20th Aug 2019 12:32
MMC Norilsk Nickel (MNOD) NORNICKEL REPORTS FIRST HALF 2019 INTERIM CONSOLIDATED IFRS FINANCIAL RESULTS 20-Aug-2019 / 14:31 MSK Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. PRESS RELEASE Public Joint Stock Company «Mining and Metallurgical Company «NORILSK NICKEL» (PJSC «MMC «NORILSK NICKEL», «Nornickel», the «Company», the «Group») NORNICKEL REPORTS FIRST HALF 2019 INTERIM CONSOLIDATED IFRS FINANCIAL RESULTS Moscow, August 20, 2019 - PJSC MMC Norilsk Nickel, the largest refined nickel and palladium producer in the world, reports IFRS financial results for six months ended June 30, 2019.
1H2019 HIGHLIGHTS Consolidated revenue increased 8% y-o-y to USD 6.3 billion owing to output growth of all key metals and higher palladium price; EBITDA expanded 21% y-o-y to USD 3.7 billion owing to higher metal revenue and the ramp-up of the Bystrinsky copper project, with EBITDA margin reaching 59%; CAPEX was almost unchanged from last year amounting to USD 0.5 billion. The Company made final investment decisions on strategic growth projects such as the expansion of the Talnakh concentrator (TOF-3 project) and the South Cluster mining project, with the active construction phase scheduled to start in 2H19; Net working capital temporarily increased to USD 1.3 billion as a result of scheduled amortization of advance payments for delivered metals from customers; Free cash flow amounted to USD 2.2 billion; Net debt/EBITDA ratio decreased to 0.8x as of June 30, 2019; Cash interest paid decreased 23% to USD 202 million owing to the ongoing optimization of debt portfolio; On February 12, 2019, Moody's upgraded the Company's credit rating to "Baa2" with a "Stable" outlook in the wake of raising Russia's sovereign ceiling for foreign currency debt to "Baa2" and upgrade of Russia's sovereign rating to investment grade level of "Baa3" with "Stable" outlook.RECENT DEVELOPMENTS On July 1, 2019, the Company paid final dividend for 2018 in the amount of RUB 792.52 (approximately USD 12.56) per ordinary share for the total amount of approximately USD 2.0 billion; On August 20, 2019, the Company's Board of Directors recommended to the General Meeting of shareholders (EGM) to approve interim dividend for the first half of 2019 in the amount of RUB 883.93 per share (USD 13.27 at the RUB/USD exchange rate the Russian Central Bank as of August 20, 2019) for the total amount of USD 2.1 billion. The Board of Directors set the date of the EGM on September 26, 2019 and the EGM record (the list of shareholders eligible to vote) date on September 2, 2019. The Board of Directors proposed to set the dividend record date (the list of shareholders entitled to the dividend) on October 7, 2019.KEY CORPORATE HIGHLIGHTS
1) A non-IFRS measure, for the calculation see the notes below. 2) A non-IFRS measure, for the calculation see an analytical review document ("Data book") available in conjunction with Consolidated IFRS Financial Results on the Company's web site. 3) Paid during the current period 4) Reported as of December 31, 2018
MANAGEMENT DISCUSSION AND ANALYSIS The President of Nornickel, Vladimir Potanin, commented on the results, "The first half of 2019 was marked by weak global macro environment as investors' sentiment was dominated by concerns over the slowdown of global economy and unfavorable outcome of the US-China trade negotiations. Therefore, prices on all our key metals except for palladium went substantially down. Amid these challenging market conditions, our Company managed to deliver solid financial performance owing to operating efficiency gains, which were further supported by strong palladium market. Output and sales of all our key metals increased and, importantly, the operating cost inflation was maintained below the Russian CPI. As result, the first half of 2019 revenue increased 8% y-o-y to USD 6.3 billion, while EBITDA was up 21% to USD 3.7 billion including about USD 160 million contributed by the Bystrinsky project that continued to ramp up. Our leading position among global diversified mining majors in terms of EBITDA margin was sustained. The Company continued to execute its key investment projects including construction of Bystrinsky copper project and upgrade of Kola refining capacity, which are nearing their completion. In the second half of the year, we plan to enter the active construction phase of recently approved South Cluster and third stage of Talnakh Concentrator upgrade (TOF-3) projects. We also reiterate our firm commitment to radically reduce the environmental footprint in the regions of our operations and implement the projects aiming at a substantial reduction of sulfur dioxide emissions in Norilsk and at Kola Peninsula. Taking into consideration USD 2.2 billion free cash flow and conservative leverage with net debt/EBITDA ratio down to 0.8x, the Board of Directors recommended for the shareholders' approval an interim dividend in the total amount of USD 2.1 billion". HEALTH AND SAFETY The lost time injury frequency rate (LTIFR) marginally increased 4% to 0.28 in 1H2019 from 0.27 in 1H2018, remaining well below the global mining industry average. At the same time, the number of lost time injuries was flat y-o-y, but dropped more than three times (from 43 to 15) since 1Н2015 driven the by the roll-out of cardinal basic safety rules, launch of video-information system, introduction of electronic medical examination systems, improvement of labour safety management system and a number of other initiatives.
Regretfully, in 1H2019 Company suffered four fatal injuries. The management considers the health and safety of its employees as the key strategic priority and reiterates its commitment to target zero fatality rate and continues to implement a wide range of initiatives aiming at further improvement of the health and safety records. In 1H2019, selected initiatives included the following: 44 internal audits of HSE management system; 70 employees fired for violation of cardinal health and safety rules (versus 33 in 1H2018).In May 2019, Bain & Company Russia Consulting conducted an annual independent assessment of the current level of the occupational safety culture as well as changes to the HSE systems of the Group made during the year. According to this assessment, the company's integral score was raised to 2.8 points (out of the maximum of 4) in 2019 up from 2.6 points in 2017 (and compared to 1.4 points in 2014).
METAL MARKETS Nickel in 1H2019 - market was in deficit as strong Chinese demand from stainless and battery sectors was negatively offset by surge in NPI production; exchange inventories were down another 40 thousand tonnes year-to-date helping to cover some of the deficit; LME nickel price was down 11% y-o-y as bearish macroeconomic sentiment and China-US trade tensions continued to negatively affect the market expectations despite positive sector-specific developments. In 1H2019, nickel price was quite volatile as the macro backdrop was negative due to trade tensions between the US and China as well as weakening global manufacturing PMI. On the other hand, sector-specific developments were positive, including the shutdown of Onça Puma, major upward capex revision of Tsingshan's HPAL project at Morowali in Indonesia and robust demand from Chinese stainless sector. At the very end of June, the Indonesian government reaffirmed its intention to reinstate the ban on the export of nickel ore as previously planned in 2022. If enforced the ban could wipe away almost 10% of global nickel supply. The market reacted positive to this news taking the metal price above USD 14,000 per tonne in July. In 1H2019, the LME nickel price averaged USD 12,315 per tonne, down 11% y-o-y. Developments on the supply side in 1H2019 were dominated by strong expansion of NPI output in China and Indonesia, which combined were up almost 25% y-o-y driven by the availability of relatively cheap high-grade ore, which additionally benefited NPI smelters' margins. At the same time, production of ferro-nickel was lower owing to the closure of Onça Puma in Brazil and underperformance of Koniambo and Doniambo in New Caledonia, while the production of high-grade nickel products was flattish as higher output by Norilsk Nickel and Jinchuan was offset by production decline at Vale. Demand dynamics was mixed across various geographies. While the stainless steel demand in China was up 10% y-o-y (though most of the growth was at stainless mills integrated upstream into NPI), the rest of Asia was flat. Noticeably, in 1H2019 the Chinese stainless steel producers accelerated the substitution of Class 1 nickel feed with NPI. European stainless output was down 6% y-o-y alongside contracting PMI, while the US was also down, but that was a result of high base effect of 1H2018. Battery industry remained the hottest spot of the nickel demand driven by growing EV production, higher driving range requirements, and ongoing shift in battery cathodes' chemistry mix towards reduced cobalt loadings in favor of higher nickel loadings. In 1H2019, nickel demand from the battery sector was up 38% y-o-y with China leading the growth with NCM cathode material production increasing by 50%. Electric car sales in 1H2019 soared 92% despite weak market conditions for the global light vehicles industry. In China, in particular, BEV sales jumped 111% y-o-y in a contrast with the total car sales being down 12% in the country. In line with our expectations nickel market remained in deficit in 1H2019. Exchange inventories continued their steady decline decreasing another 40 thousand tonnes supporting our assessment of the market running a deficit. At the end of June, the combined LME and SHFE nickel stocks stood at 182 thousand tonnes (or 28 days of global annual consumption). Nickel outlook - neutral; we expect the deficit in 2019 to narrow to approximately 60 thousand tonnes as Indonesia and China will continue growing their NPI output; Indonesian export ban if reinstated as scheduled in 2022 or earlier will put around 10% of global nickel production at risk, which could substantially alter the global supply landscape; EV batteries continue to be the key demand growth driver in the medium- and long-term supported by the carbon-free mainstream narrative. We expect that NPI production growth both in Indonesia and China will drive the nickel market into a mild surplus in 2H2019. In 2019, we forecast an annual deficit of approximately 60 thousand tonnes, implying a small increase from our prior estimate of 50 thousand tonnes deficit. In 2019, global nickel demand is expected to increase 4% y-o-y. We estimate that nickel consumption in stainless will grow 3% propelled solely by 300-series output in China (+7% y-o-y). Nickel consumption in specialty steels and alloys should also increase by approximately 3% y-o-y driven largely by aerospace and petrochemical processing industries. We anticipate that battery sector demand will slow down in 2H2019 due to steady fading of NEV subsidies in China, but still amount to approximately 25% y-o-y increase in 2019. The next big shift in nickel intensity in cathode materials is dependent on the roll out of the 8:1:1 (NCM) formulation and may take a few years, as the development has somewhat lost its steam due to the collapse in cobalt price and thus weakened incentive to reduce cobalt loadings in batteries. Nonetheless, the Chinese government NEV subsidies, which stimulate production of electric vehicles with longer driving range, continue to incentivize the chemistry shift in favour of higher nickel loadings, with a number of NCM 8:1:1 based cells already approved for the EV application. Hence, we expect that the 8:1:1 chemistry will gradually increase its market share and become the mainstream technology by 2025. In the long run, the biggest potential disruption for nickel supply and the market overall could come from the Indonesian government that is contemplating to reinstate the ore export ban. Under the 2017 mining regulation, Jakarta is scheduled to stop export of unprocessed ore starting January 2022 following a five-year grace period provided to miners deemed sufficient enough for them to build smelters onshore. Recently, however, the Indonesian officials suggested in public comments that the government might consider bringing the ban forward. At present, Indonesia exports annually over 220 thousand tonnes of nickel contained in the ore, which represents approximately 10% of the global supply. Whether Philippines as the only other alternative source of nickel ore feed to China will be able to compensate for the potential loss of Indonesia supply and to what extent remains to be seen. Copper in 1H2019 - volatile macro environment and bearish investors' sentiment undermined the price that was down 11% y-o-y The copper roller coaster seen in 2018 continued in 1H2019 as weakening global economy, strong US dollar performance and speculative positioning aligned with worse-than-expected industry fundamentals. In March-April, copper price made an attempt to consolidate at the level of USD 6,500 per tonne on expectations of an imminent trade deal between the US and China, but as the prospects for any near term resolution of the conflict got pushed back, metal price plunged below USD 6,000 per tonne in May. The average LME copper price in 1H2019 decreased 11% y-o-y to USD 6,165 per tonne. In terms of fundamentals, copper market in 1H2019 was by and large balanced. Global refined copper demand growth was sluggish (+1% y-o-y) as China disappointed on grid investments and auto production, while the copper consumption in the world ex-China was at best flat. Supply was mostly in line with the market expectations while disruptions were running low (less than 2% of global supply vs 5-6% historical average). Copper outlook - neutral; the market is expected to remain largely balanced in 2019-2020; the outcome of the US-China trade negotiations and currency movements will continue to dominate the investors' sentiment. We anticipate that copper market will remain largely balanced in the near-term running a marginal deficit of approximately 1% of the global consumption. In 2019, the deficit is forecasted of approximately 200-250 kt. Chinese demand should improve in 2H2019 as result of the local government accelerating investments into energy infrastructure. At the same time, the mine supply growth will continue to be constrained by the limited pipeline of new projects as producers worry of the global macro uncertainty and muted prospects of a positive outcome of the US-China trade conflict are likely to put on hold new developments. Global exchange inventories are running low, making the market balance sensitive to any potential major supply disruption or positive demand news. Palladium in 1H2019 - price consolidated above USD 1,400 per ounce; premium to platinum sustainably expanded above USD 500 per ounce as there was no indication that any substitution was happening or even contemplated; market continued to be in structural deficit as higher PGM loadings were offsetting weakening global auto sales. The rally in palladium price that started in 2H2017 continued through 2018 and well into 1Q2019, when in March the price hit the all-time high of USD 1,604 per troy ounce. This long winning streak was interrupted in late March when palladium price fell by nearly 200 USD in just two days. This downward correction was caused by a number of factors, which together comprised a short-term "perfect storm", including: liquidation of speculative long position following an almost non-stop price rally since August 2017; adjustment of the metal lease rates that took the upward pressure off the physical market; additional refined metal supply coming from secondary sources; material decrease in 1Q2019 automotive sales globally (-5% y-o-y) with negative dynamics in all key regions, including China (-11%), North America (-3%) and Europe (-2%).However, after a couple of days of elevated volatility, palladium price consolidated at USD 1,350-1,500 per ounce as investors regained confidence in the industry sustaining its strong fundamentals. The average LBMA palladium price in 1H2019 increased 40% y-o-y to USD 1,410 per ounce. In 1H2019, on our estimates, demand increased ahead of supply due to the rollout of new tighter environmental regulations in practically all largest regional car markets, including China 6, Tier 3 in the US, Euro 6d in the EU, Bharat 6 in India, which offset positively weak light vehicle production volumes. The market deficit was covered mainly by the release of work-in-progress materials by Norilsk Nickel and South African producers as well as sales of third party refined metal by Norilsk Nickel via its Palladium Fund. Palladium premium to platinum exceeded USD 500 per ounce. According to our observations, there was a little appetite for substitution of palladium with platinum as OEMs had not just to meet the stricter requirements of the tighter emission regulations, but also to comply with the more demanding environment of real world driving emission tests (RDE). Palladium outlook - positive; market deficit to amount to 0.6 mln ounces in 2019 driven by continuous growth of demand from autos on the back of tighter emission regulations in all major markets and introduction of RDE; no substitution with platinum is expected due to technical challenges; palladium remains the metal of choice for gasoline catalytic converters. Taking into consideration a softer auto market in 1H2019 we revise our palladium consumption forecast in automotive industry downward by 0.5 mln ounces to 8.9 mln ounces in 2019. Nonetheless, in our opinion, palladium demand has a strong support coming from the tightening environmental regulations in the most important car markets and the roll out of RDE, both of which require OEMs to increase PGM loadings. For instance, the launch of China 6 emissions standard this year has already translated into a stronger palladium offtake. We estimate that palladium loadings in light-duty petrol (gasoline) vehicles in China will increase by 15-20% y-o-y in 2019 and will continue to grow next year. We do not anticipate any major palladium substitution with platinum in the near term because of the technological challenges owing to specific chemical properties of the two metals, making them not fully interchangeable in the modern auto catalysts. According to our industry knowledge currently, automakers have a little appetite for changes in the catalysts chemistry as their engineering resources are focused on meeting new tighter emission legislation and RDE testing, and they do not have enough resources to conduct new catalyst formulation testing. In 2019, palladium demand from other sectors is expected to be flat at approximately 2.1 mln ounces. According to our estimates, primary palladium supply will reach 7.1 mln ounces (+250 thousand ounces) in 2019 due to increased production in Russia and South Africa, mostly as a result of the release of previously accumulated work-in-progress. Recycling volumes will also grow to 3.3 mln ounces (+100 thousand ounces). However, the growth of supply will not be able to fully cover the demand, implying that the market will remain in a structural deficit, which we estimate at approximately 0.6 million ounces in 2019. Platinum in 1H2019 - price rebounded from historic lows supported by investment demand on the back of gold rally; nonetheless, the price remained under pressure from weak automotive and jewelry demand. In 1Q2019, platinum price managed to rebound from USD 790 to USD 850 per ounce supported by higher investment demand as gold rallied after all major central banks continued to keep interest rates at almost-zero levels. However, fundamental factors such as soft demand from automotive (diesel share of new car sales in Europe fell from 38% in 1H2018 to 33% in 1H2019) and jewelry sectors kept the price under pressure. In 1H2019, the average LBMA platinum price decreased 12% y-o-y to USD 832 per ounce. Platinum outlook - cautiously positive; automotive demand is expected to remain soft, but jewelry consumption should stabilize, while the investment demand is likely to strengthen; platinum-intensive fuel cells may present a viable carbon-free alternative to electric cars in public transportation and heavy-duty vehicles. In 2019, we expect that the automotive demand will remain soft as the diesel ratio in Europe continues to fall. Nonetheless, we see some stabilization of jewelry demand as well as improving platinum consumption in electronics and glass industries. Supply is expected to increase 4% y-o-y to 8.6 mln ounces in 2019 driven mostly by higher recycling and additional ounces coming from the release of work-in-progress inventory in South Africa and to lesser extent at Norilsk Nickel. Some supply rationalization remains feasible, in our opinion, as the completion of Sibanye's acquisition of Lonmin may lead to curtailment of unprofitable mines. In our view, major downside risks for platinum are already priced-in. Dovish policies of major central banks and risks of global recession are stimulating investors to buy precious metals as a safe haven asset, which should be supportive for investors demand for platinum. We forecast that investment demand for platinum should amount to approximately 1 mln ounces in 2019. KEY SEGMENTAL HIGHLIGHTS1
1) Segments are defined in the consolidated financial statements In 1H2019, revenue of Group GMK segment increased 27% to USD 6,117 million. This was primarily driven by the growth of intersegmental sales revenue due to the launch of direct sales of semi-products to KGMK Group, which was additionally supported by higher refined metals production volumes and palladium price. The revenue of Group KGMK segment decreased 4% to USD 465 million. Increase in revenue from metal sales to external customers was offset negatively by the complete cessation of sales of own feed to NN Harjavalta and lower nickel price. Revenue of NN Harjavalta increased 7% to USD 522 million. Higher sales volumes were partially offset by lower nickel price. Revenue of GRK Bystrinskoye generated during the hot commissioning phase was included into other operating income and expenses. Revenue of Other mining segment increased 21% to USD 74 million mostly driven by higher semi-products sales volumes and palladium price. Revenue of Other non-metallurgical segment decreased 20% to USD 647 million owing to lower sales from Palladium Fund. In 1H2019, EBITDA of GMK Group segment increased 30% to USD 4,300 million owing primarily to higher revenue and depreciation of Russian rouble. EBITDA of GMK Group segment included unrealized profit from the sale of semi-products to Group KGMK segment and was eliminated from EBITDA of the Group. EBITDA of Group KGMK segment decreased 33% to USD 87 million primarily owing to the decrease of operating margin due to the reduction of realized nickel price and inflationary growth of expenses, which was exacerbated by the start of direct purchases of Polar division semi-products. EBITDA of NN Harjavalta increased by USD 16 million to USD 40 million owing primarily to increased revenue. EBITDA of GRK Bystrinskoye segment increased by USD 155 million and amounted to USD 160 million due to higher sales volumes generated during the hot commissioning stage. EBITDA of Other non-metallurgical segment increased by USD 13 million to USD 12 million. EBITDA of Unallocated segment changed 7% to a negative USD 382 million. Higher selling, administrative and other operating income and expenses were partly positively offset by Russian rouble depreciation.
1) All information is reported on the 100% basis, excluding sales of metals purchased from third parties and semi-products purchased from Nkomati. 2) Excludes semi-products, produced by GRK "Bystrinskoye". 3) Metal volumes represent metals contained in semi-products. 4) Includes metals and semi-products purchased from third parties and Nkomati. Excludes revenue from semi-products, produced by GRK "Bystrinskoye".
Nickel Nickel sales contributed 25% to the Group's total metal revenue in 1H2019, down from 27% in 1H2018. The decrease by 2 p.p. was driven by diverging palladium and nickel price trends as realized nickel price was down, while palladium was up. In 1H2019, nickel revenue remained unchanged and amounted to USD 1,499 million. Lower realized nickel price (-USD 137 million) was positively offset by higher sales volume (+USD 142 million). The average realized price of refined nickel decreased 10% to USD 12,781 per tonne in 1H2019 vs USD 14,141 per tonne in 1H2018. Sales volume of refined nickel produced from own Russian feed, increased 10% (or +10 thousand tonnes) to 108 thousand tons owing to increase in production volumes of KGMK. Sales volume of nickel produced from third-party feed doubled y-o-y to 2 thousand tonnes primarily due to the increase of nickel matte processing supplied by Boliden to NN Harjavalta. In 1H2019, sales of nickel in semi-products increased 16% y-o-y to USD 100 million primarily owing to higher sales volume of semi-products. Copper In 1H2019, copper sales accounted for 23% of the Group's total metal sales, decreasing 1% (or -USD 20 million) y-o-y to USD 1,385 million primarily owing to lower realized price (-USD 152 million) which was partly offset by higher sales volume (+USD 132 million). The average realized price of refined copper decreased 11% from USD 6,989 per tonne in 1H2018 to USD 6,221 per tonne in 1H2019. Physical volume of refined copper sales from the Company's own Russian feed increased 7% (or +14 thousand tons) to 205 thousand tons (excluding copper in concentrates, produced by GRK "Bystrinskoe"), owing to both processing of Polar Division ore with higher copper grade, as well as less stockpiling of metal in 1H2019. Revenue from copper in semi-products in 1H2019 increased 57% to USD 108 million primarily owing to higher sales volume of semi-products. Palladium In 1H2019, palladium remained the largest contributor to the Group's total revenue, accounting for 40% (+ 4 p.p. y-o-y). Palladium revenue increased 22% (or +USD 424 million) to USD 2,374 million due to higher realized price (+USD 571 million) which was amplified by increased sales volume (+USD 27 million). The average realized price of refined palladium increased 36% from USD 1,032 per troy ounce in 1H2018 to USD 1,406 per troy ounce in 1H2019. Physical volume of refined palladium sales from the Company's own Russian feed in 1H2019 slightly decreased 1% (or -20 thousand troy ounces) to 1,485 thousand troy ounces. The reduction in sales volume was due to the base effect of 1H2018, when the sale of own metals was higher as it included the metal from stock accumulated in the Company's Palladium Fund in 2017. This was partly compensated by higher production volume due to release of PGM work-in-progress inventory. Revenue of palladium in semi-products in 1H2019 increased two times to USD 101 million primarily owing to higher sales volume of semi-products. Additional USD 185 million to palladium revenue in 1H2019 was contributed by the resale of metal purchased from third parties (vs USD 359 million in 1H2018). Platinum In 1H2019, platinum sales slightly decreased 1% (or -USD 5 million) to USD 330 million and remained at 6% of the Group's total metal revenue. The decline of realized platinum price (-USD 36 million) was almost completely offset by higher sales volume (+USD 31 million). Physical volume of refined platinum sales from the Company's own Russian feed in 1H2019 increased by 9% (or +31 thousand troy ounces) to 380 thousand troy ounces primarily due to release of PGM work-in-progress inventory. Revenue of platinum in semi-products in 1H2019 increased two times to USD 15 million primarily due to higher sales volume of semi-products. Other metals In 1H2019, revenue from other metals increased 22% (or +USD 63 million) to USD 352 million, primarily owing to higher revenue from rhodium (up 78%) and gold (up 28%). Other sales In 1H2019, other sales decreased 2% to USD 352 million. The negative impact owing to Russian rouble depreciation was partly offset in real terms, primarily due to increase of oil products sales. COST OF METAL SALES Cost of metal sales In 1H2019, the cost of metal sales decreased 1% (or -USD 14 million) to USD 2,181 million. Main factors contributing to it were as follows: Decrease in cash operating costs by 5% (or -USD 89 million); Increase in depreciation and amortisation by 5% (or +USD 15 million); Change in metal inventories y-o-y leading to cost of metal sales increase of +USD 60 millionCash operating costs In 1H2019, total cash operating costs decreased by 5% (or -USD 89 million) to USD 1,773 million. The positive effect of Russian rouble depreciation (-USD 148 million) was partly offset by inflationary growth of cash operating costs by USD 56 million.
Labour In 1H2019, labour costs decreased 7% (or -USD 45 million) to USD 615 million amounting to 35% of the Group's total cash operating costs driven by the following: -USD 64 million - cost decrease owing to the Russian rouble depreciation against US Dollar; +USD 19 million - increase in real terms primarily driven by the indexation of RUB-denominated salaries and wages in line with the terms of collective bargaining agreement.Purchases of raw materials and semi-products In 1H2019, purchases of raw materials and semi-products decreased 5% (or -USD 13 million) to USD 246 million driven by the following: -USD 19 million - cost decrease owing to the Russian rouble depreciation against US Dollar; -USD 21 million - cost decrease owing to lower volumes of Rostec concentrate processing; +USD 19 million - cost increase owing to higher volumes of purchased semi-products from third parties for processing at NN Harjavalta.Purchases of refined metals for resale In 1H2019, expenses related to purchase of refined metals decreased 2% y-o-y to USD192 mln. Materials and supplies In 1H2019, materials and supplies expenses decreased by 15% (or -USD 50 million) to USD 275 million driven by the following factors: -USD 28 million - positive effect of the Russian rouble depreciation; +USD 12 million - inflationary growth of materials and supplies expenses; -USD 34 million - decrease in consumption primarily owing to reduction in repairs.Third-party services In 1H2019, cost of third party services increased by 5% (or +USD 5 million) to USD 96 million mainly driven by: -USD 8 million - positive effect of the Russian rouble depreciation; +USD 13 million - costs increase primarily due to higher PGM refining costs due to release of PGM work-in-progress inventory.Mineral extraction tax and other levies In 1H2019, mineral extraction tax (MET) and other levies were unchanged and amounted to USD 110 million. Positive effect of Russian rouble depreciation was offset by higher MET payments driven by increased volumes of ore mined at Polar division. Electricity and heat energy In 1H2019, electricity and heat energy expenses increased by USD 3 million to USD 77 million. Positive effect of Russian rouble depreciation was offset by energy price inflation. Fuel In 1H2019, fuel expenses increased by 7% (or +USD 3 million) to USD 48 million driven by the following: -USD 4 million - positive effect of the Russian rouble depreciation; +USD 7 million - primarily higher oil price.Transportation expenses In 1H2019, transportation expenses increased 19% (or +USD 6 million) to USD 38 million driven by the following: -USD 2 million - positive effect of the Russian rouble depreciation; +USD 8 million - costs increase driven primarily by higher volumes of third-party transportation services in Norilsk industrial region.Sundry costs In 1H2019, sundry costs increased by 9% (or +USD 6 million) to USD 76 million. Depreciation and amortisation In 1H2019, depreciation and amortisation expenses increased by 5% (or +USD 15 million) to USD 340 million. Positive effect of Russian rouble depreciation amounted to -USD 28 million. Depreciation charges increased by USD 43 million mainly due to transfers from construction in progress to production assets. Decrease in metal inventories In 1H2019, comparative effect of change in metal inventory amounted to +USD 60 million resulting in an increase of cost of metal sales, primarily driven by comparative effect of change in finished goods inventories. COST OF OTHER SALES In 1H2019, cost of other sales decreased by USD 21 million to USD 355 million. Cost of other sales increase primarily related to higher sales of oil products was partly offset by the positive effect of Russian rouble depreciation. SELLING AND DISTRIBUTION EXPENSES
In 1H2019, selling and distribution expenses increased 57% (or +USD 20 million) to USD 55 million primarily due to increase of marketing expenses (+USD 13 million). GENERAL AND ADMINISTRATIVE EXPENSES
In 1H2019, general and administrative expenses decreased 4% (or -USD 18 million) to USD 443 million. Positive effect of Russian rouble depreciation amounted to -USD 38 million. Changes of the general and administrative expenses in real terms were primarily driven by the following: +USD 20 million - increase in staff costs mainly due to salary indexation, roll out of industrial automatization and new IT systems; -USD 11 million - reduction of property tax owing to changes in tax legislation in 2019.OTHER OPERATING INCOME/(EXPENSES), NET
In 1H2019, other net operating income/(expenses) increased by USD 98 million to USD 18 million driven by the following factors: Net income generated by GRK "Bystrinskoye" from products sale during the hot commissioning stage (+USD 136 million); Increase of social expenses by USD 14 million.
FINANCE COSTS, NET
The decrease in finance costs by 64% in 1H2019 was primarily related to a change in the fair value of cross-currency interest rate swaps in the reporting period due to stronger ruble against the US dollar as of June 30, 2019 as compared to the exchange rate as of December 31, 2018, and also due to reduction in the amount of interest expense, net of amounts capitalized by 15%. Furthermore, in 1H2019, the average cost of the Company's debt portfolio remained unchanged despite amendments made to a number of bilateral loans for a total amount of USD 637 million aimed at extending duration of the debt portfolio. INCOME TAX EXPENSE In 1Н 2019, income tax expense increased 93% y-o-y to USD 776 million driven mostly by the increase of taxable profit. The effective income tax rate in 1H 2019 of 20.6% was above the Russian statutory tax rate of 20%, which was primarily driven by non-deductible social expenses. The breakdown of the income tax expense:
EBITDA
In 1H2019, EBITDА increased 21% (or +USD 640 million) to USD 3,719 million with the EBITDA margin amounting to 59% (up from 53% in 1H2018) owing to higher metal revenue and Russian rouble depreciation. NET PROFIT BEFORE NON-CASH WRITE-OFFS AND FOREIGN EXCHANGE DIFFERENCES
STATEMENT OF CASH FLOWS
In 1H2019, free cash flow decreased to USD 2.2 billion primarily due to lower cash generated from operating activities. In 1H2019, net cash generated from operating activities decreased 18% to USD 2.6 billion primarily driven by increase of working capital in 1H2019 (versus decrease in 1H2018). Interest paid reduced by 23% to USD 202 million as a result of the optimization of debt portfolio. Reconciliation of the net working capital changes between the balance sheet and cash flow statement is presented below.
Capital investments breakdown by project is presented below:
In 1H2019, CAPEX decreased by 7% (-USD 36 million) primarily due to completion of Bystrinsky project, a number of mining projects in Polar Division, optimization of investment schedules as well as depreciation of Russian ruble.
DEBT AND LIQUIDITY MANAGEMENT
As of June 30, 2019, the Company's total debt increased 5% (or +USD 406 million) to USD 8,845 million as compared to December 31, 2018. The main growth factors were recognition of obligations under lease contracts stemming from the application of IFRS 16 Leases, which became effective on January 1, 2019, outstanding short-term debt in the form of credit lines opened for the financing of working capital and appreciation of the ruble against the US dollar. Despite the existence of outstanding short-term debt on the portfolio of working capital credit lines, the short-term loans and borrowings of the Company decreased by 37% (or -USD 77 million) due to refinancing of a loan which also involved loan refinancing and its maturity extension to the period 2022-2024. Net debt/12M EBITDA ratio reduced from 1.1x as of December 31, 2018 to 0.8x as of June 30, 2019. This decrease was mainly attributed to the reduction in the net debt by 24% to USD 5,357 million due to increase in cash and cash equivalents. The liquidity reserves in 1H2019 increased not only because of the increase in cash and cash equivalents, but also because of the increase in the total limit of the portfolio of reserve credit lines from USD 4,290 million as of December 31, 2018 to USD 4,599 million as of June 30, 2019 resulting from entering into a new revolving credit line with an availability period of up to five years. In 1H2019, the Company continued to improve its debt portfolio, having revised terms and conditions of a number of loan agreements, which allowed to maintain refinancing risk of short-term debt at a low level and sustain interest rates at competitive terms. On February 12, 2019, international rating agency Moody's upgraded the Company's credit rating from "Baa3" with "Positive" outlook to "Baa2" with "Stable" outlook in the wake of change of Russia's credit rating to investment grade "Baa3" with "Stable" outlook. As of June 30, 2019, Nornickel had investment grade credit ratings assigned from all three major international rating agencies Fitch, Moody's and S&P Global, and additionally from Russian rating agency "Expert RA". Attachment A interim condensed CONSOLIDATED INCOME STATEMENT (unaudited) for the six months ended 30 June 2019 US Dollars million
Attachment B INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED) AT 30 JUNE 2019
US Dollars million
Attachment C INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED 30 JUNE 2019
US Dollars million
Attachment C INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED 30 JUNE 2019 (CONTINUED) US Dollars million
Attachment D NET WORKING CAPITAL
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 PJSC «MMC NORILSK NICKEL» is a diversified mining and metallurgical company, the world's largest producer of refined nickel and palladium and a leading producer of platinum, cobalt, copper and rhodium. The company also produces gold, silver, iridium, selenium, ruthenium and tellurium. The production units of «NORILSK NICKEL» Group are located at the Norilsk Industrial District, on the Kola Peninsula and Chita region in Russia as well as in Finland and South Africa. PJSC «MMC «NORILSK NICKEL» shares are listed on the Moscow and on the Saint-Petersburg Stock Exchanges. PJSC «MMC «NORILSK NICKEL» ADRs trade over the counter in the US and on the London and Berlin Stock Exchanges.
Media Relations: Investor Relations: Phone: +7 (495) 785 58 00 Phone: +7 (495) 786 83 20 Email: [email protected] Email: [email protected]
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| ISIN: | US55315J1025 |
| Category Code: | MSCH |
| TIDM: | MNOD |
| Sequence No.: | 17365 |
| EQS News ID: | 860251 |
| End of Announcement | EQS News Service |
UK Regulatory announcement transmitted by DGAP - a service of EQS Group AG. The issuer is solely responsible for the content of this announcement.
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