Board of Directors of Norilsk Nickel recommended not to pay dividends for 2022

Based on the results of the meeting on April 28, 2023, the Board of Directors of Norilsk Nickel recommended that shareholders at the annual meeting decide not to pay dividends for 2022. This is stated in the company’s message.

At the end of 2021 “nornickel» paid RUB 178.27 billion to shareholders. at the rate of 1166.22 rubles. per share.

Since 2012, dividends have been paid in accordance with a ten-year agreement, which was signed by the main shareholders of Norilsk Nickel – Vladimir Potanin’s Interros, UC Rusalwhose main shareholder at that time was Oleg Deripaska, and the Crispian company of Roman Abramovich and Alexander Abramov.

According to this document, the company paid a dividend of 60% of EBITDA with a Net Debt/EBITDA ratio of less than 1.8x. If this ratio were higher, the minimum dividend level would have to be 30% of EBITDA, but not less than $1 billion. The agreement expired on January 1, 2023. Potanin said in March that there were no plans to conclude a new agreement.

Interros owns about 37% of Norilsk Nickel shares. UC Rusal controls 26.39%. The share of Crispian Roman Abramovich and Alexander Abramov is less than 5% of the shares.

In September 2021, Potanin, who holds the post of president of Norilsk Nickel, stated in an interview with Interfax that “we need to return to the topic of compiling such a dividend formula, according to which investments and social payments would be unambiguously higher than dividends, while maintaining a certain level returns for shareholders.

In November of the same year, at that time, the head of the department for work with the investment community of Norilsk Nickel, Vladimir Zhukov, noted that the company’s management focuses on a range of dividend payments of 50-75% of free cash flow (FCF) after the expiration of the current shareholder agreement. More accurate benchmarks depend on the amount of cash available and, therefore, on the level of capex, he noted.

In July 2022, Potanin spoke in an interview with the TV channel RBCthat the shareholders of Norilsk Nickel in 2022 and 2023. Against the background of additional costs and the expiration of the shareholder agreement, it is not worth waiting for the level of profitability that the company’s dividend payments provided earlier. The priorities for the company are to maintain the continuity of production, ensure obligations to employees, the state and partners, he noted.

An additional aggravating factor for dividends could be the formation of additional obligations to banks in connection with the UK’s personal sanctions, Potanin added.

Potanin was included in the sanctions lists of Canada in April 2022 and the UK in June. The United States imposed blocking sanctions on the businessman and Interros in December 2022 (Vedomosti wrote about this on December 15). But the U.S. Department of the Treasury’s sanctions enforcement unit, OFAC, specifically explained that the sanctions do not apply to Norilsk Nickel itself.

Although no Western sanctions were imposed on the company, Norilsk Nickel still faced difficulties with transportation, international payments and cargo insurance. In March 2023, Potanin said that Norilsk Nickel, faced with refusals from traditional European customers, will sell all the volumes of products they have not purchased in the Southeast Asian market.

Norilsk Nickel more than tripled its net working capital to $4 billion last year, mainly due to an increase in steel inventories, as well as the amortization of advances from buyers and the cessation of factoring services. The accumulation of finished products was due to the lengthening of supply chains against the backdrop of the introduction of new routes for the supply of products – in particular, the redistribution of volumes to Asia, said Vice President – Head of Sales and Commerce Anton Berlin in March 2023.

The share of Europe in Norilsk Nickel’s revenue in 2022 decreased to 47% from 53% in 2021. The share of Asia increased to 31% from 27% a year earlier, the share of America remained at the level of 15%, Russia and the CIS – 5%. But in February 2023, Mikhail Borovikov, Director of the Investment Community Department at Norilsk Nickel, warned that more serious changes in the sales structure would occur this year, since in 2022 the volumes contracted at the end of the previous year were mainly sold.

Net profit of Norilsk Nickel under IFRS in 2022 decreased by 16% compared to 2021 to $5.9 billion. EBITDA fell by 17% to $8.7 billion, revenue decreased by 5% to $16.9 billion.

Norilsk Nickel’s FCF in 2022 decreased from $4.4 billion to $400 million, primarily due to a decrease in EBITDA, an increase in working capital and an increase in capital investments. Norilsk Nickel’s capital investments in 2022 increased by 55% to $4.3 billion due to increased investments in environmental and mining and metallurgical projects, as well as in overhauls.

Norilsk Nickel’s net debt doubled to $9.8 billion in 2022 due to a reduction in FCF, as well as the payment of dividends. The ratio of net debt to EBITDA as of December 31, 2022 was 1.1x.