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MMC Norilsk Nickel / Miscellaneous - High Priority
NORNICKEL REPORTS FIRST HALF 2017 INTERIM CONSOLIDATED IFRS FINANCIAL
RESULTS
15-Aug-2017 / 12:15 CET/CEST
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PRESS RELEASE
15 August 2017
Public Joint Stock Company «Mining and Metallurgical Company «NORILSK
NICKEL»
(PJSC «MMC «NORILSK NICKEL», «Nornickel», the «Company», the «Group»)
NORNICKEL REPORTS FIRST HALF 2017 INTERIM CONSOLIDATED IFRS FINANCIAL
RESULTS
Moscow - 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, 2017.
1H2017 HIGHLIGHTS
· Consolidated revenue increased 11% y-o-y to USD 4.2 billion primarily
owing to higher realized metal prices;
· EBITDA was down 3% y-o-y to USD 1.7 billion primarily owing to RUB
appreciation against USD and one-off increase in social-related expenses.
EBITDA margin maintained at an industry-leading level of 41%;
· CAPEX was almost flat y-o-y at USD 0.7 billion. Full year CAPEX guidance
of USD 2 billion is reiterated;
· Net working capital increased to USD 0.8 billion driven mostly by the
payment to Rostec for the purchase of copper concentrate;
· Free cash flow decreased 17% y-o-y to USD 0.5 billion primarily due to
the increase of working capital resulting in FCF/revenue ratio of 12%;
· Net debt/EBITDA ratio increased to 1.5x as of June 30, 2017 driven
mostly by the payment of interim dividend for 9 months of 2016 in January
2017 in the amount of USD 1.2 billion and the increase of working capital;
· In 2Q2017, taking the advantage of favourable market conditions the
Company placed two Eurobond issues: USD 1 billion with an annual coupon
rate of 4.1% and USD 0.5 billion with an annual coupon rate of 3.85%.The
coupon was fixed at the record low level for the Company's issuances on
international debt capital markets.
· 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 expected by the year-end
2017.
RECENT DEVELOPMENTS
· In July 2017, the Company paid final dividend for 2016 in the amount of
USD1.2 billion (or USD7.5 per share);
· In July 2017, the Group's subsidiary Bystrinskoye LLC signed an
amendment to the credit facility agreement with Sberbank, whereby PJSC MMC
Norilsk Nickel provided guarantee for the full amount of the loan limit of
USD 800 million thus enabling a material reduction of the interest rate
and improvement of non-financial terms of the agreement.
KEY CORPORATE HIGHLIGHTS
USD million (unless stated otherwise) 1H2017 1H2016 Change,%
Revenue 4,248 3,843 11%
EBITDA1 1,744 1,795 (3%)
EBITDA margin 41% 47% (6 p.p.)
Net profit 915 1,304 (30%)
Capital expenditures 699 706 (1%)
Free cash flow2 512 619 (17%)
Net working capital2 805 4433 82%
Net debt2 5,598 4,5513 23%
Net debt /12MEBITDA 1.5? 1.2x3 0.3x
Dividends paid per share (USD)4 7.4 4.2 76%
1) A non-IFRS measure, for the calculation see the notes below.
2) A non-IFRS measure, 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) Reported as of December 31, 2016
4) Paid during the current period
MANAGEMENT DISCUSSION AND ANALYSIS
The President of Nornickel, Vladimir Potanin, commented on the results:
«In the first half of 2017, the Company delivered solid financial results
despite volatile commodity markets and unfavourable movement in exchange
rates. EBITDA margin remained at the industry-leading level of over 40%
while net debt/EBITDA ratio amounted to 1.5x.
We stayed on track with the implementation of our capital investments
program. In May, Talnakh Concentrator was fully ramped up having reached its
target throughput capacity and designed parameters marking an important
milestone in the execution of a key investment project of downstream
reconfiguration and production assets modernization. With the improved
quality of concentrate, expanded metallurgical capacities of Nadezhda Plant
and Kola refinery, the Company has managed to fully compensate for the
retired metallurgical assets of Nickel Plant decommissioned last year. As a
result, we have been able to significantly reduce the low-margin processing
of the third-party feed.
The construction of another major project, Bystrinsky copper project, has
entered completion phase, with the launch scheduled by the year end.
Overall, we confirm our initial CAPEX guidance of 2 billion dollars for the
year 2017.
In the first half of 2017, the management continued with capital structure
optimization program aiming at the reduction of the cost of capital. We took
advantage of favourable international debt market conditions to place two
Eurobond issues yielding record-low interest rates. Consequently, terms of a
number of bilateral loans have been renegotiated extending their maturities
and decreasing interest costs.
Providing shareholder returns remains an important priority for us. We are
planning to make an interim dividend recommendation to the Board of
Directors by the end of August and subject to its subsequent approval by the
shareholders to pay it by the year end».
HEALTH AND SAFETY
The lost time injury frequency rate (LTIFR) decreased from 0.39 to 0.34 in
1H2017, while number of lost time injuries dropped 13% y-o-y following the
roll out of base corporate standards of safety, the launch of video
information systems and a risk control project aiming at the reduction of
safety-related risks.
Regretfully, in 1H2017 the Company suffered one fatal injury (in 1H2016 - 6
fatal accidents). The management considers the health and safety of
employees as the key strategic priority and reiterates its strive for a zero
fatality rate, as part of which a wide range of initiatives to prevent the
occupational injuries is being rolled out. In 1H2017, these initiatives
included the following:
· 18 internal audits of HSE management system;
· 44 employees were fired for violation of health and safety regulations.
The Company regretted to report losses of four lives of its employees owing
to the explosion at the Zapolyarny mine on July 7, 2017. The Company
provided full support and assistance to their families and is currently
cooperating with the state authorities to investigate the accident. Life
protection remains our top priority.
METAL MARKETS
Nickel in 1H2017 - high price volatility on the back of healthy global
demand and rising ore supply from the Pacific laterite regions; historical
underinvestment in conventional sulphide mines and ongoing asset
reconfiguration at the world's two largest nickel producers have started to
translate into output cuts and downward revision of production targets
across the industry; exchange inventories are down YTD, but are still
running well above historical averages
Nickel price in 1H2017 continued to experience high volatility. Initial
expectations for suspensions of almost half of nickel mines in the
Philippines resulting from the 2016 environmental audit pushed the nickel
price above USD 11,000 per tonne in February. However, since March the news
flow from the Pacific region turned negative. Since the surprising
relaxation of the ban on the export of unprocessed minerals in Indonesia in
January, the local government issued three export permits for nickel ore for
a total amount of 6 mln tonnes (approximately 60 thousand tonnes of nickel
units) in 1H2017. In the Philippines, the Senate refused to re-appoint Ms
Regina Lopez (the main propagator of the tight environmental control over
the mining industry and the initiator of the environmental audit of mines)
as the Head of Department of Environment and Natural Resources (DENR) thus
ruining the market expectations for major mined nickel production cuts in
the country. These developments combined with subdued nickel demand in China
owing to lukewarm stainless steel output in 2Q17 drove nickel price lower to
USD 8,800 per tonne in the beginning of June.
The average LME nickel price in 1H2017 was USD 9,761 per tonne, up 10%
y-o-y.
Global nickel consumption in 1H2017 increased by 2% y-o-y. While demand in
China was lower (-1% following extremely strong 1H16), both Europe and the
US surprised on the upside with nickel consumption rising 4% and 8%,
respectively, driven by strong recovery in stainless, specialty steels and
alloys industries. In 1H2017, nickel consumption in batteries increased very
strongly, mostly driven by a 38% growth of electric and hybrid vehicles
production coupled with the shift towards more nickel-intensive composition
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