Dividends did not fit into the scenario – Kommersant

The Board of Directors of Norilsk Nickel recommended to the annual meeting of shareholders not to pay the final dividend. Earlier, the payment of about $1.5 billion was discussed. Management explained its decision by a number of negative scenarios that were implemented last year, as well as the risks of new sanctions, lower metal prices and an increase in the tax burden. However, the option with interim dividends is not ruled out, as the company will sell off accumulated stocks of metal products. Rusal did not support this decision.

Norilsk Nickel may not pay dividends for the first time in many years. April 28 Board of Directors of the company recommended annual meeting not to pay the final dividend for 2022.

The senior vice-president and financial director of the company Sergey Malyshev explained this decision by extraordinary circumstances.

“Free cash flow has fallen tenfold to $437 million (the lowest in five years), net debt has doubled, or $4.9 billion (the largest increase in the last ten years),” he said.

According to the top manager, in addition to the decline in revenue, growth in costs and the destruction of supply chains that have already taken place, the company allows for increased external pressure in the future. Management does not rule out new sanctions, lower prices for a basket of metals due to a slowdown in the global economy, an increase in the tax burden and an increase in the cost of servicing the debt portfolio this year. Mr. Malyshev also spoke about the possibility of paying interim dividends if cash flow is earned and the company maintains a comfortable level of debt.

For the first time, the Board of Directors took a decision on dividends after the completion of the shareholder agreement, which was concluded by Vladimir Potanin’s Interros (owns 35.95% of Norilsk Nickel shares), Rusal (26.25%) and Crispian Roman Abramovich and Alexander Abramov (4 %). It assumed that dividends should account for at least 60% of EBITDA with a net debt to EBITDA ratio of less than 1.8x. If this ratio is higher, the minimum level is 30% of EBITDA, but not less than $1 billion. The position of the head of the company Vladimir Potanin and management is to reduce payments, tying them to free cash flow, in order to take into account growing investments. According to Norilsk Nickel’s presentation, CAPEX in 2023 will increase by 10%, to $4.7 billion. Rusal, in response, has always noticed that management in previous years could not fully master the investment program.

A Rusal representative told Kommersant that the company sees no economic reasons for such a decision.

“It will not affect Rusal’s operating activities,” they noted. “However, its impact on the conditions for the implementation of future investment projects will require additional analysis and reflection.” Independent member of the board of directors of Norilsk Nickel Sergey Volk (nominated by Rusal.— “b”) did not support the non-payment decision. “Free cash flow, the weakness of which our colleagues operate on, is a very peculiar indicator, I am politically correct here,” he said. “There are ways to show its absence in the moment.” He added that “there is a feeling that the decision on non-payment is dictated not by economic reasons, but by others.”

The non-payment of dividends came as a surprise to the market. January 2023 RBC reported that the December board of directors discussed dividends in the amount of $1.5 billion (Rusal would have had about $394 million). Analysts based their assessments of Norilsk Nickel shares on this information. BCS’s Kirill Chuiko says the board’s recommendation suggests that Interros and Rusal are far from signing a new shareholder agreement. “Rejection of the final dividend means that the company has decided not to pay dividends out of debt,” he said. “Management allowed the payment of interim dividends, subject to good cash flow. This is quite realistic, since this year Norilsk Nickel will sell off working capital, accumulated mainly due to the growth of steel stocks. This will lead to additional dividends in the future.”

Evgeny Zainullin