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Annual Report 2008 for the Cycle of Life Annual Report 2008

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Annual Report 2008 for the Cycle of Life Annual Report 2008 For the Cycle of Life Annual Report 2008 For the Cycle of Life Annual Report 2008 2 Introduction 2 01 Uralkali at a Glance 4 02 From the Chairman 6 03 From the CEO 8 Major Events Calendar 10 2008 Potash Market Overview 14 Business Overview 14 01 What is Potash? 14 02 Potash Industry Advantages 15 03 Focus on BRIC Countries 16 04 Production today and tomorrow 17 05 Logistics 17 06 Trading and Pricing 18 07 Employees 19 08 Social Responsibility 21 09 Environment Geography of Potash Consumption 22 Brazil 24 India 26 China 28 SE Asia 30 Russia 32 USA 34 EU 36 Financial Management Discussion and Analysis Section 42 Consolidated Financial Statements and Auditor’s Report 97 Uralkali Shareholder and Capital Structure 98 Report on Payment of Declared (Accrued) Share Dividends 99 Board of Directors 101 Review of the Mineral Resources and Ore Reserves 108 Risk Factors 110 Responsibility Statement Introduction 01 Entire value chain – from reserve base to end customer Uralkali at a Glance Uralkali is one of the world’s largest Potash production Potash trading potash producers. Existing assets – 2 mines, 4 plants Uralkali Uralkali’s production facilities are Production unit 1: plant Domestic sales Motorway located in the city of Berezniki, Perm Products: standard MOP One of the biggest special railcar park region. Warehouses: 160 kt Uralkali has offices in Moscow, Production unit 2: mine and plant Baltic Bulk Terminal Perm, Minsk and port facilities in Resources: 343 Mt of ore [1] Shortest transp. leg St. Petersburg. Products: granular and standard MOP (from UK mines to St. Petersburg) The company was founded in 1930 Capacity: 6,2 Mt as a state-owned enterprise, and was Warehouses: 240 kt Production unit 3: plant Railway transformed into a privately-held Products: granular and standard MOP Belarusian Potash Company / joint-stock company in 1992. Uralkali Trading Uralkali ordinary shares and global Leading export platform depository receipts are traded on RTS; Production unit 4: mine and plant Resources: 1,866 Mt of ore [2] MICEX; LSE. Products: standard MOP Production Assets 6 processing plants: Uralkali is a vertically integrated 4 plants produce potash; enterprise, controlling the entire 1 plant processes carnallite ore to value chain from the potash- produce enriched carnallite; magnesium reserve base to 1 plant produces salt solution for end customer. This allows the needs of Berezniki sodium plant. the company to manage its Uralkali is the sole shareholder of business efficiently and control the JSC Baltic Bulk Terminal (BBT). logistics costs. Uralkali owns 50% of Belarusian 2 mines, developing the world’s Potash Company (BPC), the largest second largest known deposit of potash export trading company in potassium and magnesium salts – the world with 31% [3] of the world [4] Verkhnekamskoye deposit. export market. [1], [2] JORC as of January 1, 2009. [3] Calculated as the total export volume deliveries from Belaruskali and Uralkali (including railway deliveries to China). [4] The other shareholders of BPC are RUE PO Belaruskali (45% of the BPC’s shares), and Belarusian Rail Road (5% of the BPC’s shares). 2 Uralkali has long-term contracts by a further 18 months. The company with its 100% subsidiary – Uralkali is currently negotiating an acceptable 2008 key financial data [6] Trading (UKT), Switzerland, through approach to the development Production 4.8 mln t which the company sells part of its of the Ust-Yaivinsky field with Net sales [7] 54,353 products all over the world. authorised governmental bodies. EBITDA[8] 41,349 Uralkali has a large private fleet Margin [9] 76% of railcars and fully-owned port Operations Net profit 21,943 facilities in Russia, as well as its own Uralkali production capacities in Operating cash flow 32,604 warehouses. 2008 amounted to 5.4 million tonnes. Capex [10] 14,341 In 2004, Uralkali obtained However, due to the decline of demand a licence to develop the reserves in the world fertiliser market in Q4 of the Ust-Yaivinsky field of 2008 production output was curtailed 2007 macro highlights the Verkhnekamskoye deposit. Due to 4.8 million tonnes which accounts CPI (December 2008 / December 2007) 13.3%[11] to a number of obstacles beyond its for 9%[5] of the world’s market. PPI (December 2008 / December 2007) 2.7%[12] control, the company was not able Uralkali’s production capacities are RUR/USD (2008 average) 24.86 [13] to prepare the design documentation planned to reach 7 million tonnes RUR/USD (2008 year-end) 29.38 [14] for the new mine construction by through brownfield expansion. the relevant deadline, and thus did The company is expected to have not fulfill one of the conditions of the capability to produce the stated the licence, infringement of which capacity starting from 2011. leads to termination of the licence Uralkali produces two types of in accordance with its terms. In potash fertiliser – granular and December 2008, the Uralkali Board of standard potassium chloride. Directors made a decision to develop Uralkali exports about 89% of the Ust-Yaivinsky field by linking it its products, mainly to the markets to the company’s Mine-2 rather than of China, India, Brazil, USA and through the creation of a new mine as Southeast Asia. originally envisaged. Uralkali applied Sales in Russia make up about 11% to the Federal Agency for Subsoil of total output. Use (Rosnedra), asking to amend the licence agreement and extend the deadline for filing the relevant development design documentation [5] Fertecon. [9] Adjusted EBITDA Margin is calculated [12] For mining industry (except for energy resources). [6] All financial indicators are based on IFRS as Adj. EBITDA divided by Net Sales. [13] Average exchange rate of Central Bank of Consolidated Financial Statements and are given in [10] CAPEX includes additions to property, plant and the Russian Federation from January 1, 2008, to million RUR unless otherwise stated. equipment adjusted on change in balances of December 31, 2008. [7] Based on adjusted sales (sales net of freight, railway letters of credit and prepayments for acquisition of [14] Official exchange rate set by Central Bank of tariff and transhipment costs). property, plant and equipment. the Russian Federation as of December 31, 2008. [8] Adjusted EBITDA does not include mine flooding costs. [11] Federal State Statistics Service statistical review on social and economic situation in Russian Federation for 2008. 3 URALKALI Annual report 2008 Introduction the challenges, as oil prices slumped, fairly. The business community biofuel production became less and the Russian government are profitable, and prices for major crops unanimous in this. The employees decreased considerably. of Uralkali remain the foundation of This is not the first time Uralkali our company and its principal assets, has faced challenging markets. the preservation of which will help Dmitry Rybolovlev However, in the past our problems us survive this crisis and prosper in Chairman of the Board of Directors concerned specific situations in future. specific markets and we coped with Our industry has a number of them easily. This global financial advantages which position it 02 crisis has become a severe test for all well to overcome the difficulties From the Chairman Dear Shareholders, markets, all industries, all companies and recover soon. The task of By and large, 2008 was a year of and all nations without exception. increasing crop yield and therefore, growth and development for our Confronted by the current challenge, the efficiency of agriculture has company. Throughout the first nine the management and the employees never been more urgent. And it is months global demand for potash of Uralkali have braced themselves to impossible to accomplish this task grew steadily and sales volumes overcome the difficulties. We have to without application of fertilisers, and prices continued to rise, more be prepared to endure the pressures first and foremost, without potash than doubling in some markets over that are going to linger in the global fertilisers. Thus, I believe that due to the previous year. All this allowed economy for a while and I believe we its fundamental strength the potash the company to achieve strong are well positioned to do this. industry remains well-positioned for financial results, increasing revenues The present market environment future growth. In all other respects and profits for our shareholders. has been an unprecedentedly tough the future of Uralkali depends on It also confirmed our belief in test of self-control and ability to us. With self-confidence and well- the industry’s robust fundamentals. rationalise the occurring events for us defined goals, we will undoubtedly At the same time, the year was all. The time when companies could succeed. challenging and complex both for earn “easy money” has come to our company and the global potash an end. Now most of them are facing market as a whole. In the autumn financial difficulties. The economic our steady progress was impeded situation in all markets is going to by obstacles beyond our control. remain tough for a while. Therefore The economic turmoil in the financial we all have to be patient and learn to capitals of the world rapidly affected economise. Like other large industrial even the most remote corners of Asia companies, Uralkali is determined to and Latin America – Uralkali’s largest keep tight control on its costs. Yet sales markets, whilst the subsequent this should not affect our people. In downturn in the world economy the time of devaluation of money, has resulted in a significant drop goods and even natural resources it of demand for fertilisers. Foreign is critical to comprehend the value banks have virtually stopped of each employee and promote financing the real economy, forcing their well-being.
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