Norilsk posts near-tripling of net profit in 2014

Russian metals producer Norilsk Nickel has posted net profits for 2014 almost three times higher than it made in 2013, on higher average realised nickel prices and a “substantial reduction of cash operating costs”, as well as stronger revenues.

Russian metals producer Norilsk Nickel has posted net profits for 2014 almost three times higher than it made in 2013, on higher average realised nickel prices and a “substantial reduction of cash operating costs”, as well as stronger revenues.

Results breakdown
Net profit came to $2 billion in 2014, compared with $765 million in 2013, the company said in its annual results report for the year.

Earnings before interest, tax, depreciation and amortisation (Ebitda) were also up, rising 35% year-on-year to $5.7 billion, from $4.2 billion previously, thanks to the reduction in cash operating costs, as well as “favourable foreign exchange rate movements”.

The reduction in costs was a result of “cash cost optimisation, strong [London Metal Exchange] prices and rouble devaluation, as well as top-line growth”, the company said.

Consolidated revenue was up slightly, rising 3% year-on-year to $11.9 billion, thanks to the stronger nickel prices, as well as stronger palladium prices and increases in precious metals output.

“[There was] a capex decrease of 35% year-on-year to $1.3 billion, resulting from rouble depreciation, improved payment terms with contractors and successful roll-out of capital allocation discipline,” Norilsk said.

The company’s working capital fell by about $2 billion compared with 2013, to $1.1 billion by the end of 2014, it added.

Free cash flow was up 81% on the previous year, to $4.7 billion in 2014, following the growth in Ebitda, reduced capex and the fall in working capital. Dividends in 2014 were up 10% year-on-year to $20.70 per share, from $18.89 per share in 2013.

“Implementation of the new corporate strategy focused on enhancing Norilsk Nickel’s position as the global industry leader in terms of free cash flow generation and return on invested capital was well on track,” Norilsk ceo Vladimir Potanin said in a statement.

“Although the high volatility on the commodity markets was challenging for the global mining industry, overall, we consider 2014 as a favourable year for our business.”

On a unit-by-unit basis, Ebitda at the Polar Division in Russia was up by 21% year-on-year to $5.63 billion, and this unit contributed the lion’s share of the overall Ebitda.

Total Ebitda across the company was brought down slightly by losses of $61 million at its “other metallurgical assets”, and corporate costs and expenses of $377 million in 2014.

The 21% increase in Ebitda at the Polar Division was driven mainly by the depreciation of the rouble against the US dollar, which accounted for $875 million of the unit’s gains, and cash cost savings.

Ebitda at Russian unit Kola MMC was up 145% year-on-year to $346 million, also on the back of the rouble devaluation.

At Finland-based unit Harjavalta, Ebitda increased 60% on the sum in 2013, to $70 million, thanks to the devaluation of the euro against the US dollar.

The company’s metal sales revenue in 2014 was up 5% compared with the prior-year period, to $10.9 billion, on higher sales volumes of platinum group metals, along with an increase in realised prices for nickel and palladium.

“[This] almost fully offset the negative impact from lower nickel sales volumes [down 5% year-on-year] and weaker prices of copper [down 6% year-on-year] and platinum [down 6% year-on-year],” the company said.

The total effect of the increase in average realised prices was $517 million, offsetting lower physical sales volumes, which were down 5% to 273,000 tonnes, across the group, excluding South Africa.

Sales volumes for tolling metal fell 50% from 12,000 tonnes to 6,000 tonnes as a result of the company’s new downstream strategy, aimed at meeting all its refining capacity with its own feedstock.

Sales volumes for nickel produced at Harjavalta were down 7% year-on-year to 42,000 tonnes, following a reduction in output due to lower purchases of semi-products from third parties.

Nickel price rise
Nickel prices rallied from $13,500 per tonne at the start of 2014 to $21,000 per tonne by the end of the first half.

The average realised nickel price increased 13% year-on-year to $17,072 per tonne in 2014, from $15,156 per tonne in 2013.

In 2014, the company’s total cash operating costs were down 15% on 2013, to $4.07 billion, on rouble devaluation, as well as various cash cost optimisation initiatives.

Savings were negatively offset by a $109 million increase in the cost of the acquisition of raw materials, semi-finished products and scrap.

As of December 31, 2014, the company’s net debt was down 25% year-on-year to $3.5 billion.

2014 in review
The nickel market benefited from the introduction in January last year of the export ban on unprocessed ore from Indonesia, which is the largest supplier to nickel pig iron (NPI) producers in China, Norilsk said.

Speculation on a similar export ban by the Philippines also supported the rally, according to the company.

However, the market enthusiasm “faded away fairly quickly” as it emerged that a potential ban in the Philippines could be up to seven years away, while high levels of nickel ore stocks built up in Chinese ports before the Indonesian ban would mean Chinese producers could maintain unchanged NPI production.

The Philippines in fact increased shipments to China, partly offsetting the reduction in shipments from Indonesia, the company said.

Later in 2014, a stronger US dollar and falling oil prices put an additional pressure on base metals prices across the board, Norilsk said.

“As a result, [the] nickel price started to decline in [the second half], getting back to $15,000 per tonne in December. The average price in 2014 amounted to $16,867 per tonne [up 12% year-on-year],” it added.

See also:
China NPI prices fall as plunges in nickel prices sideline stainless mills
Poseidon takes full control of Black Swan

Claire Hack
Twitter: @clairehack_mb

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