Nornickel Gmk · RUS:GMKN

Nornickel Gmk — Norilsk Nickel — FY2015 Earnings Presentation

44 slides from Nornickel Gmk's earnings presentation, Mar 15, 2016

  1. Slide 1: 2015 Financial Results

    2015 FINANCIAL RESULTS March 15, 2016 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: Improving Health & Safety – on Top of Management Priorities

    Improving Health & Safety – on Top of Management Priorities Focus on HSE – Striving for World-class Standards Lost Time Injury Frequency Rate (LTIFR)*  In 2015, Lost Time Injury Frequency Rate (LTIFR) increased marginally from 0.5 to 0.6 due to lost time injuries per 1,000,000 hours 0.8 increase in

  4. Slide 4: Health & Safety Initiatives in 2015 and Plans for 2016

    Health & Safety Initiatives in 2015 and Plans for 2016 New “car Focus on HSE – World-class Standards  Labour contracts and being amended to include «cardinal safety rules»; 2015: Target Reconfiguration  134 employees fired for violating of safety rules; New “cardinal  35 operating managers were d

  5. Slide 5: Environment Initiatives – Project Developments on Track

    Environment Initiatives – Project Developments on Track Focus on HSE – World-class Standards SO2 Emission in Polar Division, ‘000 ton -15% Environmental compliance - emissions of pollutants into the atmosphere were maintained within legal ~1,800 limits; 1,500 – 1,600 Environmental improvements: 1. T

  6. Slide 6: 2015 Highlights

    2015 Highlights  Consolidated revenue decreased 28% y-o-y to USD 8.5 billion driven by lower metal prices, divestiture of international assets and one-off logistical and operational preparations for the shutdown of Norilsk nickel plant in 2016;  EBITDA was down 24% y-o-y to USD 4.3 billion driven

  7. Slide 7: Financial Performance Relative to Global Peers

    Financial Performance Relative to Global Peers Leading Profitability in 2015, EBITDA Margin… … and Conservative Leverage, Net Debt/EBITDA 50% 1.0 48% 1.1 36% 1.9 27% 2.7 21% 3.0 5% 3.6 Source: Bloomberg, Company data. Note: 1. BHP Billiton adjusted for calendar year; 6

  8. Slide 8: Markets Overview

    y ww NORILSK NICKEL Markets Overview

  9. Slide 9: Currencies and Oil Price Effect on Commodities Prices

    Currencies and Oil Price Effect on Commodities Prices Commodity Prices are Inversely Correlated with Commodity Price Volatility Increased in 2015 Trade-Weighted US Dollar 180 Corr (LTM) = -1.0 180 Bloomberg Commodity Index 40 150 150 30 120 120 20 90 90 10 60 60 0 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15

  10. Slide 10: Speculative Pressure Running High on Demand Concerns

    Speculative Pressure Running High on Demand Concerns Rising Speculative Pressure on Metals: Ni Speculations at Record High Levels: Change in Exchange Trading Positions LME Turnover Over 200x of Physical Market by January 2016, y-o-y 208% mt 250 200 245 200 142 150 150 101 74 100 88 58 64 66 100 46 5

  11. Slide 11: Nickel Market: Little Guidance from Inventory Movements

    Nickel Market: Little Guidance from Inventory Movements LME Nickel Price Down 42% in 2015, Total Ni Export from China - Net Nickel Importer: Exchange Inventories Up 19% Temporary Jump After the Qingdao Port Scandal in 2014 600 25,000 50,000 kt 500 20,000 40,000 400 15,000 30,000 300 10,000 200 20,00

  12. Slide 12: Ni-Intensive Stainless Steel in China – Proxy for Ni Consumption

    Ni-Intensive Stainless Steel in China – Proxy for Ni Consumption Variety of Chinese Sources: Ni-intensive Stainless Steel Primary Nickel Consumption (Stainless Steel) Production Up 5% - 11% in 2015 mt +0% -4% y-o-y kt y-o-y +1% 1,600 +1% +0% 4.4 4.2 4.3 4.0 3.8 4.0 +11% 1,200 +3% -1% -1% 9.9 11.0 +5

  13. Slide 13: China – Nickel Destocking in 2015

    China – Nickel Destocking in 2015 Significant NPI Closures in China due to High Costs, Strong Increase of Fe-Ni and Refined Ni Imports Environmental Pressure and Feed Shortage to China in 2015 Ni units, kt y-o-y Ni units, kt Refined Ni +130% +338% 500 Fe-Ni 502 486 -26% +80% +17% 485 485 -19% 400 96

  14. Slide 14: Supply Side Response is Slow so Far, but Inevitable

    Supply Side Response is Slow so Far, but Inevitable Announced Nickel Output Cuts and Capacity Shut-Downs Ni Industry Has Entered into a Major Restructuring in 2015-2016 - 16% of Supply Output loss Output loss kt Operation Reason 2015, kt 2016, kt 100 Glencore Price / feed driven ~3 - 30 (Murrin Murr

  15. Slide 15: Only a Quarter of Loss Making Capacity Runs a Shut-Down Risk

    Only a Quarter of Loss Making Capacity Runs a Shut-Down Risk At spot price over 70% of global nickel production is making cash loss, but only 17% run a shut-down risk 35,000 USD/t 30,000 25,000 20,000 44% 30% 70% 15,000 2016 consensus forecast of 9 889 $/t 5% Spot price of 8 755$/t 4% 10,000 17% 5,0

  16. Slide 16: Nickel Feed for China: Philippines and Indonesia

    Nickel Feed for China: Philippines and Indonesia Only 3 Projects in Indonesia Have High Probability of Indonesia NPI Output Forecast for 2015-2017 Completion Project Capacity, 200 Ni units, kt Process Status Start year name kt pa Ni 150 Indoferro BF Started 2013 18 PT Cahaya BF Started 2014 4 100 Mo

  17. Slide 17: Nickel Market is Entering a Deficit in 2016

    Nickel Market is Entering a Deficit in 2016 Moderate Supply Cuts Have Been Triggered… … while Global Consumption Holds and.. kt Incremental change in global supply kt Incremental change in global demand 100 +0.3% 150 +1.1% 80 5 100 20 60 40 50 55 20 0 0 2014 2015 2016E … Growth Reliant on China -50

  18. Slide 18: Temporary Palladium Market Weakness in 2015 due to ETF Outflow

    Temporary Palladium Market Weakness in 2015 due to ETF Outflow Palladium ETFs Holdings Change: Platinum ETFs Holdings Change: Driven by the Macro Concerns 2015 Outflow – Rise of Risk Appetite? koz Y-o-Y koz 902 Y-o-Y 1,104 583 904 507 430 384 381 276 228 183 24 102 (278) (520) (703) 2008 2009 2010 2

  19. Slide 19: PGM Investment Demand: Limited Supply Growth Lags Healthy Demand

    PGM Investment Demand: Limited Supply Growth Lags Healthy Demand South Africa Production of Palladium Recovery After Not All Palladium Above-Ground Stocks Available Strike is Over tonnes 89 80 -10% 74 73 58 +38% Potentially available for consumption Low price elasticity stocks Non-elastic stocks 200

  20. Slide 20: PGM Demand Drivers In Automotive Industry

    PGM Demand Drivers In Automotive Industry Total Number of Vehicles Forecasted to Increase(1) Tightening Emission Legislation mln vehicles 120 110 CAGR 3% 100 90 80 2015 2016 2017 2018 2019 2020 2021 2022 Increasing Complexity of Emission Systems and Real Drive Emission Regulation Powertrains Require

  21. Slide 21: Diesel After-Treatment Systems (2016) – Euro 6b

    Diesel After-Treatment Systems (2016) – Euro 6b Lean NOx traps (LNT) for Diesel Engines LNT bind the NOx during lean engine Engine LNT CSF operation, then under rich conditions the Diesel Catalysed Oxidation Catalyst Soot Filter NOx is reduced to nitrogen over the catalyst. Removes CO & HC Traps car

  22. Slide 22: Copper Market Remains Balanced, Inventories Low

    Copper Market Remains Balanced, Inventories Low China Remains the Main Driver for LME Copper Price Near Multi Year Lows, while Cu Consumption Growth Inventories Run Tight mt 1,000,000 USD/t 12,000 +3% t +3% 900,000 23.9 10,000 +3% 800,000 23.3 700,000 +2% 8,000 22.7 600,000 500,000 6,000 22.0 400,00

  23. Slide 23: 2015 Financial Results

    y ww NORILSK NICKEL 2015 Financial Results

  24. Slide 24: Metal Sales Volumes: Decrease due to One-Offs

    Metal Sales Volumes: Decrease due to One-Offs Base Metals Sales: Down due to One-Offs PGM Sales Volumes: Down due to One-Offs kt kt koz koz -4% -8% -11% 356 2,667 270 343 2,464 240 9 74 3 34 42 6 43 2 -6% 347 340 2,593 2,430 629 590 222 33 14 195 596 576 2014 2015 2014 2015 2014 2015 2014 2015 Russi

  25. Slide 25: Revenue 2015: Driven down by Weak Markets and One-offs

    Revenue 2015: Driven down by Weak Markets and One-offs Nickel Revenue Palladium Revenue USD mln USD mln (1,325) (289) 16 (372) 71 (141) 4,636 2,221 1,807 3,010 2014 Realized Sales Re-sales 2015 2014 Realized Sales Re-sales 2015 price volume of metals price volume of metals Copper Revenue Platinum Re

  26. Slide 26: 2015 Revenue Under Pressure from Weak Markets

    2015 Revenue Under Pressure from Weak Markets Revenue Bridge: Significant Impact of Macro Factors Decrease of metal sales by 28% y-o-y USD mln Macro Company performance to USD 7.9 bn due to: Environment  Decrease of realized prices (negative impact of USD 2.4 bn); (2,416)  A one off allocation of

  27. Slide 27: Industry Leading EBITDA Margin

    Industry Leading EBITDA Margin EBITDA decreased by 24% y-o-y to USD 4.3 bn, EBITDA margin up by 2 p.p to 50%:  Main negative impact on EBITDA came from weak commodity prices (USD 2.1 bn);  Depreciation of RUB against USD provided a substantial off-set to weak commodity prices in amount of USD 1.4

  28. Slide 28: Stringent Control of Cash Costs

    Stringent Control of Cash Costs 2015 Cash Costs Breakdown Cash Cost Reduction in 2015: Management Cost Controls and RUB Depreciation USD mln Services USD mln Other 6% Materials 17% (1,109) 15% (111) (125) 4,067 131 43 20 95 3,011 24% 38% Labour Metals and semi- products 2014 Forex Inflation Concentr

  29. Slide 29: Net Working Capital: Maintained Despite Negative One-Offs

    Net Working Capital: Maintained Despite Negative One-Offs Working Capital Bridge: Excluding One-Offs Working Capital Was Down in 2015 USD mln 3,018 USD 1.9 bn (-64%) Macro and Markets factors: One-off factors: Operating improvements: USD (439) mln USD 513 mln USD (131) mln (17) (50) 76 1,087 352 (14

  30. Slide 30: Free Cash Flow Bridge: FCF / Revenue at 28% in 2015

    Free Cash Flow Bridge: FCF / Revenue at 28% in 2015 FCF Reduction(1) : Slow Down of Working Capital Release and Higher Capex USD mln (1,114) (1,385) 4,725 252 (356) 130 153 2,405 2014 Working capital Change in EBITDA CAPEX Income tax paid Disposal of Other 2015 movement Investments Note: 1. Free cas

  31. Slide 31: Financial Results Sensitivity to USD/RUB Rate

    Financial Results Sensitivity to USD/RUB Rate At the USD/RUB rate of 72.9, 1% change in exchange rate translates into: EBITDA change of USD 22.0 mln, FCF change of USD 36.3 mln USD mln Exchange 60 rate as of 31.12.15 50 44.1 40.7 40 36.3 33.1 29.4 30 26.7 Free cash 24.7 22.0 flow 20.0 17.8 20 EBITDA

  32. Slide 32: Cash Capex: Key Project are on Time and on Budget

    Cash Capex(1): Key Project are on Time and on Budget Mandatory vs. Commercial Breakdown by Projects Capex Forecast USD mln USD mln USD bn 1,654 1,654 2.0 107 0.5 1,298 1,298 257 89 1,029 256 Commercial 171 62% 725 122 61 56% 0.8 25 187 226 118 106 625 668 Mandatory 573 559 0.7 44% 38% 2014 2015 2014

  33. Slide 33: Preserving Strong Balance Sheet

    Preserving Strong Balance Sheet Leverage Remained at Low Level: 1.0x Net Debt/EBITDA(1) Proactive Liability Management USD bn 4.6 4.0 4.2  In October 2015 the Company reopened the Russian Eurobond 3.5 1.1 3.5 market with a 7-year USD 1.0 bn 144A/RegS Eurobond placement; 1.0 0.8  New unsecured comm

  34. Slide 34: Major Projects Update

    y ww NORILSK NICKEL Major Projects Update

  35. Slide 35: Skalisty Mine: Project Development on Track

    Skalisty Mine: Project Development on Track Project Highlight Project overview  Greenfield project  Production capacity – 2.4Mtpa  Ore reserves: 58Mt  Estimated Project IRR > 50%  Total Capex: ~ RUB42 bn (for 2016-2025) Project timeline  Mining launched (650kt) in 2015  Ramp-up to 1.95 mt by

  36. Slide 36: Talnakh Concentrator: Modernization and Expansion

    Talnakh Concentrator: Modernization and Expansion 2015 2016 Talnakh Stage 1– 7.7 Mt capacity Stage 2 – Progress Talnakh Stage 2 – 10.2 Mt capacity Stage 1 - Completed Stage 2 - Progress in 2015 Stage 2 – Launch April 2016  Replacement of flotation cells  Installation of new flotation  Ramp–up by

  37. Slide 37: Production Reconfiguration Update: Upgrade of Smelting and Refining Facilities

    Production Reconfiguration Update: Upgrade of Smelting and Refining Facilities Project Highlight Modernization and Expansion of Capacities at Nadezhda Smelter Capital repairs of the flash smelter furnace №1 completed on time/on budget:  Flash smelter furnace №2 – completed in 2014;  Project capex

  38. Slide 38: Production Reconfiguration Update: Nickel Plant Shut Down

    Production Reconfiguration Update: Nickel Plant Shut Down Project Highlight Nickel Plant overview  Smelting capacity: 1 000 kt of concentrate p.a., refining: 120 kt of nickel p.a.  Ageing of equipment: 65%  Number of employees: 3 500 people  SO2 Emissions: up to 400 kt p.a. (in 2015) Project tim

  39. Slide 39: Chita Copper Project Progress: Completed by 45%

    Chita Copper Project Progress : Completed by 45% Project Highlight De-risking the Bystrinsky project:  The set of binding agreement signed with consortium of Chinese investors (Highland Fund) to purchase 13.33% stake in Bystrinsky project for USD100 mln; Railway link to the project site is near com

  40. Slide 40: Chita Copper Project Development Update

    Chita Copper Project Development Update House of Crushed Ore Warehouse for Crushed Ore Administration Building Mechanical Workshops Source: Company data 39

  41. Slide 41: 2015 Production Results: in Line with the Guidance

    2015 Production Results: in Line with the Guidance Nickel Production Copper Production kt kt 360-370 346 353 223 220 215-225 2014 2015 2015 Guidance 2014 2015 2015 Guidance PGM Production koz 3,177 3,185 2,894-3,215 2014 2015 2015 Guidance Note: Metal production volumes from Russian feed (including

  42. Slide 42: 2016 Production Guidance: Confirming Strategic Targets

    2016 Production Guidance: Confirming Strategic Targets Nickel Production Guidance Copper Production Guidance kt kt 4-6 15-19 370-380 342-352 346-358 221-231 225-235 206-212 Saleable Work-in-progress Production Strategy day Saleable Work-in-progress Production Strategy day products in transit guidanc

  43. Slide 43: 2016 Outlook

    2016 Outlook  In general, we believe that global cost curves in Norilsk Nickel metals basket should stabilize in the current year as the impact from mining currencies depreciation and oil price, taking lower global costs, should be by and large done;  We are cautious on nickel in the short run, bu

  44. Slide 44: Q&A Session

    y ww NORILSK NICKEL Q&A Session

Norilsk Nickel — FY2015 Earnings Presentation on 6ix