TIDMMNOD
Moscow, August 31, 2015 - PJSC MMC Norilsk Nickel ("Norilsk Nickel", the
"Company" or the "Group"), the largest nickel and palladium producer in
the world,today reports audited IFRS financial results for six month
ended June 30, 2015.
1H 2015 HIGHLIGHTS
-- Successful implementation of strategy resulted in leading profitability
and return on invested capital (ROIC) despite unfavourable situation on
metal markets.
-- Consolidated revenue decreased 14% y-o-y to USD 4.9 billion driven by
lower metal prices while the Company fully delivered on operating
commitments increasing base metal sales volumes.
-- EBITDA grew 8% y-o-y to USD 2.7 billion with EBITDA margin expanding to
55% driven by strengthening US dollar, higher metal sales volumes and
exit from less profitable overseas assets.
-- Net profit was almost flat at USD 1.5 billion while net profit adjusted
for non-cash items reached USD 1.9 billion.
-- CAPEX increased by 16% y-o-y to USD 0.6 billion driven by the Talnakh
concentrator modernization, ongoing upgrade of smelting and refining
capacities, Skalisty mine construction and active phase of the Bystrinsky
project execution.
-- Working capital declined almost USD 0.4 billion to USD 0.7 billion. In
last two years net working capital decreased 6-fold.
-- Free cash flow amounted to USD 2.2 billion, while FCF/Revenue ratio
increased to 44%.
-- Leverage remained low with Net Debt/ EBITDA ratio unchanged at 0.6x as of
June 30, 2015. Financial stability of Norilsk Nickel is confirmed by
investment grade credit ratings from S&P and Fitch.
-- Dividends distributed to shareholders in 1H2015 amounted to USD 13.4 per
share. Thus, the Company made an advance payment of special dividend and
reiterated its dividend targets at 50% of annual EBITDA with regular
interim payments.
-- During its Investor Day in May the Company's management confirmed its
mid-term production guidance, provided an update on the status of
downstream reconfiguration programme and announced the second stage of
strategic analysis of legacy assets.
-- Exit from non-core assets continues. The Company cashed in a part of its
shares in utilities companies, closed the sale of Tati Nickel, while the
completion of Nkomati mine's sale is expected by the end of 2015.
RECENT DEVELOPMENTS
-- In July 2015, the Supervisory Board of Vnesheconombank (VEB) approved an
8 year loan of 5.4 billion yuan (approximately USD 0.9 billion) for the
development of Bystrinsky polymetallic deposit in Chita region.
-- In August 2015, the Company's Board of Directors recommended an interim
dividend payment in the amount of RUB 305.07 per ordinary share in
respect of 1H2015 financial results.
-- Since the inception of the buy-back programme the Company purchased from
the market 1,001,772 ordinary shares for the total amount of around USD
158 million as of August 28, 2015.
FINANCIAL RESULTS
KEY CORPORATE HIGHLIGTS
Change
USD million (unless stated otherwise) 1H2015 1H2014 (%)
Revenue 4,907 5,708 (14%)
EBITDA(1) 2,708 2,496 8%
EBITDA margin, % 55% 44% 11 pp
Net profit before impairment of financial and non-financial
assets(1) 1,923 1,587 21%
Net profit 1,493 1,456 3%
Capital expenditures 569 491 16%
Free cash flow(2) 2,179 2,371 (8%)
Net working capital(1) 715(3) 1,083(3) (34%)
Net debt(2) 3,564(3) 3,537(3) 1%
Netdebt /12M EBITDA 0,6x 0,6x
Dividend per share (USD) 13,4 7,1 89%
11
ROIC(2) 31% 20% p.p.
1. Non-IFRS figure and is calculated as shown below in the document.
2. Non-IFRS figure and is calculated in published analytical review document
("Data book") together with Consolidated IFRS Financial Results
3. Reported as of June 30, 2015 and December 31, 2014
MANAGEMENT COMMENTS
Vladimir Potanin, President of Norilsk Nickel, commented:
"This year we celebrate the 80th anniversary of our Company and I am
proud to say that over the decades Norilsk Nickel has evolved into a
leader of the global metals and mining industry. Our first-class mining
assets in Russia and robust business model led by the strong management
team enabled us to generate the industry's best profitability and top
notch return on invested capital, while maintaining one of the most
conservative balance sheets.
The headwinds from the commodity markets were strong in the first half
of the year and we see challenging macro environment persisting in the
near term. Amidst this increased volatility, we see the investor appeal
for the quality mining assets such as Norilsk Nickel as only rising as
the company keeps delivering on leading shareholder returns. Having
adopted a stringent capital discipline focused strategy in 2013 and
having implemented key steps in its execution since, Norisk Nickel is
facing the current market volatility and pricing pressures as a
well-capitalized and uniquely well prepared business.
Our interim financial results were not immune to the commodity price
weakness, but also took the full benefit from the depreciation of
Russian rouble and showed that the management commitment to capital
investment discipline and focus on cost management were paying off. In
spite of the reduction in the top line on the back of weak commodity
prices, we have managed to deliver an 8% EBITDA growth with the EBITDA
margin reaching a remarkable 55%, while the adjusted net profit
increased 21% to USD1.9bn.
We continued to implement on our new strategy, progressing on time and
on budget with all major investment projects. The roll out of new
downstream configuration reached a major milestone in January, when we
launched an upgraded Talnakh concentrator. Total capital expenditures
reached USD 0.6 billion increasing 16% y-o-y, with the almost entire
capex concentrated on the company's existing and prospective assets in
Russia. The capex growth was stemming off continued modernization of
enrichment, smelting and refining facilities, continued ramp up of a
major Skalisty mine and Bystrinsky greenfield project entering into an
active construction phase.
We feel that we can comfortably withstand the pressure coming from the
weakness on the commodity markets and reiterate the commitment to our
strategic capital investments program and modernization plans. We
believe that this should strengthen our global competitive position as
the industry is scaling down its development ambitions.
In the current challenging macroeconomic situation we feel also
important to reiterate that our targets of returning cash to
shareholders remain unchanged. We already paid over USD 2.1 billion of
final dividends for the full year 2014, with interim dividend based on
1H15 results of approximately USD 0.7 billion is coming up for the EGM
approval. To reflect the management's conviction of the Norilsk Nickel's
investment case versus the current market valuation, the Company has
also launched a buyback program, with over USD150m worth of shares
bought from the open market on the local exchange since the program
launch in June.
Major refinancing exercises with Russian and international banks carried
out this year demonstrate the strong credit standing of Norilsk Nickel.
Its conservative balance sheet and sound business model are also well
appreciated by major credit agencies, two of which retained investment
grade rating on the company.
Steady delivery on promises and stringent capital investment discipline
has been appreciated by our shareholders and are now considered as
intrinsic pillars of Norilsk Nickel. We are planning to maintain these
under our management focus and aim to continue delivering superior
shareholder returns."
HEALTH & SAFETY
In spite of the ongoing improvements in our management of health and
safety of our employees, the lost time injury frequency rate (LTIFR)
increased from 0.47 to 0.7 owing to a stricter methodology applied to
reporting injuries. Even after this increase, the level remained well
within the global mining industry average. We tragically suffered four
fatal accidents during the period (one less than in 1H14). The accidents
are being thoroughly investigated in order to improve our systems and
procedures so every employee can return home unharmed. The management
reiterates its major strategic focus of transforming Norilsk Nickel into
a zero fatality mining company adhering to the world's best safety
standards.
METAL MARKETS
Nickel - disappointing price performance despite gradually improving
fundamentals
Having started the year at around USD 14,900 per tonne nickel price
trended down through the first half reaching by the end of June USD
11,680 per tonne, the lowest level since 2009. The average LME nickel
price for 1H2015 of USD 13,684 per tonne was down 17% y-o-y.
We believe that this year nickel price has been affected by a set of
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negative macro factors, which had also a universal negative impact
across all commodities. Foremost, the strengthening of US dollar against
global currencies has kept the prices on all US dollar-denominated
commodities under a downward pressure. Concerns over the global
macroeconomy on the back of refreshed worries over the slowdown of
Chinese economic growth rates and thus downside risk for the Chinese
physical metal consumption were aggravated by the Greece debt crisis and
the slump of the Chinese stock market.
Speculative pressure on nickel price was unusually high in the first
half of the year, with a decline in net-long positions opened on LME
driven by a major expansion of short positions.
The rise of nickel inventories at LME warehouses was disappointing. The
continued build-up throughout almost entire 1H15 resulted in nickel
inventories reaching the all-time high level of 470 kt in early June.
The increase of LME inventory was mostly driven by the continuing from
2014 relocation of the non-transparent stocks accumulated during the
previous years of market surplus to LME warehouses. Since June, however,
LME nickel inventory showed a moderate reversal, now standing at 84 days
of global consumption, with cancelled warrants (material normally
earmarked for the withdrawal from a warehouse) rising to the record high
level of over 150 kt, representing a third of all LME-held stock. We
believe that a sizeable reduction of LME inventory is widely recognized
as a major signal of improved nickel market fundamentals.
While the nickel price performance was disappointing, nickel market
fundamentals were showing early signs of improvement.
As expected, Chinese NPI production was in decline in 1H15 due to
reduced availability of imported nickel feed as well as tightening
environmental regulations in certain Chinese provinces. The ongoing
supplies of laterite ore to China were down 37% y-o-y in 1H15 resulting
from the Indonesian ban, whilst the nickel ore inventory including low
grades at major Chinese ports reduced by 34% to 10 mt in late June.
The reduction of nickel feed to the Chinese stainless industry was
compensated by the surge in the imports of nickel units, with the net
import of nickel contained in ferronickel increasing 88% y-o-y and
imports of refined nickel up 37% y-o-y in 1H15.
Chinese stainless production increased by 3% y-o-y in 1H15. However,
primary nickel consumption in China grew at a faster rate (+7% y-o-y)
due to the surge of nickel-intensive 300 series output (+11% y-o-y),
which substituted low-Ni containing 200 series and accounted for over
80% of nickel consumed in the Chinese stainless steel industry.
Nickel outlook - deficit pushed back to 2016, medium-term positive
We remain cautiously optimistic on nickel in the near term as we see
little further downside for nickel price as over 60% of the global
industry is making cash losses. We believe that nickel industry cash
cost downward adjustment due to the USD appreciation and weakened oil
price is by and large over. We expect further reduction of NPI
production in China as the ore supplies from the Philippines are not
able to substitute the nickel units lost as result of the Indonesian ban,
while nickel ore inventory at Chinese ports continue to deplete and the
tightening environmental regulations force further NPI capacity
closures. In the world ex China, we see an increasing pressure on high
cost producers to cut production. We also believe that the nickel demand
from the Chinese stainless industry will remain robust, with nickel
demand in other industries is expected to grow marginally above 2014
levels. We expect the nickel market to be fairly balanced in 2015 and to
develop a sizeable deficit (of 60 kt) in 2016. In a short term we are
looking for a continued reduction of LME inventories and announcements
of production cuts in the world ex China.
Copper - macro driven sell-off amidst weak Chinese demand
Copper was not immune to the general sell-off in commodities driven by
the set of unfavourable macro factors discussed above with 1H15 price
down 14% y-o-y to an average of USD 5,929 per tonne reaching a six-year
low of USD 5,200 per tonne towards the end of July. Chinese demand was a
particular concern stemming from the reduction of capital investments in
the energy sector and the lack of economy response to the ongoing
government stimulus efforts. The sell-off on the Shanghai Stock Exchange
coupled with weak country's trade data added to the concerns of the
sustainability of Chinese economic growth and thus the physical
consumption of copper.
At the same time, global copper exchange inventory continues to run at
very low levels of about 8 days of global consumption, not much above
historical lows. The copper supply continue to suffer from disruptions
triggered by a variety of factors ranging from floods and strikes in
Chile to power shortages in Zambia and Papua New Guinea. We estimate
supply disruptions at around 700kt in 1H15, while the historical average
rate of production lost due to supply disruptions at 5-6% of the global
supply.
Copper outlook - neutral
We slightly moderate our copper demand growth forecast, which we believe
to be offset by a corresponding reduction in supply owing to production
disruptions, thus making the copper market posting a small surplus this
year. The level of copper inventory remains low and supportive of the
metal price. The weak price environment does not encourage the fast
ramp-up of new projects on the supply side, whereas on the demand side,
there are moderate expectations for a positive impact from a combination
of the Chinese stimulus along with resumed investments into energy
sector.
Palladium - macro driven sell-off, disappointing car sales
After a very strong performance in 2H14, in 1H15 palladium price lost
its momentum owing to a broad negative sentiment towards commodities and
averaged USD 772 per ounce, practically unchanged y-o-y. The metal price
traded in a quite tight range of USD 740-830 per ounce during almost
entire 1H15 up until May, but in June-August lost its support and even
breached USD 600 per ounce level. In addition to the macro factors
having a general impact on industrial commodities, we attribute this
price weakness to the disappointing auto sales statistics from China,
which posted a small y-o-y reduction in the production of light vehicles
in June and July. Post-strike recovery of supply from South Africa
contributed to the reduction of market deficit, which was at a
historical record high level of over 1.5m oz in 2014.
Investment demand for palladium was neutral in 1H15. The outflow of
metal from ETFs of almost 200 thousand ounces in 1Q15 was almost fully
replaced by the inflow of metal in the following months as a weak price
was offering an attractive entry point for investors, thus making net
change in palladium ETFs since the start of the year only a minor
reduction.
Palladium outlook - positive, deficit to persist
We consider the current weakness in palladium price as temporary. The
metal consumption by auto industry is expected to grow at a moderate
rate of around 1-2% in 2015, with the recent inflows into ETFs implying
also a recovery in the investment demand. Although South African
producers were successful to restore quickly their production to
pre-strike levels in 2015 we do not expect any significant production
growth in 2016 and beyond as the weak price environment is curbing the
capital investments and incentivizes shutdowns of marginal cost mines.
The cost pressure in South Africa is rising with a number of high cost
mines earmarked for divestiture or major cost optimization. In addition
to the electricity issues and worsening mining conditions, we see
additional risk to the supply coming from the forthcoming negotiations
with labour unions as the current collective bargaining agreement is
expiring in June 2016. We expect palladium to remain in a deficit in
2015, albeit at a smaller level than the record high 2014, with the
wider deficit persisting into 2016.
Platinum - macro driven sell-off, market brought to balance
In 1H15, platinum continued its downward trend averaging USD 1,160 per
ounce, down 19% y-o-y. Driven by the deterioration of the global
commodities outlook and unfavourable macro factors, the metal price dove
below USD 1,000 per ounce in July, the levels lowest since 2008. Strong
post-strike recovery of supply from South Africa resulted in a
moderately balanced platinum market. In addition, ZAR depreciation
against USD enabled South African miners to sustain profitability on
their PGM basket despite weakening platinum price in US dollar terms.
Platinum outlook - moderately positive
We expect platinum consumption to increase by 4% y-o-y in 2015 driven by
the recovery in European automotive sector and implementation of Euro-6
emissions standard. Financial demand is recovering with net inflows in
ETFs totalling approximately 100 thousand ounces year-to-date. We remain
cautious on the production growth plans announced by a number of
producers amidst weak pricing environment, challenging mining conditions
at mature mines in South Africa and ongoing issues with power supplies.
Moreover, one major platinum producer has recently announced its
intention to close two shafts, while a number of other producers
announced plans to scale back their CAPEX citing weak pricing
environment. Another round of wage negotiations with trade unions in
South Africa coming up in June 2016 will pose an additional threat for
the delivery on the announced platinum production growth targets. We
forecast platinum to market to be in a moderate deficit in 2015-2016.
KEY SEGMENTAL HIGHLIGHTS
USD million 1H 2015 1H 2014 Change (%)
Revenue 4,907 5,708 (14%)
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Polar Division 3,800 4,231 (10%)
Kola MMC 410 540 (24%)
NN Harjavalta 432 386 12%
Other metallurgical assets 27 38 (29%)
Other non- metallurgical assets 636 1,191 (47%)
Inter-company eliminations (398) (678) (41%)
EBITDA 2,708 2,496 8%
Polar Division 2,714 2,501 9%
Kola MMC 156 146 7%
NN Harjavalta 36 11 227%
Other metallurgical assets (12) (35) (66%)
Other non-metallurgical assets (22) 44 (150%)
Corporate expenses (164) (171) (4%)
EBITDA margin, % 55% 44% 11 p.p.
Polar Division 71% 59% 12 p.p.
Kola MMC 38% 27% 11 p.p.
NN Harjavalta 8% 3% 5 p.p.
Other metallurgical assets (44%) (92%) 48 p.p.
Other non- metallurgical assets (3%) 4% -7 p.p.
In the 1H2015, EBITDA of Polar Division and Kola MMC increased by 9% and
7%, respectively, to USD 2,714 million and USD 156 million, respectively,
primarily due to the reporting currency appreciation, which was partly
offset by the decrease of metal prices.
In the 1H2015, EBITDA of NN Harjavalta increased by 227% to USD 36
million principally due to the depreciation of Euro versus US dollar by
19% in the 1H2015.
EBITDA of the other metallurgical assets increased by 66% in the first
half of 2015 due to the reporting currency appreciation.
EBITDA of the other non-metallurgical assets decreased by 150% in the
1H2015 mainly due to the reduction of margins of in-house sales and
distribution operations as a result of the decline in metal prices and
the weak air transportation market.
METAL SALES VOLUME AND REVENUE
1H 2015 1H 2014 Change (%)
Finished products(2)
Russian entities
Nickel (thousand tonnes) 109 109 -
Copper (thousand tonnes) 177 172 3%
Palladium (thousand troy ounces) 1,312 1,345 (2%)
Platinum (thousand troy ounces) 322 319 1%
Finland
Nickel (thousand tonnes) 21 18 17%
Semi-products(2)
Finland
Copper cake (thousand tonnes)(1) () 6 3 100%
Botswana
Nickel (thousand tonnes) 1 1 -
Copper (thousand tonnes) 1 1 -
Metal sales, physical volumes (2)
Group, excluding South Africa(3)
Nickel (thousand tonnes) 131 128 3%
Copper (thousand tonnes) 184 176 5%
Palladium (thousand troy ounces) (4) 1,361 1,369 (1%)
Platinum (thousand troy ounces) (4) 341 328 4%
Gold (thousand troy ounces) (4) 63 76 (17%)
Rhodium (thousand troy ounces) (4) 43 48 (10%)
Cobalt (thousand tonnes) 2.9 2.6 12%
Silver (thousand troy ounces) 1,047 1,286 (19%)
Average realized prices of metals produced by Norilsk
Nickel in Russia from its own feed
Metal
Nickel (USD per tonne) 13,712 16,898 (19%)
Copper (USD per tonne) 5,989 6,969 (14%)
Palladium (USD per troy ounce) 771 783 (2%)
Platinum (USD per troy ounce) 1,157 1,433 (19%)
Cobalt (USD per tonne) 30,367 29,723 2%
Gold (USD per troy troy ounce) 1,208 1,288 (6%)
Rhodium (in USD per troy ounce) 1,046 1,068 (2%)
REVENUE(USD million)
Nickel 1. ,834 1. ,145 (14%)
Copper 1. ,093 1. ,220 -- 10%)
Palladium 1. ,063 1. ,124 -- %)
Platinum 389 469 -- 17%)
Other metals 212 1. 4 -- 3%)
Revenue from metal sales 1. ,591 1. ,202 (12%)
Revenue from other sales 1. 16 506 -- 38%)
Total revenue 1. ,907 1. ,708 (14%)
1) Copper cake - volumes are stated in respect of copper content in
semi-product.
2) The figures are reported based on the metals content in the
products sold. All information is reported on the basis of 100%
ownership of subsidiaries, excluding sales of metals purchased from
third parties.
3) The operating results of Nkomati Nickel Mine (South Africa) are shown
in the financial statements based on Group's 50% ownership and are
reported as operating results of associates.
4) Information includes realization of precious metals in copper cake.
Nickel
Nickel remained the largest contributor to the Company's revenue
comprising a 40% of total metal sales in the 1H2015 vs 41% in the
1H2014.
In the 1H2015, the nickel revenue decreased by USD 311 million, or 14%
to USD 1,834 million mainly due to nickel price decrease (USD 380
million), which was partly offset by higher metal sales volume (+USD 41
million).
The average realized nickel price in the 1H 2015 decreased by 19% to USD
13,712 per tonne from USD 16,898 in the 1H2014.
The sales volume of nickel produced by Norilsk Nickel in Russia from its
own feed increased by 2% (or 2 thousand tonnes) to 107 thousand tonnes
in the 1H2015 from 105 thousand tonnes in the 1H2014. The increase in
sales volumes was due to the release of metal from stockpiles. At the
same time, the amount of nickel sales from purchased third party
material reduced by 2 thousand tonnes to 2 thousand tonnes in the 1H2015
as a result of less third party material purchased by Kola MMC.
The sales volume of nickel of Norilsk Nickel Harjavalta increased by 17%
to 21 thousand tonnes in the 1H2015. The sales growth was driven by
faster completion of the scheduled capital repairs, additional nickel
output from the work-in-process material and improvement of concentrate
smelting at Boliden.
In the 1H2015, the sales volume of semi-finished nickel products of
Norilsk Nickel International (excluding Norilsk Nickel Harjavalta and
50% share of Nkomati Nickel Mine) was unchanged at 1 thousand tonnes.
Copper
In the 1H2015, the copper revenue accounted for 24% of the Company's
total revenue from metal sales, declining by USD 127 million (or 10%) to
USD 1,093 million mainly due to the lower average realized copper price
(- USD 182 million), which was partly offset by the increased sales
volume ( +USD 55 million).
The average realized copper price -was down by 14% from USD 6,969 per
tonne in the 1H2014 to USD 5,989 per tonne in the 1H2015, which was the
main reason for copper revenue decline
Physical volume of copper sales of Norilsk Nickel from its own feed
increased by 9 thousand tonnes to 175 thousand tonnes in the 1H2015. The
increase of sales volume was due to the idling of the copper rod
production and thus the release of the working copper inventory.
Moreover, the sales of copper produced from the purchased third party
materials reduced by 4 thousand tonnes to 2 thousand tonnes in the
1H2015 as Kola MMC purchased less material for processing from third
parties.
The volume of copper in semi-finished copper products sold by Norilsk
Nickel Harjavalta increased by 3 thousand tonnes to 6 thousand tonnes in
the 1H2015. The increase of copper sales to third parties was driven by
the increase in copper output and also by the reduced shipments of
copper cake for refining at Kola MMC.
Palladium
In the 1H2015, palladium sales revenue accounted for 23% of the Group's
total metal sales revenue. The Group's palladium revenue decreased by 5%
(or by USD 61 million) from USD 1,124 million in the 1H2014 to USD 1,063
million in 2015 mainly due to the decrease in palladium sales volumes
(by USD 36 million) in addition to reduction of realized palladium price
(by USD 10 million).
The palladium revenue of the Company's Russian operations decreased by
4% from USD 1,052 million in the 1H2014 to USD 1,011 million in the
1H2015. The revenue decline was driven by both the reduction of the
realized palladium price (down 2%) to USD 771 per troy ounce in the
1H2015 and reduced sales volumes of palladium (down 2%) due to the sale
of palladium from stock in the 1H2014.
The revenue from palladium in copper cake by Norilsk Nickel Harjavalta
increased to USD 27 million in the 1H2015 from USD 16 million in the
1H2014 due to the increased sales volumes of copper cake.
In the 1H2015, the palladium revenue from the Company's international
operations (Botswana) was USD 1 million down from USD 7 million in the
1H2014 as the Group was exiting from its international assets with the
sale of Tati Nickel Mining Company completed in April 2015.
In the 1H2015, the Company sold USD 24 million worth of palladium,
purchased from the open market for re-sale under the Company's
contractual obligations where during the 1H 2014 the Company sold
palladium purchased from the open market worth USD 49 million.
Platinum
In the 1H2015, platinum sales revenue accounted for 8% of the Group's
total metal sales revenue. The platinum revenue reduced by 17% (USD 80
million) from USD 469 million to USD 389 million mainly due to the
adverse effect of the realized platinum price (by USD 93 million), which
was partly offset by the increased volumes of platinum sales (by USD 19
million).
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The revenue from the sales of platinum produced by Norilsk Nickel in
Russia decreased by 19% to USD 371 million in the 1H2015 from USD 457
million in the 1H2014 due to the 19% decline in the average realized
platinum selling price from USD 1,433 per troy ounce in the 1H2014 to
USD 1,157 per troy ounce in the 1H2015, which was partly offset by the
increased platinum sales volume on the back of higher platinum
production volume.
The sales volume of platinum in copper cake produced by NN Harjavalta
increased from
USD 11 million in the 1H2014 to USD 16 million in the 1H2015 due to the
higher sales volume of copper cake.
Other metals
The revenue from the sales of other metals in the 1H2015 decreased by
13% to USD 212 million, gold revenue (-22%), rhodium (-12%) and silver
(-28%) were down, which was partly offset by the higher cobalt sales
revenue (+1%).
OTHER SALES
The revenue from other sales in the 1H2015 decreased by 38% to USD 316
million mainly due to Russian rouble depreciation versus US dollar (-
USD 195 million), which was partly offset by the increase of other sales
by USD 5 million.
USD million 1H 2015 1H 2014 Change (%)
61
Energy and utilities 3 79 (23%)
Transport 143 262 (45%)
Other 112 165 (32%)
Total 316 506 (38%)
Energy and utilities revenue decreased by USD 18 million to USD 61
million in the 1H2015 resulting from the depreciation of Russian rouble
versus US dollar (- USD 31 million), partially offset by the increase of
RUB revenue by USD 13 million on the back of higher services volumes
provided to the city of Norilsk residents.
The reduction of transport services revenue by USD 119 million to USD
143 million in the 1H2015 was driven by the depreciation of Russian
rouble versus US dollar (USD 99 million) combined with decrease of RUB
revenue by USD 20 million.
The decrease of transportation revenue in RUB terms resulted from the
decline in the passenger traffic (CJSC "Nordavia-RA", OJSC "AK "Taimyr")
and lower volume of cargo services provided to third parties (OJCS
"ERP").
The decrease of other sales revenue by USD 53 million to USD 112 million
was due to the depreciation of Russian rouble versus US dollar (negative
effect of USD 65 million) which was partially offset by the increase in
revenue in RUB terms by USD 12 million.
COST OF METAL SALES
Cost of metals sales
In the 1H2015, the cost of metal sales reduced by 30% to USD 1,765
million owing to:
-- Reduction of the cash operating costs by USD 786 million (or 35%);
-- Decrease in depreciation charges by USD 167 million (or 41%);
-- Comparative effect of change in metal inventories for the 1H2015 of USD
199 million.
Cash operating costs
In the 1H2015, the total cash operating costs decreased by 35% (or USD
786 million) to USD 1,440 million driven by:
-- The effect of Russian rouble devaluation versus US dollar (reduction by
USD 624 million);
-- Decrease in the purchase cost of metal inventory for resale, raw
materials and semi-finished products (reduction by USD 220 million).
-- Decrease in outsourced third-party services-USD 15 million.
-- Increase in other cash operating costs - USD 73 million.
The cash operating cost of main production units of the Group were
allocated as follows in the 1H2015:
-- Russian operations: 80%
-- NN Harjavalta: 18%;
-- Norilsk Nickel International: 2%.
USD million 1H 2015 1H 2014 Change (%)
Cash operating costs
Labour 584 839 (30%)
Metals for resale, raw materials and
semi-products 289 509 (43%)
Materials and supplies 181 285 (36%)
Third-party services 119 185 (36%)
Mineral extraction tax and other levies 59 110 (46%)
Electricity and heat energy 75 107 (30%)
Fuel 35 59 (41%)
Transportation expenses 39 48 (19%)
Sundry costs 59 84 (30%)
Cash operating costs 1,440 2,226 (35%)
Amortisation and Depreciation 242 409 (41%)
Decrease/(increase) in metal inventories 83 (116) (172%)
Total cost of metal sales, comprised by: 1,765 2,519 (30%)
Russia 1,339 2,031 (34%)
NN Harjavalta 390 380 3%
NN International 36 108 (67%)
Labour costs
The proportion of labour costs in total cash operating costs has been
stable. In the 1H2015 labour costs accounted for 41% of the Group's
total cash operating costs.
In the 1H2015, labour costs of USD 584 million were down 30% (USD 255
million) owing to:
-- USD 323 million reduction owing to the Russian rouble depreciation
against US dollar (or 38%);
-- USD 68 million increase owing to the indexation of RUB-denominated wages
and salaries of production employees of the Company's Russian operations.
Purchases of metals for resale, raw materials and semi-products
Expenses on the acquisition of metals for resale, raw materials and
semi-products for processing decreased by USD 220 million to USD 289
million in the 1H2015 mainly due to:
-- USD 83 million decrease due to lower volume of raw materials purchased
from third parties for refining at NN Harjavalta;
-- USD 41 million decrease due to lower metal prices and changes in the
structure of the purchased raw materials;
-- A reduction of metals purchased for resale to fulfill contractual
obligations as compared to the 1H2014.
Materials and supplies
Materials and supplies expenses decreased by USD 104 million (or 36%) to
USD 181 million in the 1H2015 driven by the following:
-- USD 111 million decrease owing to the Russian rouble depreciation against
US Dollar;
-- USD 7 million cash costs increase at Russian production assets, mainly
due to the country's inflation.
Outsourced third party services
In the 1H2015, the cash costs from third party services decreased by USD
66 million (or by 36%) to USD 119 million driven by the following:
-- USD 51 million decrease due to the translation of financial statements
into presentation currency;
-- USD 19 million decrease of outsourced mining services costs due to the
completion of the sale of Tati Nickel Mining Company in April 2015;
-- USD 4 million increase of expenses for tolling services at NN Harjavalta
due to increased volume of nickel concentrate processed under tolling
arrangements.
Mineral extraction tax and other levies
Mineral extraction tax and environmental levies decreased by USD 51
million
(or 46%) to USD 59 million in the 1H2015 as a result of:
-- USD 42 million decrease due to depreciation of Russian rouble against US
Dollar;
-- USD 9 million decrease due to changes in tax legislation on mineral
extraction tax rate (gas by 4.8 times, gas condensate by 1.2 times).
Electricity and heat energy
In the 1H2015, energy costs decreased by USD 32 million (or by 30%) to
USD 75 million due to the following:
-- USD 35 million decrease due to depreciation of Russian rouble against US
Dollar;
-- USD 3 million increase due to higher energy consumption at Kola MMC owing
to the increase of metal production.
Fuel
Fuel expenses decreased by USD 24 million (or by 41%) to USD 35 million
in the 1H2015 primarily due to depreciation of Russian rouble against US
Dollar (USD 24 million).
Transportation expenses
In the 1H2015, transportation costs decreased 19% (or by USD 9 million)
to USD 39 million mainly driven by depreciation of Russian rouble
against US Dollar (USD 10 million).
Sundry costs
In 1H 2015, sundry costs declined by USD 25 million (or by 30%) to USD
59 million mainly driven by the Russian rouble depreciation against US
Dollar.
Amortisation and depreciation
In the 1H2015, amortisation and depreciation of production assets
decreased by USD 167 million
(or 41%) to USD 242 million on the back of the following:
-- USD 156 million reduction attributable to Russian rouble devaluation
against US Dollar;
-- USD 11 million decrease of depreciation charges mainly due to completion
of the sale of Tati Mining Company in April 2015.
Decrease of metal inventories
Metal inventories decreased by USD 83 million in the 1H2015 due to:
-- USD 80 million decrease in the stockpile of work-in-progress materials at
the Company's Russian operations and NN Harjavalta, as a result of
processing of the stockpiled nickel materials at NN Harjavalta;
-- USD 3 million decrease in metal inventories due to the completion of the
sale of Tati Mining Company in April 2015.
COST OF OTHER SALES
USD million 1H 2015 1H 2014 Change,%
Energy and utilities 64 85 (25%)
Transport 153 249 (39%)
Other 100 131 (24%)
Total 317 465 (32%)
In the 1H2015, cost of other sales decreased by 32% to USD 316 million
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mostly driven by the depreciation of Russian rouble against US Dollar,
which was partly offset by the increase of other costs at Kola MMC.
Decrease in gross profit margin of other sales in the 1H2015 was mainly
due to the increase in the cost of energy and utilities, which was not
fully covered by the respective increase in RUB tariffs, as well as a
decrease in revenue from transportation services of airline companies
resulting from lower passenger turnover.
SELLING AND DISTRIBUTION EXPENSES
USD million 1H 2015 1H 2014 Change,%
Export customs duties 16 146 (89%)
Transportation expenses 2 12 (83%)
Labour 5 9 (44%)
Marketing 12 33 (64%)
Other 7 2 250%
Total 42 202 (79%)
Selling and distribution expenses decreased by 79% to USD 42 million in
the 1H2015 primarily due to the Russian rouble depreciation effect of
USD 26 million.
Decrease of export duties by USD 130 million (or 89%) to USD 16 million
in the 1H2015 was primarily related to the cancellation of nickel and
copper export duties from August 21, 2014.
Marketing and advertising expenses decreased by USD 21 million in the
1H2015 due to decrease of the cost related to marketing campaigns in
Asia and Europe.
GENERAL AND ADMINISTRATIVE EXPENSES
USD million 1H 2015 1H 2014 Change,%
Labour 168 221 (24%)
Third party services 25 50 (50%)
Taxes other than mineral extraction tax and income
tax 27 49 (45%)
Amortization and depreciation 9 15 -- 0%)
Transportation expenses 3 9 -- 7%)
Rental expenses 10 5 1. 0%
Other 1. 0 1. 4 (55%)
Total 262 393 (33%)
In the 1H2015, general and administrative expenses decreased by 33% to
USD 262 million due to the Russian rouble depreciation effect of USD 145
million.
Labour expenses decreased by USD 53 million (or by 24%) to USD 168
million in the 1H2015. Net of the Russian rouble depreciation effect
labour expenses increased primarily due to payroll indexation as well as
to hiring of temporary staff for certain projects.
Rental expenses increased by USD 5 million primarily due to the
relocation of the head office from the Company's own premises to leased
buildings.
Taxes other than mineral extraction tax and income tax decreased by USD
3 million net of foreign exchange effect and by USD 19 million due to
the Russian rouble depreciation to USD 27 million in the 1H2015. It was
partially offset by increase of property tax expense by USD 4 million
due to tax legislation changes in respect of taxation of movable
property with a useful life over 3 years.
FINANCE COSTS
USD million 1H 2015 1H 2014 Change,%
Interest expense on borrowings net of amounts
capitalized 109 71 54%
Unwinding of discount on provisions 19 21 (10%)
Other - 2 (100%)
Total 36%
In the 1H2015, finance costs increased by 36% to USD 128 million
primarily due to new RUB borrowings raised at higher rates, which was
partially offset by the Russian rouble depreciation.
INCOME TAX EXPENSE
In the 1H2015, income tax expense increased by 15% to USD 486 million
primarily due to increase of taxable profit, which was substantially
affected by the Russian rouble depreciation, which was partially offset
by the decrease of metal prices.
The effective income tax rate in the 1H2015 amounted to 25%, which was
above the statutory tax rate of 20% in Russia mainly due to recognition
of non-deductible loss on the disposal of held-for-sale assets, as well
as to non-deductible social and charity expenses. The effective income
tax rate increased from 23% in the 1H2014 to 25% in the 1H2015 primarily
due to recognition of the loss on the disposal of assets held for sale.
EBITDA
USD million 1H 2015 1H 2014 Change
Operating profit 1. ,426 1. ,029 20%
Amortization and depreciation 280 445 (37%)
Impairment of PP&E 2 22 (91%)
EBITDA 2,708 2,496 8%
EBITDA margin 55% 44% 11 p.p.
In the 1H2015, EBITDA increased by USD 212 million (or by 8%) to USD
2,708 million with EBITDA margin amounting to 55% increasing from 44% in
the 1H2014.
NET PROFIT BEFORE IMPAIRMENT CHARGES AND FX LOSSES RECONCILIATION
1H
USD million 2015 1H 2014 Change
Net profit 1,493 1,456 3%
Impairment of PP&E 2 22 (91%)
Impairment of available for sale investments - 49 (100%)
Foreign exchange loss 122 107 14%
Loss/(gain) from disposal of subsidiaries and assets
classified as held for sale 306 (47) (751%)
Net profit before impairment charges and FX losses 1,923 1,587 21%
STATEMENT OF CASH FLOWS
USD million 1H 2015 1H 2014 Change
Cash generated from operations before changes in working
capital and income tax 2,758 2,546 8%
Reduction of working capital 241 487 (51%)
Income tax paid (439) (210) 109%
Net cash generated from operating activities 2,560 2,823 (9%)
Capital expenditure (569) (491) 16%
Other investing activities 188 39 382%
Net cash used in investing activities (381) (452) (16%)
Net cash used in financing activities (2,234) (1,351) 65%
Effects of foreign exchange differences on balances
of cash and cash equivalents 126 3 42x
Other (50) (19) 163%
Net increase in cash and cash equivalents 21 1,004 (98%)
In the 1H2015, net cash generated from operations decreased by 9% to USD
2.6 bln mainly due to the lower amount of released working capital and
increased income tax paid.
This decrease was influenced by increase of EBITDA in the 1H2015
compared to the 1H2014 by USD 212 million mainly due to the Russian
rouble depreciation, partially offset by the metal prices decrease.
Increase of cash flow due to release of working capital amounted to USD
241 million in the 1H2015 as compared to USD 487 million in the 1H2014.
Working capital reduced in the 1H2015 owing to the following factors:
-- increase of advances received from customers by USD 129 million,
-- improvement of contractual terms with counterparties USD by 64 million,
-- seasonal increase of trade payables and VAT payable by USD 49 million.
BALANCE SHEET AND CASH FLOW WORKING CAPITAL RECONCILIATION
USD million 1H 2015 1H 2014
Change of the net working capital in the balance sheet,
less: 368 863
Foreign exchange differences (36) (62)
Change in income tax payable (34) (273)
Transferred from assets held for sale (31) (2)
Non-cash changes, including reserves (26) (39)
Change of working capital per cash flow 241 487
CAPEX BREAKDOWN BY PROJECT
USD million 1H 2015 1H 2014 Change
Polar Division, including: 369 215 72%
Skalisty mine 88 25 252%
Taymirsky mine 24 26 (8%)
Komsomolsky mine 11 21 (48%)
Oktyabrsky mine 19 23 (17%)
Talnakh enrichment plant 84 38 121%
Nickel plant closure activities 20 4 400%
Kola MMC 45 44 2%
Chita copper project (Bystrinsky project) 51 44 16%
Other production projects 95 175 (46%)
Other non-production assets 3 1 200%
Intangible assets 6 12 (50%)
Total 569 491 16%
Increase of capital expenditure in the 1H2015 by 16% to USD 569 million
resulted from the optimization of Skalisty mine development schedule,
ongoing reconstructions of Talnakh enrichment plant, implementation of
initiatives related to the forthcoming closure of the Nickel plant,
including the modernization of Nadezhda metallurgical plant, as well as
to the ramp up of construction of the Chita project.
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DEBT AND LIQUIDITY MANAGEMENT
As of June 30 As of December31 Change,
USD million 2015 2014 USD million Change, %
Long-term 5,151 5,678 (527) (9%)
Short-term 1,227 652 575 88%
Total debt 6,378 6,330 48 1%
Cash and cash
equivalents 2,814 2 793 21 1%
Net debt 3,564 3,537 27 1%
Net debt/ 12M EBITDA 0.6x 0.6x
As of June 30, 2015, the Company's short-term debt increased by USD 575
million from December 31, 2014, and amounted to USD 1,227 million, while
long-term debt decreased from USD 5,678 million to
USD 5,151 million, respectively. As a result the proportion of
short-term debt in the total debt portfolio increased from 10% to 19% as
of June 30, 2015.
From December 31, 2014 by June 30, 2015, net debt increased by 1% to USD
3,564 million, with net debt/EBITDA ratio remaining unchanged at 0.6x.
In spite of challenging credit market conditions in the 1H2015, the
Company entered into a number of bilateral long-term loan agreements
with local and international banks totalling approximately
USD 900 million. The funds raised were partly used to refinance the
current debt portfolio as well as to fund Company's general corporate
needs. The debt portfolio remained fully unsecured with a slight rise of
the average cost of debt. The creditors' confidence in the Company
relies on Norilsk Nickel's strong financial position and global mining
industry leadership.
On 23 July, 2015, the credit ratings of the Company assigned by Fitch
were confirmed at level BBB-. Thus by the end of August 2015, the
Company's credit ratings assigned by S&P's and Fitch stood at investment
grade level (BBB-, BBB-). The Company's credit rating assigned by
Moody's remained at Ba1 level as result of the lowering of "sovereign
ceiling" in February, 2015.
Attachment A
INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2015
US Dollars million
For the six months ended For the six months ended
30 June 2015 30 June 2014
Revenue
Metal sales 4,591 5,202
Other sales 316 506
Total revenue 4,907 5,708
Cost of metal sales (1,765) (2,519)
Cost of other sales (317) (465)
Gross profit 2,825 2,724
Selling and distribution expenses (42) (202)
General and administrative expenses (262) (393)
Impairment of property, plant and equipment (2) (22)
Other net operating expenses (93) (78)
Operating profit 2,426 2,029
Finance costs (128) (94)
Impairment of financial assets - (49)
(Loss)/gain from disposal of subsidiaries and assets
classified as held for sale (306) 47
Income from investments, net 99 31
Foreign exchange loss, net (122) (107)
Share of profits of associates 10 22
Profit before tax 1,979 1,879
Income tax expense (486) (423)
Profit for the period 1,493 1,456
Attributable to:
Shareholders of the parent company 1,498 1,452
Non-controlling interests (5) 4
1,493 1,456
EARNINGS PER SHARE
Basic and diluted earnings per share attributable
to shareholders of the parent company (US Dollars
per share) 9.5 9.2
Attachment B
INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2015
US Dollars million
31
30 June December
2015 2014
ASSETS
Non-current assets
Property, plant and equipment 7,587 7,011
Intangible assets 44 43
Investment property 115 -
Investments in associates 17 17
Other financial assets 277 204
Other taxes receivable - 6
Deferred tax assets 39 53
Other non-current assets 142 130
-
8,221 7,464
Current assets
Inventories 1,773 1,726
Trade and other receivables 181 275
Advances paid and prepaid expenses 83 63
Other financial assets 1 87
Income tax receivable 86 127
Other taxes receivable 182 178
Cash and cash equivalents 2,814 2,793
5,120 5,249
Assets classified as held for sale 305 436
5,425 5,685
TOTAL ASSETS 13,646 13,149
EQUITY AND LIABILITIES
Capital and reserves
Share capital 6 6
Share premium 1,254 1,254
Treasury shares (2) -
Translation reserve (4,234) (4,785)
Investment revaluation reserve 91 (2)
Retained earnings 7,710 8,295
Equity attributable to shareholders of the parent
company 4,825 4,768
Non-controlling interests 31 25
4,856 4,793
Non-current liabilities
Loans and borrowings 5,151 5,678
Employee benefit obligations 9 6
Provisions 399 274
Deferred tax liabilities 216 216
5,775 6,174
Current liabilities
Loans and borrowings 1,227 652
Employee benefit obligations 272 252
Trade and other payables 1,173 912
Provisions 159 156
Derivative financial instruments 7 5
Income tax payable 16 23
Other taxes payable 129 99
2,983 2,099
Liabilities associated with assets classified as held
for sale 32 83
3,015 2,182
TOTAL LIABILITIES 8,790 8,356
TOTAL EQUITY AND LIABILITIES 13,646 13,149
Attachment C
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 June 2015
US Dollars million
For the six months For the six months
ended ended
30 June 2015 30 June 2014
OPERATING ACTIVITIES
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