Uralkali Announces IFRS H1 2011 Financial Results

Uralkali Announces IFRS H1 2011 Financial Results

Uralkali (LSE: URKA), one of the world’s largest potash producers, has today published the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2011, prepared under International Accounting Standard ¹34, «Interim Financial Reporting».

The results are as follows:

IFRS Financial ResultsUSD million Proforma H1 20111 H1 20112 H1 20103


1,973 1,266 911

Net Revenue4

1,654 1,052 700

Adjusted EBITDA5

1,054 662 423

Adjusted EBITDA Margin6

64% 63% 60%

Net Profit

794 452 280

Potassium Chloride Output

5.217 3.113 2.418


5.276 3.247 2.703

1 Uralkali financial results for the 6 months ended 30 June 2011 including Silvinit results starting from 1 January 2011
2 Uralkali financial results for the 6 months ended 30 June 2011 including Silvinit results starting from 17 May 2011 when Silvinit ceased to exist
3 Uralkali results without Silvinit results
4 Net revenue represents adjusted revenue (sales net of freight, railway tariff and transshipment costs)
5 Adjusted EBITDA is calculated as Operating Profit plus depreciation and amortisation and does not include mine flooding costs
6 Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Net Sales

Commenting on the H1 2011 results, Vladislav Baumgertner, Uralkali CEO, said:

"The first six months 2011 were a major milestone for Uralkali and the potash industry in general. As a result of the combination between two Russian potash producers – Uralkali and Silvinit – a company was created which became one of the world’s leading potash producers and Russian mining enterprises.  Now that the merger is completed Uralkali continues its constant improvement in line with the best international corporate practices. The Company is focused on seamless post-merger integration and realisation of synergies.  Having welcomed two new high-caliber international independent directors to our Board in the first half of the year, we continue to strive to make the new Uralkali even more transparent and open to our shareholders and broader investor community.

Uralkali’s operational and financial performance in 1H 2011 has been very strong.  The combined company continues to be among the most cost efficient potash producers in the world with an excellent pipeline of brown and greenfield development projects.”

H1 Business Review

The merger of the two Russian potash producers – Uralkali and Silvinit – which was completed in June 2011 became one of the key market highlights of H1 2011. As a result of the combination Uralkali became world’s largest potash producer by production output. The Company holds an attractive investment portfolio including brownfield and greenfield projects. The combined Company is towards the bottom of the cost curve among potash producers. Moreover, the combination is expected to yield significant synergy potential including optimisation of operational and transportation activities, lowering commercial and administrative expenses and complex development of the resource base for the organic growth of the Company. The annual cost saving synergy will amount to about USD 100 million starting from 2013.

The rising demand for potash allowed Uralkali to utilise its production capacities at almost 100%. In H1 2011 Uralkali on a proforma basis sold approximately 5.3 million tonnes of potassium chloride.

In H1 2011 a set of measures allowed the Company to increase the annual production capacity of Solikamsk 3 by ca. 900,000 tonnes. Therefore, Uralkali production capacity now totals 11.5 million tonnes of potassium chloride per annum. Uralkali plans to further strengthen its position as a leading potash producer through its sustainable growth strategy. Thus in Q2 2012 the Company plans to launch a new production line at Berezniki 4 bringing Uralkali total production capacity to 13 million tonnes of potassium chloride per annum.

Market Outlook

Following the 2009 setback caused by the world economic slowdown, the potash market continues its rebound and shows sustainable growth. Despite the volatility on the international commodities markets, the potash market continues to be very resilient, largely due to strong demand. H1 2011 was the period when the global potash market reached its historic record of 29.4 million tonnes. Due to the high crop prices and low input costs agricultural producers worldwide have been enjoying high profitability and record margins. The corn price has achieved its peak 2008 levels while the prices for wheat, soya beans, and palm oil showed robust growth in 2010 and are currently close to their historic maximums. All this allows them to buy actively mineral fertilisers for the immediate application and stock replenishing. This situation has influenced positively the potash market boosting its growth and increasing pressure on the supply side pushing the utilisation rate across the potash production industry above 90%.

The contract between the Belarusian Potash Company (BPC) and China, signed at the beginning of the year, served as a turning point for the market and drove unprecedented demand along the supply chain. BPC’s January 2011 contract with China was concluded at a price of 400 USD/tonne (CFR) compared to 2010 price of 350 USD/tonne (CFR). Most recent BPC agreement with China was reached at the end of H1 2011, at a price of 470 USD\tonne.  BPC’s  agreement with India provides for a price increase of USD 120 compared to the price set in H1 2010, reaching a level of 490 USD/tonne (CFR). Brazil showed a solid demand through all of H1 with almost no seasonal slowdown in Q1. The demand remained resilient in the US and Asia, which had the biggest share of Uralkali’s sales portfolio in the corresponding period.

The potash industry retains its strong fundamentals. Despite the current volatility of the world’s financial markets, we continue to see strong demand, including on the spot markets. Given the current market trends and the fact that major potash producers work at the capacity exceeding 90%, Uralkali believes that the potash market in 2011 may reach 58-59 million tonnes. Before the world economic crisis the record potash market volume was achieved in 2007 when the potash sales reached 56 million tonnes. At the same time the potash prices are still significantly lower than they were at the pre-2008 crisis level. The situation on the potash market in H1 2011 as well as its development in H2 2011 give us confidence to believe that the upward trend will continue in 2012.

Consolidated Condensed Interim Financial Information for the six months ended 30 June 2011 is now available on the Company’s corporate website www.uralkali.com.These financial statements have been reviewed by ZAO PricewaterhouseCoopers Audit.


Investor Relations

Anna Batarina, CFA
Head of Investor Relations and Capital Markets, Uralkali
Tel.: +7 (495) 730 2371
E-mail: anna.batarina@msc.uralkali.com

Media Relations
Alexey Sotskov
Head of Public Relations, Uralkali
Tel.: +7 (495) 730 2371
E-mail: alexey.sotskov@msc.uralkali.com

Brian Cattell / James Devas
Maitland Communications
Tel: +44 (20) 7379 5151
E-mail: bcattell@maitland.co.uk

This announcement is not intended to, and does not constitute, or form part of, an offer to sell or an invitation to purchase, exchange or subscribe for any securities in any jurisdiction. This announcement does not constitute a prospectus or a prospectus equivalent document.

The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe, any applicable requirements. This announcement has been prepared for the purposes of complying with English law and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of England.

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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.
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