Newcrest released its full year results to the market on 15 August 2016
A link to the announcement is available here. While earnings and free cash flow were down on FY16, we see the result as being credit positive given the majority of free cash flow was applied to repaying debt, resulting in a 27% reduction in net debt.
Through the resultant improvement in credit metrics, the company achieved its financial targets, and declared a dividend for the first time in 3 ½ years. We see further debt reduction as less likely going forward, with the company more likely to apply an increasing portion of future cash flow generation to paying dividends.
The key points from the full year result are summarised below:
- Gold revenue of USD2.9bn was 3% lower than the prior period, due to a 5% reduction in the realised gold price (USD1,166 per ounce in the current period compared to USD1,221 per ounce in the prior period)
- Underlying profit fell by 24% or USD101m to USD323m, primarily driven by lower realised gold and copper prices, the suspension of operations at Gosowong in February 2016, higher depreciation expense and lower copper sales volumes. This was partially offset by improved operational and financial performance at Lihir, the positive impact on costs from the weakening of all key operating currencies against the US dollar and lower energy prices
- Free cash flow was 5% or USD40m lower at USD814m. All operations were free cash flow positive before tax in the current period. Newcrest had net assets and total equity of USD7.1bn as at 30 June 2016 (USD6.9bn as at 30 June 2015). Through the strong free cash flow generation, Newcrest reduced its net debt by USD782m to USD2.1bn at 30 June 2016
- Newcrest has delivered on its four financial metric targets, as outlined in the table below. Its debt levels, as measured by the net debt / EBITDA ratio of 1.6 times and a gearing ratio of 23%, are relatively conservative and the company has elected to pay a final dividend of USD7.5c which will result in a cash financial impact to Newcrest of USD57m
After a deterioration in credit metrics over FY13 and FY14, Newcrest has improved its credit profile over the past two financial years through productivity and cost improvements, coupled with an improving gold price and resultant free cash flow generation. The figure below highlights the improvement in Newcrest’s overall debt position and credit metrics over the past four years:
Newcrest’s debt maturity profile is outlined in the figure below. With no material debt repayments required before the bond maturity dates, Newcrest’s bonds are not exposed to the refinancing risk of any major debt maturities ahead of them.
The bonds are currently indicatively offered at the following indicative yields to worst (in each case, being the yield to maturity)
- 2021 bond: 3.20%
- 2022 bond: 3.10%
- 2041 bond: 5.40%
Please contact your FIIG representative for further information on the Newcrest US dollar bonds. Available to wholesale investors at a minimum face value of USD10,000.