Conference call2019 financial results
JSC National Atomic Company “Kazatomprom” (“Kazatomprom”, “KAP” or “the Company”) announces its consolidated financial results for the year ended 31 December 2019, prepared in accordance with International Financial Reporting Standards (IFRS).
“The uranium market continued to struggle in 2019, but despite the difficult conditions, Kazatomprom delivered strong results and met all aspects of our guidance,” said Galymzhan Pirmatov, Kazatomprom’s Chief Executive Officer, “and we did so with a focus on safety and environmental performance as a priority.
“Production was as planned and we maintained a reduction of 20% against subsoil use agreements at all of our mining operations. We were also once again the largest seller of natural uranium in 2019, importantly, selling about a thousand tons more than we produced. And we sold that material responsibly, into a growing portfolio of contracts, and to an increasingly diverse customer base. As a result, we exceeded our expected uranium segment revenue, while on the cost side, we remained one of the world’s lowest cost producers, with C1 cash and all-in sustaining costs that were below the guided ranges, and about 20% lower than last year.
“Taken all together, delivering on our commitments meant that we continued to create value, and that is thanks in no small part to remaining consistent with our strategy. We’ve maintained our market discipline, our marketing function has continued to expand into new markets, and you’ve seen us continue with a commitment to our core business of uranium mining – all while keeping a diligent focus on our impact in the key areas of environment conservation, social consideration and governance standards.
“Although the uranium market continued to be challenged this past year, we are confident in the long-term fundamentals for the nuclear industry. Supply cuts have taken hold and inventories are trending down at each stage of the nuclear fuel cycle. As the market continues on a path to recovery and long-term, sustainable prices, Kazatomprom remains uniquely positioned to generate strong margins for the benefit of all our stakeholders.”
Key Financial Metrics
|
(KZT billion) |
2018 (restated) |
2019 |
Change |
|
Group’s consolidated revenue |
436.6 |
502.3 |
15% |
|
Operating profit |
77.5 |
151.9 |
96% |
|
Net profit |
424.7 |
213.7 |
(50)% |
|
Gain from reversal of liability under joint operations (one-time effect)1 |
- |
17.0 |
- |
|
Gain from business combinations (one-time effect) |
347.5 |
54.6 |
(84)% |
|
Adjusted net profit |
77.2 |
142.1 |
84% |
|
Earnings per share attributable to owners (basic and diluted), KZT/share |
1,610.5 |
732.6 |
(55)% |
|
Adjusted EBITDA2 |
141.7 |
248.7 |
76% |
|
Adjusted attributable EBITDA3 |
140.3 |
217.3 |
55% |
|
Operating cash flow |
58.3 |
159.5 |
174% |
1 Gain from reversal of liability under JOs relates to volumes of uranium that were not purchased from JOs in 2018, and which the Group does not plan to acquire in future, hence this liability, initially recorded in 2018, was derecognised in 2019.
2 Adjusted EBITDA is calculated by excluding from EBITDA items not related to the main business and having a one-time effect.
3 Adjusted Attributable EBITDA is calculated as an adjusted EBITDA less the share of the results in the net profit in JVs and Associates, plus the share of adjusted EBITDA of JVs and Associates engaged in the uranium segment (except JV “Budenovskoye” LLP’s EBITDA due to minor effect it has during each reporting period) less non-controlling share of adjusted EBITDA of “Appak” LLP, JV “Inkai” LLP, “Baiken-U” LLP and JV “Khorasan-U” LLP less any changes in the unrealised gain in the Group.
Operating and Financial Review, Financial Statements, Mineral Resource and Ore Reserve Statements
The Operating and Financial Review and Audited Consolidated Financial Statements provide detailed explanations of Kazatomprom’s results for the year ended 31 December 2019, as compared to the same period in 2018, with guidance for 2020. Kazatomprom has also published the 2019 Mineral Resource and Ore Reserve Statements, reported in accordance with the terms and definitions of the JORC Code. This press release should be read alongside these documents, all of which are available in the investor section of www.kazatomprom.kz.
Changes in Group structure to Note
The 2019 annual results of the Group were significantly affected by transactions related to changes in the Group structure, as outlined in the 2019 Operating and Financial Review. In particular, net profit in 2018 and 2019 were significantly impacted by the following.
In 2018:
- a gain from the increased interest in JV “Inkai” LLP of KZT 95,929 million;
- a gain from the change of classification of “Karatau” LLP and JV “Akbastau” JSC to joint operations (“JOs”) of KZT 124,632 million and KZT 92,951 million respectively;
- a gain from the increased interest in “Baiken-U” LLP of KZT 33,962 million.
In 2019:
- a gain from the increased interest in JV “Khorassan-U” LLP of KZT 54,649 million.
Also in the 2019, there was a gain from reversal of liability under JO’s of KZT 16,995 million, which was considered a one-time effect.
As shown in the table above, an adjusted net profit line is provided to better compare 2019 to 2018.
Also note that in December 2018, the Group obtained control over “Baiken-U” LLP (Financial Statements Note 45). As at 31 December 2018, the Group applied provisional amounts for the acquired assets and liabilities, as the assessment of fair value for the business combination was not complete at the end of the reporting period. In June 2019, an independent professional appraiser finalized the fair value assessment of acquired assets and liabilities and as a result, comparative information for 2018 was restated. Details are presented in the Audited Consolidated Financial Statements.
Revenue, Net Profit, EBITDA
The Group’s consolidated revenue was KZT 502.3 billion in 2019, an increase of 15% compared to 2018, mainly due to an increase in average sales price related to the higher market spot prices for U3O8, the weakening of the KZT against the USD in 2019, and the change in the Group structure. The increase was partially offset by lower uranium sales volumes in 2019 compared to 2018 as described below.
The operating profit in 2019 was KZT 151.9 billion, an increase of 96% compared to 2018. The increase was mainly due to the weakening of the KZT against the USD and a higher average sales price in 2019. The change in the Group structure also led to an increase in the share of uranium produced by the Company, consolidated subsidiaries and JOs. For that production, the full mining margin was captured in the consolidated results of the Group on the volume of uranium sold for export, which had a positive impact on profit.
Net profit in 2019 was KZT 213.7 billion, a decrease of 50% compared to 2018. A significant portion of the year-over-year decrease was associated with one-time effects of transactions in both years, particularly the inclusion of JV “Inkai” LLP, “Karatau” LLP, JV “Akbastau” JSC and “Baiken-U” LLP in the consolidation in 2018, and JV “Khorasan-U” LLP in 2019. The one-time effects of these transactions increased net income by KZT 347.5 billion and KZT 54.6 billion in 2018 and 2019 respectively. Also impacting net profit, as of 31 December 2019, there was a KZT 17.0 billion gain from reversal of a liability under JOs, which was initially recorded in 2018. This gain related to volumes of uranium that were not purchased from JOs in 2018, and which the Group does not plan to purchase in the future. As a result, this liability was reversed in 2019. Adjusting for those one-time effects, adjusted net profit was KZT 142.1 billion, an increase of 84% compared to 2018.
Adjusted EBITDA totalled KZT 248.7 billion in 2019, an increase of 76% compared to 2018, while adjusted attributable EBITDA was KZT 217.3 billion in 2019, an increase of 55% compared to 2018. The changes were mainly driven by increased operating profit and the change in the Group structure.
Operating cash flows totalled KZT 159.5 billion, an increase of 174% compared to 2018, mainly due to changes in working capital, an increase in the spot price for U3O8, and the weakening of the KZT against the USD in 2019.
Cost of sales
Cost of sales totalled KZT 307,498 million in 2019, a decrease of 2% compared to 2018. The decrease was mainly due to the change in the Group structure and a 4% decrease in U3O8 sales volumes compared to 2018.
Selling Expenses
Selling expenses totalled KZT 10,827 million in 2019, an increase of 3% compared to 2018. The increase was mainly due to the commission charged for the delivery of fuel pellets in accordance with a 2018 contractual obligation at “UMP” JSC, JV “Inkai” LLP transportation expenses for a change of destination point, and the change in the Group structure.
General and Administrative Expenses (G&A)
A decrease of G&A expenses despite the change in the Group structure related to one-time expenses that were incurred in 2018 (social contribution to the Turkestan region and the costs associated with the IPO), which were not repeated in 2019.
Depreciation and amortization was KZT 1,611 million, 99% higher than in 2018, mainly due to the acquisition of a new head office building, which was offset by lower rent expenses in comparison to 2018.
Debt Leverage Ratios
The following table summarises the key ratios used by the Company’s management to measure its financial stability in 2018 and 2019.
|
(KZT millions unless noted) |
2018 (restated) |
2019 |
Change |
|
Total debt |
200,169 |
161,358 |
(19)% |
|
Total cash |
129,024 |
98,561 |
(24)% |
|
Net debt |
71,145 |
62,797 |
(12)% |
|
Adjusted EBITDA |
141,670 |
248,719 |
76% |
|
Net debt / Adjusted EBITDA (coefficient) |
0.50 |
0.25 |
(50)% |
The above indicators are in line with expectations previously communicated by management to investors.
Liquidity
The Group manages its liquidity requirements to ensure the continued availability of cash sufficient to run its operations and settle its financial obligations.
|
(KZT millions) |
2018 |
2019 |
Change |
|
Cash and cash equivalents |
128,819 |
98,560 |
(23)% |
|
Current term deposit |
205 |
1 |
(100)% |
|
Total cash |
129,024 |
98,561 |
(24)% |
The Group’s cash and cash equivalents in 2019 were KZT 98,560 million, compared to KZT 128,819 million in 2018.
Corporate credit lines are an additional liquidity source for the Group. Under these lines, short-term loans (up to 12 months) are primarily used to temporarily cover cash deficits related to the timing of inflows. At 31 December 2019, the Group had total available revolving credit lines of USD 470 million. At the end of 2019, USD 145 million was drawn and the available amount was USD 325 million.
Uranium segment production and sales metrics
|
|
2018 |
2019 |
Change |
|
|
Production volume of U3O8 (100% basis) |
tU |
21,705 |
22,808 |
5% |
|
Production volume of U3O8 (attributable basis)1 |
tU |
11,476 |
13,291 |
16% |
|
U3O8 sales volume (consolidated)3 |
tU |
16,647 |
16,044 |
(4)% |
|
Including KAP U3O8 sales volume2, 3 |
tU |
15,287 |
14,148 |
(7)% |
|
Group inventory of finished goods (U3O8) |
tU |
7,892 |
9,906 |
26% |
|
KAP inventory of finished goods (U3O8) 4 |
tU |
7,353 |
8,571 |
17% |
|
Average realised price of the Group |
KZT/kg |
21,930 |
26,475 |
21% |
|
Average realised price of the Group |
USD/lb |
24.46 |
26.60 |
9% |
|
Average realised price of the KAP5 |
USD/lb |
24.37 |
26.89 |
10% |
|
Average weekly spot price6 |
USD/lb |
24.64 |
25.84 |
5% |
|
Average month-end spot price6 |
USD/lb |
24.59 |
25.64 |
4% |
6 Source: UxC, TradeTech. Values provided represent the average of the uranium spot prices quoted at month end, and not the average of each weekly quoted spot price, as contract price terms generally refer to a month-end price.
All annual operational and sales results in the uranium segment were in line with the guidance provided for 2019.
Production volumes of U3O8 on both an attributable and on a 100% basis were slightly higher in 2019 compared to the same period in 2018. The increase was as expected and due to higher 2019 production levels under subsoil use contracts, although 2019 production remained 20% lower than the planned levels under those contracts. The difference in the year-over-year percentage increases of the 100% and attributable share production levels was related to different production levels at various assets, the mix of ownership interests in each asset, and the impact of changes in the group structure on the consolidation of the results.
Consolidated Group U3O8 sales volumes and KAP sales volumes were slightly lower year-over-year due to a lower level of contracting activity in the market in 2019, and a marketing strategy that prioritizes value over volume.
Consolidated Group inventory of finished U3O8 products in 2019 amounted to 9,906 tonnes in 2019, which was 26% higher than in 2018. At the Company level, inventory of finished U3O8 products was 8,571 tonnes, an increase of 17% compared to 2018. The increase in inventory was mainly related to market conditions. In alignment with the Company’s value strategy, Kazatomprom’s inventory levels vary based on seasonality and mining and sales volumes, in alignment with changing market conditions. The higher inventory volume at year-end was also related to the timing of swap deals made in 2019, where the transaction to return material will take place in 2020.
The average sales price in KZT realised by the Group in the 2019 was KZT 26,475 per kg (26.60 USD/lb), an increase of 21% compared to 2018 due to an increase in the average spot price for uranium products, and the weakening of the KZT against the USD. The average sales prices at the KAP level was also higher and for the same reasons. The Company’s current overall contract portfolio price is closely correlated to current uranium spot prices.
Uranium segment costs and capital expenditures
|
(KZT billion unless noted) |
|
2018 |
2019 |
Change |
|
C1 Cash cost (attributable basis) |
USD/lb |
11.56 |
9.28 |
(20)% |
|
All-in sustaining cash cost (attributable C1 + capital cost) |
USD/lb |
15.08 |
11.94 |
(21)% |
|
Capital expenditures of mining companies (100% basis)1 |
75.4 |
67.0 |
(11)% |
|
1 Excludes liquidation funds and closure costs and includes expansion investments.
C1 Cash cost (attributable) and All-in-sustaining cash costs (attributable C1 + capital cost) decreased by 20% and 21% respectively in USD equivalent in 2019, compared to 2018. The results were considerably better than expected and below the guidance ranges provided for 2019 (US$11.00 - US$12.00 for attributable C1 cash cost, US$15.00 – US$16.00 for attributable all-in sustaining cash costs). The decreases were primarily due to the weakening of the KZT against the USD in 2019, the change in the Group structure and continued cost optimization efforts. Additionally, the C1 cash cost in 2018 included the overheads of the Company under the subsoil use licenses at Kanzhugan, Southern Moinkum, Eastern Mynkuduk, Uvanas and Southern and Northern Karamurun deposits, which were transferred to “Kazatomprom-SaUran” LLP and “RU-6” LLP in November 2018.
Capital expenditures of mining companies (100% basis) totalled KZT 67.0 billion, a decrease of 11% compared to 2018, primarily due to the timing of different projects for future expansion at each of the mining assets, and continued cost optimization programs.
Health, Safety and Environment Results
The Company conducts its production activities in compliance with the requirements for labour protection and industrial safety, implementing comprehensive measures to prevent incidents and accidents. Health care and safety management systems that meet international standards are being widely implemented. In addition to internal instructions and rules, the Company also carries out various communication and engagement campaigns to improve safety culture across the organization. Building a strong employee and management safety culture, and increasing awareness and conscious compliance with industrial safety requirements, is a critical element for ensuring Kazatomprom remains in alignment with the highest international safety standards.
|
Indicator |
2018 |
2019 |
Change |
|
Industrial accidents1 |
0 |
0 |
- |
|
LTIFR (per million man-hours)2 |
0.31 |
0.24 |
(23)% |
|
Unsafe conditions, unsafe actions, near-miss reporting3 |
6,200 |
34,546 |
457% |
|
Number of accidents4 |
12 |
8 |
(33)% |
|
Fatalities |
1 |
1 |
- |
1 Defined as uncontrolled explosions, emissions of dangerous substances, or destruction of buildings.
2 Lost-Time Injury Frequency Rate (LTIFR) per million hours.
3 The increase in the number of identified unsafe conditions (UC), unsafe actions (UA), near-miss reports was primarily due to the fact that in 2018, the reporting processes were still at the implementation stage (employee training), and in 2019 these processes were functioning in all Subsidiaries, JO’s, JVs and Associated companies.
4 Defined as impact on the employee of a harmful and (or) dangerous production factor in performance of his work (job) duties or tasks of the employer, which resulted in an industrial accident, sudden deterioration of health, or poisoning of the employee that led to temporary or persistent disability, or death.
The measures undertaken in 2019 to enhance the focus on safety awareness helped to prevent industrial accidents (no uncontrolled explosions, emissions of dangerous substances or destruction of buildings) at the Company's enterprises. The Group also saw a statistical improvement of the LTIFR. However, despite the considerable effort, eight accidents were registered during the year, resulting in ten injuries, one of which was fatal.
The types of accidents varied, including slips and falls, pinch point injuries, traffic accidents, and an instance of a chemical burn. The fatality occurred when an employee slipped and fell under a piece of mobile equipment that was in motion at night.
Following each accident, a thorough investigation was completed, the main causes were identified, preventative measures were developed and procedures were changed to prevent similar incidents in the future. The lessons-learned were also reported to operations across the Holding.
The company employs reliable systems for monitoring the environment and radiation safety at all of its uranium mines, and there were no environmental or radiation-related incidents in 2019. All activities were completed in compliance with environmental legislation, regulatory requirements and guidance on nuclear and radiation safety.
Guidance for 2020
|
(exchange rate 390 KZT/1USD) |
2020 |
|
Production volume U3O8 (tU) (100% basis)1 |
22,750 – 22,800 |
|
Production volume U3O8 (tU) (attributable basis)2 |
12,800 – 13,300 |
|
Group sales volume (tU) (consolidated)3 |
15,500 – 16,500 |
|
Incl. KAP sales volume (incl. in Group) (tU)4 |
13,500 – 14,500 |
|
Revenue - consolidated (KZT billions)5 |
490 – 510 |
|
Revenue from Group U3O8 sales, incl. in consolidated sales (KZT billions)5 |
400 – 440 |
|
C1 cash cost (attributable basis) (USD/lb)* |
$10.00 – $11.00 |
|
All-in sustaining cash cost (attributable C1 + capital cost) (USD/lb)* |
$13.50 – $14.50 |
|
Total capital expenditures (KZT billions) (100% basis)6 |
80 – 90 |
* Note that the conversion of kgU to pounds U3O8 is 2.5998
Kazatomprom’s production expectations for 2020 remain consistent with its market-centric strategy and the intention to flex down planned production volumes by 20% for 2018 through 2021 (versus planned production levels under Subsoil Use Agreements). With the flex down, under the existing Subsoil Use Agreements, 2020 production is expected to remain flat compared to 2019, at approximately 22,750 to 22,800 tU (100% basis), and 12,800 tU to 13,300 tU (attributable basis); without the reduction, production was expected to be approximately 28,500 tU (100% basis) in 2020.
Sales volume in 2020 is aligned with the Company’s market-centric strategy. The Group expects to sell between 15,500 tU and 16,500 tU, which includes KAP sales volumes between 13,500 tU and 14,500 tU, consistent with sales volumes in 2019. Sales in excess of planned attributable production are expected to be primarily sourced from inventories, from KAP subsidiaries under contracts and agreements with partners, and from other third parties.
Revenue, C1 cash cost (attributable basis) and All-in Sustaining cash cost (attributable C1 + capital cost) may vary from the guidance provided above if the KZT to USD exchange rate differs from the 2020 budget assumption of 390 KZT/1 USD.
The Company continues to target an ongoing inventory level of approximately six to seven months of annual attributable production (excluding trading volumes held by THK). However, the market is being constantly monitored and, in alignment with its value strategy, Kazatomprom may carry an inventory level outside of the target range at any point in time based on seasonality, and to optimise mining and sales volumes in line with changing market conditions.
Conference Call Notification - 2019 Operating and Financial Review
Kazatomprom has scheduled a conference call to discuss the 2019 operating and financial results, on Thursday, 5 March, 2020. The call will begin at 17:00 (AST) / 11:00 (GMT) / 06:00 (EST). Following management remarks, an interactive English Q&A session will be held with investors (remarks in Russian with a simultaneous Russian translation of the Q&A available on a listen-only line).
Interested parties are invited to join the call using the following dial-in details. If calling from:
- United Kingdom: +44 (0) 80 0408 7373
- United States: +1 877 890 2416
- Kazakhstan: +7 (8) 7172 69 67 38
- Russia: +7 (495) 249 16 84
To join the English call (participate in live Q&A), enter conference room number 967065, with PIN 9084 when prompted. To receive a reminder at the time of the call, participants may now pre-register for the English call at:
https://www.speakservecloud.com/register-for-call/1e586533-5fe7-43f2-8cc4-6a1545e58dd7
To join the call in Russian (listen-only Q&A), enter conference room number 932369, with PIN 6563. To receive a reminder at the time of the call, participants may now pre-register for the Russian call at:
https://www.speakservecloud.com/register-for-call/538595ff-7c1c-4371-a1e4-642cd5b6df1b
A live webcast of the conference call will also be available from a link on the www.kazatomprom.kz home page on the day of the call. A replay will be made available after the call.
For further information, please contact:
Kazatomprom Investor Relations Inquiries
Cory Kos, Director of Investor and Public Relations
Tel: +7 (8) 7172 45 81 80
Email: ir@kazatomprom.kz
Kazatomprom Public Relations and Media Inquiries
Torgyn Mukayeva, Deputy Director of Investor and Public Relations
Tel: +7 (8) 7172 45 80 63
Email: pr@kazatomprom.kz
Powerscourt – London (Giles Read)
Tel: +44 20 7250 1446
Email: Kazatomprom@powerscourt-group.com
A copy of this announcement will be made available at www.kazatomprom.kz.
About Kazatomprom
Kazatomprom is the world's largest producer of uranium, with the company’s attributable production representing approximately 24% of global primary uranium production in 2019. The Group benefits from the largest reserve base in the industry and operates, through its subsidiaries, JVs and Associates, 24 deposits grouped into 13 mining assets. All of the Company’s mining operations are located in Kazakhstan and mined using ISR technology with a focus on maintaining industry-leading health, safety and environment standards.
Kazatomprom securities are listed on the London Stock Exchange and Astana International Exchange. As the national atomic company in the Republic of Kazakhstan, the Group's primary customers are operators of nuclear generation capacity, and the principal export markets for the Group's products are China, South and Eastern Asia, Europe and North America. The Group sells uranium and uranium products under long-term contracts, short-term contracts, as well as in the spot market, directly from its headquarters in Nur-Sultan, Kazakhstan, and through its Switzerland-based trading subsidiary, Trade House KazakAtom AG (THK).For more information, please see our newly updated website at https://www.kazatomprom.kz
Forward-looking statements
All statements other than statements of historical fact included in this communication or document are forward-looking statements. Forward-looking statements give the Company’s current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance and business. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,” “anticipate,” “estimate,” “plan,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company’s control that could cause the Company’s actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which it will operate in the future. THE INFORMATION WITH RESPECT TO ANY PROJECTIONS PRESENTED HEREIN IS BASED ON A NUMBER OF ASSUMPTIONS ABOUT FUTURE EVENTS AND IS SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTY AND OTHER CONTINGENCIES, NONE OF WHICH CAN BE PREDICTED WITH ANY CERTAINTY AND SOME OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. THERE CAN BE NO ASSURANCES THAT THE PROJECTIONS WILL BE REALISED, AND ACTUAL RESULTS MAY BE HIGHER OR LOWER THAN THOSE INDICATED. NONE OF THE COMPANY NOR ITS SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, ADVISORS OR AFFILIATES, OR ANY REPRESENTATIVES OR AFFILIATES OF THE FOREGOING, ASSUMES RESPONSIBILITY FOR THE ACCURACY OF THE PROJECTIONS PRESENTED HEREIN. The information contained in this communication or document, including but not limited to forward-looking statements, applies only as of the date hereof and is not intended to give any assurances as to future results. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to such information, including any financial data or forward-looking statements, and will not publicly release any revisions it may make to the Information that may result from any change in the Company’s expectations, any change in events, conditions or circumstances on which these forward-looking statements are based, or other events or circumstances