Page 112 - RusRPTSept20

vanadium volumes than we forecast. Coal production was down 16% y/y, as stockpile processing was not enough to offset lower mining volumes at Raspadskaya and Yuzhkuzbassugol as a result of the weak market conditions and longwall repositioning. Lower vanadium sales reflected reduced demand on the back of COVID-19 restrictions in construction. With lower prices and volumes in 1H20, Evraz is set to report weak earnings, with revenues falling 22% y/y and EBITDA declining to $901mn. While some working capital release might support FCFE of $373mn (7% yield), the company’s net debt/EBITDA is to rise to 1.8x, we think. We expect the company to stick to a 75% payout ratio from adjusted net income for the dividend announcement, meaning DPS of $0.16 (4.1% yield) and equivalent to a payout of 63% of FCFE.
Russian steel mill EVRAZ released 1H20 IFRS that were close to forecasts on revenue and EBITDA and close to the midpoint of the dividend yield estimate, with the company announcing dividends yielding c4.7%. Revenue decreased by 19% y/y to $4.98bn – just 1% below our estimate and consensus, affected by declining realized steel prices over the period. EBITDA fell 28% h/h to $1.07bn, 1% below our estimate and 6% below consensus on the back of lower vanadium, coal and steel product prices, which was partly offset by $251mn effect from cost-cutting and customer initiatives. Adjusted net income fell 40% y/y to $418mn mainly on higher than expected tax expenses. Free cash flow totaled $315mn, down 54% y/y – 40% below our estimate, mainly due to weaker than expected working capital release and higher than expected income tax accrued. An interim dividend for 2020 was announced at $291.37mn ($0.2/share, 92% of FCF, c4.7% DY) with dividend yield coming close to the midpoint of our estimate of between 2.8-7.2% DY. The company made a decision to postpone the execution of the rail and beam mill modernization project at EVRAZ NTMK and the execution of the integrated flat casting and rolling facility at EVRAZ ZSMK. Updated plans for these projects will be announced during 2020’s Capital markets day. EVRAZ Pueblo’s new long rail mill project continues according to schedule. In 2H20, EVRAZ aims to sustain production at full capacity and maximize sales volumes in Russia. The company will focus on additional efficiency improvements and maintain a balanced and selective approach to the investment projectsi
● Other
Interros is not negotiating an extension of the current Norilsk Nickel shareholders' agreement with UC Rusal. The company’s two major shareholders, UC Rusal and Interros, having significantly differing views on Norilsk Nickel’s development policy. While Rusal has proposed diversifying and continuing to pay high dividends, Interros has insisted on the current strategy, which implies an increase of nearly 25% in primary metals production by 2030, capex almost doubling and, therefore, changes in the dividend policy. According to En+, Rusal had not yet discussed the new shareholder agreement. However, in December 2019, Interros said that it was ready for talks with Rusal. Given that, we expect the discussion about on a new shareholders agreement to continue and treat this news as neutral.
Norilsk Nickel 1H20 earnings slightly better cash generation as capex guidance decreased. EBITDA, adjusted for provision on HPP-3 diesel spill environmental claim, is slightly ahead of our and consensus expectations. The claim of $2.1bn exceeded our expectations, however, we believe it is in line with consensus view, as the company decided to account for maximum possible claim (from the Russian state authority). We also note higher social costs, which were offset by lower (no rise, against our expectations) in G&A
112 RUSSIA Country Report September 2020 www.intellinews.com