IRC Limited (1029) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the conference call. Our chairperson today is Mr. Johnny Yuen. Johnny, please begin your call, and I'll be standing by for the question-and-answer session. Thank you.

Great. Thanks. Good afternoon, everyone. I'm Johnny Yuen, I'm the Finance Director and Company Secretary of IRC. I would like to welcome all of you to IRC Limited, stock code 1029 Hong Kong, conference call for the 2023 interim results announcement. Apart from me today, with us are our CEO, Denis Cherednichenko; as well as our CFO, Danila Kotlyarov. [Operator Instructions] As a reminder, this conference is being recorded. Announcement and PowerPoint slides for use in this call have been uploaded, and you can download the documents from our website, www. ircgroup.com.hk. [Foreign Language] It's now my pleasure to turn the call to our CEO, Denis Cherednichenko. Denis, you may begin.

Good morning, good afternoon, dear investors, dear shareholders. [indiscernible] together with the subsidiary is pleased to announce the interim results of the company for the 6 months ended June 30, 2023. The first half of the current year was a difficult period for commodities producers, the iron ore industry is not exception. Let me note some financial highlights. On Slide #5, weakened iron ore price resulted in a reduction in revenue to $139.2 million. As per June 30, '22, it was $165.7 million. The EBITDA excluding nonrecurring items and foreign exchange decreased to $28.9 million. In comparison with the same period of 2022, it was $52.4 million. Underlying profit of $9.3 million in comparison with $39.2 million as per June 30, 2022. Noncash asset impairments of $73.6 million. In comparison with the previous year, it was $113 million. The loss attributable to shareholders of $65.7 million in comparison with $77.9 million as per June 30, 2022. Cash deposits (sic) [ cash and deposits ] increased to $45.2 million in comparison with $36.9 million with the previous year -- period. And net debt reduced to $28 million. And as per December 31, 2022, it was $41.6 million. And some operation highlights. The production volume increased by 4% to 1,300 tonnes (sic) [ 1,309 kilo tonnes ] despite of 1 week temporary production stoppage of K&S due to pulp pumps issues in this comparison with the 1.2 million tonnes. Sales volume increased by 7.6% to 1.3 million tonnes. It is in line with the production increase. And continuous preparation of the Sutara deposit with the aim of starting the mine operation in Sutara in the first half of 2024. So -- and right now, so I want to pass the word to our CFO, Danila Kotlyarov, with the financial review.

Ladies and gentlemen, good afternoon. I would like to give you a little bit of overview and explanation of the results of the company over H1 of this year and the development of our [indiscernible] just announced. If you open to next slide, you've got the main information about the results of the company. What I would like to note in addition of what Denis mentioned already is that we have been impacted with the decline of the price of iron ore, which is reflected in the decrease of sales and -- which is reflected in decrease of the revenues in the bottom line of the company. We have also increase in the cash cost on the -- if you calculate them on the mine [ gate ] while the cash cost on delivered basis are basically in line with the previous year. I think it's worth explanations why are the reasons of the increase on the cost and I'll be able to give you more comments in the slides, which I'm going to follow. In that, we unfortunately are impacted with the increase in the inflation. We [ warned ] about the increase in the negative -- we [ warned ] about negative and recent inflation and the impact on the cost of the company [ until ], say, end of last year. So we unfortunately -- right now, we see the impact of this. So we have seen significant increase in the cost of the labor and cost of the electricity and of the fuel and of the [indiscernible] difficult [indiscernible] in the ruble. So it was the result of the global increase in the inflation, but also increasing inflation in Russia, which has also resulted with the sanctions of Russian economy. So -- and while we experienced the negative effects of the inflation, we did not experience the positive effect of depreciation of the ruble. If you look at the exchange rate of the ruble against [indiscernible] H1 of the last year and also the H1 of this year, basically at par, which reflected the certain like-to-like movements from trade and currency balance [indiscernible]. But as of today, we are seeing the significant depreciation of the ruble so we assume that the positive impact of the depreciation of the ruble and the cost of the company will be experienced at the end of this year. Yes, on the next slide you see the information about the income statement of the company. What I would like to note here are part of the decrease of the revenues and increase on the cost, which we already explained is that we have seen significant decrease in the level of G&A expenses, which is also a reflection of the intention of the company in optimizing the cost. The biggest item, which is negatively affecting the bottom line of the company is basically impairment. Here, I think it's worth the explanation, as you know, impairment -- we are booking impairment because we are binded with the accounting rules. We are required to do the assessment of the future value of the assets on the basis of the current outlook on the price of iron ore, and we have seen the decrease in the outlook on the price of iron ore versus the end of last year and this is a reflection of the impairment loss. I would like to underline again this is a noncash item, it's just an accounting item. On Slide 9, you see the information about the breakdown of the cash cost of the K&S mine. Here, I can repeat again that we, as everyone in the world, we also are, as producers in Russia, we are experiencing significant negative impact on the inflation on our costs. In particular, like -- and noted already, we experienced significant increase in the cost of electricity and we also experienced an increase in the cost of the labor because of the shortage of the labor. And also because of the increase in the inflation, we are required to increase the service in order to keep the labor, which is working on K&S. And I would like to note that especially in this region where we operate, we believe that the labor is one of the most available resources. And we have to keep up with the level of inflation in terms of the level of sales. We have experienced a little bit of increase, in fact, but it's a reflection of the changing on the level of subsidies, which we are [ enjoying ] in K&S, so that was expected. Although, as I mentioned already, the cost on a delivered basis is basically in line with the previous year, which was the effect of the shipments, which we did last year using the [ same route ] at the beginning of this year we will not supply [indiscernible] with the lesser cost of the logistics and has a positive impact on the cash cost of the company. And so on the next slide, we provide you with information explaining the difference between -- we provide you the breakdown of the difference between the 6 months of the last year versus this year. As I explained already and now graphically -- visually, we see that the major difference is the decrease in the price of iron ore and also increase in the cost, which was not offset with the depreciation of the ruble. And I would like to make a forward-looking statement here that we expect the effect -- the positive effect of depreciation of the ruble in the second half of this year. On the next slide, there is information about the cash flow of the company. As we disclosed previously, we have a nonoperating movement in cash flow in relation with the procurement and disposal of the assets. I know that we had questions in the past about when the transaction of the disposal of the assets will be closed and we can announce that, as of today, we received already the money in relation with the disposal of the assets and it will be reflected in the cash balance at the end of the quarter. And so on the next slide, we have information about the balance of the company. I guess the only notable difference here is the impairment, which we booked. And the reason I explained already is purely the effect of the decrease in the outlook of the price of iron ore. On the last slide here, the information about the liquidity and cash balance. It's nothing new. I think we can just report that as of end of June, there was an increase in the cash balance of the company and decreasing the debt of the company, which is a positive news and -- the decrease. Yes, this is basically a section that in spite of the challenges, which we mentioned already, the company is cash flow-generating and [ possibly ] in spite of the negative bottom line, which is [ impacted with the noncash occurrence ]. I think, basically that's the main information we would like to give you with the results of the company. And I believe I'm happy to move -- we're happy to move to Q&A.

[Operator Instructions] Johnny, there are no questions at this point in time.

All right. Great. And so if there's no question at this point in time, so we are ending the meeting here and thank you, everyone, for joining the call today. But if you have any questions later on, please feel free to contact us at any time. Contact details, you can refer to our corporate website, www.ircgroup.com.hk. [Foreign Language] With that, thank you. Have a good day [Foreign Language]

Thank you for your participation. This concludes the conference. Goodbye.

Thank you. Bye-bye.