Sector: Metals
NorNickel's FY 2007 results show mixed financial performances. The company's revenue has demonstrated a steady upturn; however, the company's margin has dropped. This was caused by large write-offs due to the revaluation of investments in OGK-3 and Lion Ore and by outrunning growth of expenses as compared to revenue.
On June 10, NorNickel posted its FY 2007 results audited to IFRS. The company's cash revenue has risen in almost all business segments versus FY 2006; however, this has happened on the backdrop of a reduction in real output, which casts doubt on NorNickel's long-term capability to increase revenue through extensive development. A downturn in margins was another negative feature: the EBITDA and the operating margins dropped by over 15%. In addition, company write-offs amounted to USD 1.88 bn due to the revaluation of investments in OGK-3 and Lion Ore.
NorNickel: Financials, USD mn
| Indicator | 2007 | 2006 | 2007 / 2006 |
|---|
| Revenue, including from: | 17,119 | 11,923 | +43.58% | | Nickel | 10,216 | 6,228 | +64.03% | | Copper | 2,948 | 2,841 | +3.76% | | Gross profit | 11,237 | 8,420 | +33.45%, | | Gross margin | 65.64% | 70.61% | -4.97p.p. | | EBITDA | 8,368 | 7,649 | +9.4% | | EBITDA margin | 48.88% | 64.15% | -15.27p.p. | | Corrected EBITDA | 10,247 | 7748 | +32.25 | | Corrected EBITDA margin | 59.86% | 64.98% | -5.12p.p. | | Operating profit | 7,431 | 7,063 | +5.21% | | Operating margin | 43.4% | 59.23% | -15.83p.p. | | Net profit | 5,276 | 5,965 | -11.55% | | Net margin | 30.81% | 50.03% | -19.22p.p. |
Source: company data, Finam estimates
In 2007, the company made a number of large acquisitions. While in 2006, NorNickel spent nearly USD 274 mn on M&As, the cost of acquired assets in 2007 amounted to USD 6.22 bn, including Lion Ore, purchased for USD 5.25 bn. As a result, NorNickel's FFCF declined from USD 8.63 bn in FY 2006 to USD 3.78 in 2007.
Among the factors that produced negative impact on NorNickel's business, we should highlight a 53.77% downturn in COGS, which exceeded the company's revenue from metal sales by 37.74%. Additionally, the specific cost of nickel production by the company's facilities in Russia rose by 33% y-o-y on average.
We currently do not have a recommendation for NorNickel's shares. Sulinov Aleksey
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