Page 178 - RusRPTSept21

Additionally, SG&A exceeded our estimates by 16% due to a RUB 2.4bn payment under the LTIP.
Lower FCFE as midstream advances diminish. FCFE of RUB 10.2bn came 73% below our expectations, due to the RUB 22.1bn working capital build-up and despite a 4.5mnct sale of diamonds from inventories. The main miss came from payables: turnover was down sharply to 62 days, from the abnormal 152 days in 1Q21, due to advances from the midstream reversing to historically normal levels. The lower than we expected FCFF in 1H21 of RUB 64.7bn suggests a lower dividend, of RUB 8.78/share (6.4%), assuming a 100% payout.
Capex cut. The 2Q21 capex of RUB 4.5bn was materially below our expectations and little changed YoY. The company has reduced its capex guidance to RUB 21bn (-16%), due to infrastructure projects being postponed. The 2022-24 guidance of RUB 26bn, RUB 22bn and RUB 21bn remains unchanged. That includes the capex required to restore production levels, according to management.
Production outlook remains uncertain. While the company notes a 5% upside risk to its reiterated output guidance for 2021 of 31.5mnct, the 2022 guidance is still uncertain, with a final decision due in the autumn. Moreover, the company has downgraded its medium-term production target from 37-38mncts to 34-35mncts, as it is struggling to get back to previous capacity.
Inventory to recover by end-2021. Management expects the end-2021 diamond inventory to be up to 9-10mnct. This suggests a build-up of 0.7-1.7mnct in 2H21, putting pressure on FCFE, in our view.
Polyus 1H21 IFRS results came in strong y/y. Lower h/h figures were expected, taking into account seasonal cooling in output in 1H.
· Revenue fell by 26% h/h, though up 12% y/y to $1.27bn (+8% vs BCSe and +1% vs consensus)
· EBITDA was down 38% h/h, while rose by 7% y/y to $660mn (+3% vs BCSe and in line with consensus)
· Adjusted net income fell by 47% h/h to $423mn, but was up 9% y/y (+2% vs BCSe and +3% vs consensus)
· BoD recommended dividends of $213mn for 1H21 – representing 50% of underlying net earnings for 2H20 – or $0.45/share (vs $0.45/share BCSe). Consequently, DY is estimated at 2.2% (vs BCSe of 2.2%)
178 RUSSIA Country Report September 2021 www.intellinews.com