Page 116 - RUSRptSept18

or even lift the sanctions in effect from April 2018.
Russian diamond monopolist Alrosa has just reported strong July sales results, which are well supportive for the second half of 2018 sales forecast and rough diamond demand outlook. VTB reiterate Buy on Alrosa with TP of RUB 130 (ETR of 46%). July rough sales of $334mn are up 17% - stronger than respective print for De Beers of -7% y/y. This is a strong start of the third quarter of 2018, despite usually weaker seasonality. Overall, Alrosa rough diamond revenues are up 9% y/y in 7mo18. Bankers expect the second half of 2018 diamond sales to be up 20% y/y on weak base. The company notes that usual seasonal demand softness is less evident in July this year, which we think is on the back of healthy demand across the whole diamond pipeline. Furthermore, management's note on robust demand on high-quality stones suggests supportive outlook for further Alrosa's diamond price improvement Q/q (we expect a 8% Q/q pick-up in the third quarter of 2018).
Russian metal giant Norilsk Nickel reported strong 1H18 financial results on the back of booming commodity prices , the company said on August 13. The top line grew 37% y/y to $5.8bn on the back of higher metals prices, increased production volumes of copper and PGMs, and accumulated stocks of palladium having been sold, Sberbank reported in a note. EBITDA totalled $3.1bn in 1H18 (up 77% y/y), 4% above the consensus and in line with Sberbank’s estimate. The EBITDA margin rose to 53%, driven by a combination of higher metals prices and operational efficiencies. Capex was just $0.5bn, which is attributable to the completion of the modernization of the Talnakh concentrator and a number of energy infrastructure projects in 2017, but also generally to the fact that the bulk of Norilsk's capex falls in the second half of the year. That said, the company has reduced its full-year 2018 guidance from $2bn to 1.9bn, which it primarily attributes to the weaker ruble. Working capital fell by $430mn, mostly owing to the sale of palladium from stocks accumulated in 2017 and optimization of the capital structure. The latter is a process that started last year and initially resulted in a working capital buildup that should unwind this year. The company reiterated its guidance to bring down net working capital to a medium-term target of $1bn by year end, implying another $0.6bn will be released over 2H18. Free cash flow (FCF) in 1H18 totalled $2.3bn. The net debt/EBITDA ratio dropped to 1.1 as of end 1H18. The company reiterated its full-year 2018 production guidance and highlighted the positive outlook for nickel going forward. The significant refinancing of the credit portfolio carried out last year resulted in lower net interest expenses. The company expects interest savings in 2018 to exceed $100mn versus 2017. “The BoD is scheduled to consider interim dividends [on August 14]. Given the strong set of results, we expect an interim dividend of around $1.2-1.5bn. Recall that in July-August, Norilsk already paid $1.5bn as final dividends for 2017. That said, the management does not expect high dividend payments and increased capex in 2H18 to affect leverage - net debt/EBITDA at the end of the year is seen in the range of 1.0-1.3, depending on conditions in the metals markets,” Sberbank said in a note.
Net profit of sanctioned Russian aluminium major Rusal fell 31% quarter-on-quarter in April-June to $218mn, according to the company. Rusal, its mother group En+ and other businesses of Russian tycoon Oleg Deripaska were hit hard by US Treasury sanctions imposed on April 6, but recent reports indicate the companies could soon reach an agreement, lifting the sanctions . Despite the sanctions, Rusal claimed that 2Q profit rose by 8% y/y, while the adjusted net profit for 1H overall rose by 15% y/y to $535mn. Revenues were down by 18% to $2.25bn in 2Q, but up by 4%
116 RUSSIA Country Report September 2018 www.intellinews.com