News Column

UC RUSAL announces 2014 first half results

August 29, 2014



ENP Newswire - 29 August 2014

Release date- 28082014 - Moscow - UC RUSAL (SEHK: 486, Euronext: RUSAL/RUAL, Moscow Exchange: RUALR/RUALRS), a leading global aluminium producer, announces its results for the six months ended 30 June 2014.

Key highlights

Total aluminium output amounted to 1,783 thousand tonnes in the first half of 2014, representing a decrease of 10.8%, as compared to 1,999 thousand tonnes in the first half of 2013 following the successful completion of capacity curtailments program at the least efficient smelters.

Production of value-added products continued to grow and reached a record 46.9% of total aluminium production in the second quarter of 2014.

Alumina output remained almost flat and comprised 3,618 thousand tonnes in the first half of 2014, representing a decrease of 0.5%, as compared to 3,638 thousand tonnes for the same period of 2013.

Bauxite production totalled 5,885 thousand tonnes in the first half of 2014, representing a decrease of 0.5%, as compared to 5,912 thousand tonnes in the first half of 2013.

Revenue in the first half of 2014 decreased by 15.7% to USD4,384 million as compared to USD5,203 million in the first half of 2013 due to a 12.6% decrease in physical aluminium sales and continued pressure of the LME price down to an average of USD1,753 per tonne, a 8.7% decrease compared to the same period of 2013, partially offset by historically high premiums over LME aluminium price of USD347 per tonne for the first half of 2014.

Revenue in the second quarter of 2014 increased by 6.5% to USD2,261 million as compared to USD2,123 million for the first quarter of 2014, following a 4.6% increase in aluminium sales volumes, a 5.3% increase in the average LME aluminium price and a 5.4% growth in the average realized premiums over the LME price.

Aluminium segment cost per tonne decreased by 9.8% to USD1,752 per tonne in the first half of 2014, in comparison with USD1,942 per tonne in the first half of 2013 following the successful completion of capacity curtailments program at the least efficient smelters. External factors such as the depreciation of the Russian Ruble to the US dollar by 12.8% to RUB34.98 in the first half of 2014 from RUB31.02 in the respective period of 2013, has also had a significant positive effect on the overall level of costs.

Although Adjusted EBITDA comprised USD393 million for the first half of 2014 representing a decrease of 6.4% as compared to USD420 million for the same period of 2013, Adjusted EBITDA margin improved to 9.0% for the first six months of 2014, as compared to 8.1% for the same period of 2013. Aluminium segment EBITDA margin increased to 15.0% in the first half of 2014, as compared to 12.7% for the same period of the preceding year.

The Company recognised Profit and Recurring Net Profit of USD116 million and USD129 million, respectively, for the second quarter of 2014, demonstrating positive result first time since the first quarter of 2013.

The second half of 2014 management outlook: aluminium production is expected at around 1.8 million tonnes in the second half of the year. RUSAL continues maintaining cost discipline and keeping low cash cost base. RUSAL's management expects positive aluminium price dynamics in the second half of 2014 with physical premiums continuing to rise through to the end of the year. Management views further improvement of margins and profits in the second half of 2014 at current aluminium price levels.

2014 capex is expected to be approximately USD500-600 million. RUSAL's EBITDA in the second half of the year is expected in excess of USD600 million at current aluminium price levels.

Commenting on the first half results, Oleg Deripaska, CEO of RUSAL said: 'During the first half of 2014, there was a major improvement in RUSAL's financial results in the second quarter compared to the first quarter, which was a result of a recovery in the aluminium price, a rise in average realized premiums, and tight cost controls.

Revenue in the second quarter of 2014 increased by 6.5% to USD2,261 million from the first quarter of 2014. The continuing enhancement of the high value-added product portfolio is an additional strong driver for

RUSAL's revenue line. In the first half of 2014, RUSAL produced 809,000 tonnes of primary foundry alloys, billets, slabs and wire rod, which represented 45.4% of total aluminium output in the period - an all-time record for the Company.

Adjusted EBITDA in the second quarter of 2014 substantially improved, increasing by 27.2% to USD220 million, with EBITDA margin improving by 9.7%. The aluminium segment's EBITDA margin increased to 15.0% in the first half of 2014 compared to 12.7% for the same period last year. In the second quarter of 2014, the Company reported Profit and Recurring Net Profit of USD116 million and USD129 million, respectively, entering positive territory at the bottom line for the first time since the first quarter of 2013.

Post half year end, RUSAL fully executed its refinancing process and in doing so increased the average debt maturity from 2 to 4.4 years which subsequently extended the grace period until 2016. The refinancing was a transformational move for RUSAL's debt profile. Further deleveraging remains a priority for RUSAL in order to support our financial position.

In the second half of the year, we expect the LME spot aluminium price to remain around current levels and we see a potential upside for physical premiums. The positive dynamics in the aluminium sector is supported by the mounting ex-China deficit, solid demand fundamentals driven by the ongoing shift from steel to aluminium in the automotive sector and a lack of new primary aluminium projects putting pressure on the supply side of the equation.'

Overview of trends in the aluminium industry

Global aluminium consumption

During the first half of 2014, global primary aluminium consumption reached 27 million tonnes, representing a 6% increase compared to the first half of 2013. The fastest growing markets during the period were China (13%), Japan and South Korea (10%) and Central and South America (5%). North America experienced a 4.3% increase in growth whereas consumption grew moderately in Europe by 3% year-on-year.

Global industrial production, a key driver of commodity demand, rose by 4% year-on-year in the first half of 2014, increasing due to strong growth in North America and China and a fast recovery throughout Europe.

RUSAL forecasts that the aluminium market ex-China experienced a market deficit of 0.6 million tonnes due to stronger than anticipated aluminium consumption and production curtailments during the first half of 2014.

These factors have supported the recovery of the aluminium price to USD2,000 per tonne (on the LME) at the beginning of July, and it has continued to rally with physical market premiums.

Global aluminium supply

According to IAI and CRU data, global aluminium production excluding China fell by 231 thousand tones during the first half of 2014 versus the same period of last year. Despite new capacity commissioned in Middle East and Asia, more than 1.1 million tonnes of ex-China capacity was closed during the first half of 2014 and another 0.6-0.7 million tonnes may be closed during the second half of 2014.

As expected, higher prices will not incentivise marginal producers to restart or expand capacity any time soon due to cheap power constrains, labour contracts, raw materials, one off restart costs, restocking the internal smelter supply chain etc. Chinese net operating capacity increased by 603,000 tonnes during the first six months of the year.

This was due to a capacity recommencement in specific provinces throughout China despite the low aluminium price and significant losses from some domestic smelters. Still around 30% of Chinese production or 7 million tonnes is unprofitable despite some recent recovery in Shanghai Futures Exchange ('SHFE') price. Aluminium production in China rose by 12% year-on-year to 13.7 million tonnes during the first half of 2014.

Half of the initially planned new capacity measures were commissioned during the first half of 2014 and a much slower growth is forecast for the second half of 2014. As of the end of June 2014, around 2.4 million tonnes of operating capacity has been closed.

The National Development and Reform Commission and the Ministry of Industry and Information Technology have continued to tackle the overcapacity in the aluminium industry through a ban on new capacity projects, outdated capacity closures as well as ensuring stricter environmental control and power efficiency measures.

Chinese semis aluminium exports are not growing at a significant pace despite aluminium deficits during the first half of 2014. Chinese semis export grew by 6% during the first half of 2014 compared to the same period of last year. We expect China will be unable to fill the supply deficit gap in the aluminium market.

Aluminium stocks and premiums

U.S. premiums rose sharply during January 2014 from 12 to 20.75 cents/lb, a record level. The premiums declined slightly to 19.5 cents/lb at the end of June 2014.

In Europe, the primary ingots premiums rose significantly from 210-230 USD/t to 340-360 USD/t by the end of June 2014.

Spot premiums in Asia, as reflected by the Cost, Insurance and Freight in Major Japanese Ports ('MJP') indicator, grew significantly from 245-247 USD/t to 390-400 USD/t by the end of June 2014.

Aluminium stocks on the LME continued to decline due to the current aluminium market deficit. Since the beginning of 2014, LME stocks dropped by 500,000 tonnes to 4.958 million tonnes, a 22 month low. UC RUSAL expects the LME inventories to drop further on physical market tightness in the second half of 2014.

Importantly, the deliveries of aluminium into LME warehouses has been minimal with 167 thousand tones since April 2014, so much so that irrespective of the outcome of the LME's judicial review appeal, the load out rate from the 'affected' warehouses of Detroit and Vlissingen will remain the same as that implied under the old warehousing rules.

Consequently, RUSAL expects physical premiums to maintain their growth path as the deficit out of China is forecast to widen during the second half of the year.

Aluminium industry 2014 outlook

UC RUSAL's 2014 market outlook remains broadly unchanged with a slight improvement in the second half of 2014 due to seasonally stronger demand. Global consumption of primary aluminium is forecast to reach 55 million tonnes in 2014, an increase of 6.5% compared to the previous forecast of 6%.

China remains the largest growing market with an expected 13% growth rate (previously 10%), followed by North America with a 5% growth, Asia excluding China with a 4% growth and Europe with a 3% growth. Overall, UC RUSAL forecasts the 2014 global aluminium market to be in 1.5 million tonnes of supply deficit.

Business review

Aluminium production

UC RUSAL's aluminium production amounted to 1,783 thousand tonnes for the six months ended 30 June 2014, as compared to 1,999 thousand tonnes for the six months ended 30 June 2013. The decrease in the aluminium production volumes amounted to 10.8% and was due to the capacity curtailment program implemented at the least efficient smelters.

The main contributor to the decrease was mothballing of Bogoslovsk, Volgograd, Volkhov, Urals and part of Novokuznetsk and Nadvoitsy aluminium smelters in Russia and also the suspension of smelting operations at ALSCON in Nigeria.

Alumina production

Alumina production was stable: volume for the six months ended 30 June 2014 amounted to 3,618 thousand tonnes, as compared to 3,638 thousand tonnes for the six months ended 30 June 2013, representing a 0.5% decrease.

Bauxite production

Bauxite production was stable as well: volume amounted to 5,885 thousand tonnes for the six months ended 30 June 2014, as compared to 5,912 thousand tonnes for the six months ended 30 June 2013, representing a 0.5% decrease.

Foil and packaging production

The aggregate aluminium foil and packaging material production by RUSAL's plants was 45,433 tonnes for the six months ended 30 June 2014, as compared to 43,665 tonnes for the six months ended 30 June 2013, representing an increase of 4.0%.

Revenue decreased by USD819 million, or 15.7%, to USD4,384 million in the first six months of 2014, as compared to USD5,203 million for the corresponding period of 2013. The decrease in revenue was primarily due to the decreased sales of primary aluminium and alloys, which accounted for 82.8% and 85.6% of UC RUSAL's revenue for the first six months of 2014 and 2013, respectively.

Revenue from sales of primary aluminium and alloys decreased by USD820 million, or by 18.4%, to USD3,632 million in the first six months of 2014, as compared to USD4,452 million for the corresponding period in 2013.

This decrease resulted primarily from the 12.6% decrease in volumes of primary aluminium and alloys sold following the implementation of ineffective capacity curtailment program, as well as a decline in the LME aluminium price (which decreased to an average of USD1,753 per tonne from USD1,919 per tonne for the six months ended 30 June 2014 and 2013, respectively).

The decrease in average LME aluminium prices was slightly offset by a 29.0% growth in premiums above the LME price in the different geographical segments (to an average of USD347 per tonne from USD269 per tonne for the six months ended 30 June 2014 and 2013, respectively).

The Company's revenue from sales of primary aluminium and alloys increased by 8.3%, from USD1,744 million in the first quarter of 2014 to USD1,888 million in the second quarter of 2014. The increase in revenues resulted from a 5.3% increase in average LME aluminium price, 4.6% increase in primary aluminium and alloys sales volumes, as well as 5.4% increase in the realised premiums above LME prices (with premiums reaching a record of USD366 per tonne in June 2014).

Revenue from sales of alumina increased by 16.4% to USD263 million in the first six months of 2014 as compared to USD226 million for the corresponding period of 2013, due to a 20.2% increase in alumina sales volume which was slightly offset by a 3.0% decrease in average sales price.

Revenue from sales of aluminium foil decreased by 3.9% to USD149 million in the first six months of 2014, as compared to USD155 million for the corresponding period of 2013, primarily due to a decrease in the average realised sales prices.

Revenue from other sales, including sales of bauxite and energy services decreased by 8.1% to USD340 million for the first six months of 2014 from USD370 million as compared to the same period of 2013, due to 13.8% lower sales of bauxite and a 7.6% decrease in sales of other materials.

Total cost of sales decreased by 17.8%, to USD3,656 million for the six months ended 30 June 2014, as compared to USD4,446 million for the corresponding period of 2013. The decrease was primarily driven by the 12.6% (or 251 thousand tonnes) reduction in the aggregate volumes of aluminium sold.

Cost of alumina decreased in the reporting period (as compared to the first six months of 2013) by 26.1%, primarily as a result of a decrease in both alumina purchase volumes and average alumina purchase price.

Cost of bauxite decreased by 3.5% in the first six months of 2014 as compared to the same period of prior year, due to 8.6% decrease in purchase volume partially compensated with the slight increase in the purchase prices.

Decrease in costs of raw materials (other than alumina and bauxite) and other costs by 11.8% for the first six months of 2014 as compared to the first six months of 2013 was primarily driven by the lower volume of primary aluminium and alloys sold.

Energy cost decreased by 24.6% in the first half of 2014 compared to the same period of 2013, primarily due to the continuing depreciation of the Russian Ruble against the US dollar as well as decrease in weighted-average electricity tariffs.

Cost of sales increased by 4.0%, to USD1,864 million in the second quarter of 2014, as compared with USD1,792 for the previous quarter as a result of a 4.6% increase in the volumes of primary aluminium and alloys sold.

Results from operations and Adjusted EBITDA

Results from operating activities improved by 47.8% in the first half of 2014 to USD99 million, as compared to USD67 million for the respective period of the prior year, primarily due to the positive effect of the inefficient capacity curtailment program implementation, historically record realised premiums over the LME aluminium price and continuing depreciation of the Russian Ruble against the US dollar.

The decrease in the Adjusted EBITDA by 6.4% in the first six months of 2014 to USD393 million, as compared to USD420 million for the corresponding period of 2013, reflected primarily low aluminium prices partially compensated by the positive factors stated above.

Loss for the period

As a result of the above, UC RUSAL net loss decreased by 52.4% to USD209 million for the first half of 2014, as compared to USD439 million for the corresponding period of 2013.

Adjusted and Recurring Net Loss

Adjusted Net Loss increased to USD395 million for the first half of 2014, as compared to USD236 million for the same period of 2013, primarily due to a foreign exchange loss in the reporting period as compared to a foreign exchange gain in the same period of the prior year as a result of the significant depreciation of the Russian Ruble against the US dollar.

Recurring Net Loss decreased by 74.0% to USD40 million for the first six months of 2014, as compared to USD154 million for the same period in 2013 as negative effect of the foreign exchange differences was more than compensated by the increase in the Company's share in results of associates due to significantly improved performance of Norilsk Nickel.

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.

For the six months ended 30 June 2014 and 30 June 2013, segment result margins (calculated as a percentage of segment profit to total segment revenue per respective segment) from continuing operations were 10.0% and 8.1% for the aluminium segment and negative 10.6% and 12.7% for the alumina segment, respectively.

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. Detailed segment reporting can be found in the consolidated interim condensed financial information included in this Interim Report.

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 risk and uncertainties include those discussed or identified in the prospectus for UC RUSAL.

In addition, past performance of UC RUSAL cannot be relied on as a guide to future performance. UC 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 UC 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.

About RUSAL

UC RUSAL (www.rusal.com) is a leading, global producer of aluminium, in 2013 accounting for approximately 8% of global production of aluminium and 7% of alumina. UC RUSAL employs over 67,000 people in 19 countries, across 5 continents. UC RUSAL markets and sells its products primarily in the European, Japanese, Korean, Chinese, South East Asian and North American markets.

UC RUSAL's ordinary shares are listed on The Stock Exchange of Hong Kong Limited (Stock code: 486), global depositary shares representing UC RUSAL's ordinary shares are listed on the professional compartment of Euronext Paris (RUSAL for Reg S GDSs and RUAL for Rule 144A GDSs), and Russian depositary receipts that are issued on common shares of the Company are listed on Moscow Exchange (RUALR/RUALRS).

Disclaimer

The information contained in this press release is for media advice only. The contents are true and accurate at the time of publishing, however, may change over time.

Contact:

Elena Morenko

Tel: +7 (495) 720-51-70

Email: elena.morenko@rusal.com


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Source: ENP Newswire


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