Uralkali announces audited financial results for the six months ended 30 June 2014 in accordance with IFRS and audited by PricewaterhouseCoopers Audit

Berezniki, Russia, 1-9-2014 — /EuropaWire/ — Uralkali (LSE: URKA “the Company”), announces that the Board of Directors at a meeting on 28 August 2014 approved the Company’s audited financial results for the six months ended 30 June 2014 prepared in accordance with IFRS and audited by PricewaterhouseCoopers Audit.

1H 2014 FINANCIAL HIGHLIGHTS¹:

  • Revenue up 7% y-o-y to US$ 1,726 million
  • Net revenue² down 2% y-o-y to US$ 1,316 million
  • EBITDA³ down 12% y-o-y to US$ 767 million
  • EBITDA margin4 down to 58%
  • Net profit down 7% y-o-y to US$ 370 million
  • Cash COGS down 12% to US$ 51 per tonne

1H 2014 OPERATIONAL HIGHLIGHTS:

  • Production up 33% y-o-y to 6.0 million tonnes of potassium chloride (KCl)
  • Sales volumes up 42% y-o-y to 6.1 million tonnes of KCl
  • Average FCA export price down 30% to US$ 220 per tonne of KCl
  • Strategic capacity development programme on track, with sinking started at Shaft No.2 of the Ust-Yayvinsky mine

CORPORATE HIGHLIGHTS:

  • Acquisition of a 25% stake in Equiplan Participacoes S.A. to enhance the Company’s logistics infrastructure in Brazil
  • Election of the new Board of Directors following changes in the shareholder structure
  • Dividend payout ratio for 2013 approx. 50%
  • Agreement of a US$ 450 million 5-year unsecured club facility with five international banks, with an interest rate of LIBOR plus 175 bps margin

SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD:

  • In July, the Company obtained a licence to develop the Romanovsky block of the Verkhnekamskoye deposit with estimated commercial reserves of 385 million tonnes of sylvinite ore
  • In July, an extraordinary general meeting of shareholders (EGM) took the decision to merge Uralkali-Technology into Uralkali and cancel all shares of Uralkali previously owned by Uralkali-Technology
  • In August, Uralkali signed an agreement with Promsvyazbank to open a US$ 250 million unsecured credit line with a 10-year repayment period

Dmitry Osipov, Uralkali CEO, commented:
“In 1H 2014, the potash market demonstrated signs of recovery both in terms of volumes and price. Following sluggish buying activity in 2H 2013, customers sought to replenish depleted stocks. Tight availability of granular product boosted spot prices, while robust demand enabled Uralkali to achieve a high utilisation rate and generate solid revenues.

With the fundamentals for long-term potash demand remaining strong, Uralkali is well-positioned to maintain its market share in a competitive environment. The Company strives to constantly improve its operational and logistical efficiency and the Ust-Yayvinsky mine construction is progressing in line with the planned schedule, with the first ore extraction planned for 2020. In July, we were also able to obtain a licence to develop the Romanovsky block of the Verkhnekamskoye deposit at a very favourable price. This will secure our long-term resource sustainability.”

The key 1H 2014 operational and financial metrics are as follows:

1H 2014 1H 2013
Revenue (US$ million) 1,726 1,614
Net revenue (US$ million) 1,316 1,348
EBITDA (US$ million) 767 876
EBITDA margin 58% 65%
Net profit (US$ million) 370 397
Average potash price, FCA, US$

— Domestic

— Export

 

156

220

 

257

316

Production (KCl, million tonnes) 6.0 4.5
Sales volume (KCl, million tonnes)

TOTAL

— Domestic

— Export

 

6.1

1.0

5.1

 

4.3

1.0

3.3

 

Financial Review

Due to robust demand in the first half of 2014, Uralkali maintained a high utilisation rate of around 90%, which led to low cash COGS of US$ 51 per tonne. The Company’s sales volumes increased by 42% to 6.1 million tonnes of KCl, while the average export price fell by 30%. High sales volumes and low costs mostly compensated for weaker year-on-year prices, with Uralkali’s EBITDA reaching US$ 767 million. Net profit was US$ 370 million, a 7% decrease compared to 1H 2013.

Uralkali continued to optimise its loan portfolio, prolonging its average tenor and decreasing the effective interest rate. Thus, in June the Company signed a US$ 450 million 5-yearunsecured club facility with five international banks, with an interest rate of LIBOR plus 175 bps margin. In August, Uralkali signed an agreement with Promsvyazbank to open a US$ 250 million unsecured credit line with a 10-year repayment period. These new loans will be primarily used for refinancing to further improve the characteristics of the credit portfolio. At the end of June 2014, the effective interest rate for the whole credit portfolio was 3.6%. The Company’s net debt decreased to US$ 3.9 billion.

The Company balanced its investments in growth with shareholder returns, distributing the strong cash flows generated by the business through dividends. In June 2014, Uralkali’s annual general meeting of shareholders approved a dividend payment for 2013 of RUB 1.63 per share and approximately US$ 0.24 per GDR. The total dividend payment for 2013 including interim dividends amounted to RUB 11.3 billion (ca. US$ 326 million5), which is in line with the Company’s policy of paying dividends of not less than 50% of IFRS net profit.

Business Review

In 1H 2014, solid demand around the globe enabled Uralkali to produce 6.0 million tonnes of KCl, up 33% y-o-y.

At the same time, the Company proceeded with its capacity development programme, with expansion projects accounting for approximately 42% of the total US$ 205 million spent in the first half of the year.

At the Ust-Yayvinsky mine, shaft construction is in progress. By mid-summer, more than 130 meters had already been sunk at Shaft No.1 and the Company started the sinking of Shaft No.2. Next year, the Company plans to start the construction of permanent facilities for the above-ground complex. Debottlenecking, which will add 1 million tonnes of capacity by the end of 2016, is continuing on schedule. Uralkali is also proceeding with the expansion of its granular capacity, replacing old equipment with more efficient machinery.

In July, Uralkali obtained a licence to develop the Romanovsky block of the Verkhnekamskoye deposit of potassium and magnesium salts. The terms of the licence allow the Company to conduct geological exploration of subsurface resources, as well as the exploration and extraction of potash, magnesium and mixed chloride salts. The total value of the licence acquired at auction is RUB 325,829,900 (approx. US$ 9.12 million6). The new block has estimated commercial reserves of 385 million tonnes of sylvinite ore.

In July, Uralkali’s EGM approved the reorganisation of the Company in the form of a merger with Uralkali-Technology, a subsidiary of the Company. Following the merger, the Company’s shares held by the subsidiary on the merger date will be cancelled, and the share capital of Uralkali will be reduced accordingly. This reorganisation confirms Uralkali’s commitment to increasing shareholder value.

Market Outlook

Contractual commitments to China and India helped to underpin global potash demand through 1H 2014. Customers who chose to delay or defer 2H 2013 potash purchases in anticipation of lower spring prices returned to the market in 1Q 2014 and this led to a significant increase in potash demand. Strong potash demand growth and improved overall sentiment in the first six months of this year translated into potash price recovery, with prices firming in major markets. Several producers announced that they were fully committed for 1H 2014 shipments. A combination of strong demand, tight supply due to lack of granular potash and logistical bottlenecks in some markets led to limited potash availability in 1H 2014.

2014 has been a strong year for potash sales so far, with global deliveries in the first six months estimated to have hit a new record high of 33 million tonnes, up 15% y-o-y.

Brazil has shown significantly increased demand through 1H 2014. The latest statistics from IFA show that producers shipped 4.9 million tonnes to Brazil in the first six months of the year, an18% y-o-y increase. Brazil saw relatively strong price momentum in 1H 2014 due to strong demand and limited availability of granular potash. According to Argus FMB, potash prices have increased by US$ 35-40 per tonne CFR since the start of the year. Import volumes and prices are expected to remain stable through 3Q 2014, while it is anticipated that distributors will purchase healthy volumes for Brazil’s Safrinha corn crop in 4Q. In 2014, potash import volumes are expected to exceed last year’s record level, reaching 8.6-8.8 million tonnes.

The North American market was characterised by stronger demand than in other markets, which is estimated to have reached about 6 million tonnes in January-June, up more than 30% y-o-y. Logistical bottlenecks limited potash availability in the market and customers were quick to realise that supply was tightening and increased purchases to meet their immediate consumption needs. The market enjoyed better price dynamics compared to other major spot markets. Demand is expected to remain solid, at least through autumn, as farmers are expected to replenish declining nutrient levels in their soils after record crop production this year. In 2014, demand may return to the record high levels seen in 2010 (9.8-10.0 million tonnes).

China imported significant volumes during the first six months of this year as many distributors and NPK manufacturers purchased solid volumes. Most of the 1H 2014 contracted volumes had been delivered to China by the end of 2Q. Potash application is projected to increase in China in 3Q and the country is forecast to consume 12.0-12.2 million tonnes this year.

In India, 2014/2015 contract volumes were booked with producers during the second quarter. The total contracted quantity is approx. 4 million tonnes. Indian demand was weaker than expected due to lower-than- average monsoon rainfall in June. However, the situation appears to be normalizing with the rainfall deficit recorded at 17% in August, having risen above 50% earlier this year. According to customs data, India imported 1.65 million tonnes in the first six months of the year, a 30% y-o-y increase. India is expected to import 3.7-4.0 million tonnes in 2014 as a whole. Indian fertiliser companies are buoyant about the recent change of government. They hope that the new government will push through reform measures in terms of the nutrient-based subsidy (NBS) policy.

Southeast Asian markets were steady during 1H 2014, with competition among suppliers being particularly tough in Malaysia, Indonesia and Vietnam. Demand in the region is expected to increase from 8.1 million tonnes last year to approximately 8.4-8.7 million tonnes in 2014.

European and FSU markets saw the stronger-than-ever sales in the first six months of the year. Spring season demand was strong in many European markets, supported by favourable weather conditions. Demand slowed during 2Q in line with seasonal patterns. The tightness of granular/specialty products and just-in-time nature of purchasing activity is expected to support European demand for the rest of the year, with the annual market volume increasing from 10.2 million tonnes last year to approx. 10.6-10.8 million tonnes.

The Russian market remained stable during 1H 2014, with volumes unchanged from the previous year. NPK producers and industrial consumers increased their purchases, taking advantages of lower prices compared to the previous period. Orders from agricultural producers slightly decreased, as they used last year’s inventories.

Global potash demand in 2014 may exceed the 2011 level, which would set a new record. Increases are expected in all major regions, partially aided by restocking needs. Strong demand combined with limited availability of granular potash continue to support potash prices in major spot markets.

Viktor Belyakov, Uralkali CFO, said:
“Uralkali enjoys a favourable geographical location, has a wide network of trading offices, and benefits from one of the lowest cost bases in the industry. All of this enables the Company to adjust to market changes and generate solid cash flow. With the potash market recovering, we aim to further improve our financial results by the end of the year.”

You can find more information about Uralkali’s financial position in a video interview with Viktor Belyakov, Uralkali CFO, at http://www.uralkali.com/investors/results/.

Uralkali (www.uralkali.com) is one of the world’s largest potash producers and exporters. The Company’s assets consist of 5 mines and 7 ore-treatment mills situated in the towns of Berezniki and Solikamsk (Perm Region, Russia). Uralkali employs ca.11,300 people (in the main production unit). Uralkali’s shares and GDRs are traded on the Moscow Exchange and London Stock Exchange, respectively.

1 The audited financial statements can be found on Uralkali’s website http://www.uralkali.com/investors/reporting_and_disclosure/uk_msfo/

2 Net Revenue represents adjusted revenue (sales net of freight, railway tariff and transshipment cost)

3 EBITDA is calculated as Operating Profit plus depreciation and amortisation and does not include mine flooding cost, other one-off expenses

4 EBITDA margin is calculated as adjusted EBITDA divided by Net Revenue

5 According to the exchange rate of the RF Central Bank as of 9 June 2014, 1 US$=34.6573 RUB

6 According to the exchange rate of the RF Central Bank as of 31 July 2014: 1 US$=35.7271 RUB

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