1H 2014 IFRS FINANCIAL RESULTS. August 28, 2014 Moscow

Transcription

1 1H 214 IFRS FINANCIAL RESULTS August 28, 214 Moscow

2 Disclaimer The information contained herein has been prepared using information available to OJSC MMC Norilsk Nickel ( Norilsk Nickel or NN ) at the time of preparation of the presentation. External or other factors may have impacted on the business of Norilsk Nickel and the content of this presentation, since its preparation. In addition all relevant information about Norilsk Nickel may not be included in this presentation. No representation or warranty, expressed or implied, is made as to the accuracy, completeness or reliability of the information. Any forward looking information herein has been prepared on the basis of a number of assumptions which may prove to be incorrect. Forward looking statements, by the nature, involve risk and uncertainty and Norilsk Nickel cautions that actual results may differ materially from those expressed or implied in such statements. Reference should be made to the most recent Annual Report for a description of major risk factors. There may be other factors, both known and unknown to Norilsk Nickel, which may have an impact on its performance. This presentation should not be relied upon as a recommendation or forecast by Norilsk Nickel, which does not undertake an obligation to release any revision to these statements. Certain market share information and other statements in this presentation regarding the industry in which Norilsk Nickel operates and the position of Norilsk Nickel relative to its competitors are based upon information made publicly available by other metals and mining companies or obtained from trade and business organizations and associations. Such information and statements have not been verified by any independent sources, and measures of the financial or operating performance of Norilsk Nickel s competitors used in evaluating comparative positions may have been calculated in a different manner to the corresponding measures employed by Norilsk Nickel. This presentation does not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any shares in Norilsk Nickel, nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision 1

3 1H 214 Highlights: Three-Fold Increase in FCF Robust performance driven by the new strategy focused on capital discipline, cost control and prudent cash management with ROIC expanding to 2% from 17%. Revenue of USD5.7 billion unchanged y-o-y amidst mixed metal markets with strong palladium prices and nickel posting recovery. EBITDA grew 9% to USD2.5 billion with margin expanding to 44% driven by cost reduction across all business segments and RUB depreciation against USD. Net profit almost tripled to USD1.5 billion. FCF (before financing) increased almost three times to USD2.4 billion driven by higher EBITDA, release of working capital and lower CAPEX. Working capital in the last 12 months reduced by USD2 billion of which USD.9 billion was released in 1H 214. Dividends for the full year 213 in the amount of RUB248.5 (approximately USD7.1) per ordinary share were paid in June 214. The total dividend paid (including interim dividends for 9M 213) in respect of 213 amounted to RUB per share (approximately USD14.), which was fully in line with payout targets approved by the Board. Leverage remained conservative with Net Debt to LTM EBITDA ratio reducing to.8x. Company s long-term credit rating upgraded by Fitch to investment grade (BBB-/Stable) reflecting strong financial profile and constant improvement in corporate governance. Shut down of the outdated and environmentally unfriendly Nickel Plant in Norilsk announced in line with the new strategy. 2

4 lost time injuries per 1,, hours Health and Safety Lost Time Injury Frequency Rate (LTIFR) Life protection is the critical priority target zero fatalities. Zero tolerance to any unsafe acts..47 Lost Time Injury Frequency Rate (LTIFR) in 1H 214 was down 38.2% y-o-y to.47 (in line with the global industry average). In 1H 214 Company improved the monitoring 212 1Н Н 214 system of all accidents to identify high-risk areas and adopted new methodology for reporting accidents in order to provide the management with the most accurate data. Source: Company data 1. LTIFR is calculated as the number of lost-time injuries per million hours worked 3

5 Accelerated Shutdown of Nickel Plant at Polar Division Nickel Plant the oldest asset in the Company s portfolio with high level of technological and physical obsolescence. Norilsk Nickel Plant Subject to completion of a joint initiative with the Government, Nickel Plant will be shut down by 216, which would allow Norilsk Nickel to streamline production footprint and improve environmental situation in the city of Norilsk. Norilsk Norilsk Nickel Plant Norilsk Nickel Plant Launch: 1942 Location: Smelting Capacity: Refining Capacity: Number of employees: SO 2 Emissions: Norilsk 1 kt of concentrate p.a. 12 kt of nickel per annum 3 5 people up to 4 kt per annum 4

6 Markets Overview

7 Preferred Metals Basket Best performing metal basket, YTD 35% Preferred metal basket for the medium term Commodity price outlook 6% 23% 17% 5% 4% 3% 77% of NN metal basket 4% -4% 6% -5% 2% 1% Ni Pd Pt Cu Al Gold Crude Oil Iron Ore % E 215Е 216Е 217Е -1% -2% -3% -33% -4% Nickel Copper Palladium Platinum Aluminum Gold Iron Ore Thermal Coal Source: Company data, Bloomberg consensus, Citi Research 6

8 Nickel Market: Surpluses are Being Removed Major market trends Nickel ore ban in Indonesia is having a major impact on the global market. Nickel oversupply to reduce along with Chinese NPI volumes. New projects outside China expected to ramp up in to offset some of Indonesian supply losses; but underinvestment in new mines will result in fewer new mines launched in the next 3-5 years. Ni demand growth driven mainly by stainless steel capacity expansions in China as well as healthy demand in USA and recovery in Europe. Above-the-ground inventories of nickel and ores are albeit substantial but gradually decreasing as the Indonesian ban holds. There is a supply risk that Philippines could follow Indonesia. LME nickel price and stocks weeks of global consumption LME stocks Nickel price ($/mt) Price, USD/t 6, 5, 4, 3, 2, 1, Nickel consumption by region, 214E (375 kt) 2% China Nickel market balance improving kt (199 kt) 1% (941 kt) 49% Europe & Africa Americas 16 (391 kt) 21% Asia w/o China (58) E 215E 216E Source: Norilsk Nickel, Wood Mackenzie, Bloomberg 7

9 212 Q1 212 Q2 212 Q3 212 Q4 213 Q1 213 Q2 213 Q3 213 Q4 214 Q1 214 Q2 214 Q3 214 Q4 212 Q1 212 Q2 212 Q3 212 Q4 213 Q1 213 Q2 213 Q3 213 Q4 214 Q1 214 Q2 214 Q3 214 Q4 Growing Nickel Consumptions China stainless steel production up strongly in 1H 214, kt +13% 6, +15% 4, 2, Other world exc. China stainless steel production recovering, kt 6, 4, 2, +8% +5% Ferritic Stainless Steel (4 series) High Ni-contained Stainless Steel (3 series) Low Ni-contained Stainless Steel (2 series) Primary nickel consumption (stainless steel), kt Y-o-Y Ferritic Stainless Steel (4 series) High Ni-contained Stainless Steel (3 series) Low Ni-contained Stainless Steel (2 series) Primary nickel consumption (non-stainless steel), kt 1,6 +3% 1,4 1,2 1, % 57% 48% 52% 2 41% E Nickel consumption in China Nickel consumption in other countries % 28% 29% 29% 3% 3% E Nickel consumption in China Nickel consumption in other countries 8

10 Nickel Ore Stocks in China are Depleting, Price Increasing China nickel ore import from Indonesia dried out, wet kt NPI production costs are expected to increase 1, 8, 25, 2, +29% +34% +27% Spot Ni price 18,8 USD/t 6, 15, 4, 1, 2, 5, Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Indonesia Philippines Nickel ore becomes more expensive in China 45 Index EAF RKEF BF E Nickel ore stocks in China are depleting wet kt 35, % YTD +92% YTD 3, 25, 2, 15, 1, 5, 5 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 E Filipino 1.8% Ni ore FOB Philippines Indonesian 1.8% Ni ore in Chinese ports high-grade ore (Ni > 1.7%) medium-grade ore (Ni %) low-grade ore (Ni <1.2%) Source: Nieba, China Customs, Wood Mackenzie, Bloomberg, Norilsk Nickel estimates 9

11 New Projects Unable to Satisfy Demand Growth New projects can hardly compensate NPI losses Nickel consumption is growing kt kt New projects growth Change at existing operations NPI production losses (incl. effect on Indonesian NPI ramp-up) New demand increase Source: Wood Mackenzie, Norilsk Nickel estimates 1

12 E 215E 216E 217E 218E 219E 22E Palladium Demand Outstrips Supply Rising usage of palladium in auto catalysts Pd demand in emissions control catalysts, Moz +3% p.a. Russian stockpiles have dried out Deliveries from Ministry of Finance stockpiles, koz E E Possible projects require feasibility study Supply outlook by expansion type, koz Palladium demand outpaces production Surplus / (deficit), koz 8, 7, 6, 1, 5, (5) Production at existing sites Probable projects (1) (95) Possible projects Primary metal consumption E 215E 216E Source: Companies results announcements, GFMS, Swiss customs data, SFA Oxford, Norilsk Nickel estimates Note: 1. Gross metal consumption less recycling. Investment demand is not included 11

13 Supply Side Issues in South Africa Africa controls 8%+ of Pt mine supply 214 Pt mine supply (3,625 koz) 7% (784 koz) 15% (46koz) 8% Operating costs in Africa are growing Total cash cost (excluding by-product credits), $/oz 4E 1,4 1,2 1, (377 koz) 7% S. Africa Russia N. America Zimbabwe E 9th centile Strikes and mine closures tighten the supply South Africa supply reduction owing to closures and strikes since 211, Moz and keeping the Pt market in deficit Surplus / (deficit), koz Platinum %.5 (1) 3.1 Palladium % (4) (45) 211 Strike related losses and capacity reduction 214E 211 Strike related losses and capacity reduction 214E E 215E 216E Source: Companies results announcements, GFMS, Swiss customs data, SFA Oxford, Norilsk Nickel estimates; 1. Release of refined inventory by SA producers 12

14 Growth in 1H 214 Argentina Brazil ASEAN India Russia Canada Turkey PGM Demand On The Rise Increasing demand for PGM: global car production up 5% y-o-y in 1H % 1% 5% Weighted average % -5% S. Korea USA EU Mexico Japan China -1% -15% -2% Share in the world automobile production -25% 11% 22% 33% 4 4% 5 5% 6 6% 7 7% 8 8% 9 9% 1 1% Palladium ETFs holdings change, y-o-y koz Platinum ETFs holdings change, y-o-y koz 1, (52) YTD YTD Source: Bloomberg, Companies results reports 13

15 Global Above-Ground PGM Stocks: Not as Much as it May Seem Above-ground stocks: only half of Pd and a third of Pt is available for immediate consumption at a right price Moz 12. The market is overestimating the size of available PGMs stocks Months of consumption not available for immediate consumption Palladium Platinum Rhodium. Palladium Platinum Not-For-Sale Stocks ( consumer inventory and production-inprogress, coins, strategic reserves, etc.) Restricted Availability (NYMEX & TOCOM, limitation on monthly delivery volumes) Norilsk Nickel Standard Bank Low Elasticity Stock (ETFs) Possibly Available Stock Source: Company estimates (June 214) 14

16 Copper Market Remains Balanced, Inventories low Major market trends The global market remains fairly balanced - expected surplus in 214 less than 1% of annual consumption. Lower LME stocks as metal moves to non-lme warehouses. Copper consumption in US and EU recovering; Chinese consumption still strong. LME copper price and stocks kt 1, Price, USD / t LME COMEX SHFE (L.H.S) Copper price (R.H.S) 12, 1, 8, 6, 4, 2, Copper consumption by region, 214E (4,48 kt) 2% China Copper supply / demand balance kt (2,986 kt) 14% (9,953 kt) 45% Europe & Africa Americas (4,569 kt) 21% Asia w/o China (33) E 215E 216E Source: Norilsk Nickel estimates, Datastream, Wood Mackenzie 15

17 1H 214 Financial Results

18 Sales & Distribution Results: Strong Pd Performance Base metals sales volumes: Ni down 4% y-o-y, kt PGM sales volumes: positive dynamics y-o-y, koz ,324 1, Nickel Copper Palladium Platinum 1H 213 1H 214 1H 213 1H 214 Realized metals prices: Pd price was up strongly USD/t USD/Oz 16,41 16,898 1,541 1, , ,969 Metal revenue breakdown: growing sales to Asia 5,149 5,22 1% 9% 1% 9% 25% 3% Russian Federation North America Asia 55% 52% 49% 44% Europe Nickel Copper Paladium Platinum 1H 213 1H 214 Source: Company data 1H 213 1H 214 1H 213 1H

19 Metals Revenue Practically Unchanged Revenue dynamics, USD mln Revenue unchanged y-o-y at USD5.7 bn in 558 5, ,149 5,258 5,22 1H 214 due to a combination of factors: Recovery on nickel market and strong palladium market performance; 2H 12 1H 13 2H 13 1H 14 Revenue from metal sales Revenue from other sales Metal revenue breakdown, USD mln Higher sales volumes of copper and PGMs; Negative impact of lower nickel sales volumes and lower copper and platinum prices; 5,149 5,22 4% 5% 9% 9% 19% 22% 25% 23% 43% 41% Others Platinum Palladium Copper Nickel Changes in realized prices: Up: nickel by 3%, palladium by 8%; Down: copper by 1%, platinum by 7%; Nickel realized premium over LME totalled 1%; 1H 13 1H 14 Source: Company data 18

20 Growth in EBITDA and Improved EBITDA Margin EBITDA increased by 9% y-o-y to USD2.5 bn driven by operating cost savings in Russia and RUB depreciation against USD. Total cash operating costs decreased by 8% y-o-y to USD2.2 bn. SG&A was almost flat y-o-y: 11% decrease in export customs duties and 2% reduction in administrative costs were offset by an increase in other S&D costs. EBITDA (USD mln) & EBITDA margin (%) EBITDA bridge, USD mln 3, 2,5 2, 1,5 43.7% 42.1% 39.7% 4.4% 32.7% 2,494 2,438 2,299 1,899 2,496 5.% 45.% 4.% 35.% 3.% 25.% 2, (31) (4) (5) 2,496 1, 2.% 15.% 5 1.% 5.% 1H 12 2H 12 1H 13 2H 13 1H 14.% 1H 213 Metal sales Other sales Cost of metal sales Cost of SG&A Other exp 1H 214 other sales expenses Source: Company data 19

21 Improving Management Control of Cash Costs Total cash costs down 8% y-o-y, USD mln USD mln 1H 214 1H 213 Y-o-Y Change Cash operating costs Labour (1%) Expenses on acquisition of raw materials and semi-products % Consumables and spare parts (24%) Outsourced third party services (24%) Tax directly attributable to cost of goods sold (14%) Utilities (2%) Transportation (18%) Sundry costs % Cash operating costs (before credits) 2,231 2,439 (9%) Revenue from sale of by-product metals (5) (8) (38%) Total cash operating costs 2,226 2,431 (8%) Cash operating costs were down 8% y-o-y: labour costs down 1% y-o-y due to effect of RUB depreciation against USD; consumables and spares down by 24% y-o-y due to improved procurement procedures, Norilskgazprom consolidation, and RUB depreciation; third party services down 24% y-o-y due to mothballing assets in Australia and cost savings in insurance; expenses on acquisition of raw materials increased 25% y-o-y owing to higher volumes of metals purchased; 1H 214 Total cash operating costs, USD mln Largest components of cash costs, USD mln 3rd party services $225 mln Other $341 mln 1% 15% 33% USD 2,226 mln Labor $729 mln 2, , Other 3d parties services Consumables & Spares Consumables & Spares $422 mln 19% 23% Cost of metals bought from 3d parties $59 mln H 13 1H 14 Cost of metals bought from 3d parties Labor Source: Company data 2

22 Operating Cash Cost Breakdown: Flat Y-o-Y in RUB Terms USD28 mln effect from the depreciation of RUB against USD (effect of translation to presentation currency). USD12 mln cost savings across most cash cost items driven by the cost optimization initiatives. USD12 mln seasonal increase in purchases of metals from 3rd parties. In RUB terms cash operating costs excluding purchases were almost flat y-o-y. Cash cost bridge, USD mln 2, (28) (7) (48) 5 (6) (4) 16 2,226 1H 213 FX Changes Cost of metals bought from 3d parties Labor Consumables & Spares 3d parties services Utilities Transportation Taxes Other 1H 214 Source: Company data 21

23 Working Capital Release of USD2 billion in LTM Working capital reduced by approximately USD.9 bn since the start of the year and by USD1.9 bn in the last twelve months: Increase in trade and other payables by USD55 mln mainly due to increase in advances from customers; Reduction of tax receivable and growth of tax payable totalled USD432 mln due to increase in income tax and VAT on the back of seasonality; Increase in inventories by USD62 mln primarily due to Norilsk Nickel Harjavalta stock accumulation; Net working capital bridge, USD mln 4,122 2,99 (55) (227) (25) 62 (23) ,127 1H FY Trade and other payables Taxes receivable Taxes payable Inventories Trade and other receivables Advances paid and prepaid expenses Employee benefit obligations Provisions 1H 214 Source: Company data 22

24 Management Focus on FCF Generation Free Cash Flow (before financing) almost tripled y-o-y to USD2.4 bn owing to: Reduction of working capital by USD487 mln in 1H 214 vs. working capital increase of USD189 mln in 1H 213; Increase in EBITDA by USD197 mln; Lower CAPEX on the back of more stringent investment governance system and weaker RUB/USD exchange rate and reduced infrastructure investments; FCF bridge (1), USD mln , H 213 WC movements EBITDA Income tax paid CAPEX Other adjustments 1H 214 Source: Company data 1. Free cash flow is a non-ifrs measure and is calculated as net cash generated from operating activities less net cash used in investing activities for the reported period 23

25 Capital Expenditures Discipline Driven by New Strategy USD mln 1, FX Effect - Reduced mandatory Capex - Investment discipline USD3 mln 1, H H E Mandatory CAPEX Skalisty mine Polar mines Talnakh Enrichment Plant Kola MMC Chita Copper Project Total capex decreased by 44% y-o-y to USD491 mln in 1H 214 owning to: RUB depreciation against USD; 7% 5% 13% Reduced infrastructure-related mandatory capex driven by new downstream strategy; Roll-out of investment discipline, improvement in payment terms and reduction in the price of selected capex items vs. budget; 7% 31% Source: Company data 24

26 USDm USDm Maintaining Conservative Balance Sheet Leverage reduced to.8x Net Debt/LTM EBITDA Strong Liquidity Position as of 1H 214 USD bn (2.61) H (.4) USD2.6 bn of cash and cash equivalents. Available credit lines of USD2.3 bn. Overall liquidity comfortably covers refinancing needs. Proactive Debt & Leverage Management Leverage (1) reduced to.8x Net Debt/LTM EBITDA as of 1H 214 despite challenging market conditions. 5-year bilateral unsecured credit lines of USD95 mln raised from several international banks. Company s long-term credit rating upgraded by Fitch to investment grade (BBB-/Stable). Liquidity and Debt Repayment Schedule (2) USD bn 3,5 3, ,558 6,558 3, 3, 3. 2,5 2,5 2,521 2,521 2, 2, 1.7 1,5 1,5 1,37 1,37 1,98 1, , 1, Cash Cash & Cash 214 Lines Lines Available available available Credit Lines Cash Cash Liquidity position Debt Unused repayments Credit Lines Lines Debt Structure Maturity ST 18% ST 7% LT 83% LT 82% LT 93% 1H 213 1H 214 Currency RUB 22% RUB 17% USD 82% USD 78% USD 83% 1H 213 1H 214 Collateral Sec 2% Unsec 8% Unsec 1% 1H 213 1H 214 Source: Company data, 1. Net Debt to Adjusted EBITDA, 2. As of June 3,214 25

27 214 Outlook We reiterate our bullish view on nickel market. We expect it to be balanced in 214 and develop a sizeable deficit in as the Indonesian export ban remains in place and unaltered. We expect copper market to remain balanced with low level of exchange inventories making the market vulnerable to supply side issues and recovery of demand in developed markets. We expect both palladium and platinum prices to increase due to a widening structural deficit in the PGM market, with palladium to platinum discount narrowing further. EBITDA Margin in 2H 214 will likely exceed 1H 214 on the back of higher sales volumes, cancellation of export duties on nickel and copper, stronger metals prices. We expect CAPEX for the FY214 at USD1.7 bn. Working capital is expected to decline to USD2 billion by the year end Interim dividends are expected to be announced in the autumn

28 Production Targets 214 (plan) 216 (plan) 218 (plan) Nickel, kt (225 23) Copper, kt ( ) (2) Platinum, koz (635 65) Palladium, koz 2,5 2,58 (2,585 2,665) 1 2,53 2,63 2,73 2,84 New basis for production guidance - from "Metals produced by Russian assets" (Guidance 213) to "Metals produced from own feedstock" (current guidance) Target volumes for 218 in line with the previous guidance (213), with the growth of production from own feedstock (up 6% for Ni 3 ) to overweight the effect of the exit from low-margin tolling operations Notes: 1. In brackets production targets for Russian Assets, including Kola Division tolling operations (similar to October 213 Guidance) 2. Including the effect of Bystrinsky project ramp-up 3. Guidance 213 included around 13kt of nickel, 4kt of copper, 15koz of platinum, 55koz of palladium made from tolling feedstock. 27

29 Q&A Session 28