Jun
9
Norilsk Nickel completed 2008 with net loss by IAS in the amount of 555 mn USD versus the net profit at the level of 5.276 bn USD in 2007. The main reason of closing the last year with loss became the company’s assets depreciation (including WGC-3), the total amount of which totaled 4.728 bn USD. A year earlier the loss from assets’ depreciation totaled 1.879 bn USD.
Sales of Norilsk Nickel by the results of the year reduced by 18% and totaled 13.98 bn USD. Sales of the company directly from selling metal reduced by 26% and formed 11.799 bn USD. The main factor of the reduction was the drop of nickel prices, and also decrease of actual selling volume. Particularly, sales from selling nickel totaled last year 6.081 bn USD (reduction by 40% versus 2007), income from selling copper dropped 2% to 2.893 bn USD. Company’s sales from selling palladium reduced by 3% to 1.282 bn USD, from platinum selling – 1.420 bn USD (growth by 12%), from selling gold – 123 mn USD (drop by 17%).
Due to negative price dynamics at the non-ferrous metal market the profitability of business of the nickel giant decreased significantly by the end of the previous year. So, EBITDA margin lost 19 p.p. versus 2007 and totaled 39.7%. Last half year the value of the given estimate formed 27.3% versus 48.2% in 1H.
As of December 31, 2008 the volume of credits and loans of the group reduced by 1.632 bn USD and totaled 6.44 bn USD versus 8.072 bn USD in 2007. Out of that 872 mn USD – for short-term loans. The main share of credit payoffs according to Norilsk Nickel’s report has due date in 2010-2012.
Nickel output totaled this year 285-300 thousand tons (the former forecast – 290-305 thousand tons, and in 2008 300 thousand tons were produced). Copper output as expected totaled 385-405 thousand tons (earlier 385-400 thousand tons, in 2008 – 419 thousand tons). Expectations on platinum output (not considering Stillwater data) in 2009 are at the level of 615-640 thousand ounces (former forecast was 600-620 thousand ounces, last year 659 thousand ounces were output). Corrected forecast on the output of palladium totals 2.685-2.710 mn ounces versus 2.61-2.65 mn ounces, expected earlier (in 2008 2.821 mn ounces were output).
The main reasons for such poor results were “paper” losses on the item of non-financial assets depreciation. So, precisely due to those expenses the company has totally “used up” the profit of the first half year and the significant share of the financial buffer, accumulated at the company’s balance. But if excluding the given expenses from the research, than the report might be called expected. Note, the given expenses were and still are “papers”, but at the same time the company managed to reduce the cash outflow on income tax due to that.
After the revision of the model and the results of the comparables we gained the new fair share price of the company at the level of 76.35 USD (earlier – 115.22 USD). From now on the shares of the company from the fundamental points of view do not seem attractive. But on the other hand, considering the current levels of low liquidity, the investors in the sector of non-ferrous metal has no choice, we reduce the recommendation from BUY to HOLD.
Norilsk Nickel: The giant ran upon the sands - May 29, 2009 (PDF)