A phenomenal Q4 16 summed-up an overall strong year
16 Feb 17
Boliden reported too good to be true Q4 16 and full-year results, which were materially ahead of AV’s estimates. Prices, volumes and costs – all rendered sizeable benefits Q4 sales were SEK12.1bn (+25% yoy and qoq), while during 2016 they were almost unchanged at SEK40.3bn. Despite subdued zinc mining and smelting volumes, a combination of healthy copper mining and smelting volumes, (strong zinc) price improvements and Swedish krona (SEK) tailwinds triggered a material uptick in Q4 sales. For the full-year though, even after healthy zinc and copper mining volumes (up 10% and 22%, respectively), lacklustre smelting volumes and 28% higher inter-company sales resulted in a flat top-line. Profitability was simply staggering, with Q4 adjusted EBIT (excluding items affecting comparability) of SEK2.3bn (vs. SEK461m in Q4 15 and SEK1.5bn in Q3 16) and the full-year EBIT of SEK5.4bn (+49% yoy) – the highest since 2010. The Q4 top-line benefit was amplified at the operating level as the increase in operating costs was limited (i.e. SEK508m of yoy volume benefit resulted in costs increasing by SEK227m; SEK730m of qoq volume benefit resulted in costs increasing by SEK435m). A similar trend was also evident during the full-year, where the impact on EBIT of higher volumes was SEK1.2bn vs. a cost increase of SEK658m. This favourable cost development was largely due to improved grades-driven mining volumes, while smelting benefited from a higher proportion of free metals – abnormally high in Q4 16. The impact was pertinent in both mining and smelting, even though the latter was partly swayed by a turnaround in process inventory revaluations (gain of SEK247m in Q4 16 vs. loss of SEK181m in Q4 15 and gain of SEK212m in Q3 16; gain of SEK588m in 2016 vs. loss of SEK420m in 2015). Dividends driven by strongest bottom-line in a decade Q4 net profit was SEK1.8bn (vs. SEK288m in Q4 15 and SEK1.1bn in Q3 16), while the full-year profit was SEK4.2bn (vs. SEK2.6bn in 2015). The full-year dividend was up 62% to SEK5.25 per share. Although, the cash flow improvements were subtle (+12%), with 2016 reported OCFs of SEK7.3bn – given high non-cash items in the reported profits. Also, net debt was up 81% (vs. 2015-end) to SEK8.6bn – primarily due to the Kevista acquisition. Aggressive mining plans Management guides for healthy grades at its key mining assets (Aitik and Garpenberg), which means that improvements in mining should continue, at least for 2017. Moreover, the current year capex is targeted to be <SEK6bn (vs. c.SEK4bn in 2016). On the other hand, smelter maintenance shutdowns are guided to have an operating impact of SEK390m (vs. SEK260m in 2016).
Highest quarterly profit since 2012
24 Oct 16
Boliden reported exceptionally strong Q3 16 results, with profitability materially exceeding AlphaValue’s estimates. Sales came in at SEK9.7bn (-0.3% yoy; +1.4% qoq) as the solid contribution from mines (+44% yoy; +28% qoq) – on the back of extremely strong zinc prices and healthy volumes – simultaneously translated into higher internal sales (+50% yoy; 42% qoq). Profitability was a big surprise, with adjusted EBIT galloping (+74% yoy; +94% qoq) to SEK1.5bn. Both mining and smelting delivered handsomely with divisional profitability of SEK804m (+209% yoy; +61% qoq) and SEK825m (+27% yoy; +102% qoq), respectively. Besides zinc’s colossal run (+41% ytd) and a turnaround in inventory revaluation fortunes (gain of SEK212m in Q3 16 vs. loss of SEK175m in Q3 15 and a negligible gain of SEK11m in Q2 16), consolidation of Kevista (acquired in Q1 16), seasonally lower costs and less severe maintenance shutdowns helped profits reach record levels. Quarterly net profit came in at SEK1.1bn – the highest since Q1 12. Although reported OCFs came in much weaker at SEK1.1bn (-41% yoy; -49% qoq) due to working capital investments of SEK1.1bn vs. release of SEK36m and SEK837m in Q3 15 and Q2 16, respectively. As a result, net debt remained unchanged (vs. Q2 16) at SEK10.4bn. No maintenance shutdowns have been guided for Q4 16.
Mining compensates for lacklustre smelting; although Brexit implications could be critical
19 Jul 16
Boliden reported ahead of consensus results for Q2 16. Unlike Q1, this quarter witnessed a performance reversal in the mining and smelting divisions. Sales came in at SEK9.6bn (-7.5% yoy; +8.4% qoq), with the recovery in commodity markets rendering an ample sequential cushion. While mining volumes across commodities remained healthy, smelting volumes sagged (especially qoq) due to maintenance shutdowns. Reported operating profit came in at SEK912m (-16% yoy; +2.7% qoq). While the yoy weakness was largely anticipated, given that most commodities had scaled to multi-year lows, the qoq rebound in mining (EBIT up 157%) was a positive surprise. Besides the pricing and volume impact, a SEK248m benefit from the change in the pension plan at the Tara mine was a key driver for the mining division’s turnaround. Excluding this impact and certain one-off costs, mining’s EBIT was still up 106% on a qoq basis. Smelting, on the other hand, suffered (EBIT down 6.6% yoy and 47%) the ire of weak treatment charges and more severe than anticipated maintenance shutdowns. Further down, Boliden’s financial expenses ballooned to SEK98m (vs. SEK63m and SEK54m in Q2 15 and Q1 16, respectively) – as the group incurred SEK39m of loan charges for the SEK6bn Kevista acquisition. As a result, reported net profit came in at SEK619m (-24% yoy; -5.6% qoq). As anticipated, free cash flows came under pressure (negative SEK4.8bn) with the closure of the Kevista acquisition. Net debt increased to SEK10.4bn at the Q2-end vs. SEK4.8bn at the beginning of 2016, as Kevista was largely debt-financed. Management guides for less severe maintenance shutdowns in Q3, amounting to only SEK50m.
Q1 shines (sequentially); but forex and market risks loom large
06 May 16
After a disastrous Q4 15, Boliden’s Q1 16 results were comforting. Despite sales coming in behind consensus estimates, profitability was clearly ahead. Sales were down 15% yoy to SEK8.8bn as weak commodity prices (copper and zinc down 20% and 19%, respectively) more than offset decent mining volumes (particularly zinc (+11%) reaching record highs on account of operational efficiencies). Although the sequential top-line impact (-8.8%) was less severe as the effect of still lower copper prices (-4.1%) was partly compensated by higher zinc (+4.2%) and gold (+7%) prices. Additionally, unlike previous quarters, healthy support from a weaker SEK (vs. USD) was missing. Adjusted EBIT came in at SEK888m (-26% yoy; +1.1x qoq) with the yoy underperformance largely reflecting the impact of abysmally weak prices (with mining EBIT correcting 50%). But the sequential improvement was attributable to: 1/ some bounce-back in metal prices, benefiting both mining (through higher zinc exposure) and smelting (through SEK119m of inventory revaluation gains vs. a loss of SEK181m in Q4 15); 2/ operational efficiency at smelters, while mining benefited from favourable comps due to a provision (for the reclamation of a decommissioned tailings pond) of SEK40m in Q4 15; 3/ Q4 15 profit being impacted by SEK45m of delayed recognition of certain expenses (mainly impacting smelting). The bottom-line witnessed a similar trend with net profit of SEK656m vs. SEK896m and SEK288m in Q1 15 and Q4 15, respectively. However, the OCFs were dissimilar to the profitability trends as yoy working capital efficiencies – use of SEK449m vs. SEK1bn in Q1 15 and SEK143m in Q4 15 – resulted in reported OCFs of SEK1bn (+39%; but -19% qoq). Management guides for a SEK215m impact of smelter maintenance shutdowns in 2016, of which SEK165m is expected in Q2 and the remaining SEK50m in Q3. In sharp contrast with mining peers, in Q1 16, Boliden announced a SEK5.7bn ($712m) acquisition of Kevitsa nickel-copper mine in Finland. The transaction is expected to close by June 2016 and would be financed via a 24-month committed bank facility from Nordea – with other long-term financing options being evaluated simultaneously.
A disastrous Q4 takes the sheen off the full year
15 Feb 16
Even though Boliden managed to post healthy growth in profitability for 2015, unlike any other miner in today’s environment, an abysmally weak Q4 – the worst quarter since Q1 14 – has blemished the business recovery witnessed so far. The group's profitability (Q4 in particular) was materially behind AV's and consensus' estimates. Consequently, the share price tanked 16% on the day of the results' announcement. *Top-line grows – even though forex-driven* Sales: Q4 – SEK9.7bn (+0.9% yoy; -0.7% qoq); 2015 – SEK40bn (+9.1% yoy; 1.9% behind AV's estimates) Despite relentless copper and zinc price pressure throughout 2015, SEK tailwinds (c.SEK3bn), healthy volumes (except for copper smelting; down 4% yoy) – including commissioning of the nickel smelter (Q3 onwards) and favourable TC/RC and premiums rendered ample support to the top-line. However, fading forex gains (especially qoq), and maintenance shutdowns and disruptions-induced lower smelting volumes weighed on the Q4 sales. *Profitability collapses in the last quarter* Adjusted EBIT: Q4 – SEK416m (-64% yoy; -53% qoq); 2015 – SEK3.6bn (+30%) After a resilient mining performance during 9m15 (generating EBIT of SEK1.4bn; +67% yoy), the segment gave in to the market atrocities. Q4 EBIT was reduced to insignificant levels of SEK31m vs. SEK461m and SEK260m in Q4 14 and Q3 15, respectively. While weaker prices (SEK660m negative impact) eroded year-on-year profitability, higher seasonal costs had a material sequential impact. Smelting – apparently a natural hedge to commodity prices – weakened too (-43% yoy; -38% qoq) due to maintenance shutdowns and disruptions, in addition to the factors impacting mining (although smelting’s price pressures were less acute). While the revaluation of process inventory continued its losing streak in a falling market – ending the year with a loss of SEK420m vs. a gain of SEK154m in 2014. The operating disappointment also resulted in Q4 net profit coming in at SEK288m (-66% yoy; -55% qoq), although full-year net profit was up 39% to SEK2.6bn – devoid of any asset impairments and forex losses. Citing the full-year bottom-line resilience, dividends were increased 44% to SEK3.25 per share. While working capital requirements were materially up both in Q4 and 2015, reported OCFs for Q4 were down 40% to SEK1.2bn and for 2015 they were up 7.7% to SEK6.2bn. As a result, the pace of deleveraging lost momentum in the last quarter, ending with a net debt of SEK4.8bn vs. SEK4.9bn and SEK6.8bn in Q3 15 and Q4 14, respectively. Management guides smelter maintenance shutdowns in 2016 will have a profitability impact of SEK215m – o/w SEK165m is expected in Q2 with the remainder in Q3.
Market pressures slowly diluting the smelting advantage
26 Oct 15
While Boliden's smelting operations continue to benefit from a volatile commodity price environment, an unfavourable mining environment and fading forex gains have started impacting the group’s overall performance. Sales – SEK9.8bn (+5.1% yoy; -5.9% qoq) Production contribution from a newly-commissioned nickel smelter, strong overall volumes (especially for copper – aided by higher grades at Aitik and the consolidation of Kylylahti) and better smelting terms provided some top-line support. Even the impact of plummeting prices (copper down 25% yoy and zinc down 20%) was offset by 22% yoy depreciation of the SEK vs. the USD. However, sequentially diminishing forex benefits (SEK down only 0.7%) and aggravating price headwinds (copper down 13% and zinc down 16%) completely overshadowed restoration of normal smelting operations, after the Q2 maintenance shutdowns. Adjusted EBIT – SEK880m (+2.6%; -19% qoq) In addition to the top-line factors, favourable market terms (on a yoy basis) and cost saving measures (on a sequential basis) provided some cushion. Consequently, the smelting business's operating profits (excluding process inventory revaluation (PIR)) scaled to highs last seen in 2007. However, some of the operating benefits were offset by losses on PIR, amounting to SEK175m vs. a profit of SEK146m in Q3 14 and a loss of SEK167m in Q2 15. Nevertheless, smelting resilience was adequate enough to offset the mining business's weakness. Although sequentially mining pricing woes – in addition to some production disruptions and lower grades (despite a less severe impact of maintenance shutdowns) – dominated. Echoing the operating performance trend, Q3 net profit came in at SEK646m (+5.4%; -20% qoq). Given the non-cash impact of inventory revaluation, reported OCFs were up 27% to SEK1.8bn. Strong operating cash flows and still conservative capital spend (2015 capex guidance reduced by SEK500m to SEK3.5bn) helped reduce net debt from SEK6.8bn at the end of 2014 to SEK4.9bn at the end of Q3 15. According to management, the extent of maintenance shutdowns in Q4 is expected to be minimal, with an impact of about SEK25m.
Good Q2 results despite the continuing market uncertainty
20 Jul 15
Similar to previous quarters, a combination of a continuously weak SEK and operating improvements were still the key drivers for Boliden. Even though some momentum has been lost translating into slightly behind consensus Q2 15 results, the improvement is still sizeable enough. Sales – SEK10.4bn (+10% yoy, flat qoq) Despite weak base metal prices (except for zinc, +5.6% yoy) and planned smelter maintenance shutdowns, a materially weak SEK translated into a top-line benefit of SEK883m (though sequentially down SEK86m). Strong mining volumes driven by the ramp-up at Garpenberg and consolidation of Kylylahti, and favourable smelting terms (mostly triggered by the market price volatility) rendered further resilience. Adjusted EBIT – SEK1.1bn (+1.3x; -10% qoq) Concentration of assets (95% of capital employed) in deflation-inflicted Nordic region has also ensured better cost control – thereby translating into healthier operating profits. Although sequentially, the improvement was stalled by SEK180m of costs associated with smelter maintenance shutdowns and SEK167m of loss on the revaluation of process inventory vs. a gain of c.SEK100m in both Q2 14 and Q1 15, respectively. A further leg-up to profitability (though small) came from lower interest expenses (1.5% in Q2 15 vs. 1.8% in Q2 14) – thanks to the negative interest rate environment in Sweden. Net profit came in at SEK810m vs. SEK296m in Q2 14, but down 9.6% sequentially. As noted in the Q1 results, higher working capital requirements (primarily inventories) retreated in Q2, translating into much improved OCFs of SEK2.4bn vs. SEK724m in Q1 15 and SEK1.8bn in Q2 14.