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OJSC KuzbasskayaToplivnaya Company (trading as “KTK”) Unaudited Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

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Page 1: OJSC KuzbasskayaToplivnaya Company (trading as “KTK ...ktk.company/uploads/file_item/file/551/KTK-IFRS-9M2012-Eng.pdf · Balance at 1 January 2011 20 3 975 2 829 6 824 11 6 835

OJSC KuzbasskayaToplivnaya Company (trading as “KTK”)

Unaudited Condensed Interim Consolidated Financial Statements

for the nine months ended 30 September 2012

Page 2: OJSC KuzbasskayaToplivnaya Company (trading as “KTK ...ktk.company/uploads/file_item/file/551/KTK-IFRS-9M2012-Eng.pdf · Balance at 1 January 2011 20 3 975 2 829 6 824 11 6 835

OJSC Kuzbasskaya Toplivnaya Company (trading as” KTK”) Consolidated Statement of Financial Position as at 30 September 2012

2

Notes 30 September

2012 31 December

2011

Mln RUB Mln RUB ASSETS Property, plant and equipment 12 12 575 10 358 Goodwill and intangible assets

18 18

Investments in equity accounted investees 13 53 29 Other investments 14 8 5 Deferred tax assets

51 45

Total non-current assets

12 705 10 455

Inventories 15 1 418 1 275 Other investments 14 382 27 Income tax receivables

17 9

Trade and other receivables 16 1 969 1 562 Prepayments and deferred expenses 20 681 916 Cash and cash equivalents 22 2 114 1 884 Total current assets

6 581 5 673

Total assets

19 286 16 128

Page 3: OJSC KuzbasskayaToplivnaya Company (trading as “KTK ...ktk.company/uploads/file_item/file/551/KTK-IFRS-9M2012-Eng.pdf · Balance at 1 January 2011 20 3 975 2 829 6 824 11 6 835
Page 4: OJSC KuzbasskayaToplivnaya Company (trading as “KTK ...ktk.company/uploads/file_item/file/551/KTK-IFRS-9M2012-Eng.pdf · Balance at 1 January 2011 20 3 975 2 829 6 824 11 6 835

OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Consolidated Statement of Comprehensive income for the nine months ended 30 September 2012

4

Notes

Nine months ended 30

September 2012

Nine months ended 30

September 2011

Mln RUB Mln RUB

Revenue 5 16 875 16 389 Cost of sales 6 (14 144) (13 361) Gross profit

2 731 3 028

Distribution expenses 7 (506) (460) Administrative expenses 8 (779) (751) Other operating income and expenses, net 10 15 11 Results from operating activities

1 461 1 828

Financial income 9 223 70 Financial expenses 9 (284) (293) Income of associates 13 24 (4) Profit before income tax

1 424 1 601

Income tax expense 11 (311) (359) Profit for the period

1 113 1 242

Total comprehensive income attributable to: Owners of the Company 1 131 1 277 Minority participants in LLC entities (10) (7) Non-controlling interest (8) (28)

1 113 1 242

Other comprehensive income from associate

-

2

Total comprehensive income attributable to: Owners of the Company 1 131 1 279 Minority participants in LLC entities (10) (7) Non-controlling interest (8) (28)

1 113 1 244

Earnings per share Basic and diluted earnings per share (RUB) 11 13

Page 5: OJSC KuzbasskayaToplivnaya Company (trading as “KTK ...ktk.company/uploads/file_item/file/551/KTK-IFRS-9M2012-Eng.pdf · Balance at 1 January 2011 20 3 975 2 829 6 824 11 6 835

OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Consolidated Statement of Changes in Equity for the nine months ended 30 September 2012

5

Mln RUB

Attributable to equity holders of the Company

Non-controlling interest

Total equity

Share Capital

Retained earnings

Additional paid-in capital

Total

Balance at 1 January 2011 20 3 975 2 829 6 824 11 6 835 Profit for the period - 1 279 - 1 279 (28) 1 251 Dividends paid

(298) - (298) - (298)

Effect of acquisition of minority interest in LLC entities - 2 - 2 - 2 Balance at 30 September 2011 20 4 958 2 829 7 807 (17) 7 790

Balance at 1 January 2012 20 5 672 2 829 8 521 4 8 525 Profit for the period - 1 131 - 1 131 (8) 1 123 Dividends paid

- (596) - (596) (596)

Balance at 30 September 2012 20 6 207 2 829 9 056 (4) 9 052

Page 6: OJSC KuzbasskayaToplivnaya Company (trading as “KTK ...ktk.company/uploads/file_item/file/551/KTK-IFRS-9M2012-Eng.pdf · Balance at 1 January 2011 20 3 975 2 829 6 824 11 6 835

OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Consolidated Statement of Cash Flows for the nine months ended 30 September 2012

6

Nine months ended 30

September 2012

Nine months ended 30

September 2011 Mln RUB Mln RUB OPERATING ACTIVITIES Profit for the period 1 113 1 242 Adjustments for: Depreciation and amortization 835 734 Profit from disposal of property, plant and equipment (15) (10) Income of associates (24) 4 Net finance income 61 223 Income tax expense 311 359 Operating results before changes in working capital and provisions 2 281 2 552 Changes in:

Inventories (143) (355) Trade and other receivables (395) (271) Prepayments for current assets 233 (581) Trade and other payables (72) 425 Recovery of provision for employee benefits (20) - Cash flows from operating activities before income tax and interest paid

1 884 1 770

Income tax paid (236) (356) Interest paid (256) (126) Cash flows from operating activities 1 392 1 288

INVESTING ACTIVITIES Proceeds from disposal of property, plant and equipment 11 12 Loans issued and term deposits (480) (27) Proceeds from loans issued including interest 127 49 Acquisition of property, plant and equipment and intangible assets

(3 134) (1 461)

Acquisition of subsidiaries, net of cash acquired - (10) Acquisition of equity accounted investees - (17) Cash flows from investing activities (3 476) (1 454) FINANCING ACTIVITIES

Proceeds from borrowings 7 101 8 722 Repayment of borrowings (4 219) (6 888) Repayment of derivative obligation - (11) Dividends paid (596) (298) Cash flows from financing activities 2 286 1 525 Net increase /(decrease) in cash and cash equivalents 202 1 359 Cash and cash equivalents at the beginning of the period 1 884 457 Effect of exchanges rate fluctuations on cash and cash equivalents 28 (4)

Cash and cash equivalents at the end of the period 2 114 1 812

Page 7: OJSC KuzbasskayaToplivnaya Company (trading as “KTK ...ktk.company/uploads/file_item/file/551/KTK-IFRS-9M2012-Eng.pdf · Balance at 1 January 2011 20 3 975 2 829 6 824 11 6 835

OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

7

1 Background

(a) Corporate information

OJSC Kuzbasskaya Toplivnaya Company, also known as “Kuzbass Fuel Company” and trading as “KTK” (‘the Company’) is an open joint-stock company (OAO) registered under the Russian law on April 4th, 2000. The Company’s shares are quoted on the RTS-MICEX (before the merger of two Russian exchanges – Russian Trading System (RTS) and Moscow Interbank Currency Exchange (MICEX)) since May 2010. The registered office of the Company is: 4, 50 Let Oktyabrya street, Kemerovo, Russia, 650099.

The Company’s ultimate controlling party is Mr. Igor Yuryevich Prokudin.

The Company together with its subsidiaries, the most significant of which are listed below, are referred to as “the Group”:

30 September

2012 31 December

2011

Country of

incorporation Principal

activity Ownership/

voting share Ownership/

voting share

LLC TEK Meret Russia Railroad transportation services

100% 100%

LLC Kuzbasstoplivosbyt Russia Retail sale of coal 100% 100%

OJSC Kaskad Energo Russia Electricity and heat energy generation

100% 100%

CJSC Management Company Kaskad

Russia Wholesale supply of coal 100% 100%

OJSC ATK Russia Retail sale of coal 51% 51%

LLC Transugol Russia Retail sale of coal 52% 52%

LLC NTK Russia Retail sale of coal 51% 51%

LLC Kaskad Geo Russia Land lease 100% 100%

The Group’s principal activities are the extraction of thermal coal from open-pit mines located in the territory of the Kemerovo region in the Russian Federation, wholesale supply of coal to customers in the Russian Federation as well as abroad, and retail sales of coal through its distribution networks located in the Kemerovo, Altai, Omsk and Novosibirsk regions.

Additionally, the Group is engaged in resale of coal purchased from other coal producers, electrical and heat power generation and sales, storage and transport services.

The operations of the Group are subject to various regulations and licensing laws related to the extraction of coal in the Russian Federation.

(b) Russian business environment

The Group’s operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation. The consolidated financial statements reflect management’s assessment of the impact of the Russian business environment

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

8

on the operations and the financial position of the Group. The future business environment may differ from management’s assessment.

2 Basis of preparation (a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, taking in consideration the provisions of IAS 34 “Interim Financial Reporting”.

(b) Basis of measurement

The consolidated financial statements are prepared on the historical cost basis.

(c) Functional and presentation currency

The national currency of the Russian Federation is the Russian Rouble (“RUB”), which is the functional currency of the Company and all of its subsidiaries and the currency in which these consolidated financial statements are presented. All financial information presented in RUB has been rounded to the nearest million.

3 Significant accounting policies

(a) Recognition and measurement of property, plant and equipment

Items of property, plant and equipment, except for land, are measured at cost less accumulated depreciation and impairment losses. The cost of property, plant and equipment at 1 January 2006, the date of transition to IFRSs, was determined by reference to its fair value at that date. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalized borrowing costs. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized net within “other operating expenses” in profit or loss. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings

(b) Exploration and evaluation expenditure

Exploration and evaluation assets include topographical, geographical, geochemical and geophysical studies; exploratory drilling; activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource. The exploration and evaluation assets are measured at cost less accumulated impairment losses, and are classified as “Exploration and evaluation assets” within property, plant and equipment. When the technical feasibility and commercial viability of extracting a mineral resource are demonstrable, which is evidenced by a formalized development plan, the exploration and evaluation assets are reclassified within property, plant and equipment to “Construction in progress”, where they form part of mine development costs.

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

9

(c) Mine development costs Once exploration and evaluation activities have been completed and proven reserves are determined, the expenditure on development of mineral resources is capitalized and classified within the “Construction in progress” category of property, plant and equipment. The development expenditure which is capitalized within property, plant and equipment includes the cost of materials, direct labor and an appropriate proportion of overheads related to works on mine development which are inseparable from the mine’s landscape, as well as costs of development stripping as described in 3(d). Other development costs are recognized in the income statement as an expense as incurred.

Once the relevant mineral resource is ready for production, the capitalized mine development costs are reclassified to “Mining assets and mining structures” category, which is classified within property, plant and equipment.

(d) Stripping costs Overburden and other mine waste materials are removed during the initial development of a mine site in order to access the mineral resource. This activity is referred to as development stripping for open-pit mines. The directly attributable costs of development stripping (inclusive of an allocation of relevant overhead expenditure) are capitalized as mine development costs within property, plant and equipment. Removal of waste material continues throughout the life of open-pit mines and is referred to as production stripping. Production stripping commences from the date when saleable materials begin to be extracted from the mine.

Costs of production stripping are variable production costs which are included in the cost of inventory extracted during the period in which the stripping costs have been incurred.

(e) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

(f) Depreciation

Depreciation of property, plant and equipment, except mining assets and mining structures, is determined using the straight-line method based on the estimated useful lives of the individual assets or the useful life of the associated mine if shorter, unless an item of property, plant and equipment is consumed during the mining process proportionate to the volume of extraction, in which case its depreciation is determined using a unit of production method based on the extracted volumes of mineral resources and estimated production capacity of the individual asset. Mining assets and mining structures are depleted over the life of the related mineral resource using the unit-of-production method based on the expected amount of commercially extractable reserves, determined as industrial (recoverable) reserves under the Russian classification. Depletion of mining assets and mining structures capitalized development costs commences from the date when saleable materials begin to be extracted from the mine. Depreciation is recognized in the income statement except for depreciation of assets used for construction of other items of property, plant and equipment of the Group which is included in the cost of the constructed assets. Depreciation commences from the date the construction of an asset is completed and it is ready for use. Land is not depreciated. The estimated useful lives of items of property, plant and equipment used as a basis for asset’s depreciation rates are as follows:

• Buildings and other production structures 9-46 years • Machinery, equipment and vehicles 15-35 years • Fixtures and fittings 3-5 years

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

10

• Mining assets and mining structures Pro rata to extraction volumes in relevant mines

Based on projected extraction volumes, the remaining useful life of the existing mining assets and mining structures is estimated to exceed 20 years.

Depreciation methods, useful lives and residual values are reassessed at the balance sheet date.

(g) Site restoration provision

Site restoration provision includes expected costs of levelling, clean-up and re-vegetation of soil at open pit mines and related overburden banks operated by the Group.

The discounted future costs of site restoration are initially included within mining assets of property, plant and equipment at the time land plots are disturbed in course of land plot preparation, except where there is no evidence that any future benefits will be received from the asset, in which case costs are expensed as incurred. Increases in provision due to subsequent disturbance of land plots in course of coal extraction are charged to cost of production of inventories.

(h) Employee benefits

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

Long-term benefits

The Group is subject to certain defined benefit plans. Defined benefit plans are post-employment benefits plans under which the Group has a legal or constructive obligation to pay amounts in respect of those benefits, and thus makes direct payments to its employees. The calculation of the Group’s net obligation in respect of defined retirement benefit plans is performed annually by management using the projected unit credit method.

In accordance with this method, the Group uses an actuarial valuation method for measurement of the present value of post-employment benefit obligations and related service cost. This involves the use of demographic assumptions about the future characteristics of the current and former employees who are eligible for benefits: mortality, both during and after employment, rates of employee turnover, disability and early retirement, etc., as well as financial assumptions: discount rate, future salary and benefit levels, etc.

Group’s net obligation is calculated separately for each defined benefit plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to its present value and the fair value of any plan assets is deducted. The discount rate used is the yield at the reporting date on high quality corporate bonds for a respective country that have maturity dates approximating the terms of the Group’s obligations. Any net actuarial gain or loss arising from the calculation of the retirement benefit obligation is fully recognized as ‘other comprehensive income’.

(i) Net assets attributable to minority participants in LLC subsidiaries

If, according to charter documents of a limited liability company, a participant may unilaterally withdraw from such company, the company will be obliged to pay the withdrawing participant’s share of net assets of the company for the year of withdrawal, in cash or, subject to consent of the participants, by an in-kind transfer of assets. The payment should be made no later than nine months after the end of the year of withdrawal.

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

11

Accordingly, the share capital and retained earnings of limited liability companies forming part of the Group which are attributable to minority participants and where the participants may unilaterally withdraw, are shown as net assets attributable to minority participants, and are presented as liabilities of the Group.

(j) Compensation from government

Compensation from government relates to retail sales of coal to the general public at fixed prices regulated by the government and to provision of some public services at tariffs regulated by the local authorities.

As to the coal sales the Group receives reimbursement from the state budget for the difference between the regulated price and an average market price agreed with the government. Compensation from government is accrued when respective sales are made to end customer.

In relation to the services rendered to general public at regulated tariffs, the Group receives compensation from the State for the losses originated from rendering such services.

4 Reportable segments The Group determines and presents operating segments based on the information that is internally provided to the General Director, who is the Group’s chief operating decision maker. The General Director analyzes operating results for purposes of assessing the performance of the operating segments and making decisions about resource allocation.

The segmented financial information is prepared and reported to the General Director at least quarterly. Management has selected gross profit as the measure of the segment’s result.

For the nine months ended 30 September 2012 Mln RUB

Domestic sales of

coal produced

Export sales of

coal produced

Resale of coal

purchased

Other operations

Total

Revenue 2 880 12 057 1 435 503 16 875 Cost of sales (2 309) (10 149) (1 298) (388) (14 144) Gross profit and segment result 571 1 908 137 115 2 731 Unallocated expenses Other operating expenses (1 270) Finance income and expenses, net (37) Profit before income tax 1 424

As at 30 September 2012 Trade receivables 495 286 247 65 1 093

Advances received (59) (380) (29) (14) (482)

Page 12: OJSC KuzbasskayaToplivnaya Company (trading as “KTK ...ktk.company/uploads/file_item/file/551/KTK-IFRS-9M2012-Eng.pdf · Balance at 1 January 2011 20 3 975 2 829 6 824 11 6 835

OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

12

For the nine months ended 30 September 2011

Mln RUB

Domestic sales of

coal produced

Export sales of

coal produced

Resale of coal

purchased

Other operations

Total

Revenue 2 603 12 040 1 370 376 16 389 Cost of sales (1 876) (10 094) (1 114) (277) (13 361) Gross profit and segment result 727 1 946 256 99 3 028 Unallocated expenses Other operating expenses (1 200) Finance income and expenses, net (227) Profit before income tax 1 601

As at 31 December 2011 Trade receivables 331 97 183 52 663 Advances received (41) (484) (23) (13) (561)

5 Revenue

Mln RUB

Nine months ended 30 September 2012

Nine months ended 30 September 2011

Sales of coal 15 972 15 707 Compensation from government 439 306 Sales of electrical and heat power 168 158 Provision of transportation services 140 107 Provision of storage services 26 44 Other revenue 130 67

16 875 16 389

Compensation from government refers to amounts received from the local authorities as part of the consideration for coal sold to local municipalities and population at fixed prices and for services rendered to general public at regulated tariffs. Such compensation is due to the Company in accordance with the Russian legislation.

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

13

6 Cost of sales

Mln RUB

Nine months ended 30 September 2012

Nine months ended 30 September 2011

Railway tariff and transportation services 7 198 7 426 Coal purchased 1 324 1 393 Extraction, processing and sorting of coal 1 374 1 138 Fuel 1 219 906 Wages, salaries and social charges 1 042 888 Depreciation and amortization 771 681 Spare parts 473 427 Repair and maintenance 322 284 Mining and environmental taxes 195 200 Other materials 122 120 Other services

115 44

Electricity

54 55 Operating leases 53 56 Security services 36 28 Other expenses

18 10

Land rent 5 3 Change in coal stock (177) (298)

14 144 13 361

7 Distribution expenses

Mln RUB

Nine months ended 30 September 2012

Nine months ended 30 September 2011

Wages, salaries and social charges 212 172 Services 176 202 Materials 55 35 Depreciation and amortization 47 39 Other distribution expenses 16 12

506 460

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

14

8 Administrative expenses

Mln RUB

Nine months ended 30 September 2012

Nine months ended 30 September 2011

Wages, salaries and social charges 441 367 Services 105 141 Taxes other than income tax 106 109 Charity and welfare 53 45 Materials 22 20 Other administrative expenses 23 42 Depreciation and amortization 17 14 Fees and penalties 3 7 Sundry payments to personnel 9 6 779 751

9 Finance income and finance costs

10 Other income and expenses, net

Mln RUB

Nine months ended 30 September 2012

Nine months ended 30 September 2011

Profit on disposal of property, plant and equipment 15 11 15 11

Mln RUB

Nine months ended 30 September 2012

Nine months ended 30 September 2011

Interest income on loans granted and cash equivalents 71 35 Foreign exchange gain 144 - Discount at initial recognition of interest-free loan received - 35 Bad debt allowance recovery

8 -

Finance income 223 70 Interest expense (254) (133) Foreign exchange loss

- (59)

Allowance for doubtful debts - (60) Unwinding of discount on provision for site restoration (15) (15) Unwinding of discount on long-term promissory notes and interest-free loans received

(15)

(8)

Loss from changes in fair value of derivatives

-

(18) Finance costs (284) (293) Net finance income (61) (223)

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

15

11 Income tax expense Mln RUB

Nine months ended 30 September 2012

Nine months ended 30 September 2011

Current tax for the period (268) (355) Deferred tax expense (43) (4)

(311) (359)

12 Property, plant and equipment Depreciation charge for the period amounted to 834 mln RUB. Additions of property, plant and equipment accounted to 3 059 mln RUB (9 months 2011: 734 mln RUB and 1 437 mln RUB respectively). The significant part of Company`s investments relates to construction of the second enrichment plant.

13 Investments in equity accounted investees Mln RUB

Owner- ship Assets

Liabili-ties

Reve-nue

Profit

Group share of

net assets

Group share

of profit/ (loss)

Nine months ended 30 September 2011 Suzunsky raitop OJSC 49,00% 9 (1) 43 (1) 4 - Kuzbasskaya Transportnaya Company LLC 49,98% 5 249 (5 242) 720 (9) 3 (4) 5 258 (5 243) 763 (10) 7 (4) Nine months ended 30 September 2012 Suzunsky raitop OJSC 49,00% 8 - 20 (1) 4 - Kuzbasskaya Transportnaya Company LLC 49,98% 5 967 (5 896) 941 47 35 24 5 975 (5 896) 961 46 39 24

Movements in carrying value of investments in equity accounted investees were as follows:

Mln RUB

Nine months ended 30 September 2012

Nine months ended 30 September 2011

Carrying value as at the beginning of the period 29 8 Cost of investment (4.98% share in Kuzbass Transport Company LLC)

- 20

Income/(loss) from associate for the period 24 (4)

Carrying value as at the end of the period 53 24

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

16

Assets of LLC Kuzbasskaya Transportnaya Company ("KTrK") are represented by the fleet of railroad wagons acquired from third parties under finance lease arrangements and sales and purchase agreements. KTrK further sublets these wagons under operating lease arrangements to its other investor, a third party (“the Operator”), who provides transportation services to the Group using wagons both from KTrK and from other sources. The majority of transportation expenses incurred by the Group relate to the Group’s transactions with the Operator.

In February 2012 the Group provided a financial guarantee to a third party bank ("the Bank") in respect of a loan of its associate, KTrK. The guarantee covers liabilities under the loan up to the maximum amount of RUB 1 211 million and expires in March 2023. The guarantee has been provided in the form of KTK's irrevocable offer to buy back any past-due debt of KTrK, and may be presented for payment by the Bank within one year from the date when such past due debt originates. The purpose of KTrK's loan is the acquisition of railway wagons, primarily used for KTK needs. As at the reporting date the liabilities of KTrK owed to the Bank under this loan tranche amounted to RUB 1 020 million. At the date when these financial statements were authorized, the likelihood of execution of the guarantee is assessed to be remote.

14 Other investments

Mln RUB

30 September 2012

31 December 2011

Non-current Loans granted to other companies 8 5 8 5

Current Loans granted to other companies 11 27 Term deposits 371 - 382 27

15 Inventories

Mln RUB

30 September 2012

31 December 2011

Coal in stock 918 701 Raw materials and consumables 349 384 Coal in transit 144 183 Other inventories 7 7 1 418 1 275

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

17

16 Trade and other receivables

Mln RUB

30 September 2012

31 December 2011

VAT receivables 668 748 Trade receivables 1 093 663 Other receivables 138 119 Compensation receivable from budget 108 64 Receivables for railway tariff 8 25 Receivable from personnel 17 14 Provision for doubtful debts (63) (71) 1 969 1 562

17 Share capital

30 September2012

31 December 2011

Number of ordinary shares outstanding during the period 99 258 355 99 258 355 Par value, Russian roubles 0.2 0.2 Share capital, RUB million 20 20

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

(а) Dividends

In accordance with the Russian legislation the Company’s distributable reserves are limited to the balance of retained earnings as recorded in the Company’s statutory financial statements prepared in accordance with the Russian Accounting Principles, which differs from the balance of retained earnings reported in these consolidated financial statements.

In April 2012 at the shareholders’ general meeting the shareholders resolved on a dividend payment of RUB 596 million, corresponding to RUB 6 per share (in 2011 a dividend amounted to RUB 298 million or RUB 3 per share).

18 Trade and other payables Mln RUB

30 September

2012 31 December

2011 Trade payables 695 836 Advances received 482 561 Payables to personnel 209 275 Payables for property, plant and equipment 161 57 Taxes (other than income tax) payable 152 139 Other payables 94 87 1 793 1 955

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

18

19 Deferred income During 2011-2012 the Group received some long-term non-interest bearing loans from its customers repayable in 2036-2037. The loan agreements require the provision of a minimal level of railroad transportation services to these customers by means of the Group’s own railway network until the repayment of the loans.

At the reporting date the Group has recognised the relevant liability at amortised cost within loans and borrowings. The effect of discounting of this liability was recognised as deferred income which is to be amortized into revenue over the term of the loans. As a result of deferred income amortization the Group has recognised RUB 7 million as revenue from rendering transportation services.

20 Prepayments and deferred expenses

Mln RUB

30 September 2012

31 December 2011

Advances given for transportation services 496 665 Advances given for inventory and services 180 248 Deferred expenses 5 3 681 916

21 Loans and borrowings Mln RUB

30 September

2012 31 December

2011 Non-current liabilities Secured bank loans 3 065 2 126 Unsecured bank loans 2 112 515 Loans from other companies 141 142 Promissory notes issued - 11 5 318 2 794

Current liabilities Secured bank loans 883 291 Unsecured bank loans 1 028 1 429 Promissory notes issued 15 15 Loans from other companies 17 10 Interest accrued 10 8 1 953 1 753

22 Cash and cash equivalents Mln RUB

30 September

2012 31 December

2011 Petty cash 4 2 Bank accounts 236 36 Term deposits 1 874 1 846 2 114 1 884

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OJSC Kuzbasskaya Toplivnaya Company (trading as “KTK”) Notes to the Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2012

19

23 Events subsequent to the reporting date There were no significant events subsequent to the reporting date.