL, investment in Westgold, 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$82.89 million to US$244.89 million at 30 Sep 2018 mainly due to increases in (i) mining services and coal purchases in line with increased production and trading activity; (ii) other payables as a result of acquisition of BSL partially offset by payment of dividend which was declared in December 2017 by a subsidiary.
  • Provision for taxation decreased by US$20.66 million to US$14.69 million at 30 Sep 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$8.09 million to US$33.30 million at 30 Sep 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$3.99 million to US$4.11 million at 30 Sep 2018 as a result of additional other payables arising from the acquisition of BSL.
  • Loans and borrowings increased by US$152.07 million to US$221.84 million at 30 Sep 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$16.16 million to US$29.16 million at 30 Sep 2018 as a result of the additional deferred tax liabilities arising from BSL acquisition.
  • Post-employment benefits increased by US$0.33 million to US$3.16 million at 30 Sep 2018 as a result of the additional employee benefits liabilities arising from BSL acquisition.
  • Provision for mine closure increased by US$0.24 million to US$1.96 million at 30 Sep 2018 as a result of additional provision during the period under review.

As at 30 Sep 2018, the Group has net current assets of US$190.22 million and the Company has net current assets of US$120.24 million. The Group has loans and borrowings totalling US$255.14 million of which US$33.30 million is due within the next 12 months. The Group's cash and cash equivalents stood at US$168.06 million as at 30 Sep 2018.

Review of Statement of Cash Flows

For 3Q18, the Group had net cash inflows of US$12.66 million mainly due to the following:

Net cash generated from operating activities of US$77.71 million which comprised of operating cash inflow before working capital changes of US$37.62 million, net working capital inflow of US$53.42 million, income taxes paid of US$15.90 million and interest and other financial charges paid of US$2.23 million respectively. The Group also recorded interest income received of US$4.81 million.

The net working capital inflow of US$53.42 million was mainly due to an increase in trade and other payables of US$65.89 million and a decrease in trade and other receivables, advances and other current assets totalling US$5.35 million, partially offset by an increase in inventories of US$17.82 million.

Net cash flows used in investing activities of US$79.95 million mainly due to (i) net cash outflows on acquisition of BSL of US$64.87 million; (ii) addition of other investment of US$2.06 million; (iii) purchase of property, plant and equipment of US$3.98 million; (iv) additions to mining properties of US$6.86 million; (v) increase in other non-current assets of US$1.35 million; and (vi) increase in restricted fund of US$1.26 million.

Net cash flows generated from financing activities of US$14.90 million was mainly due to proceeds from loans and borrowings of US$38.70 million partially offset by repayment of loans and borrowings of US$23.41 million and payment of dividend of US$0.39 million by a subsidiary to non-controlling shareholder of the Group.

Commentary


Indonesia's coal industry continued to be supported domestically, driven by government efforts to increase investment spending in the coal and minerals sector to US$6.2 billion. In September, the Indonesian Energy Ministry raised the 2018 coal production target from 485 million metric tonnes ("MT") to 507 million MT, while domestic coal consumption is expected to reach 114.5 million MT in 2018, up 6% from 2017.

Indonesia thermal coal exports have been higher so far in 2018, from a year ago. Year-to-date exports were 173.57 million MT, 45 million MT higher than the year-ago period and the highest volume since 2014, according to latest customs data which covers the period from January to July 2018.

China remains key to the seaborne coal market, with imports of over 228 million MT in the first 9 months of this year, up 11% year-on-year. According to a report by Citi Research, the country might see a 140 million MT increase in raw coal demand should the current rate of growth in thermal power continue.

Export demand is expected to continue to be strong in the fourth quarter with the increase in export target announced, and with anticipated robust demand from China, the world's largest coal importer. The Group remains on track to achieve 20 million MT of production in 2018, and following the completion of acquisition of BSL, GEAR's total reserves stand at more than 1 billion tonnes.

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