Gemfields Group Limited recently released its Condensed Annual Results document for the year ended December 31, 2018.

“The year to 31 December 2018 has been the first full financial reporting period for the reshaped Gemfields Group Limited (GGL), now a fully operating mining and marketing group focused on supplying precious coloured gemstones from Africa to global markets,” the Chairman of the Company Brian Gilbertson said in his opening statement in the document. “The Company has undergone significant transformation in reaching its new structure and strategic focus. We converted from a limited life, closed-ended investment fund to an operating mining company, made high-level changes to our senior management, and opted to focus on being a “pure-play”, African precious coloured gemstone producer.”

However, before commencing to examine the figures, GGL’s Chief Financial Officer, David Lovett, makes a comment about the figures related to prior periods, when the Company had not yet been restructured.  He notes: “The information for the prior 12 months to 31 December 2017 includes results for the five-month period from 1 August 2017 to 31 December 2017 from Gemfields and its subsidiaries, covering the period post the acquisition of Gemfields. However, to enhance comparability, pre-acquisition figures for the 12 months to 30 June 2017 have also been included, where possible.”

GGL reported what it called a “record” revenue of US$ 206,090 million for the FY 2018 ended December 31, 2018 (12 months to December 2017: US$ 81.7 million and 12 months to June 2017: US$ 158.3 million).        

This included earnings from four rough emerald and beryl auctions (two commercial-quality (CQ) and two higher-quality (HQ)); and two higher- and commercial-quality (mixed) rough ruby and corundum auctions.  While the four emerald auctions raised a revenue of US$ 60.3 million for the year; the two ruby auctions generated US$ 127.1 million for the period.

“The HQ and CQ emerald auctions realised higher average prices per carat at US$ 65.55 and US$ 3.54, respectively (12 months to June 2017: HQ US$ 63.61 per carat and CQ US$ 3.53 per carat), demonstrating some green shoots of recovery in the Indian market following the recent downturn related to the Nirav Modi fallout and the resulting property market slump,” Lovett said in his Financial Review.

Notably, the HQ auction held in Singapore in November 2018 realised the second-highest price per carat in Kagem’s history of US$ 68.03.  

“MRM achieved record revenues during the year, with the mixed quality auction in June realising US$ 71.8 million at an average price of US$ 122.03 per carat, and that in November 2018 realising US$ 55.3 million at an average price of US$ 84.32 per carat, as the ruby market continued to show signs of strength and stable demand,” Lovett said.

GGL’s wholly-owned Fabergé generated revenues of US$ 13.4 million, “underpinned by retail sales of US$ 4.2 million and US$ 6.8 million from wholesale sales and US$ 2.4 million from other channels”, the Company reported.

The Company recorded an EBITDA of US$ 58.9 million (12 months to December 2017: US$ 30.5 million and 12 months to June 2017: US$ 60.3 million), as a result of the record revenues coupled with fairly flat costs, which it sad reflected “the Group’s ongoing cost optimisation strategy”.

GGL said that the Group made a loss after tax for the year 2018 of US$ 60.4 million (12 months to December 2017: US$ 45.1 million profit and 12 months to June 2017: US$ 23.1 million loss), “as the impairment charges and fair value losses have eroded the EBITDA”.

Excluding a number of expenses incurred under special heads, the Group would have recognised a profit after tax of US$ 18.0 million, the Company stated.  

Earnings per share for the year ended 31 December 2018 amounted to a loss of US$ 0.05 compared with earnings of US$ 0.04 in 2017.  The Company noted: “Normalised earnings per share for the year, (excluding impairments and extraordinary legal claims and fees) would be a profit of US$ 0.01”.

Net cash and cash equivalents increased by US$ 25.3 million to US$ 63.0 million during the year.

“The Group generated US$ 29.5 million from operations during the current financial year, following the higher EBITDA,” the Company stated. “From this, US$ 24.4 million was paid in taxes, primarily US$ 23.8 million at MRM and US$ 0.6 million at Kagem, such that net cash flow from operating activities was US$ 5.1 million.”

The Group’s capital expenditure of US$ 31.3 million was substantially higher than in 2017, as Kagem increased its heavy equipment and machinery and MRM invested in the new sort house and the RAP.

With the higher EBITDA offset by increased capital expenditure and taxes, free cash flow before working capital movements was US$ 26.9 million compared with US$ 6.2 million in 2017. Working capital movements of US$ 53.1 million largely relate to higher auction receivables following the November and December auctions, the Company said.

GGL said that its inventory was reduced by US$ 19.6 million to US$ 99.2 million. “The fall in inventory comprised US$ 5.5 million in lower rough ruby and corundum inventory at MRM following the December 2018 auction, a US$  13.7 million decline in rough emerald and beryl inventory at Kagem and in India as sales for the year exceeded production, a US$ 0.5 million decrease in jewellery and watches inventory at Fabergé, and a US$ 1.3 million lower cut and polished product reflecting sales in the year,” GGL said. “Additionally, there was a US$ 1.4 million increase in spares and consumables.”

GGL Chairman Gilbertson summed up saying: “The Gemfields assets surpassed US$ 200 million of turnover for the first time thanks to record revenues from our gemstone auctions and from Fabergé. Combined with the proceeds from the Jupiter IPO, our balance sheet has strengthened considerably.”

CEO Sean Gilbertson said: “Our emphasis remains on enhancing the operational performance of our existing mines and operations, as well as further improving our balance sheet. Aided by our marketing activities, 2018 delivered record auction revenues of US$ 187.4 million.”