DJ EQS-Regulatory: MMC Norilsk Nickel: NORILSK NICKEL REPORTS FIRST HALF 2016 INTERIM CONSOLIDATED IFRS FINANCIAL RESULTS
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
Dissemination of a Regulatory Announcement, transmitted by EquityStory.RS,
LLC - a company of EQS Group AG.
The issuer is solely responsible for the content of this announcement.
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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production was mainly attributed to the launch of a new plant by Delong Nickel as well as the expansion at Beihai Chengde, Tisco and other producers. The growth of primary nickel consumption in the Chinese stainless industry was additionally supported by a lower scrap ratio. Another driver of nickel demand globally was the electric battery sector posting a solid growth in primary nickel off-take. Finally, the newly elected president of the Philippines, Rodrigo Duterte, which publicly criticized the mining industry's negative environmental impact, launched a nationwide audit of mining companies and halted the issuance of new permits for exploration. The audit has already resulted in a number of nickel mines getting shut, affecting some 12% of the country nickel ore output. With the investors' memories being still fresh of the implication that the 2014 Indonesian export ban had on the nickel price, the expectations that something similar might be implemented in Philippines contributed to the nickel price recovery in the recent months. This expectation was confirmed in middle of August, when the Philippines Parliament was reported to receive a new mining law, a draft of which was initially submitted to the Parliament in 2014, and which reportedly contains similar principles to that of the Indonesia mining law. Nickel outlook - cautiously positive; robust demand from stainless and tighter supply from Philippines, but beware of refined metal stocks and growing supply from Indonesia. The prospects for the ore supply from Philippines remains unsettled. As the result of the ongoing audit of the mining industry, 8 mines with total annual output of around 50 thousand tonnes of contained nickel (approximately 12% of the country's nickel supply in 2015) have been suspended. Another 100 thousand tonnes of contained nickel mining capacities are at risk of failing the environmental audit. In total, we believe that up to 150 thousand tonnes of nickel units (8% of global primary supply) could be at risk. Moreover, in August the Philippine Lower Chamber of Congress was reported that it would seriously consider introduction of ore export ban mirroring the Indonesian mining legislation, which resulted in the ban on the shipments of unprocessed mined materials introduced in January 2014. From the demand perspective, we believe that the government stimulus and ramp-up of stainless steel capacities in China would keep the nickel consumption growth rates at robust levels at least until the end of this year. Aggressive nickel restocking by stainless steel mills reported year-to-date coupled with the rumours that the Chinese State Reserve Bureau is buying 30-50 thousand tonnes of refined metal in 2016 should provide additional support for nickel price. At the same time, the growth of nickel pig iron (NPI) production in Indonesia, that is expected to deliver over 80 thousand tonnes of nickel units in 2016, is beating market expectations. In spite of nickel price being well deep into the cost curve, a 25% nickel price recovery from February's lows provided some relief to high-cost producers outside China. Their cost cutting efforts helped by mining currencies depreciation combined with re-financing exercises push back further long awaited industry rationalisation. Finally, one should be cognisant of global nickel inventory, the visible part of which as represented by the LME and SHFE warehouses is running high at 480 thousand tonnes or approximately 80 days of global consumption. The high global nickel inventory is preventing the market from developing a physical deficit and thus will be keeping a cap on the upside of price recovery in the near term. Overall, we continue to hold a neutral view on nickel price in the short-term, while watching closely the developments in Philippines, whereas widening market deficits in 2016-2018 should support a sustained recovery of the metal price. Copper in 1H2016 - ramp-up of new projects and supply disruptions running below historical averages outweigh solid physical demand On the back of the general negative sentiment towards base metals, copper price started the year very weak hitting a seven-year low of USD 4,310 per tonne in January. However, after the launch of new economic stimulus in China that boosted investments in electrical grid the metal price recovered to a local maximum of USD 5,103 in March. Nonetheless, the average 1H2016 LME price was down 21% y-o-y to USD 4,701 per tonne. The market was broadly balanced in the first half of 2016, with a surplus of less than 1% of the market, with the solid demand growth in China (+3% y-o-y) balanced by the steady ramp-up of large projects and lower-than-expected supply disruptions. Copper outlook - neutral; supply growth from new mines and cost deflation to keep the price under pressure We maintain a neutral outlook on copper as we expect the robust demand growth from China and decline of mined grades in Chile and North America to be largely offset by a wave of new supply coming from major projects in Peru and Asia. The ongoing cost deflation and access of highly levered producers to cheap refinancing provides no incentive for supply rationalization and thus will cap a recovery of the copper price. However, should the supply disruption to accelerate or further upside surprises from demand given the low global level of exchange inventory, price reaction could be quite sensitive to potential short-term market deficits. Palladium in 1H2016 - price recovery was gaining momentum on the back of solid global demand and ETFs metal flow stabilisation After a massive market sell-off in 4Q 2015 driven by the liquidation of ETF holdings, palladium prices started to recover in 1H16 reaching in April USD 626 per ounce. Although the average price in 1H 2016 of USD 546 per ounce was down 29% y-o-y, it recovered strongly in July-August to a psychologically important level of USD 700 per ounce. The growth was driven by both loosen monetary policies and delays on the expected US Federal rate increase, which boosted prices of all precious metals,) and strong global light vehicle production (+3% y-o-y). The outflow of metal from ETFs slowed down substantially in the first half of 2016, thus removing the selling pressure, which was particularly strong in 2015. Palladium outlook - positive, deficit to widen Given the booming car sales in the US and China, driving up demand for catalysts for gasoline vehicles (palladium intensive) we increase our forecast for primary palladium consumption growth in 2016 to 5% y-o-y (+0.4 MOz). The zero interest rate environment should incentivize a recovery of investment demand after major ETFs sell-off in 4Q 2015. We also expect a 4% y-o-y decrease in supply in 2016 owing to production losses in South Africa (following accidents at Impala and production cuts at Lonmin) and reduced refined output of Norilsk Nickel due to the ongoing reconfiguration of our downstream assets. Thus, we believe the palladium market deficit to widen, which should support the price in the mid-term. Platinum in 1H2016 - strong industrial demand and gold rally While in 2H2015 platinum market suffered from overall negative economic sentiment and expectations of a Fed rates hike, 2016 started on a more positive note with price increasing from USD 850 per ounce in January to USD 1,000 per ounce in June. We believe that investor fatigue toward PGMs that dominated the market in 2015 has disappeared as both industrial (from automotive and glass industries) and investment demand (especially from retail investors) were gaining pace. Platinum outlook - positive; deficit to persist We revise our primary platinum consumption growth forecast up from 1% to 2% in 2016 driven by a stronger-than-anticipated recovery of European car sales as well as the robust demand from jewellery and chemical sectors. Despite lukewarm demand from ETFs we expect retail investors to support investment demand. At the same time, we expect a moderate decline in primary supply driven by lower output by South African producers and downstream reconfiguration at Norilsk Nickel. All-in-all, we expect the platinum market structural deficit to widen to around 450 thousand ounces in 2016. KEY SEGMENTAL HIGHLIGHTS USD million (unless stated otherwise) 1H2016 1H2015 Change,% Revenue 3,843 4,907 (22%) GMK Group 2,831 3,800 (26%) Group KGMK 284 410 (31%) NN Harjavalta 283 432 (34%) Other metallurgical 3 27 (89%) Other non- metallurgical 813 636 28% Eliminations (371) (398) (7%) EBITDA 1,795 2,708 (34%) GMK Group 1,753 2,714 (35%) Group KGMK 55 156 (65%) NN Harjavalta 9 36 (75%) Other metallurgical (8) (12) (33%) Other non-metallurgical 150 (22) 8x Unallocated (164) (164) - EBITDA margin 47% 55% (8 p.p.) GMK Group 62% 71% (9 p.p.) Group KGMK 19% 38% (19 p.p.) NN Harjavalta 3% 8% (5 p.p.) Other metallurgical (267%) (44%) (223 p.p.) Other non- metallurgical 18% (3%) (21 p.p.) In 1H2016, EBITDA of GMK Group decreased by 35% y-o-y to USD 1,753 million. The decline was primarily driven by lower metal prices. The positive effect of RUB depreciation against USD was negatively offset by the increase in the cost of sales in real terms, and the extension of PGM export custom duties to PGM alloys and salts. EBITDA of Group KGMK was down by 65% y-o-y primarily due to lower metal prices. This negative effect was partly positively offset by the decrease in
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cash costs and selling expenses driven by the depreciation of RUB.
EBITDA of NN Harjavalta decreased by 75% y-o-y to USD 9 million primarily
due to lower metal prices, which were partly compensated by the decrease in
prices of purchased semi-products.
Negative EBITDA of the segment 'Other metallurgical' insignificantly
decreased by USD 4 million y-o-y.
EBITDA of the segment 'Other non-metallurgical' increased by USD 172 million
in 1H 2016 and turned positive primarily as a result of the increase in
sales margin of the Group's trading subsidiaries, which benefited from
rising metal prices during the 1H2016 as compared to falling metal prices
during 1H 2015.
SALES VOLUME AND REVENUE 1H2016 1H2015 Change,%
Refined metals
Russian operations
Nickel, thousand tons 122 109 12%
Copper, thousand tons 182 177 3%
Palladium, thousand troy ounces 1,434 1,312 9%
Platinum, thousand troy ounces 370 322 15%
Finland
Nickel, thousand tons 23 21 10%
Semi-products
Finland
Copper cake, copper, thousand tons1 3 6 (50%)
Botswana
Nickel concentrate, nickel, thousand - 1 (100%)
tons1
Nickel concentrate, copper, thousand - 1 (100%)
tons1
South Africa
Nickel concentrate, nickel, thousand 6 1 6?
tons1
Nickel concentrate, copper, thousand 3 - 100%
tons1
Metal sales
Group
Nickel, thousand tons2 145 130 12%
Copper, thousand tons2 182 177 3%
Palladium, thousand troy ounces2 1,434 1,312 9%
Platinum, thousand troy ounces2 370 322 15%
Gold, thousand troy ounces2 70 59 19%
Rhodium, thousand troy ounces2 45 43 5%
Cobalt, thousand tons2 2 3 (33%)
Silver, thousand troy ounces2 1,092 983 11%
Semi-products, nickel, thousand tons 6 1 5?
1
Semi-products, copper, thousand tons1 6 7 (14%)
Semi-products, palladium, thousand 47 49 (4%)
troy ounces1
Semi-products, platinum, thousand 19 19 -
troy ounces1
Semi-products, gold, thousand troy 4 4 -
ounces1
Semi-products, silver, thousand troy 42 64 (34%)
ounces1
1H2016 1H2015 Change,%
Average realized prices of metals produced by Norilsk
Nickel in Russia from its own feed
Metal
Nickel (USD per tonne) 8,808 13,712 (36%)
Copper (USD per tonne) 4,741 5,989 (21%)
Palladium (USD per troy ounce) 545 771 (29%)
Platinum (USD per troy ounce) 938 1,157 (19%)
Cobalt (USD per tonne) 23,169 30,367 (24%)
Gold (USD per troy troy ounce) 1,213 1,208 -
Rhodium (USD per troy ounce) 656 1,046 (37%)
Revenue, USD million
Nickel 1,278 1,816 (30%)
Copper 862 1,059 (19%)
Palladium 810 1,035 (22%)
Platinum 347 372 (7%)
Semi-products 88 103 (15%)
Other metals 180 206 (13%)
Revenue from metal sales 3,565 4,591 (22%)
Revenue from other sales 278 316 (12%)
Total revenue 3,843 4,907 (22%)
1) Volumes are stated in respect of metal content in semi-product.
2) All information is reported on the basis of 100% ownership of
subsidiaries, excluding sales of metals purchased from third parties.
Nickel
Nickel remained the largest contributor to the Company's revenue comprising
a 36% of total metal sales in 1H2016 down from 40% in the 1H2015 as nickel
price fell the most relative to other metals within the Company's commodity
basket.
In 1H2016, nickel revenue decreased by 30% y-o-y (or USD 538 million) to USD
1,278 million primarily due to lower nickel price (-USD 663 million), which
was partly offset by higher sales volume (+USD 125 million).
The average realized price of nickel produced in Russia from own feed
decreased by 36% y-o-y from to USD 8,808 per tonne in 1H2016 from USD 13,712
per tonne in 1H2015.
Sales volume of nickel produced in Russia from own feed increased by 12%
y-o-y (or 13 thousand tons) to 120 thousand tons. The increase in sales
volume was driven by the sale of part of metal from a temporary stock
accumulated by the Company in the fourth quarter 2015.
The volume of nickel sales from purchased semi-products was flat y-o-y
amounting to 2 thousand tons.
Sales volume of nickel produced by Norilsk Nickel Harjavalta increased by
10% y-o-y to 23 thousand tons in 1H2016 as Harjavalta started to process the
Company's Russian feed.
Copper
In 1H2016, copper sales accounted for 24% of the Company's total metal
sales, down 19% y-o-y (or USD 197 million) to USD 862 million primarily
owing to lower realized copper price (-USD 221 million) which was partly
offset by the increase in sales volume (+USD 24 million).
The average realized price of copper produced in Russia from own feed was
down by 21% y-o-y to USD 4,741 per tonne in 1H2016 from USD 5,989 in 1H2015.
Physical volume of copper sales from Russian feed increased by 3% y-o-y (or
5 thousand tons) to 180 thousand tons. The increase in sales volumes was
driven by sale of part of metal from the temporary stock, which was built in
the fourth quarter 2015.
The sales of copper produced from third party materials was unchanged y-o-y
and amounted to 2 thousand tons.
Palladium
In 1H2016, palladium sales accounted for 23% of the Group's total metal
revenue. The Group's palladium revenue decreased by 22% y-o-y (or by USD 225
million). The negative impact of lower realized price (-USD 297 million) was
partly offset by the increased sales volumes (+USD 67 million). Additional
USD 29 million of palladium revenue in 1H2016 came from the re-sale of metal
purchased in the open market to fulfil the Company's contractual obligations
( vs USD 24 million in 1H2015).
Sales of palladium produced in Russia from own feed decreased by 22% y-o-y
to USD 775 million. The decline was driven by lower realized palladium price
(down 29% y-o-y) from USD 771 per troy ounce in 1H2015 to USD 545 per troy
ounce in 1H2016, which was partly offset by higher palladium sales volume
(by 11% y-o-y) resulting from the sale of metal from temporary stock.
Platinum
In 1H2016, platinum sales accounted for 10% of the Group's total metal
revenue. The platinum revenue decreased by 7% y-o-y (or by USD 25 million)
to USD 347 million primarily due to the adverse effect from the realized
platinum price (negative USD 70 million), which was partly offset by higher
volumes of platinum sales (+USD 45 million).
The revenue from platinum produced in Russia from own feed decreased by 5%
y-o-y to USD 343 million. The reduction was driven by a 19% y-o-y decline in
the average realized platinum price (from USD 1,157 per troy ounce in 1H2015
to USD 938 per troy ounce in 1H2016), which was partly offset by the
increase in sales volumes due to the sale of metal from temporary stock.
Other metals
The revenue from other metals was down by 13% y-o-y (or by USD 26 million)
to USD 180 million owing to the decline in revenue from sale of cobalt
(-35%) and rhodium (-34%), which was partly offset by the higher silver
(+4%) and gold sales revenue (+19%).
Decline of revenue from other metals was driven by both the lower realized
prices (-USD 24 million) and decrease of physical sale volumes (-USD 2
million).
Semi-products
In 1H2016, revenue from sales of semi-products (copper cake and nickel
concentrate) decreased by 15% y-o-y (or by USD 15 million) to USD 88
million, and accounted for 2% of the Group's total metal sales revenue. The
decrease was mainly driven by lower realized prices and the divestiture of
Tati Nickel in the second quarter of 2015.
Other sales
In 1H2016, the revenue from other sales amounted to USD 278 million (down by
12% y-o-y) and decreased primarily due to Russian rouble depreciation
against US dollar (negative effect of USD 51 million), which was partly
positively offset by the increase of other sales in real terms by USD 13
million.
The increase of other sales in real terms was driven by higher revenue of
the Company's transport subsidiaries primarily due to increased volumes and
prices of services provided to third parties (USD 17 million). This was
partially negatively offset by a decline in other revenue due to divestiture
of non-core assets (negative effect of USD 15 million).
COST OF METAL SALES
Cost of metals sales
In 1H2016, the cost of metal sales decreased by 7% y-o-y (or by USD 120
million) to USD 1,645 million owing to:
- Reduction of cash operating costs by 6% y-o-y (USD 84 million);
- Decrease in depreciation charges by 12% y-o-y (USD 28 million);
- Change in metal inventories y-o-y (negative effect of USD 8 million).
Cash operating costs
In 1H2016, total cash operating costs decreased by 6% y-o-y (or by USD 84
million) to USD 1,356 million.
The decrease was mainly driven by the depreciation of Russian rouble against
US Dollar (USD 182 million) and sale of non-core assets (USD 27 million).
The negative impacts on cash operating costs were as follows:
- USD 69 million increase of cash operating costs owing to domestic
inflation;
- USD 56 million increase of other expenses.
USD million 1H2016 1H2015 Change,%
Cash operating costs
Labour 543 584 (7%)
Purchases of metals for resale, raw 294 289 2%
materials and semi-products
Materials and supplies 203 198 3%
Third-party services 72 119 (39%)
Mineral extraction tax and other levies 67 59 14%
Electricity and heat energy 47 58 (19%)
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Transportation expenses 40 39 3% Fuel 25 35 (29%) Sundry costs 65 59 10% Total cash operating costs 1,356 1,440 (6%) Depreciation and amortisation 214 242 (12%) Decrease in metal inventories 75 83 (10%) Total cost of metal sales 1,645 1,765 (7%) Labour In 1H2016, labour costs decreased by 7% y-o-y to USD 543 million. Positive effect of Russian rouble depreciation against US Dollar (reduction of labour costs by USD 103 million) was partly negatively offset by the indexation of RUB-denominated wages and the headcount increase (increase of labour cost by USD 62 million). The share of labour costs in the Group's total cash operating costs in 1H2016 decreased by 1% y-o-y to 40% of total. Purchases of metals for resale, raw materials and semi-products Expenses on the purchase of metals for resale and semi-products for processing increased by 2% y-o-y to USD 294 million in 1H2016. Purchase of semi-products was down by USD 89 million y-o-y owing to the decrease in market prices for purchased concentrates and matte. This positive impact was partly offset by the increase in the volume of semi-products purchased by NN Harjavalta (increase of cost by USD 39 million) owing to the replacement of a tolling contract with Boliden with a sale and purchase agreement. Expenses for metals purchased for re-sale to fulfill contractual obligations increased by USD 55 million y-o-y. Materials and supplies Materials and supplies expenses increased by 3% y-o-y to USD 203 million in 1H2016. Positive effect of Russian rouble depreciation against US Dollar amounted to USD 31 million in terms of cost reduction. However, the positive depreciation effect was negatively offset by the increase of the cost of materials and supplies in real terms driven by the following: - USD 16 million - local-currency inflation; - USD 21 million - repairs of mining equipment as well as the equipment at Nadezhda metallurgical plant and Kola MMC owing to the ongoing downstream reconfiguration program. Outsourced third party services In 1H2016, cost of third party services decreased 39% y-o-y to USD 72 million. Positive effect of Russian rouble depreciation against US Dollar amounted to USD 13 million in terms of cost reduction. Other changes in outsourced third party services were driven by the following factors: - USD 19 million - cash cost reduction due to the divestiture of Tati Nickel in April 2015; - USD 21 million - decrease in tolling expenses due to replacement of tolling contract with Boliden with a semi-products sale and purchase agreement at NN Harjavalta; - USD 6 million - increase in other services, including repairs and maintenance of equipment, primarily due to inflation. Mineral extraction tax and other levies In 1H2016, mineral extraction tax and other levies increased by 14% y-o-y to USD 67 million. Positive effect of Russian rouble depreciation against US Dollar amounted to USD 10 million in terms cost reduction in 1H 2016. That was more than offset negatively by USD 18 million increase in cash cost owing to higher cost of mined ore and increase in road usage charges in Norilsk region in rouble terms. Electricity and heat energy In 1H2016, electricity and heat energy expense decreased by 19% y-o-y to USD 47 million. The decline was primarily driven by Russian rouble depreciation against US Dollar. Transportation expenses In 1H2016, transportation expenses remained stable y-o-y and amounted to USD 40 million. The increase in transportation tariffs in Russia was offset by Russian Rouble depreciation against US Dollar. Fuel Fuel expenses decreased by 29% y-o-y to USD 25 million in 1H2016 driven by Russian rouble depreciation against US Dollar (cash cost reduction by USD 6 million) and lower oil price (cash cost reduction by USD 4 million). Sundry costs Sundry costs in 1H2016 increased by 10% y-o-y and amounted to USD 65 million. Positive effect of Russian rouble depreciation against US Dollar amounted to USD 9 million in terms cost reduction. The increase in sundry costs in real terms (USD 15 million) was driven primarily by inflation. Depreciation and amortisation In 1H2016, amortisation and depreciation of production assets decreased by 12% y-o-y and amounted to USD 214 million. Positive effect of Russian rouble depreciation against US Dollar (reduction of cost by USD 42 million) was partly offset by the increase in depreciation charges (USD 14 million) mainly due to additions of mining and refining assets at the end of 2015 - beginning of 2016. Decrease of metal inventories The decrease in metal stock in 1H2016 was USD 8 million lower than in 1H 2015 resulting in a respective decrease in cost of sales. This change was primarily attributable to the following factors: - USD 75 million - decrease of metal stock in 1H2016 mainly due to the sale of metal from the stock accumulated in 4Q2015; - USD 83 million - decrease in the stockpile of work-in-progress materials at the Company's Russian operations and NN Harjavalta, as a result of processing of the stockpiled nickel materials at NN Harjavalta and sale of Tati Nickel in 1H2015. COST OF OTHER SALES In 1H2016, cost of other sales decreased by 21% y-o-y to USD 250 million. Positive effect of Russian rouble depreciation against US Dollar amounted to USD 56 million in terms of cost reduction. Change of cost of other sales in real terms (up by USD 11million) was driven by the following factors: - USD 16 million - cost reduction due to sale of non-core assets (primarily Nordavia-RA); - USD 8 million - increase in aviation companies expenditures owing to the business expansion; - USD 3 million - cost reduction due to other factors. SELLING AND DISTRIBUTION EXPENSES USD million 1H2016 1H2015 Change,% Export duties 54 16 238% Staff costs 5 5 - Transportation expenses 3 2 50% Marketing expenses 2 12 (83%) Other 3 7 (57%) Total 67 42 60% Selling and distribution expenses increased by 60% y-o-y (or by USD 25 million) to USD 67 million. The growth was driven by a threefold increase of export duties (up by USD 38 million) owing to the extension of 6.5% PGM export duties to PGM alloys and salts in June 2015. The Company expects that export duties on all PGM products will be cancelled by the Russian government on September 01, 2016, as part Russian Federation WTO accession package. The increase of export duties was partly offset by the following factors: - USD 5 million - cost reduction owing to the depreciation of RUB against US dollar; - USD 10 million - decrease in marketing campaigns in Asia and Europe. GENERAL AND ADMINISTRATIVE EXPENSES USD million 1H2016 1H2015 Change,% Staff costs 171 168 2% Taxes other than mineral extraction tax 26 27 (4%) and income tax Third party services 20 25 (20%) Rent expenses 10 10 - Depreciation and amortisation 10 9 11% Transportation expenses 3 3 - Other 19 20 (5%) Total 259 262 (1%) In 1H2016, general and administrative expenses decreased by 1% y-o-y (or by USD 3 million) to USD 259 million. Increase of staff costs (up by USD 3 million) driven by salaries upward revision in line with domestic inflation was offset by lower cost of third party services (cost reduction by USD 5 million) owing to the depreciation of Russian rouble against US dollar. FINANCE COSTS USD million 1H2016 1H2015 Change,% Interest expense on borrowings net of 203 109 86% amounts capitalized Unwinding of discount on provisions 23 19 21% Total 226 128 77 % Increase in finance costs by 77% y-o-y to USD 226 million was mostly driven by higher interest expense on borrowings due to increase in gross debt. INCOME TAX EXPENSE In 1H2016, income tax expense decreased 24% y-o-y to USD 370 million driven mostly by lower revenue. The effective income tax rate in 1H2016 amounted to 22%, which was above the Russian statutory tax rate of 20%. This was primarily driven by non-deductible social expenses and allowance for deferred tax assets. These factors were partly offset by the effect of varying tax rates applied on international subsidiaries of the Group. USD million 1H2016 1H2015 Change,% Current income tax expense 348 481 (28%) Deferred tax expense 22 5 4x Total 370 486 (24%) The break up of the current income tax expense by geography: USD million 1H2016 1H2015 Change,% Russian Federation 346 464 (25%) Finland - 15 (100%) Rest of the world 2 2 - Total 348 481 (28%) EBITDA USD million 1H2016 1H2015 Change,% Operating profit 1,536 2,426 (37%) Depreciation and amortisation 256 280 (9%) Impairment of property, plant and 3 2 50% equipment EBITDA 1,795 2,708 (34%) EBITDA margin 47% 55% (8 p.p.) In 1H 2016, EBITD? decreased by 34% y-o-y (or by USD 913 million) to USD 1,795 million with EBITDA margin amounting to 47% (down from 55% in 1H2015). Negative impact on EBITDA came from the decrease in realized metal prices and the increase of PGM export duties costs, which were partially
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August 29, 2016 04:16 ET (08:16 GMT)
