United Company RUSAL, International Public Joint-Stock Company (486) Q1 2015 earnings summary

Executive summary

• EBITDA rose 11% QoQ to $721 million; lower cash costs, supply discipline and favorable currency movements supported profit and cash generation.

• Net debt fell $313 million in Q1 to below $8.7 billion; covenant leverage was below 3.5x at March 31.

• Management emphasized growth in value-added products and reviewed potential idling of up to 200,000 tonnes of smelting capacity by year-end.

Financial highlights

• EBITDA was $721 million, up 11% QoQ; EBITDA margin expanded to 29% from 26% in Q4 2014.

• Free cash flow was positive at $380 million; Q1 CapEx was $87 million, with lower working-capital relief limiting FCF versus the prior quarter.

• Aluminum realized price averaged $2,299/t, down 5% QoQ; realized premium was $424/t versus $429/t in Q4 2014.

• Net debt declined $313 million; $133 million of debt was repaid in Q1 and a further $192 million in April.

Outlook and guidance

• Cash cost was estimated at ~$1,600/t at the prevailing exchange rate; management cited ruble inflation of 15%–20% as a further cost pressure.

• 2015 aluminum production was planned at 7.4–7.5 million tonnes; management did not plan to increase volumes versus 2014.

• 2015 CapEx target was ~$600 million, including $400–$420 million maintenance CapEx; ~50% of spending was ruble-denominated.

• Cash-sweep repayments were forecast at $400–$500 million for 2015; additional early repayment below 3x leverage would depend on market conditions.

• Management forecast 2015 non-China aluminum capacity closures of 1–1.5 million tonnes and a market deficit of 1.1–1.5 million tonnes.