DJ NORNICKEL REPORTS FIRST HALF 2019 INTERIM CONSOLIDATED IFRS FINANCIAL RESULTS
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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Norilsk Nickel and Jinchuan was offset by production decline at Vale.
Demand dynamics was mixed across various geographies. While the stainless
steel demand in China was up 10% y-o-y (though most of the growth was at
stainless mills integrated upstream into NPI), the rest of Asia was flat.
Noticeably, in 1H2019 the Chinese stainless steel producers accelerated the
substitution of Class 1 nickel feed with NPI. European stainless output was
down 6% y-o-y alongside contracting PMI, while the US was also down, but
that was a result of high base effect of 1H2018.
Battery industry remained the hottest spot of the nickel demand driven by
growing EV production, higher driving range requirements, and ongoing shift
in battery cathodes' chemistry mix towards reduced cobalt loadings in favor
of higher nickel loadings. In 1H2019, nickel demand from the battery sector
was up 38% y-o-y with China leading the growth with NCM cathode material
production increasing by 50%. Electric car sales in 1H2019 soared 92%
despite weak market conditions for the global light vehicles industry. In
China, in particular, BEV sales jumped 111% y-o-y in a contrast with the
total car sales being down 12% in the country.
In line with our expectations nickel market remained in deficit in 1H2019.
Exchange inventories continued their steady decline decreasing another 40
thousand tonnes supporting our assessment of the market running a deficit.
At the end of June, the combined LME and SHFE nickel stocks stood at 182
thousand tonnes (or 28 days of global annual consumption).
Nickel outlook - neutral; we expect the deficit in 2019 to narrow to
approximately 60 thousand tonnes as Indonesia and China will continue
growing their NPI output; Indonesian export ban if reinstated as scheduled
in 2022 or earlier will put around 10% of global nickel production at risk,
which could substantially alter the global supply landscape; EV batteries
continue to be the key demand growth driver in the medium- and long-term
supported by the carbon-free mainstream narrative.
We expect that NPI production growth both in Indonesia and China will drive
the nickel market into a mild surplus in 2H2019. In 2019, we forecast an
annual deficit of approximately 60 thousand tonnes, implying a small
increase from our prior estimate of 50 thousand tonnes deficit.
In 2019, global nickel demand is expected to increase 4% y-o-y. We estimate
that nickel consumption in stainless will grow 3% propelled solely by
300-series output in China (+7% y-o-y). Nickel consumption in specialty
steels and alloys should also increase by approximately 3% y-o-y driven
largely by aerospace and petrochemical processing industries.
We anticipate that battery sector demand will slow down in 2H2019 due to
steady fading of NEV subsidies in China, but still amount to approximately
25% y-o-y increase in 2019. The next big shift in nickel intensity in
cathode materials is dependent on the roll out of the 8:1:1 (NCM)
formulation and may take a few years, as the development has somewhat lost
its steam due to the collapse in cobalt price and thus weakened incentive to
reduce cobalt loadings in batteries. Nonetheless, the Chinese government NEV
subsidies, which stimulate production of electric vehicles with longer
driving range, continue to incentivize the chemistry shift in favour of
higher nickel loadings, with a number of NCM 8:1:1 based cells already
approved for the EV application. Hence, we expect that the 8:1:1 chemistry
will gradually increase its market share and become the mainstream
technology by 2025.
In the long run, the biggest potential disruption for nickel supply and the
market overall could come from the Indonesian government that is
contemplating to reinstate the ore export ban. Under the 2017 mining
regulation, Jakarta is scheduled to stop export of unprocessed ore starting
January 2022 following a five-year grace period provided to miners deemed
sufficient enough for them to build smelters onshore. Recently, however, the
Indonesian officials suggested in public comments that the government might
consider bringing the ban forward. At present, Indonesia exports annually
over 220 thousand tonnes of nickel contained in the ore, which represents
approximately 10% of the global supply. Whether Philippines as the only
other alternative source of nickel ore feed to China will be able to
compensate for the potential loss of Indonesia supply and to what extent
remains to be seen.
Copper in 1H2019 - volatile macro environment and bearish investors'
sentiment undermined the price that was down 11% y-o-y
The copper roller coaster seen in 2018 continued in 1H2019 as weakening
global economy, strong US dollar performance and speculative positioning
aligned with worse-than-expected industry fundamentals. In March-April,
copper price made an attempt to consolidate at the level of USD 6,500 per
tonne on expectations of an imminent trade deal between the US and China,
but as the prospects for any near term resolution of the conflict got pushed
back, metal price plunged below USD 6,000 per tonne in May.
The average LME copper price in 1H2019 decreased 11% y-o-y to USD 6,165 per
tonne.
In terms of fundamentals, copper market in 1H2019 was by and large balanced.
Global refined copper demand growth was sluggish (+1% y-o-y) as China
disappointed on grid investments and auto production, while the copper
consumption in the world ex-China was at best flat. Supply was mostly in
line with the market expectations while disruptions were running low (less
than 2% of global supply vs 5-6% historical average).
Copper outlook - neutral; the market is expected to remain largely balanced
in 2019-2020; the outcome of the US-China trade negotiations and currency
movements will continue to dominate the investors' sentiment.
We anticipate that copper market will remain largely balanced in the
near-term running a marginal deficit of approximately 1% of the global
consumption. In 2019, the deficit is forecasted of approximately 200-250 kt.
Chinese demand should improve in 2H2019 as result of the local government
accelerating investments into energy infrastructure. At the same time, the
mine supply growth will continue to be constrained by the limited pipeline
of new projects as producers worry of the global macro uncertainty and muted
prospects of a positive outcome of the US-China trade conflict are likely to
put on hold new developments. Global exchange inventories are running low,
making the market balance sensitive to any potential major supply disruption
or positive demand news.
Palladium in 1H2019 - price consolidated above USD 1,400 per ounce; premium
to platinum sustainably expanded above USD 500 per ounce as there was no
indication that any substitution was happening or even contemplated; market
continued to be in structural deficit as higher PGM loadings were offsetting
weakening global auto sales.
The rally in palladium price that started in 2H2017 continued through 2018
and well into 1Q2019, when in March the price hit the all-time high of USD
1,604 per troy ounce. This long winning streak was interrupted in late March
when palladium price fell by nearly 200 USD in just two days. This downward
correction was caused by a number of factors, which together comprised a
short-term "perfect storm", including:
· liquidation of speculative long position following an almost non-stop
price rally since August 2017;
· adjustment of the metal lease rates that took the upward pressure off
the physical market;
· additional refined metal supply coming from secondary sources;
· material decrease in 1Q2019 automotive sales globally (-5% y-o-y) with
negative dynamics in all key regions, including China (-11%), North
America (-3%) and Europe (-2%).
However, after a couple of days of elevated volatility, palladium price
consolidated at USD 1,350-1,500 per ounce as investors regained confidence
in the industry sustaining its strong fundamentals.
The average LBMA palladium price in 1H2019 increased 40% y-o-y to USD 1,410
per ounce.
In 1H2019, on our estimates, demand increased ahead of supply due to the
rollout of new tighter environmental regulations in practically all largest
regional car markets, including China 6, Tier 3 in the US, Euro 6d in the
EU, Bharat 6 in India, which offset positively weak light vehicle production
volumes. The market deficit was covered mainly by the release of
work-in-progress materials by Norilsk Nickel and South African producers as
well as sales of third party refined metal by Norilsk Nickel via its
Palladium Fund.
Palladium premium to platinum exceeded USD 500 per ounce. According to our
observations, there was a little appetite for substitution of palladium with
platinum as OEMs had not just to meet the stricter requirements of the
tighter emission regulations, but also to comply with the more demanding
environment of real world driving emission tests (RDE).
Palladium outlook - positive; market deficit to amount to 0.6 mln ounces in
2019 driven by continuous growth of demand from autos on the back of tighter
emission regulations in all major markets and introduction of RDE; no
substitution with platinum is expected due to technical challenges;
palladium remains the metal of choice for gasoline catalytic converters.
Taking into consideration a softer auto market in 1H2019 we revise our
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palladium consumption forecast in automotive industry downward by 0.5 mln
ounces to 8.9 mln ounces in 2019. Nonetheless, in our opinion, palladium
demand has a strong support coming from the tightening environmental
regulations in the most important car markets and the roll out of RDE, both
of which require OEMs to increase PGM loadings. For instance, the launch of
China 6 emissions standard this year has already translated into a stronger
palladium offtake. We estimate that palladium loadings in light-duty petrol
(gasoline) vehicles in China will increase by 15-20% y-o-y in 2019 and will
continue to grow next year.
We do not anticipate any major palladium substitution with platinum in the
near term because of the technological challenges owing to specific chemical
properties of the two metals, making them not fully interchangeable in the
modern auto catalysts. According to our industry knowledge currently,
automakers have a little appetite for changes in the catalysts chemistry as
their engineering resources are focused on meeting new tighter emission
legislation and RDE testing, and they do not have enough resources to
conduct new catalyst formulation testing.
In 2019, palladium demand from other sectors is expected to be flat at
approximately 2.1 mln ounces.
According to our estimates, primary palladium supply will reach 7.1 mln
ounces (+250 thousand ounces) in 2019 due to increased production in Russia
and South Africa, mostly as a result of the release of previously
accumulated work-in-progress. Recycling volumes will also grow to 3.3 mln
ounces (+100 thousand ounces). However, the growth of supply will not be
able to fully cover the demand, implying that the market will remain in a
structural deficit, which we estimate at approximately 0.6 million ounces in
2019.
Platinum in 1H2019 - price rebounded from historic lows supported by
investment demand on the back of gold rally; nonetheless, the price remained
under pressure from weak automotive and jewelry demand.
In 1Q2019, platinum price managed to rebound from USD 790 to USD 850 per
ounce supported by higher investment demand as gold rallied after all major
central banks continued to keep interest rates at almost-zero levels.
However, fundamental factors such as soft demand from automotive (diesel
share of new car sales in Europe fell from 38% in 1H2018 to 33% in 1H2019)
and jewelry sectors kept the price under pressure.
In 1H2019, the average LBMA platinum price decreased 12% y-o-y to USD 832
per ounce.
Platinum outlook - cautiously positive; automotive demand is expected to
remain soft, but jewelry consumption should stabilize, while the investment
demand is likely to strengthen; platinum-intensive fuel cells may present a
viable carbon-free alternative to electric cars in public transportation and
heavy-duty vehicles.
In 2019, we expect that the automotive demand will remain soft as the diesel
ratio in Europe continues to fall. Nonetheless, we see some stabilization of
jewelry demand as well as improving platinum consumption in electronics and
glass industries.
Supply is expected to increase 4% y-o-y to 8.6 mln ounces in 2019 driven
mostly by higher recycling and additional ounces coming from the release of
work-in-progress inventory in South Africa and to lesser extent at Norilsk
Nickel. Some supply rationalization remains feasible, in our opinion, as the
completion of Sibanye's acquisition of Lonmin may lead to curtailment of
unprofitable mines.
In our view, major downside risks for platinum are already priced-in. Dovish
policies of major central banks and risks of global recession are
stimulating investors to buy precious metals as a safe haven asset, which
should be supportive for investors demand for platinum. We forecast that
investment demand for platinum should amount to approximately 1 mln ounces
in 2019.
KEY SEGMENTAL HIGHLIGHTS1
USD million (unless stated otherwise) 1H2019 1H2018 Change,%
Revenue 6,292 5,834 8%
GMK Group 6,117 4,816 27%
KGMK Group 465 486 (4%)
NN Harjavalta 522 486 7%
GRK Bystrinskoye 1 - 100%
Other mining 74 61 21%
Other non-metallurgical 647 813 (20%)
Eliminations (1,534) (828) 85%
EBITDA 3,719 3,079 21%
GMK Group 4,300 3,296 30%
KGMK Group 87 129 (33%)
NN Harjavalta 40 24 67%
GRK Bystrinskoye 160 5 n.a.
Other mining (4) 6 n.a.
Other non-metallurgical 12 (1) n.a.
Eliminations (494) (23) n.a.
Unallocated (382) (357) 7%
EBITDA margin 59% 53% 6 p.p.
GMK Group 70% 68% 2 p.p.
KGMK Group 19% 27% (8 p.p.)
NN Harjavalta 8% 5% 3 p.p.
GRK Bystrinskoye n.a. n.a. n.a.
Other mining (5%) 10% (15 p.p.)
Other non-metallurgical 2% 0% 2 p.p.
1) Segments are defined in the consolidated financial statements
In 1H2019, revenue of Group GMK segment increased 27% to USD 6,117 million.
This was primarily driven by the growth of intersegmental sales revenue due
to the launch of direct sales of semi-products to KGMK Group, which was
additionally supported by higher refined metals production volumes and
palladium price.
The revenue of Group KGMK segment decreased 4% to USD 465 million. Increase
in revenue from metal sales to external customers was offset negatively by
the complete cessation of sales of own feed to NN Harjavalta and lower
nickel price.
Revenue of NN Harjavalta increased 7% to USD 522 million. Higher sales
volumes were partially offset by lower nickel price.
Revenue of GRK Bystrinskoye generated during the hot commissioning phase was
included into other operating income and expenses.
Revenue of Other mining segment increased 21% to USD 74 million mostly
driven by higher semi-products sales volumes and palladium price.
Revenue of Other non-metallurgical segment decreased 20% to USD 647 million
owing to lower sales from Palladium Fund.
In 1H2019, EBITDA of GMK Group segment increased 30% to USD 4,300 million
owing primarily to higher revenue and depreciation of Russian rouble. EBITDA
of GMK Group segment included unrealized profit from the sale of
semi-products to Group KGMK segment and was eliminated from EBITDA of the
Group.
EBITDA of Group KGMK segment decreased 33% to USD 87 million primarily owing
to the decrease of operating margin due to the reduction of realized nickel
price and inflationary growth of expenses, which was exacerbated by the
start of direct purchases of Polar division semi-products.
EBITDA of NN Harjavalta increased by USD 16 million to USD 40 million owing
primarily to increased revenue.
EBITDA of GRK Bystrinskoye segment increased by USD 155 million and amounted
to USD 160 million due to higher sales volumes generated during the hot
commissioning stage.
EBITDA of Other non-metallurgical segment increased by USD 13 million to USD
12 million.
EBITDA of Unallocated segment changed 7% to a negative USD 382 million.
Higher selling, administrative and other operating income and expenses were
partly positively offset by Russian rouble depreciation.
SALES VOLUME AND REVENUE 1H2019 1H2018 Change,%
Metal sales
Group
Nickel, thousand tons¹ 113 101 12%
from own Russian feed 108 98 10%
from 3d parties feed 2 1 100%
in semi-products³ 3 2 50%
Copper, thousand tons¹,² 223 201 11%
from own Russian feed 205 191 7%
in semi-products³ 18 10 80%
Palladium, koz¹ 1,537 1,528 1%
from own Russian feed 1,485 1,505 (1%)
in semi-products³ 52 23 2x
Platinum, koz¹ 390 353 10%
from own Russian feed 380 349 9%
in semi-products³ 10 4 3x
Average realized prices of refined metals produced by the
Group
Metal
Nickel (USD per tonne) 12,781 14,141 (10%)
Copper (USD per tonne) 6,221 6,989 (11%)
Palladium (USD per oz) 1,406 1,032 36%
Platinum (USD per oz) 829 930 (11%)
Revenue, USD million4
Nickel 1,499 1,494 0%
including semi-products 100 86 16%
Copper 1,385 1,405 (1%)
including semi-products 108 69 57%
Palladium 2,374 1,950 22%
including semi-products 101 38 3x
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Platinum 330 335 (1%)
including semi-products 15 9 67%
Other metals 352 289 22%
including semi-products 42 31 35%
Revenue from metal sales 5,940 5,473 9%
Revenue from other sales 352 361 (2%)
Total revenue 6,292 5,834 8%
1) All information is reported on the 100% basis, excluding sales of metals
purchased from third parties and semi-products purchased from Nkomati.
2) Excludes semi-products, produced by GRK "Bystrinskoye".
3) Metal volumes represent metals contained in semi-products.
4) Includes metals and semi-products purchased from third parties and
Nkomati. Excludes revenue from semi-products, produced by GRK
"Bystrinskoye".
Nickel
Nickel sales contributed 25% to the Group's total metal revenue in 1H2019,
down from 27% in 1H2018. The decrease by 2 p.p. was driven by diverging
palladium and nickel price trends as realized nickel price was down, while
palladium was up.
In 1H2019, nickel revenue remained unchanged and amounted to USD 1,499
million. Lower realized nickel price (-USD 137 million) was positively
offset by higher sales volume (+USD 142 million).
The average realized price of refined nickel decreased 10% to USD 12,781 per
tonne in 1H2019 vs USD 14,141 per tonne in 1H2018.
Sales volume of refined nickel produced from own Russian feed, increased 10%
(or +10 thousand tonnes) to 108 thousand tons owing to increase in
production volumes of KGMK.
Sales volume of nickel produced from third-party feed doubled y-o-y to 2
thousand tonnes primarily due to the increase of nickel matte processing
supplied by Boliden to NN Harjavalta.
In 1H2019, sales of nickel in semi-products increased 16% y-o-y to USD 100
million primarily owing to higher sales volume of semi-products.
Copper
In 1H2019, copper sales accounted for 23% of the Group's total metal sales,
decreasing 1% (or -USD 20 million) y-o-y to USD 1,385 million primarily
owing to lower realized price (-USD 152 million) which was partly offset by
higher sales volume (+USD 132 million).
The average realized price of refined copper decreased 11% from USD 6,989
per tonne in 1H2018 to USD 6,221 per tonne in 1H2019.
Physical volume of refined copper sales from the Company's own Russian feed
increased 7% (or +14 thousand tons) to 205 thousand tons (excluding copper
in concentrates, produced by GRK "Bystrinskoe"), owing to both processing of
Polar Division ore with higher copper grade, as well as less stockpiling of
metal in 1H2019.
Revenue from copper in semi-products in 1H2019 increased 57% to USD 108
million primarily owing to higher sales volume of semi-products.
Palladium
In 1H2019, palladium remained the largest contributor to the Group's total
revenue, accounting for 40% (+ 4 p.p. y-o-y). Palladium revenue increased
22% (or +USD 424 million) to USD 2,374 million due to higher realized price
(+USD 571 million) which was amplified by increased sales volume (+USD 27
million).
The average realized price of refined palladium increased 36% from USD 1,032
per troy ounce in 1H2018 to USD 1,406 per troy ounce in 1H2019.
Physical volume of refined palladium sales from the Company's own Russian
feed in 1H2019 slightly decreased 1% (or -20 thousand troy ounces) to 1,485
thousand troy ounces. The reduction in sales volume was due to the base
effect of 1H2018, when the sale of own metals was higher as it included the
metal from stock accumulated in the Company's Palladium Fund in 2017. This
was partly compensated by higher production volume due to release of PGM
work-in-progress inventory.
Revenue of palladium in semi-products in 1H2019 increased two times to USD
101 million primarily owing to higher sales volume of semi-products.
Additional USD 185 million to palladium revenue in 1H2019 was contributed by
the resale of metal purchased from third parties (vs USD 359 million in
1H2018).
Platinum
In 1H2019, platinum sales slightly decreased 1% (or -USD 5 million) to USD
330 million and remained at 6% of the Group's total metal revenue. The
decline of realized platinum price (-USD 36 million) was almost completely
offset by higher sales volume (+USD 31 million).
Physical volume of refined platinum sales from the Company's own Russian
feed in 1H2019 increased by 9% (or +31 thousand troy ounces) to 380 thousand
troy ounces primarily due to release of PGM work-in-progress inventory.
Revenue of platinum in semi-products in 1H2019 increased two times to USD 15
million primarily due to higher sales volume of semi-products.
Other metals
In 1H2019, revenue from other metals increased 22% (or +USD 63 million) to
USD 352 million, primarily owing to higher revenue from rhodium (up 78%) and
gold (up 28%).
Other sales
In 1H2019, other sales decreased 2% to USD 352 million. The negative impact
owing to Russian rouble depreciation was partly offset in real terms,
primarily due to increase of oil products sales.
COST OF METAL SALES
Cost of metal sales
In 1H2019, the cost of metal sales decreased 1% (or -USD 14 million) to USD
2,181 million. Main factors contributing to it were as follows:
· Decrease in cash operating costs by 5% (or -USD 89 million);
· Increase in depreciation and amortisation by 5% (or +USD 15 million);
· Change in metal inventories y-o-y leading to cost of metal sales
increase of +USD 60 million
Cash operating costs
In 1H2019, total cash operating costs decreased by 5% (or -USD 89 million)
to USD 1,773 million.
The positive effect of Russian rouble depreciation (-USD 148 million) was
partly offset by inflationary growth of cash operating costs by USD 56
million.
USD million 1H2019 1H2018 Change,%
Labour 615 660 (7%)
Materials and supplies 275 325 (15%)
Purchases of raw materials and 246 259 (5%)
semi-products
Purchases of refined metals for resale 192 196 (2%)
Mineral extraction tax and other levies 110 110 0%
Third party services 96 91 5%
Electricity and heat energy 77 74 4%
Fuel 48 45 7%
Transportation expenses 38 32 19%
Sundry costs 76 70 9%
Total cash operating costs 1,773 1,862 (5%)
Depreciation and amortisation 340 325 5%
Decrease in metal inventories 68 8 9x
Total cost of metal sales 2,181 2,195 (1%)
Labour
In 1H2019, labour costs decreased 7% (or -USD 45 million) to USD 615 million
amounting to 35% of the Group's total cash operating costs driven by the
following:
· -USD 64 million - cost decrease owing to the Russian rouble depreciation
against US Dollar;
· +USD 19 million - increase in real terms primarily driven by the
indexation of RUB-denominated salaries and wages in line with the terms of
collective bargaining agreement.
Purchases of raw materials and semi-products
In 1H2019, purchases of raw materials and semi-products decreased 5% (or
-USD 13 million) to USD 246 million driven by the following:
· -USD 19 million - cost decrease owing to the Russian rouble depreciation
against US Dollar;
· -USD 21 million - cost decrease owing to lower volumes of Rostec
concentrate processing;
· +USD 19 million - cost increase owing to higher volumes of purchased
semi-products from third parties for processing at NN Harjavalta.
Purchases of refined metals for resale
In 1H2019, expenses related to purchase of refined metals decreased 2% y-o-y
to USD192 mln.
Materials and supplies
In 1H2019, materials and supplies expenses decreased by 15% (or -USD 50
million) to USD 275 million driven by the following factors:
· -USD 28 million - positive effect of the Russian rouble depreciation;
· +USD 12 million - inflationary growth of materials and supplies
expenses;
· -USD 34 million - decrease in consumption primarily owing to reduction
in repairs.
Third-party services
In 1H2019, cost of third party services increased by 5% (or +USD 5 million)
to USD 96 million mainly driven by:
· -USD 8 million - positive effect of the Russian rouble depreciation;
· +USD 13 million - costs increase primarily due to higher PGM refining
costs due to release of PGM work-in-progress inventory.
Mineral extraction tax and other levies
In 1H2019, mineral extraction tax (MET) and other levies were unchanged and
amounted to USD 110 million. Positive effect of Russian rouble depreciation
was offset by higher MET payments driven by increased volumes of ore mined
at Polar division.
Electricity and heat energy
In 1H2019, electricity and heat energy expenses increased by USD 3 million
to USD 77 million. Positive effect of Russian rouble depreciation was offset
by energy price inflation.
Fuel
In 1H2019, fuel expenses increased by 7% (or +USD 3 million) to USD 48
million driven by the following:
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· -USD 4 million - positive effect of the Russian rouble depreciation;
· +USD 7 million - primarily higher oil price.
Transportation expenses
In 1H2019, transportation expenses increased 19% (or +USD 6 million) to
USD 38 million driven by the following:
· -USD 2 million - positive effect of the Russian rouble depreciation;
· +USD 8 million - costs increase driven primarily by higher volumes of
third-party transportation services in Norilsk industrial region.
Sundry costs
In 1H2019, sundry costs increased by 9% (or +USD 6 million) to USD 76
million.
Depreciation and amortisation
In 1H2019, depreciation and amortisation expenses increased by 5% (or +USD
15 million) to USD 340 million.
Positive effect of Russian rouble depreciation amounted to -USD 28 million.
Depreciation charges increased by USD 43 million mainly due to transfers
from construction in progress to production assets.
Decrease in metal inventories
In 1H2019, comparative effect of change in metal inventory amounted to +USD
60 million resulting in an increase of cost of metal sales, primarily driven
by comparative effect of change in finished goods inventories.
COST OF OTHER SALES
In 1H2019, cost of other sales decreased by USD 21 million to USD 355
million.
Cost of other sales increase primarily related to higher sales of oil
products was partly offset by the positive effect of Russian rouble
depreciation.
SELLING AND DISTRIBUTION EXPENSES
USD million 1H2019 1H2018 Change,%
Transportation expenses 22 18 22%
Marketing expenses 22 9 2x
Staff costs 7 6 17%
Other 4 2 100%
Total 55 35 57%
In 1H2019, selling and distribution expenses increased 57% (or +USD 20
million) to USD 55 million primarily due to increase of marketing expenses
(+USD 13 million).
GENERAL AND ADMINISTRATIVE EXPENSES
USD million 1H2019 1H2018 Change,%
Staff costs 301 306 (2%)
Third party services 41 45 (9%)
Taxes other than mineral extraction tax 38 51 (25%)
and income tax
Depreciation and amortisation 33 20 65%
Transportation expenses 8 6 33%
Rent expenses 1 11 (91%)
Other 21 22 (5%)
Total 443 461 (4%)
In 1H2019, general and administrative expenses decreased 4% (or -USD 18
million) to USD 443 million. Positive effect of Russian rouble depreciation
amounted to -USD 38 million. Changes of the general and administrative
expenses in real terms were primarily driven by the following:
· +USD 20 million - increase in staff costs mainly due to salary
indexation, roll out of industrial automatization and new IT systems;
· -USD 11 million - reduction of property tax owing to changes in tax
legislation in 2019.
OTHER OPERATING INCOME/(EXPENSES), NET
USD million 1H2019 1H2018 Change,%
Net income earned during the 155 19 8x
pre-commissioning stage
Social expenses (112) (98) 14%
Change in allowances (11) (10) 10%
Other, net (14) 9 n.a.
Total 18 (80) n.a.
In 1H2019, other net operating income/(expenses) increased by USD 98 million
to
USD 18 million driven by the following factors:
· Net income generated by GRK "Bystrinskoye" from products sale during the
hot commissioning stage (+USD 136 million);
· Increase of social expenses by USD 14 million.
FINANCE COSTS, NET
USD million 1H2019 1H2018 Change,%
Interest expense, net of amounts 162 191 (15%)
capitalised
Unwinding of discount on provisions and 42 52 (19%)
payables
Fair value gain on the cross-currency (117) - (100%)
interest rate swap
Other, net 2 3 (33%)
Total 89 246 (64%)
The decrease in finance costs by 64% in 1H2019 was primarily related to a
change in the fair value of cross-currency interest rate swaps in the
reporting period due to stronger ruble against the US dollar as of June 30,
2019 as compared to the exchange rate as of December 31, 2018, and also due
to reduction in the amount of interest expense, net of amounts capitalized
by 15%.
Furthermore, in 1H2019, the average cost of the Company's debt portfolio
remained unchanged despite amendments made to a number of bilateral loans
for a total amount of USD 637 million aimed at extending duration of the
debt portfolio.
INCOME TAX EXPENSE
In 1? 2019, income tax expense increased 93% y-o-y to USD 776 million driven
mostly by the increase of taxable profit.
The effective income tax rate in 1H 2019 of 20.6% was above the Russian
statutory tax rate of 20%, which was primarily driven by non-deductible
social expenses.
The breakdown of the income tax expense:
USD million 1H2019 1H2018 Change,%
Current income tax expense 895 385 2x
Deferred tax (benefit)/expense (119) 18 n.a.
Total income tax expense 776 403 93%
The breakdown of the current income tax expense by tax
jurisdictions:
USD million 1H2019 1H2018 Change,%
Russian Federation 884 377 2x
Finland 4 1 4x
Rest of the world 7 7 0%
Total 895 385 2x
EBITDA
USD million 1H2019 1H2018 Change,%
Operating profit 3,271 2,723 20%
Depreciation and amortisation 443 350 27%
Impairment of non-financial assets 5 6 (17%)
EBITDA 3,719 3,079 21%
EBITDA margin 59% 53% 6 p.p.
In 1H2019, EBITD? increased 21% (or +USD 640 million) to USD 3,719 million
with the EBITDA margin amounting to 59% (up from 53% in 1H2018) owing to
higher metal revenue and Russian rouble depreciation.
NET PROFIT BEFORE NON-CASH WRITE-OFFS AND FOREIGN EXCHANGE DIFFERENCES
USD million 1H2019 1H2018 Change,%
Profit for the period 2,997 1,653 81%
Impairment of non-financial assets 5 6 (17%)
Foreign exchange (gain)/loss, net (548) 453 n.a.
Net profit before impairment charges and 2,454 2,112 16%
foreign exchange differences
STATEMENT OF CASH FLOWS
USD million 1H2019 1H2018 Change,%
Cash generated from operations before 3,757 3,085 22%
changes in working capital and income tax
Movements in working capital (361) 448 n.a.
Income tax paid (809) (390) 2x
Net cash generated from operating 2,587 3,143 (18%)
activities
Capital expenditure (500) (536) (7%)
Other investing activities 119 (7) n.a.
Net cash used in investing activities (381) (543) (30%)
Free cash flow 2,206 2,600 (15%)
Interest paid (202) (264) (23%)
Other financing activities 63 325 (81%)
Net cash (used in)/generated from (139) 61 n.a.
financing activities
Effects of foreign exchange differences 58 (75) n.a.
on balances of cash and cash equivalents
Less: cash and cash equivalents related (25) - (100%)
to assets classified as held for sale
at the end of the period
Net increase in cash and cash equivalents 2,100 2,586 (19%)
In 1H2019, free cash flow decreased to USD 2.2 billion primarily due to
lower cash generated from operating activities.
In 1H2019, net cash generated from operating activities decreased 18% to USD
2.6 billion primarily driven by increase of working capital in 1H2019
(versus decrease in 1H2018).
Interest paid reduced by 23% to USD 202 million as a result of the
optimization of debt portfolio.
Reconciliation of the net working capital changes between the balance sheet
and cash flow statement is presented below.
USD million 1H2019 1H2018
Change of the net working capital in the balance (415) 430
sheet
Foreign exchange differences 84 (129)
Change in income tax payable (84) 16
Change of long term components of working capital 93 201
included in CFS
Other changes including reserves (39) (70)
Change of working capital per cash flow (361) 448
Capital investments breakdown by project is presented below:
USD million 1H2019 1H2018 Change,%
Polar Division, including: 165 220 (25%)
Skalisty mine 17 42 (60%)
Taymirsky mine 34 31 10%
Komsomolsky mine 17 17 0%
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Oktyabrsky mine 11 21 (48%)
Talnakh Concentrator 8 17 (53%)
Sulfur project 4 9 (56%)
Other Polar Division project 74 83 (11%)
Kola MMC 106 134 (21%)
Chita (Bystrinsky) project 32 70 (54%)
Other production projects 194 108 80%
Other non-production assets 3 4 (25%)
Total 500 536 (7%)
In 1H2019, CAPEX decreased by 7% (-USD 36 million) primarily due to
completion of Bystrinsky project, a number of mining projects in Polar
Division, optimization of investment schedules as well as depreciation of
Russian ruble.
DEBT AND LIQUIDITY MANAGEMENT
USD million As of 30 As of 31 Change, Change,%
June 2019 December
2018
USD million
Non-current loans 8,493 8,208 285 3%
and borrowings
Current loans and 132 209 (77) (37%)
borrowings
Lease liabilities 220 22 198 10x
Total debt 8,845 8,439 406 5%
Cash and cash 3,488 1,388 2,100 3x
equivalents
Net debt 5,357 7,051 (1,694) (24%)
Net debt /12M 0.8x 1.1x (0.3x)
EBITDA
As of June 30, 2019, the Company's total debt increased 5% (or +USD 406
million) to USD 8,845 million as compared to December 31, 2018. The main
growth factors were recognition of obligations under lease contracts
stemming from the application of IFRS 16 Leases, which became effective on
January 1, 2019, outstanding short-term debt in the form of credit lines
opened for the financing of working capital and appreciation of the ruble
against the US dollar. Despite the existence of outstanding short-term debt
on the portfolio of working capital credit lines, the short-term loans and
borrowings of the Company decreased by 37% (or -USD 77 million) due to
refinancing of a loan which also involved loan refinancing and its maturity
extension to the period 2022-2024.
Net debt/12M EBITDA ratio reduced from 1.1x as of December 31, 2018 to 0.8x
as of June 30, 2019. This decrease was mainly attributed to the reduction in
the net debt by 24% to USD 5,357 million due to increase in cash and cash
equivalents. The liquidity reserves in 1H2019 increased not only because of
the increase in cash and cash equivalents, but also because of the increase
in the total limit of the portfolio of reserve credit lines from USD 4,290
million as of December 31, 2018 to USD 4,599 million as of June 30, 2019
resulting from entering into a new revolving credit line with an
availability period of up to five years.
In 1H2019, the Company continued to improve its debt portfolio, having
revised terms and conditions of a number of loan agreements, which allowed
to maintain refinancing risk of short-term debt at a low level and sustain
interest rates at competitive terms.
On February 12, 2019, international rating agency Moody's upgraded the
Company's credit rating from "Baa3" with "Positive" outlook to "Baa2" with
"Stable" outlook in the wake of change of Russia's credit rating to
investment grade "Baa3" with "Stable" outlook. As of June 30, 2019,
Nornickel had investment grade credit ratings assigned from all three major
international rating agencies Fitch, Moody's and S&P Global, and
additionally from Russian rating agency "Expert RA".
Attachment A
interim condensed CONSOLIDATED INCOME STATEMENT (unaudited)
for the six months ended 30 June 2019
US Dollars million
For the six For the six
months ended months ended
30 June 2019 30 June 2018
Revenue
Metal sales 5,940 5,473
Other sales 352 361
Total revenue 6,292 5,834
Cost of metal sales (2,181) (2,195)
Cost of other sales (355) (334)
Gross profit 3,756 3,305
General and administrative (443) (461)
expenses
Selling and distribution (55) (35)
expenses
Impairment of non-financial (5) (6)
assets
Other operating 18 (80)
income/(expenses), net
Operating profit 3,271 2,723
Foreign exchange gain/(loss), 548 (453)
net
Finance costs, net (89) (246)
Income from investments 43 32
Profit before tax 3,773 2,056
Income tax expense (776) (403)
Profit for the period 2,997 1,653
Attributable to:
Shareholders of the parent 2,881 1,675
company
Non-controlling interests 116 (22)
2,997 1,653
EARNINGS PER SHARE
Basic and diluted earnings per
share attributable to
shareholders of
the parent company (US Dollars 18.2 10.6
per share)
Attachment B
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
AT 30 JUNE 2019
US Dollars million
At 30 June 2019 At 31 December
2018
ASSETS
Non-current assets
Property, plant and 11,236 9,934
equipment
Intangible assets 185 163
Other financial assets 201 141
Deferred tax assets 79 73
Other non-current assets 326 386
12,027 10,697
Current assets
Inventories 2,470 2,280
Trade and other receivables 327 204
Advances paid and prepaid 89 75
expenses
Other financial assets 69 147
Income tax receivable 9 92
Other taxes receivable 340 271
Cash and cash equivalents 3,488 1,388
Other current assets 86 97
6,878 4,554
Assets classified as held 51 -
for sale
6,929 4,554
TOTAL ASSETS 18,956 15,251
EQUITY AND LIABILITIES
Capital and reserves
Share capital 6 6
Share premium 1,254 1,254
Translation reserve (4,998) (5,343)
Retained earnings 8,259 7,306
Equity attributable to 4,521 3,223
shareholders of the parent
company
Non-controlling interests 396 250
4,917 3,473
Non-current liabilities
Loans and borrowings 8,493 8,208
Lease liabilities 185 16
Provisions 442 365
Trade and other long-term 224 200
payables
Derivative financial - 61
instruments
Deferred tax liabilities 294 385
Other long-term liabilities 55 185
9,693 9,420
Current liabilities
Loans and borrowings 132 209
Lease liabilities 35 6
Trade and other payables 1,358 1,551
Dividends payable 1,996 6
Employee benefit 336 307
obligations
Provisions 70 77
Derivative financial - 5
instruments
Income tax payable 36 35
Other taxes payable 223 162
Other current liabilities 146 -
4,332 2,358
Liabilities associated with 14 -
assets classified as held
for sale
4,346 2,358
TOTAL LIABILITIES 14,039 11,778
TOTAL EQUITY AND 18,956 15,251
LIABILITIES
Attachment C
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED 30 JUNE 2019
US Dollars million
For the six For the six
months ended months ended
30 June 2019 30 June 2018
OPERATING ACTIVITIES
Profit before tax 3,773 2,056
Adjustments for:
Depreciation and amortisation 443 350
Impairment of non-financial assets 5 6
Loss on disposal of property, plant 5 -
and equipment
Change in provisions and allowances 6 (3)
Finance costs and income from 46 214
investments, net
Foreign exchange (gain)/loss, net (548) 453
Other 27 9
3,757 3,085
Movements in working capital:
Inventories 98 131
Trade and other receivables (111) (173)
Advances paid and prepaid expenses (8) (30)
Other taxes receivable (54) 33
Employee benefit obligations 11 (29)
Trade and other payables (303) 536
Provisions (26) (22)
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