MMC Norilsk Nickel (MNOD) NORNICKEL REPORTS FIRST HALF 2019 INTERIM CONSOLIDATED IFRS FINANCIAL RESULTS 20-Aug-2019 / 14:31 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 Public Joint Stock Company «Mining and Metallurgical Company «NORILSK NICKEL» (PJSC «MMC «NORILSK NICKEL», «Nornickel», the «Company», the «Group») NORNICKEL REPORTS FIRST HALF 2019 INTERIM CONSOLIDATED IFRS FINANCIAL RESULTS Moscow, August 20, 2019 - PJSC MMC Norilsk Nickel, the largest refined nickel and palladium producer in the world, reports IFRS financial results for six months ended June 30, 2019. 1H2019 HIGHLIGHTS · Consolidated revenue increased 8% y-o-y to USD 6.3 billion owing to output growth of all key metals and higher palladium price; · EBITDA expanded 21% y-o-y to USD 3.7 billion owing to higher metal revenue and the ramp-up of the Bystrinsky copper project, with EBITDA margin reaching 59%; · CAPEX was almost unchanged from last year amounting to USD 0.5 billion. The Company made final investment decisions on strategic growth projects such as the expansion of the Talnakh concentrator (TOF-3 project) and the South Cluster mining project, with the active construction phase scheduled to start in 2H19; · Net working capital temporarily increased to USD 1.3 billion as a result of scheduled amortization of advance payments for delivered metals from customers; · Free cash flow amounted to USD 2.2 billion; · Net debt/EBITDA ratio decreased to 0.8x as of June 30, 2019; · Cash interest paid decreased 23% to USD 202 million owing to the ongoing optimization of debt portfolio; · 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. RECENT DEVELOPMENTS · On July 1, 2019, the Company paid final dividend for 2018 in the amount of RUB 792.52 (approximately USD 12.56) per ordinary share for the total amount of approximately USD 2.0 billion; · On August 20, 2019, the Company's Board of Directors recommended to the General Meeting of shareholders (EGM) to approve interim dividend for the first half of 2019 in the amount of RUB 883.93 per share (USD 13.27 at the RUB/USD exchange rate the Russian Central Bank as of August 20, 2019) for the total amount of USD 2.1 billion. The Board of Directors set the date of the EGM on September 26, 2019 and the EGM record (the list of shareholders eligible to vote) date on September 2, 2019. The Board of Directors proposed to set the dividend record date (the list of shareholders entitled to the dividend) on October 7, 2019. KEY CORPORATE HIGHLIGHTS USD million (unless stated otherwise) 1H2019 1H2018 Change,% Revenue 6,292 5,834 8% EBITDA¹ 3,719 3,079 21% EBITDA margin 59% 53% 6 p.p. Net profit 2,997 1,653 81% Capital expenditures 500 536 (7%) Free cash flow² 2,206 2,600 (15%) Net working capital² 1,282 8674 48% Net debt² 5,357 70514 (24%) Net debt/12M EBITDA 0.8x 1.1x4 (0.3x) Dividends paid per share (USD)³ - - 0% 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) Reported as of December 31, 2018 MANAGEMENT DISCUSSION AND ANALYSIS The President of Nornickel, Vladimir Potanin, commented on the results, "The first half of 2019 was marked by weak global macro environment as investors' sentiment was dominated by concerns over the slowdown of global economy and unfavorable outcome of the US-China trade negotiations. Therefore, prices on all our key metals except for palladium went substantially down. Amid these challenging market conditions, our Company managed to deliver solid financial performance owing to operating efficiency gains, which were further supported by strong palladium market. Output and sales of all our key metals increased and, importantly, the operating cost inflation was maintained below the Russian CPI. As result, the first half of 2019 revenue increased 8% y-o-y to USD 6.3 billion, while EBITDA was up 21% to USD 3.7 billion including about USD 160 million contributed by the Bystrinsky project that continued to ramp up. Our leading position among global diversified mining majors in terms of EBITDA margin was sustained. The Company continued to execute its key investment projects including construction of Bystrinsky copper project and upgrade of Kola refining capacity, which are nearing their completion. In the second half of the year, we plan to enter the active construction phase of recently approved South Cluster and third stage of Talnakh Concentrator upgrade (TOF-3) projects. We also reiterate our firm commitment to radically reduce the environmental footprint in the regions of our operations and implement the projects aiming at a substantial reduction of sulfur dioxide emissions in Norilsk and at Kola Peninsula. Taking into consideration USD 2.2 billion free cash flow and conservative leverage with net debt/EBITDA ratio down to 0.8x, the Board of Directors recommended for the shareholders' approval an interim dividend in the total amount of USD 2.1 billion". HEALTH AND SAFETY The lost time injury frequency rate (LTIFR) marginally increased 4% to 0.28 in 1H2019 from 0.27 in 1H2018, remaining well below the global mining industry average. At the same time, the number of lost time injuries was flat y-o-y, but dropped more than three times (from 43 to 15) since 1?2015 driven the by the roll-out of cardinal basic safety rules, launch of video-information system, introduction of electronic medical examination systems, improvement of labour safety management system and a number of other initiatives. Regretfully, in 1H2019 Company suffered four fatal injuries. The management considers the health and safety of its employees as the key strategic priority and reiterates its commitment to target zero fatality rate and continues to implement a wide range of initiatives aiming at further improvement of the health and safety records. In 1H2019, selected initiatives included the following: · 44 internal audits of HSE management system; · 70 employees fired for violation of cardinal health and safety rules (versus 33 in 1H2018). In May 2019, Bain & Company Russia Consulting conducted an annual independent assessment of the current level of the occupational safety culture as well as changes to the HSE systems of the Group made during the year. According to this assessment, the company's integral score was raised to 2.8 points (out of the maximum of 4) in 2019 up from 2.6 points in 2017 (and compared to 1.4 points in 2014). METAL MARKETS Nickel in 1H2019 - market was in deficit as strong Chinese demand from stainless and battery sectors was negatively offset by surge in NPI production; exchange inventories were down another 40 thousand tonnes year-to-date helping to cover some of the deficit; LME nickel price was down 11% y-o-y as bearish macroeconomic sentiment and China-US trade tensions continued to negatively affect the market expectations despite positive sector-specific developments. In 1H2019, nickel price was quite volatile as the macro backdrop was negative due to trade tensions between the US and China as well as weakening global manufacturing PMI. On the other hand, sector-specific developments were positive, including the shutdown of Onça Puma, major upward capex revision of Tsingshan's HPAL project at Morowali in Indonesia and robust demand from Chinese stainless sector. At the very end of June, the Indonesian government reaffirmed its intention to reinstate the ban on the export of nickel ore as previously planned in 2022. If enforced the ban could wipe away almost 10% of global nickel supply. The market reacted positive to this news taking the metal price above USD 14,000 per tonne in July. In 1H2019, the LME nickel price averaged USD 12,315 per tonne, down 11% y-o-y. Developments on the supply side in 1H2019 were dominated by strong expansion of NPI output in China and Indonesia, which combined were up almost 25% y-o-y driven by the availability of relatively cheap high-grade ore, which additionally benefited NPI smelters' margins. At the same time, production of ferro-nickel was lower owing to the closure of Onça Puma in Brazil and underperformance of Koniambo and Doniambo in New Caledonia, while the production of high-grade nickel products was flattish as higher output by
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