Uralkali Integrated Report 2013

maximising
global opportunity

Welcome to our 2013 Integrated Report. Our aim is to clearly articulate our business, results and objectives to our key audiences, focusing on important issues and maintaining our commitment to address and report on our responsibilities and actions.

Maintaining
global leadership

We strive to be an efficient and transparent company for all our stakeholders.
We create value by the joint efforts of a dedicated team to become the leader of the potash industry in every aspect. While we are working hard to maintain our cost leadership position in the industry, our top priorities are: zero accidents and incidents, minimisation of negative environmental impacts, and the high quality of our products. At the same time,
we invest in our people and in developing and promoting high-performing employees.

We produce potash fertilisers to ensure people all over the world are provided with food, and to support the growth of our Company and the welfare of our employees and local communities, through efficient and responsible development of unique potash deposits.

Our activities are guided by the following values:

Safety:

Life is priceless

Openness:

We have the courage to hear and tell the truth

Decency:

Honesty towards yourself and others creates the basis for trust

Professionalism
and efficiency:

Results make our work valuable

Our vertically integrated business model enables us to maintain control across our entire value chain from potash ore reserves to end customers, which helps to reduce supplier risks and allows us the flexibility to optimise across all stages.

Our customer-focused revenue maximisation strategy is aimed at Uralkali being a global leader in the potash industry, responding to market opportunities, which is consistent with our continued commitment to the long-term growth of our shareholder value.

Our strategy in detail

Creating value through
vertical integration

Solid demand for potash fertilisers is supported by the growing need for food globally. At Uralkali, we create long-term value through our focus on meeting the world’s growing demand for food, taking advantage of the control that we have over our entire vertically integrated production chain – from potash ore mining through to the supply of potash to customers.

Production

Our existing assets include five mines, one carnallite plant and six potash plants where we make standard white and pink potash, as well as the premium granular potash. We have two greenfield expansion projects that, together with optimisations and capacity growth in our existing operations, will contribute to our capacity expansion programme. We also benefit from the lowest cash costs in the industry, which helps us maintain our leadership position.

Logistics

We have the advantage of one of the shortest transportation routes from mine to port, as well as to key customer markets, to which we deliver via our own 8,000 specialised railcar fleet and Baltic transhipment terminal. A recently acquired strategic stake in the port terminal of Antonina, Brazil, ensures efficient supply to this region with its fast-growing potash demand. This enables us to build on our market-leading position, optimise storage at our warehouses and expand capacity in the short and medium term.

Sales

We are focused on building strong relationships with our customers in more than 60 countries. Our strategy is to maximise revenue and sustain our historical market share, with focus on fast-growing markets such as Latin America, South East Asia, China and India, which have traditionally accounted for around 60% of our total sales.

Feeding the world

As the global population grows together with the need for agriculture products, our leadership position and capacity development programme enable us to increase deliveries in line with rising demand. Moreover, we share agronomic expertise with our customers to provide them with the knowledge to use our products in the most efficient way for optimal yields.

Our strategy
in action

  • We aspire to sustain a leading market position in the global fertiliser industry
  • We are focused on meeting the world’s growing demand for food. We seek to take advantage of our best-in-class resource
    base by selectively expanding production capacity
  • Sustain a leading market share to ensure continued industry leadership
  • Increase potash capacity on the lowest cost basis in the industry; option to add more volumes if economically viable
  • Focus on premium products; increase granular potash capacity
  • Potash price decrease
  • Potash demand decline
  • Licensed activities
Detailed risks map
  • Net revenue (potash)
    (US$ mln)

    $2,665 mln

  • Achieved capacity
    (mln t)

    13 mln t

  • Total shareholder return (TSR)
    (%)

    -28%

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  • We ensure secure and de-risked route-to-market through enhanced distribution capability from mine to farmer
  • Strengthen customer relationships and reliability of supply
  • Enhance logistics platform to secure long-term supply in key markets
  • Focus on efficient distribution in key markets
  • Loss of market share in a specific market
  • Lack of specific product
  • Сapacity/production decline
Detailed risks map
  • Sales volume
    (mln t)

    9.9 mln t

  • Production volume
    (mln t)

    10.0 mln t

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  • We seek to be the most cost-efficient potash producer
  • Ensure operating performance and efficiency to provide continued industry leadership
  • Invest in existing capacity and infrastructure in order to ensure maximised margin through the commodity price cycle
  • Inflation and currency fluctuations
  • Non-fulfillment of contractors’ obligations
  • Expenditure increase
Detailed risks map
  • Cash COGS per tonne
    (US$)

    $58

  • Sustenance CAPEX
    (US$ mln)

    $241 mln

  • EBITDA margin
    (%)

    61%

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  • We are committed to retaining a robust capital structure and maximising total shareholder return
  • Retain an efficient capital structure; medium-term Net Debt/LTM EBITDA target c.2x
  • Maintain balanced approach to capital investment and robust capital discipline
  • Dividend payout of minimum 50% of IFRS net income provides an attractive shareholder yield
  • Non-achievement of projected parameters of investment projects
Detailed risks map
  • Dividend payout
    (%)

    50%

  • Net debt/LTM EBITDA

    2.5x

  • Expansion CAPEX
    (US$ mln)

    $224 mln

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  • We aim to be the employer of choice among the CIS companies and mining industry. We are pursuing the highest level of health and safety practices to protect our employees
  • We take significant steps to minimise the environmental impact of our operations
  • We participate actively in the development of the cities and local communities in which we operate
  • Seek to be regional and industry employer of choice; workplace safety, employee & community development
  • Deliver value whilst operating in a socially responsible manner, minimising environmental impact of operations
  • Lack of employees with sufficient proficiency
  • Non-compliance with environmental and health and safety regulations
  • Environmental risks and risks related to mining operations
  • Risks related to the accident at Berezniki-1
Detailed risks map
  • Work-related fatal injury frequency rate
    (FIFR)

    0.000

  • Lost time injury frequency rate
    (LTIFR)

    0.12

  • Social investments
    (US$ mln)

    $31.7mln

  • Voluntary labour turnover
    (%)

    11.6%

  • Average annual wages (production personnel)
    (US$)

    $15,600

  • Output per capita (production personnel)
    (tonnes per person)

    1,317t/p

  • Energy consumption
    (kWh/tonne)

    155 kWh/t

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  • We are guided by the principles of openness, transparency and risk minimisation for all stakeholders and are committed to continuous improvement in our corporate governance practices
  • Remain committed to openness, transparency and risk mitigation for all stakeholders
  • Political, legal and regulatory risks
  • Compliance with applicable legislation and internal policies
Detailed risks map
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Engaging with
our stakeholders

A proactive stakeholder engagement programme helps us to respond effectively to changes in the Company’s operating environment. This table identifies our key stakeholder groups. It outlines why we engage with them and reflects the key sustainability issues and progress on our performance and engagement with them.

As a vital element of the Company’s strategy, the reliable and transparent relationship with our customers and partners drives the Company’s performance. Positioned as an industry leader, Uralkali aims to sustain this mutually beneficial partnership to ensure progress and promote development in all spheres.

Customers:

  • The quality of goods and services provided
  • Reliability of supplies
  • Mandatory compliance with contract provisions and legal requirements
  • Client support for the use of the Company’s products

Partners:

  • Procurement standards outlined in all tenders
  • Rigorous due diligence of all partners to establish their integrity and solvency
  • Publication of regular market bulletins on the website.
  • Meetings with customers, including industry conferences, round tables and workshops
  • Master classes and practical training in mineral fertiliser use
  • Customer surveys
  • Procurement standards and information on the Company’s tenders and procurement plans
  • Meetings with (potential) suppliers and business partners
  • Conclusion of supply contracts for products and monitoring performance of requirements for counterparties.

As a publicly listed company we need to provide open, timely and transparent information to help our investors make informed decisions about our financial and non-financial performance.

  • Corporate governance
  • Financial results
  • Potash market developments
  • Strategy and KPIs
  • Risks
  • Sustainability information
  • Presentations, webcasts and conference calls between management and financial community
  • Website publication of relevant AGM/EGM documents
  • Management’s presentations at industry and regional conferences
  • Meetings between management and financial community, including road shows and industry conferences
  • Investor and analyst days, including site visits
  • General meetings of shareholders
  • Perception studies among investor and financial community
  • Press releases on material issues and key company events

Every aspect of our strategy is based on the commitment of our people. Their knowledge, their willingness to work and their satisfaction are the keys to the Company’s successful operations. We put an emphasis on creating the conditions for professional and career growth for our people. It is essential for us, and strengthens loyalty to the business.

  • Principles of social partnership
  • Mutual respect and trust that underpin HR Policy
  • Financial and non-financial incentives
  • Learning and development opportunities
  • Health, safety and environmental standards
  • Employing HR Policy and Health and Safety Policy
  • The system of internal communications and feedback
  • Regular meetings between management and employees
  • Feedback on hotline messages
  • Ensuring safety in the workplace
  • Implementation of social programmes and financial incentive programmes
  • Employee satisfaction and employee engagement surveys

Efficient cooperation with the trade unions is essential for the Company in understanding and fulfilling employees’ expectations. Trade unions help to monitor the implementation of all health and safety rules and other important agreements.

  • Employees’ loyalty
  • Compliance with health and safety regulations
  • Feedback from employees
  • Important decisions on social issues
  • Reports on execution of the provisions and development of the Collective Bargaining Agreement and health and safety agreements
  • Regular face-to-face meetings with management and trade union members
  • Collecting written opinions on material and social issues

The Company’s leading position implies a responsibility to follow industry standards and comply with local and international laws and regulations.
Uralkali aims to establish and maintain stable and constructive relations with national and local government authorities, based on the principles of accountability, good faith and mutual benefit.

  • Reporting to regulators
  • Taxation
  • Planning and implementing local community development projects and social projects
  • Maintaining a dialogue with government authorities on current legislative and regulatory issues
  • Corporate philanthropy
  • Information disclosure and reporting
  • Dialogue with government authorities on legislative and regulatory issues
  • Development of partnership agreements
  • Participation in workshops and expert panels
  • Implementation of joint projects
  • Local community development planning

The development of the Company needs to be supported by the local communities wherever it operates.
Sustainability of ecosystems, biodiversity and a healthy environment are vital conditions for the wellbeing of future generations.
A better quality of life for our people and local communities through our social and cultural projects contributes to regional social and economic development and ensures the sustainability of our operations, helping us to fulfil our commitments as an industry leader.

  • Environmental safety and mitigation of the consequences of industrial accidents
  • Housing infrastructure development and modernisation
  • Social infrastructure development and modernisation
  • Sports development
  • Supporting cultural events
  • Support for disadvantaged sections of the community
  • Meetings with representatives of local communities
  • Economic, environmental and social initiatives
  • Implementation of CSR projects and local community development programmes
  • Assisting in the design of development plans for the regions in which Uralkali operates
  • Publications in local media
  • Public consultations
  • Maintaining contacts with NGOs

The Company needs accurate and timely coverage by the various media channels when disclosing its financial and operational results, important external and internal events, community involvement, participation in industry conferences, international and local exhibitions, etc.
The correct perception of the Company and its strategy by all stakeholders is mutually beneficial for Uralkali and its target audiences.

  • Adequate media coverage of the Company’s strategic messages
  • Timely disclosure of corporate news and events
  • Getting feedback from the society and international media
  • Maintaining the relationship with stakeholders at all levels
  • Press releases on material issues and key events
  • Interviews with management
  • Media visits and press conferences
  • Relationship building events for media
  • Perception studies among target media

Committed to devepment
and responsibility

“We seek to apply global best practices in our own organisation and
introduce them into our relations with our business partners.”
- Sir Robert Margetts, Chairman of the CSR Committee

Health & Safety

Employee Safety

Why these issues are
important to us

Absence of fatalities, incidents, accidents and occupational diseases is one of the key goals of an efficient business. Each employee expects to work in a healthy environment. At the same time the Company expects its employees to follow the safety rules. Jointly supporting these principles we will be able to bring our business to a higher level of performance and a sustainable future.

Health & Safety

Key priorities

  • Absence of fatalities.
  • Absence of industrial accidents.
  • Prevention and reduction of occupational diseases amongst employees.

Environmental
protection

Environmental Protection

Why these issues are
important to us

Sustainability of ecosystems, biodiversity and a healthy environment are vital conditions for the wellbeing of future generations. For this reason, a responsible approach to the environment is core to our business.

Environmental
protection

Key priorities

  • Reduction of waste discharges into water, balanced water consumption.
  • Efficient waste management.
  • Reduction of air emissions.
  • Minimisation of energy consumption and CO2 emissions.

Our people

Our people

Why these issues are
important to us

The successful realisation of a business strategy is entirely dependent on people: their management skills, professional knowledge and commitment to the Company’s values and corporate ethos. Therefore, Uralkali creates ideal conditions for professional growth and career progression and develops ways to build and strengthen company loyalty and team efficiency.

Our people

Key priorities

  • Provide the business with qualified personnel
  • Increase workforce productivity
  • Increase staff loyalty and commitment
  • Improve HR processes

Our communities

Development of our communities

Why these issues are
important to us

Realisation of major projects is a very demanding task without an open dialogue within society as we work for sustainable development in the territories where the Company operates. We improve the living standards of local communities and create a close partnership with society.

Our communities

Key priorities

  • Socio-economic development in the regions where we operate.
  • Provision of comfortable and safe living conditions.
  • Partnership, trust and efficient dialogue with local communities and legal authorities.

Reinforcing our
leading position

“The Company is well positioned for 2014 and beyond as global demand recovers.”
Alexander Voloshin

Chairman of the Board of Directors Independent Director

Read full statement

Meet our new Chairman

I highly value the trust shown in me by the Company’s shareholders.
In cooperation with the management, we will work efficiently in the interests of all shareholders while observing corporate governance best practices.

Sergey Chemezov

A year
of transition

“The challenging market environment in H1 2013 had a negative impact on our operational and financial results. However, following the adjustment in the Company’s sales strategy in July 2013, we saw some improvement in H2 2013 and are planning to maintain this momentum in 2014.” Viktor Belyakov, CFO

1. Calculated on a pro-forma basis, including financial results of Uralkali and Silvinit starting from 2011, except for earnings per GDR which is calculated on an IFRS basis.
2. Net revenue represents adjusted revenue (sales net of freight, railway tariff and transhipment costs).
3. EPS is calculated as net profit divided by the weighted average number of GDRs in issue.
4. EBITDA is calculated as operating profit plus depreciation and amortisation and does not include one-off expenses.
5. LTIFR is calculated based on the total number of lost time injuries per 200,000 hours worked.