29 Aug 2016 09:16
MMC Norilsk Nickel / Miscellaneous - High PriorityMMC Norilsk Nickel: NORILSK NICKEL REPORTS FIRST HALF 2016 INTERIMCONSOLIDATED IFRS FINANCIAL RESULTS 29-Aug-2016 / 10:16 CET/CESTDissemination of a Regulatory Announcement, transmitted by EquityStory.RS,LLC - a company of EQS Group AG.The issuer is solely responsible for the content of this announcement. --------------------------------------------------------------------------- PRESS-RELEASE Public Joint Stock Company «Mining and Metallurgical Company «NORILSKNICKEL» ('NORILSK NICKEL', 'Nornickel' or the 'Company') NORILSK NICKEL REPORTS FIRST HALF 2016 INTERIM CONSOLIDATED IFRS FINANCIALRESULTS Moscow, August 29, 2016 - PJSC 'MMC 'NORILSK NICKEL' the largest refinednickel and palladium producer in the world, today reports IFRS financialresults for six months ended June 30, 2016. 1H 2016 HIGHLIGHTS - Focus on Tier 1 assets, cost controls and investment discipline enabled Norilsk Nickel to deliver the industry leading profitability despite weak commodity markets. EBITDA margin of 47% was the highest among global diversified mining majors as a result of control over cash operating costs inflation and the exit from international and non-core assets. - Consolidated revenue decreased by 22% y-o-y to USD 3.8 billion, mainly owing to lower realized metal prices and one-off decrease of metal production due to the downstream reconfiguration in the Polar division was in part positively offset by sales of metal from stock accumulated in 4Q2015. - EBITDA was down by 34% y-o-y to USD 1.8 billion following a reduction of revenue, while net profit decreased only by 13% y-o-y to USD 1.3 billion, as one-off operations in 1H16 decreased relative to the prior period. - CAPEX increased by 24% y-o-y to USD 0.7 billion as a result of the capacity expansion and modernization of Talnakh concentrator and advancement of other downstream reconfiguration investment projects as well as the Chita (Bystrinsky) project being at an active construction phase. All major investment projects were carried out on time and on budget. - In line with the strategy of de-risking the greenfield Chita project, the Company arranged an 8-year USD 800 million project financing facility from Sberbank CIB . - Net working capital was down by 8% y-o-y to less than USD 1 billion as a result of the decrease of saleable metal inventories. - Free cash flow decreased to USD 0.6 billion, owing to lower EBITDA, increased capital expenditures and slower rate of working capital release in 1H16. - Balance sheet remained strong with Net Debt / EBITDA ratio at 1.4x as of June 30, 2016. Solid financial position of Norilsk Nickel is confirmed by investment grade credit ratings, which have been reiterated by Standard & Poor's and Fitch credit rating agencies. - As part of ongoing sale of non-core assets, the Company completed the sale of 100% shares of Nordavia airlines. - Norilsk Nickel maintains one of the industry leading dividend yields. In 1H16, we continued to pay regular interim dividend distributing to shareholders USD 665 million or USD 4.2 per share. RECENT DEVELOPMENTS - In July 2016, the Group received the first tranche payment from Chinese investors, Highland Fund, in respect to the sale of 13.33% of share capital of Chita (Bystrinsky) project in Chita region. - In August 2016, the last ton of refined nickel was produced at the Nickel Plant in the city of Norilsk. A major milestone of the Company's downstream reconfiguration strategy was reached as the outdated production capacities of Nickel Plant were shut down in August ahead of the schedule. - In July-August 2016, the Group amended terms of USD 570 million outstanding credit lines with a group of European banks resulting in a reduction of interest rates and extension of debt maturities to 5 years. KEY CORPORATE HIGHLIGTS USD million (unless stated otherwise) 1H2016 1H2015 Change,%Revenue 3,843 4,907 (22%)EBITDA1 1,795 2,708 (34%)EBITDA margin 47% 55% (8 p.p.)Net profit 1,304 1,493 (13%)Capital expenditures 706 569 24%Free cash flow2 619 2,179 (72%)Net working capital1 951 1,0303 (8%)Net debt2 4,723 4,2123 12%Net debt /12М EBITDA 1.4x 1.0x3 0.4xDividends paid per share (USD) 4.2 13.4 (69%)ROIC2 27% 31% p.p.) 1) A non-IFRS figure, for the calculation see the notes below. 2) A non-IFRS figure, for the calculation see an analytical review document ('Data book') available together with Consolidated IFRS Financial Results on the Company's web site. 3) Reported as of December 31, 2015 MANAGEMENT DISCUSSION AND ANALYSIS The President of Norilsk Nickel, Vladimir Potanin, commented the results: 'The first half of 2016 was a very challenging period for the global metalsand mining industry. Against the backdrop of persisting global macrouncertainty and ongoing slowdown of the Chinese economic growth rates, inFebruary 2016, nickel price fell below the levels last seen during the 2008crisis, while copper and PGM prices reached multi-year lows. In thesecircumstances, we believe that our operating model focusing on Tier-1assets and production efficiency has yet again proven its high robustnessand ability to generate industry-leading returns for our shareholders. Inthe first half of 2016, we posted the industry highest EBITDA margin of 47%and generated free cash flow of USD 600 million.Amidst weak commodity markets, our financing standing remained strong andleverage - at a low level. The working capital level of USD 1 billion, thatwas reached, we consider as optimal and intend to maintain as our medium-term target. We expect that subject to the exchange rates and metals pricessustaining at approximately spot levels, our 2016 annual margin will remainat the current level, while our financial leverage will stay conservative.We continued to execute on our downstream reconfiguration program anddelivered the development of our key investment projects on time and onbudget. As result, our capital investment program was ramping up in thefirst half of 2016 driven by the ongoing modernization of productionfacilities, shutdown of the obsolete Nickel plant and active phase of Chitaproject construction. As result capital expenditures increased almost by aquarter, while we reiterate our 2016 capex guidance at USD 2 billion.Most projects related to the modernization of Nadezhda metallurgicalsmelter have been completed, and in May, we launched the Phase-2 ofupgraded Talnakh concentrator with expanded capacity. Just a few days ago,the refined nickel production at Nickel Plant was idled ahead of theschedule that should have an immediate positive impact on the environmentalsituation in the city of Norilsk.The development of Bystrinsky project in Chita region has progressedmaterially. The construction of the open pit, concentrator and power linesis on schedule. As part of de-risking this project, we have closed twolandmark transactions, having raised a long-term project financing fromSberbank and sold a minority stake to strategic equity investors fromChina.Overall, we believe that the metal markets have stabilized, while we aregoing cautiously optimistic on the current developments in the globalnickel market, which for the first time in the past few years has enteredinto a deficit. In this environment, we are seeing a rising investmentappeal for our shares, while we continue delivering industry-leadingdividend returns to our shareholders.' HEALTH AND SAFETY The lost time injury frequency rate (LTIFR) decreased from 0.7 in 1H2015 to0.4 in 1H2016 as a result of implementation of cardinal Safety Rules and anew policy allowing employees to reject unsafe work assignments. Sadly, theCompany suffered 6 fatal injuries in the reported period (vs 4 in 1H2015).Each accident has been reported to the Board of Directors and has beenthoroughly investigated in order to prevent fatalities in future.The Company's management considers the health and safety of its personnelwith a zero fatality rate as the key strategic priority and continues toimplement a wide range of initiatives to improve the health and safetyrecords. The initiatives scheduled in 2H16 include the following: - implementation of a new corporate standard for HSE change management of cardinal Safety; - additional training of managers to identify root causes of accidents using best global practices; - roll out of employee incentive plan aiming at the enforcement of of new HSE standards. METAL MARKETS Nickel in 1H2016 - price bottomed out from its 12-year lows on the back ofrobust Chinese demand, emerged Philippine supply risk and further monetaryeasing from central banks. In 1Q2016, nickel price continued to slide on the downward trend from theprevious year hitting a 12-year low of USD 7,710 per tonne in February.Since then, nickel price recovered strongly to USD 9,400 per tonne at theend of June and further in July-August to the levels above USD 10,000 pertonne. The average LME nickel price in 1H2016 was USD 8,662 per tonne, 37%lower than in 1H2015.The recent rally in nickel was driven by a combination of macro and sector-specific factors. Firstly, the continuous monetary stimulus by European andAsian central banks coupled with the lack of interest rate action from theUS Federal Reserve caused a reverse in the investors' bearish sentimenttowards mined commodities, which triggered fund inflow into these markets.Secondly, the demand from Chinese stainless industry delivered stronggrowth numbers beating the market expectations. In 1H2016, primary nickeldemand from this industry increased by 11% y-o-y driven by increased outputof nickel-intensive 300-series stainless steel. The growth of stainlessproduction was mainly attributed to the launch of a new plant by DelongNickel as well as the expansion at Beihai Chengde, Tisco and otherproducers. The growth of primary nickel consumption in the Chinesestainless industry was additionally supported by a lower scrap ratio.Another driver of nickel demand globally was the electric battery sectorposting a solid growth in primary nickel off-take.Finally, the newly elected president of the Philippines, Rodrigo Duterte,which publicly criticized the mining industry's negative environmentalimpact, launched a nationwide audit of mining companies and halted theissuance of new permits for exploration. The audit has already resulted ina number of nickel mines getting shut, affecting some 12% of the countrynickel ore output. With the investors' memories being still fresh of theimplication that the 2014 Indonesian export ban had on the nickel price,the expectations that something similar might be implemented in Philippinescontributed to the nickel price recovery in the recent months. Thisexpectation was confirmed in middle of August, when the PhilippinesParliament was reported to receive a new mining law, a draft of which wasinitially submitted to the Parliament in 2014, and which reportedlycontains similar principles to that of the Indonesia mining law. Nickel outlook - cautiously positive; robust demand from stainless andtighter supply from Philippines, but beware of refined metal stocks andgrowing supply from Indonesia. The prospects for the ore supply from Philippines remains unsettled. As theresult of the ongoing audit of the mining industry, 8 mines with totalannual output of around 50 thousand tonnes of contained nickel(approximately 12% of the country's nickel supply in 2015) have beensuspended. Another 100 thousand tonnes of contained nickel miningcapacities are at risk of failing the environmental audit. In total, webelieve that up to 150 thousand tonnes of nickel units (8% of globalprimary supply) could be at risk. Moreover, in August the Philippine LowerChamber of Congress was reported that it would seriously considerintroduction of ore export ban mirroring the Indonesian mining legislation,which resulted in the ban on the shipments of unprocessed mined materialsintroduced in January 2014.From the demand perspective, we believe that the government stimulus andramp-up of stainless steel capacities in China would keep the nickelconsumption growth rates at robust levels at least until the end of thisyear. Aggressive nickel restocking by stainless steel mills reported year-to-date coupled with the rumours that the Chinese State Reserve Bureau isbuying 30-50 thousand tonnes of refined metal in 2016 should provideadditional support for nickel price.At the same time, the growth of nickel pig iron (NPI) production inIndonesia, that is expected to deliver over 80 thousand tonnes of nickelunits in 2016, is beating market expectations. In spite of nickel pricebeing well deep into the cost curve, a 25% nickel price recovery fromFebruary's lows provided some relief to high-cost producers outside China.Their cost cutting efforts helped by mining currencies depreciationcombined with re-financing exercises push back further long awaitedindustry rationalisation.Finally, one should be cognisant of global nickel inventory, the visiblepart of which as represented by the LME and SHFE warehouses is running highat 480 thousand tonnes or approximately 80 days of global consumption. Thehigh global nickel inventory is preventing the market from developing aphysical deficit and thus will be keeping a cap on the upside of pricerecovery in the near term.Overall, we continue to hold a neutral view on nickel price in the short-term, while watching closely the developments in Philippines, whereaswidening market deficits in 2016-2018 should support a sustained recoveryof the metal price. Copper in 1H2016 - ramp-up of new projects and supply disruptions runningbelow historical averages outweigh solid physical demand On the back of the general negative sentiment towards base metals, copperprice started the year very weak hitting a seven-year low of USD 4,310 pertonne in January. However, after the launch of new economic stimulus inChina that boosted investments in electrical grid the metal price recoveredto a local maximum of USD 5,103 in March. Nonetheless, the average 1H2016LME price was down 21% y-o-y to USD 4,701 per tonne. The market was broadlybalanced in the first half of 2016, with a surplus of less than 1% of themarket, with the solid demand growth in China (+3% y-o-y) balanced by thesteady ramp-up of large projects and lower-than-expected supplydisruptions. Copper outlook - neutral; supply growth from new mines and cost deflationto keep the price under pressure We maintain a neutral outlook on copper as we expect the robust demandgrowth from China and decline of mined grades in Chile and North America tobe largely offset by a wave of new supply coming from major projects inPeru and Asia. The ongoing cost deflation and access of highly leveredproducers to cheap refinancing provides no incentive for supplyrationalization and thus will cap a recovery of the copper price. However,should the supply disruption to accelerate or further upside surprises fromdemand given the low global level of exchange inventory, price reactioncould be quite sensitive to potential short-term market deficits. Palladium in 1H2016 - price recovery was gaining momentum on the back ofsolid global demand and ETFs metal flow stabilisation After a massive market sell-off in 4Q 2015 driven by the liquidation of ETFholdings, palladium prices started to recover in 1H16 reaching in April USD626 per ounce. Although the average price in 1H 2016 of USD 546 per ouncewas down 29% y-o-y, it recovered strongly in July-August to apsychologically important level of USD 700 per ounce. The growth was drivenby both loosen monetary policies and delays on the expected US Federal rateincrease, which boosted prices of all precious metals,) and strong globallight vehicle production (+3% y-o-y). The outflow of metal from ETFs sloweddown substantially in the first half of 2016, thus removing the sellingpressure, which was particularly strong in 2015. Palladium outlook - positive, deficit to widen Given the booming car sales in the US and China, driving up demand forcatalysts for gasoline vehicles (palladium intensive) we increase ourforecast for primary palladium consumption growth in 2016 to 5% y-o-y (+0.4MOz). The zero interest rate environment should incentivize a recovery ofinvestment demand after major ETFs sell-off in 4Q 2015. We also expect a 4%y-o-y decrease in supply in 2016 owing to production losses in South Africa(following accidents at Impala and production cuts at Lonmin) and reducedrefined output of Norilsk Nickel due to the ongoing reconfiguration of ourdownstream assets. Thus, we believe the palladium market deficit to widen,which should support the price in the mid-term. Platinum in 1H2016 - strong industrial demand and gold rally While in 2H2015 platinum market suffered from overall negative economicsentiment and expectations of a Fed rates hike, 2016 started on a morepositive note with price increasing from USD 850 per ounce in January toUSD 1,000 per ounce in June. We believe that investor fatigue toward PGMsthat dominated the market in 2015 has disappeared as both industrial (fromautomotive and glass industries) and investment demand (especially fromretail investors) were gaining pace. Platinum outlook - positive; deficit to persist We revise our primary platinum consumption growth forecast up from 1% to 2%in 2016 driven by a stronger-than-anticipated recovery of European carsales as well as the robust demand from jewellery and chemical sectors.Despite lukewarm demand from ETFs we expect retail investors to supportinvestment demand. At the same time, we expect a moderate decline inprimary supply driven by lower output by South African producers anddownstream reconfiguration at Norilsk Nickel. All-in-all, we expect theplatinum market structural deficit to widen to around 450 thousand ouncesin 2016. KEY SEGMENTAL HIGHLIGHTS USD million (unless stated 1H2016 1H2015 Change,%otherwise)Revenue 3,843 4,907 (22%)GMK Group 2,831 3,800 (26%)Group KGMK 284 410 (31%)NN Harjavalta 283 432 (34%)Other metallurgical 3 27 (89%)Other non- metallurgical 813 636 28%Eliminations (371) (398) (7%)EBITDA 1,795 2,708 (34%)GMK Group 1,753 2,714 (35%)Group KGMK 55 156 (65%)NN Harjavalta 9 36 (75%)Other metallurgical (8) (12) (33%)Other non-metallurgical 150 (22) 8xUnallocated (164) (164) -EBITDA margin 47% 55% (8 p.p.)GMK Group 62% 71% (9 p.p.)Group KGMK 19% 38% (19 p.p.)NN Harjavalta 3% 8% (5 p.p.)Other metallurgical (267%) (44%) (223 p.p.)Other non- metallurgical 18% (3%) (21 p.p.) In 1H2016, EBITDA of GMK Group decreased by 35% y-o-y to USD 1,753 million.The decline was primarily driven by lower metal prices. The positive effectof RUB depreciation against USD was negatively offset by the increase inthe cost of sales in real terms, and the extension of PGM export customduties to PGM alloys and salts. EBITDA of Group KGMK was down by 65% y-o-y primarily due to lower metalprices. This negative effect was partly positively offset by the decreasein cash costs and selling expenses driven by the depreciation of RUB. EBITDA of NN Harjavalta decreased by 75% y-o-y to USD 9 million primarilydue to lower metal prices, which were partly compensated by the decrease inprices of purchased semi-products.Negative EBITDA of the segment 'Other metallurgical' insignificantlydecreased by USD 4 million y-o-y. EBITDA of the segment 'Other non-metallurgical' increased by USD 172million in 1H 2016 and turned positive primarily as a result of theincrease in sales margin of the Group's trading subsidiaries, whichbenefited from rising metal prices during the 1H2016 as compared to fallingmetal prices during 1H 2015. SALES VOLUME AND REVENUE 1H2016 1H2015 Change,%Refined metalsRussian operationsNickel, thousand tons 122 109 12%Copper, thousand tons 182 177 3%Palladium, thousand troy ounces 1,434 1,312 9%Platinum, thousand troy ounces 370 322 15%FinlandNickel, thousand tons 23 21 10%Semi-productsFinlandCopper cake, copper, thousand tons1 3 6 (50%)BotswanaNickel concentrate, nickel, thousand tons1 - 1 (100%)Nickel concentrate, copper, thousand tons1 - 1 (100%)South AfricaNickel concentrate, nickel, thousand tons1 6 1 6хNickel concentrate, copper, thousand tons1 3 - 100%Metal salesGroupNickel, thousand tons2 145 130 12%Copper, thousand tons2 182 177 3%Palladium, thousand troy ounces2 1,434 1,312 9%Platinum, thousand troy ounces2 370 322 15%Gold, thousand troy ounces2 70 59 19%Rhodium, thousand troy ounces2 45 43 5%Cobalt, thousand tons2 2 3 (33%)Silver, thousand troy ounces2 1,092 983 11%Semi-products, nickel, thousand tons 1 6 1 5хSemi-products, copper, thousand tons1 6 7 (14%)Semi-products, palladium, thousand troy ounces1 47 49 (4%)Semi-products, platinum, thousand troy ounces1 19 19 -Semi-products, gold, thousand troy ounces1 4 4 -Semi-products, silver, thousand troy ounces1 42 64 (34%) 1H2016 1H2015 Change,%Average realized prices of metals produced by Norilsk Nickel in Russia fromits own feedMetalNickel (USD per tonne) 8,808 13,712 (36%)Copper (USD per tonne) 4,741 5,989 (21%)Palladium (USD per troy ounce) 545 771 (29%)Platinum (USD per troy ounce) 938 1,157 (19%)Cobalt (USD per tonne) 23,169 30,367 (24%)Gold (USD per troy troy ounce) 1,213 1,208 -Rhodium (USD per troy ounce) 656 1,046 (37%)Revenue, USD millionNickel 1,278 1,816 (30%)Copper 862 1,059 (19%)Palladium 810 1,035 (22%)Platinum 347 372 (7%)Semi-products 88 103 (15%)Other metals 180 206 (13%)Revenue from metal sales 3,565 4,591 (22%)Revenue from other sales 278 316 (12%)Total revenue 3,843 4,907 (22%) 1) Volumes are stated in respect of metal content in semi-product.2) All information is reported on the basis of 100% ownership ofsubsidiaries, excluding sales of metals purchased from third parties. Nickel Nickel remained the largest contributor to the Company's revenue comprisinga 36% of total metal sales in 1H2016 down from 40% in the 1H2015 as nickelprice fell the most relative to other metals within the Company's commoditybasket. In 1H2016, nickel revenue decreased by 30% y-o-y (or USD 538 million) toUSD 1,278 million primarily due to lower nickel price (-USD 663 million),which was partly offset by higher sales volume (+USD 125 million). The average realized price of nickel produced in Russia from own feeddecreased by 36% y-o-y from to USD 8,808 per tonne in 1H2016 from USD13,712 per tonne in 1H2015. Sales volume of nickel produced in Russia from own feed increased by 12% y-o-y (or 13 thousand tons) to 120 thousand tons. The increase in salesvolume was driven by the sale of part of metal from a temporary stockaccumulated by the Company in the fourth quarter 2015. The volume of nickel sales from purchased semi-products was flat y-o-yamounting to 2 thousand tons. Sales volume of nickel produced by Norilsk Nickel Harjavalta increased by10% y-o-y to 23 thousand tons in 1H2016 as Harjavalta started to processthe Company's Russian feed. Copper In 1H2016, copper sales accounted for 24% of the Company's total metalsales, down 19% y-o-y (or USD 197 million) to USD 862 million primarilyowing to lower realized copper price (-USD 221 million) which was partlyoffset by the increase in sales volume (+USD 24 million). The average realized price of copper produced in Russia from own feed wasdown by 21% y-o-y to USD 4,741 per tonne in 1H2016 from USD 5,989 in1H2015. Physical volume of copper sales from Russian feed increased by 3% y-o-y (or5 thousand tons) to 180 thousand tons. The increase in sales volumes wasdriven by sale of part of metal from the temporary stock, which was builtin the fourth quarter 2015.The sales of copper produced from third party materials was unchanged y-o-yand amounted to 2 thousand tons. Palladium In 1H2016, palladium sales accounted for 23% of the Group's total metalrevenue. The Group's palladium revenue decreased by 22% y-o-y (or by USD225 million). The negative impact of lower realized price (-USD 297million) was partly offset by the increased sales volumes (+USD 67million). Additional USD 29 million of palladium revenue in 1H2016 camefrom the re-sale of metal purchased in the open market to fulfil theCompany's contractual obligations ( vs USD 24 million in 1H2015).Sales of palladium produced in Russia from own feed decreased by 22% y-o-yto USD 775 million. The decline was driven by lower realized palladiumprice (down 29% y-o-y) from USD 771 per troy ounce in 1H2015 to USD 545 pertroy ounce in 1H2016, which was partly offset by higher palladium salesvolume (by 11% y-o-y) resulting from the sale of metal from temporarystock. Platinum In 1H2016, platinum sales accounted for 10% of the Group's total metalrevenue. The platinum revenue decreased by 7% y-o-y (or by USD 25 million)to USD 347 million primarily due to the adverse effect from the realizedplatinum price (negative USD 70 million), which was partly offset by highervolumes of platinum sales (+USD 45 million). The revenue from platinum produced in Russia from own feed decreased by 5%y-o-y to USD 343 million. The reduction was driven by a 19% y-o-y declinein the average realized platinum price (from USD 1,157 per troy ounce in1H2015 to USD 938 per troy ounce in 1H2016), which was partly offset by theincrease in sales volumes due to the sale of metal from temporary stock. Other metals The revenue from other metals was down by 13% y-o-y (or by USD 26 million)to USD 180 million owing to the decline in revenue from sale of cobalt(-35%) and rhodium (-34%), which was partly offset by the higher silver(+4%) and gold sales revenue (+19%).Decline of revenue from other metals was driven by both the lower realizedprices (-USD 24 million) and decrease of physical sale volumes (-USD 2million). Semi-products In 1H2016, revenue from sales of semi-products (copper cake and nickelconcentrate) decreased by 15% y-o-y (or by USD 15 million) to USD 88million, and accounted for 2% of the Group's total metal sales revenue. Thedecrease was mainly driven by lower realized prices and the divestiture ofTati Nickel in the second quarter of 2015. Other sales In 1H2016, the revenue from other sales amounted to USD 278 million (downby 12% y-o-y) and decreased primarily due to Russian rouble depreciationagainst US dollar (negative effect of USD 51 million), which was partlypositively offset by the increase of other sales in real terms by USD 13million.The increase of other sales in real terms was driven by higher revenue ofthe Company's transport subsidiaries primarily due to increased volumes andprices of services provided to third parties (USD 17 million). This waspartially negatively offset by a decline in other revenue due todivestiture of non-core assets (negative effect of USD 15 million). COST OF METAL SALES Cost of metals sales In 1H2016, the cost of metal sales decreased by 7% y-o-y (or by USD 120million) to USD 1,645 million owing to: - Reduction of cash operating costs by 6% y-o-y (USD 84 million); - Decrease in depreciation charges by 12% y-o-y (USD 28 million); - Change in metal inventories y-o-y (negative effect of USD 8 million). Cash operating costs In 1H2016, total cash operating costs decreased by 6% y-o-y (or by USD 84million) to USD 1,356 million. The decrease was mainly driven by the depreciation of Russian roubleagainst US Dollar (USD 182 million) and sale of non-core assets (USD 27million). The negative impacts on cash operating costs were as follows: - USD 69 million increase of cash operating costs owing to domestic inflation; - USD 56 million increase of other expenses. USD million 1H2016 1H2015 Change,%Cash operating costsLabour 543 584 (7%)Purchases of metals for resale, raw materials and 294 289 2%semi-productsMaterials and supplies 203 198 3%Third-party services 72 119 (39%)Mineral extraction tax and other levies 67 59 14%Electricity and heat energy 47 58 (19%)Transportation expenses 40 39 3%Fuel 25 35 (29%)Sundry costs 65 59 10%Total cash operating costs 1,356 1,440 (6%)Depreciation and amortisation 214 242 (12%)Decrease in metal inventories 75 83 (10%)Total cost of metal sales 1,645 1,765 (7%) Labour In 1H2016, labour costs decreased by 7% y-o-y to USD 543 million. Positive effect of Russian rouble depreciation against US Dollar (reductionof labour costs by USD 103 million) was partly negatively offset by theindexation of RUB-denominated wages and the headcount increase (increase oflabour cost by USD 62 million). The share of labour costs in the Group's total cash operating costs in1H2016 decreased by 1% y-o-y to 40% of total. Purchases of metals for resale, raw materials and semi-products Expenses on the purchase of metals for resale and semi-products forprocessing increased by 2% y-o-y to USD 294 million in 1H2016. Purchase of semi-products was down by USD 89 million y-o-y owing to thedecrease in market prices for purchased concentrates and matte. Thispositive impact was partly offset by the increase in the volume of semi-products purchased by NN Harjavalta (increase of cost by USD 39 million)owing to the replacement of a tolling contract with Boliden with a sale andpurchase agreement. Expenses for metals purchased for re-sale to fulfill contractualobligations increased by USD 55 million y-o-y. Materials and supplies Materials and supplies expenses increased by 3% y-o-y to USD 203 million in1H2016. Positive effect of Russian rouble depreciation against US Dollar amountedto USD 31 million in terms of cost reduction. However, the positive depreciation effect was negatively offset by theincrease of the cost of materials and supplies in real terms driven by thefollowing: - USD 16 million - local-currency inflation; - USD 21 million - repairs of mining equipment as well as the equipment at Nadezhda metallurgical plant and Kola MMC owing to the ongoing downstream reconfiguration program. Outsourced third party services In 1H2016, cost of third party services decreased 39% y-o-y to USD 72million. Positive effect of Russian rouble depreciation against US Dollar amountedto USD 13 million in terms of cost reduction. Other changes in outsourced third party services were driven by thefollowing factors: - USD 19 million - cash cost reduction due to the divestiture of Tati Nickel in April 2015; - USD 21 million - decrease in tolling expenses due to replacement of tolling contract with Boliden with a semi-products sale and purchase agreement at NN Harjavalta; - USD 6 million - increase in other services, including repairs and maintenance of equipment, primarily due to inflation. Mineral extraction tax and other levies In 1H2016, mineral extraction tax and other levies increased by 14% y-o-yto USD 67 million. Positive effect of Russian rouble depreciation against US Dollar amountedto USD 10 million in terms cost reduction in 1H 2016. That was more than offset negatively by USD 18 million increase in cashcost owing to higher cost of mined ore and increase in road usage chargesin Norilsk region in rouble terms. Electricity and heat energy In 1H2016, electricity and heat energy expense decreased by 19% y-o-y toUSD 47 million. The decline was primarily driven by Russian rouble depreciation against USDollar. Transportation expenses In 1H2016, transportation expenses remained stable y-o-y and amounted toUSD 40 million. The increase in transportation tariffs in Russia was offset by RussianRouble depreciation against US Dollar. Fuel Fuel expenses decreased by 29% y-o-y to USD 25 million in 1H2016 driven byRussian rouble depreciation against US Dollar (cash cost reduction by USD 6million) and lower oil price (cash cost reduction by USD 4 million). Sundry costs Sundry costs in 1H2016 increased by 10% y-o-y and amounted to USD 65million. Positive effect of Russian rouble depreciation against US Dollar amountedto USD 9 million in terms cost reduction. The increase in sundry costs in real terms (USD 15 million) was drivenprimarily by inflation. Depreciation and amortisation In 1H2016, amortisation and depreciation of production assets decreased by12% y-o-y and amounted to USD 214 million. Positive effect of Russian rouble depreciation against US Dollar (reductionof cost by USD 42 million) was partly offset by the increase indepreciation charges (USD 14 million) mainly due to additions of mining andrefining assets at the end of 2015 - beginning of 2016. Decrease of metal inventories The decrease in metal stock in 1H2016 was USD 8 million lower than in 1H2015 resulting in a respective decrease in cost of sales. This change wasprimarily attributable to the following factors: - USD 75 million - decrease of metal stock in 1H2016 mainly due to the sale of metal from the stock accumulated in 4Q2015; - USD 83 million - decrease in the stockpile of work-in-progress materials at the Company's Russian operations and NN Harjavalta, as a result of processing of the stockpiled nickel materials at NN Harjavalta and sale of Tati Nickel in 1H2015. COST OF OTHER SALES In 1H2016, cost of other sales decreased by 21% y-o-y to USD 250 million. Positive effect of Russian rouble depreciation against US Dollar amountedto USD 56 million in terms of cost reduction. Change of cost of other sales in real terms (up by USD 11million) wasdriven by the following factors: - USD 16 million - cost reduction due to sale of non-core assets (primarily Nordavia-RA); - USD 8 million - increase in aviation companies expenditures owing to the business expansion; - USD 3 million - cost reduction due to other factors. SELLING AND DISTRIBUTION EXPENSES USD million 1H2016 1H2015 Change,%Export duties 54 16 238%Staff costs 5 5 -Transportation expenses 3 2 50%Marketing expenses 2 12 (83%)Other 3 7 (57%)Total 67 42 60% Selling and distribution expenses increased by 60% y-o-y (or by USD 25million) to USD 67 million. The growth was driven by a threefold increaseof export duties (up by USD 38 million) owing to the extension of 6.5% PGMexport duties to PGM alloys and salts in June 2015. The Company expectsthat export duties on all PGM products will be cancelled by the Russiangovernment on September 01, 2016, as part Russian Federation WTO accessionpackage. The increase of export duties was partly offset by the following factors: - USD 5 million - cost reduction owing to the depreciation of RUB against US dollar; - USD 10 million - decrease in marketing campaigns in Asia and Europe. GENERAL AND ADMINISTRATIVE EXPENSES USD million 1H2016 1H2015 Change,%Staff costs 171 168 2%Taxes other than mineral extraction tax and 26 27 (4%)income taxThird party services 20 25 (20%)Rent expenses 10 10 -Depreciation and amortisation 10 9 11%Transportation expenses 3 3 -Other 19 20 (5%)Total 259 262 (1%) In 1H2016, general and administrative expenses decreased by 1% y-o-y (or byUSD 3 million) to USD 259 million. Increase of staff costs (up by USD 3million) driven by salaries upward revision in line with domestic inflationwas offset by lower cost of third party services (cost reduction by USD 5million) owing to the depreciation of Russian rouble against US dollar. FINANCE COSTS USD million 1H2016 1H2015 Change,%Interest expense on borrowings net of amounts 203 109 86%capitalizedUnwinding of discount on provisions 23 19 21%Total 226 128 77 % Increase in finance costs by 77% y-o-y to USD 226 million was mostly drivenby higher interest expense on borrowings due to increase in gross debt. INCOME TAX EXPENSE In 1H2016, income tax expense decreased 24% y-o-y to USD 370 million drivenmostly by lower revenue. The effective income tax rate in 1H2016 amounted to 22%, which was abovethe Russian statutory tax rate of 20%. This was primarily driven by non-deductible social expenses and allowance for deferred tax assets. Thesefactors were partly offset by the effect of varying tax rates applied oninternational subsidiaries of the Group. USD million 1H2016 1H2015 Change,%Current income tax expense 348 481 (28%)Deferred tax expense 22 5 4xTotal 370 486 (24%) The break up of the current income tax expense by geography : USD million 1H2016 1H2015 Change,%Russian Federation 346 464 (25%)Finland - 15 (100%)Rest of the world 2 2 -Total 348 481 (28%) EBITDA USD million 1H2016 1H2015 Change,%Operating profit 1,536 2,426 (37%)Depreciation and amortisation 256 280 (9%)Impairment of property, plant and equipment 3 2 50%EBITDA 1,795 2,708 (34%)EBITDA margin 47% 55% (8 p.p.) In 1H 2016, EBITDА decreased by 34% y-o-y (or by USD 913 million) to USD1,795 million with EBITDA margin amounting to 47% (down from 55% in1H2015). Negative impact on EBITDA came from the decrease in realized metalprices and the increase of PGM export duties costs, which were partiallycompensated by RUB depreciation against US Dollar and cost reduction as aresult of the disposal of non-core and international assets. NET PROFIT BEFORE IMPAIRMENT CHARGES AND FOREIGN EXCHANGE GAINS/LOSSESRECONCILIATION USD million 1H2016 1H2015 Change,%Net profit 1,304 1,493 (13%)Impairment of property, plant and equipment 3 2 50%Foreign exchange (gain)/loss (310) 122 (4x)(Gain)/ loss from disposal of subsidiaries and (6) 306 (52x)assets classified as held for saleNet profit before impairment charges and foreign 991 1,923 (48%)exchange gains/losses STATEMENT OF CASH FLOWS USD million 1H2016 1H2015 Change,%Cash generated from operations before changes 1,828 2,758 (34%)in working capital and income taxMovements in working capital 16 241 (93%)Income tax paid (320) (439) (27%)Net cash generated from operating activities 1,524 2,560 (40%)Capital expenditure (706) (569) 24%Other investing activities (199) 188 (2х)Net cash used in investing activities (905) (381) (138%)Net cash used in financing activities (1,237) (2,234) 45%Effects of foreign exchange differences on (23) 126 (118%)balances of cash and cash equivalentsOther 1 (50) (51х)Net (decrease)/increase in cash and cash (640) 21 (32х)equivalents In 1H2016, net cash generated from operating activities decreased by 40% y-o-y to USD 1.5 billion owing to the following: - USD 913 million - decrease in EBITDA; - USD 225 million - slower working capital release in 1H2016 as compared to 1H2015. Reconciliation of the net working capital changes between the balance sheetand cash flow statement is presented below. USD million 1H2016 1H2015Change of the net working capital in the balance sheet, 79 368less:Foreign exchange differences 21 (36)Change in income tax payable (26) (34)Changes of working capital within assets classified as held (1) (31)for saleNon-cash changes, including reserves (57) (26)Change of working capital per cash flow 16 241 CAPEX BREAKDOWN BY PROJECT USD million 1H2016 1H2015 Change,%Polar Division, including: 402 369 9%Skalisty mine 30 88 (66%)Taymirsky mine 28 24 17%Komsomolsky mine 27 11 145%Oktyabrsky mine 24 19 26%Talnakh enrichment plant 114 84 36%Nickel plant closure activities 11 20 (45%)Kola MMC 44 45 (2%)Chita (Bystrinsky) project 132 51 159%Other production projects 113 95 19%Other non-production assets 2 3 (33%)Intangible assets 13 6 117%Total 706 569 24% In 1H2016, CAPEX increased by 24% y-o-y to USD 706 million primarily due tocompletion of the second stage of Talnakh enrichment plant (+USD 30million) and construction of Chita (Bystrinsky) project (+USD 81 million). Other factors driving the increase in CAPEX in 1H2016 were: - Development and maintenance of the mineral resource base in Polar division and Kola MMC; - Capital repairs at Nadezhda metallurgical plant with increase of its production capacity from 2.0 mtpa to 2.4 mtpa. - Reconstruction of refining capacities at Kola MMC to replace outdated and less efficient technology of electrolytic refining of anodes with a more efficient electrowinning technology; - Development of Pelyatkinskoe gas condensate field and reconstruction of power generation facilities to ensure reliable energy supply to the Company's production assets and Norilsk residential area. DEBT AND LIQUIDITY MANAGEMENT USD million As of June As of Change, Change, % 30 2016 December 31 USD million 2015Long-term 7,473 7,142 331 5%Short-term 664 1,124 (460) (41)%Total debt 8,137 8,266 (129) (2%)Cash and cash 3,414 4,054 (640) (16%)equivalentsNet debt 4,723 4,212 511 12%Net debt /12M 1.4x 1.0х 0.4xEBITDA As of June 30, 2016 the Company's total debt decreased by 2% y-o-y (or byUSD 129 million) to USD 8,137 million. The Company's short-term debtdecreased by USD 460 million from the year-end 2015 to USD 664 million,while the long-term debt increased by USD 331 million to USD 7,473 millionas of June 30, 2016. As a result, the proportion of short-term debt in thetotal debt portfolio as of June 30, 2016 decreased to 8% from 14% as ofDecember 31, 2015. Net debt increased by 12% y-o-y to USD 4,723 million with Net debt/12MEBITDA ratio increasing to 1.4х. In 1H2016, the Company executed several debt financing transactions aimedat diversification and optimization of the Group's debt portfolio. TheCompany placed 10-year local bonds in the amount of RUB 15 billion topartially refinance its 3-year local bonds in the amount of RUB 35 billionmaturing in February 2016. In addition, the Company arranged a projectfinancing credit facility from Sberbank CIB in the amount of up to USD 800million for the period of 8 years to finance the construction of Chita(Bystrynsky) project. In 1H2016, the Company continued to optimize its committed lines portfolioand entered into the syndicated revolving facility agreement with aconsortium of Chinese banks with the facility limit of CNY 4.8 billion (USD730 million equivalent as of the date of the agreement). Following thisagreement, the total limit of the committed lines available to the Companyreached USD 2.3 billion as of June 30, 2016. As of June 30, 2016, the Company's credit ratings assigned by Standard andPoor's and Fitch rating agencies remained at the investment grade level(BBB-, BBB-). The Company's credit rating assigned by Moody's was at Ba1level in line with the sovereign rating of Russia. Consolidated financial statements for 1H2106 can be found on the Company'swebsite: http://www.nornik.ru/en/investor-relations/financial-statements-and-reports/ifrs-statements-documents This announcement contains inside information in accordance with Article 7of EU Regulation 596/2014 of 16 April 2014. Full name and position of person making the announcement - Vladimir Zhukov,Vice - president, Investor Relations ABOUT THE COMPANY PJSC 'MMC 'NORILSK NICKEL' is a diversified mining and metallurgicalcompany, the world's largest producer of refined nickel and palladium and aleading producer of platinum, cobalt, copper and rhodium. The company alsoproduces gold, silver, iridium, selenium, ruthenium and tellurium. The production units of PJSC 'MMC 'NORILSK NICKEL' include Polar Division,located at the Norilsk Industrial District on Taimyr Peninsula, and KolaMining and Metallurgical Company located on the Kola Peninsula in Russia aswell as Harjavalta nickel refinery in Finland. PJSC 'MMC 'NORILSK NICKEL' shares are listed on the Moscow and on theSaint-Petersburg Stock Exchanges. PJSC MMC 'Norilsk Nickel' ADRs trade overthe counter in the US and on the London and Berlin Stock Exchanges. Media Relations: Investor Relations: Phone: +7 (495) 785 58 00 Phone: +7 (495) 786 83 20 Email: pr@nornik.ru Email: ir@nornik.ru Attachment A INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)FOR THE SIX MONTHS ENDED 30 JUNE 2016US Dollars million For the six months For the six months ended 30 June 2016 ended 30 June 2015 Revenue Metal sales 3,565 4,591Other sales 278 316 Total revenue 3,843 4,907 Cost of metal sales (1,645) (1,765)Cost of other sales (250) (317) Gross profit 1,948 2,825 General and administrative (259) (262)expensesSelling and distribution (67) (42)expensesImpairment of property, plant (3) (2)and equipmentOther net operating expenses (83) (93) Operating profit 1,536 2,426 Finance costs (226) (128)Gain/(loss) from disposal of 6 (306)subsidiaries and assetsclassified as held for saleIncome from investments, net 51 99Foreign exchange gain/(loss), 310 (122)netShare of (losses)/profits of (3) 10associates Profit before tax 1,674 1,979 Income tax expense (370) (486) Profit for the period 1,304 1,493 Attributable to:Shareholders of the parent 1,309 1,498companyNon-controlling interests (5) (5) 1,304 1,493EARNINGS PER SHARE Basic and diluted earnings 8.3 9.5per share attributable toshareholders of the parentcompany (US Dollars pershare) Attachment BINTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)AS AT 30 JUNE 2016US Dollars million 30.06.2016 31.12.2015ASSETSNon-current assets Property, plant and equipment 7,817 6,392Intangible assets 64 50Investment property 91 83Other financial assets 254 62Other taxes receivable 2 -Deferred tax assets 42 42Other non-current assets 157 117 8,427 6,746Current assets Inventories 1,921 1,698Trade and other receivables 178 167Advances paid and prepaid expenses 115 55Other financial assets 58 1Income tax receivable 228 234Other taxes receivable 171 199Cash and cash equivalents 3,414 4,054 6,085 6,408Assets classified as held for sale 218 217 6,303 6,625 TOTAL ASSETS 14,730 13,371 EQUITY AND LIABILITIES Capital and reserves Share capital 6 6Share premium 1,254 1,254Treasury shares (196) (196)Translation reserve (5,019) (5,348)Retained earnings 7,267 6,523 Equity attributable to shareholders of the 3,312 2,239parent companyNon-controlling interests 16 22 3,328 2,261Non-current liabilities Loans and borrowings 7,473 7,142Provisions 405 357Deferred tax liabilities 246 205Other long-term liabilities 43 30 8,167 7,734Current liabilities Trade and other payables 1,313 1,008Loans and borrowings 664 1,124Dividends payable 568 698Employee benefit obligations 279 215Provisions 230 205Derivative financial instruments 3 2Income tax payable 18 5Other taxes payable 133 95 3,208 3,352Liabilities associated with assets classified 27 24as held for sale 3,235 3,376 TOTAL LIABILITIES 11,402 11,110 TOTAL EQUITY AND LIABILITIES 14,730 13,371 Attachment CINTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)FOR THE SIX MONTHS ENDED 30 JUNE 2016US Dollars million For the six months For the six months ended 30 June 2016 ended 30 June 2015 OPERATING ACTIVITIES Profit before tax 1,674 1,979 Adjustments for:Depreciation and amortisation 256 280Impairment of property, plant 3 2and equipment(Gain)/loss on disposal of (1) 11property, plant and equipmentShare of losses/(profits) of 3 (10)associates(Gain)/loss from disposal of (6) 306assets classified as held forsaleFinance costs and income from 181 29investments, netForeign exchange (gain)/loss, (310) 122netOther 28 39 1,828 2,758Movements in working capital:Inventories (36) (30)Trade and other receivables (20) 98Advances paid and prepaid (43) 2expensesOther taxes receivable 60 (2)Employee benefit obligations 39 1Trade and other payables (8) 152Provisions (10) -Other taxes payable 34 20 Cash generated from 1,844 2,999operations Income tax paid (320) (439) Net cash generated from 1,524 2,560operating activities INVESTING ACTIVITIES Purchase of property, plant (693) (563)and equipmentPurchase of intangible assets (13) (6)Purchase of other non-current (22) (15)assetsPurchase of other financial (150) -assetsLoans issued (12) -Net change in deposits placed (50) 80Interest received 27 65Proceeds from sale of other - 44financial assetsProceeds from disposal of 1 -property, plant and equipmentProceeds from disposal of 7 -assets classified as held forsaleDividends received - 14 Net cash used in investing (905) (381)activities INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)FOR THE SIX MONTHS ENDED 30 JUNE 2016 (CONTINED)US Dollars million For the six months For the six months ended 30 June 2016 ended 30 June 2015 FINANCING ACTIVITIES Proceeds from loans and 651 400borrowingsRepayments of loans and (1,013) (332)borrowingsFinancial lease payments (4) -Dividends paid (665) (2,126)Interest paid (285) (143)Acquisition of own shares - (2)from shareholdersAdvances received for sale 79 -of treasury sharesBuy-out of non-controlling - (31)interest Net cash used in financing (1,237) (2,234)activities Net decrease in cash and (618) (55)cash equivalents Cash and cash equivalents at 4,054 2,793the beginning of the period Cash and cash equivalents 43 5related to assets classifiedas held for sale at thebeginning of the periodLess: cash and cash (42) (55)equivalents related toassets classified as heldfor sale at the end of theperiodEffects of foreign exchange (23) 126differences on balances ofcash and cash equivalents Cash and cash equivalents at 3,414 2,814the end of the period Attachment DNET WORKING CAPITAL US Dollars million 30.06.2016 31.12.2015 Change incl. effects of foreign exchange differences Finished goods 488 541 (53) 46 Work-in-process 750 605 145 77 Semi-products 29 58 (29) 8 Other inventories 654 494 160 71 Trade and other 178 167 11 4receivables Advances paid and 115 55 60 14prepaid expenses Taxes receivable 399 433 (34) 31 Employee benefit (279) (215) (64) (34)obligations Trade and other (1,232) (1,008) (224) (180)payables* Taxes payable (151) (100) (51) (16) Total 951 1,030 (79) 21 * Net working capital doesn't include balances with shareholders. --------------------------------------------------------------------------- The EquityStory.RS, LLC Distribution Services include RegulatoryAnnouncements, Financial/Corporate News and Press Releases.Archive at www.dgap.de/ukreg --------------------------------------------------------------------------- Language: English Company: MMC Norilsk Nickel 1 st Krasnogvardeysky av., 15 123100 Moscow Russia Internet: www.nornik.ru ISIN: US55315J1025 WKN: A140M9 Listed: Regulated Unofficial Market in Berlin, Dusseldorf, Munich, Stuttgart; Open Market in Frankfurt ; London, Nasdaq Category Code: MSCH TIDM: MNOD Sequence Number: 3359 Time of Receipt: 29-Aug-2016 / 10:16 CET/CEST End of Announcement EquityStory.RS, LLC News Service --------------------------------------------------------------------------- 496499 29-Aug-2016UK-Regulatory-announcement transmitted by DGAP - a service of EQS Group AG.The issuer is solely responsible for the content of this announcement.