green-gem-stone-highres

Still good value under varied COVID-19 scenarios

Gemfields Group 28 April 2020 Update
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Gemfields Group

Still good value under varied COVID-19 scenarios

COVID-19 update

Metals & mining

28 April 2020

Price

ZAR1.58

Market cap

ZAR1,847m

ZAR18.95/US$

Net cash (US$m) 17 Apr 2020

33.2

Shares in issue

1,169m

Free float

72%

Code

GML/GEM

Primary exchange

Johannesburg

Secondary exchange

AIM

Share price performance

%

1m

3m

12m

Abs

(4.2)

(16.8)

(9.7)

Rel (local)

(17.0)

(6.1)

7.4

52-week high/low

ZAR2.14

ZAR1.39

Business description

Gemfields is a world-leading supplier of responsibly sourced coloured gemstones. It owns 75% of Montepuez Ruby Mining in Mozambique, 75% of Kagem Mining in Zambia, the Fabergé jewellery business and an investment in Sedibelo Platinum.

Next events

H1 results

September 2020

Analyst

Alison Turner

+44 (0)20 3077 5700

Gemfields Group is a research client of Edison Investment Research Limited

Considering the uncertainty surrounding COVID-19 (and Gemfields’ inability to hold emerald and ruby auctions while international travel is severely restricted), we have considered three COVID-19 scenarios in terms of recovery timing. In both our faster recovery and central case scenarios, Gemfields remains EBITDA positive in 2020 and ends the year in a net cash position.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

206.1

(22.5)

(2.6)

0.0

N/A

N/A

12/19

216.2

55.9

1.3

0.0

6.4

N/A

12/20e

101.8

(15.9)

(1.4)

0.0

N/A

N/A

12/21e

240.5

58.4

2.0

0.0

4.2

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Strong 2019 reflects underlying business strength

Record auction revenues saw Gemfields generate US$80.9m in EBITDA in 2019 (2018: US$58.9m), a 37% EBITDA margin despite the imposition of a 15% export tax on Zambian emeralds, which cost the group US$12.4m in 2019 (and has since been removed). Gemfields ended 2019 with cash of US$78.2m and net cash of US$25.4m (up from net cash of US$9.8m at the end of 2018).

COVID-19 scenarios suggest relative resilience

For Gemfields, the key impact of COVID-19 is the inability to hold emerald and ruby auctions while customers are unable to travel internationally. Operationally, production is currently suspended at both Kagem and Montepuez Ruby Mining (MRM). We have considered three COVID-19 scenarios, looking particularly at Gemfields’ ability to hold auctions in 2020 (but also considering longer-term sales impacts and production and cost impacts including the benefit of weaker local currencies in Zambia and Mozambique). Gemfields remains EBITDA positive this year in our faster recovery and central cases, generating 2020 EBITDA of US$26m and US$11m, respectively (previous forecast US$75m). The slower recovery scenario sees a 2020 EBITDA loss of US$14m. We see Gemfields ending 2020 with net cash of US$15m in the faster recovery scenario, net cash of US$4m in our central case and net debt of US$21m in the slower recovery scenario.

Value upside under all three COVID-19 scenarios

Our central case sum-of-the-parts DCF valuation of Gemfields sees a 12% drop in dollar terms to US$459m (from US$522m previously) with the lower value reflecting the reduction in 2020 cash flows with any 2021/22 market impact mitigated by the ability to selectively sell inventory carried over from 2020. Our faster recovery valuation is US$497m (5% below our previous valuation), but our slower scenario is US$339m (35% below our previous valuation) as this assumes a longer-term demand and thus pricing impact. When converted to rand per share terms (of interest particularly to South African investors) the negative value impact is offset by the sharply weaker rand (ZAR18.95/US$ vs ZAR14.87/US$ previously).

Strong set of 2019 full-year results

While in the context of current global uncertainties investors may be more focused on the outlook for 2020 and risks relating to nearer-term cash flows, we think it is important to look at the strength of the underlying business that is clearly evidenced in Gemfields’ solid 2019 full-year results, which were released on 6 April 2020.

Gemfields generated record revenue of US$216.2m (2018: US$206.1m) and EBITDA of US$80.9m (2018: US$58.9m), a 37% EBITDA margin (2018: 29%). Those strong results are despite the imposition of a 15% export tax on Zambian emeralds during 2019 (since removed), which reduced 2019 EBITDA by US$12.4m.

Gemfields ended 2019 with a strong balance sheet, with cash of US$78.2m and net cash of US$25.4m (up from net cash of US$9.8m at the end of 2018). Free cash flow from operations before working capital movements of US$31.1m was offset by a US$25.7m negative movement in working capital largely as a result of an increase in receivables from the large (US$71.5m) ruby auction, which only concluded on 14 December 2019. The bulk of the US$56.7m in auction receivables outstanding at 31 December 2019 were collected by the end of February 2020. The strong balance sheet position means that Gemfields begins 2020 well placed to weather the storm.

Exhibit 1: Key metrics from 2019 full-year results

2018

2019

Revenue (US$m)

206.1

216.2

EBITDA (US$m)

58.9

80.9

EBITDA margin (%)

29%

37%

Normalised PBT (US$m)

(22.5)

55.9

Normalised EPS (c)

(2.6)

1.3

Closing net cash/(debt) (US$m)

9.8

25.4

Source: Gemfields

Given the uncertainties surrounding the ability to conduct emerald and ruby auctions, which require customers to travel internationally, the 2019 results contain a note in relation to the going concern basis of accounting (note 12). Specifically, investors should be aware that if Gemfields is not able to conduct any emerald or ruby auctions by October 2020, the company may need to renegotiate existing debt facilities (covenants) and potentially seek additional funding and/or take more drastic action to reduce costs.

Three scenarios for COVID-19 impact on Gemfields

On 30 March, Gemfields announced that all but critical operations at Kagem had been suspended for at least a month. The company also announced it was likely that the emerald (high quality, HQ) and ruby (mixed quality, MQ) auctions originally scheduled for May and June 2020, respectively, are highly likely to be rescheduled, with the possibility that the subsequent emerald (HQ) and ruby (MQ) auctions originally scheduled for November and December 2020 may be cancelled altogether. And on 22 April Gemfields further announced that operation at MRM would also be suspended in response to COVID-19. The company is also increasing security at MRM in response to increased local security risks. UK staff (including directors) will take a 20% temporary cut in pay in May.

Gemfields generates more than 90% of its revenues from emerald and ruby auctions usually comprising two HQ emerald auctions (May and November, usually in Singapore), two commercial-quality (CQ) emerald auctions (February and August, usually in Lusaka) and two MQ ruby auctions (June and December, usually in Singapore). The challenge from a practical perspective is that these auctions rely on customers travelling from multiple countries to carefully inspect the stones and determine the value of their bids. This process cannot take place remotely without the customers having physical access to the stones. For Gemfields to hold auctions thus requires not only the lifting of COVID-19 lockdowns in the respective locations of the planned auctions, but also lifting worldwide travel restrictions to the extent required to allow free movement of both stones and customers between countries.

In note 12 to the company’s final 2019 results (‘going concern’) Gemfields also notes that it believes it would be prudent, even once COVID-19 restrictions are lifted, to allow customers ample time to recover before the first auctions are held. As such, Gemfields expects to hold auctions only in the fourth quarter of 2020, with one HQ emerald, one further CQ emerald and one ruby auction held in Q4 (in addition to the CQ auction already held in February 2020, which generated sales proceeds of US$11.5m).

We have looked at three potential scenarios for Gemfields in terms of the potential impact of COVID-19 on 2020 and longer-term metrics. Each scenario is described below with the key assumptions and impact on forecast key metrics compared in Exhibits 2 and 3 below.

Central case

In terms of auction sales, our central case assumes that no mid-year auctions will be held and that one CQ emerald, one HQ emerald and one ruby auction are held in Q4. We assume the Q4 auctions will be of a similar volume to what would normally have been the case but now assume prices 10% lower than our previous forecasts. While the risk to demand and pricing is on the downside given the current challenging economic conditions, we believe that the lack of May/June auctions could potentially result in at least some pent up demand from customers, which should help to partially mitigate the impact.

Operationally, our central case assumes a two-month shutdown of operations at Kagem (ie extending the one-month shutdown announced on 30 March) and a similar length shutdown at MRM.

In terms of costs, our central case sees a 15% decrease in 2020 cash mining and production costs in absolute terms relative to our previous forecasts as a result of:

The impact of the eight-week suspensions at Kagem and MRM on direct marginal cash costs (fuel and consumables) and some reduction in salaries during the period (we assume an average 20% labour cost saving over the two months, noting that salaries were paid in full at Kagem during April).

The weaker Zambian kwacha and Mozambican metical, down 9% and 31% year-to-date respectively (approximately 30–35% of cash mining and production costs are in local currency but local cost inflation must be taken into account).

A lower oil price (although there will be a lag time before any change in international oil prices is reflected in local fuel costs).

We also forecast a 25% decline in selling, general and admin costs relative to our previous forecasts, partly as a result of direct costs not being incurred in relation to May and June auctions and taking into account the announced 20% reduction in UK (including board) salaries for May.

From 2021 onwards, our central case sees a more limited longer-term impact on MRM and Kagem. We assume::

A reduction in MRM production relative to our previous forecasts, as a result in the deferral of the second washplant (but with little impact on sales, as the company should have some inventory to hand, assuming that the 2020 shutdown is not longer than two months).

Any continued demand weakness in the coloured gemstone market in 2021/22 will be largely offset in terms of Gemfields revenue by the company’s high levels of inventory of high-quality emerald and rubies at the end of 2020 giving Gemfields the ability to carefully manage both quantity and quality of stones presented at auction in 2021 and 2022. Nevertheless, we assume that prices achieved will be 5% lower than previously forecast for 2021 and 2% lower in 2022 (recovering by 2023).

Some 80% of Faberge’s wholesale customers are currently closed, and the impact on demand is likely to be significant. We now forecast revenue of just US$9m for Faberge in 2020 (versus US$17m previously), rising to US$20m in 2022 (from US$27m previously).

Faster recovery scenario

Our faster recovery scenario assumes there is a nearer-term change in countries’ responses to the COVID-19 pandemic in terms of re-opening their economics and lifting travel restrictions. In this scenario we assume some pent-up demand from customers sees slightly larger auctions than in our central case held either late in Q3 or early in Q4. In this scenario, 2021 and 2022 benefit from some sales of excess emerald and ruby inventory produced in 2020. While this scenario may seem unlikely to most observers, we note that the current situation whereby multiple countries prevent their residents from freely leaving their own homes would have seemed even more unlikely from the standpoint of December 2019 – a lot can change in a small space of time.

Operationally, the faster recovery largely mirrors the central case but with resumption of operations two weeks earlier and thus slightly higher costs in absolute terms.

Slower recovery scenario

Our slower recovery scenario assumes certain COVID-19 restrictions are still in place in Q4 and thus Gemfields is unable to hold standard auctions even late in the year. We assume that some sales would still be possible through more flexible mechanisms, for example holding a CQ and small HQ emerald auction in Jaipur, and selling selected parcels of rubies direct to customers in key locations. In this scenario in addition to lower volumes, we assume a 15% negative impact on 2020 prices relative to our previous forecasts.

In this scenario the company would need to renegotiate and extend debt facilities and covenants, although we think it is unlikely it would need to turn to equity markets. In this scenario we also assume the company closes both Kagem and MRM for three months and takes more drastic measures to reduce costs across the business. As a result, in this scenario we see 2020 cash mining and production costs a further 5% lower than in the central case and SG&A a further 9% lower in absolute terms.

Our slower recovery scenario also assumes the more severe global economic recession affects longer-term coloured gemstone demand and thus pricing. Despite the company’s ability to offer higher-quality stones for sale from inventory built in 2020, we nevertheless reduce forecast 2021 and longer-term prices by 10% from our previous forecasts and assume 10% lower 2021 auctions sales volumes.

Overview of the three scenarios

Exhibit 2 below provides an overview of the three COVID-19 scenarios and the changes relative to our previous forecast assumptions.

Exhibit 2: Overview of Covid-19 scenarios

 

Previous forecasts

Faster recovery

Central case

Slower recovery

Auctions held remainder of 2020

One CQ emerald auction

Two HQ emerald auctions

Two MQ ruby auctions

One CQ emerald auction

One larger HQ emerald auction

One larger MQ ruby auction

No change in price assumptions relative to previous forecast (pent up demand following no half year auctions)

One CQ emerald auction

One HQ emerald auction

One mixed-quality ruby auction

10% negative price impact relative to previous forecast

One smaller CQ emerald auction

One very small HQ emerald auction

Very limited ruby sales

15% negative price impact relative to previous forecast

Auction volumes and pricing 2021

Higher sales volumes partially unwind 2020 inventory,

No change in pricing versus our previous estimates.

2021 auction volumes assumed similar to previous forecasts albeit with some change in auction mix as the company can utilise 2020 closing inventory. Lower MRM production offset by sales from inventories

Market pricing impact partly offset by ability to manage quality mix using closing 2020 inventory – we assume 5% price reduction in 2021

Sales volumes 10% lower than previously forecast

10% lower prices relative to our previous forecasts

Longer-term impact on auction sales

Further inventory sales in 2022

No change in price forecasts

2% price impact in 2022.

No longer-term auction impact relative to our previous forecasts

10% lower prices relative to our previous forecasts

Operational impact at the mines

6 week mining suspensions at Kagem and MRM

Two month- operations suspensions at Kagem and MRM

Deferral of MRM second washplant construction to 2021

Three-month suspension of Kagem and MRM

Significant cost cutting

Deferral of MRM capital to late 2021/2022

Faberge

Faberge revenue of US$17m in 2020 rising to $27m in 2022

Faberge revenue of US$9m in 2020 rising to $22m in 2022

Faberge revenue of US$9m in 2020 rising to $20m in 2022

Faberge revenue of US$8m rising to US$16m in 2022

Cash cost impact

Cash mining and production costs 3% above the central case.

SG&A 6% above the central case

15% reduction in cash mining and production costs in absolute terms relative to previous forecasts results from impact of suspension (but with salaries 75-80% paid), currency and fuel cost benefits

25% reduction in SG&A largely as a result of not holding May and June auctions and UK May salary cuts

Further 5% reduction in cash mining and production costs relative to central case to reflect additional 1month suspension

Further 9% cut in SG&A relative to the central case

Source: Edison Investment Research

Forecast key metrics in each COVID-19 scenario

Exhibit 3 on the following page sets out the key metrics for Gemfields in each of these three scenarios (and for reference also includes our previous forecasts).

We would expect Gemfields to generate US$102m in 2020 revenue in the central COVID-19 scenario (a fall of 56% of our previous 2020 revenue forecast). In the faster recovery case, we would expect 2020 revenue of US$128m, but we see revenue of just US$53m in the slower recovery case. Gemfields remains EBITDA positive in 2020 in both the faster recovery and central cases generating 2020 EBITDA of US$26m and US$11m, respectively (our previous 2020 EBITDA forecast was US$75m). That falls to a 2020 EBITDA loss of US$14m in the slower recovery scenario. In 2021 EBITDA grows strongly to US$102m in the faster recovery case, US$87m in the central case and to US$79m even in the slower recovery case. In 2022 we forecast EBITDA of US$118m, US$104m and US$81m in the faster, central and slower recovery cases, respectively.

Gemfields is fortunate to be starting 2020 in a strong balance sheet position with cash of US$78.2m and net cash of US$25.4m. The company should also benefit from a sizeable positive move in working capital in 2020 as it ended 2019 with US$56.7m in auction receivables largely relating to the December 2019 ruby auction (and with the majority of this collected by the end of February 2020). In the faster recovery scenario, Gemfields would still end 2020 with net cash of US$15m, but that reduces to US$4m net cash in the central case and to net debt of US$21m in the slower recovery case.

Exhibit 3: Forecast key metrics in different COVID-19 scenarios

Key metrics

Previous

Faster Recovery

Central Case

Slower Recovery

Kagem HQ emerald production 2020 (kct)

850

810

800

759

Kagem revenue 2020 (US$m)

86

50

41

26

Kagem revenue 2021 (US$m)

94

101

90

77

Kagem revenue 2022 (US$m)

100

110

98

90

MRM premium ruby production 2020 (kct)

120

108

98

91

MRM premium ruby production 2021 (kct)

145

114

114

109

MRM revenue 2020 (US$m)

130

68

52

19

MRM revenue 2021 (US$m)

146

151

136

129

MRM revenue 2022 (US$m)

157

168

154

138

Faberge revenue 2020 (US$m)

17

9

9

8

Faberge revenue 2021 (US$m)

22

15

15

12

Faberge revenue 2022 (US$m)

27

22

20

16

Group revenue 2020 (US$m)

234

128

102

53

Cash mining and production costs 2020* (US$m)

(73)

(66)

(62)

(58)

Royalties 2020 (US$m)

(18)

(10)

(8)

(3)

Selling general and admin (US$m)

(65)

(54)

(49)

(45)

Change in inventory 2020 (US$m)

(3)

27

28

39

Group EBITDA 2020 (US$m)

75

26

11

(14)

PBT 2020 (US$m)

43

(1)

(16)

(41)

EPS 2020 (c)

1.0

(0.8)

(1.4)

(3)

Closing net cash (debt) US$m

59

15

4

(21)

Group revenue 2021 (US$m)

263

268

241

218

Group EBITDA 2021 (US$m)

102

102

87

79

PBT 2021 (US$m)

73

73

58

49

EPS 2021 (c)

2.8

2.7

2.0

2

Closing net cash (debt) 2021 US$m

100

40

17

(15)

Group revenue 2022 (US$m)

284

299

273

244

Group EBITDA 2022 (US$m)

119

118

104

81

PBT 2022 (US$m)

96

91

76

54

EPS 2022 (c)

4.1

3.3

2.8

1

Closing net cash (debt) 2022 – US$m

141

88

50

(3)

Source: Edison Investment Research. Note: *Cash mining and production costs plus Faberge COGS.


Valuation under three COVID-19 scenarios

As previously, we value Gemfields on a discounted cash flow sum of the parts. However, given the uncertainties surrounding the pandemic, we now present three valuation scenarios in line with our three COVID-19 scenarios.

In our central case, significantly lower 2020 revenues than previously forecast are partly offset by lower cash costs, which reflect lower production including two-month suspensions at Kagem and MRM and should benefit from the weaker Zambian kwacha and Mozambican metical and lower fuel prices. Beyond 2020, inventory sales help to offset partially any ongoing market weakness on auction sales in 2021 and 2022 and we thus see very limited longer-term value impact. Our COVID-19 central case sum-of-the-parts valuation of Gemfields is US$459m – a 12% decrease relative to our previous Gemfields valuation of US$522m.

In our faster recovery scenario, the value impact of COVID-19 is even more limited, as the revenue lost at Kagem and MRM in 2020 is partly made up through higher inventory sales in 2021, 2022 and beyond. Our faster recovery sum-of-the-parts valuation of Gemfields is US$497m.

In our slower recovery scenario, there is a greater long-term economic and market impact and thus a far more significant valuation impact. Our sum-of-the-parts totals US$339m in this scenario (a 35% decrease from our previous valuation). Even in this scenario we note the resultant ZAR5.50/share valuation (23p per share) is well above the current share price of ZAR1.58/share. We should note, however, that in comparison to the previous two cases, in this scenario there is significantly more uncertainty as to the potential extent of the longer-term global economic impact and thus demand erosion from COVID-19.

Rand per share valuations (of interest mostly to South African investors) benefit from the sharply weaker rand (ZAR18.95/US$ vs ZAR14.87/US$ previously) used to translate our predominantly US dollar driven valuation of Gemfields to rand per share.

Exhibit 4: Sum of the parts valuation

Previous

Faster recovery

Central case

Slower recovery

Kagem (75%) - US$m

246

234

220

173

Montepuez (75%) - US$m

357

335

321

271

Fabergé - US$m

47

43

21

8

Sedibelo (7.45%) - US$m

40

40

40

40

Corporate overheads - US$m

(194)

(180)

(179)

(178)

Net cash - US$m (31 Dec 19)

25

25

25

25

Sum of the parts valuation - US$m

522

497

459

339

Rand per share

6.63

8.05

7.44

5.50

Pence per share

34

34

31

23

Source: Edison Investment Research

Exhibit 5: Financial summary (central case): Financial summary (central case)

US$'m

2017

2018

2019

2020e

2021e

2022e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

81.7

206.1

216.2

101.8

240.5

272.6

Cost of Sales

(44.3)

(123.5)

(118.5)

(67.6)

(115.8)

(126.0)

Gross Profit

37.3

82.5

97.8

34.3

124.7

146.6

EBITDA

 

 

30.5

58.9

80.9

10.9

87.5

104.3

Operating Profit (before amort. and except.)

 

 

8.3

28.2

46.1

(15.1)

60.0

77.5

Fair value gains (losses)

49.5

(41.9)

14.3

0.0

0.0

0.0

Exceptionals

0.0

(22.6)

13.2

0.0

0.0

0.0

Share-based payments

(2.7)

(4.2)

(1.7)

(1.5)

(2.0)

(2.0)

Reported operating profit

55.1

(40.4)

71.9

(16.6)

58.0

75.5

Net Interest

(2.0)

(8.8)

(4.5)

(0.8)

(1.7)

(1.2)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

55.8

(22.5)

55.9

(15.9)

58.4

76.3

Profit Before Tax (reported)

 

 

53.1

(53.9)

67.4

(17.4)

56.4

74.3

Reported tax

(7.6)

(6.5)

(28.2)

0.0

(25.3)

(32.0)

Profit After Tax (norm)

48.2

(29.0)

27.6

(15.9)

33.0

44.3

Profit After Tax (reported)

45.5

(60.4)

39.1

(17.4)

31.0

42.3

Minority interests

(7.2)

(1.8)

(10.8)

(0.6)

(9.3)

(11.4)

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

41.0

(30.8)

16.9

(16.5)

23.8

32.9

Net income (reported)

38.3

(62.2)

28.4

(18.0)

21.8

30.9

Average Number of Shares Outstanding (m)

1,039

1,169

1,265

1,169

1,169

1,169

EPS - basic normalised (c)

 

 

3.9

(2.6)

1.3

(1.4)

2.0

2.8

EPS - normalised (c)

 

 

3.9

(2.6)

1.3

(1.4)

2.0

2.8

EPS - basic reported (c)

 

 

3.7

(5.3)

2.2

(1.5)

1.9

2.6

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

Revenue growth (%)

-

152.4

4.9

(52.9)

136.2

13.3

Gross Margin (%)

45.7

40.1

45.2

33.6

51.8

53.8

EBITDA Margin (%)

37.3

28.6

37.4

10.7

36.4

38.3

Normalised Operating Margin

10.2

13.7

21.3

-14.8

25.0

28.4

BALANCE SHEET

Fixed Assets

 

 

639.6

509.7

507.4

500.7

503.0

499.9

Intangible Assets

49.3

52.3

55.2

55.2

55.2

55.2

Tangible Assets

378.0

365.0

376.9

370.2

372.5

369.4

Investments & other

212.2

92.4

75.3

75.3

75.3

75.3

Current Assets

 

 

184.1

224.4

276.8

238.2

274.3

317.6

Stocks

118.8

99.2

110.7

140.2

144.7

147.7

Debtors

27.5

62.1

87.8

40.8

59.3

67.2

Cash & cash equivalents

37.8

63.0

78.2

57.2

70.3

102.7

Other

0.0

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(37.0)

(60.6)

(75.2)

(45.9)

(58.3)

(62.5)

Creditors

(21.2)

(28.2)

(29.9)

(18.0)

(22.7)

(24.9)

Tax payable

(7.0)

(1.4)

(17.4)

0.0

(7.6)

(9.6)

Short term borrowings

(4.2)

(23.2)

(24.8)

(24.8)

(24.8)

(24.8)

Other

(4.6)

(7.9)

(3.1)

(3.1)

(3.1)

(3.1)

Long Term Liabilities

 

 

(169.6)

(123.4)

(130.1)

(130.1)

(130.1)

(130.1)

Long term borrowings

(59.3)

(30.0)

(28.0)

(28.0)

(28.0)

(28.0)

Other long term liabilities

(110.3)

(93.4)

(102.1)

(102.1)

(102.1)

(102.1)

Net Assets

 

 

617.1

550.1

578.9

562.8

588.9

625.0

Minority interests

(78.4)

(73.9)

(84.7)

(85.3)

(87.6)

(90.7)

Shareholders' equity

 

 

538.7

476.2

494.3

477.6

501.3

534.2

CASH FLOW

Op Cash Flow before WC and tax

30.5

58.9

80.9

10.9

87.5

104.3

Working capital

(9.7)

(29.7)

(25.7)

(11.7)

(10.7)

(6.7)

Exceptional & other

0.4

0.3

(8.8)

0.0

0.0

0.0

Tax

(7.6)

(24.4)

(9.7)

0.0

(25.3)

(32.0)

Net operating cash flow

 

 

13.6

5.1

36.7

(0.7)

51.5

65.6

Capex

(11.0)

(29.0)

(30.8)

(19.3)

(29.8)

(23.8)

Acquisitions/disposals

(17.9)

77.4

35.2

0.0

0.0

0.0

Net interest

(2.3)

(4.4)

(3.3)

(0.8)

(1.7)

(1.2)

Equity financing

(0.7)

(4.7)

(14.4)

(0.2)

0.0

0.0

Dividends

(5.0)

(5.9)

0.0

0.0

(6.9)

(8.3)

Other

(3.4)

(2.9)

(7.8)

0.0

0.0

0.0

Net Cash Flow

(26.6)

35.6

15.6

(21.0)

13.1

32.4

Opening net debt/(cash)

 

 

(1.2)

25.7

(9.8)

(25.4)

(4.3)

(17.4)

FX

(0.3)

(0.1)

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

25.7

(9.8)

(25.4)

(4.3)

(17.4)

(49.8)

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Gemfields Group and prepared and issued by Edison, in consideration of a fee payable by Gemfields Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

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Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Gemfields Group and prepared and issued by Edison, in consideration of a fee payable by Gemfields Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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