Profit “Norilsk Nickel” suffered due to lower prices for metals

In the first half of the year, Norilsk Nickel sharply reoriented sales to Asia, the region for the first time in history became the largest market for the company. At the same time, the fall in metal prices led to a reduction in the company’s revenue by 20%, to $7.2 billion, and exchange rate differences brought down net profit by five times, to $1.1 billion. Analysts generally assessed the results as moderately negative, noting the absence of the expected effect from reductions in working capital and the ambiguity of the issue of the payment of interim dividends in the fall.

Norilsk Nickel in January-June reduced its net profit by five times, to $1.1 billion, revenue fell by 20%, to $7.2 billion, follows from the company’s published IFRS statements (.pdf). The deterioration in results is mainly due to lower prices for the main metals produced. At the same time, profit was hit by the effect of exchange rate differences: in the first half of 2023, the negative exchange rate differences amounted to $1.2 billion, while in the first half of last year the effect was positive by $2.6 billion.

The company’s EBITDA fell 30% to $3.37 billion, a cut that was slightly larger than most analysts’ forecasts. At the same time, Norilsk Nickel reduced capital investments compared to the plan: according to management comments, by the end of the year investments could amount to $3.5-3.8 billion instead of the expected $4.7 billion. The reason is the weakening of the ruble, which led to a decrease in investments in dollar terms expression.

The company’s free cash flow increased by 28% to $1.37 billion. This indicator is now important for minority shareholders, since the largest shareholder of Norilsk Nickel, Interros, insists on calculating dividends from cash flow indicators, and not from EBITDA, as was the case in the previous dividend formula, which ceased to be valid at the end of 2022. At the same time, Norilsk Nickel’s management noted in the comments to the financial statements that in the second half of the year, the payment of windfall tax to the Russian budget will negatively affect cash flow.

The main issue of interest to analysts was the dynamics of working capital, which grew by $2.8 billion in 2022 to $4 billion at the end of the year. The reason for the growth is the increase in unsold stocks of metal, as well as the lengthening of terms and changes in logistics. There has been an improvement in this direction – since the beginning of the year, net working capital has decreased by 20%, to $ 3.4 billion. The company also noted that it expects a decrease in working capital in the coming months.

Norilsk Nickel managed to significantly reorient sales to Asia: if in 2022 Europe accounted for 51% of metal sales to end customers, now the share of this market has fallen to 25%, while the share of Asia has grown to 49% (vs. 2%).

The volume of unsold stocks of metal also decreased, and the company intends to bring it back to normal by the end of the year.

Experts considered that the results of Norilsk Nickel turned out to be generally worse than expected. Telegram channel analysts “My investment” noted that free cash flow was 5% below their estimates, and “the release of working capital has not yet occurred.” The main uncertainty remains the lack of an approved dividend policy, and analysts do not expect a decision on interim dividends before October.

Investment bank analysts “Sinara” estimate possible interim dividends in the fall at 600 rubles. per share, provided that the company allocates 75% of free cash flow to them. The dividend yield in this case will be about 3.5%. “We believe that the report will have a negative impact on share prices in the near future,” they note. Following the results of the main session on the Moscow Stock Exchange, the shares of Norilsk Nickel fell on August 2 by 2%, to 16.65 thousand rubles. for paper.

Yuri Barsukov