Press releases | PJSC Uralkali
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Uralkali Announces IFRS 2016 Financial Results

13.03.2017

Uralkali (the Company, MICEX: URKA), one of the worlds largest potash producers, today published its financial statements for 2016 prepared in accordance with IFRS, audited by ZAO Deloitte & Touche CIS and approved by the Companys Board of Directors.

FY2016 OPERATIONAL HIGHLIGHTS:

  • Production down 5% y-o-y to 10.8 million tonnes of potassium chloride (KCl)
  • Sales volumes down 2% y-o-y to 11.0 million tonnes of KCl

FY2016 FINANCIAL HIGHLIGHTS1:

  • Revenue down 27% y-o-y to US$ 2,278 million
  • Net revenue down2 30% y-o-y to US$ 1,851 million
  • EBITDA3 down 38% y-o-y to US$ 1,183 million
  • EBITDA margin4 of 64%
  • Net profit of US$ 1,427 million
  • Average FCA export price down 30% y-o-y to US$ 172 per tonne of KCl
  • Cash COGS up 6% y-o-y to US$ 35 per tonne

FY2016 CORPORATE HIGHLIGHTS:

  • In March, Uralkali completed an open market buyback programme, which was launched on 24 November 2015. The programme was limited to 6.5% of the Companys share capital. Upon completion of the programme, 4.9% of the Companys share capital had been purchased, of which 2.5% was acquired in 2016.
  • In March 2016, Uralkali signed an agreement with PJSC Sberbank to open a credit line for a period of up to ten years in the amount of US$ 3.9 billion in order to refinance earlier credits received from the bank, as well as for other general corporate purposes. Together with any related agreements, this credit line is secured by pledge of Uralkali shares and GDRs constituting 28.6% of the Companys share capital to PJSC Sberbank.
  • In April, Uralkali signed a US$ 1.2 billion five-year pre-export facility with 16 international banks.
  • In July, The Companys Board of Directors approved amendments to the securities issue resolution as part of the Companys Exchange Traded Bonds Programme and suggested that the Extraordinary General Meeting of Shareholders (EGM) approves the placement of the Companys Exchange Traded Bonds with a total nominal value of US$ 800 million and with a value of US$ 1,000 per one bond in favour of JSC Uralkali-Technology. The purpose of this placement was to replace the Companys shares with the Exchange Traded Bonds in the US$ 800 million REPO deal signed on 23 September 2015 between JSC Uralkali-Technology and JSC VTB Capital with termination of pledge over the Companys GDRs securing the REPO deal.
  • In August, Uralkali Trading (a 100% subsidiary of PJSC Uralkali) signed long-term contracts for the supply of potash fertilisers to China and India.
  • In September, Uralkali completed its open market buyback programme, which was launched on 19 May 2016. As a result, 3.35% of Uralkalis share capital was purchased from the open market. As of 31 December 2016, free-float ordinary shares and global depositary receipts represented 5.61% of Uralkalis share capital.
  • In September, an EGM elected a new Board of Directors and the Companys Audit Committee.

Dmitry Osipov, Uralkali CEO, commented:

"The difficult conditions in the global potash market in the first half of 2016 had a significant impact on the main trends for the year. Uralkalis results in 2016 fully reflect this situation, in which the Company proved its status as a disciplined and client-oriented producer.

Despite the adverse market conditions last year, we are confident that the long-term fundamentals of the potash industry remain stable. We are ready, as always, to satisfy demand and maintain our leading positions in key markets.

The Companys key operational and financial metrics in 2016 were as follows:

2016

2015

Revenue (US$ million)

2,278

3,123

Net revenue (US$ million)

1,851

2,645

EBITDA (US$ million)

1,183

1,913

EBITDA margin

64%

72%

Net profit (US$ million)

1,427

184

Average export potash price, FCA, US$

172

245

Production (KCl, million tonnes)

10.8

11.4

Sales volume (KCl, million tonnes)

TOTAL

 Domestic

 Export



11.0

2.3

8.7



11.2

2.1

9.1

Financial Review

The absence of contracts with China and India in the first half of 2016 and the high level of carry-over potash stocks in key markets had a negative impact on the profitability of our industry in 2016.

The Companys revenue decreased by one third in 2016, totalling US$ 2,278 million, which is explained by both a decrease in export sales and a drop in prices in the world potash market.

At the same time, net profit increased to US$ 1,427 million. The main reasons for this growth were positive foreign exchange differences and gain from the revaluation of derivative financial instruments totalling US$ 1,074 million (in 2015, negative foreign exchange differences and loss from revaluation of derivative financial instruments amounted to US$ 1,272 million).

As of the end of December 2016, Uralkalis net debt was US$ 5,517 million, which is equivalent to 4.67x EBITDA for the last 12 months. The average interest rate for the Companys loan portfolio by the end of the year was 4.1%.

Operational Review

In order to maintain the Companys existing production capacity and ensure the safe operation of its facilities, Uralkali replaced and upgraded equipment for its surface complex, which has reached the end of its operating period, over the course of 2016. The Company also replaced mining equipment that required replacing due to overuse, renovated building facades and reinforced the load-bearing structures of buildings and facilities.

Uralkali completed key activities aimed at stabilising technology at Berezniki-4 as part of the load increase project.

The Company continued the construction of the Ust-Yayva mine: the construction of two shafts was completed; work on the building of the surface complex and constant power supply facilities is ongoing.

As part of the Solikamsk-3 expansion project, the Company continued recovery work on the constructed part of shaft No. 4, developed the documentation for the ground-level complex, and continued preparatory work for shaft sinking; constructed the headframe foundation and started installation of the headframe.

The Company continued work on development of the design for the Polovodovsky site. Uralkali developed design documents for the main facilities and sent them for expert evaluation.

For the purposes of constructing Solikamsk-2, temporary buildings are being built and preparatory work is under way.

In order to reduce the rate of power consumption, the Company implemented a number of energy-saving projects, including the improvement of existing technologies and the introduction of modern energy-saving equipment.

Market Review and Outlook5

2016 was a challenging year for the potash industry, with India and China not signing any new contracts for the purchase of potash until the end of Q2 2016 and beginning of Q3 2016. Although potash demand is estimated to have remained flat y-o-y at 61 million tonnes, price recovery has not matched expectations. Uncertainty in the absence of supply contracts with China and India during the first half of 2016 and high potash inventories accumulated in major markets by the beginning of 2016 resulted in declines in potash prices by about 18% y-o-y in major spot markets and by 30-31% y-o-y on long-term contract markets.

In Q1 2016, potash demand remained constrained as major markets delayed purchasing, awaiting the outcome of negotiations with China. Despite stronger agricultural commodity prices and the strengthening of local currencies against the US dollar, consumer confidence was fragile and customers largely worked through existing potash inventories. Potash prices fell significantly in Q1 2016 and reached multi-year lows due to deteriorating market conditions.

In Q2 2016, global potash shipments picked up following strong potash demand in Brazil and North America, which was supported by higher y-o-y crop prices and the need to restore depleted dealer inventories. However, uncertainty regarding the timing and pricing of the China and India contracts continued to weigh on potash pricing.

In Q3 2016, the resumption of contract shipments to India and China laid the foundations for a rebound in potash demand. Potash shipments increased following the contract settlements. Customers who chose to delay or defer potash purchases during the first half of 2016 in anticipation of lower prices returned to the market.

Overall, Q3-Q4 2016 were characterised by strong demand growth. Major markets recovered much better than anticipated. Prices rose globally, supported by strong demand and limited product availability in major spot markets. The North American and Brazilian markets continued to demonstrate the strongest y-o-y potash demand growth compared to other regions. The overall supply picture during the fourth quarter remained tight, with most producers struggling to satisfy requests from customers.

In 2016, deliveries to the Russian Federation remained stable throughout the year and amounted to 2.3 million tonnes, an increase of 10% compared to 2015 due to stronger demand for potash fertilisers from NPK producers.

Global potash demand in 2016 is estimated to have been flat y-o-y at 61 million tonnes, thanks to strong demand rebound in North America and Brazil which is estimated to have fully offset the import demand drop in Asia last year.

Potash demand in 2017 is expected to benefit from restocking needs. We expect global potash deliveries to range 62-63 million tonnes in 2017. The upside to potash demand depends on the timing of contract settlements with China and India, the subsidy issue in India, and the macroeconomic environment in major markets.

Uralkali (www.uralkali.com) is one of the worlds largest potash producers and exporters. The Companys assets consist of 5 mines and 7 ore-treatment mills situated in the towns of Berezniki and Solikamsk (Perm Territory, Russia). Uralkali employs ca.11,000 people (in the main production unit). Uralkalis shares are traded on the Moscow Exchange.


1 The audited financial statements may be found on Uralkalis website
http://www.uralkali.com/investors/reporting_and_disclosure/uk_msfo/

2 Net revenue represents revenue net of freight, railway tariffs and transshipment costs

3 EBITDA is calculated as operating profit plus depreciation and amortisation and does not include one-off expenses

4 EBITDA margin is calculated as EBITDA divided by net revenue

5 Sources: Uralkalis estimates, the IFA data, customs statistics, financial statements of potash producers.

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