INTEGRATED REPORT 2016
CEO’s Statement
The Company will continue to optimise its distribution and logistics infrastructure, modernise its existing production facilities and build new capacity, as well as improve the quality of its products.
Dear shareholders,
As a potash industry leader, Uralkali receives special attention from its stakeholders. The Company makes every effort to maintain its leading position, and continuously adheres to global best practices and sets stringent requirements in relation to the preparation and implementation of its strategy. In 2016, the Company focused on optimising its internal business processes in order to increase the efficiency of its main production unit and auxiliary services.
Production and sales
The production and sales of potash fertilisers are at the core of the Company’s operations. 2016 was a challenging year for the global potash market. In the first half of year, the potash market faced a decline in potash export prices year-on-year, a significant increase in competition among major producers in all major markets, and a delay of long-term contract settlements with China and India. The market saw certain improvements in the second half of the year driven by a resumption of contract shipments to China and India and a strong demand in major spot markets. Global potash demand in 2016 remained flat y-o-y at 61 million tonnes, thanks to a strong demand rebound in North America and Brazil - which has fully offset the import demand drop in Asia. In 2016 Company’s potash sales volumes went down by 2% year-onyear due to lower export shipments. This decline was partially offset by a 10% yearon- year increase in domestic sales. Taking into account the market environment in 2016 and the Company’s ability to react quickly to changing market conditions, Uralkali revised its production forecasts several times last year. In total, Uralkali produced 10.8 million tonnes of potassium chloride in 2016.
Financial performance
Last year’s market trends largely had a negative impact on the Company’s main financial indicators. As a result of a decrease in the average FCA export price for potassium chloride, combined with a decline in sales, the Company’s revenue decreased to US$ 2.3 billion, EBITDA dropped to US$ 1.2 billion, and the EBITDA margin fell to 64% compared to the previous year.
Despite a negative impact of market factors on Uralkali’s financial performance, Russian and international financial institutions continue to view the Company as a responsible and reliable borrower. Last year, Uralkali signed an agreement with 16 international banks to obtain a USD 1.2 billion loan, the largest in the Company’s history.
Corporate Social Responsibility
In 2016, Uralkali continued to play an active role in the development of the regions where it operates. The Company interacted effectively with all stakeholders and provided comprehensive support to local communities. For further information on the Company’s CSR activities, please see Our Communities.
Outlook
The potash market is poised to face an increased competition soon due to an anticipated entry of new suppliers. Therefore, a significant rise in potash prices seems unlikely. We expect a modest increase in potash prices in the near- and medium term.
As for Uralkali, the Company will continue to optimise its distribution and logistics infrastructure, modernise its existing production facilities and build new capacity, as well as improve the quality of its products. The Company plans to further increase subsoil utilisation efficiency by both deploying its own intellectual resources and involving specialist research institutions. Uralkali will also continue to promote itself as one of the most attractive employers in the Perm Territory and a socially responsible company. I would like to thank everyone associated with the Company for their support and I am looking forward to working together on various initiatives and projects in the future.