Uralkali Announces IFRS 1H 2019 Financial Results

29.08.2019

Uralkali (“the Company”, Moscow Exchange: URKA), one of the world’s largest potash producers, announces its financial results for the six months ended 30 June 2019 prepared in accordance with IFRS1.

1H 2019 FINANCIAL HIGHLIGHTS:

  • Revenue up 10% y-o-y to US$ 1,543 million
  • Net revenue2 up 17% y-o-y to US$ 1,321 million
  • EBITDA3 up 19% y-o-y to US$ 874 million
  • EBITDA margin4 is 66%
  • Cash COGS5 is US$ 42.9 per tonne
  • Average FCA export up 26% y-o-y to US$ 245 per tonne of potassium chloride (KCl)

1H 2019 OPERATIONAL HIGHLIGHTS:

  • Production volume down 3% y-o-y to 5.7 million tonnes of KCl
  • Sales volume down 8% y-o-y to 5.4 million tonnes of KCl

1H 2019 CORPORATE HIGHLIGHTS:

  • In June the Company signed a pre-export facility with 13 international banks with tranches for US$ 725 million and EURO 650 million. The interest rate is LIBOR plus 190 bps margin for US$ tranche and EURIBOR plus 170 bps margin for EURO tranche with a loan maturity of 5 years. The loan is used for refinancing of Uralkali’s existing loans and general corporate purposes
  • In June Uralkali’s AGM decided not to pay dividends on the outstanding common registered shares of Uralkali for 2018, to pay dividends on the outstanding preferred shares of the Company in the amount of RUB 0.1 per preferred share. The decision regarding the payment of minimal dividends on the outstanding preferred shares was recommended by the Board of Directors in order to support the current balance of voting and non-voting shares of the Company and to thus ensure that the current percentage of voting shares of the minority shareholders of Uralkali is preserved

Dmitry Osipov, Uralkali CEO, commented:

An increase in potash prices in late 2018-early 2019 has had a positive impact on Uralkali’s revenue in the reporting period.

Despite the declining demand in 2019 in some major markets, in the long run we are optimistic on potash industry fundamentals.

The key figures are as follows:



1H 2019

1H 2018

Revenue (US$ million)

1,543

1,397

Net revenue (US$ million)

1,321

1,130

EBITDA (US$ million)

874

732

EBITDA margin

66%

65%

Gains/(losses) from foreign exchange differences and fair value revaluation of financial derivatives (US$ million)

440

(403)

Net profit (US$ million)

836

1

Average export potash price, FCA, (US$)

245

195

Production (KCl, million tonnes)

5.7

5.9

Sales volume (KCl, million tonnes)

— TOTAL

— Domestic

— Export

 

5.4

1.3

4.1

 

5.9

1.3

4.6

Financial review

In the 1H 2019 the Company’s net profit increased mainly due to the gains from foreign exchange differences and fair value revaluation of financial derivatives.

Uralkali’s cash COGS excluding goods for resale was US$ 42.9.

1H 2019 average potash export price of US$ 245 per tonne on FCA basis was US$ 50 higher compared to the price in the corresponding period last year mainly due to price gains in the second and third quarter of 2018, having stabilized in the reporting period.

1H 2019 year-on-year decrease in potash sales volumes is mainly attributed to subdued potash demand in major Southeast Asia markets and decrease in shipments to India.

Uralkali continues allocating more volumes in most profitable markets of Latin America.

As of the end of June 2019, the Company’s net debt amounted to US$ 4,693 million.

The ratio of net debt/EBITDA for the last 12 months amounted to 2.93x, while Uralkali’s average interest rate for its loan portfolio for first six months of 2019 was 4.71%.

Operational review

Uralkali continued to implement its capacity development programme with some major projects to be mentioned:

  • The construction of a new mine at Ust-Yayva is under way. The Company is carrying out work on the ground-level complex construction along with designing of an underground one
  • As part of the construction of a new mine at Solikamsk-2, the Company proceeds with shaft design and shaft sinking measures
  • For the expansion of Solikamsk-3, Uralkali continues with construction of its ground-level complex
  • As for Polovodovo project, Uralkali started to implement the preparatory measures required for shaft sinking

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.

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 review6

In 1H 2019, global potash market remained the most stable condition compared to nitrogen and phosphate markets. Overall, global potash demand was relatively stable. Although potash prices have trended slightly down since the end of 2018, they have stayed above the first half of 2018 level.

Latin America has outperformed other markets in terms of potash demand growth on the back of increased Brazilian soybean exports due to US-China trade war and favourable farmer economics in Brazil. Full year potash demand in the region is expected to total to about 13.4 million tonnes compared to 13.1 million tonnes in the previous year.

In North America, the adverse weather has eroded most of spring application and led to buildup of potash inventory. Considering weak potash demand during spring season, full year demand is expected to drop 3-4% compared to 2018 and total about 9.5-9.6 million tonnes.

EMEA potash demand was steady during the first half of the year. Full-year demand is expected to increase 1-2% year-on-year mainly due to increase in potash imports by Africa and total about 13.3-13.4 million tonnes.

Southeast Asia has been slow through the first half of the year with trade in major markets lagging behind normal levels for this time of year due to persistently low palm oil prices. Major markets in the region are currently out of purchasing season. Potash demand is expected to return by October and to be supported by recently increased palm oil prices. Full-year potash demand in region is expected to trend down approximately 5% year-on-year due to deteriorating palm oil margins.

In 1H 2019, potash suppliers continued to deliver contracted volumes to China. Following strong potash imports in the first half and relatively sluggish potash consumption, China has accumulated high port potash inventories which may delay a new seaborne contract settlement and impact full year potash deliveries. Potash deliveries in 2019 are expected to grow 1% year-on-year mainly on the back of strong imports during the first half and total about 14.9-15.0 million tonnes.

In India, high potash retail prices have continued to adversely impact consumption. Full-year potash imports in the calendar year are expected to fall to 4.2-4.3 million tonnes compared to 4.5 million tonnes in the previous year.

Uralkali’s sales to domestic market in 1H 2019 remained stable, amounted to 1.3 million tonnes, which is an equivalent to the year-earlier period.

The Company has revised downwards its forecast for global potash demand to about 66 million tonnes in 2019 from previous 67-68 million tonnes mainly due to weak potash demand in North & Central Americas, which had been affected by adverse weather conditions in 1H 2019 and Southeast Asia due deteriorating palm oil margins.

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 plants in the towns of Berezniki and Solikamsk (Perm Region, Russia). Uralkali employs ca. 12,000 people in the main production unit. Uralkali’s shares are traded on the Moscow Exchange.


1 Financial statements have been reviewed by AO Deloitte & Touche CIS and can be found on Uralkali’s website

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

3 EBITDA is calculated as Operating Profit plus depreciation and amortization

4 EBITDA margin is calculated as EBITDA divided by Net Revenue

5 Excluding goods for resale

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