Economic
Efficiency

3.1. Economic Results of the Activity

Economic efficiency is the most important criterion of business success, and the performance indicators are the basis for strategic planning of the Company. The Company's efficiency management system establishes clear criteria for the categorization of the Company's Tier I assets, for example, with regard to revenues (> USD 1 billion) and EBITDA profitability (>40  %), introduces the culture of responsibility for capital, and focuses on the indicators demonstrating the creation of shareholder value (for example, EVA in sales and marketing).

Key economic results of 2014:

  • The increase of consolidated proceeds in rubles by 24.5% at the expense of positive dynamics of prices for palladium and nickel;
  • The increase of EBITDA indicator in rubles by 63.3 % owing to the increase of the proceeds and significant decrease of expenditures related to the measures being held on expenditures optimization;
  • The increase of EBITDA profitability up to 48  %, which brought Norilsk Nickel to the leading positions in the industry with regard to this indicator;
  • Net profit tripling;
  • Keeping the debt load at the conservative level.

The Company is consistent in the implementation of policy of withdrawal from noncore assets: in 2014, transactions on sale of the Australian assets of North Eastern Goldfields, Avalon, Cawse, Lake Johnston, Black Swan, and Silver Swan were closed; moreover, the agreement on sale of African assets of Tati Nickel Mining Company and Nkomati was signed.

See more details about economic performance in the Annual Report for 2014 (p. 130–141).

Altogether in 2014, the Group's enterprises paid RUB 31 mln of penalties on different levels from their budgets. The number of fines made by the supervisory authorities is 72: for environmental impact - 36 pcs., for non-observance of the labor law - 4 pcs., other grounds - 32 pcs.

49,871
million RUB
total expenditures on capital investments in 2014

3.2. Investment Activity

The Company's investment activity aims at solution of strategic tasks, including modernization and renewal of the production equipment to increase the economic efficiency and to assure high level of green production.

All the key investment projects planned for 2014 were completed successfully. The capital expenditures were decreased by 35  % as a result of disciplined approach to investments and optimization of procurement procedures.

The total amount of expenditures for capital investments was RUB 49,871 million.

See more details about investment activity in the annual report for 2014 (p. 79–87).

CAPEX PATTERN

*Including Norilsk Nickel Harjavalta, Australian enterprises, and enterprise in Botswana Tati Nickel Mining Company.

marcer
Development of mineral resources base
marcer
Treatment
marcer
Metallurgy
marcer
Projects of power industry
marcer
Auxiliary investment project
marcer
Nonindustrial construction
marcer
Equipment not included into the construction estimate and total overhauls being capitalized
marcer
Other investments (research, development and engineering, geological exploration, automation)
marcer
Norilsk Nickel International (including Norilsk Nickel Harjavalta, Australian enterprises and enterprise in Botswana Tati Nickel Mining Company)
KEY INVESTMENT PROJECTS
Unit Projects Special marks
The projects on developing the mineral resources sector–mine development projects
The Polar Division  Skalisty Key project of the Company's Strategy
The Polar Division  Komsomolsky Key project of the Company's Strategy
The Polar Division Taymyrsky Key project of the Company's Strategy
The Polar Division Oktyabrsky Key project of the Company's Strategy
Kola MMC  Severny-Gluboky  
Chita project Development of complex fields in the Transbaikalia Territory Key project of the Company's Strategy
Projects on redesign and modernization of treatment production
The Polar Division Upgrading and retooling of Talnakh Concentration Plant Key project of the Company's Strategy
Kola MMC Upgrading the crushing plant of the concentration plant  
Kola MMC Reconstruction of electric ore smelting furnace No. 5 in the melting shop  
Projects of metallurgical production development
The Polar Division Redesign of Nadezhdinsky Metallurgical Plant (including «sulphur projects» related to environment) Key project of the Company's Strategy
Kola MMC Nickel electrowinning from solutions of chlorous dilution of nickel powder of pipe furnace  
Kola MMC Renovation of nickel tank house No. 1  
Kola MMC Electrolytic cobalt production  
Projects of power industry
Norilskgazprom Enhancement of stability and reliability of gas supply
to Norilsk Industrial District
 
Norilskgazprom Development of Pelyatkinsky gas condensate field  
2
million
passengers
11.2
thousand
tons of cargo
transported by airlines of the Group in 2014

3.3. Transportation Activity

The transport and logistic hub of the Norilsk Nickel Group plays the most important role in a chain of value creation and aims at supporting of product competitiveness and enhancement of the Company's activity. The activity of a range of haulage companies favors the solution of social tasks in the territories of operating.

Water Transport and Cargo Turnover

MMC Norilsk Nickel owns a unique Arctic cargo fleet of double ice rate consisting of five container carriers of Norilsk Nickel type and Yenisey tanker. The technological capacities of the vessels allow overcoming polar ice up to 1.5 m thick without icebreakers. The Company's dry cargo fleet assures all year-round communication between sea ports of Dudinka, Murmansk, Arkhangelsk, Rotterdam, and Hamburg. In 2014, the Company's bulk carriers performed 52 travels and carried 1.1 million tons of cargo, including 13 direct travels to the ports of Europe with export metal products. In the reporting year, the enterprises of the Company's transport and logistic hub did not commit any violations of contractual deadlines of supplying the products to consumers.

The Yenisey tanker participates in the Northern Supply Haul Program, assures all-year-round and reliable supply of Norilsk Industrial District with oil products and export of gas condensate from Pelyatkinsky Gas Condensate Field to the ports of Europe. Total for the reporting period, the tanker carried 125 thousand tons of the Company's subsidiaries' cargo (gas condensate and oil products) and 27.3 thousand tons of third party's cargo.

In 2014, the total water cargo turnover of Dudinka Port (Zapolyarny Transport Branch) was 2.6 million tons, a third of it coming from freights from the Northern Sea Route and more than two thirds, from the Yenisey.

Air Fleet and Air Carriage in Operation

The fleet of aircrafts being operated by the enterprises of the Norilsk Nickel Group amounted to 45 pieces in 2014, including 18 helicopters (operator: Norilsk branch of Taymyr Air Company OJSC) and 27 planes (operators: Nordavia – Regional Airlines CJSC and Moscow Branch of Taymyr Air Company OJSC (NordStar)).

According to the results of 2014, the air companies carried 2 million people and 11.2 thousand tons of cargo that was equal to 95% and 94%, respectively, in comparison with similar indicators of 2013.


The Norilsk branch of Taymyr Air Company OJSC is the only helicopter airline in the region that is able to promptly respond to any situations in all the areas of industrial and social life of the region. The helicopters of the air company do not only assure production activity of the Company's enterprises (the carriage of shifts, processing facilities, life support products, etc.), they also perform search and rescue operations as well as carry passengers by local air lines. 54,799 passengers and 2,135.1 tons of cargo and mail were carried in 2014.

RUB 1.38 billion was earmarked for investment projects of development and renovation of production capacities of the Company's transport and logistic hub in the reporting year.

3.4. Dialog with the Shareholders and Investors

In relations with shareholders and investors, OJSC MMC Norilsk Nickel fully complies with the requirements of the Russian law and follows the acknowledged world standards. The Company is interested in building long-term trust relations with shareholders and investors, which favors the enhancement of the Company's work efficiency and supports its financial stability.

One of the main priorities of cooperation with the investment communities is timely disclosure of information about the Company's activity and provision of equal access to it for all the shareholders and investors. The Department of Equity Capital, Compliance, and Counteraction of Illegal Use of Insider Information assures uniform information policy with regard to shareholders and investors. The Company publishes annual reports, quarterly reports of the securities issuers, corporate action notices, and other data subject to disclosure in compliance with the requirements of the current law.

The Department on Work with Investment Communities performs the function of cooperation with the shareholders and investors in the Company. Its employees do not only keep in contact with current market participants but also build relations with potential investors on the grounds of direct contacts, participate in specialist conferences, hold road shows, and make conference calls.

In 2014, the Department on Work with Investment Community had more than 500 meetings with institutional investors in 10 countries of the world, including 17 investment conferences, 7 international road shows, 5 conference calls and organized 3 trips to the Company's production assets for investors.


In May 2014, the Company organized a Strategy Day in London, where the first results of the Development Strategy implementation approved by the Board of Directors in 2013 were presented:

  • upgrade and reconfiguring program for Company’s processing facilities;
  • plan for disposal of nonprofile assets;
  • plan 5-in-4 for definition and implementation of corporate initiatives enabling additional EBITDA cash flow for the year 2013 based on 2013–2016 results;
  • inclusion of Chita branch in the list of first class assets.

Strategy Day in London in May 2015, was an important event after reporting date. First results of Development Strategy implementation, that proved to be consistent as confirmed by the highest profitability in the industry, were presented to investment community. New strategic initiatives aimed at increasing the Company’s stock value and reinforcing leading positions among global mining and metallurgical companies were presented during this event.

Enhanced safety parameters were also presented along with program for reduction of sulfur dioxide emissions to atmosphere due to closing of outdated Nickel Plant and production upgrade.

Environmental and safety tasks remain to be an absolute priority for the Company.

The most important strategic task for the Company is complete fulfillment of potential of the world’s best polymetallic resource base of Talnakh ore hub (Taymyr Peninsula) with mineral resources exceeding 2.0 million tons of ore.

In 2015, it is planned to increase the involvement of top-management into the dialog with investors and continue the work on attracting new shareholders by means of expansion of geography for meetings with institutional investors and the use of advance instruments on work with investment community.

3.5. Dialog with Business Community

The Company follows a responsible approach in selecting business partners and builds cooperation with business community based on the principles of law observance, transparency, openness, and mutual respect.


In the area of selling activity, the Company aims at long-term strategic relations with principal market players. The total amount of the buyers is about 440, mostly they are industrial consumers. The Company supplies its products to all significant markets, the geographical cover comprised more than 40 countries under the results of 2014.

In the area of procurement, the Company's main goal is timely, efficient and full assurance of a need in resources for stable operation of all the production units with optimum conditions of their acquisition. The Company strives to assure the expansion of opportunities for participation of legal entities and individuals in procurements for the Company's needs, development of fair competition, procurement transparency, development of feedback mechanisms, prevention from corruption, and other abuses while procuring.

The Company pays high priority attention to the development of relations with the Russian suppliers and contractors that influence most upon the Company's ability to implement its strategic goals.

There were no significant changes in the chain of supply in 2014.

The Company cooperates intensively with the business community within different associations and other non-commercial organizations both in Russia and abroad. Norilsk Nickel participates in work of the Nickel Institute, the U.S. – Russia Business Council, the International Platinum Group Metals Associations, the Nongovernmental organization of International Metallurgist Union.

The Company cooperates intensively with the business community within different associations and other non-commercial organizations both in Russia and abroad. Norilsk Nickel participates in work of the Nickel Institute, the U.S. – Russia Business Council, the International Platinum Group Metals Associations, the Nongovernmental organization of International Metallurgist Union.

The Company's suppliers and contractors, pcs.

Russian suppliers and contractors

Foreign suppliers and contractors

PARENT METAL SUPPLY PATTERN WITH REGARD TO REGIONS IN 2014 % FROM THE SALE
Company Nickel Copper Platinum Palladium
Europe, Middle East, and Africa 42 73 42 51
Asia 44 10 37 32
America 9 14 16
The Customs Union EEU 5 17 7 1
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