Press-release: Uralkali Announces IFRS 1H 2016 Financial Results

 

Uralkali (“the Company”, MICEX: URKA), one of the world’s largest potash producers, announces its financial results for the six months ended 30 June 2016 prepared in accordance with IFRS¹

1H 2016 FINANCIAL HIGHLIGHTS:

• Revenue down 31% y-o-y to US$ 1,075 million
• Net revenue² down 32% y-o-y to US$ 892 million
• EBITDA³ down 35% y-o-y to US$ 611 million
• EBITDA margin⁴ down to 69%
• Cash COGS down 3% to US$ 32 per tonne
• Average FCA export price down 22% to US$ 188 per tonne of KCl

1H 2016 OPERATIONAL HIGHLIGHTS:

• Production down 10% y-o-y to 5.1 million tonnes of potassium chloride (KCl)
• Sales volumes down 13% y-o-y to 4.9 million tonnes of KCl

1H 2016 CORPORATE HIGHLIGHTS:

• In March, Uralkali’s completed an open market buyback programme, which began on 24 November 2015. The total amount of the programme was limited to 6.5% of the Company’s share capital. Upon completion of the programme, 4.89% of the Company’s share capital had been purchased. As of the beginning of April 2016, Uralkali’s free float (including shares represented by GDRs) constituted 8.96% of the Company’s share capital
• 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 for the purpose of refinancing earlier credits received from the bank as well as other general corporate purposes. Together with any related agreements, this credit line is secured by pledge of Uralkali shares and GDRs constituting 20.0% of the Company’s share capital to PJSC Sberbank, and on 29 July 2016 8.6% of additional Company’s GDR’s has been pledged to PJSC Sberbank
• In April, Uralkali signed a US$ 1.2 billion 5-year pre-export facility with 16 international banks
• In May, the Company’s Board of Directors approved another open market buyback programme. The shares and GDRs to be acquired under the programme will not exceed 4% of the Company’s share capital. The programme will run between 19 May and 19 September 2016. As of 29 August 2016 1.22% of the Company’s share capital, were acquired. As of 29 August 2016, Uralkali’s free float (including shares represented by GDRs) constitutes 7.7% of the Company’s share capital.
• In June, Uralkali’s Annual General Meeting decided not to pay dividends for 2015

SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD:

• In July, The Company’s Board of Directors approved amendments to the securities issue resolution in terms of the Company’s Exchange Traded Bonds Programme and suggested that EGM approves the placement of the Company’s Exchange Traded Bonds in favour of JSC Uralkali-Technology with a total nominal value of US$ 800 million and with a value of US$ 1000 per one bond. In case of approval by EGM, the placement may be effected through one or several issuances with maturity date of the last issuance falling no later than on 23 March 2023. The coupon(s) is(are) determined in accordance with the Exchange Traded Bonds Programme. The purpose of this placement is to replace the Company’s 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 Company’s GDRs securing the REPO deal
• In July, The Company’s Board of Directors decided to convene an Extraordinary General Meeting of Shareholders (“EGM”) on 27 September 2016 and proposed EGM to consider an early termination of powers of the members of Uralkali’s Board of Directors and Uralkali’s revision commission and election of new members of the Board and revision commission.

The key 1H 2016 figures were as follows:

Financial review

In 1H 2016, a significant decrease in demand for potash led to a year-on-year reduction in Uralkali’s production and sales by 10% and 13%, respectively. A significant drop in potash prices in major importing regions had a negative impact on export sales, which make up the majority of the Company’s revenue. Exports declined by 17% compared to 1H 2015.

As a result, the Company’s EBITDA, revenue, and net revenue decreased during the reporting period by a third, while the EBITDA margin dropped by 2 percentage points.

As of the end of June 2016, the Company’s net debt amounted to US$ 5,832 million.

The ratio of net debt/EBITDA for the last 12 months amounted to 3.67x, while Uralkali’s average interest rate for its loan portfolio for six months of 2016 was around 4.3%.

Operational review

The Company is implementing its capacity development programme, which includes measures to modernise existing production facilities and commission new ones.

The construction of a new mine at Ust-Yayva is ongoing and shafts No. 1 and 2 have been completed. The Company is carrying out work on the concrete reinforcement of the shafts, as well as constructing permanent power supply facilities and the ground-level complex.

For the expansion of Solikamsk-3, the Company has completed recovery work on the constructed part of shaft No. 4, developed the documentation for the ground-level complex, ordered hoisting machinery and headframe structures, and laid the headframe foundation. Preparatory work required for shaft sinking is continuing.

As part of the construction of a new mine at Solikamsk-2, the Company began shaft design work and started construction of temporary power facilities. In order to reduce energy costs, Uralkali is implementing a whole range of energy-saving projects, including technological improvements and the introduction of modern energy-efficient equipment.

This year, the project to expand production at Berezniki-3 and Berezniki-4 includes a number of measures to improve production technology, which will boost potassium chloride capacity by 0.8 million tonnes.

The Company continues to comprehensively monitor the situation at Berezniki-1 and Solikamsk-2 and backfill the mined-out areas at all operating mines. All activities are being carried out as planned and according to schedule.

Market Review and Outlook⁵

In 1H 2016, market activity remained limited. As the Chinese and Indian contract negotiations continued to drag on, potash deliveries contracted as customers remained on the sidelines. Brazil and the US were the only markets to experience a peak up in activity in Q2 2016. The cautious demand environment has resulted in potash price declines on a global level.

With the Chinese and Indian contracts finally having settled, we expect potash demand to gradually stabilise in 2H 2016.

In Q3 2016, China signed sea contract with major suppliers. China’s 2016 potash imports are expected to be 32-37% lower than 2015 level. Clarity regarding China is expected to encourage customers to step into the market more actively. Total deliveries are projected to total 14.0 million tonnes in 2016 compared to 16.7 million tonnes in 2015.

India started booking contract volumes with suppliers for delivery in FY 2016/2017 at the end of June 2016. The Indian market has moderate potential of demand growth. Good monsoon season could lead to incremental demand in 2H 2016. However, given sharp drop in potash arrivals (37%) through the first seven months of this year, we expect potash import volumes to decline to 3.5 million tonnes in calendar year 2016 compared to 3.9 million tonnes in the previous year.

Potash imports were slower y-o-y in Southeast Asia in 1H 2016 with competition among suppliers having been particularly intense in Malaysia, Indonesia and Bangladesh. Customers drew down inventories in order to avoid taking on any price risk. We expect full-year demand to fall below that of 2015 due to adverse weather conditions in 1Q 2016, and delayed China contract.

Full-year EMEA & FSU demand is expected to be around 2015. In Western & Central Europe, full-year demand may be on a par with, or slightly weaker, than in previous year.

In Brazil, potash shipments remain at acceptable level. The country imported 3.9 million tonnes of potash in the first half of 2016, up 5% y-o-y. Full-year demand in the region is expected to exceed 11.5 million tonnes.

North American market is characterised by improved potash demand this year. Supply tightness is currently apparent with some producers fully committed through Q3. Full-year demand is forecast to increase to 8.5 million tonnes.

Global potash demand is expected to approximate 59 million tonnes in 2016 compared to 61 million tonnes in 2015.

Uralkali (www.uralkali.com) is one of the world’s largest potash producers and exporters. The Company’s 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). Uralkali’s shares are traded on the Moscow Exchange.

¹ Financial statements have been reviewed by ZAO Deloitte & Touche CIS and can be found on Uralkali’s website http://www.uralkali.com/investors/reporting_and_disclosure/uk_msfo/

² Net Revenue is revenue net of freight, railway tariff and transshipment cost

³ EBITDA is calculated as Operating Profit plus depreciation and amortisation

⁴ EBITDA margin is calculated as EBITDA divided by Net Revenue

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

http://www.uralkali.com/press_center/press_releases/item34535/