MMC Norilsk Nickel (MNOD)
NORNICKEL REPORTS FIRST HALF 2020 INTERIM CONSOLIDATED IFRS FINANCIAL
RESULTS
11-Aug-2020 / 14:00 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 2020 INTERIM CONSOLIDATED IFRS FINANCIAL
RESULTS
Moscow, August 11, 2020 - PJSC MMC Norilsk Nickel, the world's largest
producer of palladium and high-grade nickel and a major producer of platinum
and copper, reports interim consolidated IFRS financial results for six
months ended June 30, 2020.
1H2020 HIGHLIGHTS
· Consolidated revenue increased 7% y-o-y to USD 6.7 billion owing to
higher prices of palladium, rhodium and gold as well as the ramp-up of
Bystrinsky project;
· EBITDA decreased 51% y-o-y to USD 1.8 billion due to the USD 2.1 billion
environmental provision related to the reimbursement of environmental
damages caused by the fuel spill at the industrial site of the Heat and
Power Plant - 3 in the Kayerkan neighborhood of Norilsk;
· CAPEX increased 10% y-o-y to USD 0.6 billion owing to the launch of
construction of strategic projects such as the expansion of the Talnakh
concentrator (TOF-3 project), the development of South Cluster mining
project and complex environmental programme aiming at radical reduction of
sulfur dioxide emissions at the Polar Division;
· Net working capital increased to USD 1.0 billion in line with the
medium-term target level;
· Free cash flow increased 21% y-o-y to USD 2.7 billion;
· Net debt/EBITDA ratio increased to 1.2x as of June 30, 2020;
· In 1H2020, Nornickel paid interim dividend for 9 months of 2019 in the
amount of USD 1,567 million and final dividend for 2019 in total amount of
USD 1,264 million;
· Building up liquidity cushion with USD 1,565 million from a syndicated
USD 4,150 million borrowing drawn down in March and April, after the loan
limit was increased from USD 2,500 million in February, and additional RUB
60 billion drawn from a revolving credit line;
· On May 29, 2020, diesel fuel leaked from the emergency fuel tank at the
heat and power plant ?3 (HPP-3) due to sudden sinking of support posts
based in permafrost. Clean-up of the incident was launched immediately,
when by the end of the reporting period most of the fuel leaked into soil
and water was collected, with most of the contaminated being removed;
· Throughout 1H2020, a comprehensive set of initiatives was developed and
rolled to ensure operations sustainability and social security in the
regions of operations amidst the spread of coronavirus. Safeguarding the
health and safety of employees and providing full support to the regional
communities and authorities was the top priority, with USD 95 million (net
of VAT) spent into preventive initiatives and charity.
RECENT DEVELOPMENTS
· On July 6, 2020, Federal Environment Supervision Agency
(Rosprirodnadzor) published its assessment of environmental damages from
the fuel spill incident as RUB 147.78 billion (approximately USD 2.1
billion) and sent the Company request for the voluntary compensation of
this damage. On August 4, 2020, the Company sent a letter to
Rosprirodnadzor expressing its readiness to have a dialogue over the
reimbursement of the environmental damages, noting that the assessment of
damages required should be adjusted based on the actual data once the
consequences of the incident are completely remediated and all due expert
assessments are complete. The Company sees the possibility for an
out-of-the court settlement of all issues related to the assessment of
environmental damages, terms and timing of the compensation terms within
the established working group;
· In July 2020, the Company entered into a RUB 10 billion committed
revolving credit facility, with no funds were drawn as of the publication
date of this release.
KEY CORPORATE HIGHLIGHTS
USD million (unless stated otherwise) 1H2020 1H2019 Change,%
Revenue 6,711 6,292 7%
EBITDA¹ 1,838 3,719 (51%)
EBITDA margin 27% 59% (32 p.p.)
Net profit 45 2,997 (98%)
Capital expenditures 551 500 10%
Free cash flow² 2,679 2,206 21%
Net working capital² 1,038 9854 5%
Net debt² 7,287 7,0604 3%
Net debt/12M EBITDA 1.2x 0.9x4 0.3x
Dividends paid per share (USD)³ 17.9 - 100%
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, 2019
MANAGEMENT DISCUSSION AND ANALYSIS
The President of Nornickel, Vladimir Potanin, commented on the results,
"First half of 2020 turned out to be very challenging for our Company. The
coronavirus pandemic had a significant ripple effect on the global economy
as all major consumers of our products experienced an unprecedented downturn
of business activity. Even though most analysts are currently forecasting a
quick economic recovery, we remain cautious regarding the recovery prospects
for our metals' demand at least until the end of this year.
COVID-19 challenged not only our operating model, health and well-being of
our employees and their families, but literally all the Company's
stakeholders in the regions of our operations. Owing to the timely support
that we have provided to local authorities and regional healthcare, socially
vulnerable communities, small and medium enterprises, as well as
safeguarding measures for our employees, the Company managed to pass the
peak of the pandemic without any material impact on operations. We remain
committed to continue our support to the regions of our operations to combat
the spread of coronavirus.
The end of the first half was also marked by an unprecedented in our own
history environmental incident, when the leak of diesel fuel at the
industrial site of the Heat and Power Plant - 3 in the Kayerkan neighborhood
of Norilsk resulted in an adverse environmental impact. We immediately
started a comprehensive clean-up operation to collect the leaked fuel and
remove contaminated soil, actively engaging third parties, including
government and private partners, as well as launched a number of initiatives
to prevent such incidents in the future. We have also engaged into an active
cooperation with the various government bodies regarding the rehabilitation
of the incident.
Overall, we would like to reiterate reduction of the environmental impact
and improving ecological performance as strategic priorities of the Company.
In spite certain issues with the mobilization of a third party contractor
workforce in Norilsk as well as new risks for the shipment of imported
equipment due to coronavirus pandemic, we have launched the active
construction phase of our flagship desulfurization project in Norilsk and
the expansion of Talnakh concentrator. We reiterate our strategic target to
decrease sulfur dioxide emissions in Norilsk by 90% in 2025.
Our revenue in the first half of 2020 increased 7% to USD 6.7 billion owing
to higher palladium and rhodium prices. Our EBITDA, however, decreased 51%
to USD 1.8 billon due to a USD 2.1 environmental provision, with EBITDA
margin falling to 27% and net income reducing to USD 45 million. At the same
time, free cash flow increased 21% to USD 2.7 billion as the environmental
provision was not a cash item.
The leverage remained at a low level with net debt to EBITDA ratio
increasing to 1.2x. Amidst the high level of uncertainty on global markets,
the Company increased its liquidity cushion by drawing down some of the
available credit lines. We continued our long run campaign to refinance debt
portfolio, having managed to further decrease the average cost of debt
despite an increase of gross debt. Financial stability is among strategic
our priorities. The world's leading credit rating agencies appreciate strong
financial standing of the Company, having confirmed our credit ratings at
investment grade level".
HEALTH AND SAFETY
The lost time injury frequency rate (LTIFR) decreased 29% y-o-y from 0.28 to
0.20 in 1H2020, remaining well below the global mining industry average.
Furthermore, the number of lost time injuries decreased 27% y-o-y (from 15
to 11) following the roll-out of base corporate industrial safety standards
of, launch of a risk control project aiming at the reduction of safety
related risks and improvement of labour safety management system
initiatives.
Regretfully, in 1H2020 Company suffered five fatal injuries. The management
considers the health and safety of its employees as the key strategic
priority, targeting zero fatality rate, and continues to implement a wide
range of initiatives targeting further improvement of the health and safety
records. In 1H 2020, selected initiatives included the following:
· 11 internal audits of Occupational safety and Health management systems;
· 70 cases of the violations of cardinal safety rules revealed, leading to
56 employees getting fired for the violation of safety rules.
In May 2020, Bain & Company Russia Consulting conducted an annual
independent audit of the current level of the occupational safety culture of
the Company as well as changes in its HSE systems over the past year.
According to this audit, the Company's integral score was raised to 3.0
points from 2.8 as of May 2019 (1.4 points in 2014).
METAL MARKETS
Nickel in 1H2020 - nickel price showed a surprising resilience averaging USD
12,475 per tonne despite a rising surplus owing to the spread of COVID-19;
global demand suffered from the coronavirus-related lockdowns, while the
ramp-up of Indonesian NPI was a major positive offset of the supply
disruption in other regions and lower Chinese NPI; exchange stocks increased
to 263 kt by the end of June reflecting the market running a surplus.
Nickel price started this year with a nosedive falling below USD 11,000 per
tonne in the end of March as the outbreak of COVID-19 that initially
affected China spread into Europe and North America forcing the governments
across the globe to impose social lockdowns in attempts to contain the
pandemic. In April, however, the price trend reversed as all major central
banks boosted the capital markets with unprecedented liquidity injections.
In May-June, the price recovery accelerated driven by markets' increasing
optimism as the lockdowns were gradually removed in Europe and the economic
activity in China was rebouncing strongly. As a result, by the end of 1H2020
nickel price returned to its pre-pandemic level of USD 12,850 per tonne,
with US Dollar weakening additionally contributing to an increase of the
price to above USD 14,500 per tonne by the first week of August.
In 1H2020, average LME nickel price was practically unchanged (up 1% y-o-y)
at USD 12,475 per tonne.
In our view, the quick nickel price rebound in 2Q2020 was somewhat out of
touch from market fundamentals as demand disruptions owing to the COVID-19
affected materially all nickel-consuming sectors. Apart from the stainless
steel nickel consumption in China, which was down 2% y-o-y in 1H2020 (with
even larger end-use demand contraction as smelters preferred to increase
their inventories of finished goods rather than idle capacities), pretty
much all other major stainless-producing countries, recorded a far greater
decline, ranging from EMEA - down 19%, India - 21%, Taiwan - 11%, Japan - 5%
and South Korea - 4%.
Non-stainless industries consumption (including specialty steels, alloys and
plating) reduced over 10% y-o-y owing to the contraction of end-use demand
in aerospace and oil and gas industries. Even the battery industry that used
to be the fastest growing nickel consumer in the past couple of years,
decreased nickel consumption over 15% y-o-y. Dismal NEV sales in China (down
40% y-o-y) were partly offset positively by strong NEV sales in Europe (up
68% y-o-y) owing to stellar performance in January-February (+148% y-o-y)
and recovery in May-June.
Global nickel production was also affected by the coronavirus. Over 75 kt of
high-grade nickel and ferronickel supply was wiped out by COVID-related
temporary shutdowns in Canada, Madagascar and South Africa, which was
amplified by 35 kt of price-driven production cuts by small independent
producers. In China, NPI production was down 7% (or 20 kt) y-o-y exacerbated
by ceased availability of rich Indonesian ore following the export ban. On
the other hand, all these production losses have been offset positively by
the rapid ramp-up of NPI capacities in Indonesia that added over 80 kt of
new supply (+50% y-o-y).
We estimate that nickel market surplus expanded to 80 k in 1H2020 as
COVID-related demand disruptions substantially exceeded the supply losses.
As a result, combined nickel inventories at LME and SHFE increased by almost
40% during 1H2020 from 188 kt to 263 kt reflecting the apparent market
surplus.
Nickel outlook - negative in the short-term, but more constructive
longer-term; we expect market surplus to expand to approximately 150 kt in
2020; demand to suffer a 7% pandemic-related decline; supply is expected to
be flat as the disruptions caused by COVID-19 are compensated by the rapid
expansion of NPI in Indonesia; despite the recent weakness, the battery
demand will remain the major consumption driver in the next 5-10 years as
the world is steadily moving towards carbon neutral economy.
Spread of COVID-19 has had a material damaging impact on the global nickel
demand, which, in our opinion, has not been yet fully realized by the market
as the first-use demand usually lags the end-use demand due to extended
supply lead time in major manufacturing sectors. As was highlighted in our
Quintessentially Nickel report in May, in order to estimate accurately the
real pandemic's impact on the nickel demand, one needs to study all major
end-use sectors and evaluate the impact on each and single of them. We
expect the main end-use sectors (food & beverage contact materials,
construction, process engineering, transport, electronics etc.) to contract
by approximately 20% in 2020, that is considerably more than the expected
decline in the first-use demand (-7% y-o-y). Taking into account a potential
forced restocking due to coronavirus, the lag in metal consumption by the
end-use industries will amount to 4-7 months, in our view, thus pushing the
negative impact on the first-use demand to 2H2020 and further into 1Q2021.
Indonesia continues commissioning new NPI projects and is to increase its
annual output by over 200 kt this year. We expect that the NPI production in
China will shrink by approximately 160 kt owing to the lack of ore feed,
while production of other nickel forms will contract by approximately 40 kt
following temporary quarantine-related shutdowns. Therefore, assuming a 7%
reduction in demand and relatively flat supply, nickel market, on our
estimates, should develop a substantial surplus of approximately 150 kt in
2020.
xEV auto market is showing promising signs of recovery mainly driven by the
roll-out of European subsidies. Currently, the total announced capacities of
all gigafactories to be opened in Europe by 2025, funded by both European
and Asian investors, amount to over 400 GWh, which is equivalent to
approximately 300 kt of nickel consumption. We remain bullish on the growth
prospects of the xEV industry in the long run on the back of multibillion
investments in the infrastructure and the average price of battery pack
steadily falling towards USD 100/kWh.
We anticipate that public transportation and car sharing will be heavily
impacted by the COVID pandemic and, therefore, we expect an increase in
private vehicles' use. This creates a positive momentum for the auto sales
and, consequently, NEVs. NEVs are better suited for everyday commuting
within city environment.
Overall, we reiterate our view that the long-term growth in nickel demand
will primarily come from the NEV industry, although at a slower pace than
previously forecasted.
Copper in 1H2020 - coronavirus-related drop in demand shifted the market
into a moderate surplus; acceleration of supply disruptions in 2Q2020 and
optimism related to Chinese economy reopening boosted the price back to
pre-Covid levels in June.
Having started the year at USD 6,200 per tonne, copper price was hammered by
coronavirus crisis in 1Q2020. By the end of January the infection outbreak
in China pushed the metal price down to USD 5,500 per tonne, with the price
taking the second hit in March declining below USD 4,600 per tonne as the
virus spread from China into the rest of the world. In April, however,
copper market started to recover as China emerged from lockdown and
restarted its economy. In May-June, the rally accelerated as more stimuli
have been unleashed by global central banks supporting the price of risky
assets, while manufacturing data from China showed promising signs of
broader economic recovery. In July, copper price increased to USD 6,500 per
tonne, levels not seen since April 2019.
The average LME copper price in 1H2020 decreased 11% y-o-y to USD 5,500 per
tonne.
In 1H2020, the underlying market fundamentals were severely impacted by the
coronavirus pandemic as the copper market shifted to a moderate surplus. As
manufacturing activities across major economies tumbled to their lowest
levels in decades, global copper demand was down 4% y-o-y. China reopened
its economy after a 2 months-long strict lockdown, getting its GDP back to a
growth trajectory in Q2 (+3.2% y-o-y). The GDP recovery in China was
primarily driven by industrial production and fixed assets investment, all
of which were supporting a rebound of copper consumption. June trade
statistics provided additional evidence that the Chinese copper demand was
recovering, as import of unwrought copper increased 50%, albeit also
benefiting from an arbitrage opened between Shanghai and London copper
prices, which made it cheaper to import the metal rather than to buy it
locally.
Global copper production was equally impacted by the pandemics. February
started with Chinese smelters cutting production on the back of COVID-19
containment measures and scarcity of both scrap and concentrate supply. As
the coronavirus hot spot migrated to the Western hemisphere a flurry of mine
disruption news from Chile and Peru provided additional tightness to the
concentrate market and therefore support to the copper price. Overall, we
estimate that global copper supply was down 3% y-o-y in 1H2020.
Exchange stocks in January-June increased by 85 kt reflecting a moderate
surplus.
Copper outlook - neutral; the market to develop a moderate surplus of 210
kt; global consumption to decrease 3% y-o-y in line with deterioration of
broader economic conditions; China's recovery is on track supported by a new
government stimulus package, but PMIs in other geographies are still weak
assuming soft end-use demand in the second half of the year; global
production to contract 2% following COVID-19 containment measures in
Americas.
We anticipate that copper market will remain largely balanced in the
near-term running a marginal surplus of less than 1% (or 210 kt) of the
global consumption as coronavirus outbreak will continue to have an equal
impact both demand and supply sides.
In spite of an overall positive market sentiment stemming from the gradual
recovery of the global economic activity, the outlook for copper end-use
demand does not look very promising, on our estimates. Positive data coming
out from China on increasing grid investments, 5G development and durable
goods sales are in sharp contrast with a major deterioration in economic
conditions in the rest of the world (ex-China demand is estimated below
levels seen 15 years ago). Moreover, the weakness of economic recovery
outside China may negatively affect the Chinese demand itself as
approximately 20% of its copper consumption is dependent on export markets.
In our view, global copper demand will reduce 3% y-o-y to 22.8 mt in 2020
driven mainly by weak industrial machinery (-7% y-o-y), consumer goods (-5%
y-o-y) and construction (-3% y-o-y) industries.
At the same time, according to our estimates, the COVID-19 related
production disruptions in Latin America and uncertainty around scrap
availability in China should reduce global copper output 2% to 23.0mt in
2020 (from 23.5mt in 2019).
We expect broadly balanced copper market in 2020, with a moderate surplus of
210 kt (representing less than 1% of global demand).
Palladium in 1H2020 - price managed to hold its ground above USD 2,000 per
ounce despite plunge in global car sales and substantially deteriorated
outlook for the global automotive market; global supply reduced owing to
coronavirus-related stoppages in South Africa and lower output in Russia.
Palladium started the year very strongly, reaching its all-time high of USD
2,795 per ounce on February 28, 2020. The price rally was driven by the lack
of ingots in the spot market and high physical demand in China driven by the
roll-out of China-6 emission standards. Additional boost for palladium came
from rhodium (which is often a good lead indicator for palladium price),
that sky-rocketed from USD 6,000 per ounce in December 2019 to USD 14,000
per ounce in early March. Whenever rhodium is in physical shortage,
car-makers are forced to increase their palladium loadings substantially.
The outbreak of COVID-19 derailed the palladium price rally, with shutdowns
both in automotive industry and catalyst fabrication leading to demand
contraction, resulting in a sharp price decrease to less than USD 1,600 per
ounce on March 18, 2020. However, as the South Africa started to halt its
mines for sanitation and global central banks further loosened their
monetary policies, the palladium price recovered to USD 1,800-2,000 per
ounce range in 2Q2020.
The average palladium price in 1H2020 increased 51% y-o-y to USD 2,136 per
ounce.
In 1H2020, government-imposed lockdowns across the globe caused massive
losses in both auto production and auto sales. According to LMC Automotive
global car sales were down 28% in 1H2020, with largest declines recorded in
Europe (-37%), North America (-25%) and China (-20%).
The global palladium supply was not immune to coronavirus either. Even
before the infection outbreak Anglo Platinum put one of its smelters on care
and maintenance for two and a half months, resulting in the reduction of
refined PGM production by approximately 0.5 moz. National lockdowns
introduced in South Africa hit severely palladium mined output, with exports
from South Africa decreasing 29% or 240koz y-o-y in 1H2020. Even though
Norilsk Nickel managed to avoid any coronavirus-related operational
disruptions, its palladium production was down 17% y-o-y owing to a very
high base of 2019, when previously accumulated work-in-progress inventory
was released.
Palladium outlook - neutral; the market is expected to be balanced this
year; auto industry is likely to suffer its worst crisis in decades driving
the palladium demand down 16% y-o-y; supply to decrease 14% y-o-y due to
supply losses in South Africa and lower recycling.
We expect industrial palladium consumption to decrease 16% y-o-y to 9.1 moz
following an unprecedented contraction of end-use demand. On our estimates,
car sales are expected to plunge 22% y-o-y to 70 million units in 2020,
while other palladium-consumers such as dental, chemical, electronics and
jewelry industries also expected to remain depressed. Given a substantial
reduction in demand, consumers' stockpiles throughout the entire value chain
should contribute additionally to supply, thus further reducing metal
purchasing. The only visibly strong market so far is China, where after
coronavirus-related restrictions in 1Q2020 retail car sales recovered
strongly in April-June. However, according to analysts consensus view, there
is a concern that other countries will be unable to follow Chinese recovery
pace, and there is a risk that although automakers have just relaunched
their factories, production could subside again if deliveries to dealerships
do not pick up accordingly.
Palladium supply is normalizing as South African companies re-opened their
mines though at reduced capacities. However, even assuming that some of the
accumulated work-in-progress material will be released during the rest of
the year, the output losses incurred in 1H2020 will not be fully recouped,
in our view, and we expect the global primary supply to decrease by more
than 1.0 moz this year. Recycling volumes are also expected, on our
estimates, to decrease by 0.4 moz. In total, in our view, the global supply
will reduce 14% to 9.1 moz in 2020.
In 2021, we expect the global light vehicle sales to recover to over 82
million units (up 16% y-o-y) from 70 million units in 2020. Full recovery in
recycling and primary South African supply should balance the market in
2021, with the market remaining in a balance, in our opinion. In an
aftermath of the COVID pandemic, we see a clear trend towards increasing
popularity of individual mobility, since people would likely to avoid less
safe public transport, taxis and car sharing. Restrictions on the mass
transit transportation systems as well as concerns over not meeting the
minimum social distancing in a public transport should encourage personal
car ownership and usage.
Platinum in 1H2020 - market remained oversupplied amidst falling auto and
jewelry demand; price quickly recovered to pre-coronavirus levels helped by
the gold rally and mine disruptions in South Africa.
Platinum price was relatively stable in January-February trading in the
tight range of USD 900-1,000 per ounce before crashing to USD 600 per ounce
in March. However, it recovered quickly to pre-coronavirus levels of USD
800-850 per ounce on the back of lockdown introduced in South African mining
industry and the gold price rally. The ETF demand did not record any inflows
in 1H2020 unlike 2019, and we therefore believe that the apparent surplus
was accumulated in other non-transparent stocks.
Market fundamental factors continued to deteriorate as diesel car sales
underperformed both gasoline and NEV sales across all markets. Closed luxury
goods stores and weak consumer confidence also severely affected jewellery
sales.
In 1H2020, global primary refined platinum production was also hit severely
as South African mines were put on care and maintenance on March 26 for 21
days due to COVID-19. In April, the operations were re-started, but
continued to operate at lower capacity utilization rates, ranging from 50%
to 80%.
The average LBMA platinum price increased 2% y-o-y to USD 848 per ounce.
Platinum outlook - neutral; both automotive and jewelry demand are expected
to decrease 20% y-o-y, in our view; substitution of palladium in
autocatalysts is not happening; rationalization of supply in South Africa is
expected to be put on the back burner due to strong PGM basket price
performance owing to rhodium and palladium; ETFs inflows in June and July
indicate some revival of investors' interest as other precious metals
continue to rally.
We expect platinum market (excl. investments) to remain in surplus of
approximately 0.7 moz (almost 10% of the global demand) in 2020.
In 2020, we forecast that global industrial demand will decrease 17% y-o-y
to 6.3 moz. The automotive demand will fall by 15%, with lower diesel car
sales will be partly offset positively by higher offtake in HDD vehicles. In
our view, jewelry demand will contract by 20% following overall weakness in
luxury goods retail. According to our knowledge, palladium substitution with
platinum, albeit being actively communicated to the public by some industry
participants, has not been implemented and thus has no immediate impact on
demand. We regard it rather as a long-term prospect. Moreover, refined
platinum supply (incl. scrap) is highly dependent on South Africa (which
accounted for approximately 60% of the global supply in 2019), the region
challenged by multi-year underinvestments, electricity supply issues, and
uncertainty over COVID-19 impact. This feeds, in our opinion, to consumer
concerns over the long-term platinum supply availability, which, in its own
turn, should result in a slower changes in the metal mix used in
auto-catalysts.
ETF investment demand increased to over 400koz in May-July, thus fully
offsetting the fund outflows in Jan-Apr. We expect further acceleration of
investment demand from both retail and institutional investors as prospects
of more stimulus coming from global central banks should drive higher
investment demand for precious metals overall, and platinum, in particular.
Platinum supply is expected to fall 17% y-o-y to 7.0 moz, on our estimates,
driven by supply disruptions in South Africa and lower recycling. We do not
expect any additional supply rationalization as at ZAR/USD 17 exchange rate,
high cost PGM producers can afford rhodium price decreasing to USD 3,000 per
ounce and palladium to USD 1,500 per ounce before the basket price drops
below break-even. The only major uncertainty remains to be the spread of
coronavirus as the situation in South Africa remains challenging: as of the
end of July around 3,500 mining industry workers were infected.
KEY SEGMENTAL HIGHLIGHTS1
USD million (unless stated otherwise) 1H2020 1H2019 Change,%
Revenue 6,711 6,292 7%
GMK Group 6,080 5,907 3%
South cluster 311 462 (33%)
KGMK Group 4,015 465 9x
NN Harjavalta 599 522 15%
GRK Bystrinskoye 421 1 n.a.
Other mining 39 74 (47%)
Other non-metallurgical 719 647 11%
Eliminations (5,473) (1,786) 3x
EBITDA 1,838 3,719 (51%)
GMK Group 2,003 4,069 (51%)
South cluster 176 262 (33%)
KGMK Group 424 87 5x
NN Harjavalta 59 40 48%
GRK Bystrinskoye 277 160 73%
Other mining (34) (4) 9x
Other non-metallurgical (3) 12 n.a.
Eliminations (678) (525) 29%
Unallocated (386) (382) 1%
EBITDA margin 27% 59% (32 p.p.)
GMK Group 33% 69% (36 p.p.)
South cluster 57% 57% -
KGMK Group 11% 19% (8 p.p.)
NN Harjavalta 10% 8% 2 p.p.
GRK Bystrinskoye 66% n.a. n.a.
Other mining (87%) (5%) (82 p.p.)
Other non-metallurgical 0% 2% (2 p.p.)
1) Segments are defined in the consolidated financial statements
In 1H2020, revenue of GMK Group segment increased 3% to USD 6,080 million.
The growth was primarily driven by higher palladium and rhodium prices that
were partly compensated by the decrease in PGMs sales volumes and by the
launch of direct sales of semi-products to KGMK Group in 1H2019. PGMs sales
volumes decreased due to higher base effect in 1H2019 owing to the release
of work-in-progress inventory in 1H2019.
Revenue of South cluster segment decreased 33% to USD 311 million due to the
launch of direct sales of semi-products to GMK Group in 1H2019.
Revenue of KGMK Group segment increased nine times to USD 4,015 million due
to the launch of direct sales of semi-products supplied by GMK Group
segment.
Revenue of NN Harjavalta increased 15% to USD 599 million driven by higher
sales volumes of semi-products and higher palladium price.
Revenue of GRK Bystrinskoye amounted to USD 421 million, which included
sales of semi-products since the full commissioning of Bystrinsky project in
September 2019.
Revenue of Other mining segment decreased 47% to USD 39 million mostly owing
to lower semi-products sales, which was partly compensated by higher
palladium price.
Revenue of Other non-metallurgical segment increased 11% to USD 719 million.
Higher sales volumes from Palladium Fund and higher palladium prices were
partly compensated by lower air transportation and fuel sales.
In 1H2020, EBITDA of GMK Group segment decreased 51% to USD 2,003 million
owing to accrual of environmental provision. EBITDA of GMK Group segment
included profit from the sale of semi-products to KGMK Group segment, which
was eliminated from EBITDA of the Group.
EBITDA of South cluster segment decreased 33% to USD 176 million due to
decrease in metal sales.
EBITDA of KGMK Group segment increased almost 5 times to USD 424 million
primarily owing to the launch of direct sales of semi-products supplied by
GMK Group segment.
EBITDA of NN Harjavalta increased by USD 19 million to USD 59 million as
result of higher revenue.
EBITDA of GRK Bystrinskoye segment increased by USD 117 million to USD 277
million due to higher production volumes.
EBITDA of Other non-metallurgical segment decreased by USD 15 million to
negative USD 3 million owing to lower air transportation and fuel sales.
EBITDA of Unallocated segment remained almost unchanged and amounted to a
negative USD 386 million.
SALES VOLUME AND REVENUE 1H2020 1H2019 Change,%
Metal sales
Group
Nickel, thousand tons¹ 99 113 (12%)
from own Russian feed 93 108 (14%)
from 3d parties feed 1 2 (50%)
in semi-products³ 5 3 67%
Copper, thousand tons¹,² 217 223 (3%)
from own Russian feed 182 205 (11%)
in semi-products³ 35 18 94%
Palladium, koz¹ 1,274 1,537 (17%)
from own Russian feed 1,262 1,485 (15%)
in semi-products³ 12 52 (77%)
Platinum, koz¹ 324 390 (17%)
from own Russian feed 322 380 (15%)
in semi-products³ 2 10 (80%)
Rhodium, koz¹ 24 42 (43%)
from own Russian feed 23 33 (30%)
in semi-products³ 1 9 (89%)
Cobalt, thousand tons ¹ 2 3 (33%)
from own Russian feed 1 2 (50%)
from 3d parties feed 1 1 0%
Gold, koz¹ 178 95 87%
from own Russian feed 85 92 (8%)
in semi-products³ 93 3 31x
Average realized prices of refined metals produced by the
Group
Metal
Nickel (USD per tonne) 12,739 12,781 0%
Copper (USD per tonne) 5,475 6,221 (12%)
Palladium (USD per oz) 2,102 1,406 50%
Platinum (USD per oz) 847 829 2%
Rhodium (USD per oz) 9,343 2,927 3x
Cobalt (USD per tonne) 32,185 20,314 58%
Gold (USD per oz) 1,624 1,307 24%
Revenue, USD million4
Nickel 1,264 1,499 (16%)
including semi-products 70 100 (30%)
Copper 1,168 1,385 (16%)
including semi-products 168 108 56%
Palladium 3,075 2,374 30%
including semi-products 55 101 (46%)
Platinum 278 330 (16%)
including semi-products 6 15 (60%)
Other metals 660 352 88%
including semi-products 234 42 6x
Revenue from metal sales 6,445 5,940 9%
Revenue from other sales 266 352 (24%)
Total revenue 6,711 6,292 7%
1) All information is reported on the 100% basis, excluding sales of refined
metals purchased from third parties and semi-products purchased from
Nkomati.
2) Includes semi-products, produced by GRK "Bystrynskoe" after ramp-up of
Bystrinsky project that was fully commissioned in September 2019.
3) Metal volumes represent metals contained in semi-products.
4) Includes metals and semi-products purchased from third parties and
Nkomati. Includes revenue from semi-products, produced by GRK "Bystrynskoe",
after ramp-up of Bystrinsky project that was fully commissioned in September
2019.
Nickel
Nickel sales contributed 20% to the Group's total metal revenue in 1H2020,
down from 25% in 1H2019. This reduction in nickel share of metal revenue was
primarily driven by increase of palladium's share in metal revenue.
In 1H2020, nickel revenue was down 16% to USD 1,264 million. The decline was
driven by the decrease in sales volume (-USD 220 million). Nickel revenue
wasn't significantly affected by the change in average realized nickel
price.
The average realized price of refined nickel remained practically unchanged
at USD 12,739 per tonne in 1H2020 vs USD 12,781 per tonne in 1H2019.
Sales volume of refined nickel produced from own Russian feed, decreased by
14% (or -15 thousand tonnes) to 93 thousand tonnes due to lower production
volume caused by pre-commissioning works of the new nickel refinery workshop
at the Kola MMC, as well as the weak global demand for the metal owing to
the coronavirus pandemic.
Sales volume of nickel produced from third-party feed decreased 50% to 1
thousand tonnes primarily due to the decreased processing of third-party
feed at Harjavalta refinery.
In 1H2020, sales of nickel in semi-products decreased by 30% to USD 70
million primarily owing to lower sales volume of semi-products.
Copper
In 1H2020, copper sales accounted for 18% of the Group's total metal sales,
decreasing 16% (or -USD 217 million) to USD 1,168 million. The decline was
driven by both lower realized copper price (-USD 167 million) and decrease
in sales volume (-USD 50 million).
The average realized price of refined copper decreased 12% from USD 6,221
per tonne in 1H2019 to USD 5,475 per tonne in 1H2020.
Physical volume of refined copper sales from the Company's own Russian feed
decreased by 11% (or -23 thousand tonnes) to 182 thousand tonnes primarily
due to earlier navigation break at the port of Dudinka in 1H2020. This
effect was exacerbated by the reduction of output at Kola MMC due to
reduction of capacity owing to unfavorable meteorological conditions in
order to reduce environmental impact and lower copper production from
concentrate purchased from Rostec.
Revenue from copper in semi-products in 1H2020 increased 56% to USD 168
million primarily due to ramp-up of the Bystrinsky project that was fully
commissioned in September 2019, which was partly negatively compensated by
processing of semi-products produced by Kola MMC and NN Harjavalta at the
Polar division refinery in 2020.
Palladium
In 1H2020, palladium accounted for 48% of total metal revenue, increasing 8
p.p. y-o-y. Palladium revenue increased 30% (or +USD 701 million) to USD
3,075 million due to higher realized price (+USD 1,053 million) which was
partly compensated negatively by lower sales volume (-USD 534 million).
The average realized price of refined palladium increased 50% from USD 1,406
per troy ounce in 1H2019 to USD 2,102 per troy ounce in 1H2020.
Physical volume of refined palladium sales from the Company's own Russian
feed decreased by 15% (or -223 thousand troy ounces) to 1,262 thousand troy
ounces in 1H2020 due to higher base effect in 1H2019 owing to the release of
work-in-progress inventory.
Revenue of palladium in semi-products decreased 46% to USD 55 million in
1H2020 primarily due to lower sales volume of semi-products resulting from
processing of semi-products produced by Kola MMC and NN Harjavalta at the
Polar division refinery in 2020.
In 1H2020, revenue from the resale of palladium purchased from third parties
amounted to USD 367 million (vs USD 185 million in 1H2019).
Platinum
In 1H2020, platinum sales decreased 16% (or -USD 52 million) to USD 278
million and accounted for 4% of the Group's total metal revenue. The decline
of sales volume (-USD 60 million) was partly positively offset by increase
in realized platinum price (+USD 8 million).
Physical volume of refined platinum sales from the Company's own Russian
feed decreased 15% (or -58 thousand troy ounces) to 322 thousand troy ounces
in 1H2020 due to higher base effect in 1H2019 owing to the release of
work-in-progress inventory.
Revenue of platinum in semi-products in 1H2020 decreased 60% to USD 6
million primarily due to lower sales volume of semi-products resulting from
processing of semi-products produced by Kola MMC and NN Harjavalta at the
Polar division refinery in 2020.
Other metals
In 1H2020, revenue from other metals increased 88% (or +USD 308 million) to
USD 660 million. This was primarily driven by higher revenue from gold (+USD
164 million) mainly due to the ramp-up of Bystrinsky project, higher revenue
from rhodium (+USD 103 million) primarily due to strong prices, which was
partly offset negatively by the decrease in cobalt revenue (-USD 18 million)
primarily owing to lower sales volume.
OTHER SALES
In 1H2020, other sales decreased 24% to USD 266 million. Negative impact
owing to Russian rouble depreciation amounted to USD 17 million and was
exacerbated by a decrease of air transportation services and oil products
sales.
COST OF SALES
Cost of metal sales
In 1H2020, the cost of metal sales increased 1% (or +USD 16 million) to USD
2,197 million, with the main impacts coming from the following changes:
· Increase in cash operating costs by 7% (or +USD 127 million);
· Increase in depreciation and amortisation by 29% (or +USD 97 million);
· Comparative effect of change in metal inventories y-o-y leading to cost
of metal sales decrease of USD 208 million.
Cash operating costs
In 1H2020, total cash operating costs increased 7% (or +USD 127 million) to
USD 1,900 million.
The positive effect of Russian rouble depreciation (-USD 71 million) was
partly compensated by inflationary growth of cash operating costs (+USD 13
million) and higher expenses primarily due to the pandemic (+USD 38
million).
Cash operating costs increased due to the full commissioning of Bystrinsky
project by USD 117 million in 1H2020.
USD million 1H2020 1H2019 Change,%
Labour 696 615 13%
Materials and supplies 315 275 15%
Purchases of refined metals for resale 297 192 55%
Mineral extraction tax and other levies 114 110 4%
Third party services 106 96 10%
Purchases of raw materials and 101 246 (59%)
semi-products
Electricity and heat energy 74 77 (4%)
Fuel 59 48 23%
Transportation expenses 46 38 21%
Sundry costs 92 76 21%
Total cash operating costs 1,900 1,773 7%
Depreciation and amortisation 437 340 29%
(Increase)/decrease in metal inventories (140) 68 n.a.
Total cost of metal sales 2,197 2,181 1%
Labour
In 1H2020, labour costs increased 13% (or USD 81 million) to USD 696 million
amounting to 37% of the Group's total cash operating costs driven by the
following factors:
· -USD 35 million - positive effect of the Russian rouble depreciation
against US dollar;
· +USD 23 million - indexation of salaries and wages in line with the
terms of collective bargaining agreement;
· +USD 31 million - ramp-up of Bystrinsky project that was fully
commissioned in September 2019;
· +USD 36 million - hardship payments to employees due to the pandemic;
· +USD 29 million - higher expenses on provision for unused vacations.
Materials and supplies
In 1H2020, expenses for materials and supplies increased 15% (or USD 40
million) to USD 315 million driven by the following factors:
· -USD 15 million - positive effect of the Russian rouble depreciation
against US dollar;
· +USD 22 million - ramp-up of Bystrinsky project that was fully
commissioned in September 2019;
· +USD 31 million - higher materials and supplies expenses primarily
related to higher consumption of materials;
· +USD 2 million - higher materials expenses primarily due to the
pandemic.
Purchases of refined metals for resale
In 1H2020, expenses related to purchase of refined metals for resale
increased 55% (or USD 105 million) to USD 297 million owing to the increase
in palladium price.
Mineral extraction tax and other levies
In 1H2020, mineral extraction tax and other levies increased 4% (or USD 4
million) to USD 114 million driven by the following factors:
· -USD 6 million - positive effect of the Russian rouble depreciation
against US dollar;
· +USD 10 million - primarily owed to an increase in payments related to
negative environmental impact due to changes in legislation.
Third-party services
In 1H2020, cost of third party services increased 10% (or USD 10 million) to
USD 106 million mainly driven by:
· -USD 4 million - positive effect of the Russian rouble depreciation
against US dollar;
· +USD 24 million - ramp-up of Bystrinsky project that was fully
commissioned in September 2019;
· -USD 10 million - primarily lower Nkomati production volumes.
Purchases of raw materials and semi-products
In 1H2020, purchases of raw materials and semi-products decreased 59% (or
USD 145 million) to USD 101 million driven by the following factors:
palladium and rhodium prices
· -USD 93 million - lower processed volumes of Rostec concentrate;
· -USD 19 million - lower volumes of purchased semi-products from Boliden
for processing at NN Harjavalta;
· -USD 32 million - lower purchases of Nkomati concentrate.
Electricity and heat energy
In 1H2020, electricity and heat energy expenses decreased by USD 3 million
to USD 74 million driven by the following:
· -USD 3 million - positive effect of the Russian rouble depreciation
against US dollar;
· -USD 4 million - lower electricity tariffs;
· +USD 6 million - ramp-up of Bystrinsky project that was fully
commissioned in September 2019.
Fuel
In 1H2020, fuel expenses increased 23% (or USD 11 million) to USD 59 million
driven by the following factors:
· -USD 3 million - positive effect of the Russian rouble depreciation
against US dollar;
· -USD 6 million - lower oil price;
· +USD 7 million - increase in fuel consumption by operations in Norilsk
industrial region;
· +USD 13 million - ramp-up of Bystrinsky project that was fully
commissioned in September 2019.
Transportation expenses
In 1H2020, transportation expenses increased 21% (or +USD 8 million) to
USD 46 million driven by the following factors:
· -USD 2 million - positive effect of the Russian rouble depreciation
against US dollar;
· +USD 12 million - ramp-up of Bystrinsky project that was fully
commissioned in September 2019.
Sundry costs
In 1H2020, sundry costs increased 21% (or +USD 16 million) to USD 92 million
mainly driven by the commissioning of Bystrinsky project and higher expenses
in Norilsk industrial region.
Depreciation and amortisation
In 1H2020, depreciation and amortisation expenses increased 29% (or USD 97
million) to USD 437 million.
Positive effect of the Russian rouble depreciation amounted to -USD 18
million.
Depreciation charges in real terms increased by USD 115 million mainly due
to transfers from construction in progress to production assets including
the full commissioning of Bystrinsky project.
(Increase)/decrease in metal inventories
In 1H2020, comparative effect of change in metal inventory amounted to -USD
208 million resulting in a decrease of cost of metal sales, primarily driven
by accumulation of refined metals and work-in-process in 1H2020 excluding
the changes in Rostec concentrate.
COST OF OTHER SALES
In 1H2020, cost of other sales decreased by USD 51 million to USD 304
million.
Cost of other sales decreased primarily due to lower air transportation and
fuel sales exacerbated by the positive effect of Russian rouble
depreciation.
SELLING AND DISTRIBUTION EXPENSES
USD million 1H2020 1H2019 Change,%
Marketing expenses 22 22 0%
Transportation expenses 20 22 (9%)
Staff costs 7 7 0%
Other 8 4 100%
Total 57 55 4%
In 1H2020, selling and distribution expenses increased 4% (or USD 2 million)
to USD 57 million.
GENERAL AND ADMINISTRATIVE EXPENSES
USD million 1H2020 1H2019 Change,%
Staff costs 278 301 (8%)
Third party services 54 41 32%
Taxes other than mineral extraction tax 36 38 (5%)
and income tax
Depreciation and amortisation 31 33 (6%)
Transportation expenses 10 8 25%
Other 20 22 (9%)
Total 429 443 (3%)
In 1H2020, general and administrative expenses decreased 3% (or USD 14
million) to USD 429 million. Positive effect of the Russian rouble
depreciation amounted to -USD 24 million. Changes of the general and
administrative expenses in real terms were primarily driven by the
following:
· -USD 6 million - decrease in staff costs mainly due to one-off payments
related to management bonuses, which was partly compensated by salaries
indexation;
· +USD 14 million - increase of third party services related to the
automatization of production processes and roll out of digital
technologies.
OTHER OPERATING (EXPENSES)/income, net
USD million 1H2020 1H2019 Change,%
Environmental provisions (2,134) (1) (100%)
Social expenses (207) (112) 85%
Net income earned during the - 155 (100%)
pre-commissioning stage
Change in other provisions 1 (11) n.a.
Other, net (19) (13) 46%
Total (2,359) 18 n.a.
In 1H2020, other operating expenses increased by USD 2,377 million to
USD 2,359 million driven by the following factors:
· Recording of the Environmental provision related to the liquidation of
diesel fuel leak at the industrial site of the Heat and Power Plant - 3 in
the Kayerkan neighborhood of Norilsk and compensation of environmental
damages (-USD 2,134 million);
· Cease of recognition of net income earned during the pre-commissioning
stage generated by GRK "Bystrinskoye" owing to the full commissioning of
Bystrinsky project in September 2019 (-USD 155 million);
· Increase in social expenses including coronavirus relief packages
provided to the regions of the Company's operations (-USD 95 million).
FINANCE COSTS, NET
USD million 1H2020 1H2019 Change,%
Interest expense, net of amounts 201 156 29%
capitalised
Fair value loss/(gain) on the 124 (117) n.a.
cross-currency interest rate swap
contracts
Changes in fair value of current 115 - 100%
liabilities
Unwinding of discount on provisions and 32 42 (24%)
payables
Interest expense on lease liabilities 7 6 17%
Other, net 2 2 0%
Total 481 89 5x
In 1H2020, finance costs increased five times to USD 481 million primarily
due to a change in the fair value of cross-currency interest rate swaps
y-o-y, caused by a comparative effect of depreciation of the Russian ruble
against the US dollar in 1H2020 and its appreciation in 1H2019, and also due
to a change in fair value of current liabilities. This effect was reinforced
by the increase in interest expense on borrowings, net of amounts
capitalized, by 29%, the main drivers for which were the increase in accrued
interest by USD 17 million as the Company obtained new long-term borrowings
in 1H2020, and the decrease in interest capitalization by USD 35 million
primarily due to the commissioning of Bystrinsky GOK in September 2019.
In spite of the increase in gross debt, the effective interest rate of the
Company's debt portfolio decreased owing to:
· Loose monetary policies of the Federal Reserve System of the USA and the
Bank of Russia, which led to the reduction of floating interest rates (51%
of the Company's total debt is tied to floating indicators, main of which
are 1 Month Libor, the average value of which decreased from 2.47% per
annum in 1H2019 to 0.88% per annum in 1H2020, and the key rate of the Bank
of Russia, the average value of which decreased from 7.63% per annum in
1H2019 to 5.77% per annum in 1H2020); and
· Refinancing of a syndicated loan facility with a group of international
banks, originally signed in December 2017, in February 2020, which
resulted in the reduction of the loan's interest rate to Libor+1.40% per
annum and the increase of the loan's funding limit from USD 2,500 million
to USD 4,150 million.
INCOME TAX EXPENSE
In 1?2020, income tax expense decreased 92% y-o-y to USD 60 million driven
mostly by the decrease of profit before tax.
The effective income tax rate in 1H2020 of 57.1% was above the Russian
statutory tax rate of 20%, which was primarily driven by relatively low
profit before tax and recognition of non-deductible social expenses.
The breakdown of the income tax expense:
USD million 1H2020 1H2019 Change,%
Current income tax expense 697 895 (22%)
Deferred tax benefit (637) (119) 5x
Total 60 776 (92%)
The breakdown of the current income tax expense by tax
jurisdictions:
USD million 1H2020 1H2019 Change,%
Russian Federation 685 884 (23%)
Finland 11 4 3x
Rest of the world 1 7 (86%)
Total 697 895 (22%)
EBITDA
USD million 1H2020 1H2019 Change,%
Operating profit 1,375 3,271 (58%)
Depreciation and amortisation 473 443 7%
Impairment of non-financial assets (10) 5 n.a.
EBITDA 1,838 3,719 (51%)
EBITDA margin 27% 59% (32 p.p.)
In 1H2020, EBITDA decreased 51% (or -USD 1,881 million) to USD 1,838 owing
to environmental provision of USD 2,134 million that was partly offset by
higher metal revenue.
STATEMENT OF CASH FLOWS
USD million 1H2020 1H2019 Change,%
Cash generated from operations before 4,059 3,757 8%
changes in working capital and income tax
Movements in working capital (385) (361) 7%
Income tax paid (483) (809) (40%)
Net cash generated from operating 3,191 2,587 23%
activities
Capital expenditure (551) (500) 10%
Other investing activities 39 119 (67%)
Net cash used in investing activities (512) (381) 34%
Free cash flow 2,679 2,206 21%
Interest paid (253) (202) 25%
Other financing activities (457) 63 n.a.
Net cash used in financing activities (710) (139) 5x
Less: cash and cash equivalents related - (25) 100%
to assets classified as held for sale at
the end of the period
Effects of foreign exchange differences 87 58 50%
on balances of cash and cash equivalents
Net change in cash and cash equivalents 2,056 2,100 (2%)
In 1H2020, free cash flow increased to USD 2.7 billion. Higher cash
generated from operating activities and decrease in income tax payments were
partly offset negatively by more cash used in investing activities.
In 1H2020, net cash generated from operating activities increased 23% to USD
3.2 billion primarily driven by higher palladium price and ramp-up of
Bystrinsky project as well as decrease in income tax payments due to lower
taxable profit.
In spite of the reduction in the average cost of debt, interest paid was up
25% to USD 253 million following the increase in gross debt.
Reconciliation of the net working capital changes between the balance sheet
and cash flow statement is presented below.
USD million 1H2020 1H2019
Change of the net working capital in the balance (53) (415)
sheet
Foreign exchange differences (104) 84
Change in income tax payable (201) (84)
Change of long term components of working capital (35) 93
included in CFS
Other changes including reserves 8 (39)
Change of working capital per cash flow (385) (361)
Capital investments breakdown by project is presented below:
USD million 1H2020 1H2019 Change,%
Polar Division, including: 253 165 53%
Skalisty mine 31 17 82%
Taymirsky mine 38 34 12%
Komsomolsky mine 24 17 41%
Oktyabrsky mine 6 11 (45%)
Talnakh Concentrator 17 8 2x
Sulfur project 33 4 8x
Other Polar Division project 104 74 41%
Kola MMC 50 106 (53%)
Chita (Bystrinsky) project 47 32 47%
Other production projects 194 194 0%
Other non-production assets 7 3 2x
Total 551 500 10%
In 1H2020, CAPEX increased 10% (USD 51 million) following higher investments
in mining projects, launch of the active phases of sulfur project and
expansion of Talnakh Concentrator as well as the increase of capitalized
repair costs.
DEBT AND LIQUIDITY MANAGEMENT
USD million As of 30 As of 31 Change, Change,%
June 2020 December
2019
USD million
Non-current loans 10,870 8,533 2,337 27%
and borrowings
Current loans and 993 1,087 (94) (9%)
borrowings
Lease liabilities 264 224 40 18%
Total debt 12,127 9,844 2,283 23%
Cash and cash 4,840 2,784 2,056 74%
equivalents
Net debt 7,287 7,060 227 3%
Net debt /12M 1.2x 0.9x 0.3x
EBITDA
As of June 30, 2020, the Company's total debt increased by 23% (or USD
+2,283 million) to USD 12,127 million as compared to December 31, 2019. The
gross debt increased mainly due to the draw down of long-term funds in the
amount of USD 1,565 million from a syndicated loan facility, which had its
funding limit increased to USD 4,150 million in February 2020 from USD 2,500
million in December 2019, as well as drawing of long-term funds in the
amount of RUB 60 billion from a revolving credit facility.
The Company's net debt as of June 30, 2020 changed insignificantly from
December 31, 2019, due to the increase in cash and cash equivalents by 74%
(or USD +2,056 million) which largely offset increase in the total debt. Net
debt/12M EBITDA ratio as of June 30, 2020, increased by 0.3x as compared to
December 31, 2019, to 1.2x following the recognition of environmental
provision in 1H2020.
On June 8, 2020, international rating agency Fitch affirmed the Company's
credit rating at "BBB-" with "Stable" outlook. As of June 30, 2020,
Nornickel had investment grade credit ratings assigned from all three
international rating agencies, Fitch, Moody's and S&P Global, and Russian
rating agency, "Expert RA".
Attachment A
INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHS ENDED 30 JUNE 2020
US Dollars million
For the six For the six
months ended months ended
30 June 2020 30 June 2019
Revenue
Metal sales 6,445 5,940
Other sales 266 352
Total revenue 6,711 6,292
Cost of metal sales (2,197) (2,181)
Cost of other sales (304) (355)
Gross profit 4,210 3,756
General and administrative (429) (443)
expenses
Selling and distribution (57) (55)
expenses
Impairment of non-financial 10 (5)
assets
Other operating (2,359) 18
income/(expenses), net
Operating profit 1,375 3,271
Foreign exchange (822) 548
gain/(loss), net
Finance costs, net (481) (89)
Income from investments 33 43
Profit before tax 105 3,773
Income tax expense (60) (776)
Profit for the period 45 2,997
Attributable to:
Shareholders of the parent (31) 2,881
company
Non-controlling interests 76 116
45 2,997
EARNINGS/(LOSS) PER SHARE
Basic and diluted
earnings/(loss) per share
attributable to
shareholders of the parent (0.2) 18.2
company (US Dollars per
share)
Attachment B
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
AT 30 JUNE 2020
US Dollars million
At 30 June 2020 At 31 December
2019
ASSETS
Non-current assets
Property, plant and 10,821 11,993
equipment
Intangible assets 207 215
Other financial assets 114 223
Deferred tax assets 691 98
Other non-current 344 370
assets
12,177 12,899
Current assets
Inventories 2,394 2,475
Trade and other 410 362
receivables
Advances paid and 87 74
prepaid expenses
Other financial assets 47 51
Income tax receivable - 68
Other taxes receivable 386 644
Cash and cash 4,840 2,784
equivalents
Other current assets 42 117
8,206 6,575
Assets classified as 18 -
held for sale
8,224 6,575
TOTAL ASSETS 20,401 19,474
EQUITY AND LIABILITIES
Capital and reserves
Share capital 6 6
Share premium 1,254 1,254
Translation reserve (5,380) (4,899)
Retained earnings 6,220 7,452
Equity attributable to 2,100 3,813
shareholders of the
parent company
Non-controlling 496 474
interests
2,596 4,287
Non-current
liabilities
Loans and borrowings 10,870 8,533
Lease liabilities 209 180
Provisions 710 674
Trade and other 32 37
long-term payables
Deferred tax 45 60
liabilities
Other long-term 141 281
liabilities
12,007 9,765
Current liabilities
Loans and borrowings 993 1,087
Lease liabilities 55 44
Trade and other 1,389 1,706
payables
Dividends payable 11 1,553
Employee benefit 366 393
obligations
Provisions 2,166 100
Derivative financial 10 -
instruments
Income tax payable 177 36
Other taxes payable 307 503
Other current 324 -
liabilities
5,798 5,422
TOTAL LIABILITIES 17,805 15,187
TOTAL EQUITY AND 20,401 19,474
LIABILITIES
Attachment C
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED 30 JUNE 2020
US Dollars million
For the six For the six
months ended months ended
30 June 2020 30 June 2019
OPERATING ACTIVITIES
Profit before tax 105 3,773
Adjustments for:
Depreciation and amortisation 473 443
Impairment of non-financial (10) 5
assets
Loss on disposal of property, 3 5
plant and equipment
Change in provisions and 2,206 6
allowances
Finance costs and income from 448 46
investments, net
Foreign exchange loss/(gain), 822 (548)
net
Other 12 27
4,059 3,757
Movements in working capital:
Inventories (101) 98
Trade and other receivables (65) (111)
Advances paid and prepaid (41) (8)
expenses
Other taxes receivable 195 (54)
Employee benefit obligations 21 11
Trade and other payables (244) (303)
Provisions (28) (26)
Other taxes payable (122) 32
Cash generated from 3,674 3,396
operations
Income tax paid (483) (809)
Net cash generated from 3,191 2,587
operating activities
INVESTING ACTIVITIES
Purchase of property, plant (519) (481)
and equipment
Purchase of other financial (5) (5)
assets
Purchase of intangible assets (32) (19)
Loans issued (1) (2)
Proceeds from repayment of 1 2
loans issued
Net change in deposits placed (2) 80
Proceeds from disposal of 2 3
property, plant and equipment
Proceeds from sale of other 1 -
financial assets
Interest and other investment 43 41
income received
Net cash used in investing (512) (381)
activities
Attachment C
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED 30 JUNE 2020 (CONTINUED)
US Dollars million
For the six For the six
months ended months ended
30 June 2020 30 June 2019
FINANCING ACTIVITIES
Proceeds from loans and 2,400 727
borrowings
Repayments of loans and (4) (639)
borrowings
Payments of lease liabilities (22) (24)
Dividends paid (2,831) (1)
Interest paid (253) (202)
Net cash used in financing (710) (139)
activities
Net change in cash and cash 1,969 2,067
equivalents
Cash and cash equivalents at 2,784 1,388
the beginning of the period
Less: cash and cash
equivalents related to assets
classified as held for sale
at the end of the period - (25)
Effects of foreign exchange
differences
on balances of cash and cash 87 58
equivalents
Cash and cash equivalents at 4,840 3,488
the end of the period
Attachment D
NET WORKING CAPITAL
USD million 30/06/2020 31/12/2019 Change incl.
effects of
foreign
exchange
differences
Finished goods 492 407 85 (39)
Work-in-process 1,204 1,334 (130) (151)
Other inventories 698 734 (36) (84)
Trade and other 410 362 48 (10)
receivables
Advances paid and 87 74 13 (10)
prepaid expenses
Taxes receivable 386 712 (326) (80)
Employee benefit (366) (393) 27 44
obligations
Trade and other (1,389) (1,706) 317 146
payables*
Taxes payable (484) (539) 55 80
Total working capital 1,038 985 53 (104)
This announcement contains inside information in accordance with Article 7
of EU Regulation 596/2014 of 16 April 2014.
Full name and position of person making the announcement - Vladimir Zhukov,
Vice - president, Investor Relations
ABOUT THE COMPANY
MMC Norilsk Nickel is a diversified mining and metallurgical company, the
world's largest producer of palladium and high-grade nickel and a major
producer of platinum and copper. The company also produces cobalt, rhodium,
silver, gold, iridium, ruthenium, selenium, tellurium, sulphur and other
products.
The production units of Norilsk Nickel Group are located at the Norilsk
Industrial District, on the Kola Peninsula and Zabaykalsky Krai in Russia as
well as in Finland and South Africa.
MMC Norilsk Nickel shares are listed on the Moscow and on the
Saint-Petersburg Stock Exchanges, ADRs are traded over the counter in the US
and on the London, Berlin and Frankfurt Stock Exchanges.
Media Relations: Investor Relations:
Phone: +7 (495) 785 58 00 Phone: +7 (495) 786 83 20
Email: pr@nornik.ru Email: ir@nornik.ru
ISIN: US55315J1025
Category Code: MSCH
TIDM: MNOD
Sequence No.: 81152
EQS News ID: 1115037
End of Announcement EQS News Service
(END) Dow Jones Newswires
August 11, 2020 07:00 ET (11:00 GMT)
