OREANDA-NEWS. August 12, 2011. Uralkali today (12 Aug) released a robust set of 1H11 RAS financial results.

- Revenues were up almost 50% YoY to more than RUB31.6bn driven by higher capacity utilisation rates (almost 90% in 1H11 vs 83% in 1H10), a 30% YoY increase in average net realised prices as well as the consolidation of Silvinit (from mid-May 2011).

- Due to excellent cost control - CoGS and SG&A rose only a respective 24% YoY and 27% YoY - operating profit ballooned 78% to RUB17.1bn and EBITDA margin reached an astounding 61% (2Q11 EBITDA margin improved vs 1Q11 with a 14 ppts QoQ increase to 67%).

- Net income increased 146% YoY to RUB15.6bn for a net margin of 49%. The effective tax rate decreased to 14% from 17% a year ago. We note that by operating in Perm region, Uralkali enjoys a far better tax regime as the corporate tax there is set at 16% vs 20% in other Russian regions.

- Net debt recorded a nearly 8.5x increase to RUB77.3bn as Uralkali issued RUB bonds to fund the acquisition of Silvinit; in addition, the company assumed Silvinit’s debt of USD 1.5bn.

Bottom line

The results came in rather strong in our view. We note that 2H11 should be even better than 1H11 due to an improved pricing environment (potash spot prices are already testing USD 570 levels) and continued elevated demand.

We note that even during tough times in 2009-10 Uralkali’s EBITDA margin was just a notch below 50%. With more than 80% of revenues coming from exports vs a 100% rouble cost base, we believe Uralkali provides interesting defensive exposure against any potential rouble devaluation. In addition, given its established dividend policy with a minimum payout ratio fixed at 15% (the actual payout ratio was almost 60% in 2010), we think a company with net margin of approximating 50% can be viewed as a sound dividend story to help weather the current high-volatility environment.