Strong performance, conservative approach

In 2017, amidst higher coal prices in the global market and stable demand in key regions, SUEK made good progress in financial performance compared to the previous year.

The growth of global coal prices in the second half of the year and more robust demand in the domestic market enabled the company to boost its revenue. An increase in the output of products with a high calorific value, combined with the development of our sales network, contributed to better sales, including those in premium Asian markets, which had a positive impact on our financial performance.

We also continued to implement projects aimed at increasing the number of railcars under management and expanding our shipment capacity. Heavy investment in high-performance equipment, washing and logistics assets enhances our competitiveness in the market and secures a stable financial position in the long term.


In 2017, after several difficult years, the global market was characterised by a more stable and favourable price level for coal producers. A significant rise in the indices was due to the regulatory actions of the Chinese government, as well as a lower supply of coal (for more details see Market Review on Market review page).

During the year, SUEK actively exploited the favourable situation on the global market. Our international sales of coal increased by 6% year-on-year to 54.2 million tonnes, which meant the company maintained its place among the five largest coal suppliers in the world. The main obstacle to further increasing our shipments was the railway transportation market in Russia, which was impacted by a severe shortage of railcars and a sharp increase in both the cost of operators’ services and railcar lease rates. Nevertheless, logistical optimisation measures allowed SUEK to partially neutralise these negative factors.

Coal prices in the Russian market remained stable. At the same time, there was higher demand from generating companies due to the low levels of Siberian rivers and the contraction of the hydropower sector, as well as colder weather. The company maintained its leadership, with sales of products to Russian customers amounting to 53.3 million tonnes.

The Rouble/Dollar exchange rate also retained its positive trend, which began in the second half of 2016, and fluctuated between 55.8 and 60.8 Roubles per US Dollar. On average, the Russian Rouble appreciated by 13% over the year compared to 2016, which, on the one hand, boosted revenue from domestic sales in Dollar terms, but on the other hand resulted in higher costs.

Still, appreciation of currencies of other exporters enabled SUEK to remain in the first tercile of global cost curve.

Financial highlights
$m 2017 2016 Change, %
Revenue 5,693 4,002 42%
Revenue from international sales (including purchased coal) 4,190 2,911 44%
Revenue from sales in Russia 1,097 915 20%
Other revenue 406 176 131%
Cost of sales (including transportation) (4,471) (3,298) 36%
Cash cost of coal sold (1,300) (990) 31%
Transportation (1,768) (1,345) 31%
Depreciation (438) (399) 10%
Purchased coal (including transportation) (816) (470) 74%
Other (149) (94) 59%
Gross profit 1,222 704 74%
Gross profit margin, % 21% 18%
Selling, general and administrative expenses (146) (114) 28%
EBITDA 1,514 989 53%
EBITDA margin, % 27% 25%
Income tax (221) (90) 146%
Net profit 657 314 109%
Net margin, % 12% 8%
Capital expenditure 725 504 44%
Net debt 3,197 3,056 5%
Debt 3,520 3,389 4%
Cash and cash equivalents 323 333 (3%)
Net debt/bank EBITDA ratio 2.0x 2.9x (0.9x)
Bank EBITDA/interest expense ratio 9.5x 7.7x 1.8x
Exchange rates
RUB/US$ 2017 2016 Change, %
Average for the year 58.35 67.03 (13%)
At the year end 57.60 60.66 (5%)
Source: Central Bank of Russia


SUEK’s export revenue from coal sales increased by 44% to $4,190m. This was the result of several factors, including a higher average sales price (up 38%) and an increase in sales by 6%.

The growth in revenue in the Russian market in US Dollar terms by 20% to $1,097m is mainly explained by the strengthening of the Rouble and a 4% year-on-year sales volume growth.

Revenue by market ($m)
SUEK’s Russian sales structure ($m)

Average price of coal sold on international markets, FOB basis ($ per tonne)
Average price of coal sold in Russia ($ per tonne)

Transportation costs

Rail transportation costs in US Dollar terms increased by 39% ($378m) compared to 2016, mainly due to the effect of Rouble appreciation, higher average weighted transportation cost in Roubles, and the increase in rail transportation volumes. The higher rates for domestic and export traffic seen during the year can be mainly explained by the increase in tariffs for operators’ services. This increase was caused by the shortage of railcars following the growth of cargo turnover amidst high export prices and railcar production lags.

In order to minimise the impact of these factors on the company’s performance, SUEK continued to focus on changing the structure of its railcar fleet, increasing the share of railcars under management from 63% to 71%. By replacing an expensive operator fleet with our own and leased railcars, we increased export coal shipments and partially offset the higher cost of rail transportation. The year-on-year growth of rail transportation cost across export destinations amounted to 3%, and to 22% on the domestic market in Rouble terms. The domestic rail transportation cost per tonne of SUEK’s coal was more affected by an increase in operators’ tariffs. This was because the company loaded railcars under SUEK’S management mainly with export products in order to maximise the margins of export sales in the favourable price environment.

Transportation costs
$m 2017 2016 Change, %
Rail costs 1,349 971 39%
Freight costs 212 195 9%
Port costs: 189 166 14%
Group’s port facilities 51 43 19%
Third-party ports 138 123 12%
Other 18 13 38%
Total transportation costs 1,768 1,345 31%
Transportation cost structure

SUEK is one of the few coal companies in the world that uses mainly its dedicated ports for coal shipment: Vanino Bulk Terminal, Murmansk Commercial Seaport and Maly Port. In 2017, transshipment costs at our ports increased by 19% compared to the previous year. This increase was due to the growth in shipment volumes by 3%, and an increase in transshipment costs by 16% linked to inflation and the strengthening of the Rouble against the US Dollar. Shipment costs at third-party ports rose by 13% due to greater coal volumes being shipped to premium Asian markets. Total freight costs of seaborne coal shipments increased by 9% year-on-year following the growth in contract sales that included a freight component, while escalated freight fees in the international market also had an impact.

Rail costs (international market) ($ per tonne)

(RUB per tonne)
Rail costs (Russian market) ($ per tonne)

(RUB per tonne)
Ports costs (international market) ($ per tonne)
Freight costs (international market) ($ per tonne)

Cash cost of coal sold

In 2017, the cash cost of coal sold per tonne in US Dollar terms increased compared to 2016 due to the appreciation of the Rouble. At the same time, the cost of production in Roubles per tonne grew by 9% due to inflation, decommissioning of three facilities (November 7th, Vostochnoe and Khakasskaya mines), and the development of new assets (Magistralny site, Nikolsky, Pravoberezhny and Nekkovy open pits).

Average cash cost of coal sold ($ per tonne)

(RUB per tonne)

Selling, general and administrative expenses

Selling, general and administrative expenses increased by 28% mainly due to the growth in company wages and an uplift in costs linked to charitable activities.


Rising prices, increased sales in premium markets, and the availability of our own efficient transport infrastructure ensured EBITDA at $1,514m, which is a 53% growth year-on-year. Our EBITDA margin increased by 2 percentage points to 27%.

Net profit

SUEK’s net profit increased by $343m to $657m.

Selling, general and administrative expenses ($m)
Selling, general and administrative expenses structure

Capital expenditure

SUEK remains a major investor in the Russian coal industry. The total investment reached $725m, which is 44% higher than in 2016.

In 2017, the following key investment projects were carried out:

  • Developing the Pravoberezhny open pit in Urgal;
  • Commissioning the Magistralny site at the Rubana mine in Kuzbass;
  • Constructing a new module at the Tugnuisky washing plant to clean fine-sized coal with the aim of increasing our washed coal shipments to premium Asian markets;
  • Increasing production of thermal, export-quality coal in the Kuzbass mines, including the development of a 400-metre wide longwall;
  • Expanding our own railcar fleet by 2,563 units.

In 2017, SUEK increased maintenance investments by 30% due to the implementation of a new straregy aimed at efficiency increase, substitution of obsolete equipment and growing investment in health, safety and environmental activities.

In 2017, SUEK continued to invest heavily in environmental projects, primarily for construction of wastewater treatment facilities for a number of units, for technology suppressing dust at SUEK’s ports and for other environmental protection measures. The total amount of investment in environmental protection was $28m.

Capital expenditure The graph represents costs incurred during the year. ($m)
Capital expenditure by type

Operating cash flow and net debt

The company’s cash flow from operating activities increased by $401m (+ 59%) compared to 2016 and totalled $1,082m due to a substantial increase in EBITDA of $525m (+ 53%). As of 31 December 2017, SUEK’s net debt rose by 5% year-on-year to $3,197m. Our Net debt/EBITDA ratio fell to 2.0x.

As of 31 December 2017, most of the Group’s bank loans were nominated in US Dollars, with an effective interest rate of 4.98%. In addition, 4% of the debt was nominated in Euros with an effective interest rate of 2.86%, whereas the remaining part of the debt was nominated in Roubles with an effective rate of 6.63%. We chose US Dollars as the main borrowing currency due to the possibility of natural hedging (the debt can be serviced because we have a positive cash flow in US Dollars generated by sales in the international market)

Our main borrowing instrument is pre-export finance, secured by international revenues. At the end of 2017, its share, together with financing obtained from export credit agencies, accounted for 83.4% of the Group’s loan portfolio.

Operating cash flow vs capital expenditure ($m)
Debt structure as at 31 December 2017


Ba3, Positive outlook

On 27 September 2017, Moody’s Investors Service confirmed SUEK’s Ba3 rating and changed its outlook from stable to positive. Moody’s noted a number of positive factors contributing to the rating, such as our conservative financial policy, our ability to control costs by improving the efficiency of production processes, our large coal reserves and the favourable geological characteristics of the fields being developed by the Group. Other factors include our control of a major portion of logistics processes, mainly due to our own port capacity, our well-developed base of Russian and international buyers, robust margins and stable liquidity.