SunCoke Energy Achieves 2013 Targets Despite Weak Fourth Quarter
01/31/2014 - Reporting on its 2013 results, SunCoke Energy said the same factors affected the fourth quarter as affected the full year, including the current weak coal price environment and lower than expected results at its Indiana Harbor cokemaking facility.
SunCoke Energy, Inc. reported fourth quarter 2013 net income attributable to shareholders of US$11.0 million, or US$0.16 per diluted share, down from US$27.6 million, or US$0.39 per diluted share, from fourth quarter 2012. Full year 2013 net income attributable to shareholders of US$25.0 million, or US$0.36 per diluted share, is down US$73.8 million, or US$1.04 per share, from prior year.
"Despite a weak fourth quarter, we achieved our 2013 earnings targets during a year that was challenging on many fronts," said Fritz Henderson, chairman and chief executive officer of SunCoke Energy, Inc. "The same factors affected fourth quarter as affected the full year, including the current weak coal price environment and lower than expected results at our Indiana Harbor cokemaking facility due to the ongoing refurbishment effort. While these factors pressured results, there were several positives in the fourth quarter that we believe will continue into 2014, including sustained solid results across the rest of our cokemaking fleet, significantly lower per ton production costs in our coal mining business, the contribution of our new Coal Logistics segment and the benefit of our renewed contract at Indiana Harbor."
Henderson continued, "Looking ahead, we are currently evaluating the potential of dropping down our entire domestic coke business into SXCP over time and assessing strategic options for our coal business. We are in the early stages of this analysis and plan to provide an update on these initiatives in March.”
Total revenues were down 18.7% to US$399.6 million and 13.9% to US$1,647.7 million in fourth quarter 2013 and full year 2013, respectively. The reduction in both periods reflects the pass-through of lower coal prices and lower coke sales volumes in our cokemaking business and declines in average coal sales price in our Coal Mining segment of US$48 per ton in fourth quarter 2013 and US$49 per ton in full year 2013, partly offset by higher sales volumes.
Operating income declined 30.2% to US$30.9 million in fourth quarter 2013 and 35.9% to US$111.3 million for full year 2013. Adjusted EBITDA declined 14.3% to US$59.7 million in fourth quarter 2013 and 19.0% toUS$215.1 million for full year 2013. The operating income and Adjusted EBITDA declines in the quarter and year were primarily due to lower performance in our Coal Mining segment and Indiana Harbor cokemaking facility, which is undergoing a significant refurbishment. In addition, operating income was impacted by US$0.5 million and US$9.6 million of accelerated depreciation due to the refurbishment at Indiana Harbor for the quarter and year, respectively.
Net income attributable to shareholders was US$11.0 million in fourth quarter 2013, a reduction of US$16.6 million versus the same prior year period. For full year 2013, net income attributable to shareholders was US$25.0 million, down US$73.8 million versus full year 2012. Factors impacting net income for both periods include weak Coal Mining segment performance, the attribution of income to SXCP's public unit holders and lower results at Indiana Harbor.
SEGMENT RESULTS
Domestic Coke
Domestic Coke consists of cokemaking facilities and heat recovery operations at our Jewell, Indiana Harbor, Haverhill, Granite City and Middletown plants. Beginning in first quarter 2013, the company combined its Jewell Coke and Other Domestic Coke segments into one segment called Domestic Coke due to the similarities of operations and contracts between the two segments. Prior year periods have been adjusted to reflect this change.
Formerly named International Coke, our Brazil Coke segment consists of a cokemaking facility in Vitória, Brazil, which we operate for a Brazilian affiliate of ArcelorMittal. Brazil Coke earns operating and technology licensing fees based on production and recognizes a dividend on its preferred stock investment assuming certain minimum production levels are achieved at the facility.
India Coke consists of our 49% interest in VISA SunCoke, a joint venture with VISA Steel launched on March 18, 2013. VISA SunCoke produces coke for the Indian merchant market and owns a 440 thousand ton cokemaking facility and associated steam generation unit located in Odisha, India. Financial results for VISA SunCoke are recorded on a one-month lag and represent our 49% share of the joint venture's results.
Coal Mining consists of our metallurgical coal mining activities conducted in Virginia and West Virginia. A substantial portion of the metallurgical coal produced by our coal mining operations is sold to our Jewell Coke segment for conversion into coke.
The Coal Logistics segment consists of the coal handling and blending services operated by SXCP as result of its acquisition of Lakeshore Coal Handling Corporation (Lake Terminal) in third quarter 2013 and Kanawha River Terminals, LLC (KRT) in fourth quarter 2013. SXCP's coal handling and blending terminals are located in East Chicago, Indiana and along the Ohio, Big Sandy and Kanawha Rivers in West Virginia and Kentucky.
Our 2014 guidance is as follows:
"Despite a weak fourth quarter, we achieved our 2013 earnings targets during a year that was challenging on many fronts," said Fritz Henderson, chairman and chief executive officer of SunCoke Energy, Inc. "The same factors affected fourth quarter as affected the full year, including the current weak coal price environment and lower than expected results at our Indiana Harbor cokemaking facility due to the ongoing refurbishment effort. While these factors pressured results, there were several positives in the fourth quarter that we believe will continue into 2014, including sustained solid results across the rest of our cokemaking fleet, significantly lower per ton production costs in our coal mining business, the contribution of our new Coal Logistics segment and the benefit of our renewed contract at Indiana Harbor."
Henderson continued, "Looking ahead, we are currently evaluating the potential of dropping down our entire domestic coke business into SXCP over time and assessing strategic options for our coal business. We are in the early stages of this analysis and plan to provide an update on these initiatives in March.”
Total revenues were down 18.7% to US$399.6 million and 13.9% to US$1,647.7 million in fourth quarter 2013 and full year 2013, respectively. The reduction in both periods reflects the pass-through of lower coal prices and lower coke sales volumes in our cokemaking business and declines in average coal sales price in our Coal Mining segment of US$48 per ton in fourth quarter 2013 and US$49 per ton in full year 2013, partly offset by higher sales volumes.
Operating income declined 30.2% to US$30.9 million in fourth quarter 2013 and 35.9% to US$111.3 million for full year 2013. Adjusted EBITDA declined 14.3% to US$59.7 million in fourth quarter 2013 and 19.0% toUS$215.1 million for full year 2013. The operating income and Adjusted EBITDA declines in the quarter and year were primarily due to lower performance in our Coal Mining segment and Indiana Harbor cokemaking facility, which is undergoing a significant refurbishment. In addition, operating income was impacted by US$0.5 million and US$9.6 million of accelerated depreciation due to the refurbishment at Indiana Harbor for the quarter and year, respectively.
Net income attributable to shareholders was US$11.0 million in fourth quarter 2013, a reduction of US$16.6 million versus the same prior year period. For full year 2013, net income attributable to shareholders was US$25.0 million, down US$73.8 million versus full year 2012. Factors impacting net income for both periods include weak Coal Mining segment performance, the attribution of income to SXCP's public unit holders and lower results at Indiana Harbor.
SEGMENT RESULTS
Domestic Coke
Domestic Coke consists of cokemaking facilities and heat recovery operations at our Jewell, Indiana Harbor, Haverhill, Granite City and Middletown plants. Beginning in first quarter 2013, the company combined its Jewell Coke and Other Domestic Coke segments into one segment called Domestic Coke due to the similarities of operations and contracts between the two segments. Prior year periods have been adjusted to reflect this change.
| Three Months Ended December 31, | |||||||||||||||
| (In millions, except per ton amounts) | 2013 | 2012 | (Decrease) | ||||||||||||
| Segment Revenues | US$ | 359.9 | US$ | 460.2 | US$ | (100.3 | ) | ||||||||
| Adjusted EBITDA(1) | 56.5 | 62.4 | (5.9 | ) | |||||||||||
| Sales Volume (in thousands of tons) | 1,047 | 1,077 | (30 | ) | |||||||||||
| Adjusted EBITDA per ton(1) | 54 | 58 | (4 | ) | |||||||||||
| (1) See definitions of Adjusted EBITDA and Adjusted EBITDA per Ton and reconciliations elsewhere in this release. | |||||||||||||||
- Segment revenues in the fourth quarter 2013 were affected by the pass-through of lower coal costs and lower coke sales volumes. The lower coke sales volumes primarily reflects lower production at Indiana Harbor due to the refurbishment effort currently underway.
- Segment Adjusted EBITDA decline of US$5.9 million was driven by US$9.0 million of lower performance at Indiana Harbor and a US$2.5 million accrual related to a customer coke quality claim, partly offset by US$5.6 million improvement across the rest of our coke fleet. Results at Indiana Harbor were impacted by higher costs and lower volumes due to the refurbishment project, which more than offset the higher fee per ton of coke sold we earned as a result of our 10 - year contract extension. In addition, Indiana Harbor suffered from an unfavorable comparison to prior year which benefited from a US$4.2 million billing settlement.
Formerly named International Coke, our Brazil Coke segment consists of a cokemaking facility in Vitória, Brazil, which we operate for a Brazilian affiliate of ArcelorMittal. Brazil Coke earns operating and technology licensing fees based on production and recognizes a dividend on its preferred stock investment assuming certain minimum production levels are achieved at the facility.
- Segment Adjusted EBITDA increased US$1.2 million to US$11.4 million due to favorable comparison to prior year, which included a higher allocation of corporate costs.
India Coke consists of our 49% interest in VISA SunCoke, a joint venture with VISA Steel launched on March 18, 2013. VISA SunCoke produces coke for the Indian merchant market and owns a 440 thousand ton cokemaking facility and associated steam generation unit located in Odisha, India. Financial results for VISA SunCoke are recorded on a one-month lag and represent our 49% share of the joint venture's results.
- Adjusted EBITDA in fourth quarter was US$2.2 million on total coke sales of approximately 53 thousand tons, representing our share of total coke sales of approximately 108 thousand tons. Adjusted EBITDA per ton was nearly US$42 per ton and included a positive currency exchange impact of US$17 per ton.
- India Coke recognized US$0.3 million of income from equity method investment reflecting our share of earnings, depreciation, interest expense and taxes attributable to the venture.
Coal Mining consists of our metallurgical coal mining activities conducted in Virginia and West Virginia. A substantial portion of the metallurgical coal produced by our coal mining operations is sold to our Jewell Coke segment for conversion into coke.
| Three Months Ended December 31, | |||||||||||||||
| (In millions, except per ton amounts) | 2013 | 2012 |
Increase/ (Decrease) |
||||||||||||
| Total Coal Mining Revenues(1) | US$ | 47.0 | US$ | 61.7 | US$ | (14.7 | ) | ||||||||
| Segment Revenues (excluding sales to affiliates) | US$ | 11.1 | US$ | 10.8 | US$ | 0.3 | |||||||||
| Adjusted EBITDA(2) | US$ | (8.9 | ) | US$ | 6.0 | US$ | (14.9 | ) | |||||||
| Coal Production (in thousands of tons)(3) | 275 | 351 | (76 | ) | |||||||||||
| Sales Volumes (in thousands of tons)(1) | 389 | 370 | 19 | ||||||||||||
| Sales Price per ton (excludes transportation costs) | US$ | 117.82 | US$ | 165.77 | US$ | (47.95 | ) | ||||||||
| Adjusted EBITDA per ton(1) | US$ | (22.88 | ) | US$ | 16.22 | US$ | (39.10 | ) | |||||||
| (1) Includes sales to affiliates. | |||||||||||||||
| (2) See definitions of Adjusted EBITDA, Adjusted EBITDA per Ton and reconciliations elsewhere in this release. | |||||||||||||||
| (3) Includes production from company and contract-operated mines. | |||||||||||||||
- Total Coal Mining revenues (including sales to affiliates) was down as a result of a US$48 per ton decline in average coal sales price, partly offset by higher volumes. Excluding sales to affiliates, segment revenues were relatively flat on similar volumes.
- Adjusted EBITDA was negatively impacted by lower average coal sales price, a US$2.3 million inventory mark-to-market impact and a US$1.0 million increase in Black Lung liability costs. Partly offsetting this was approximately a US$10 per ton reduction in cash production costs.
The Coal Logistics segment consists of the coal handling and blending services operated by SXCP as result of its acquisition of Lakeshore Coal Handling Corporation (Lake Terminal) in third quarter 2013 and Kanawha River Terminals, LLC (KRT) in fourth quarter 2013. SXCP's coal handling and blending terminals are located in East Chicago, Indiana and along the Ohio, Big Sandy and Kanawha Rivers in West Virginia and Kentucky.
- The Coal Logistics Segment contributed US$4.0 million to Adjusted EBITDA on 3,649 thousand tons of coal handled in fourth quarter 2013.
Our 2014 guidance is as follows:
- Domestic coke production is expected to be approximately 4.3 million tons
- Coal production is projected to be approximately 1.3 million tons
- Adjusted EBITDA is expected to be between US$230 million and US$255 million on a consolidated basis. Adjusted EBITDA attributable to SXC is expected to be between US$183 million and US$203 million, reflecting the impact of public ownership in SXCP
- Earnings per diluted share attributable to SXC is expected to be between US$0.35 and US$0.60 per diluted share, reflecting the impact of public ownership in SXCP
- Cash generated by operations is expected to be approximately US$170 million
- Capital expenditures are projected to be US$117 million. Approximately US$36 million of the projected 2014 capital expenditures were pre-funded with the proceeds from SXCP's initial public offering in January 2013
- The effective tax rate for the full year 2014 is expected to be between 20% and 26%, and the cash tax rate is expected to be between 10% and 18%
