Nornickel Gmk · RUS:GMKN

Nornickel Gmk — Norilsk Nickel — H1 2015 Earnings Presentation

38 slides from Nornickel Gmk's earnings presentation, Aug 31, 2015

  1. Slide 1: 1H 2015 IFRS Financial Results

    1H 2015 IFRS FINANCIAL RESULTS August 31, 2015 Moscow

  2. Slide 2: Disclaimer

    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 presen

  3. Slide 3: 1H 2015: EBITDA Growth, Leading Industry Margins and Returns

    1H 2015: EBITDA Growth, Leading Industry Margins and Returns  Robust performance driven by the new strategy focused on capital discipline, cost control and prudent cash management with ROIC expanding to 31%.  EBITDA grew 8% y-o-y to USD 2.7 billion with EBITDA margin expanding to industry leading

  4. Slide 4: Strong Financial Performance Relative to Global Peers

    Strong Financial Performance Relative to Global Peers Leading Profitability in 1H 2015, EBITDA Margin… … and Conservative Leverage, Net Debt/EBITDA 55% NN 0.6х 50% Rio 0.8х 41% BHP Billiton 1.1х Anglo 2.0х 28% Glencore 2.7х 25% Vale 2.9х 19% Source: Bloomberg, Company data. Note: 1. BHP Billiton adj

  5. Slide 5: Health & Safety – on Top of Management Priorities

    Health & Safety – on Top of Management Priorities Accidents Statistics  In 1H 2015, total number of accidents rose and Lost 106 Time Injury Frequency Rate (LTIFR) also increased 12 from 0.47 to 0.73 y-o-y due to increase of accidents at 63 the contractor companies and change in methodology 50 for r

  6. Slide 6: Markets Overview

    y Nw NORILSK NICKEL Markets Overview

  7. Slide 7: Markets 2015-2016 Outlook

    Markets 2015-2016 Outlook  USD appreciation against all major currencies Weak economic  Weak oil prices environment  Speculative pressure from investors and fund outflow from commodities  Concerns about sustainability of China’s economic growth and commodities demand  Healthy demand from Chines

  8. Slide 8: Currencies and Oil Price Effect on Commodities Prices

    Currencies and Oil Price Effect on Commodities Prices Commodity Prices are Inversely Correlated with … and Falling Faster than Last Year Trade-Weighted US Dollar 180 180 110 S&PGSCI Index -4% Corr (2012-2014) = -0.7 Corr (LTM) = -1.0 100 150 150 90 120 120 80 -13% 90 90 70 60 60 60 Aug 12 Feb 13 Aug

  9. Slide 9: Speculative Pressure Rising Despite Strong Fundamentals

    Speculative Pressure Rising Despite Strong Fundamentals Ni Price is Under Speculative Pressure: Positive Medium-term Consensus Outlook for Shorts are Rising Norilsk Basket 600 USD/t 25,000 kt Consensus commodity price outlook 400 20,000 20% 200 15,000 Norilsk 0 10% Nickel 10,000 -200 Metal Basket -4

  10. Slide 10: Nickel Market: Turning Point Pushed to 2H 2015, Deficit in 2016

    Nickel Market: Turning Point Pushed to 2H 2015, Deficit in 2016 LME Nickel Price Down 33%, LME Inventories Accumulation Slowed Down Inventories up 10% YTD in 1H 2015, Reversal in 3Q 15 500 kt USD/t 35,000 kt Q-o-Q change 70 400 30,000 60 25,000 50 300 40 20,000 200 30 15,000 20 100 10,000 10 0 5,000

  11. Slide 11: Global Nickel Demand: Healthy Growth Rates in 2015-2016

    Global Nickel Demand: Healthy Growth Rates in 2015-2016 Chinese Stainless Steel Remains Major Ni Demand Driver Consumption in Stainless Steel ХХ% Y-o-Y Consumption in non-stainless applications +4% +5% 2,200 2,140 kt +6% 2,060 +5% 1,970 2,000 1,859 1,766 1,800 1,600 1,400 1,200 1,000 2013 China Euro

  12. Slide 12: Ni-intensive Stainless Steel Production in China – Growth Driver

    Ni-intensive Stainless Steel Production in China – Growth Driver China Ni-intensive Stainless Steel Production up 300-series stainless steel production in China: Strongly in 1H 2015 Growth is Continuing in 2015 kt +11% -9% kt 10,400 +2% 3,600 (192) 3,200 10,200 -5% 10,139 +515 2,800 10,000 9,975 (15

  13. Slide 13: Ore Stocks in China are Depleting, Imports of Nickel Units Surge

    Ore Stocks in China are Depleting, Imports of Nickel Units Surge Chinese Ni Ore Inventories: High&Medium Grade Nickel Feed for Chinese NPI to Reduce by 35% Ore – Just Over a Month of Consumption Left by 2016 mt 500 50 8 Ni contained, kt 400 150 40 6 370 100 30 300 105 4 244 20 200 167 280 310 300 2

  14. Slide 14: New Nickel Projects Unable to Satisfy Demand Growth

    New Nickel Projects Unable to Satisfy Demand Growth New Projects Cannot Compensate for NPI Losses … Nickel Consumption Keeps Growing while… 120 kt Change in incremental supply kt Change in incremental demand +4% 100 400 +5% 350 80 80 300 +6% 250 90 60 200 40 150 111 100 20 50 93 0 0 2014 2015E 2016E

  15. Slide 15: Supply Side Response - Price Is Unsustainably Low

    Supply Side Response - Price Is Unsustainably Low Production Cuts: Approximately 8% Expected in Announced Nickel Output Cuts and Shut-Downs 2015 % of supply Price-driven shutdowns Type of Capacity Company Project name Reason product loss, kt 20% 18% Technical issues, Sherritt 16% 16% Ambatovy Nickel

  16. Slide 16: Nickel Feed for China: Little Progress So Far in Indonesia

    Nickel Feed for China: Little Progress So Far in Indonesia Only 3 Projects in Indonesia Have High Indonesia NPI Output Forecast for 2015-2020 Probability of Completion mt 234 274 Project Start Capacity, Process Status name year kt pa Ni 167 Indoferro BF Started 2013 12 109 54 PT Cahaya BF Started 20

  17. Slide 17: Investment Sentiment on PGMs – Negative in Short-Term

    Investment Sentiment on PGMs – Negative in Short-Term Weak Light Vehicle Sales in China: Concerns NYMEX Speculative Pd Positions: Shorts are at Over the Growth of PGM Demand in Autos Record High Levels 2015, Y-o-Y koz USD/oz 6,000 1,000 13% 13% 800 4,000 600 7% 2,000 5% 400 4% 0 3% 200 0% 0% -2,000

  18. Slide 18: Palladium Demand Outstrips Supply

    Palladium Demand Outstrips Supply Automotive Industry is the Major Driver for Pd Palladium ETFs Holdings Change: Demand Funds Outflow Reversed in 2Q 2015 moz +2% +2% koz Y-o-Y +1% +1% 9.9 10.0 1,104 9.6 9.6 9.7 904 507 430 381 24 (25) Autocat. Other Autocat. Other 2013 Jewellery 2014 Jewellery 2015E

  19. Slide 19: Platinum: Strong Recovery of Supply

    Platinum: Strong Recovery of Supply Automotive Industry is the Major Driver for Pt Platinum ETFs Holdings Change: Return of Demand Investors Appetite Y-o-Y moz +2% +2% koz 902 +4% +3% 8.5 8.1 8.3 7.8 7.6 583 384 276 228 183 98 102 2013 2014 Other Other Automobile Automobile 2015E 2016E 2017E Jewelle

  20. Slide 20: Copper Market Remains Balanced, Inventories Low

    Copper Market Remains Balanced, Inventories Low China Remains the Main Driver for LME Copper Price Not Far Above Historical Lows Cu Consumption Growth mt 1,000,000 kt Price, USD/t 12,000 +3% +3% 23.8 10,000 +3% 800,000 23.1 +5% 8,000 22.4 600,000 6,000 21.6 400,000 4,000 20.6 200,000 2,000 2013 Chin

  21. Slide 21: 1H 2015 Financial Results

    y Nw NORILSK NICKEL 1H 2015 Financial Results

  22. Slide 22: Sales & Distribution Results: Prices Down, Volumes Up

    Sales & Distribution Results: Prices Down, Volumes Up Base Metals Sales Up from Own Feed PGM Sales Volumes: Pd Down -1%, Pt Up 4% kt +3% kt koz koz +5% -1% 128 131 184 1,369 1,361 176 7 67 19 22 4 74 2 4 2 6 +4% 166 175 1,302 1,287 328 341 105 107 31 29 297 312 1H 2014 1H 2015 1H 2014 1H 2015 1H 201

  23. Slide 23: Revenue: Driven Down by Prices, Offset Up by Volumes

    Revenue: Driven Down by Prices, Offset Up by Volumes Nickel Revenue: Sales Volumes Up Palladium Revenue: Re-sale of Metals Down USD USD mln mln 17 (24) (380) (10) (15) 33 8 28 (29) 2,145 1,124 1,834 1,063 1H 2014 Market price Production Reduction Realised 1H 2015 1H 2014 Market Production Increase R

  24. Slide 24: 1H 2015 Sales: Market Environment vs. Company Performance

    1H 2015 Sales: Market Environment vs. Company Performance Revenue Bridge: Heavy Impact from Weak Markets USD Market Company Performance: Decrease of metal sales by 12% y-o-y to mln Environment USD 59 mln USD 4.6 bn due to: (670)  Decrease of realized prices (negative impact of USD 670 mln); 5,202 (

  25. Slide 25: EBITDA and EBITDA Margin: Growth Despite Weak Prices

    EBITDA and EBITDA Margin: Growth Despite Weak Prices EBITDA increased by 8% y-o-y to USD 2.7 bn, EBITDA Margin up to industry leading 55%:  Depreciation of RUB against USD contributed USD 791 mln to EBITDA;  Cancellation of nickel and copper export duties from August 2014 contributed USD 130 mln t

  26. Slide 26: Improving Management Control of Cash Costs

    Improving Management Control of Cash Costs Cash Cost Reduction in 1H 2015: Management 1H 2015 Cash Costs Breakdown Cost Controls and RUB Depreciation USD USD mln 2,226 mln Other Labour 16% Services 721 8% 41% USD 1,440 mln 1,440 15% 123 (7) 15 9 (7) Materials (68) 20% 1H 2014 Forex & Purchased Labou

  27. Slide 27: Net Working Capital: Further Reduction to USD0.7bn

    Net Working Capital: Further Reduction to USD0.7bn Further Optimization of Payment Terms and Advances from Customers USD mln 3,018 USD 1.9 bn (-64%) Markets and macro factors: Operating cash flow improvement: USD 153 million USD 215 million USD 0.4 bn 1,083 (36) (-34%) (46) (71) (36) (129) (64) 14 7

  28. Slide 28: Free Cash Flow Bridge: FCF / Revenue Up to 44% in 1H 2015

    Free Cash Flow Bridge: FCF / Revenue Up to 44% in 1H 2015 FCF Reduction(1) : Slow Down of Working Capital Release, Higher Capex and Taxes, Positive Off-set from EBITDA Growth USD mln (78) (246) 2,371 212 (229) 149 2,179 1H2014 Working capital release EBITDA CAPEX Income tax Other investing 1H2015 pa

  29. Slide 29: Financial Results (Annualized) Sensitivity to RUB/USD Rate

    Financial Results (Annualized) Sensitivity to RUB/USD Rate At the RUB/USD rate of 57.4, 1% change in exchange rate translates into:  EBITDA change of USD 26 mln; USD  FCF change of USD 41 mln; mln Average exchange rate 60.0 for 1H 2015 51 50.0 45 41 37 40.0 33 31 Change in 29 Free Cash Flow 30.0 2

  30. Slide 30: Maintaining Conservative Balance Sheet

    Maintaining Conservative Balance Sheet Leverage(1) Remained at 0.6x Net Debt/EBITDA The Highest Credit Rating from S&P Among Russian Metal and Mining Peers and Above Sovereign USD 4.58 bn 3.99 3.53 1.1 3.54 3.57 BBB- 0.8 BB+ BB+ BB+ 1.69 0.6 0.6 0.4 (2.61) 0.5 BB 2009 2010 2011 2012 2013 2014 1H 201

  31. Slide 31: Capex: Up in 1H 2015

    Capex(1): Up in 1H 2015 Cash Capex Bridge USD Cash capex in 1H 2015 up 16%: mln 8 58 18  Increase of investments in Norilsk (156) 150 upstream development - USD 150 mln (net 569 491 of FX);  Start of phase 2 of Talnakh enrichment 1H 2014 Forex Increase of Phase 2 of Nickel Other 1H 2015 mine Talna

  32. Slide 32: Major Projects Update

    y Nw NORILSK NICKEL Major Projects Update

  33. Slide 33: Talnakh Concentrator: Modernization and Expansion

    Talnakh Concentrator: Modernization and Expansion 2014 1H 2015 2016 Talnakh Stage 1– 7.7 Mt capacity Stage 2 – on track Talnakh Stage 2 – 10.2 Mt capacity Stage 1 overview Stage 2 progress Stage 2 overview  The basement for vertical grinding mills  Installation new flotation cells and new flotatio

  34. Slide 34: Skalisty Mine: Project Development on Track

    Skalisty Mine: Project Development on Track Project Overview  Greenfield project  Production capacity – 2.4Mtpa  Ore reserves: 58Mt  Total CapEx: ~RUB58 bn (for 2015-2025)  1H 2015 CapEx: USD88 mln  Estimated Project IRR > 50%  Progress in 1H 2015: 357m Shaft sinking Drifting 793m Existing ob

  35. Slide 35: Chita Copper Project Development Update (1/2)

    Chita Copper Project Development Update (1/2)  Rail link (Borzay – Gazimursky Zavod ) to the project site is 90% complete (227 km, 3.7 Mtpa capacity). Anticipated commissioning in 2016.  The agreement with a new contractor was signed to complete the final constructions on Borzay – Gazimursky Zavod

  36. Slide 36: Chita Copper Project Development Update (2/2)

    Chita Copper Project Development Update (2/2) The Conveyor Line to Warehouse for Crushed Ore Warehouse for Crushed Ore Verkhne- Ildikanskyi Open Pit Stripping Water Collector for Tailing Dump Source: Company data 35

  37. Slide 37: 2H 2015 Outlook

    2H 2015 Outlook  We remain cautiously optimistic on nickel in the near term as we see little further downside for nickel price as over 60% of the global industry is making a cash losses;  We remain neutral on copper and slightly moderate our demand growth forecast, which will be offset by a corres

  38. Slide 38: Q&A Session

    Q&A Session NORILSK NICKEL

Norilsk Nickel — H1 2015 Earnings Presentation on 6ix