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Uralkali Announces Q3 and 9 Months 2013 IFRS Key Figures

 Uralkali Announces Q3 and 9 Months 2013 IFRS Key Figures

Uralkali (LSE: URKA, “the Company”), one of the world’s largest potash producers, has today published its IFRS key figures for Q3 and nine months ended 30 September 2013.


  • Production volumes broadly unchanged y-o-y at 2.7 million tonnes (KCl)
  • Sales volumes broadly unchanged y-o-y at 2.6 million tonnes of KCl
  • Revenue down 19% y-o-y to USD 856 million
  • Net Revenue1 down 21% y-o-y to USD 697 million
  • Average export price, FCA, down 27% y-o-y to USD 272 per tonne of KCl


  • Production volumes broadly unchanged y-o-y at 7.2 million tonnes (KCl)
  • Sales volumes down 9% y-o-y to 6.9 million tonnes of KCl
  • Revenue down 25% y-o-y to USD 2,470 million
  • Net Revenue down 27% y-o-y to USD 2,045 million
  • Cash COGS at USD 54 per tonne
  • Average export price, FCA, down 21% y-o-y to USD 299 per tonne of KCl


  • Board of Directors decision to concentrate on revenue maximisation strategy and streamlining of exports through Uralkali Trading SA
  • Signing of the agreement with Russian compound fertiliser (NPK) producers on KCl prices to be reset every month starting from October 2013
  • Notification by Chengdong Investment Corporation on the acquisition of a 12.5% stake in Uralkali via conversion of private exchangeable bonds


  • Signing of an agreement for creation of a potash distribution joint venture between Uralkali Trading SA and Federal Land Development Authority of Malaysia
  • Extradition to Russia and placement under house arrest of Uralkali CEO Vladislav Baumgertner
  • Election of a new Board of Directors
  • Completion of the buyback programme running from 13 November 2012 to 13 November 2013, with purchases of shares and GDRs in the amount of USD 1,251 million
  • Approval of interim dividend payment in the amount of RUB 2.21 per share (approximately USD 0.34 per 1 GDR2), amounting to approximately RUB 6.5 billion (approximately USD 197 million)

Viktor Belyakov, Uralkali CFO and acting CEO, commented:

The third quarter was a turning point for Uralkali. By mid-summer 2013, potash prices had been declining for six quarters and responsible market leadership via a price focused strategy had started to materially negatively impact Uralkali’s market share. Therefore, after careful consideration, Uralkali’s Board of Directors decided to change the Company’s market posture and move from a rigid ‘price-over-volume’ strategy to a more flexible approach whereby the Company continues to focus on shareholder value maximisation, prioritising volumes or prices depending on the market situation.
During July-August, the potash market remained stagnant, firstly, due to a seasonal lull, and, secondly, due to customer caution in response to the changing market landscape. However, as the fall application campaign approached, we saw restoration of demand in major growing regions, such as China, India and Brazil. We believe that the new market environment will balance potash supply and demand in a more efficient way, thus ensuring higher levels of fertiliser availability for consumers. Uralkali continues to enjoy a position of global leadership and remains favourably positioned to respond to market dynamics with the most attractive cash costs in the sector, most cost effective capacity expansion programme and established relationships with buyers across key regions should enable us to maximise shareholder returns moving forward.

Key Q3 and 9 months figures:

Q3 2013

Q3 2012

Jan-Sept 2013

Jan-Sept 2012

Revenue (USD mln)





Net Revenue (USD mln)





Average potash price, FCA, USD

  • Domestic
  • Export









Production (KCl, mln tonnes)





Sales volume (KCl, mln tonnes)

  • Domestic
  • Export













Financial and Business Review

Market dynamics in the global potash sector continued to impact Uralkali’s financial results in Q3. The average realised export price decreased by 27% compared to Q3 2012, while increased production and sales volumes helped to limit revenue decline to 19%.

Following the Board’s strategic decision to pursue a revenue maximisation strategy at the end of July, Uralkali operated at full capacity from the beginning of August. This allowed the Company to increase the average capacity utilisation rate to approx. 80% in Q3 (compared to 70% in H1 2013) and maintain the cash COGS at a low level. As a result, production volume in Q3 slightly exceeded the figure of the same period in 2012 reaching 2.7 million tonnes of KCl, and bringing the total output for the first nine months of 2013 to 7.2 million tonnes of KCl.

Since August, Uralkali CFO Viktor Belyakov has been acting as CEO. The Company continued normal course of operations implementing the new strategy.

In Q3, Uralkali reported three changes in the Company’s shareholder structure. In July, ICT Group notified Uralkali that its President, Alexander Nesis, had sold his stake in Uralkali. In August, the Suleyman Kerimov Foundation announced that it had increased its stake in the Company to 21.75%. In September, Chengdong Investment Corporation notified that, following the conversion of bonds issued by Wadge Holdings Limited, it acquired a 12.5% stake in the Company.

After the end of the reporting period, in November, Uralkali’s buyback programme, announced in November 2012, expired. In aggregate across the life of the programme, the Company purchased shares and GDRs in the total amount of approximately USD 1,251 million, which are subject to cancellation.

In November, Uralkali’s EGM elected a new Board of Directors. The Company’s four independent non-executive directors, Alexander Voloshin, Sir Robert Margetts, Paul Ostling and Gordon Sage, all re-joined the Board. The new Board also includes Anton Averin, Vladislav Baumgertner, Viktor Belyakov, Pavel Grachev, and Anna Kolonchina.

Uralkali continues to generate stable cash flows and observe its dividend policy which provides for dividend payment at least twice a year in the amount of not less than 50% of net IFRS profit. In line with the Board of Directors’ recommendations, the Company’s extraordinary general meeting of shareholders held on 18 December 2013 resolved to pay interim dividends of RUB 2.21 per share (approximately USD 0.34 per GDR 3).

Market Outlook

Over the last ten years, demand for potash grew on average by 0.9% p.a. while global capacity increased by 3% p.a. over the same period. This widening supply/demand gap resulted in reduced capacity utilisation rates across the industry and contributed to a decline in potash prices starting from 2012. The downward trend continued into Q3 2013 on the backdrop of market uncertainty following the split of Uralkali from BPC.

Brazil remained the most active market during Q3. According to Brazil’s national fertiliser association (ANDA), potash imports to Brazil in January-September grew 2% y-o-y to 5.95 million tonnes compared to 5.85 million tonnes in the corresponding period in 2012. Farmer economics were favourable, given the Brazilian real’s depreciation against USD and firming of soybean prices. Potash prices eased to USD 310-3304 per tonne by mid-December. Brazil still remains the most active market with strong demand, and ANDA expects the country to import 7.5 million tonnes of potash in 2013. Brazilian market is expected to continue to demonstrate strong demand in 2014 and Uralkali will continue to focus on growing its market share in the country.

In India, the depreciation of the rupee against USD continued to affect importers in Q3. Although the Indian rupee recently recovered to INR62 against the US dollar compared to the record high INR/USD of 67.8 at the end of August, the currency is still showing a depreciation of about 18% since February. Demand from farmers remains relatively moderate. Since India has renegotiated a contract price (currently USD 369 per tonne5), import volumes have picked up. India is expected to import 3.0-3.2 million tonnes of potash in 2013.

According to the customs statistics, China imported 4.8 million tonnes of potash in the first nine months of 2013 compared to 5.6 million tonnes in the corresponding period last year. Deliveries are currently stable supported by demand from compound fertilisers producers. By the end of 2013, potash inventories in China are expected to fall to 3.5 million metric tonnes from 4.9 million metric tonnes at the end of 2012.

The Southeast Asian markets have been monitoring the situation in China and India. Although palm oil prices this year are lower, they are still firm enough to allow for attractive margins to be made by plantation owners. In December, Uralkali signed a joint venture agreement with Federal Land Development Authority of Malaysia through Uralkali Trading SA which represented a successful strategic step to improve the Company’s sales position in Southeast Asia. The joint venture will deliver potash to Malaysia and other countries in the region from January 2014.

In the US, fall season was rather slow due to late harvest and unfavourable weather conditions. Potash prices are quoted at 340-3506 per tonne FOB NOLA. As far as US potash demand prospects in 2014 are concerned, high crop output in the US in 2013 means that a large amount of fertilisers has been pulled out of the ground and there is a need for replenishment. Therefore, very strong demand is expected next year.

In Europe, fall application was rather slow due to late harvest and market uncertainty. Now the region is off-season, with suppliers making deliveries to NPK and SOP producers. A strong market rebound with solid demand for both straight and compound fertilisers is anticipated in Q1 2014.

In Russia, nine months’ sales saw a slight decrease year-on-year, with 1.4 million tonnes sold in January-September 2013 compared to 1.6 million tonnes in the same period last year. Demand was challenged by the change in the pricing system following Russia’s entry into the WTO, which abolished subsidised prices for Russian agricultural producers and premiums to Russian NPK producers for the volumes meant for the Russian market. Granular potash deliveries in Russia in January-September more than doubled year-on-year following the change in the Company’s sales policy.

In September Uralkali agreed KCl prices with Russian compound fertiliser (NPK) producers. In accordance with the agreed terms, starting from October 2013, KCl price is reset every month in compliance with the principles of price determination set by the Russian Federal Antimonopoly Service (FAS) for nondiscriminatory access to potash acquisition. Previously, the price for Russian consumers had been calculated on a quarterly basis.

Oleg Petrov, Uralkali Head of Sales and Marketing, said:

Our new strategy helped to create a healthier market environment with more affordable pricing expected to promote balanced fertilisation. As potash became more affordable for lower income farmers, and inventories are depleting, we see that demand is gradually recovering.

Meanwhile, our customers continue to be our priority and we continue to further strengthen our customer relationships and focus on increasing distribution efficiency and enhancing our logistics platform to secure long-term increase of deliveries to key markets.

We believe that competitive prices and wider product offering will also drive potash demand growth in 2014, that may reach 58-60 million tonnes in 2014 compared to estimated 53-54 million tonnes in 2013 driven by pickup in China, India, Brazil and Southeast Asia.

You can find more information about Uralkali’s corporate developments from the interview with Sir Rob Margetts, Senior Independent Director, at http://www.uralkali.com/investors/results/.

1 Net revenue represents adjusted revenue (sales net of freight, railway tariff and transshipment cost)
2 According to the exchange rate of the Russian Central Bank as of 18 December 2013, USD 1=RUB 32.8646
3 According to the exchange rate of the Russian Central Bank as of 18 December 2013, USD 1=RUB 32.8646
4 Price source: Argus FMB
5 Price source: Argus FMB
6 Price source: Argus FMB

Uralkali (www.uralkali.com) is one of the world’s largest potash producers with a share of about 20% of global potash production. 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. 11,800 people (in the main production unit). Uralkali’s shares and GDRs are traded on the Moscow Exchange and LSE, respectively.
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