Rusal Q3 net income surges nearly fourteenfold to US$432M as revenues rise 16.8% year-over-year to US$3.16B; results due in part to finance expenses declining to $319M from year-ago period's US$699M
November 14, 2011
– Key highlights
Revenue increased by 16.8% to USD3,162 million for the three months ended 30 September 2011, as compared to USD2,708 million for the same period of 2010, mainly due to an increase in sales prices and a record level of realised premiums of USD164 per tonne over the LME aluminium price.
Adjusted EBITDA increased by 25.0% to USD705 million for the three months ended 30 September 2011 as compared to USD564 million for the three months ended 30 September 2010. Adjusted EBITDA margin was 22.3% and 20.8% for the three months ended 30 September 2011 and 2010, respectively, maintaining its premier position in the industry.
Adjusted Net Profit for the three months ended 30 September 2011 increased more than twice to USD290 million as compared to USD143 million for the three months ended 30 September 2010 following the strong operating results.
Net profit was USD432 million for the three months ended 30 September 2011 as compared to USD29 million for the three months ended 30 September 2010.
Continuing decrease of the average-weighted energy tariff (a drop by 6% in the third quarter of 2011 as compared to that of the second quarter of 2011).
Completed refinancing of the debt portfolio with maturity extension and interest margin reduction which allowed for operational and financial flexibility, dividend payments and the lifting of capex restrictions.
BEMO project1 well on track with all nine turbines delivered on site and five of them installed.
RUB40 billion 15-year non-recourse project financing for Taishet aluminium smelter arranged and capital spending restarted in the third quarter of 2011.
Commenting on the third quarter results, Oleg Deripaska, CEO of RUSAL said:
“Market uncertainty and anticipation of another global economic downturn have put significant pressure on the aluminium industry in the third quarter of 2011. Despite the volatile metal prices, UC RUSAL has nevertheless achieved impressive results during the period. Solid production results, enhanced cost efficiency and client- oriented marketing efforts, coupled with a focus on value-added products, have enabled us to end the period with adjusted EBITDA increasing by 25.0% and adjusted net profit more than doubling period-on-period. UC RUSAL has maintained its leading position in industry with an adjusted EBITDA margin of 22.3%.
“The third quarter has seen UC RUSAL reinforce its financial position after a successful refinancing of its debt, a move supported by major international and Russian blue chip lenders. This step gives the Company more flexibility in terms of capital expenditure and development of a new long-term growth strategy with completion of the Boguchansky and Taishet smelters at its forefront.
“Current volatility and falling LME prices have led to a tangible imbalance between the physical and equity market. Major indicators show that the physical market remains tight with premiums staying at their five-year high levels. This supports our view that prices for aluminium, unlike prices for other commodities amid the current economic conditions, have reached the break-even point. In the mid to long term, demand for our metal is to remain strong, and despite the current challenging economic conditions, UC RUSAL believes the progress it has made together with the continuing focus on cost efficiency will enable the Company to continue delivering value for all its stakeholders.”
Aluminium industry 2011 outlook
In the major aluminium consuming markets, the impact of the current economic downturn is mixed. Globally, automotive remains a key driver of aluminium demand growth. Full year production of cars in North America is expected to grow by 5% year-on-year, with a forecasted growth of 1.6% in Europe. The construction sector remains weak in the major economies outside China, and the European rolled products sector is slowing. Despite this, demand from other consuming segments, including aviation and packaging, remains firm, and overall, UC RUSAL predicts a year-on-year global demand growth of 13% for aluminium in 2011, to 46 million tonnes.
Total underlying demand for aluminium in China is forecast at 19 million tonnes in 2011, a 15% increase compared to that of 2010. In addition to the automotive and construction segments, on-going infrastructure development and new investments in aerospace and defence are supporting demand increases, although there are indications of stock building in the automotive industry.
China’s aluminium output is expected to grow by 14% in 2011 to 18 million tonnes, but this is down from an annualised aluminium production rate of 19 million tonnes in July 2011 as power supply has temporarily been suspended in the third quarter due to the drought in South West China and that there was a drop in the export of semis due to lower primary aluminium demand.
On a global basis, the growth in aluminium production is forecasted to increase by 9% in 2011 to 46 million tonnes despite the uncertain economic outlook, according to UC RUSAL’s estimate. Regional aluminium markets remain largely balanced as indicated in reported premiums. This supports our view that aluminium has been affected less than other materials such as copper by the current economic conditions and any excess supply is effectively locked in warehouses and/or finance transactions.
Total aluminium output amounted to 1,041 thousand tonnes for the third quarter of 2011, as compared to 1,038 thousand tonnes for that of the same period in 2010. Output for the nine months ended 30 September 2011 increased by 1.0% to 3,064 thousand tonnes as compared to 3,034 thousand tonnes for the respective period of 2010. The increase was mostly due to increased production at certain Siberian (Russia) smelters of UC RUSAL as well as Kubal of Sweden.
Total alumina output amounted to 2,049 thousand tonnes for the third quarter of 2011 and 6,074 thousand tonnes for the nine months ended 30 September 2011, and demonstrates a 0.1% and a 5.5% growth as compared to the same periods in 2010, respectively. The increase in the volume was due to increased production at Nikolaev alumina refinery in Ukraine, Windalco Ewarton plant in Jamaica and Aughinish alumina refinery in Ireland.
Aggregate bauxite production was 3,560 thousand tonnes and 10,177 thousand tonnes, respectively for the three- and nine-month periods ended 30 September 2011, as compared to 3,306 thousand tonnes and 8,697 thousand tonnes for the three- and nine-month periods ended 30 September 2010 and demonstrates a 7.7% and a 17.0% growth in the respective periods. The main factor of growth over the respective periods was increased production at Bauxite Co. De Guyana (BCGI) in Guyana, Windalco Ewarton plant in Jamaica and North Urals
Revenue increased by USD454 million or 16.8% to USD3,162 million in the third quarter of 2011, as compared to USD2,708 million for the corresponding period in 2010. For the nine months ended 30 September 2011, revenue increased by 18.1% to USD9,485 million, as compared to USD8,029 million for the nine months ended 30 September 2010. The increase in revenue was primarily due to increased revenue from sales of primary aluminium and alloys, which accounted for 85.4% and 84.2% of UC RUSAL’s revenue for the third quarter of
2011 and 2010, respectively and 84.7% and 84.4% for the nine months ended 30 September 2011 and 2010, respectively.
Revenue from sales of primary aluminium and alloys increased by USD420 million or 18.4% to USD2,700 million in the third quarter of 2011, as compared to USD2,280 million for the corresponding period in 2010. The increase in revenue over the period resulted primarily from the rise in weighted-average realised aluminium prices, by approximately 23.9% in the third quarter of 2011 as compared to that for the corresponding period in 2010, driven by an increase in the LME aluminium price (to an average of USD2,399 per tonne from USD2,089
per tonne for the three months ended 30 September 2011 and 2010, respectively) and a record level of premiums over the LME price in the different geographical segments. Weighted-average realised premiums above the LME aluminium prices have increased by 43.9% from USD114 per tonne in the third quarter of 2010 to USD164 per tonne in the third quarter of 2011.
Revenue from sales of primary aluminium and alloys increased by 18.6% to USD8,038 million for the nine months ended 30 September 2011, as compared to USD6,778 million for the same period of 2010. The same trends as for the third quarter drive the increase in revenue in the nine-month period.
Cost of sales
Cost of sales increased by USD321 million, or 16.4%, to USD2,282 million for the three months ended 30 September 2011, as compared to USD1,961 million for the corresponding period in 2010. The principal drivers of the increase were higher costs of energy due to an increase in tariffs for electricity and capacity, personnel expenses as a result of the implementation of a new incentive program for main production personnel, and raw materials due to growth in the purchase price of materials. Appreciation of Ruble/US dollar average exchange rate in the third quarter of 2011 compared to the third quarter of 2010 negatively affected Ruble denominated expenses in the third quarter of 2011.
Results from operating activities and Adjusted EBITDA
Results from operating activities increased in the third quarter of 2011 by 27.5% to USD552 million, as compared to USD433 million for the corresponding period in 2010, representing positive operating margins of 17.5% and 16.0%, respectively. The increase in margins mainly reflects the positive effect of an increase in the LME aluminium price and premiums over the LME as well as the reduction in distribution, general and other operating expenses.
Adjusted EBITDA, being results from operating activities adjusted for amortisation and depreciation, impairment charges and loss on disposal of property, plant and equipment, increased to USD705 million in the third quarter of 2011, as compared to USD564 million for the corresponding period in 2010. Positive operating results were the key factor influencing this increase.
Finance income and expenses
Finance income increased by USD100 million to USD104 million in the third quarter of 2011 as compared to USD4 million for the corresponding period in 2010 primarily due to the foreign exchange gain that was recognised in the third quarter of 2011.
Finance expenses decreased by 54.4% to USD319 million in the third quarter of 2011 as compared to USD699 million for the corresponding period in 2010 primarily as the result of a change in the valuation of embedded derivatives (starting from the beginning of 2011, valuation is based on the contractually-committed volumes of electricity and capacity in line with the term of notice submitted to the administrator of trading system on a monthly basis whereas prior to that the embedded-derivative features were revalued for the entire duration of the contracts). The LME-linked price-adjusting premiums to counterparties contained in long-term electricity and other supply contracts and realised during the period amounted to USD79 million and USD23 million for the third quarters of 2011 and 2010, respectively, and were included in the change in fair value of derivative financial instruments. In third quarter 2010 the change in fair value of derivative financial instruments also included revaluation of the embedded derivatives for the future periods amounting to USD400 million. At the same time revaluation of a financial instrument linked to the share price of OJSC MMC Norilsk Nickel amounted to USD61 million in the third quarter of 2011 compared to USD7 million in the third quarter of 2010.
Interest expenses on bank loans (including bank charges) and loans from related parties decreased by USD101 million, or 34.2%, to USD194 million in the third quarter of 2011, as compared to USD295 million in the same period in 2010 primarily due to reduction in principal amounts payable to international and Russian lenders and interest margin reduction for all international banks and Onexim over comparable periods.
Net profit for the period
As a result of the above, UC RUSAL recorded a net profit of USD432 million for the three months ended 30 September 2011, as compared to a net profit of USD29 million for the three months ended 30 September 2010.
UC RUSAL (www.rusal.com) is the world’s largest producer of aluminium, in 2010 accounting for approximately 10% and 10% of global production of aluminium and alumina, respectively. UC RUSAL employs about 72,000 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 MICEX (RUALR) and RTS (RUAL) stock exchanges.