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MMC Norilsk Nickel (MNOD)
MMC Norilsk Nickel: NORNICKEL REPORTS FULL YEAR 2018 AUDITED CONSOLIDATED
IFRS FINANCIAL RESULTS
26-Feb-2019 / 12:30 MSK
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
PRESS RELEASE
February 26, 2019
Public Joint Stock Company «Mining and Metallurgical Company «NORILSK
NICKEL»
(PJSC «MMC «NORILSK NICKEL», «Nornickel», the «Company», the «Group»)
NORNICKEL REPORTS FULL YEAR 2018 AUDITED CONSOLIDATED IFRS FINANCIAL RESULTS
Moscow - PJSC MMC Norilsk Nickel, the largest refined nickel and palladium
producer in the world, reports today IFRS financial results for the full
year ended December 31, 2018.
2018 HIGHLIGHTS
· Consolidated revenue increased 28% y-o-y to USD 11.7 billion on the back
of improved metal prices, higher copper output and sale of palladium from
earlier accumulated stocks;
· EBITDA expanded 56% y-o-y to USD 6.2 billion owing to higher metal
revenue, ramp-up of the Bystrinsky project and lower operating expenses
driven by efficiency gains;
· EBITDA margin reached 53%, a leading level among the global diversified
metals and mining majors;
· CAPEX decreased 22% y-o-y to USD 1.6 billion driven by completion of
Bystrinsky project and downstream reconfiguration as well as optimization
of investment schedules;
· Net working capital decreased by almost USD 1.3 billion to USD 0.9
billion as a result of palladium destocking and optimization of capital
structure;
· Free cash flow increased to USD 4.9 billion;
· Net debt/EBITDA ratio returned to 1 .1x as of the end of 2018;
· Cash interest paid decreased 14% to USD 551 million owing to
optimization of debt portfolio despite rising market interest rates;
· In October 2018, the Company paid interim dividend for 1H2018 in the
amount of RUB 776 (approximately USD 11.65) per ordinary share for the
total amount of approximately USD 1.8 billion;
· In January 2018, Moody's rating agency raised Nornickel credit rating to
the investment grade level, "Baa3", and changed the outlook from "Stable"
to "Positive". As result, Nornickel got assigned investment grade credit
ratings by all three major international rating agencies, including Fitch
and S&P Global.
RECENT DEVELOPMENTS
· On February 12, 2019, Moody's upgraded the Company's credit rating to
"Baa2" with a "Stable" outlook in the wake of raising Russia's sovereign
ceiling for foreign currency debt to "Baa2" and upgrade of Russia's
sovereign rating to investment grade level of "Baa3" with "Stable"
outlook.
KEY CORPORATE HIGHLIGHTS
USD million (unless stated otherwise) 2018 2017 Change,%
Revenue 11,670 9,146 28%
EBITDA¹ 6,231 3,995 56%
EBITDA margin 53% 44% 9 p.p.
Net profit 3,059 2,123 44%
Capital expenditures 1,553 2,002 (22%)
Free cash flow² 4,931 (173) n.a.
Net working capital² 867 2,149 (60%)
Net debt² 7,051 8,201 (14%)
Net debt, normalized for the purpose of 5,160 7,495 (31%)
dividend calculation4
Net debt/12M EBITDA 1.1x 2.1x (1.0x)
Net debt/12M EBITDA for dividends 0.8x 1.9x (1.1x)
calculation
Dividends paid per share (USD)³ 21.3 18.8 13%
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) Paid during the current period
4) Normalized on interim dividends and deposits with maturity of more than
90 days
MANAGEMENT DISCUSSION AND ANALYSIS
The President of Nornickel, Vladimir Potanin, commented on the results,
«The year 2018 was marked for us by favourable developments in macro
environment and strong operating performance. The markets of pretty much all
our core commodities except for platinum, posted strong gains, inflation
pressure on our cost base was subdued as the domestic inflation in Russia
was running at low levels. We increased copper and palladium sales volumes
by approximately 20% and got first tangible results in the form of operating
cash cost savings from our long-term efficiency program, including
digitalization projects, and generated almost USD 100 million from
Bystrinskoye copper project.
As result, in 2018, our topline expanded 28% y-o-y to USD 11.7 billion,
while EBITDA increased 56% to USD 6.2 billion, reaching the highest level
since 2011. With EBITDA margin of 53%, Nornickel became one of the most
profitable global diversified mining majors in 2018.
As promised to our shareholders, we reduced net working capital to less than
USD 900 million by the year-end. We consider USD 1 billion as a sustainable
level of working capital in the medium-term.
Capital expenditures reduced to USD 1.6 billion as a number of large
capital-intensive projects such as downstream reconfiguration in the Polar
division and construction of Bystrinsky copper project were completed in
2017.
The year 2018 was also a record year for our free cash flow, which reached
almost USD 5 billion. The Company's leverage returned to mid-cycle average,
with Net debt/EBITDA ratio falling to 1.1x. After the rating upgrade from
Moody's in January 2018, Nornickel was assigned investment grade credit
ratings by all three major rating agencies.
Solid financial performance in 2018 and robust commodity markets improve our
financial strength and provide a good platform to support the management'
strategy to further advance Nornickel on the path of sustainable growth. We
have started the second phase of a very ambitious environmental program,
launched infrastructure and digitalization projects and initiated a number
of other initiatives supported by the Russian state as national priorities
in the medium term. The Company is also looking to make final investment
decisions on some of what we consider as potentially attractive growth
opportunities, while our productivity improvement program should yield
further positive results. Overall, we are expecting an increase of our
capital investments to USD 2.2 - 2.3 billion in 2019.
We anticipate that Nornickel will maintain a leading position in the global
metals and mining sector in terms of shareholders returns and reiterate our
focus on sustainable value creation for all shareholders by developing the
world's best Tier 1 assets".
HEALTH AND SAFETY
The lost time injury frequency rate (LTIFR) decreased 48% y-o-y in 2018 from
0.44 to 0.23, reaching historical lows and remaining below the global mining
industry average. At the same time number of lost time injuries dropped two
times y-o-y (from 60 to 32) and total recordable fatal accidents decreased
25% y-o-y (from 8 to 6) driven the by the roll out of cardinal basic safety
rules and improvement of management system. The management considers the
health and safety of its employees with a zero fatality rate as the key
strategic priority and continues to implement a wide range of initiatives
targeting further improvement of the health and safety records. In 2018,
selected initiatives included the following:
· 45 internal audits of Occupational safety and Health management systems
· 105 employees were fired for violation of cardinal safety rules.
METAL MARKETS
Nickel in 2018 - deficit expanded to 130 kt (approximately 6% of global
consumption) driven by resilient demand growth in stainless steel and
booming battery sector; by the year end exchange inventories were down 47%
(or -191 kt) to approximately 32 days of global consumption which was
already below historical average; average LME price was up 26% year-on-year
with some volatility in 4Q 2018 as bearish macroeconomic expectations and
fears of China-US trade war prevailed in the market sentiment.
Strong industrial demand, primarily from stainless steel and fast growing
battery sector, coupled with a steady drawdown of exchange stocks drove
nickel price up sharply in 1H2018. On June 7, 2018, the LME nickel cash
settlement price closed at $15,750 per tonne reaching the highest level
since 2014.
However, in 2H 2018, the sentiment turned bearish on the entire base metals
basket, where consumption growth is heavily reliant on Chinese demand as the
expectations were building that the US-China trade tensions might end in a
full-scale trade war. This negative sentiment was exacerbated by the news
from Tsingshan of its plans to build an HPAL (high-pressure acid leaching)
nickel plant in Indonesia in a joint venture with GEM, BRUNP, and Indonesia
Morowali industrial Park with target capacity of 50 kt at an unprecedentedly
low capital cost of USD 14,000 per tonne. As the reported capital cost was
remarkably lower than any other similar HPAL projects realized globally so
far, this implied a material downside risk to the long-held market consensus
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