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MMC Norilsk Nickel / Annual Financial Report
MMC Norilsk Nickel: MMC NORILSK NICKEL REPORTS FULL YEAR 2016 AUDITED
CONSOLIDATED IFRS FINANCIAL RESULTS
15-March-2017 / 12:45 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*
*15 March 2017*
*Public Joint Stock Company «Mining and Metallurgical Company «NORILSK
NICKEL»*
(PJSC «MMC «NORILSK NICKEL», «Nornickel», the «Company», the «Group»)
*MMC NORILSK NICKEL REPORTS FULL YEAR 2016 AUDITED CONSOLIDATED IFRS
FINANCIAL RESULTS*
Moscow - PJSC MMC Norilsk Nickel, a largest refined nickel and palladium
producer in the world, today reports IFRS financial results for the full
year ended December 31, 2016.
*FY2016 HIGHLIGHTS *
*- *Consolidated revenue decreased 3% year-on-year to USD 8.3 billion on the
back of lower realized prices of the company's metal basket (down 13%
y-o-y). Lower metal prices and a one-off decrease of production volumes
owing to the downstream reconfiguration were partly offset by the sales of
metal stock accumulated in 4Q2015.
- EBITDA amounted to USD 3.9 billion, down 9% y-o-y, posting a global mining
industry leading EBITDA margin of 47%.
- Net profit increased 47% y-o-y to USD 2.5 billion mainly due to
appreciation of RUB as of the end of the reported period.
- CAPEX was practically unchanged y-o-y (up 2%) at USD 1.7 billion and was
in line with the average capex level for the last 3 years. Major investments
in 2016 included projects related to the shutdown of Nickel Plant, capacity
expansion and modernization of Talnakh Concentrator and Nadezhda Plant as
well as an active construction phase of the Bystrinsky (Chita) project.
- Normalized net working capital decreased 28% y-o-y to USD 0.7 billion (or
to USD 0.4 billion including the one-off increase of short-term payables
resulting from concentrate purchase from Rostec) driven mainly by the
saleable metal inventory release.
- Free cash flow amounted to USD 1.6 billion with FCF/revenue ratio reaching
the global mining industry-leading 19%.
- Balance sheet remained conservative with net debt/EBITDA ratio of 1.2x as
of December 31, 2016. Solid financial standing of Norilsk Nickel is
confirmed by investment grade credit ratings from Standard & Poor's and
Fitch credit rating agencies.
- The Company remained one of the highest dividend-yielding stocks in the
global mining industry. The Company paid interim dividend for 9M 2016 of a
total USD1.2 billion or USD 7.4 per share.
- The shutdown of the outdated Nickel Plant in August 2016 marked the
completion of the Company's environmental program phase one.
- In November 2016, the Company joined the United Nations Global Compact, a
major UN initiative in corporate social responsibility and sustainable
development. In December 2016, Nornickel was confirmed as a FTSE4Good
Emerging Index constituent.
- In line with the strategy of de-risking the greenfield Bystinsky (Chita)
project, the Company arranged an 8-year USD 800 million project financing
facility from Sberbank CIB.
- In July 2016, the Group sold 10.67% stake in Bystrinsky (Chita) project to
a Chinese investor Highland Fund.
- In December 2016, the Company entered into a transaction to buy 1.5
million tonnes of copper concentrate from Russia state-controlled
corporation, Rostec, for approximately 67.5 billion rubles.
*RECENT DEVELOPMENTS*
*- *On 24 January 2017, the Company's Board of Directors approved the sale
of up to 39.32% stake in the Bystrinskiy (Chita) Project to CIS Natural
Resources Fund. The closing of the transaction is subject to certain
conditions and regulatory approvals and expected by the year end 2017.
*K
EY CORPORATE HIGHLIGTS*
_USD million (unless stated otherwise)_ *2016* *2015* *Change,%*
Revenue 8,259 8,542 (3%)
EBITDA1 3,899 4,296 (9%)
EBITDA margin 47% 50% (3 p.p.)
Net profit 2,531 1,716 47%
Capital expenditures 1,695 1,654 2%
Free cash flow2 1,591 2,405 (34%)
Normalised net working capital3 739 1,030 (28%)
Net debt2 4,551 4,212 8%
Net debt /EBITDA 1.2x 1.0x 0.2x
Dividends paid per share (USD) 4 7.8 18.1 (57%)
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 in conjunction with Consolidated IFRS Financial
Results on the Company's web site.
3) A non-IFRS figure, for the calculation see Attachment D
4) Paid during the current period
*MANAGEMENT DISCUSSION AND ANALYSIS*
The President of Nornickel, Vladimir Potanin, commented on the results:
«The last year marked as very challenging for the commodity industry as many
metal prices touched their multi-year lows, while further exhibiting extreme
volatility alongside exchange rates. This unavoidably affected our Company's
financial results.
In spite of adverse macro conditions, the Company retained a global mining
industry leading EBITDA margin of 47%. The company's strong profitability
was supported by favourable movement in exchange rates, cost controls as
well as the exit from non-core and international assets.
Our capital investments programme has been also retained. CAPEX amounted to
USD 1.7 billion and was in line with the average level for the last three
years. Our large-scale asset modernization programme launched in 2014
entered its most active phase. In 2016, we launched into production new
capacities at Talnakh concentrator and completed most of upgrades at
Nadezhda smelter. In August, we idled Nickel plant ahead of schedule. Since
then all high-grade nickel matte produced at Polar Division is shipped for
further processing to Kola MMC and NN Harjavlata, which enables us to almost
completely stop purchasing semi-products from third parties.
Worth highlighting that the last year marked an important milestone in the
implementation of our environmental programme. Modernization of downstream
assets and the shutdown of Nickel plant should deliver an over 30% reduction
of sulfur dioxide emissions in the city of Norilsk residential area. We also
continued to actively develop the most efficient solution for the 'Sulfur
project', comprising the core of the second phase of our environmental
programme.
In April, in response to challenging commodity markets the Company's Board
of Directors amended the dividend targets by linking them to the company's
leverage, which should support solid balance sheet while providing
shareholders with sustained dividend payouts.
As of the end of 2016, Nornickel's net debt/EBITDA ratio remained as one of
the industry's lowest at 1.2x and, thus, we expect that the dividend for the
year 2016 will be calculated in the amount of 60% of EBITDA.
Overall, our Company maintained very strong financial standing, which has
been proved by investment grade credit ratings reiterated by two major
rating agencies».
*HEALTH AND SAFETY*
The lost time injury frequency rate (LTIFR) decreased from 0.62 in 2015 to
0.33 in 2016, while number of lost time injuries dropped 40% y-o-y following
the implementation of Cardinal Safety Rules, new corporate standard for
change management and a number of other standards and policies. Sadly, in
2016 the Company suffered 13 fatal injuries. 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 prevent
the occupational injuries. 2016 initiatives included the following:
- new HSE standards 'Work at height', 'Isolation of energy sources' and
'Transports and pedestrians' approved;
- additional trainings for 4,334 employees with less than three years of
experience conducted;
- 37 internal audits for HSE management system held;
- 81 employees fired for violation of health and safety regulations.
In the beginning of 2017, Dupont Science and Technology LLC conducted an
independent assessment of the current level of the occupational safety
culture as well as changes to the HSE systems on the Group level made during
2016. According to this assessment, the company's integral score has been
raised to 2.7 in 2016 from 2.5 in 2015.
*METAL MARKETS*
*Nickel in 2016 - high price volatility as market balance was moving from a
surplus into a deficit; strong demand growth was driven by solid Chinese
stainless output, supply was affected by tighter ore market.*
Nickel price in 2016 was extremely volatile. After falling to its 12-year
low of USD 7,710 per tonne in 1Q2016 nickel price recovered to USD 9,400 per
tonne at the end of June and then rallied above USD 11,700 per tonne in
November on the back of looming Filipino supply risk and the expectations of
Trump-related infrastructure stimulus in the US. The average LME nickel
price in 2016 was USD 9,609 per tonne, 19% lower y-o-y.
The year 2016 was a truly transitional year for the nickel market marking
its turning point. After 5 years of structural surpluses the market moved
into a deficit driven by a combination of both demand and supply
developments.
Primary nickel consumption in China beat all expectations delivering a 12%
annual growth with stainless steel output increasing 10% y-o-y.
On the supply side, Philippines surprised the market by launching an
environmental audit of mines, as result of which the Department of
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