Norilsk Nickel reduces net profit by 16% in 2022
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Net profit of Norilsk Nickel under IFRS in 2022 decreased by 16% by 2021 to $5.9 billion, the company announced on February 10, 2023. EBITDA for 2022 fell by 17% to $8.7 billion, consolidated revenue decreased by 5% to $16.9 billion.
Decrease in financial indicators “nornickel”explains a strong drop in revenue and an increase in production costs due to increased costs for personnel and equipment repairs.
“The positive effect from the rise in prices for nickel and cobalt, as well as from the recovery of production volumes after the elimination of the consequences of accidents at the mines Oktyabrsky, Taimyrsky and the Norilsk concentrator, was offset by a decrease in prices for copper and platinum group metals, as well as a decrease in sales volumes due to the lengthening of supply chains and reorientation to new markets, which requires additional time,” the release explains.
During 2022, nickel futures on the London Metal Exchange (LME) rose from $20,000/t to just over $30,000; in March, metal prices broke through the $45,000/t mark.
Free cash flow (FCF) of Norilsk Nickel at the end of 2022 amounted to $437 million, which is 10 times less than a year earlier. The company explains this by a decrease in EBITDA, an increase in working capital and an increase in capex in the reporting period. The latter rose 55% to a record $4.3 billion last year. According to the financial director of the company Sergey Malyshev, which are given in the release, in 2023 “nornickel» will pass the peak of the investment cycle – the growth of capex is expected at the level of 10% by 2022.
Malyshev also noted that it is “premature” to talk about Norilsk Nickel’s reorientation to Asian markets in general. Contracts with most clients, including large ones, have been extended to 2023, the top manager specified, noting that the company does not provide special discounts, as it is not under sanctions.
At the end of January 2023“nornickel» reported an increase in nickel output by 13% in 2022 to 219,000 t, of which almost all was produced from its own feedstock. Palladium and platinum production totaled 2.79 Moz (+7%) and 651,000 oz (+2%), respectively. Copper output increased by 6% over the year and reached 432,980 tons.
The company explained the production growth in 2022 with a low base in 2021, when the operation of the mines and the Norilsk concentrator was temporarily stopped due to an accident. The operating activities of MMC in 2023 will be affected by risks associated with an unfavorable geopolitical background, said Sergey Stepanov, production director of the company. This year, the company planned to continue the modernization and repair of equipment aimed at increasing the level of industrial safety.
The world market for nickel in 2023 is expected to have a surplus of about 120,000 tons due to the increase in new capacities of NPP projects (nickel pig iron. – Vedomosti) in Indonesia, the company predicts in its message. At the same time, demand for copper will rise by 2%, leading to a moderate deficit of 160,000 tons in 2023, and a deficit of 0.3 million ounces of palladium. Palladium demand growth of 4% yoy will be supported by the recovery of the auto industry, believes “nornickel“.
The company fully feels the consequences of the crisis, despite its extremely important role in the global non-ferrous metals market, says Vasily Danilov, a leading analyst at Veles Capital. “The main problem is that in the second half of 2022, the company’s metal sales were about 15% lower than production, resulting in a 63% increase in inventories on the balance sheet and a 3.2-fold increase in working capital. As a result, Norilsk Nickel’s FCF amounted to only $437 million,” the analyst notes.
A significant discrepancy with EBITDA and FCF forecasts may disappoint investors and reduce the chances of high dividends for 2022, Dmitry Smolin, senior analyst at Sinara investment bank, believes. “We believe that in the short term, the company’s shares will be under pressure after the publication of the results,” he concludes.
Norilsk Nickel’s dividends represent “high uncertainty,” Danilov said. A ten-year shareholder agreement between the key owners of the company – Vladimir Potanin’s Interros and Oleg Deripaska’s.UC Rusal – expired January 1, 2023. It assumed that “nornickel» pays dividends of at least 60% of EBITDA with a net debt/EBITDA ratio of less than 1.8x. If this ratio is higher, the minimum dividend level is 30% of EBITDA, but not less than $1 billion.
Norilsk Nickel Chairman of the Board Vladimir Potanin (controls 37% of the shares) advocated a reduction in dividends in order to spend more on the development of the company due to a large-scale capex program. But UC Rusal (owns 26.25% of Norilsk Nickel) was against it, arguing that the level of assimilation of investments “has not exceeded 75% in recent years.”
Danilov names three possible payment scenarios. The first involves directing half of the FCF to dividends, but taking into account its size over the past year, the payments will be rather symbolic – 111 rubles. per share, 0.8% yield.
According to the second scenario,nornickel» may adhere to its usual dividend policy, which requires an annual dividend of at least 30% of EBITDA (RUB 1,229 per share, 8.3% yield).
“The third option, and, in our opinion, the most likely one, is based on the December meeting of the company’s board of directors, which discussed reducing payments for 2022 to $1.5 billion (706 rubles per share, yield of 4.8%)” Danilov says.
Shares of Norilsk Nickel on the Moscow Exchange on February 10 fell by 0.7% to 14,814 rubles. a piece.
A significant discrepancy with EBITDA and FCF forecasts may disappoint investors and reduce the chances of high dividends for 2022, Dmitry Smolin, senior analyst at Sinara investment bank, believes. “We believe that in the short term, the company’s shares will be under pressure after the publication of the results,” he concludes.
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