NorNickel GMK · RUS:GMKN
NorNickel GMK — Nornickel — FY2018 Earnings Presentation
46 slides from NorNickel GMK's earnings presentation, Feb 26, 2019
Slide 1: 2018 Financial Results Presentation
1H 2018 FINANCIAL RESULTS 2018 Financial Results Presentation February 26, 2019 1 Moscow
Slide 2: Disclaimer
Disclaimer The information contained herein has been prepared using information available to PJSC MMC Norilsk Nickel (“Norilsk Nickel” or “Nornickel” 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
Slide 3: 2018 Financial Performance Highlights
2018 Financial Performance Highlights Consolidated Revenue Free Cash Flow Record high $11.7bn $4.9bn Realized metal prices: Ni, Cu, Pd EBITDA increase Pt price Reduction of working capital up 28% vs 2017 Sales volumes: Cu, Pd n.a. Lower CAPEX EBITDA CAPEX Completion of Chita Metal revenue $6.2bn $1.
Slide 4: Health & Safety: Delivering Steady Improvements
Health & Safety: Delivering Steady Improvements LTIFR: Improved to Record Low Levels Accident Statistics Improved in 2018 LTIFR (1*10-6) Employees Fatal -71% Lost time injury 12 14 8 8 0.80 13 94 0.62 74 0.48 0.44 56 6 0.35 52 43 0.23 26 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018
Slide 5: Reducing Environmental Footprint
Reducing Environmental Footprint Polar Division: Suphur Dioxide Emissions Kola Division: Sulphur Dioxide Emissions Down 5% from 2015 Reduced 30% from 2015 SO2 Emissions, kt SO2 Emissions, kt ~ -30% 180 -5% 2,000 150 1,600 120 90 1,200 60 800 30 400 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010
Slide 6: ESG Performance Highlights
ESG Performance Highlights Recognition of Norilsk Nickel ESG Efforts… …Leads to Gradual Improvement of ESG Assessment Signatory to UN Global Sustainalytics ESG Score: 69 points (out of Compact since 2016 100), Rated «Average Performer» since 2017 Rating in the global industry #13/45 #61/70 69 58 Ave
Slide 7: Markets Update
Markets Update
Slide 8: Weakening Macro and Strong US Dollar – Negative Backdrop for Commodities
Weakening Macro and Strong US Dollar – Negative Backdrop for Commodities Global PMIs Trending Lower Strong Trade-Weighted US Dollar Maintains Downward Pressure on Commodities Purchasing Managers Index 65 150 150 60 55 125 50 45 40 100 100 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18 Jan-19 USA C
Slide 9: Metal Markets Outlook – View on Fundamentals
Metal Markets Outlook – View on Fundamentals Metal Ni Cu Pd Pt Kt Kt Moz Moz -250 -120 -1.6 +0.8 Other Stocks, Non- Non- elastic days of exchange exchange Other Other consumption 80 non-elastic Exchange 9 32 Exchange 5 116 ETF 56 28 ETF 11 4 Jan-17 Dec-18 Jan-17 Dec-18 Jan-17 Dec-18 Jan-17 Dec-18 Kt
Slide 10: Nickel Exchange Stocks Are Rapidly Normalizing
Nickel Exchange Stocks Are Rapidly Normalizing Drawdown of Exchange Inventories Continues Inventories More than Halved from Peak Levels in 2019 Albeit at a Slower Pace and Went Below Historical Averages… Ni, kt Days of consumption 92 486 45 37 15 410 31 (2) 15-25 (1) 44 12 3 197 Cu Ni Normal Nickel
Slide 11: Global NPI Production Volumes Continue to Set Records
Global NPI Production Volumes Continue to Set Records Growth of Nickel Ore Supply to China Expected to …Leaving Indonesia as the Main Driver of Global Moderate in 2019-2020E… NPI Growth Ore, Mln wmt Kt, Ni Units 2018: Philippines +3% Y-o-Y 2018: Indonesia +292% Y-o-Y 36% of global Ni 71 +10 output %
Slide 12: Growth of Ni Demand in Stainless Steel Supported by Indonesia
Growth of Ni Demand in Stainless Steel Supported by Indonesia Indonesian Stainless Production – Chinese 300 Series Stainless Output Was Flat in 2018, the Main Driver of Nickel Demand Growth Expected to Pick Up Moderately in 2019 Mln t Indonesia Stainless (300s) Exports Mln t China 300s Stainless Out
Slide 13: Nickel Consumption in Batteries – Small But Rapidly Rising
Nickel Consumption in Batteries – Small But Rapidly Rising Market Share of Ni-intensive NCM/NCA Cathodes Within NCM Cathodes Chemistry Shifting Expected to Reach 67% in 2019E Towards Higher Ni Loadings Kt Breakdown of Global PCAM Production by type 67% 500 4% NCM 111 49% 400 25% NCM 523 300 135 216
Slide 14: Nickel Market: Robust Fundamentals
Nickel Market: Robust Fundamentals Nickel Market Balance: Decreasing Apparent Deficit Demand: Moderating Growth in 2019 on Weaker in 2019 Due to Slower Demand Growth Global Macro Kt Y-o-Y Kt +5% +7% 200 Surplus 2,420 2,313 25 14 38 30 150 12 36 -7 150 2,154 118 100 2017 2019E Indonesia Alloys& 2018
Slide 15: Copper: Demand Concerns and Supply Disruptions Missed Expectations in 2018
Copper: Demand Concerns and Supply Disruptions Missed Expectations in 2018 Copper Supply Disruptions: Abnormally Low in Moderating China’s Copper Demand Still the Main 2018 – Well Below Historical Average Driver of Global Consumption Growth in 2019 Mt Y-o-Y Mt Y-o-Y 3 9% 8% +3% 8% 24.5 +2% 2.5 +3% 7
Slide 16: Copper Market is Developing Small Deficit, Inventories Trending Lower
Copper Market is Developing Small Deficit, Inventories Have Been Trending Lower Inventories Running Tight and Near the Low of Copper Market Balance: 2014 Marginal Deficits to Expand in 2019E Days USD/t Kt 16 8,000 140 170 70 12 6,000 0 8 4,000 (120) 4 2,000 (320) 0 0 Feb-14 Feb-15 Feb-16 Feb-17 Feb-
Slide 17: Palladium Market Remains in Structural Deficit
Palladium Market Remains in Structural Deficit Global Palladium Market Balance: After Contraction in 2018 Some Recovery of Mine Major Apparent Deficit Holds Production Expected in 2019 Moz Moz Y-o-Y +3% 2011 2012 2013 2014 2015 2016 2017 2018 2019E +2% 0.1 10.4 0.1 0.0 10.1 0.2 9.9 0.1 0.1 0.3 (0.2)
Slide 18: Platinum Market is in Sustained Surplus
Platinum Market is in Sustained Surplus Global Platinum Market Balance: Apparent Deficit Increase in Supply Expected in 2019 from Expanding in 2019 Releasing Work-in-progress Pipeline Moz Moz Y-o-Y +6% nearly 0.4 Moz 0.1 8.9 surplus has been +1% absorbed by ETFs (2019 YTD) 0.4 0.1 8.4 1.0 8.3 0.1 0.
Slide 19: Physical Market is Running Tight
Physical Market is Running Tight Net Outflows from Palladium ETFs Continued: Over Palladium Market Backwardation Reflects Physical 800Koz since January 2017 Tightness Moz Forward Curve 1,600 2.0 1,400 1,200 1.5 1,000 800 600 1.0 1W 3W 2M 4M 6M 1Y 2Y 4Y 6Y 10Y Short-term Palladium Lease Rate are High
Slide 20: Environmental Regulations Significantly Impact Powertrain Evolution
Environmental Regulations Significantly Impact Powertrain Evolution Europe: Modern Diesels Satisfy CO2 China: China 6 Regulation Pushes OEMs to Emission Targets Increase PGM Loadings g/km Tightening NOx and CO Targets in China 0.2 China 5 EU CO2 Emission Limits & Current Emission by (nationwide in 2
Slide 21: Fleet Electrification Targets Imply Active Hybridization
Fleet Electrification Targets Imply Active Hybridization Major Automakers’ Plans: Hybrids and Internal Industry Expectations: Hybrids to Dominate in the Combustion Engines to Dominate Electric Vehicles Mix in the Long-term LV production ‘000 (%) hybrids share in global LV production Toyota 6% 94% by
Slide 22: Long-term Palladium Demand to Remain Strong
Long-term Palladium Demand to Remain Strong Significant Uncertainty in the LT Outlook for Electric 2025 Scenarios of Global Light Vehicles Mix: Vehicles Results in a Wide Range of Expectations Gasoline and Hybrids to Dominate Market Share CAGR 2017-2025E BEV Hybridization Diesel (Bullish case) (Base
Slide 23: Premium of Palladium to Platinum is Sustainable in the Mid-Term
Premium of Palladium to Platinum is Sustainable in the Mid-Term Palladium Established a Sustainable Premium to … as Pd Loadings in Gasoline Vehicles are Platinum on Stronger Fundamentals… Supported by Higher Fair Value-in-Use USD/oz Palladium Platinum 1,000 Higher Lower 500 Thermal 0 durability Plat
Slide 24: Auto Driven Metal Demand Growth in 2018-2025E
Auto Driven Metal Demand Growth in 2018-2025E Metal Pd Ni Cu Moz Kt Kt 270 2.5 1,543 37 375 (41) 0.4 38 819 1.8 195 390 0.3 ICE only Hybrids PHEV Total BEV PHEV Hybrids Total Charging Hybrids BEV ICE Total stations inc PHEV Consumption Cu in electric engines Ni in batteries and generators Ni in stai
Slide 25: Nornickel's Metal Basket Content by Light Vehicle Type
Nornickel’s Metal Basket Content by Light Vehicle Type Hybrid Gasoline Diesel incl. PHEV BEV FCEV CAGR1 0% 0% +27% +26% +21% Market Share2 61% 17% 17% 6% <1% Stainless Steel & Parts +Batteries Ni 2–3 kg 2-4 kg 2-4 kg 5–15 kg 30–110 kg Wires & Parts +Electric Motor, Generator Winding Cu 20-25 kg 20-2
Slide 26: 2018 Financial Results
2018 Financial Results
Slide 27: Metal Sales Volumes and Realized Prices
Metal Sales Volumes and Realized Prices Base Metals Sales: Strong Growth of Copper PGM Sales: Strong Growth of Palladium on Destocking Nickel(1) [kt] Copper(3) [kt] Palladium(1) [koz] Platinum [koz] +17% +20% -1% -1% 461 3,041 395 6 232 229 24 67 9 2,543 61 705 696 18 3 9 16 1 2 12 7 93 45 52 38 28
Slide 28: Metals Revenue: Up on Strong Commodity Markets and Sales Volumes
Metals Revenue: Up on Strong Commodity Markets and Sales Volumes Nickel Revenue: Up 25% on Higher Prices Copper Revenue: Up 23% on Higher Sales Volumes and Prices [USD mln] [USD mln] +23% +25% 128 2,977 3,013 2,416 2,422 120 435 611 -14 2017 Realized Sales 2018 2017 Realized Sales 2018 price volume
Slide 29: Consolidated Metal Revenue
Consolidated Metal Revenue Metal Revenue Up on Higher Prices and Geographical Breakdown of Metal Sales Sales Volumes [USD mln] [% of USD sales] 2017 2018 Company Macro performance 56% 54% factors USD 1,294 mln 7% 4% 10,962 Russia and CIS 308 8,415 986 1,253 1 2 14% 15% Europe 23% 27% North and South
Slide 30: EBITDA and EBITDA Margin
EBITDA and EBITDA Margin Industry Leading EBITDA Margin 2018 EBITDA: Up on Strong Macro and Operating Performance [USD mln] [USD mln] 53% 50% Macro One-off Operating 48% 47% factors factors factors 44% 9p.p. +1,322 +91 +823 37% 6,231 5,681 542 155 58 85 6,231 1,217 241 91 -17 56% 4,198 4,296 -136 3,
Slide 31: Operating Cash Costs: Weathering Out Inflation Pressure
Operating Cash Costs: Weathering Out Inflation Pressure Operating Cash Costs Changes in 2018 2018 Cash Costs Breakdown [USD mln] Macro Operating [%] Other factors factors +15 15% -96 3,855 Labour 163 34 3,774 Services 104 -58 5% 35% -200 -124 3,774 Materials 22% 23% 2017 Forex Domestic Production Ef
Slide 32: Net Working Capital in 2017–2018
Net Working Capital in 2017 –2018 Macro factors Operating factors [USD mln] -277 -1,005 -277 194 -220 -1,026 2,149 1,872 47 867 31-Dec-17 FOREX Accumulation of Decrease in Optimization of Other 31-Dec-18 metal inventory palladium stock capital structure Cost of inventory (USD112 mln) Cash advanc
Slide 33: FCF Increased to Almost USD 5 Billion
FCF Increased to Almost USD 5 Billion on EBITDA Growth and Release of Working Capital [USD mln] 2,236 -117 4,931 2,611 449 -75 -173 2017 Capex Other investing WC change Change in Income tax paid 2018 activities EBITDA 33
Slide 34: Financial Results Sensitivity to USD/RUB Exchange Rate
Financial Results Sensitivity to USD/RUB Exchange Rate At USD/RUB rate of 69.5, 1% change in exchange rate translates CAPEX and OPEX Break Up by into EBITDA change of USD34.9 mln, FCF change of USD51.5 mln Currency in 2017 and 2018 [USD mln] OPEX(1) 80 Non- Non- RUB RUB 15% 10% 65.0 59.6 2017 2018 6
Slide 35: Allocation of Capital Investments
Allocation of Capital Investments CAPEX(1) Breakdown by Projects CAPEX(1)Allocation: Commercial and Stay-in-Business 2.0 [USD mln] 2,002 [USD bn] Skalisty mine 216 Talnakh concentrator 89 0.2 1.6 Sulphur project 37 1,553 Commercial Other mine development 180 218 Kola 228 1.3 29 36 155 0.9 Environmen
Slide 36: Balance Sheet Management
Balance Sheet Management Historical Leverage: Proactive Debt Management ND/EBITDA Back to Mid-Cycle Average [USD bn] New credit lines signed for the total amount of approximately USD3.5 bn increasing the total amount of available committed credit lines to 2.1x approximately USD4.3 bn 1.2x 1.0x 1.1
Slide 37: Projects Update
Projects Update
Slide 38: Key Upstream Project of Polar Division – Skalisty Mine Development
Key Upstream Project of Polar Division – Skalisty Mine Development Project Description Production capacity: 2.4 Mtpa Ore reserves: 66 Mt Capex 2018: US$230 mln Capex 2019-2024: ~US$0.8 bn Project Timeline Commissioned mining capacity in 2015-2018: 1,350 ktpa Completion of #10 ventilation
Slide 39: Kola Nickel Refinery Upgrade – Status Update
Kola Nickel Refinery Upgrade – Status Update Project Description Increase the nickel refining capacity from 145 ktpa to 190 ktpa Increase in nickel recovery from high-grade matte by over 1.0% Optimization of the work-in-progress inventory Reduction of environmental footprint Total Capex: U
Slide 40: Ramp-up of Bystrinsky Project
Ramp-up of Bystrinsky Project Project Overview The project is ramping up with full capacity expected in 2020 Ore reserves: 341 Mt, grades: Cu – ~0.7%; Fe – ~21%; Au – ~0.9 g/t Site infrastructure completed: open pit and concentrator (grinding and flotation) External infrastructure completed:
Slide 41: Environmental Project at Kola: Optimization of Smelting Operations
Environmental Project at Kola: Optimization of Smelting Operations Nickel Town Project overview Murmansk Target: reduction of Sulphur dioxide emissions at the Norwegian border by 50% by 2020 vs. 2015 Shut down of ore-thermal furnace in the smelting shop Sales of low-grade concentrate to third
Slide 42: Current Status of the Sulphur Project at Polar Division
Current Status of the Sulphur Project at Polar Division Nadezhda Smelter Project overview Norilsk Target: reduction of Sulphur dioxide emissions in Norilsk industrial area at least by 75% by 2023 vs. 2015 Nadezhda Smellter: construction of new converters Site Preparation at Nadezhda Smelter repl
Slide 43: Strategic Roadmap for Key Production Assets
Strategic Roadmap for Key Production Assets Roadmap to Advanced, Efficient and Environmentally Friendly Production Processes After 2022 2019 Kola concentrator upgrade to Smelting Shop Perspective growth projects: achieve SO2 emission South Cluster (6 Mtpa+ of ore production) reduction in the regio
Slide 44: CAPEX Program: New Investment Cycle in 2019-2022
CAPEX Program: New Investment Cycle in 2019-2022 Perspective growth projects (e.g. Talnakh concentrator, South Cluster) Commercial projects (incl. Bystrinsky Project) Environmental program Stay-in business: infrastructure, equipment replacement & capitalized maintenance, social US$ bn 0.35-0.45 2.2
Slide 45: Production Guidance for 2019-2020
Production Guidance for 2019-2020(1) Ni Pt+Pd kt tonnes 220+ 105 105–110 209 210 217 105 95 2015-2016 2017 2018 2019-2020E 2015-2016 2017 2018 2019-2020E Cu Excluding Bystrinsky project kt 454 up to 450 ! Overall, metal production growth is driven by 398 operational efficiency improvements and com
Slide 46: 2019 Outlook
2019 Outlook Metals market outlook Neutral Positive 2019 Metal Production Guidance(1) Ni Market deficit to narrow as Indonesia and China continue to increase NPI output while the demand growth is moderating 40-46 (Chita) 2,770-2,800 430-450 220-225 646-670 Ni (kt) Cu (kt) Pd (koz) Pt (koz) Cu