Financial performance (MD&A)
- Consolidated revenue decreased 5% y-o-y amounting to USD 16.9 billion. Higher nickel and cobalt prices and recovery of production volumes following the liquidation of damages caused by incidents at Oktyabrsky and Taimyrsky mines and Norilsk concentrator were negatively offset by lower copper and PGM prices as well as decline in metal sales volume driven by logistics disruptions and reorientation of sales to new markets that requires additional time;
- EBITDA decreased 17% y-o-y to USD 8.7 billion owing to lower revenue, higher operating cash costs driven mainly by increase in labour expenses and repairs. EBITDA margin amounted to 52%;
- Net income was down 16% y-o-y to USD 5.9 billion mostly driven by lower EBITDA;
- CAPEX increased 55% y-o-y to a recordUSD 4.3 billion driven by growth of investments into flagship environmental, mining and metallurgical projects as well as capital repairs aimed at improvement of industrial safety and mitigation of physical risks of production assets;
- Net working capital amounted to USD 4 billion driven mostly by increase in metal inventories as well as amortization of advance payments form customers and termination of factoring services;
- Free cash flow decreased from USD 4.4 billion to USD 0.4 billion driven mostly by lower EBITDA, increase of net working capital and higher CAPEX;
- Net debt doubled y-o-y to USD 9.8 billion following the decrease of free cash flow and payment of dividends. Net debt/EBITDA ratio as of December 31, 2022 was at 1.1x. The Company continues to duly service all its debt liabilities;
- In September 2022, the Company received the consent of holders of 5 issues of eurobonds for the total amount of USD 3.75 billion to amend transaction documents in order to split payments to Russian and foreign investors, simplify cancellation of notes and appoint new Trustee. This was the largest deal of that kind in Russia both in terms of total amount and number of issues;
- In October and December 2022, Nornickel placed 9.75% RUB 25 billion exchange-traded bonds on the Moscow Exchange and two issues of CNY bonds in the total amount of CNY 9 billion, respectively;
- Economic restrictions imposed on Russia by a group of countries pose risks for operating, commercial and investment activities of the Company. To mitigate these risks Nornickel is developing relationship with alternative clients and suppliers, setting up new logistic routes and exploring new capital markets.
In 2022, revenue of GMK Group segment increased 3% to USD 12,242 million primarily due to the increase of sales following the recovery of operations at Oktyabrsky and Taimyrsky mines and Norilsk Concentrator after incidents in 2021, which was partly negatively offset by lower metal prices.
Revenue of South cluster segment increased 27% to USD 972 million primarily driven by higher volume of tolling services realized to GMK group due to the recovery of operations at Oktyabrsky and Taimyrsky mines and Norilsk Concentrator after incidents in 2021, and higher realized prices of semi-products.
Revenue of KGMK Group segment increased 6% to USD 10,451 million primarily owing to higher sales of semi-products delivered to GMK group and NN Harjavalta.
Revenue of NN Harjavalta increased 58% to USD 2,363 million driven by higher realized nickel prices and higher semi-products revenue.
Revenue of GRK Bystrinskoye decreased 2% and amounted to USD 1,325 million.
Revenue of Other mining segment decreased 96% owing to the termination of Nkomati’s operations in 1H2021.
Revenue of Other non-metallurgical segment increased 2% to USD 1,558 million primarily due to higher revenue from other sales that was partly negatively offset by lower revenue from metal resale.
In 2022, EBITDA of GMK Group segment decreased 21% to USD 4,316 million owing to higher cash operating costs primarily driven by increased mineral extraction tax, higher labour, repair and maintenance costs, which were partly positively offset by higher revenue, decrease in social expenses, as well as cancellation of Nickel and Copper export custom duties in 2022.
EBITDA of South cluster segment increased 13% to USD 450 million primarily owing to higher revenue that was partly negatively offset by increase in cash operating costs due to higher labour, repair and maintenance costs.
EBITDA of KGMK Group segment increased 4% to USD 3,915 million primarily owing to higher revenue.
EBITDA of NN Harjavalta increased 3-fold to USD 157 million owing to higher revenue, which was partly offset by increase in cash operating costs mainly due to higher reagents and energy costs.
EBITDA of GRK Bystrinskoye segment decreased 13% to USD 934 million primarily due to increase in cash operating costs driven by higher labour, repair and maintenance costs.
EBITDA of Other mining segment remained almost unchanged at negative USD 11 million.
EBITDA of Other non-metallurgical segment remained almost unchanged y-o-y and amounted to USD 9 million.
EBITDA of Unallocated segment decreased by USD 119 million and amounted to a negative USD 1,064 million mainly due to higher administrative expenses.
In 2022, revenue from metal sales was down 6% (or -USD 1,030 million) y-o-y to USD 16,073 million primarily driven by lower sales volume (-USD 704 million) as well as lower realized metal prices (-USD 153 million) as well as the decrease of revenue from the resale of metals purchased from third parties (-USD 173 million). Lower metal sales volumes driven by the extension of logistics and reorientation of sales to new markets
In 2022, other sales increased 7% (or +USD 54 million) to USD 803 million primarily due to an increase in oil product sales, resale of icebreaking and sea transportation services, increase of waste-product prices and Russian rouble appreciation, which was partially negatively offset by the sale of "NordStar" airline.
Cost of metal sales
In 2022, the cost of metal sales increased 21% (or +USD 1,051 million) to USD 6,108 million, driven by the following factors:
- increase in cash operating costs by 34% (or +USD 1,667 million);
- increase in depreciation and amortization by 20% (or +USD 172 million);
- comparative effect of change in metal inventories y-o-y leading to the cost of metal sales reduction of USD 788 million.
Cash operating costs
In 2022, total cash operating costs increased 34% (or +USD 1,667 million) to USD 6,541 million mainly due to increase in labour costs (+ USD 717 million), increase in mineral extraction tax and other levies (+USD 565 million), increase in third party services (+ USD 374 million), and increase in materials and supplies (+ USD 354 million), partly offset by the cancellation of nickel and copper export custom duties in 2022 (- USD 442 million).
Inflationary growth of cash operating costs amounted to +USD 352 million while Russian rouble appreciation against USD amounted to cash operating costs increase of +USD 273 million.
Labour
In 2022, labour costs increased 51% (or +USD 717 million) to USD 2,123 million amounting to 32% of the Group’s total cash operating costs driven by the following factors:
- +USD 232 million – indexation of salaries and wages above the CPI in line with the terms of collective bargaining agreement;
- +USD 127 million – increase in headcount in Norilsk industrial region;
- +USD 77 million – one-off incentive bonus to personnel;
- +USD 177 million – other increase in labour costs mainly due to increase in provisions, primarily unused vacation provision, driven by the increase in labour costs;
- +USD 104 million – effect of the Russian rouble appreciation against US dollar.
Mineral extraction tax and other levies
In 2022, mineral extraction tax and other levies increased 90% (or +USD 565 million) to USD 1,192 million, which was partly offset by the cancellation of nickel and copper export custom duties in 2022 (- USD 442 million). The main factors of the change were:
- +USD 527 million – increase of costs primarily due to the change in mineral extraction tax legislation in 2022;
- +USD 38 million – effect of the Russian rouble appreciation against US dollar.
Materials and supplies
In 2022, expenses for materials and supplies increased 50% (or +USD 354 million) to USD 1,069 million driven by the following factors:
- +USD 223 million – higher consumption of materials primarily due to increased repairs as part of the programme for improvement of fixed assets;
- +USD 78 million – inflationary growth of materials and supplies;
- +USD 53 million – effect of the Russian rouble appreciation against US dollar.
Third-party services
In 2022, cost of third-party services increased 91% (or +USD 374 million) to USD 784 million mainly driven by:
- +USD 306 million – primarily due to increase in repairs as part of the programme for improvement of fixed assets;
- +USD 38 million – inflationary growth of third-party services;
- +USD 30 million – effect of the Russian rouble appreciation against US dollar.
Purchases of refined metals for resale
In 2022, purchases of refined metals for resale decreased 25% (or -USD 144 million) to USD 437 million owing to lower purchases of palladium.
Transportation expenses
In 2022, transportation expenses increased 2 times (or +USD 145 million) to USD 275 million driven by the following factors:
- +USD 129 million – primarily due to transportation expenses growth in Norilsk industrial region driven by increase in sea transportation volume and icebreaking services;
- +USD 8 million – inflationary growth of expenses;
- +USD 8 million – effect of the Russian rouble appreciation against US dollar.
Fuel
In 2022, fuel expenses increased 36% (or +USD 44 million) to USD 166 million driven by the following factors:
- +USD 23 million – increase of fuel expenses due to growth of production volume after recovery of operations at Oktyabrskiy and Taymirskiy mines;
- +USD 12 million – inflationary growth of fuel price;
- +USD 9 million - effect of the Russian rouble appreciation against US dollar.
Electricity and heat energy
In 2022, electricity and heat energy expenses increased 15% (or +USD 18 million) to USD 136 million driven by the following factors:
- +USD 10 million – inflationary growth of expenses;
- +USD 9 million – effect of the Russian rouble appreciation against US dollar.
Purchases of raw materials and semi-products
In 2022, purchases of raw materials and semi-products decreased 65% (or -USD 62 million) to USD 33 million due to decrease of raw materials consumption at NN Harjavalta and termination of Nkomati’s operations.
Other costs
In 2022, other costs increased 43% (or +USD 98 million) to USD 326 million primarily due to price inflation, effect of the Russian rouble appreciation against US dollar and growth of industrial security and health and safety expenses.
Depreciation and amortisation
In 2022, depreciation and amortisation expenses increased 20% (or +USD 172 million) and amounted to USD 1,015 million mainly due to transfers from construction in progress as well as effect of the Russian rouble appreciation against US dollar.
Increase in metal inventories
Сomparative effect of change in metal inventory amounted to -USD 788 million resulting in a respective decrease of cost of metal sales mainly due to increase in metal inventories in 2022 driven by the extension of logistics chains and reorientation of sales on new markets.
In 2022, cost of other sales increased by USD 70 million to USD 816 million due to higher oil products sales, resale of icebreaking and sea transportation services, Russian rouble appreciation, as well as higher labour and repairs costs, which was partially compensated by the sale of NordStar airline.
In 2021, selling and distribution expenses increased 10% (or +USD 17 million) to USD 184 million primarily due to increase in transportation expenses (+USD 9 million).
In 2021, selling and distribution expenses increased 10% (or +USD 17 million) to USD 184 million primarily due to increase in transportation expenses (+USD 9 million).
In 2022, general and administrative expenses increased 37% (or +USD 364 million) to USD 1,353 million. Negative effect of the Russian rouble appreciation amounted to +USD 70 million. Changes of the general and administrative expenses in real terms were primarily driven by the following factors:
- +USD 209 million – increase in staff costs, including salary indexation and one-off payments to personnel;
- +USD 26 million – increase of third-party services primarily driven by repair and maintenance, security, fire safety and consulting services;
- +USD 59 million – increase of other administrative expenses primarily driven by property tax, depreciation and business travel expenses.
In 2022, other operating expenses, net decreased by USD 607 million to USD 678 million driven by the following factors:
- -USD 641 million – decrease in social expenses liabilities;
- -USD 83 million – primarily due to lower environmental provision related to compensation for environmental damages;
- +USD 46 million – change in other provisions and liabilities primarily due to increased allowance for expected credit losses;
- +USD 35 million – increase in loss on disposal of property, plant and equipment following the liquidation of damages caused by incidents at Oktyabrsky and Taimyrsky mines.
In 2022, finance costs, net increased by 77% to USD 493 million primarily driven by the following factors:
- +USD 105 million – an increase in interest expenses as the Company drew on RUB-denominated revolving loan facilities with high nominal interest rates in order to refinance Company’s debt amidst deteriorating external environment and also as a result of significant increase in LIBOR and Term SOFR rates during the course of 2022;
- -USD 66 million – the Company ceased revaluating the put option related to transactions with owners of non-controlling interest in Bystrinsky GOK following its expiration on 31.12.2021;
- +USD 135 million – to a larger extent, the accounting effect related to the results of foreign currency conversion transactions that were exercised during the periods of extreme intraday volatility when the Company had to comply with the regime of the mandatory sale of foreign currency revenues;
- +USD 126 million – an increase in unwinding of discount on provisions and payables primarily due to accrual of social provisions at the end of 2021 as well as significant volatility of discount rates during 2022;
- -USD 172 million – one-off income derived from an early repayment of the loan at a discount.
In 2022, income tax expense decreased by USD 786 million driven mostly by lower profit before tax as well as the provision for income tax related to the compensation of damages to water resources and soil in 2021.
In 2022, the effective income tax rate of 20.7% was above the Russian statutory tax rate of 20%.
In 2022, EBITDА decreased 17% (or -USD 1,815 million) to a USD 8,697 million driven by lower revenue and higher cash operating costs.
In 2022, free cash flow decreased 90% to USD 0.4 billion following the decrease in cash generated from operating activities and increase of cash used in investing activities.
In 2022, net cash generated from operating activities decreased 35% to USD 4.6 billion. Increase in cash operating costs and more explicit working capital increase in 2022 were partly compensated by decrease in income tax payments and comparative effect of repayment of environmental damages in 2021.
In 2022, net cash used in investing activities increased 57% to USD 4.1 billion primarily driven by the increase in capital expenditures.
In 2022, CAPEX increased 55% (or +USD 1,534 million) to USD 4,298 million driven by investments in key projects. Sulfur Programme investments increased by 70% to USD 893 million, while investments in Kola GMK and Talnakh Concentrator expansion increased by 71% and 2-fold respectively. Another significant CAPEX growth factor was an increase in capital repairs, improvement of industrial safety and modernization of core assets.
As of December 31, 2022, the Company's total debt increased by 12% compared to December 31, 2021 and amounted to USD 11,717 million. The increase in total debt was primarily driven by utilization of RUB-denominated revolving loan facilities in order to refinance Company's debt amidst deteriorating external environment.
As of December 31, 2022, the Company's net debt increased by USD 4,921 million due to a decrease in cash as a result of increased capital expenditures and dividend payments during 2022.
The Company fully honors its financial obligations in line with transactional documentation and in full compliance with existing regulations.
In November 2022, Russian rating agency “Expert RA” confirmed the Company's credit rating at the highest investment level “ruААА”. International rating agencies withdrew and currently do not publish Russian companies’ credit ratings due to sanctions imposed on Russia.
Nornickel publishes a report on payments in the countries where it operates.
The report confirms the Company’s compliance with the highest standards of corporate governance and business transparency.
Income tax payments are recorded in accordance with the taxpayer’s belonging to a particular reporting segment. The amounts of income tax payments for a consolidated taxpayers group are therefore reflected in the GMK Group reporting segment since the designated member of the consolidated taxpayers group belongs to this segment.
