KEY CORPORATE HIGHLIGHTS
|
USD million (unless stated otherwise)
|
2019
|
2018
|
Change,%
|
|
Revenue
|
13,563
|
11,670
|
16%
|
|
EBITDA¹
|
7,923
|
6,231
|
27%
|
|
EBITDA margin
|
58%
|
53%
|
5 p.p.
|
|
Net profit
|
5,966
|
3,059
|
95%
|
|
Capital expenditures
|
1,324
|
1,553
|
(15%)
|
|
Free cash flow²
|
4,889
|
4,931
|
(1%)
|
|
Net working capital²
|
985
|
867
|
14%
|
|
Net debt²
|
7,060
|
7,051
|
0%
|
|
Net debt, normalized for the purpose of dividend calculation⁴
|
4,952
|
5,160
|
(4%)
|
|
Net debt/12M EBITDA
|
0.9x
|
1.1x
|
(0.2x)
|
|
Net debt/12M EBITDA for dividends calculation
|
0.6x
|
0.8x
|
(0.2x)
|
|
Dividends paid per share (USD)³
|
26.3
|
21.3
|
23%
|
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) Normalized on interim dividends (at the rate of the Board of Directors meeting date) and deposits with maturity of more than 90 days
MANAGEMENT DISCUSSION AND ANALYSIS
The President of Nornickel, Vladimir Potanin, commented on the results,
"2019 became one of the most successful years for our Company in the last decade owing to a combination of strong operating performance and favorable macro tailwinds.
Increased mining volumes, steady ramp-up of new projects and completion of downstream reconfiguration programme drove output of all our key metals higher. This growth combined with strong nickel and palladium prices translated into a 16% revenue increase to 13.6 billion US dollars. Nonetheless amidst benign macro environment we continued to execute on operating efficiency programme and disciplined cost controls that enabled cash operating cost to remain in line with Russian CPI. As a result, our EBITDA increased 27% to 7.9 billion US dollars with EBITDA margin expanding to 58%. Following the management decision to radically reduce harmful emissions at our operations located on the Kola Peninsula, the Company accrued a provision of almost 200 million US dollars for the upcoming shutdown of certain production facilities of Kola MMC.
Net income almost doubled to 6 billion US dollars, while free cash flow amounted to approximately 5 billion US dollars for the second year in a row.
Our leverage remained low with net debt/EBITDA ratio decreasing to 0.9x. Owing to ongoing management efforts aiming at the optimization of debt portfolio, our interest paid decreased by more than 90 million US dollars. Overall, maintaining financial stability remains among our top strategic priorities.
Having completed last year our 5-year strategic cycle focusing mainly on the reconfiguration and modernization of downstream assets, we set up a solid base for further development of our business. In November last year, the next step was announced, when the investment community was presented with our new 10-year strategy setting ambitious targets for organic growth and radical reduction of environmental footprint.
By 2030, we plan to increase mined ore volumes at Talnakh deposit holding over 2 billion tonnes of ore reserves, by 75% to 30 million tonnes. As part of this strategy during the last year a number of key projects received final investment approvals such as the South Cluster, Talnakh Concentrator expansion and brownfield expansion of operating Talnakh mines.
In addition, we have approved a new holistic environmental programme that targets to bring sulfur capturing at our assets in line with the best-in-class global benchmarks. Upon the programme completion sulfur dioxide emissions at the Polar division are scheduled to decrease by 90% by 2025 and at the Kola division - by 85% already by 2021.
This production growth strategy and comprehensive environmental programme will require substantial increase in capital investments. Thus, already in 2020 we expect CAPEX to increase to 2.2-2.5 billion US dollars.
Last year we delivered again industry-leading returns to our investors."
HEALTH AND SAFETY
The lost time injury frequency rate (LTIFR) increased from 0.23 in 2018 to 0.32 in 2019, but remained well below the global mining industry average. At the same time, lost time injuries increased 40% y-o-y (from 32 to 44). Regretfully, in 2019 Company recorded the increase in the number of fatal accidents (from 6 to 9), partly due to the group accident at Taymirsky mine when we suffered 3 casualties in October 2019. According to the investigation, this accident was let to happen due to unsatisfactory organization of works caused by a combination of managerial and technical issues. Each fatal accident has been duly reported to the Board of Directors and has been thoroughly investigated in order to prevent fatalities in the future. The Company's management considers the health and safety of employees as the key strategic priority aiming to bring fatality rate to zero. A wide range of programmes and various initiatives to prevent occupational injuries and fatalities are being rolled out and implemented.
Overall, in 2019:
- 81 internal audits of HSE management system were held;
- 221 violations of cardinal safety rules were identified leading to dismissal of 159 employees (versus 105 in 2018);
In May 2019, the Company conducted an annual independent assessment of the current level of the occupational safety culture has been conducted and made numerous changes to the HSE systems of the Group. According to this assessment, the Company's integral score was raised to 2.8 points (out of the maximum of 4 according to Bradley Curve) in 2019 up from 2.6 points in 2017 (and compared to 1.4 points in 2014), close to global mining industry average of 3.0 points.
METAL MARKETS
Nickel in 2019 - market deficit narrowed to 42 kt as strong Chinese stainless demand (+13% y-o-y) was negatively offset by soft nickel consumption in stainless steel elsewhere; supply from Indonesia accelerated driven by continued ramp-up of NPI production and surge of nickel ore shipments in Q4 ahead of the export ban; exchange inventories were down 31 kt y-o-y to 191 kt; LME nickel price was up 6% y-o-y as on the news that Indonesian ore export ban would be brought forward built positive momentum in Q3.
In 1H2019, nickel price was under pressure from overall negative macro sentiment due to trade tensions between the US and China as well as weakening global manufacturing PMI. The market sentiment changed in August when the Indonesian government announced that the export ban on nickel ore would be brought forward by two years to January 1, 2020 as it wanted to push the investors to process more of the country's ore resources onshore. The price surged to a multi-year record of USD 18,625 per tonne in September, but in October-December the rally lost all its steam due to the stagnation of global stainless demand, soft EV sales in China and collapse of nickel premiums.
In 2019, average LME nickel price increased 6% y-o-y to USD 13,936 per tonne.
Developments on the supply side in 2019 were dominated by strong expansion of NPI (nickel pig iron) output in China and Indonesia, which combined were up almost 32% y-o-y driven by the availability of relatively cheap high-grade ore. Following the announcement of the ore export ban Indonesian ore shipments to China in 4Q2019 almost doubled y-o-y as the Chinese consumers tried to stockpile the feed. High-grade nickel production was up 1% y-o-y mainly driven by higher production from Nornickel, Jinchuan and BHP.
Demand dynamics was mixed across various geographies. The stainless steel nickel demand in China was up +13% y-o-y with a noticeable slowdown in the second half of the year. Stainless consumption by stainless producers in other regions was weak owing to the contraction of global PMI: Europe was down 7% y-o-y, Japan - down -10%, while South Korea was flat. Indonesia that had been expected to become one of the main drivers of the global stainless growth in 2019, did not increase its stainless output and thus nickel consumption as it struggled to penetrate export markets following introduction of trade barriers against Indonesian stainless in China, India and the USA.
Battery industry demand was up 38% y-o-y in 1H2019, where China was leading the growth with NCM cathode material production increasing by 50%. However, in 2H2019, as government subsidies for NEVs (new energy vehicles, including battery cars and all kinds of hybrids) in China reduced, NEV sales contracted sharply, leading to the annual electric car sales in 2019 of just 1.2 mln units, falling 40% short of initially expected 2 mln vehicles. Total global consumption of nickel in the battery sector reached 179 kt, +26% up y-o-y.
Nickel demand in other industries was almost flat. Specialty steels and alloys sector increased nickel consumption by 2% y-o-y, while plating was down 1%.
Combined nickel inventories at LME and SHFE decreased -16% y-o-y to 191 kt by the year-end reflecting the market being in deficit. However, the withdrawal of nickel from exchanges reversed in 4Q2019 when almost 90 kt were delivered back to LME warehouses. In our view, the key drivers for taking the metal off-warrant were expected growth in demand from the battery sector in 2020-21, Indonesian export ore ban and delays in the construction of Morowali HPAL project. However, dismal EV sales and stagnant stainless market in 2H2019 together with accumulation of ample nickel ore stocks in China ahead of the Indonesian ore ban pushed nickel price down. As paper gains of speculators started to evaporate and cost of carrying massive physical longs became too expensive, we believe that it was decided to return the metal to the exchange warehouses in order to free up cash. In 1Q2020, this trend intensified with combined LME and SHFE stocks increasing 60 thousand tonnes YTD.
Nickel outlook - neutral; we expect balanced market in 2020 as Indonesia continues growing its NPI production, while Chinese NPI is anticipated to be modestly down; Indonesian ban on the export of ore effected from January 1, 2020, is not expected to have a substantial effect on the market in the short-term, but should have a more material impact on the global supply in the medium-term, in our opinion; batteries for electric vehicles are expected to continue to be the key demand growth driver in the medium- and long-term supported by the roll out of regulations in most major car markets stimulating transition to carbon free cars; coronavirus outbreak in China has negatively affected the market sentiment and created short-term market uncertainty both on the demand and supply side.
We expect nickel market to be balanced in 2020 as Indonesia continues ramping up and commissioning of its NPI projects, which are expected to bring additional 150 kt of nickel units. Although Indonesian export ban will reduce the availability of ore feed to Chinese NPI smelters, the ore inventories (14 mln tonnes) accumulated in the country ahead of the ban and a potential increase of ore supply from the Philippines should mitigate this negative effect in the short-term, in our view. Thus, we expect Chinese NPI to decrease approximately 75 kt in 2020.
Production of high-grade nickel is also expected to increase in 2020, with nickel chemicals expected to grow by 16 kt mainly due to the commissioning of NiSO4 production by BHP and Jinchuan, and refined nickel growing by 41 kt reflecting the recent upward revisions of production guidance by Sherritt and Eramet.
Primary nickel consumption is expected to increase by 85 kt (+3%) to 2,538 kt in 2020. Primary nickel demand in Chinese stainless is expected to moderate to a 2% growth as the GDP growth rate is forecasted to slow down. Stainless demand in the rest of Asia is anticipated to increase +10% (as Delong should start to ramp up its capacities in Indonesia), while European consumption of nickel in stainless is expected to decrease 4% y-o-y as local producers, in our view, will continue to face strong competition from Asia with the local end use demand staying weak. The US nickel consumption is expected to slightly recover (+1% y-o-y) on the back of stable stainless output supported by effective import tariffs.
The growth rate of global nickel demand from battery material producers should moderate, in our view, to 17% y-o-y (down from 26% in 2019) reaching a combined volume of 210 kt in China, Japan and South Korea. The growth in EV penetration in 2019 in China was grossly disappointing with NEV sales posting a 4% reduction to 1.2 mln units (December 2019 monthly sales were down 31% y-o-y). The Chinese government goal to reach 5 million NEV sales by 2025, in our view, is now looking a bit stretched. Nevertheless, the shift to nickel-intensive NCM 8:1:1 chemistry in battery cathodes is well under way, with this technology expected to become mainstream in the next five years, which should support the steady growth of demand for nickel. Europe should also boost its EV production, in our view, as major OEMs will have to meet new emission legislation requirements and CO2 targets.
However, the recent outbreak of coronavirus in China poses a downside risk to our assumptions. While there are some signs that epidemic might be on a decline, major uncertainty remains. The Chinese government restrictions on mobility, extended work holidays and mandatory closures have imposed a significant disruption to the supply chain and already had a significant impact on end consumption. The extent of demand disruption makes it unlikely that the Q1 2020 losses can be fully recouped in 2Q and 3Q 2020, as the supply is also yet to recover as many migrant workers should return to mines and smelters. In addition, the ramp-up of new NPI capacity in Indonesia could be also delayed as according to on-the-ground sources, Chinese workers involved in the construction of NPI smelters and HPAL facilities in Indonesia have been put on a quarantine.
Copper in 2019 - balanced market amidst volatile macro environment; weak first and end-use consumption coupled with demand uncertainty due to geopolitical tensions, while supply disruption rate was running at 4% below historical average, put a downward pressure on the price that decreased 8% y-o-y.
Throughout 2019 copper price was trending lower due to weakening global manufacturing sector and disappointing grid investment in China, but remained bound within a range of USD 5,500-6,500 per tonne. In December, copper attempted to recover above USD 6,000 per tonne level as market sentiment improved owing to a Phase-1 trade deal between the US and China was signed. Nonetheless, the market sentiment abruptly deteriorated in the first weeks of 2020 due to the outbreak of the new coronavirus in China, which threatened the global economic growth as a result copper price went below USD 5,500 in the end of January.
The average LME copper price in 2019 decreased 8% y-o-y to USD 6,000 per tonne.
In terms of fundamentals, copper market in 2019 was by and large balanced, recording a marginal deficit of just 50 kt (accounting for approximately 0.2% of total market). Global refined copper demand increased just 80 kt (or +0.3% y-o-y), on our estimates, to 23.6 mln tonnes as a very modest consumption growth in China (120 kt), the rest of Asia (40 kt) and Americas (40 kt) was accompanied by for a major contraction in Europe (-120 kt). Expectations that China would boost its grid investments in 2H2019 did not materialize as the State Grid mandated its regional branches to be more rational about capital expenditures. In Europe manufacturing sector was weak owing to the soft demand from automotive and electrical industries.
In 2019, the refined copper production increased by 100 kt (+0.3% y-o-y) to 23.6 mln tonnes. The increase was driven by the ramp-up of new mines in Russia and Panama, brownfield expansions in Latin America and African copper belt and destocking of copper concentrates. Mine disruptions amounted to approximately 4% of global supply falling short of the 5-6% historic average, leading to global supply running slightly above market expectations.
Exchange stocks remained flat at 304 kt reflecting a well-balanced market overall.
Copper outlook - neutral; the market to remain balanced in 2020, in our view; the coronavirus epidemic has already had a negative impact on the commodity markets sentiment pushing down the prices of metals; the timing and the pace of economic recovery from coronavirus is likely to be a major swing factor for both supply and demand in 2020.
We anticipate that copper market will remain largely balanced in the near-term running a marginal deficit of less than 0.2% (or 50 kt) of the global consumption. The refined copper demand is expected to increase by 0.4 mln tonnes (+1.5% y-o-y) to 24.0 mln tonnes.
We expect China to lead this growth increasing its copper consumption by 100 kt in 2020. As of 1 January 2020, the Chinese Ministry of Finance approved the issue of RMB 1 trillion worth of special local government bonds to finance infrastructure investments including such copper-intensive sectors as railways and electrical grid. In addition, we believe that, the development of 5G infrastructure should also become a material growth driver of copper consumption this year. European and American consumption should also rebound from the low of 2019 increasing by approximately a combined of approximately 150 kt in 2020 led by robust demand in end-use products.
We admit, however, that the coronavirus poses a downside risk for the pace of demand recovery and undermine our demand assumptions, particularly, in 1Q2020. At the moment, due to large uncertainty about the duration and the ultimate health impact of the epidemic, we cannot quantify its impact on copper demand and supply, neither can time the market recovery. If the virus is contained by the end of this March, we find it reasonable to assume that the consumption losses could be recovered during the rest of this year, given that China has plenty of spare capacities across all coper-consuming value chain.
Supply is expected to increase 1.5% y-o-y to 23.9 mln tonnes in 2020 and almost match the copper demand.
Production, on our estimates, will increase following the ramp-up of new mines (Cobre Panama, Bystrinskoe, Sentinel) as well as brownfield expansions in Chile (Escondida, Collahuasi, El Abra, Caserones, Ministro Hales), Indonesia (Grasberg), DRC (Kamoto, Metalkol) and Zambia (Nchanga). We do not expect any major (above the historical average of 5% of mined production) supply disruptions that could materially affect market balance in 2020.
Palladium in 2019 - strong rally through the year with price setting record highs almost on a daily basis and reaching almost USD 2,800 per ounce in February 2020; despite premium to platinum expanding to more than USD 1,700 per ounce, the widely-discussed substitution still has not been happening; market continued to be in a structural deficit driven by strong automotive sector demand owing to tightening of emission legislation in all major car producing markets.
Palladium price delivered another year of exceptionally strong performance reaching almost USD 2,000 per ounce by the end of 2019 and then skyrocketing further to USD 2,800 per ounce in February 2020.
The average LBMA palladium price in 2019 increased 50% y-o-y to USD 1,538 per ounce.
In 2019, we estimate the market deficit at 550 koz. Industrial consumption increased 5% y-o-y (or by 440 koz) to 11.5 mln ounces driven by robust demand from the automotive industry following the rollout of stricter environmental regulations in practically all largest car markets, including China 6 in China, Tier 3 in the US, Euro 6d in the EU, and Bharat 6 in India. The spot market continued to be extremely tight with leasing rates jumping from 5% in January 2019 to 30-40% in January 2020. Nonetheless, since the price rally did not result in any inflows into palladium ETFs, this indicates, in our view, that the price surge was predominantly driven by industrial consumers, not speculative buyers.
Palladium premium to platinum ranged USD 400-1,000 per ounce in 2019, but widened to as much as USD 1,700 per ounce in Feb 2020. Widely held expectations of the past two years that the substitution of palladium with platinum in autocatalysts was imminent still have not materialized. Platinum-based formulations proved to be inefficient at operating at high temperatures, which are common for the modern gasoline car engines, and at neutralization of CH, CO and NOx emissions. On top of that, as far as we understand, OEMs are too busy with a transition of their internal combustion engines to EV technologies and thus do not want to spend both engineering, research and financial resources on new auto catalyst technologies.
In 2019, primary palladium supply increased 6% y-o-y to 7.3 mln ounces driven mainly by the release of work-in-progress inventory by Nornickel and South African producers. Recycled volumes increased 11% y-o-y to 3.5 mln ounces with processing capacities being fully utilized, on our estimates, in 2019.
Palladium outlook - positive; market deficit to reach 0.5 mln ounces in 2020 driven by continuing increase in loadings in autocatalysts on the back of further roll-out of China-6 standard and introduction of RDE tests in Europe; substitution with platinum is expected to be limited as an effective technical solution is not available; physical shortage of rhodium may lead to extra demand for palladium.
We expect industrial palladium consumption to increase by 100 koz in 2020 as growing automotive demand (+300 koz) will be offset negatively by the substitution that is taking place in more price sensitive industries such as jewelry, dental and electronics. In spite of a downward revision of global car sales forecasts by 3-5%, we estimate palladium loadings in light-duty petrol (gasoline) vehicles to increase by approximately 5-7% y-o-y following the nationwide adaptation of China 6 emission standard and introduction of real-drive emission (RDE) tests for European automakers.
We do not anticipate any major palladium substitution with platinum in the near term, owing to the technological challenges related with the differences in certain chemical properties of the two metals, making them not fully interchangeable in the modern autocatalysts. 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 2020, primary palladium supply is likely to decrease 2% y-o-y to 7.1 mln ounces, in our view, due to lower output in Russia and South Africa following very strong production volumes in 2019 driven by the one-off release of work-in-progress inventories. Recycling is expected to remain flat at approximately 3.5 mln ounces as capacity constraints do not allow to increase processing volumes.
Platinum in 2019 - market surplus was offset by healthy investment demand; industrial consumption remained soft due to automotive and jewelry sectors.
Platinum price was relatively stable throughout 2019, with a modest rally in the end of the year spilling over into January 2020, when the price climbed above USD 1,000 per ounce for the first time since 2017. The price was supported by strong investment demand as ETF inflows amounted to 1.4 mln ounces in 2019.
Fundamental factors, however, were rather weak as diesel share of new car sales in Europe continued to shrink and jewelry demand (particularly in China) was subdued. Total industrial consumption of platinum decreased 3% y-o-y to 7.8 mln ounces.
Primary refined production increased 3% y-o-y to 6.3 mln ounces, while recycling was up 8% y-o-y to 2.3 mln ounces.
The average LBMA platinum price decreased 2% y-o-y to USD 863 per ounce.
Platinum outlook - neutral; weak automotive demand to persist; substitution of palladium in autocatalysts is not happening; rationalization of supply in South Africa is expected to be put on the back burner due to strong PGM basket price owing to rhodium and palladium prices.
In 2020, we expect platinum demand to be flattish y-o-y at 7.8 mln ounces. The automotive demand will remain soft as the global car market is stagnating and the diesel ratio in Europe should continue to decrease, in our opinion. Jewelry sector demand in China will also continue to struggle as platinum is no longer considered a premium metal by local consumers. We expect glass industry to be the only sector to increase platinum demand in 2020.
Primary supply is expected to decrease 3% y-o-y to 8.4 mln ounces driven mostly by higher base in 2019, when Nornickel and South African producers released substantial volumes of PGMs from work-in-progress inventory. Although we may see some supply rationalization by Sibanye following its recent acquisition of Lonmin, we do not expect any major steps in this direction from other South African producers as the rally in palladium and rhodium prices resulted in a dramatic improvement of their cash flows.
KEY SEGMENTAL HIGHLIGHTS1
|
USD million (unless stated otherwise)
|
2019
|
2018
|
Change,%
|
|
Revenue
|
13,563
|
11,670
|
16%
|
|
GMK Group
|
13,836
|
9,742
|
42%
|
|
South cluster
|
864
|
-
|
p.p.
|
|
KGMK Group
|
3,115
|
911
|
3x
|
|
NN Harjavalta
|
1,172
|
1,026
|
14%
|
|
GRK Bystrinskoye
|
201
|
8
|
n.a.
|
|
Other mining
|
133
|
108
|
23%
|
|
Other non-metallurgical
|
1,412
|
1,514
|
(7%)
|
|
Eliminations
|
(7,170)
|
(1,639)
|
4x
|
|
EBITDA
|
7,923
|
6,231
|
27%
|
|
GMK Group
|
9,522
|
6,602
|
44%
|
|
South cluster
|
475
|
-
|
n.a.
|
|
KGMK Group
|
58
|
190
|
(69%)
|
|
NN Harjavalta
|
74
|
71
|
4%
|
|
GRK Bystrinskoye
|
349
|
96
|
4x
|
|
Other mining
|
(31)
|
(6)
|
5x
|
|
Other non-metallurgical
|
31
|
50
|
(38%)
|
|
Eliminations
|
(1,770)
|
(13)
|
n.a.
|
|
Unallocated
|
(785)
|
(759)
|
3%
|
|
EBITDA margin
|
58%
|
53%
|
5 p.p.
|
|
GMK Group
|
69%
|
68%
|
1 p.p.
|
|
South cluster
|
55%
|
n.a.
|
n.a.
|
|
KGMK Group
|
2%
|
21%
|
(19 p.p.)
|
|
NN Harjavalta
|
6%
|
7%
|
(1 p.p.)
|
|
GRK Bystrinskoye
|
n.a.
|
n.a.
|
n.a.
|
|
Other mining
|
(23%)
|
(6%)
|
(17 p.p)
|
|
Other non-metallurgical
|
2%
|
3%
|
(1 p.p.)
|
1) Segments are defined in the consolidated financial statements
In 2H2019, the Group updated its management accounting system in line with business changes. As a result, the South Cluster segment was separated from GMK Group segment in 2019.
In 2019, revenue of Group GMK segment increased 42% to USD 13,836 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 South cluster segment amounted to USD 864 million.
The revenue of Group KGMK segment increased more than three times to USD 3,115 million due to the launch of direct sales of semi-products supplied by GMK Group segment.
Revenue of NN Harjavalta increased 14% to USD 1,172 million. Higher sales volumes were supported by higher nickel price.
Revenue of GRK Bystrinskoye amounted to USD 201 million, which included sales of semi-products since the full commissioning of Bystrinsky project in September 2019.
Revenue of Other mining segment increased 23% to USD 133 million mostly driven by higher semi-products sales volumes and palladium price.
Revenue of Other non-metallurgical segment decreased 7% to USD 1,412 million. Lower sales volumes of Palladium Fund were partly compensated by higher palladium prices.
In 2019, EBITDA of GMK Group segment increased 44% to USD 9,522 million owing primarily to higher revenue and depreciation of Russian rouble. EBITDA of GMK Group segment included profit from the sale of semi-products to Group KGMK segment, which was eliminated from EBITDA of the Group.
The EBITDA of South cluster segment amounted to USD 475 million.
EBITDA of Group KGMK segment decreased 69% to USD 58 million primarily owing to the start of direct purchases of GMK Group segment semi-products.
EBITDA of NN Harjavalta increased by USD 3 million to USD 74 million.
EBITDA of GRK Bystrinskoye segment increased by USD 253 million and amounted to USD 349 million due to higher production volumes.
EBITDA of Other non-metallurgical segment decreased 38% to USD 31 million following one-off expenses in 2019.
EBITDA of Unallocated segment insignificantly changed 3% to a negative USD 785 million.
|
SALES VOLUME AND REVENUE
|
2019
|
2018
|
Change,%
|
|
Metal sales
|
|
Group
|
|
|
|
|
Nickel, thousand tonnes¹
|
230
|
217
|
6%
|
|
from own Russian feed
|
213
|
208
|
2%
|
|
from 3d parties feed
|
3
|
2
|
50%
|
|
in semi-products³
|
14
|
7
|
2x
|
|
Copper, thousand tonnes¹,²
|
479
|
455
|
5%
|
|
from own Russian feed
|
433
|
431
|
0%
|
|
in semi-products³
|
46
|
24
|
92%
|
|
Palladium, koz¹
|
2,988
|
2,974
|
0%
|
|
from own Russian feed
|
2,890
|
2,913
|
(1%)
|
|
in semi-products³
|
98
|
61
|
61%
|
|
Platinum, koz¹
|
714
|
668
|
7%
|
|
from own Russian feed
|
698
|
657
|
6%
|
|
in semi-products³
|
16
|
11
|
45%
|
|
Rhodium, koz¹
|
78
|
62
|
26%
|
|
from own Russian feed
|
69
|
62
|
11%
|
|
in semi-products³
|
9
|
-
|
100%
|
|
Cobalt, thousand tonnes ¹
|
7
|
4
|
75%
|
|
from own Russian feed
|
5
|
3
|
67%
|
|
from 3d parties feed
|
2
|
1
|
2x
|
|
Gold, koz¹,²
|
235
|
161
|
46%
|
|
from own Russian feed
|
184
|
155
|
19%
|
|
in semi-products³
|
51
|
6
|
9x
|
|
Average realized prices of refined metals produced by the Group
|
|
Metal
|
|
|
|
|
Nickel (USD per tonne)
|
14,355
|
13,531
|
6%
|
|
Copper (USD per tonne)
|
6,047
|
6,566
|
(8%)
|
|
Palladium (USD per oz)
|
1,524
|
1,025
|
49%
|
|
Platinum (USD per oz)
|
862
|
877
|
(2%)
|
|
Rhodium (USD per oz)
|
3,948
|
2,194
|
80%
|
|
Cobalt (USD per tonne)
|
26,756
|
68,604
|
(61%)
|
|
Gold (USD per oz)
|
1,393
|
1,264
|
10%
|
|
Revenue, USD million⁴
|
|
Nickel
|
3,388
|
3,013
|
12%
|
|
including semi-products
|
285
|
175
|
63%
|
|
Copper
|
2,877
|
2,977
|
(3%)
|
|
including semi-products
|
257
|
144
|
78%
|
|
Palladium
|
5,043
|
3,674
|
37%
|
|
including semi-products
|
194
|
98
|
98%
|
|
Platinum
|
628
|
596
|
5%
|
|
including semi-products
|
27
|
20
|
35%
|
|
Other metals
|
915
|
702
|
30%
|
|
including semi-products
|
172
|
55
|
3x
|
|
Revenue from metal sales
|
12,851
|
10,962
|
17%
|
|
Revenue from other sales
|
712
|
708
|
1%
|
|
Total revenue
|
13,563
|
11,670
|
16%
|
1) All information is reported on the 100% basis, excluding sales of refined metals purchased from third parties and semi-products purchased from Nkomati.
2) Includes semi-products, produced by GRK "Bystrynskoe" after ramp-up of Bystrinsky project that was fully commissioned in September 2019.
3) Metal volumes represent metals contained in semi-products.
4) Includes metals and semi-products purchased from third parties and Nkomati. Includes revenue from semi-products, produced by GRK "Bystrynskoe", after ramp-up of Bystrinsky project that was fully commissioned in September 2019.
Nickel
Nickel sales contributed 26% to the Group's total metal revenue in 2019, down from 27% in 2018. A 1 p.p. decrease was driven by palladium price that outperformed nickel price in the reported period.
In 2019, nickel revenue was up by 12% amounting to USD 3,388 million. The growth was driven both by higher realized nickel price (+USD 188 million) and increase in sales volume (+USD 187 million).
The average realized price of refined nickel increased 6% to USD 14,355 per tonne in 2019 vs USD 13,531 per tonne in 2018.
Sales volume of refined nickel produced from own Russian feed, increased by 2% (or +5 thousand tonnes) to 213 thousand tonnes owing to higher production volumes.
Sales volume of nickel produced from third-party feed increased 50% to 3 thousand tonnes primarily due to the increased processing of third-party feed at Harjavalta refinery.
In 2019, sales of nickel in semi-products increased 63% to USD 285 million primarily owing to higher sales volume of semi-products.
Copper
In 2019, copper sales accounted for 22% of the Group's total metal sales, decreasing 3% (or -USD 100 million) to USD 2,877 million primarily owing to lower realized price (-USD 227 million) which was partly compensated by higher sales volume (+USD 127 million).
The average realized price of refined copper decreased 8% from USD 6,566 per tonne in 2018 to USD 6,047 per tonne in 2019.
Physical volume of refined copper sales from the Company's own Russian feed remained unchanged at 433 thousand tons.
Revenue from copper in semi-products in 2019 increased 78% to USD 257 million primarily due to the ramp-up of Bystrinsky project that was fully commissioned in September 2019.
Palladium
In 2019, palladium accounted for 39% of total metal revenue, increasing 5 p.p. y-o-y. Palladium revenue increased 37% (or +USD 1,369 million) to USD 5,043 million due to higher realized price (+USD 1,484 million) and increased sales volume (+USD 34 million).
The average realized price of refined palladium increased 49% from USD 1,025 per troy ounce in 2018 to USD 1,524 per troy ounce in 2019.
Physical volume of refined palladium sales from the Company's own Russian feed remained stable y-o-y and amounted to 2,890 thousand troy ounces in 2019. Higher base effect in 2018 (from the sale of metal from stock accumulated in the Company's Palladium Fund in 2017) was compensated by higher sales volume in 2019 due to release of work-in-progress inventory.
Revenue of palladium in semi-products increased 98% to USD 194 million in 2019 primarily owing to higher sales volume of semi-products.
In 2019, revenue from the resale of palladium purchased from third parties amounted to USD 444 million (vs USD 593 million in 2018).
Platinum
In 2019, platinum sales increased 5% (or +USD 32 million) to USD 628 million and remained at 5% of the Group's total metal revenue. The higher sales volume (+USD 42 million) was partly compensated by decline of realized platinum price (-USD 10 million).
Physical volume of refined platinum sales from the Company's own Russian feed in 2019 increased 6% (or +41 thousand troy ounces) to 698 thousand troy ounces primarily due to release of PGM work-in-progress inventory.
Revenue of platinum in semi-products in 2019 increased 35% to USD 27 million primarily due to higher sales volume of semi-products.
Other metals
In 2019, revenue from other metals increased 30% (or +USD 213 million) to USD 915 million. This was primarily due to higher revenue from gold (+USD 123 million) mainly due to the ramp-up of Bystrinsky project, higher revenue from rhodium (+USD 155 million) resulting from the increase in price, which was partly negatively compensated by decrease in cobalt revenue (-USD 108 million) primarily due to price decrease.
Other sales
In 2019, other sales increased 1% to USD 712 million. Revenue growth in real terms that was primarily driven by higher fuel sales volumes was offset by the negative effect of Russian rouble depreciation.
COST OF SALES
Cost of metal sales
In 2019, the cost of metal sales was unchanged and amounted to USD 4,509 million. Main factors contributing to it were as follows:
- Increase in cash operating costs by 2% (or +USD 75 million);
- Increase in depreciation and amortisation by 13% (or +USD 82 million);
- Change in metal inventories y-o-y leading to cost of metal sales decrease of USD 153 million.
Cash operating costs
In 2019, total cash operating costs increased 2% (or +USD 75 million) to USD 3,818 million.
The positive effect of Russian rouble depreciation was fully offset by inflationary growth of cash operating costs.
Cash operating costs related to Bystrinsky project after its full commissioning amounted to USD 62 million in 2019.
|
USD million
|
2019
|
2018
|
Change,%
|
|
Labour
|
1,295
|
1,283
|
1%
|
|
Materials and supplies
|
712
|
727
|
(2%)
|
|
Purchases of refined metals for resale
|
438
|
430
|
2%
|
|
Purchases of raw materials and semi-products
|
402
|
436
|
(8%)
|
|
Third party services
|
239
|
200
|
20%
|
|
Mineral extraction tax and other levies
|
221
|
212
|
4%
|
|
Electricity and heat energy
|
155
|
143
|
8%
|
|
Fuel
|
101
|
87
|
16%
|
|
Transportation expenses
|
88
|
70
|
26%
|
|
Sundry costs
|
167
|
155
|
8%
|
|
Total cash operating costs
|
3,818
|
3,743
|
2%
|
|
Depreciation and amortisation
|
735
|
653
|
13%
|
|
(Increase)/decrease in metal inventories
|
(44)
|
109
|
n.a.
|
|
Total cost of metal sales
|
4,509
|
4,505
|
0%
|
Labour
In 2019, labour costs increased 1% (or USD 12 million) to USD 1,295 million amounting to 34% of the Group's total cash operating costs driven by the following:
- -USD 44 million - cost decrease owing to the Russian rouble depreciation against US Dollar;
- +USD 52 million - increase in real terms primarily driven by the indexation of salaries and wages in line with the terms of collective bargaining agreement;
- +USD 15 million - cost increase driven by ramp-up of Bystrinsky project that was fully commissioned in September 2019;
- -USD 15 million - cost decrease following the decrease of production staff headcount primarily due to disposal of a subsidiary.
Purchases of raw materials and semi-products
In 2019, purchases of raw materials and semi-products decreased 8% (or USD 34 million) to USD 402 million driven by the following:
- -USD 15 million - cost decrease owing to the Russian rouble depreciation against US Dollar;
- -USD 73 million - cost decrease owing to lower volumes of Rostec concentrate processing;
- +USD 29 million - cost increase owing to higher volumes of purchased semi-products from Boliden for processing at NN Harjavalta;
- +USD 24 million - cost increase driven by higher purchases of Nkomati concentrate.
Purchases of refined metals for resale
In 2019, expenses related to purchase of refined metals for resale increased 2% to USD 438 million owing to the increase in palladium price, most of which was offset negatively by decrease of purchased volume.
Materials and supplies
In 2019, materials and supplies decreased 2% (or USD 15 million) to USD 712 million driven by the following factors:
- -USD 18 million - positive effect of the Russian rouble depreciation;
- +USD 13 million - cost increase driven by commissioning of Bystrinsky project;
- -USD 10 million - lower materials and supplies expenses primarily related to lower consumption of materials, which was partly offset by inflationary growth of expenses.
Third-party services
In 2019, cost of third party services increased 20% (or USD 39 million) to USD 239 million mainly driven by:
- -USD 7 million - positive effect of the Russian rouble depreciation;
- +USD 15 million - costs increase primarily due to higher PGM refining costs due to release of PGM work-in-progress inventory and tariffs revision;
- +USD 10 million - cost increase owing to the commissioning of Bystrinsky project;
- +USD 13 million - cost increase mainly driven by higher Nkomati stripping costs.
Mineral extraction tax and other levies
In 2019, mineral extraction tax and other levies increased by 4% (or USD 9 million) to USD 221 million driven by the following:
- -USD 7 million - positive effect of the Russian rouble depreciation;
- +USD 13 million - cost increase driven by higher volumes of ore mined.
Electricity and heat energy
In 2019, electricity and heat energy expenses increased by USD 12 million to USD 155 million driven by the following:
- -USD 7 million - positive effect of the Russian rouble depreciation;
- +USD 14 million - cost increase driven by inflationary growth of expenses;
- +USD 3 million - cost increase owing to the commissioning of Bystrinsky project.
Fuel
In 2019, fuel expenses increased 16% (or USD 14 million) to USD 101 million driven by the following:
- -USD 3 million - positive effect of the Russian rouble depreciation;
- +USD 6 million - higher oil price;
- +USD 5 million - cost increase driven by commissioning of Bystrinsky project.
Transportation expenses
In 2019, transportation expenses increased 26% (or +USD 18 million) to
USD 88 million driven by the following:
- -USD 1 million - positive effect of the Russian rouble depreciation;
- +USD 9 million - costs increase driven by higher volumes of third-party transportation services in Norilsk industrial region;
- +USD 10 million - cost increase owing to the commissioning of Bystrinsky project.
Sundry costs
In 2019, sundry costs increased 8% (or +USD 12 million) to USD 167 million mainly driven by inflationary growth of expenses and commissioning of Bystrinsky project.
Depreciation and amortisation
In 2019, depreciation and amortisation expenses increased 13% (or USD 82 million) to USD 735 million.
Positive effect of Russian rouble depreciation amounted to -USD 19 million.
Depreciation charges in real terms increased by USD 101 million mainly due to transfers from construction in progress to production assets and full commissioning of Bystrinsky project.
(Increase)/decrease in metal inventories
In 2019, comparative effect of change in metal inventory amounted to -USD 153 million resulting in a decrease of cost of metal sales, primarily driven by accumulation of work -in-process and semi-products in 2019 excluding the changes in Rostec concentrate.
COST OF OTHER SALES
In 2019, cost of other sales increased by USD 62 million to USD 684 million.
Cost of other sales increased primarily due to higher fuel sales, higher repairs and inflationary cost growth, which were partly positively compensated by the Russian rouble depreciation.
SELLING AND DISTRIBUTION EXPENSES
|
USD million
|
2019
|
2018
|
Change,%
|
|
Marketing expenses
|
45
|
31
|
45%
|
|
Transportation expenses
|
43
|
39
|
10%
|
|
Staff costs
|
15
|
14
|
7%
|
|
Other
|
14
|
8
|
75%
|
|
Total
|
117
|
92
|
27%
|
In 2019, selling and distribution expenses increased 27% (or USD 25 million) to USD 117 million primarily due to increase in marketing expenses (USD 14 million).
GENERAL AND ADMINISTRATIVE EXPENSES
|
USD million
|
2019
|
2018
|
Change,%
|
|
Staff costs
|
601
|
569
|
6%
|
|
Third party services
|
117
|
96
|
22%
|
|
Taxes other than mineral extraction tax and income tax
|
77
|
103
|
(25%)
|
|
Depreciation and amortisation
|
69
|
38
|
82%
|
|
Transportation expenses
|
15
|
9
|
67%
|
|
Rent expenses
|
5
|
23
|
(78%)
|
|
Other
|
54
|
52
|
4%
|
|
Total
|
938
|
890
|
5%
|
In 2019, general and administrative expenses increased 5% (or USD 48 million) to USD 938 million. Positive effect of Russian rouble depreciation amounted to -USD 24 million. Changes of the general and administrative expenses in real terms were primarily driven by the following:
- +USD 48 million - increase in staff costs mainly due to one-off payments related to management bonuses, as well as salaries indexation;
- +USD 23 million - increase of third party services related to the automatization of production processes and roll out of digital technologies;
- -USD 24 million - reduction of property tax owing to changes in tax legislation in 2019.
OTHER OPERATING EXPENSES, net
|
USD million
|
2019
|
2018
|
Change,%
|
|
Social expenses
|
224
|
207
|
8%
|
|
Provision on production facilities shut down
|
190
|
-
|
100%
|
|
Change in other provisions
|
39
|
21
|
86%
|
|
Net income earned during the pre-commissioning stage
|
(192)
|
(106)
|
81%
|
|
Other, net
|
42
|
(27)
|
n.a.
|
|
Total
|
303
|
95
|
3x
|
In 2019, other operating expenses, net increased by USD 208 million to
USD 303 million driven by the following factors:
- Provision related to shut down of certain production facilities located at Kolskaya GMK (+USD 190 million);
- Net income generated by GRK "Bystrinskoye" from products sale during the hot commissioning stage (-USD 86 million);
- Change in other provisions, primarily including provision for obsolete and slow-moving inventory (+USD 18 million).
FINANCE COSTS, NET
|
USD million
|
2019
|
2018
|
Change,%
|
|
Interest expense, net of amounts capitalised
|
340
|
382
|
(11%)
|
|
Unwinding of discount on provisions and payables
|
84
|
100
|
(16%)
|
|
Changes in fair value of non-current liabilities
|
64
|
46
|
39%
|
|
Interest expense on lease liabilities
|
12
|
2
|
6x
|
|
Fair value (gain)/loss on the cross-currency interest rate swap
|
(199)
|
51
|
n.a.
|
|
Other, net
|
5
|
(1)
|
n.a.
|
|
Total
|
306
|
580
|
(47%)
|
The 47% decrease in finance costs in 2019 was primarily attributed to a change in the fair value of cross-currency interest rate swaps due to appreciation of Russian ruble against the US dollar as of December 31, 2019 as compared to the exchange rate as of December 31, 2018.
Furthermore, despite the increase in total debt, the average cost of the Group's debt portfolio decreased moderately owing to the monetary policies easing undertaken by the Federal Reserve of the USA and the Bank of Russia, both of which had a positive impact on debt obligations with a floating interest rate.
In 2019, Nornickel continued to optimize its debt portfolio aiming at the extension of debt maturity, which allowed to optimize a number of the Group's bilateral credit facilities totaling USD 962 million.
INCOME TAX EXPENSE
In 2019 income tax expense increased 85% to USD 1 558 million driven mostly by the increase of taxable profit.
The effective income tax rate in 2019 of 20.7% was above the Russian statutory tax rate of 20%, which was primarily driven by non-deductible social expenses.
The breakdown of the income tax expense:
|
USD million
|
2019
|
2018
|
Change,%
|
|
Current income tax expense
|
1,924
|
812
|
2x
|
|
Deferred tax (benefit)/expense
|
(366)
|
31
|
n.a.
|
|
Total
|
1,558
|
843
|
85%
|
|
The breakdown of the current income tax expense by tax jurisdictions:
|
|
USD million
|
2019
|
2018
|
Change,%
|
|
Russian Federation
|
1,883
|
789
|
2x
|
|
Finland
|
16
|
11
|
45%
|
|
Rest of the world
|
25
|
12
|
2x
|
|
Total
|
1,924
|
812
|
2x
|
EBITDA
|
USD million
|
2019
|
2018
|
Change,%
|
|
Operating profit
|
7,036
|
5,416
|
30%
|
|
Depreciation and amortisation
|
911
|
765
|
19%
|
|
Impairment of non-financial assets
|
(24)
|
50
|
n.a.
|
|
EBITDA
|
7,923
|
6,231
|
27%
|
|
EBITDA margin
|
58%
|
53%
|
5 p.p.
|
In 2019, EBITDА increased 27% (or +USD 1,692 million) to USD 7,923 million with the EBITDA margin amounting to 58% (up from 53% in 2018) owing to higher metal revenue and stringent cost control.
STATEMENT OF CASH FLOWS
|
USD million
|
2019
|
2018
|
Change,%
|
|
Cash generated from operations before changes in working capital and income tax
|
8,226
|
6,339
|
30%
|
|
Movements in working capital
|
(307)
|
941
|
n.a.
|
|
Income tax paid
|
(1,910)
|
(787)
|
2x
|
|
Net cash generated from operating activities
|
6,009
|
6,493
|
(7%)
|
|
Capital expenditure
|
(1,324)
|
(1,553)
|
(15%)
|
|
Other investing activities
|
204
|
(9)
|
n.a.
|
|
Net cash used in investing activities
|
(1,120)
|
(1,562)
|
(28%)
|
|
Free cash flow
|
4,889
|
4,931
|
(1%)
|
|
Interest paid
|
(460)
|
(551)
|
(17%)
|
|
Dividends paid
|
(4,166)
|
(3,369)
|
24%
|
|
Other financing activities
|
1,003
|
(384)
|
n.a.
|
|
Net cash used in financing activities
|
(3,623)
|
(4,304)
|
(16%)
|
|
Effects of foreign exchange differences on balances of cash and cash equivalents
|
130
|
(91)
|
n.a.
|
|
Net change in cash and cash equivalents
|
1,396
|
536
|
3x
|
In 2019, free cash flow remained stable at approximately USD 4.9 billion. Lower cash generated from operating activities was almost offset by lower cash used in investing activities.
In 2019, net cash generated from operating activities decreased 7% to USD 6.0 billion primarily driven by comparative effect of working capital increase in 2019 (versus decrease in 2018) and increase in income tax payments due to higher taxable profit and changes in intra-group operations which was partly positively offset by increase in EBITDA in 2019.
Interest paid reduced 17% to USD 460 million as a result of the optimization of debt portfolio.
Reconciliation of the net working capital changes between the balance sheet and cash flow statement is presented below.
|
USD million
|
2019
|
2018
|
|
Change of the net working capital in the balance sheet
|
(118)
|
1,282
|
|
Foreign exchange differences
|
112
|
(277)
|
|
Change in income tax payable
|
(26)
|
(5)
|
|
Change of long term components of working capital included in CFS
|
(158)
|
131
|
|
Settlement of tax reserves
|
(9)
|
(143)
|
|
Other changes including reserves
|
(108)
|
(47)
|
|
Change of working capital per cash flow
|
(307)
|
941
|
Capital investments breakdown by project is presented below:
|
USD million
|
2019
|
2018
|
Change,%
|
|
Polar Division, including:
|
502
|
696
|
(28%)
|
|
Skalisty mine
|
58
|
218
|
(73%)
|
|
Taymirsky mine
|
67
|
71
|
(6%)
|
|
Komsomolsky mine
|
54
|
44
|
23%
|
|
Oktyabrsky mine
|
27
|
40
|
(33%)
|
|
Talnakh Concentrator
|
14
|
29
|
(52%)
|
|
Sulfur project
|
24
|
36
|
(33%)
|
|
Other Polar Division project
|
258
|
258
|
0%
|
|
Kola MMC
|
221
|
292
|
(24%)
|
|
Bystrinsky (Bystrinsky) project
|
103
|
168
|
(39%)
|
|
Other production projects
|
489
|
386
|
27%
|
|
Other non-production assets
|
9
|
11
|
(18%)
|
|
Total
|
1,324
|
1,553
|
(15%)
|
In 2019, CAPEX decreased 15% (-USD 229 million) primarily due to adjustment of sulfur project schedule and optimization of certain production projects investment schedules.
DEBT AND LIQUIDITY MANAGEMENT
|
USD million
|
As of 31 December 2019
|
As of 31 December 2018
|
Change,
USD million
|
Change,%
|
|
Non-current loans and borrowings
|
8,533
|
8,208
|
325
|
4%
|
|
Current loans and borrowings
|
1,087
|
209
|
878
|
5x
|
|
Lease liabilities
|
224
|
22
|
202
|
10x
|
|
Total debt
|
9,844
|
8,439
|
1,405
|
17%
|
|
Cash and cash equivalents
|
2,784
|
1,388
|
1,396
|
2x
|
|
Net debt
|
7,060
|
7,051
|
9
|
0%
|
|
Net debt /12M EBITDA
|
0.9x
|
1.1x
|
(0.2x)
|
|
As of December 31, 2019, the Company's total debt increased by 17% (or USD +1,405 million) to USD 9,844 million as compared to December 31, 2018. The increase of total debt owed to new debt raised in the second half of 2019 in the form of two bond issues on the Russian and international debt capital markets, respectively, for a total amount of more than USD 1.1 billion, and recognition of obligations under lease contracts stemming from application of IFRS 16 Leases, which became effective on January 1, 2019.
In spite of the increase in total debt, the Company's net debt remained virtually unchanged due to doubling of the amount of cash and cash equivalents. Net debt/12M EBITDA ratio decreased from 1.1x as of December 31, 2018 to 0.9x as of the end of 2019 entirely due to an increase in 12M EBITDA.
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 December 31, 2019, Nornickel had investment grade credit ratings assigned from all three international rating agencies Fitch, Moody's and S&P Global, and Russian rating agency "Expert RA".
