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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 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 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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August 15, 2017 06:15 ET (10:15 GMT)