MMC Norilsk Nickel / Miscellaneous - High Priority
MMC Norilsk Nickel: NORILSK NICKEL REPORTS FIRST HALF 2016 INTERIM
CONSOLIDATED IFRS FINANCIAL RESULTS
29-Aug-2016 / 10:16 CET/CEST
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PRESS-RELEASE
Public Joint Stock Company «Mining and Metallurgical Company «NORILSK
NICKEL»
('NORILSK NICKEL', 'Nornickel' or the 'Company')
NORILSK NICKEL REPORTS FIRST HALF 2016 INTERIM CONSOLIDATED IFRS FINANCIAL
RESULTS
Moscow, August 29, 2016 - PJSC 'MMC 'NORILSK NICKEL' the largest refined
nickel and palladium producer in the world, today reports IFRS financial
results for six months ended June 30, 2016.
1H 2016 HIGHLIGHTS
- Focus on Tier 1 assets, cost controls and investment discipline enabled
Norilsk Nickel to deliver the industry leading profitability despite weak
commodity markets. EBITDA margin of 47% was the highest among global
diversified mining majors as a result of control over cash operating costs
inflation and the exit from international and non-core assets.
- Consolidated revenue decreased by 22% y-o-y to USD 3.8 billion, mainly
owing to lower realized metal prices and one-off decrease of metal
production due to the downstream reconfiguration in the Polar division was
in part positively offset by sales of metal from stock accumulated in
4Q2015.
- EBITDA was down by 34% y-o-y to USD 1.8 billion following a reduction of
revenue, while net profit decreased only by 13% y-o-y to USD 1.3 billion, as
one-off operations in 1H16 decreased relative to the prior period.
- CAPEX increased by 24% y-o-y to USD 0.7 billion as a result of the
capacity expansion and modernization of Talnakh concentrator and advancement
of other downstream reconfiguration investment projects as well as the Chita
(Bystrinsky) project being at an active construction phase. All major
investment projects were carried out on time and on budget.
- In line with the strategy of de-risking the greenfield Chita project, the
Company arranged an 8-year USD 800 million project financing facility from
Sberbank CIB .
- Net working capital was down by 8% y-o-y to less than USD 1 billion as a
result of the decrease of saleable metal inventories.
- Free cash flow decreased to USD 0.6 billion, owing to lower EBITDA,
increased capital expenditures and slower rate of working capital release in
1H16.
- Balance sheet remained strong with Net Debt / EBITDA ratio at 1.4x as of
June 30, 2016. Solid financial position of Norilsk Nickel is confirmed by
investment grade credit ratings, which have been reiterated by Standard &
Poor's and Fitch credit rating agencies.
- As part of ongoing sale of non-core assets, the Company completed the sale
of 100% shares of Nordavia airlines.
- Norilsk Nickel maintains one of the industry leading dividend yields. In
1H16, we continued to pay regular interim dividend distributing to
shareholders USD 665 million or USD 4.2 per share.
RECENT DEVELOPMENTS
- In July 2016, the Group received the first tranche payment from Chinese
investors, Highland Fund, in respect to the sale of 13.33% of share capital
of Chita (Bystrinsky) project in Chita region.
- In August 2016, the last ton of refined nickel was produced at the Nickel
Plant in the city of Norilsk. A major milestone of the Company's downstream
reconfiguration strategy was reached as the outdated production capacities
of Nickel Plant were shut down in August ahead of the schedule.
- In July-August 2016, the Group amended terms of USD 570 million
outstanding credit lines with a group of European banks resulting in a
reduction of interest rates and extension of debt maturities to 5 years.
KEY CORPORATE HIGHLIGTS
USD million (unless stated otherwise) 1H2016 1H2015 Change,%
Revenue 3,843 4,907 (22%)
EBITDA1 1,795 2,708 (34%)
EBITDA margin 47% 55% (8 p.p.)
Net profit 1,304 1,493 (13%)
Capital expenditures 706 569 24%
Free cash flow2 619 2,179 (72%)
Net working capital1 951 1,0303 (8%)
Net debt2 4,723 4,2123 12%
Net debt /12? EBITDA 1.4x 1.0x3 0.4x
Dividends paid per share (USD) 4.2 13.4 (69%)
ROIC2 27% 31% p.p.)
1) A non-IFRS figure, for the calculation see the notes below.
2) A non-IFRS figure, for the calculation see an analytical review document
('Data book') available together with Consolidated IFRS Financial Results on
the Company's web site.
3) Reported as of December 31, 2015
MANAGEMENT DISCUSSION AND ANALYSIS
The President of Norilsk Nickel, Vladimir Potanin, commented the results:
'The first half of 2016 was a very challenging period for the global metals
and mining industry. Against the backdrop of persisting global macro
uncertainty and ongoing slowdown of the Chinese economic growth rates, in
February 2016, nickel price fell below the levels last seen during the 2008
crisis, while copper and PGM prices reached multi-year lows. In these
circumstances, we believe that our operating model focusing on Tier-1 assets
and production efficiency has yet again proven its high robustness and
ability to generate industry-leading returns for our shareholders. In the
first half of 2016, we posted the industry highest EBITDA margin of 47% and
generated free cash flow of USD 600 million.
Amidst weak commodity markets, our financing standing remained strong and
leverage - at a low level. The working capital level of USD 1 billion, that
was reached, we consider as optimal and intend to maintain as our
medium-term target. We expect that subject to the exchange rates and metals
prices sustaining at approximately spot levels, our 2016 annual margin will
remain at the current level, while our financial leverage will stay
conservative.
We continued to execute on our downstream reconfiguration program and
delivered the development of our key investment projects on time and on
budget. As result, our capital investment program was ramping up in the
first half of 2016 driven by the ongoing modernization of production
facilities, shutdown of the obsolete Nickel plant and active phase of Chita
project construction. As result capital expenditures increased almost by a
quarter, while we reiterate our 2016 capex guidance at USD 2 billion.
Most projects related to the modernization of Nadezhda metallurgical smelter
have been completed, and in May, we launched the Phase-2 of upgraded Talnakh
concentrator with expanded capacity. Just a few days ago, the refined nickel
production at Nickel Plant was idled ahead of the schedule that should have
an immediate positive impact on the environmental situation in the city of
Norilsk.
The development of Bystrinsky project in Chita region has progressed
materially. The construction of the open pit, concentrator and power lines
is on schedule. As part of de-risking this project, we have closed two
landmark transactions, having raised a long-term project financing from
Sberbank and sold a minority stake to strategic equity investors from China.
Overall, we believe that the metal markets have stabilized, while we are
going cautiously optimistic on the current developments in the global nickel
market, which for the first time in the past few years has entered into a
deficit. In this environment, we are seeing a rising investment appeal for
our shares, while we continue delivering industry-leading dividend returns
to our shareholders.'
HEALTH AND SAFETY
The lost time injury frequency rate (LTIFR) decreased from 0.7 in 1H2015 to
0.4 in 1H2016 as a result of implementation of cardinal Safety Rules and a
new policy allowing employees to reject unsafe work assignments. Sadly, the
Company suffered 6 fatal injuries in the reported period (vs 4 in 1H2015).
Each accident has been reported to the Board of Directors and has been
thoroughly investigated in order to prevent fatalities in future.
The Company's management considers the health and safety of its personnel
with a zero fatality rate as the key strategic priority and continues to
implement a wide range of initiatives to improve the health and safety
records. The initiatives scheduled in 2H16 include the following:
- implementation of a new corporate standard for HSE change management of
cardinal Safety;
- additional training of managers to identify root causes of accidents using
best global practices;
- roll out of employee incentive plan aiming at the enforcement of of new
HSE standards.
METAL MARKETS
Nickel in 1H2016 - price bottomed out from its 12-year lows on the back of
robust Chinese demand, emerged Philippine supply risk and further monetary
easing from central banks.
In 1Q2016, nickel price continued to slide on the downward trend from the
previous year hitting a 12-year low of USD 7,710 per tonne in February.
Since then, nickel price recovered strongly to USD 9,400 per tonne at the
end of June and further in July-August to the levels above USD 10,000 per
tonne. The average LME nickel price in 1H2016 was USD 8,662 per tonne, 37%
lower than in 1H2015.
The recent rally in nickel was driven by a combination of macro and
sector-specific factors. Firstly, the continuous monetary stimulus by
European and Asian central banks coupled with the lack of interest rate
action from the US Federal Reserve caused a reverse in the investors'
bearish sentiment towards mined commodities, which triggered fund inflow
into these markets.
Secondly, the demand from Chinese stainless industry delivered strong growth
numbers beating the market expectations. In 1H2016, primary nickel demand
from this industry increased by 11% y-o-y driven by increased output of
nickel-intensive 300-series stainless steel. The growth of stainless
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