UC RUSAL Announces 2009 Full Year Results
OREANDA-NEWS. April 12, 2010. UC RUSAL plc (SEHK: 486, EuroNext: RUSAL/RUAL) (“UC RUSAL” or “Company”), the world’s largest aluminium producer, announces its financial results for the year ended 31 December 2009.
Key highlights
• Net profit of USD 821 million for 2009 compared to net loss of USD 5,984 million for 2008, 89% above the Company’s forecast for the year ended December 2009
• Cost Efficiency Leader initiative launched to reduce costs and optimise management structure, resulting in aluminium cash operating costs decreasing by 23% to USD 1,471 per tonne and alumina cash operating costs decreasing by 27% to USD 257 per tonne
• Revenue decreased by 48% to USD 8,165 million due to lower aluminium prices and sales volumes
• Aluminium production reduced by 11% to 3.9 million tonnes by cutting production at the least efficient smelters
• Alumina production restricted by 36% to 7.3 million tonnes by temporarily suspending production at relatively high cost refineries
• Bauxite production scaled back by 41% to 11.3 million tonnes
• Investments in development of existing facilities and construction of new assets amounted to USD 420 million
• Adjusted EBITDA decreased by 83% to USD 596 million due to a decrease in operating results and a significant drop in market prices which was attributable to the adverse economic environment
• Comprehensive debt restructuring reached with more than 70 international and Russian banks rescheduling USD 16.6 billion of debt and other obligations
• Market value of the company’s investment in OJSC MMC Norilsk Nickel (“Norilsk Nickel”) increased by 123% in 2009. The market capitalisation of the investment exceeded USD 6.7 billion as of 31 December 2009
• Successful listing on
Commenting on the today’s announcement, Oleg Deripaska, CEO of UC RUSAL said:
“2009 was a year of transformation for UC RUSAL. It was also one of the toughest on record for the global economy, commodity markets in general and, in particular, the aluminium industry. We took decisive action to counter the adverse effects of the downturn by significantly reducing costs and reshaping the company to leave it better placed to benefit from the upturn. We improved our balance sheet by reaching agreement with our lenders on the terms of a comprehensive USD 16.6 billion debt restructuring with more than 70 banks. We also completed the preparatory work to enable our IPO to proceed. UC RUSAL emerged from this challenging period with its market leadership position enhanced and significantly strengthened”.
“We are now a quoted company, listed in Hong Kong and Paris, and fully intend to benefit from improving market conditions and our proximity to the fast growing market in China and other parts of Asia by utilising our access to low cost energy and realising attractive growth opportunities from restarting idle capacity and investment in unique greenfield projects. I am confident that our competitive advantages, supported by the increasing value of the Norilsk Nickel investment and positive aluminium price momentum which is expected to continue in 2010, will drive the value of the Company forwards in the interest of all shareholders”.
Market review
2009 was one of the toughest years on record for the global economy and commodity markets, including the aluminium industry. According to CRU Group (an independent business analysis and consultancy group focused on the mining and metals industries), the global recession resulted in an 8.2% decrease in demand for aluminium in 2009 compared to 2008, and the average price of aluminium dropped by 35% compared to 2008. Major industry players including UC RUSAL responded to the adverse market environment by curtailing production. The global capacity utilisation rate in 2009 is estimated at 76% compared with 89% in 2008.
From the second half of 2009, global demand for aluminium and other commodities has been supported by the growing Chinese economy, which was aided by a USD 685 billion stimulus programme to promote economic growth through major infrastructure projects and a range of measures to stimulate demand for industrial products, including in the automotive industry. The revival of developed economies by late 2009 initiated restocking throughout the aluminium production chain.
Business review
Aluminium
UC RUSAL responded swiftly to the global economic downturn by reducing total attributable aluminium output to 3.946 million tonnes in
Alumina
The total attributable alumina output was curtailed to 7.279 million tonnes in
Bauxite
Due to weakened demand, the Company’s overall bauxite production was reduced to 11.3 million tonnes in
Cost Efficiency Leader initiative
The Company’s cash operating costs per tonne of aluminium is a key operating metric. In February 2009, UC RUSAL launched its “Cost Leader Efficiency” initiative targeting a reduction in costs, optimisation of production processes and reorganisation of the management structure. Ambitious targets were set for each of these elements with the aim of UC RUSAL being the most cost effective aluminium producer in the world. The results of the initiative are set out below in the “Cash operating costs per tonne” section.
Norilsk Nickel investment
According to consensus forecast, Norilsk Nickel’s net income in 2009 is expected to increase to USD 1,693 million from a net loss of USD 555 million in 2008. The market value of the Company’s stake in Norilsk Nickel increased by 123% from USD 3,011 million as at 31 December 2008 to USD 6,707 million as at 31 December 2009 due to positive share price performance in the reported year.
Financial Overview
Revenue
Revenue decreased by 48% to USD 8,165 million in 2009 compared to USD 15,685 million in 2008. The decrease in revenue was primarily due to decreased sales of primary aluminium and alloys, which accounted for 83% of revenue for 2009 and 77% in 2008.
The decrease in revenue was primarily due to the steep decline in worldwide aluminium prices, alumina sales prices and prices of other products (foil, bauxite, silicon, soda) resulting in reduction in revenue from sales of USD 5,380 million. The effect of decreased prices was coupled with the decrease in production volumes of primary aluminium and alloys at the higher cost facilities and suspending a number of higher cost alumina refineries, as a response to the downturn in the aluminium industry. As a result of decreased sales volumes, revenue fell by USD 1,626 million. Other income and revenue from sales of other products reduced by USD 514 million, which was caused by a decrease in demand and the general economic downturn around the world.
Sales of primary aluminium and alloys decreased by 44% primarily due to a fall in average realized prices per tonne (by 39% year-on-year). Sales volumes decreased by 366 thousand metric tonnes or 8% to 4,069 thousand metric tonnes in 2009, from 4,435 thousand metric tonnes in 2008. The decrease in sales volumes principally resulted from the reduction in aluminium production at less cost efficient smelters.
Revenue from sales of alumina decreased by 79% to USD 410 million in 2009 from USD 1,948 million in 2008. The decrease in revenue was primarily attributed to a significant decrease of production volumes. In 2009, UC RUSAL continued to sell alumina to external parties only under specific long-term
contracts. Average sales prices decreased by 30% in 2009 as compared to 2008. The sales volume decreased by 70% to 1,640 thousand metric tonnes in 2009.
Revenue from sales of foil decreased immaterially from USD 271 million in 2008 to USD 243 million in 2009, which accounted for 2% and 3% of UC RUSAL’s revenue for 2008 and 2009, respectively. Production volumes remained relatively stable with a slight decrease of approximately 1% in 2009 while sales volume grew from 60 thousand metric tonnes in 2008 to 70 thousand metric tonnes in 2009. The decrease in revenue from the sales of foil was primarily due to a decrease in the average realised price.
Revenue from other sales, including chemicals and energy, decreased to USD 742 million or by 47% in 2009 from USD 1,409 million in 2008. The main factors contributing to the decrease in other sales were reductions in prices and volumes of various by-products and secondary materials following the overall economic downturn and the resulting decrease in capacity of a number of the Company’s production entities.
Revenue decreased in a majority of UC RUSAL’s geographic segments from 2008 to 2009. The revenue decline in
Cost of sales
Cost of sales decreased by 39% to USD 6,710 million in 2009 compared to USD 11,073 million in 2008. The decrease was in line with the overall decrease in production and sales volumes of both aluminium and alumina, as described above, with certain costs also affected by the depreciation of the Russian rouble (“RUR”) against the US dollar in 2009 compared to 2008. The cost of other raw materials and other costs of sales accounted for the largest decrease in cost of sales, in absolute terms, over the period.
Energy costs decreased by USD 164 million, or 8.0%, to USD 1,880 million in 2009 compared to USD 2,044 million in 2008. The decrease in electricity costs over the period resulted primarily from decreased consumption, the effect of which was partially offset by increased tariffs and RUR depreciation. Consumption in 2009 decreased due to decreased production volumes. The increase in
weighted-average electricity tariffs was mainly due to continued market liberalisation and increased share of electricity sold through the wholesale market. Electricity tariffs are generally quoted in RUR and increased in line with the Russian consumer price index. The depreciation of the RUR against the US dollar in 2009 compared to 2008 had a corresponding effect on the electricity tariffs. As a percentage of revenue, energy costs increased from 13.0% in 2008 to 23.0% in 2009.
Gross profit
As a result of these factors, UC RUSAL reported a gross profit of USD 1,455 million and USD 4,612 million in 2009 and 2008 respectively, representing gross margins of 18% and 29%, respectively.
Distribution expenses
Distribution expenses decreased by 29% to USD 566 million in 2009, compared to USD 798 million in 2008. The decrease was mainly due to decreased sales volumes and a reduction in transportation expenses through optimising logistics schemes, expanding the transportation range, choosing new routes, selecting transport operators on a tender basis and negotiating new transportation terms.
Administrative expenses
Administrative expenses decreased by 35% to USD 713 million in 2009, as compared to USD 1,103 million in 2008, due to reduction of expenses for consulting services, Russian and international representative offices, and cuts of management staff. Personnel costs recorded under administrative expenses decreased by 38% to USD 226 million in 2009 from USD 364 million in 2008. The Company saw an overall reduction in headcount by 16% or 14,000 employees, compared to 2008, to
Results from operating activities
As a result of the foregoing factors, UC RUSAL reported a loss from operating activities of USD 63 million in 2009, as compared to a loss from operating activities of USD 1,228 million in 2008, representing negative operating margins of (1%) and (8%), respectively. The Cost Efficiency Leader initiative implemented by the Company offset a portion of the revenue loss resulting from a lower aluminium price.
Adjusted EBITDA
Adjusted EBITDA, being results from operating activities adjusted for amortisation and depreciation, impairment charges and loss on disposal of property, plant and equipment, decreased by 83% to USD 596 million in the reporting year, as compared to USD 3,526 million in 2008. The key influencing factors were operating results and a significant decrease in market prices resulting from adverse economic conditions.
Profit/(loss) before income tax
UC RUSAL made a profit before income tax of USD 839 million for the year ended 31 December 2009, as compared to a loss before income tax of USD 6,053 million for the year ended 31 December 2008. This was mainly due to the share of profits/(losses) of associates (which increased by USD 4,719 million to a profit of USD 1,417 million in 2009, as compared to a loss of USD 3,302 million in 2008); finance income (which increased by USD 1,215 million to USD 1,321 million in 2009, compared to USD 106 million in 2008); and results from operating activities (which increased by USD 63 million to USD 1,165 million in 2009, compared to a loss of USD 1,228 million in 2008).
Net profit/(loss) for the year
As a result of the above, UC RUSAL recorded a net profit of USD 821 million for the year ended 31 December 2009, as compared to a net loss of USD 5,984 million for the year ended 31 December 2008. The net profit uplift of 89% compared to the amount forecast in December 2009 was primarily due to an increase in the share in profits of associates.
Cash operating costs per tonne
As a result of implementing the Cost Efficiency Leader initiative, aluminium cash operating costs have been reduced by 23% or USD 444 per tonne (inclusive of exchange rate effects) from an average of USD 1,915 per tonne for the year ended 31 December 2008 to an average of USD 1,471 per tonne for the year ended 31 December 2009. The principal contributors to this reduction were decreases of USD 197 per tonne or 25% in alumina costs, USD 105 per tonne or 32% in raw and auxiliary materials costs due to increased efficiency and focus on supply contracts, USD 35 per tonne or 9% in energy costs due to a secured electricity supply in Siberia by entering into long term electricity supply contracts, USD 21 per tonne or 24% in transportation costs by focusing on optimising the use of rolling stock, USD 58 per tonne in repair and pot relining costs, USD 29 per tonne in overhead expenses and USD 26 per tonne in salaries and social programs. Mothball and other expenses increased by USD 28 per tonne.
The Company’s alumina cash operating costs have also been decreased by 27% or USD 92 per tonne from an average of USD 349 per tonne for the year ended 31 December 2008 to an average of USD 257 for the year ended 31 December 2009. The principal factors in achieving this reduction were decreases of USD 40 per tonne or 32% in power consumption costs by optimising fuel sources and a decline in price for oil products, USD 32 per tonne or 20% in raw materials costs due to reduced cash costs at the mines and optimised bauxite mix, USD 7 per tonne in shop expenses, USD 5 per tonne in changes in work-in-progress, USD 4 per tonne in payroll, USD 3 per tonne in plant expenses, USD 1 per tonne in social programmes, USD 0.5 per tonne in commercial expenses.
A substantial portion of the reductions in aluminium and alumina cash operating costs was attributable to mothballing higher cost smelters and refineries during 2009 as well as the introduction of energy-saving technologies. The weakening of the RUR against the US dollar and other currencies also contributed significantly to the reductions.
Debt restructuring
In December 2009, the Company completed restructuring negotiations with its lenders in order to establish financial stability and to put the necessary arrangements in place to allow the Company to meet its obligations when they fall due as part of ongoing operations.
Debt restructuring terms provide the Company with greater time and flexibility to meet debt obligations as the aluminium prices recover. The terms link debt repayment to the ability to generate excess operating cash flow, allow for payment-in-kind interest and interest rate margin decreases with an improving debt / EBITDA ratio. A substantial portion of the Onexim liability has been converted to equity.
Events subsequent to the end of the financial year
On 27 January 2010, the Company successfully completed a dual placing on the Main Board of The Hong Kong Stock Exchange and Euronext Paris. Upon placing, the Company issued 1,636,363,646 new shares in the form of shares listed on The Hong Kong Stock Exchange, and in the form of global depositary shares (“GDS”) listed on Euronext Paris representing 10.81% of the Company’s issued and outstanding shares.
The Company raised approximately USD 2,236 million from the listings of which USD 2,143 million has been used to repay principal debt owed by the Company to its international and Russian lenders (excluding VEB) as well as principal debt and accrued interest to Onexim. In addition, UC RUSAL has paid fees to its international lenders in connection with the debt restructuring.
As a result of the debt repayments, UC RUSAL’s total outstanding debt including debt owing to Onexim was reduced to USD 12.9 billion as at 1 February 2010 (by 13% compared to 31 December 2009). These debt repayments to the Company’s international and Russian lenders exceed the debt repayment target until the end of 2010. These repayments allowed the Company to make progress towards meeting its next debt repayment targets ahead of schedule, with USD 3.3 billion remaining to be repaid to lenders for the Company to meet the target due by the end of 2013. The Company is ahead of its 2010 target cumulative payments of USD 1.4 billion, and the event of default cumulative amounts of USD 0.75 billion and is close to its event of default cumulative amounts for 2011 of USD 2 billion.
The Company will explore refinancing options via a potential bond issues in the near future.
Outlook for 2010
A number of experts are forecasting that 2010 will see considerable growth of the aluminium market generated by rising demand from the construction and transport sectors, which account for about half of the global aluminium consumption. CRU Group analysts expect aluminium consumption to grow by 12.6% in 2010 as compared to 2009. Positive dynamics are expected to be driven primarily by continued economic development in
Assuming the gradual restoration of the market in 2010, UC RUSAL plans to increase production of aluminium by 3% in 2010, compared to 2009. The increase is expected to include an increase in production at the Siberian plants, KUBAL (
On the basis of the same assumptions, UC RUSAL expects to increase alumina output by 11% in 2010 compared to 2009, by stabilising alumina production at the Achinsk Alumina Refinery, Bogoslovsk and Urals Aluminium Smelters, as well as restoring production at the Boksitogorsk Alumina Refinery in Russia, Windalco (Ewarton) Alumina Refinery in Jamaica, the Aughinish Alumina Refinery in Ireland, The Friguia Refinery in Guinea, the Queensland Refinery in Australia and the Nikolaev Refinery in Ukraine.
Cash operating costs remain the key factor determining competitiveness of a company in the aluminium sector. UC RUSAL will continue its Cost Efficiency Leader initiative to further improve the Company’s effectiveness and optimise the cost structure to cut costs. The Company will continue focusing on efficiency improvements by optimisation of raw materials supply, power consumption, logistics, reduction in overheads and roll-out of UC RUSAL’s operational systems, as well as steady deleveraging through operating cash flows.
The Company plans to increase aluminium production by around 100,000 tonnes and alumina production by around 800,000 tonnes in 2010 by restarting mothballed capacity. The Company has made a decision to put the Windalco (Ewarton) Alumina Refinery in
In the long run, the Company expects to pursue a number of growth options, including the completion of the Taishet and Boguchansky Aluminium Smelters in
The remaining capital expenditure required for BEMO HPP are currently estimated at approximately USD 529 million, USD 1,156 million for the Boguchansky Aluminium Smelter and USD 1,469 million for Taishet Aluminium Smelter. UC RUSAL will continue to explore project finance options for the BEMO HPP and / or the Taishet smelter.
Financial statements
The following information was extracted from the consolidated audited financial statements of the Company for the year ended 31 December 2009, which were approved by the Directors of the Company on 9 April 2010.
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