Ensuring financial stability

In 2015, the market for potash fertilisers saw negative demand and price dynamics. Falling prices for agricultural products, the use of stocks accumulated by customers in 2014, devaluation of currencies against the US dollar in major markets, the lack of liquidity in Brazil, the introduction of 13% VAT for potash fertilisers in China and more aggressive competition among suppliers led to a drop in demand and lower potash prices.

Compared to 2014, Uralkali’s consolidated results were as follows:

  • Sales volumes were 9% lower year-on-year
  • Gross revenues decreased to US$3.12 billion in 2015 from US$3.56 billion in 2014, representing a 12% drop compared to the prior year
  • The average export price on a delivery basis was 3% lower in 2015 in US$
  • The average export price was 5% higher in 2015 on an FCA1 basis in US$ due to lower freight costs and the reduction of railway costs due to ruble devaluation
  • Cash cost of realised products was 30% lower in 2015 compared to 2014 and equal to US$33 per tonne
  • Adjusted EBITDA increased by 7% from US$1.78 billion in 2014 to US$1.91 billion in 2015
  • CAPEX decreased by 6% from US$364 million in 2014 to US$343 million in 2015

Gross sales

Slumping global demand for potash fertilisers had a negative impact on Uralkali's export sales in 2015. In addition, the accident at Solikamsk-2 reduced the production and sales volumes of the Company in 2015. The Company's sales volumes decreased by 9% compared to 2014. The average export price of Uralkali's products on a delivery basis in US$ fell by 3% compared to 2014. Taken together, these factors led to a decrease in total revenues compared to the previous year by 12%, to US$3.1 billion.

Other sales (sodium chloride solution, enriched carnallite and pit-run industrial sodium) accounted for around 2% of total revenues in 2015, or US$65 million.


83% of export sales in 2015 were shipped by sea, mostly through the Company’s fullyowned terminal in St. Petersburg. Distribution costs for sea export include the railway tariff from Berezniki and Solikamsk to transshipment ports, transshipment at the seaport and freight costs (except for deliveries on an FOB basis).

About 17% of export sales were transported by rail, including to China (14%) and other regions (3%). Distribution costs for these deliveries include railway tariff costs to China and other regions respectively.


Average freight rates expressed in US dollars in 2015 were 23% lower than in 2014 per tonne of product shipped by sea, on a CFR basis, and totalled US$30 per tonne.

The freight market continued to decline in 2015, because of the excess number of ships in all segments and reduced volumes of maritime transport in bulk, above all, coal. Falling oil prices also contributed to the decrease in freight tariffs. In Q4 2015, the freight market hit historic lows.

The Company abandoned river transportation on Russia's waterways in 2015 to optimize transport costs.

The Company also incurred expenses on barge freight in the US, which were less significant compared to sea freight.

Railway tariffs

The Company carries out direct deliveries by rail to customers in North China, Europe and the CIS. The weighted average railway tariff2 in the direction of St. Petersburg increased by 19% (decreased by 25% in US$ equivalent). The China tariff was 20% higher than in 2014 (24% lower in US$ equivalent) mainly due to tariff indexation and increased percentage of shipments along the more expensive route through Grodekovo.


In 2015, transshipment costs decreased by 43% compared to 2014 and amounted to US$25.68 million.

Net sales

Net sales are defined as the gross revenues for the period net of variable distribution costs – freight costs, railway tariffs and transshipment costs.

Net sales decreased in 2015 by 5% compared to 2014, to US$2.65 billion in accordance with IFRS, due to a sales volume decrease of 9%, partially offset by a 5% increase in export prices on an FCA basis.

1 The average export price on an FCA basis is the average export price on a delivery basis less the transport component: railway tariffs, freight and transshipment costs.

2 Weighted average tariff takes into account the volume of shipments of the Company’s direction.

Cash cost of goods sold3

The cash cost of goods sold (COGS) in 2015 was US$33 per tonne, 30% lower than in 2014. COGS decreased compared to last year mainly due to the devaluation of the rouble (in which cash cost of goods sold is mainly expressed) in 2015.

3 Cash cost of goods sold = Cost of goods sold less depreciation and amortisation.


Compared to 2014, the average monthly salary in roubles across the Group, excluding key management compensation, increased by 12% (fell by 30% in US$ equivalent due to the rouble devaluation). The average monthly salary across the Group, excluding key management compensation, amounted to US$897 compared to US$1286 in 2014. The key factor of salary growth in RUB was salary indexation due to inflation.

The Group employed about 21,000 people in 2015.

Fuel and energy

Potash production is an energy-intensive process. Fuel and energy-related costs mostly depend on production volume and are set in roubles. Electricity and gas consumed by Uralkali was purchased at non-regulated tariffs. At the same time, electricity and gas transmission service costs were regulated by the state. The Company’s power requirements were partly met by its own power generation (electricity).

As a result, the effective tariff on gas in roubles increased by 4% in 2015 (35% decrease in US$ equivalent) to US$60 per thousand cubic metres. The effective tariff on electricity in 2015 in roubles rose by 2% (36% decrease in US$ equivalent) to US$40 per thousand kW*h.

Other cash costs

Other cash costs are costs of materials, repairs, transportation between mines, etc. Other cash costs include variable costs (such as production materials and transportation between mines) and fixed costs (such as costs related to outsourced repairs and maintenance and materials for repairs).

Calculation of adjusted EBITDA / US$ mln/

2015 2014
Operating profit 1 725 1 358 Operating profit
Adjusted for depreciation and amortisation 220 371 Adjusted for depreciation and amortisation
One-off (profits) One-off expenses
Reversal of Solikamsk-2 impairment (27) 38 Solikamsk-2 impairment
Reversal of provision due to the accident at Solikamsk-2 (5) 16 Provision due to the accident at Solikamsk-2
Adjusted EBITDA 1 913 1 784 Adjusted EBITDA

General and administrative expenses

Compared to 2014, cash general and administrative expenses4 decreased by 26% in US$ equivalent in 2015, but in roubles increased by 1.39 billion roubles. The main component of cash general and administrative expenses is labour costs (60%).

Finance income and expenses

The devaluation of the rouble in 2015 by 30% led to a foreign exchange loss in the amount of US$1.04 billion and a fair value loss on derivative financial instruments in the amount of US$0.23 billion.

Adjusted EBITDA

In 2015, adjusted EBITDA5 increased by 7% to US$1.91 billion in comparison with 2014. The adjusted EBITDA margin6 was 72% in 2015.

In November 2014, Uralkali detected a higher level of brine inflow, as well as a sinkhole to the east of the Solikamsk-2 production site. Upon completion of a technical investigation of the cause of the accident at Solikamsk-2 carried out by a committee appointed by the West Ural Administration of Rostechnadzor, the Company evaluated the potential costs of remediation.

As of 31 December 2014, the Company accrued a provision in the amount of US$20.85 million to cover the estimated costs of addressing the consequences, of which US$16.41 million were charged to other operating expenses and US$4.44 million were capitalised. The Company also impaired its fixed assets in the amount of US$30.48 million and construction in progress in the amount of US$7.57 million. The impairment loss of US$38.05 million, as well as the provision to cover the estimated costs of US$16.41 million were considered as one-off expenses and were not included in the total expenses to calculate EBITDA in 2014.

As of 31 December 2015, the provision amount was reduced by US$5.49 million (excluding the effect of conversion to the presentation currency); impairment of fixed assets and construction in progress in the amount of US$27.25 million were reversed, due to an improvement in the mine forecast life. For the purposes of calculating EBITDA, those profits in the amount of US$32.74 million were considered as one-off profits and did not increase EBITDA.


Total CAPEX7 for 2015 amounted to US$343 million, of which 47% was spent on expansion. The main expense in 2015 was spending on the Ust-Yayva project. Other projects included the increase in output in production sections, expansion of granulation capacity and expansion of carnallite production. The Company proceeded with the design of the Polovodovsky potash plant in 2015 and launched a new project – the construction of a new Solikamsk-2 mine.


Cash flow

Due to the weakening of the rouble, net cash generated from operating activities in 2015 increased by approximately 29% from 2014 to US$1.78 billion. As of 31 December 2015, Uralkali had net debt of US$5.38 billion. The Company’s cash balance, including deposits, amounted to US$1.11 billion, with total debt at US$6.49 billion. The devaluation of the rouble led to a fair value loss on cross-currency interest rate swaps concluded in 2011-2013. The loss in 2015 amounted to US$0.23 billion. The effective interest rate on loans at the end of 2015 amounted to around 4% (including cross-currency interest rate swaps). In May-December 2015, the Company's subsidiaries bought back 1,055 million ordinary shares of the Company, including shares on which GDRs were issued, which is approximately 36% of outstanding shares. The total amount of funds spent by the Company on the buyback of its shares and GDRs in 2015 is US$3.37 billion8.

4 Cash general and administrative expenses = General and administrative expenses less depreciation and amortisation.

5 Adjusted EBITDA represents operating profit plus depreciation and amortisation and one-off expenses and incomes.

6 Adjusted EBITDA margin is calculated as adjusted EBITDA divided by Net Sales.

7 CAPEX includes acquisition of property, plant and equipment and intangible assets based on IFRS Cash flow statement.

8 According to IFRS Cash flow statement.