Uralkali Announces IFRS 2013 Financial Results

Uralkali Announces IFRS 2013 Financial Results

Uralkali (LSE: URKA, “the Company”), one of the world’s largest potash producers, today published its audited financial results for the full year ended 31 December 2013 prepared in accordance with IFRS and audited by PricewaterhouseCoopers.


  • Production up 10% y-o-y to 10 million tonnes of KCl
  • Sales volumes up 5% y-o-y to 9.9 million tonnes of KCl
  • Strategic capacity development programme on track, with the construction of the Ust-Yayvinsky mine progressing


  • Net revenue2 down 20% y-o-y to USD 2,665 million
  • EBITDA3 down 31% y-o-y to USD 1,634 million
  • EBITDA margin4 at 61%
  • Net profit down 58% y-o-y to USD 666 million
  • Average FCA export price down 28% y-o-y to USD 268 per tonne of KCl
  • Cash COGS was kept at USD 58 per tonne


  • Buyback programme from 13 November 2012 to 13 November 2013 completed
  • Dividend payout ratio for 2012 and H1 2013 over 50% of IFRS net profit as per Company policy
  • Debut Eurobond issue, placed at an attractive coupon of 3.723%
  • Revenue maximisation strategy adopted and exports streamlined through Uralkali Trading SA
  • Shareholder structure changes; new strategic shareholders are ONEXIM Group, Uralchem and Chengdong Investment Corporation (CIC)
  • Dmitry Osipov appointed as new CEO
  • Agreement signed to create a potash distribution joint venture between Uralkali Trading SA and the Federal Land Development Authority of Malaysia, enhancing our position in the fast-growing Southeast Asia market


  • 25% stake acquired in Equiplan Participacoes S.A., the main shareholder in TerminaisPortuários da Ponta do Felix S.A. port terminal in the city of Antonina, enhancing our logistics infrastructure in Brazil
  • New Board of Directors elected, reflecting the changes in shareholder structure

Dmitry Osipov, Uralkali CEO, commented:

I joined Uralkali at the end of a turbulent year for the global potash market, a time when the Company needed to reinforce its position as an industry leader. I would like to take this opportunity to thank the team for their professionalism, flexibility and resilience, which enabled us to address all market challenges. I look forward to working with the Board of Directors and employees to deliver the next phase of the Company’s growth in the interests of all shareholders.

Uralkali’s adherence to a rigid price-over-volume strategy in H1 2013 resulted in a significant decrease in the Company’s market share, as other producers sought to gain market share through aggressive pricing. This had a negative impact on both the Company’s operational and financial results; these dynamics were not sustainable for the Company and did not reflect the strengths of the Company’s assets. The management and the Board carried out an extensive analysis of the sales strategy and adjusted it in July 2013 to increase the Company’s flexibility to respond to market dynamics. As a result, we saw some improvement in the Company’s results and the market situation in H2 2013 and expect to build on this momentum in 2014.

The key 2013 operational and financial metrics are as follows:

2013 2012
Revenue (USD mln) 3,323 3,950
Net Revenue (USD mln) 2,665 3,343
EBITDA (USD mln) 1,634 2,375
EBITDA margin 61% 71%
Net Profit (USD mln) 666 1,597
Average potash price, FCA, USD
- Domestic
- Export


Production (KCl, mln tonnes) 10.0 9.1
Sales volume (KCl, mln tonnes) TOTAL
- Domestic
- Export

Financial Review

Uralkali’s 2013 financial results were adversely affected by the challenging potash market environment and subdued demand. Global oversupply resulted in lower capacity utilisation across the industry and consequently, more intensive competition and price reductions in H1 2013. Uralkali, whilst seeking to adhere to its rigid market approach, continued to lose its market share to competitors in the first half of the year, leading to heavily reduced capacity utilisation and a significant impact on its financial and operational results in this period.

Uralkali’s market posture adjustment in July 2013 increased the Company’s flexibility to respond to prevailing market dynamics and enabled the Company to regain its market share, increase the utilisation rate to over 80% and improve cash flow in H2 2013. However, weak H1 figures had a negative effect on the overall financial results year-on-year. Net profit was USD 666 million for the full year, representing a 58% decrease year-on-year. The decrease came as a result of lower potash prices year-on-year, loss from revaluation, payments to top management as part of the long-term incentive programme, and one-off expenses, including provision for resettlement in Berezniki. EBITDA amounted to USD 1,634 million in 2013. The increased utilisation rate from August onwards and cost optimisation measures enabled the Company to maintain its low cost base at USD 58 per tonne, with its EBITDA margin at 61%.

In Q2 2013, the favourable debt financing environment and the Company’s investment grade rating provided an opportunity for the Company to optimise its loan portfolio. In April 2013, the Company successfully placed its debut Eurobond of USD 650,000,000, due in 2018 with a 3.7% coupon. In June 2013, Uralkali secured a five-year USD 1 billion pre-export financing facility with an interest rate of LIBOR+215 bps, which was used to refinance existing debt and increase the average tenor of its loan portfolio. In October, Uralkali signed a loan agreement for the USD-equivalent of EUR 171.4 million with UniCredit Bank AG and DZ Bank AG to finance the construction of shafts at the Ust-Yayvinsky potash mine. The political and commercial risks of the Facility were covered by Euler Hermes, the German export credit agency and the world’s leading provider of trade and export related credit insurance. In December 2013, Uralkali and Sberbank signed an agreement to open a non-revolving unsecured USD 2 billion credit line, which once again confirmed Uralkali’s reputation as a first-rate borrower and the significant appetite for Uralkali’s credit.

At the end of December 2013, the Company’s net debt amounted to USD 4,113 million, which is equal to 2.5 LTM EBITDA. The average interest rate across the portfolio at the year end was 3.6%.

In 2013, Uralkali continued its capacity development programme, with expansion projects accounting for approximately 48% of the Company’s annual investment programme, which totalled USD 465 million.

In December, Uralkali, the Government of the Perm Region and the Administration of the town of Berezniki signed an agreement outlining the financing plan for the period between 2013-2015 for the relocation of people living in inadequate housing facilities in Berezniki, including the construction of new infrastructure facilities and demolition of the vacated buildings. In line with its commitment to corporate social responsibility, Uralkali has undertaken to provide to the Perm Region and the town of Berezniki a total of USD 77.926 million including USD 18.026 million already disbursed by Uralkali in 2013.

The Company balanced this investment in operational and social sustainability with returns to shareholders, distributing available funds through dividends and a buyback programme, whilst retaining a prudent capital structure.

In June 2013, the Company’s Annual General Meeting of Shareholders (AGM) resolved to pay dividends of RUB 3.90 per share (approximately USD 0.61 per 1 GDR), with total dividends for 2012 amounting to RUB 25.3 billion (approximately USD 807 million). In December 2013, the Company’s Extraordinary General Meeting of Shareholders approved interim dividend payments of RUB 2.21 per share (approximately USD 0.34 per 1 GDR). Therefore, dividends exceeded 50% of Uralkali’s net profit for 2012 and H1 2013, in line with the corporate dividend policy. In addition to interim dividends, for the full year 2013, the Board of Directors has recommended payment of RUB 4.8 billion (approximately USD 134 million5), subject to approval at the AGM in June 2014.

Business Review

Following the adjustments in Uralkali’s market approach and strategy re-alignment at the end of July 2013 to reflect market conditions, the Company returned to high capacity utilisation and increased its market presence. As a result, full-year potash output totalled 10 million tonnes, a 10% increase on 2012 results, and sales volumes amounted to 9.9 millionátonnes, a 5% increase compared to 2012.

Uralkali continues to implement its long-term capacity development programme in order to expand its production capabilities in line with growing demand. In 2013, the Company made considerable progress in the construction of the Ust-Yayvnisky mine, which is due to come into operation in 2020 and will offset the decreasing capacity of the Berezniki-2 mine. Uralkali has now completed all preparation works and started shaft sinking at the mine construction site.

Optimisation projects, including debottlenecking and efficiency increases, also progressed last year. The project to modernise existing equipment and to replace older machinery with high-tech equipment will result in an annual production capacity increase of approximately 1 million tonnes by 2016.

In 2013, the Company continued renovation work on the carnallite production plant. The installation of pipe racks, power grids, a water pipeline and a sewerage system is ongoing, as is the installation of equipment in the adjustable vacuum crystallisation section. The aim is to increase the plant’s production capacity to 400,000 tonnes per year. The majority of the work will be completed in 2014.

In addition to the capacity expansion programme, Uralkali focused on further developing its logistics infrastructure and expanding its influence in the two of the fastest-growing potash markets – Latin America and Southeast Asia. In December 2013, Uralkali signed an agreement to create a potash distribution joint venture between Uralkali Trading SA and the Federal Land Development Authority of Malaysia. In February 2014, Uralkali acquired a 25% stake in Equiplan Participacoes S.A., the main shareholder in Terminais Portuários da Ponta do Felix S.A. port terminal in the city of Antonina, Brazil. This acquisition will enable the Company to efficiently supply Brazil’s fast-growing regions.

Shareholder and corporate governance changes

During 2013, there were significant changes in Uralkali’s shareholder base and Board of Directors.

In June 2013, the Board of Directors approved the purchase of the Company’s shares beneficially owned by Zelimkhan Mutsoev, who sold his securities portfolio to focus on his political career. In July 2013, the ICT Group of companies notified Uralkali that its President, Alexander Nesis, had sold his stake in the Company. In September 2013, Chinese Chengdong Investment Corporation (CIC) acquired a 12.5% stake in Uralkali. In December 2013, ONEXIM Group announced the acquisition of 21.75% of Uralkali shares from the Suleyman Kerimov Foundation. At the same time, URALCHEM notified the Company about the acquisition of 19.99% of its shares.

Accordingly by the end of the year, a number of new key shareholders had joined the Company. The Company welcomes these new shareholders and is confident that their involvement in Uralkali will begin another successful chapter in its history.

Following the shareholder changes, on 24 March 2014, the extraordinary general meeting of shareholders elected a new Board of Directors, which consists of both representatives of major shareholders and independent directors, and headed by an independent director Sergey Chemezov.

In addition, the Company appointed a new CEO in 2013. In August, Uralkali CEO Vladislav Baumgertner was detained in Belarus, and later extradited to Moscow where he remains under house arrest. Following a period in which Viktor Belyakov acted as interim CEO, Dmitry Osipov, a highly experienced fertiliser industry executive, was appointed CEO of the Company in December 2013.

Market review and outlook

Potash demand in 2013 is estimated to have approached 53–54 million tonnes, up 5–7% compared to the previous year. However, the recovery was slower than previously expected.

In H1 2013, a number of significant suppliers made large deliveries to major import geographies as they tried to improve their performance through aggressive pricing. As a result, potash prices fell in spite of high consumption levels. In addition, potash prices came under pressure from substantial decreases in benchmark phosphate and urea prices, and a slide in crop prices.

Starting from August 2013, the potash market came to a temporary standstill as customers focused on reducing their inventories and awaited further price clarity. This was affected by the lack of market direction in the absence of supply contracts with China in the second half of 2013, the high inventories accumulated in key markets by Q3 2013.

Indian buyers deferred shipments of outstanding orders and pushed for lower prices for the further orders, impacted by the weaker rupee combined with political and economic instability in India. In the autumn, India renegotiated the contract price (USD 369–375/t vs. previous USD 427/t6).

Starting from the end of September 2013, demand began to pick up, especially in the spot markets. The most active region was Brazil, whose annual consumption reached 8.7 million tonnes in 2013, an increase of 5% on 2012.

In Russia 2013 deliveries amounted to 1.9 million tonnes, 10.6% lower than in 2012. This was a result of changes in the farmer subsidy system and in potash market pricing following Russia’s accession to the WTO, as well as general economic instability. Uralkali sees significant growth potential in Russia and continues to devote considerable attention to its customers by implementing educational and research programmes.

By the end of 2013, there were clear signs of demand stabilisation in many geographies. In determining the direction of world potash market development for 2014, demand from key markets, Brazil, China, Southeast Asia, and India will be a major factor. After delaying H2 2013 contract deliveries, China has now settled contracts with major potash suppliers for the first half of 2014. Previously cautious buyers have started re-entering the market, providing a firmer base for spot pricing. The start of Q2 2014 saw the contract with India concluded.

Overall, Uralkali expects that the positive market environment should lead to substantial growth in potash demand globally. In 2014, global deliveries are expected to reach 56-58 million tonnes, as recent contract agreements bolster confidence and limited inventory levels support increased demand.

In Brazil, potash demand is expected to remain robust and surpass 2013 delivery levels as farmers continue to respond to positive crop economics. Chinese demand is expected to be in the range of 11.3-11.7 million tonnes, up 6-7% y-o-y. Southeast Asia ended 2013 with lower inventories than in the previous year, which sets the stage for a substantial improvement in demand in 2014. In North America, we expect demand to be strong as farmers replenish declining nutrient levels in their soils after record crop production in 2013. In Europe, we also anticipate strong demand: distributors in the region began actively purchasing to replenish the inventories which were largely depleted due to low purchasing activity in the second half of 2013. In India, demand challenges due to the weak rupee and fiscal uncertainty are expected to continue in 2014. India’s full-year demand is likely to reach 3.5-4.0 million tonnes.

Dmitry Osipov, Uralkali CEO, commented:

The market situation in 2013 arose as a result of the gap between high production capacities that had been increased by consumption growth expectations and moderate demand restricted by macroeconomic instability. We remain confident in the strong potash market fundamentals. As the global economy recovers, potash consumption should reach a more balanced level ensuring higher yields for agricultural producers.

Uralkali is well positioned for 2014 and beyond, as the Company continues to improve its cost leadership position, develop its production capacities, enhance its global distribution networks to serve customers, and apply global best practices in all of its activities. It will continue to use its global leadership position as potash demand rises to serve the needs of the agricultural industry and contribute to global food security in order to deliver sustainable growth in the interests of all shareholders.

You can find more information about Uralkali’s 2013 performance in the video interview with Dmitry Osipov, Uralkali CEO, at http://www.uralkali.com/investors/results/.

Uralkali (www.uralkali.com) is one of the world’s largest potash producers with 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.

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

2 Net revenue represents revenue net of freight, railway tariffs and transhipment 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 According to the exchange rate of the Russian Central Bank as of 10 April 2014, USD 1=RUB 35.7493

6 Source: Argus FMBá

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Cardinal rules

Smoking in mines is prohibited.
Work at heights without wearing a safety harness is prohibited.
Work in electrical installations under voltage is prohibited.
It is forbidden to perform work and stay in the bottomhole zone during the operation of the mining machine.
Loading and unloading operations when people are in the danger zone are prohibited.
Working in underground mines with unsecured and/or unassembled roofing is prohibited.
It is forbidden to carry out repairs and maintenance of conveyors without disconnecting from energy sources, use of conveyors for transfer of people and goods (materials and/or equipment), crossing (either above or under) operating conveyors by employees are not allowed.
It is forbidden to carry out welding and flame work in underground mines and mine buildings without the necessary safety measures preventing fire.