Uralkali Announces Q1 2013 Key Figures

17.06.2013
Uralkali Announces Q1 2013 Key Figures

Uralkali (LSE: URKA, "the Company"), one of the world’s largest potash producers, today publishes its unaudited IFRS key figures for the three months ended 31 March 2013.

JANUARY-MARCH 2013 TOP LINE AND OPERATIONAL HIGHLIGHTS:

  • Revenue down 18% y-o-y to USD 738 million
  • Production up 10% y-o-y to 2.1 million tonnes of potassium chloride (KCl)
  • Sales volumes down 10% y-o-y to 1.9 million tonnes of KCl
  • Average export price down 17% y-o-y to USD 313 per tonne of KCl

CORPORATE HIGHLIGHTS IN Q1 2013:

  • Share buyback continued with securities in a total amount of approximately USD 657 million purchased as of 10 June 2013 since the start of the programme in November 2012
  • Expansion programme on track, with ongoing construction of Ust-Yayvinsky mine and debottlenecking progressing at the existing production facilities
  • Licences extended for all operating mines

SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD:1

  • In April, debut Eurobond issued in the principal amount of USD 650 million due 2018 with a coupon of 3.723%
  • In April, first Integrated Report issued covering both financial and social activities
  • In June, five-year USD 1 billion pre-export finance facility secured from 14 banks at LIBOR plus 215 bps
  • In June, dividend payment approved by the annual general meeting of shareholders for 2012 in the amount of RUB 3.90 per share (approximately USD 0.61 per 1 global depositary receipt (“GDR”)) with total dividends for 2012 amounting to RUB 25.3 billion (approximately USD 789 million)
  • In June, Board of Directors approved the terms of a purchase of up to 6.4% of the Company’s shares from Forman Commercial Limited, beneficially owned by Zelimkhan Mutsoev, with their subsequent cancellation

Vladislav Baumgertner, Uralkali CEO, commented:

In Q1 2013 the Company’s performance reflected the market conditions which only started to recover following a weak H2 2012. Consistent with our announcements in November 2012, we decreased the output in Q1 and utilised this time to implement maintenance and development works. The start of the year is traditionally slow with potash consumers only preparing for the upcoming planting campaign. We see that Q2 began with robust demand from our customers, as application season approached. With increased planting acreage expected this year supported by low grain stocks and positive agriculture economics, we hope to see worldwide potash consumption growing by around 7% in 2013 compared to 2012.


Key Q1 figures are as follows1:


Q1 2013

Q1 2012

FY2012

Revenue (USD mln)

738

901

3 950

Net Revenue (USD mln)2

614

780

3 343

Average potash price, FCA, USD

  • Domestic
  • Export


315

313


268

376


254

370

Production (KCl, mln tonnes)

2.1

1.9

9.1

Sales volume (KCl, mln tonnes)
TOTAL

  • Domestic
  • Export


1.9

0.4

1.5


2.1

0.5

1.6


9.4

2.1

7.3


1 Preliminary management information
2 Net revenue represents adjusted revenue (sales net of freight, railway tariff and transshipment cost)

Financial Review

The sluggish potash market in Q4 2012, influenced by the decision of China and India not to conclude new contracts in H2 2012, and the downward trend in spot prices, impacted Q1 2013 figures as well. The Company’s revenue decreased by 18% to USD 738 million largely as a result of the decrease in the average export price (FCA) from USD 376 per tonne, in Q1 2012 to USD 313 per tonne in Q1 2013.

The Company’s net debt amounted to USD 2.3 billion at 1 June 20131. As part of optimising its financing structure, in April Uralkali issued a debut Eurobond, in the principal amount of USD 650 million at an interest rate of 2.723% and due in 2018. In addition, in June 2013 Uralkali finalised a pre-export finance facility, with a rate of LIBOR plus 215 bps and a loan maturity of five years.

As a result of strong cash flow generation and having further optimised its loan portfolio, the Company was able to distribute excess cash to its shareholders in the forms of dividends and shares buyback.

On 4 June 2013 Uralkali’s annual general meeting of shareholders approved a dividend payment for 2012 financial year of RUB 3.90 per share and approximately USD 0.61 per GDR. The total dividend payment for 2012, including the interim dividend, amounted to RUB 25.3 billion (approximately USD 789 million).

The Company also continued with its buyback programme announced in November 2012. As of 10 June 2013, under this programme shares and GDRs in a total amount of approximately USD 657 million had been purchased.

In addition, in late May 2013 the Company was approached by one of its shareholders, Forman Commercial Limited, which is beneficially owned by Mr Zelimkhan Mutsoev, with an offer to sell his 6.4% stake in Uralkali to the Company. After considering the offer, the Company’s board resolved to approve the purchase of up to 6.4% of the Company’s shares from Forman and to subsequently cancel those shares. The agreed purchase price for the shares represented a 6.2% discount to the closing market price on 4 June 2013.

Business Review

With Chinese contracts negotiated at the beginning of the year, the potash market started to recover. However, unfavourable weather conditions in many regions of the world, including Europe, the USA, and China, delayed deliveries until later in spring. Reflecting this environment, Uralkali’s sales volume in Q1 2013 increased by 8% compared to Q4 2012, though decreased by 10% year-on-year.

Uralkali’s production amounted to 2.1 million tonnes of KCl in Q1 2013, slightly up on the volumes produced in Q1 and Q4 2012. The limited overall potash market activity and increased production capacities led to a utilisation rate for Uralkali of up to 70%.

Nevertheless, the decreased workload enabled the Company to implement various maintenance projects and proceed with its capacity development programme. The Company has to date completed freezing holes drilling at Shaft No.1 of the new Ust-Yayvinsky mine, with similar works in progress at Shaft No.2 and project works on the above-ground facilities going at a high pace.

In the meanwhile, the debottlenecking programme is ongoing at several production facilities with new equipment with significantly higher productivity replacing outdated capacities. Another major project for Q1 2013 was the ongoing granulation expansion at Solikamsk-2, which, once completed, will increase the plant’s granulation capacity by 0.5 million tonnes to 1.55 million tonnes per year.

In addition, in March 2013 the Company prolonged the terms of exploration and mining for the licences at its working mines. Uralkali holds licences for seven blocks of the Verkhnekamskoye field. The licences for the Ust-Yayvinsky and Polovodovsky blocks are valid until 2024 and 2028. The licences for Solikamsk-1 block, Solikamsk-3 block and Berezniki-4 block, which were to expire on 1 April 2013, were extended until 2018, while the licences for Solikamsk-2 block and Berezniki-2 block were prolonged until 2021.

Market outlook

Q1 2013 saw the return of China and India to the import market. China signed contracts with potash suppliers for 3.1 million tonnes of KCl at USD 400 per tonne CFR for H1 2013 compared to 2.1 million tonnes at USD 470 per tonne in H1 2012. India has an estimated 3.7 million tonnes of contracted tonnage to import in FY2013/2014 from potash suppliers at the price of USD 427 per tonne CFR (with a further option on 0.9 million tonnes). The decrease in contract pricing reflected the downward pricing trend established in Q4 2012, while the increase in volumes resulted from the destocking in the previous months.

The conclusion of these contracts contributed to a revival of orders on spot markets. Still, unfavourable weather conditions in some regions, including Europe, the USA, and China, delayed deliveries and advance buying for the spring application.

Brazil was the most active market in Q1 2013. Very strong demand is anticipated in July and August as buyers will seek to stock up ahead of the September/October application season. Potash demand is expected to exceed last year’s record level, potentially reaching 7.8-7.9 million tonnes in 2013.

In North America, spring demand improved from 2012 levels driven by high US planted corn acreage (approximately 97 million acres) and healthy farmer finances. According to USDA forecast, net farm income is expected to increase by 13.6% year-on-year to USD 128.2 billion in 2013, expected to be the highest level since 1973. North American potash demand is forecast to increase above 9 million tonnes, compared to 8 million tonnes in 2012.

With the Chinese and Indian contracts agreed, buyers in Southeast Asia became more active. Uralkali expects potash demand to increase in most countries of the region in 2013 as farmers’ profits are still very high, despite lower palm oil prices compared to the 2012 level.

In Europe, demand is expected to stay close to its traditional volumes in 2013.

Former Soviet Union markets (in particular, Russia, Ukraine and Belarus) are expected to demonstrate growth in potash consumption this year, though the Russian market contracted from 0.5 million tonnes in Q1 2012 to 0.4 million tonnes in Q1 2013, largely driven by the change in domestic potash pricing scheme following Russia’s entry to the WTO. The new market system is expected to work more efficiently starting from Q2 onwards, and the Russian market is expected to return to the annual market growth of 10% a year that it has recorded over the last decade

Indian potash demand continues to be impacted by the changes in retail pricing and subsidy policy. Although scientists believe that the potential for increased potash application in India is huge due to worsening soil conditions, the lack of government support towards balanced fertiliser usage does not allow farmers to buy nutrients in required amounts. Uralkali believes the consumption in 2013 will rebound moderately following last year’s bust.

The overall 2013 outlook for potash demand remains positive. Uralkali expects global deliveries to reach a high end of range of 53-54 million tonnes of KCl, following contract agreements with India and China and destocking in key markets. North America, China and India are expected to be the key drivers behind the rebound in world potash demand.


Vladislav Baumgertner, Uralkali CEO, commented:

Observing positive agriculture market developments and believing in strong underlying potash market fundamentals, we continue to implement our capacity development programme to ensure that we are fully fitted and able to maintain our cost leadership to benefit in the times when the market requires new capacities and new players come to the potash market. Simultaneously we have engaged with a renewed vigour in farmer education programmes promoting balanced fertiliser application. Statistics show that the level of a farmer’s knowledge is linked to productivity. That is why we believe that farmer education is crucial to increasing yields and improving global food security.


You can find out more details about our capacity development programme in the video interview with Yevgeny Kotlyar, Chief Engineer, at http://www.uralkali.com/investors/results/.

Uralkali (www.uralkali.com/) is one of the world’s largest potash producers with a share of about 20% in 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 Territory, Russia). Uralkali employs ca. 11,800 people (in the main production unit). Uralkali’s shares and GDRs are traded on the RTS-MICEX and LSE, respectively.

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Smoking in mines is prohibited.
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