13.08.2020

RUSAL announces 2020 interim results

Moscow, 13 August 2020 – RUSAL (SEHK: 486; Moscow Exchange: RUAL), a leading global aluminium producer, announces its results for the six months ended 30 June 2020.

 

Key highlights

·       The first months of 2020 have seen significant global market turmoil triggered by the outbreak of the coronavirus. Along with other factors, including a sharp decrease in the price of oil, this has resulted in high volatility on the stock market, with a considerable drop of indices, as well as a depreciation of the Russian ruble. As a result of the COVID-19 outbreak during 2020, aluminium prices continued to deteriorate. This factor had an adverse impact on the revenue and profitability of the Group, partially offset by ruble depreciation and decrease in cost of raw materials linked to the oil price;

·       In the first six months of 2020, the London Metal Exchange (LME) aluminium price fell by 12.83% to USD1,592 per tonne compared with USD1,826 per tonne for the same period in 2019. This was one of the key contributing factors to the decline in total revenue in the first six months of 2020 by 15.2% to USD4,015 million from USD4,736 million for the same period of 2019 and decrease of EBITDA to USD219 million from USD528 million in the mid of 2019;

·       Significant drop in LME aluminium price was partially offset by improvement of production cost per tonne in aluminium segment in the first half of 2020, which went down by 5.5% to USD1,564 per tonne, compared to USD1,655 per tonne in the same period of 2019. This was a result of effective cost management, supported by depreciation of the Russian ruble against US dollar and decrease in oil prices;

·       The Company confirmed compliance with the 2019 target levels of the sustainability key performance indicators (KPI) under the sustainability-linked pre-export finance facility for USD 1,085,000,000 signed in October 2019. The 2019 target levels are reached or exceeded and therefore the Company is entitled to a sustainability discount, which reduces the interest rate to 2.1% starting from August 2020.

 

Commenting on the interim 2020 results, Evgenii Nikitin, CEO of RUSAL, said:

“Despite the industry slowly starting to recover from the unprecedented blow caused by the pandemic, we are proud to say that RUSAL’s resilience was down to the robust business model long before COVID-19. Solid ties with our clients, uninterrupted production cycle, self-sufficiency in proper raw materials, investments in environmental and efficient technology, continuous expansion of the product portfolio, the development of proper technological applications and a long-term focus on sustainability – all these assets have placed our business among the leaders of the industry.

Unfortunately, challenges caused by the pandemic are not the only ones that the world is facing today. The importance of protecting the environment and impact of climate change requires businesses be more receptive and subsequently, the investment community and market needs the corporate sector to respond in accordance with the current threats facing us. In the post-pandemic times the urgency and need for lowering carbon emissions is likely to remain a priority.

There are numerous routes towards a low carbon future - one is through the investment in the research and development and substantial improvement of the technologies with bringing aboard breakthrough solutions and another is the production of materials through renewable energy sources. RUSAL has been at the forefront of combatting climate change through production of low carbon aluminium ALLOW with a carbon footprint lower than the market average coupled with the investment in the environmental technologies. We continuously strive to enhance our leadership through relentless development of proper innovative solutions, such as inert anode, and retrofitting of our smelters (including such substantial production sites as Krasnoyarsk aluminium smelter) using the Eco-Soderberg technology.

We believe that our agile approach coupled with the focus on sustainability will help us go through these challenging times.”

 

Financial and operating highlights

 

Six months ended

30 June

Change, year-on-year

 

2020

2019

 

Key operating data[1]

 

 

 

(‘000 tonnes)

 

 

 

Primary aluminium

1,867

1,867

-

Alumina

4,022

3,850

4.5%

Bauxite (wet)

7,469

8,073

(7.5%)

 

 

 

 

(‘000 tonnes)

 

 

 

Sales of primary aluminium and alloys

1,890

1,978

(4.4%)

 

 

 

 

(USD per tonne)

 

 

 

Aluminium segment[2] cost per tonne

1,564

1,655

(5.5%)

Aluminium price per tonne quoted on the LME[3]

1,592

1,826

(12.8%)

Average premiums over LME price[4]

141

125

12.7%

 

Key selected data from the consolidated interim condensed statement of income

(USD million)

 

 

 

Revenue

4,015

4,736

(15.2%)

Cost of sales

(3,520)

(3,931)

(10.5%)

Gross profit

495

805

(38.5%)

Adjusted EBITDA

219

528

(58.5%)

margin (% of revenue)

5.5%

11.1%

 

(Loss)/Profit for the period

(124)

625

NA

margin (% of revenue)

(3.1%)

13.2%

 

Adjusted Net Loss for the period

(63)

(98)

(35.7%)

margin (% of revenue)

(1.6%)

2.1%

 

Recurring Net (Loss)/Profit

(76)

666

NA

margin (% of revenue)

(1.9%)

14.1%

 

Key selected data from the consolidated interim condensed statement of financial position

 

 

As at 30 June 2020

As at 31 December 2019

(USD million)

 

 

 

 

 

Total assets

16,722

17,814

Net Debt

5,964

6,466

 

Key selected data from the consolidated interim condensed statement of cash flows

 

 

Six months ended 30 June

 

2020

2019

(USD million)

 

 

Net cash generated from operating activities

173

741

Net cash generated from/(used in) investing activities

398

(329)

Interest paid

(244)

(274)

Market Overview[5]

Aluminium demand

According to the JP Morgan Global Manufacturing PMI, global manufacturing activity increased from 42.4 in May 2020 to a 5-month high of 47.8 in June 2020. As the PMI was below 50 points, this indicates contraction but at a softer pace. Manufacturing conditions continued to recover all over the world following the severe disruption caused by COVID-19. While manufacturing production in the US, Brazil, France, Turkey and China expanded at a several months’ highest rates, other national economies experienced slow declines. Although a potential second wave of COVID-19 continues to cause some uncertainty in the market, most countries are more optimistic towards 2H 2020.

In 1H 2020, the global primary aluminium demand was down by 6.6% year-on-year to 30.3 million tonnes. Ex-China demand contracted by 15.4% to 12.3 million tonnes, while Chinese demand remained almost unchanged at 18 million tonnes.

In Europe, primary aluminium demand contracted by 16.1% to 4 million tonnes in 1H 2020 amidst almost complete automotive manufacturing shutdown, construction stops and fall in retail sales due to the COVID-19. After reaching the lowest level in April, the Eurozone production sector moved toward stabilization, with the manufacturing PMI reaching 47.4 in June, above market expectations. Wide support measures implemented by the European commission, the ECB and national governments are aimed at encouraging development of manufacturing industries mostly affected by COVID-19, specifically directed at automotive production and the overall health of economic system. The recovery of key end-use sectors will boost primary aluminium demand.

In North America, primary aluminium demand dramatically decreased by 18.2% to 2.8 million tonnes in 1H 2020, due to a later, but nevertheless strong COVID-19 outbreak. After a forced reduction in production and sales this spring, manufacturing indicators began to recover since May 2020. In June 2020, US manufacturing output expanded with ISM manufacturing PMI reaching 52.6 and the overall economy notching a second month of growth. In two major aluminium end-user industries: transport and construction—market expectations are becoming more optimistic. According to recent LMC Automotive estimations, North American light vehicle production is expected to decrease by 21% in 2020, which is significantly smaller drop than previously expected 25.4% as announced two months earlier.

In South America, primary aluminium demand declined by 10.5% to 0.5 million tonnes mainly caused by the COVID-19 outbreak in Brazil and ongoing financial crisis in Argentina. However, a gradual recovery of the economy amidst lifting of restrictive measures may lead to better results in 2H 2020.

Asian primary aluminium demand decreased in 1H 2020. In India, the demand decreased by 12.1% to 1.0 million tonnes. In other parts of Asia ex-China the demand decreased by 15.0% to 2.5 million tonnes. India lost its growth momentum due to the world’s largest lockdown commenced since the end of March. Currently, to continue to fight the rapidly spreading infection, the Indian government has only lifted lockdown for some of the regions whereas lockdown continues in most regions. Meanwhile, in June 2020, Indian manufacturing PMI surged to 47.2 from 30.8 in May 2020 as a result of partial lifting of regional lockdown. The Japanese manufacturing industry faced a challenging environment, with a rather weak domestic demand and export, amidst the ongoing COVID-19 backdrop. However, since February business sentiments turned back to the positive trends and is expected to recover.

In the domestic market, primary aluminium demand decreased by 10.9% to 0.5 million tonnes in 1H 2020, and we anticipate a deeper fall in the following months. In 2020, automotive production and sales are expected to sharply contract by around 30% and construction output is set to deteriorate by 12 to 15%, amidst lower personal income. The key risks to the national economy include a severe decline in purchasing power, the depreciation of the ruble and rising import prices.

In China, the Caixin China manufacturing PMI moderately grew to 51.2 in June from 50.7 in May. This indicated a gradual manufacturing recovery from the lockdown and other COVID-19 containment measures imposed at the beginning of the year, with strong improvements in output, new orders and higher purchasing activity. Market sentiment towards the upcoming months is the strongest it has been since February, as many companies expect the demand to grow.

According to China’s Association of Automobile Manufacturers (CAAM), automotive production increased by 6.3% month-on-month and 22.5% year-on-year to 2.325 million units in June. Meanwhile, automotive sales in June increased by 4.8% month-on-month and by 11.6% year-on-year to 2.3 million units. In May, automotive production was up 18.2% year-on-year and sales up 14.5% year-on-year.

The demand for consumer related products, such as cans stock, is improving as well. NBS data shows that Chinese beer and soft drink production has recovered well. For instance, the beer production totaled 4.081 billion liters in May, up by 14.6% year-on-year. According to NBS data, investment in the property market totaled CNY4.59 trillion in the first five months, a very mild decline of 0.3% year-on-year.

This led to significantly improved primary aluminium demand in China in 2Q 2020 and as a result 1H 2020 Chinese demand remained almost unchanged at 18 million tonnes.

 

Aluminum supply and inventories

Global aluminium production in 1H 2020 grew by 1.8% to 32.1 million tonnes, including the Rest of the World (“RoW”) growth at 0.5% year-on-year to 13.9 million tonnes. In China, a 2.8% growth year-on-year to 18.2 million tonnes was seen for the same period. Overall, the global market was in surplus of 1.8 million tonnes during 1H 2020.

With regard to cost curve, around 12% of smelters in the RoW still operate at a loss. Approximately 3.5 million tonnes of capacity outside of China operates with costs above current prices. Since the beginning of this year, around 0.6 million tonnes of RoW capacity was curtailed.  

Operating capacity in China reached 37.2 million tonnes. Chinese unwrought aluminum and products exports collapsed by 20.6% in 1H 2020 year-on-year to 2.37 million tonnes on strongly negative export price arbitrage.

In 1H 2020, aluminium inventories at LME warehouses grew above 1.6 million tonnes, with an overall increase of 165 thousand tonnes compared to the level at the end of last year. LME live warrants grew to the level of 1.47 million tonnes. Chinese regional stocks continued to decline steeply in June 2020 and decreased by 960 thousand tonnes to 0.7 million tonnes from its highest level this year of 1.68 million tonnes as of the beginning of April 2020.

 

Financial overview

Revenue

 

 

Six months ended

30 June 2020

Six months ended

30 June 2019

 

USD

million

‘000 t

Average sales
price (USD/t)

USD

million

‘000 t

Average sales price (USD/t)

 

 

 

 

 

 

 

Sales of primary aluminium and alloys

3,318

1,890

1,756

3,877

1,978

1,960

Sales of alumina

242

776

312

340

791

430

Sales of foil and other aluminium products

178

 

 

205

 

 

Other revenue[6]

277

 

 

314

 

 

Total revenue

4,015

 

 

4,736

 

 

 

Total revenue decreased by USD721 million, or 15.2% to USD4,015 million in the first six months of 2020 from USD4,736 million in the corresponding period of 2019.

Revenue from sales of primary aluminium and alloys for the first six months of 2020 decreased by USD559 million, or by 14.4%, to USD3,318 million, as compared to USD3,877 million for the first half of 2019, primarily due to 10.4% decrease in the weighted-average realized aluminium price per tonne (to an average of USD1,756 per tonne in the first six months of 2020 from USD1,960 per tonne in the first six months of 2019) driven by a decrease in the LME aluminium price (to an average of USD1,592 per tonne in the first six months of 2020 from USD1,826 per tonne in the first six months of 2019), as well as the 4.4% lower sales volumes.

Revenue from sales of alumina decreased by 28.8% to USD242 million in the first six months of 2020 from USD340 million in the corresponding period of 2019 primarily due to a decrease in the average sales price by 27.4% together with 1.9% lower sales volumes.

Revenue from sales of foil and other aluminium products decreased by USD27 million, or by 13.2%, to USD178 million in the first six months of 2020, as compared to USD205 million for the corresponding period of 2019, primarily due to a decrease in sales of aluminium wheels between the comparable periods.

Revenue from other sales, including sales of other products, bauxite and energy services decreased by 11.8% to USD277 million in the first six months of 2020 as compared to USD314 million for the respective period of 2019, due to a 16.6% decrease in sales of other materials (such as silicon by 48.2%, soda by 23.2%, aluminium powder by 6.9%).

The table below shows the breakdown of the Group’s revenues by geographic segment for the six months ended 30 June 2020 and 2019, showing the percentage of revenue attributable to each region:

 

 

Six months ended 30 June

2020

2019

USD million

% of Revenue

USD million

% of Revenue

Europe

1,874

47%

2,210

47%

CIS

1,126

28%

1,262

27%

America

292

7%

467

10%

Asia

699

17%

768

16%

Other

24

1%

29

-

Total

4,015

100%

4,736

100%

 

Note: Data based on location of customers, which may differ from the location of final consumers.

 

Cost of sales

 

The following table shows the breakdown of RUSAL’s cost of sales for the six months ended 30 June 2020 and 2019:

 

 

Six months ended 30 June

Change, year-on-year

Share of costs,%

(Six months ended 30 June 2020)

2020

2019

(USD million)

 

 

 

 

Cost of alumina

296

352

(15.9%)

8.4%

Cost of bauxite

211

243

(13.2%)

6.0%

Cost of other raw materials and other costs

1,130

1,294

(12.7%)

32.1%

Purchases of primary aluminium from JV

235

198

18.7%

6.7%

Energy costs

988

1,116

(11.5%)

28.1%

Depreciation and amortization

266

263

1.1%

7.5%

Personnel expenses

257

259

(0.8%)

7.3%

Repairs and maintenance

183

136

34.6%

5.2%

Net change in provisions for inventories

4

(6)

NA

0.1%

Change in finished goods

(50)

76

NA

(1.4%)

Total cost of sales

3,520

3,931

(10.5%)

100.0%

 

Total cost of sales decreased by USD411 million, or 10.5%, to USD3,520 million for the first six months of 2020, as compared to USD3,931 million for the corresponding period of 2019.

The decrease was primarily driven by 4.4% lower primarily aluminium sales volume and depreciation of ruble against US dollar between the comparable periods.

Cost of alumina decreased to USD296 million for the first half of 2020 as compared to USD352 million for the same period of 2019 primarily due to the decrease in alumina purchase price by 23.0% between the periods.

Cost of raw materials (other than alumina and bauxite) and other costs decreased by 12.7% for the first half of 2020 compared to the same period of 2019, due to a decrease in raw materials purchase price (prices for the raw petroleum coke by 28.1%, calcined petroleum coke by 22.7%, pitch by 31.1%, caustic soda by 23.5%).

Energy costs decreased by USD128 million, or by 11.5%, to USD988 million for the first half of 2020 as compared to USD1,116 million for the same period of 2019 due to depreciation of ruble against US dollar and a decrease in the average electricity prices between the periods.

The finish goods mainly consist of primary aluminium and alloys (app. 93%). The dynamic of change between the reporting periods was driven by the fluctuations of primary aluminium and alloys physical inventory between the reporting dates: 9.0% increase in the first half of 2020 and 6.9% decrease in the same period of 2019.

 

Adjusted EBITDA and results from operating activities

 

 

Six months ended

30 June

Change, year-on-year

 

 

 

 

 

2020

2019

 

(USD million)

 

 

 

Reconciliation of Adjusted EBITDA

 

 

 

Results from operating activities

(106)

201

NA

Add:

 

 

 

Amortisation and depreciation

274

272

0.7%

Impairment of non-current assets

51

49

4.1%

Loss on disposal of property, plant and equipment

-

6

(100.0%)

Adjusted EBITDA

219

528

(58.5%)

 

 

Adjusted EBITDA, defined as results from operating activities adjusted for amortization and depreciation, impairment charges and loss on disposal of property, plant and equipment, decreased to USD219 million during the first six months of 2020, as compared to USD528 million for the corresponding period of 2019. That was a result of significant decline in LME aluminium price, partially offset by improvement of production cost per tonne in aluminium segment which went down by 5.5% to USD1,564 per tonne, compared to USD1,655 per tonne in the same period of 2019.

 

bLoss for the period comprised of USD124 million for the first half of 2020, compared to the profit USD625 million for the same period of 2019.

 

Adjusted and Recurring Net (Loss)/Profit

 

 

Six months ended

30 June

Change, year-on-year

 

2020

2019

 

(USD million)

 

 

 

Reconciliation of Adjusted Net (Loss)/Profit

 

 

 

(Loss)/Profit for the period

(124)

625

NA

Adjusted for:

 

 

 

Share of profits and other gains and losses attributable to Norilsk Nickel, net of tax effect, with

13

(764)

NA

Change in the fair value of derivative financial liabilities, net of tax (20.0%)

(3)

(8)

(62.5%)

Impairment of non-current assets, net of tax

51

49

4.1%

 

 

 

 

Adjusted Net Loss

(63)

(98)

(35.7%)

 

 

 

 

Add back:

 

 

 

Share of (losses)/profits of Norilsk Nickel, net of tax

(13)

764

NA

 

 

 

 

Recurring Net (Loss)/Profit

(76)

666

NA

 

Adjusted Net (Loss)/Profit for any period is defined as the Net (Loss)/Profit adjusted for the net effect of the Company’s investment in Norilsk Nickel, the net effect of derivative financial instruments and the net effect of impairment of non-current assets. Recurring Net (Loss)/Profit for any period is defined as Adjusted Net (Loss)/Profit plus the Company’s net effective share in Norilsk Nickel’s results.

 

Segment reporting

 

The Group has four reportable segments, as described in the Annual Report, which are the Group’s strategic business units: Aluminium, Alumina, Energy and Mining and Metals. These business units are managed separately and results of their operations are reviewed by the CEO on a regular basis.

The core segments are Aluminium and Alumina.

 

 

Six months ended

30 June

 

2020

2019

 

Aluminium

Alumina

Aluminium

Alumina

(USD million)

 

 

 

 

Segment revenue

 

 

 

 

kt

1,787

3,910

1,941

3,808

USD million

3,137

1,180

3,786

1,297

Segment result

180

(45)

397

7

Segment EBITDA[7]

342

33

573

67

Segment EBITDA margin

10.9%

2.8%

15.1%

5.2%

Capital expenditure

247

117

202

116

 

In the first half of 2020 and 2019, respectively, segment result margins (calculated as the percentage of segment result to total segment revenue) from continuing operations were 5.7% and 10.5% for the aluminium segment, and negative 3.8% and positive 0.5% for the alumina segment. Key drivers for the decrease in margin in the aluminium segment are disclosed in “Cost of sales” and “Results from operations and Adjusted EBITDA” above.

Capital expenditure

RUSAL recorded capital expenditures (which constitute payments for the acquisition of property, plant and equipment and intangible assets) of USD401 million in the first half of 2020 (including pot rebuilds for USD63 million). RUSAL’s capital expenditure for the six months ended 30 June 2020 was primarily aimed at maintaining existing production facilities.

The table below shows the breakdown of RUSAL’s capital expenditure for the six months ended 30 June 2020 and 2019:

 

Six months ended

30 June

 

2020

2019

(USD million)

 

 

Development capital expenditure

169

148

 

 

 

Maintenance, including:

 

 

Pot rebuilds costs

63

61

Re-equipment

169

144

 

 

 

Total capital expenditure

401

353

 

 

 

 

 

Forward-looking statements

This press-release contains statements about future events, projections, forecasts and expectations that are forward-looking statements. Any statement in this announcement that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include those discussed or identified in the prospectus for RUSAL. In addition, past performance of RUSAL cannot be relied on as a guide to future performance. RUSAL makes no representation on the accuracy and completeness of any of the forward-looking statements, and, except as may be required by applicable law, assumes no obligations to supplement, amend, update or revise any such statements or any opinion expressed to reflect actual results, changes in assumptions or in RUSAL’s expectations or changes in factors affecting these statements. Accordingly, any reliance you place on such forward-looking statements will be at your sole risk.

 

 




[1] Figures based on total respective attributable output.


[2] For any period, “Production cost per tonne in Aluminium segment” is calculated as aluminium segment revenue (excluding sales of third parties’ metal and other products sales) less aluminium segment results less amortisation and depreciation (excluding margin on sales of third parties’ metal and alumina intersegment margin) divided by sales volume of the aluminium segment (excluding volumes of third parties’ aluminium sold).


[3] Aluminium price per tonne quoted on the LME represents the average of the daily closing official LME prices for each period.


[4] Average premiums over LME realized by the company based on management accounts.


[5] Unless otherwise stated data for the Market overview section is sourced from Bloomberg, CRU, CNIA, IAI and Antaike.


[6] Including energy and bauxite.


[7] Segment EBITDA for any period is defined as segment result adjusted for amortization and depreciation for the segment.



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