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Uralkali announces Q3 2011 top line and operating performance data

07.12.2011
Uralkali announces Q3 2011 top line and operating performance data

Uralkali (LSE: URKA), one of the world’s largest potash producers, has today published its top line and operating performance data for the third quarter and nine months ended 30 September 2011.






The key results are as follows:


Pro-Forma1

Consolidated2

Q3 2011 6M 2011 9M 2011 6M 2011 9M 2011

Gross Revenue (USD mln)

1,209

1,973

3,182

1,266

2,475

Net Revenue (USD mln)

1,041

1,656

2,697

1,054

2,095

Average potash price, FCA, USD

     Domestic
     Export

 


219

376

 


190
324

 


201

342

 


184
340

 


201

356

Production (mln tonnes)

2.9

5.2

8.1

3.1

6.0

Sales volume (mln tonnes)

     Domestic
     Export

2.8


0.5
2.3

5.3


0.9
4.4

8.1


1.4

6.7

3.3


0.6
2.7

6.1


1.1

5.0

1 Uralkali financial results including Silvinit results starting from 1 January 2011
2 Uralkali financial results including Silvinit results starting from 17 May 2011 when Silvinit ceased to exist


Commenting on the January-September 2011 results, Vladislav Baumgertner, Uralkali CEO, said:

"Following the legal completion of the combination with Silvinit, our focus in 3Q 2011 was on the integration process and realization of the synergies for the benefit of all stakeholders. Our robust financial performance and strong cash position enabled us to fund our modernisation programme, buy back bonds ahead of schedule, and refinance the former Silvinit credit on very favourable terms. Uralkali also announced a new dividend policy that will see a minimum of 50% of net profit returned to shareholders at least twice a year. We believe that the new dividend policy will support our investors in the current period of global economic instability.

Our positive nine-month financial results also reflect the strong fundamentals of the potash market. Despite macroeconomic uncertainty, the demand for potash remained stable driven by population growth and, therefore, the need for increased food production. Strong economics of the farmers urged them to invest in soil improvement and thus sufficient application of fertilisers.”



Business Review

Strong demand for fertilisers in January-September 2011 enabled the company to reach the record nine-month total sales volume of 8.1 million tonnes. The average export price for the first nine months of 2011 was USD 342 per tonne on a FCA basis, USD 18 higher compared to the H1 average export price of USD 324 per tonne, which reflects the ongoing upward price trend in all major markets.

Demand from China and South East Asia was particularly strong during the first nine months of 2011 with the two regions representing 20% and 23% of Uralkali and Silvinit’s total sales, respectively.

In Q3 2011 positive developments on the major agricultural markets allowed the Belarusian Potash Company (BPC, a joint trader of Uralkali and Belaruskali) to sign contracts with major Indian potash importers. According to the agreements, Belarusian and Russian potash producers will supply approximately 1.9 million tonnes of potash to India from August 2011 through March 2012 at the price of USD 490 per tonne on a CFR basis.

In Europe Q3 saw the expiry of anti-dumping measures which had been imposed in 1992 on Russian potassium chloride EU deliveries. Thus the quotas on duty-free exports of Uralkali’s products to the EU expired and the anti-dumping duties on the volumes imported into the EU above the quantitative ceiling were terminated. In January-September 2011 Uralkali and Silvinit delivered to Europe 0.8 million tonnes of potash.

Uralkali and Silvinit’s shipments to the US in the first nine months 2011 totaled almost 1million tonnes.

The Russian market showed steady demand growth accounting for about 17% of Uralkali and Silvinit’s total sales in the first nine months of 2011. The Company’s direct deliveries to farmers in January-September 2011 increased by 34%, compared to the respective period in 2010, while shipments to NPK producers rose by 7%. This brought Uralkali and Silvinit’s total domestic sales for the nine months to 1.4 million tonnes.

Robust demand for potash during the first nine months of 2011 enabled the Company to work at almost 100% utilisation rate. In January-September Uralkali and Silvinit produced over 8 million tonnes of potash fertilisers.

In Q3 Uralkali continued to improve its corporate governance standards in the interests of all its shareholders. In September the Company’s Board of Directors approved new dividend policy regulations. According to the new regulations, the Board of Directors should recommend the size of the dividend on the assumption that not less than 50% of net IFRS profit will be designated for the payment of a dividend. Moreover, the Board of Directors should present its recommendations on the dividend to relevant general meetings of shareholders at least twice a year. The new dividend policy will ensure the optimal capital structure and the return of free cash to shareholders.

Market Outlook

In the third quarter the concerns about the stability of the Euro zone impacted financial markets. Volatility of stock and commodity prices reflects the uncertainty about global economic growth prospects. Nevertheless, the crop prices did not see significant correction in Q3. This helped to maintain the upward trend in potash demand through all nine months of 2011.

Strong demand in Latin America and South East Asia largely offset the impact of India’s absence in the first half of the year. We anticipate that the total demand in Latin America will reach about 10 million tonnes in 2011, including 7.2 -7.5 million tonnes of imports to Brazil which saw an over 30% demand growth in the first nine months 2011 year-on-year, according to the recent statistics. This allowed major potash producers to announce a new price for Brazil amounting to USD 580 per tonne on a CFR basis starting from Q4 2011. However the Brazilian consumers have so far been cautious about accepting the new price and delayed new purchases till Q1 2012 when the seasonal demand for potash fertilisers starts.

South East Asia is moving towards a record potash market volume this year. Healthy farmers’ returns supported robust potash demand growth in all countries of the region. In August BPC increased the spot price for South East Asia to USD 535 per tonne on a CFR basis.

In China potash prices on the domestic market remain stable despite certain price decreases on other fertilisers. Potash shipments will continue until the end of 2011 as BPC delivers its products at a price of USD 470 per tonne in line with the current contract which runs to the end of December 2011. We predict that Chinese consumption might exceed 10 million tonnes this year, including imports of no less than 6 million tonnes, and that growing food production will require increased potash levels next year.

In the US we currently observe moderate activity on the market. In 2011 farmers are expected to gain record profits which should support fertiliser application during the spring sowing season.

The uncertain economic situation in Europe impacts buyers’ activity. There is a concern that farmers might encounter certain difficulties securing credit facilities for business development. We believe that the European potash market will remain at the current level until the uncertain European economic situation is resolved.

In general, the fundamentals of the potash market, including increasing global population, rising food requirements, changing diets, remain strong even in an uncertain macroeconomic environment being immune to short-term fluctuations. Moreover, the supply\demand balance on the potash market remains tight. Therefore, we estimate that global potash sales for 2011 might hit a new record of 58 million tonnes, representing a full recovery to the pre-crisis level. Provided crop prices are healthy and farmers’ economics remains strong, we do not anticipate any pressure on the current potash demand and price levels.

Uralkali (www.uralkali.com) is one of the world’s largest potash producers with a market share of about 20%. The Company’s assets consist of 5 mines and 8 ore-treatment mills situated in the towns of Berezniki and Solikamsk (Perm Territory, Russia). Uralkali employs over 23,000 people. Uralkali’s shares and GDRs are traded on the LSE, RTS and MICEX.

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