Polymetal posts financial results for 2016

Dias KabyltayevMarch 16, 2017

Revenue and cost in 2016 showed a mixed dynamics. Therefore, the revenue increased by 10% yoy (2016: $1583 mn), while almost all the positive effect in revenue leveled by cash costs increased by 6% yoy to $570 per ounce. Annual financial results, in general, were within our expectations. We decided to revise our 12M TP, mainly due to update operating costs and the achievement of our annual target price this year.

Revenue and cost in 2016 showed a mixed dynamics. Therefore, the revenue increased by 10% yoy (2016: $1583 mn), while almost all the positive effect in revenue leveled by cash costs increased by 6% yoy to $570 per ounce.

The growth in revenue is explained by increase in average gold and silver prices in 2016 by 8% and 11%, respectively. The increase in production costs was mainly impacted by inflation in Russia at 5.4% and growth of outside ore and concentrates purchases, as well as due to the negative impact of the Russian Ruble growth.

It is expected that the cash costs in 2017 will be around $600-650 per ounce and will increase by an average of 10% compared to the previous year. The increase is explained by rising domestic diesel prices and continuing strengthening of the Russian Ruble.

Due to higher precious metal prices and stable production results, the Company’s adjusted EBITDA grew by 15% yoy to $759 mn. The lower average Russian Ruble exchange rate in 2016 compared to 2015 had a positive effect on the dollar value of the Company’s Ruble-denominated operating costs and adjusted EBITDA.

At the same time, a moderate strengthening of the Russian ruble in the second half of 2016 had a positive effect on the net profit. As a result, the Company's net profit in 2016 increased by 79% yoy, reaching $382 mn. Wherein, the net profit adjusted from amount of exchange differences and changes in the fair value of the contingent liabilities increased only by 16% yoy and amounted to $477 mn ($413 mn in 2015).

$, mn 2016A 2015A yoy 2016HF** diff
Revenue 1583 1441 10% 1646 -4%
Operating costs 846 779 9% 812 -4%
EBITDA 759 658 15% 710 7%
Net profit 395 221 79% 349 13%
Adjusted net profit * 477 413 16% 565 -16%
CAPEX 271 205 32% 350 23%
Net debt 1330 1298 2% 1204 -10%
Source: Company data, HF          
* Net profit, adjusted from exchange differences and contingent liabilities      
** HF forcast          

The Company’s CAPEX guidance for 2017 is amounted to $370 mn, which is $99 mn higher than in previous year's plan amounted to $271 mn. It should be noted that against the background of favorable ruble exchange rate at the beginning of last year, the Company’s CAPEX was $39 mn less than planned. Additional CAPEX in 2017 will be invested in order to finance new projects that currently are under development, including Nezhdaninskoye, Prognoz and Viksha.

The net debt of $1330 mn as at 31 December 2016 remained broadly unchanged over the previous year, bringing the Net debt/Adjusted EBITDA ratio at 31 December 2016 down to 1.75x versus 1.97x as at 31 December 2015.

The total amount of 2016 dividends leveled to $0.42/share or $180 mn, which is 18% yoy lower than in 2015. The significant reduction in dividend payments was mainly due to the reduction of the special dividend from $0.30/share in 2015 to $0.15/share in 2016.

Our opinion

Annual financial results, in general, were within our expectations. At the same time, the net profit without taking into account an exchange rate differences and contingent liabilities due to growth in operating costs in 2016 by 9% yoy was below our expectations by 16%. In this connection, we decided to revise our 12M TP, mainly due to update operating costs and the achievement of our annual target price this year.