EuroChem reports audited IFRS financial information for 2010
|Q4 2010||Q4 2009||2010||2009|
|RUB bn||USD m||RUB bn||USD m||Chng||RUB bn||USD m||RUB bn||USD m||Chng|
|Cash from operations||9.0||294||4.6||155||98%||26.2||862||17.5||553||49%|
|31 December 2010||31 December 2009|
|Net Debt/ LTM* EBITDA||1.13||2.21|
Average RUB/USD exchange rate for periods: Q4 2010: 30.71; Q4 2009: 29.47; 2010: 30.37; 2009: 31.72
* Last Twelve Months
Moscow, February 28, 2011 – EuroChem today reported a consolidated IFRS net profit for the year ended 31 December 2010 of RUB 20.1bn, up 81% from RUB 11.1bn in 2009. Consolidated revenues increased 33% to RUB 97.8bn for 2010 from RUB 73.6bn for the previous year. EBITDA for the full year 2010 was RUB 29.9bn, increasing 81% vs. RUB 16.5bn in 2009. The EBITDA margin for the period was 31%, compared to 22% for 2009.
Due to favorable trends in product prices, revenue and EBITDA in Q4 accounted for 29% and 35% of the full-year result. Net profit for Q4 2010 amounted to RUB 8.3bn, up 285% from RUB 2.2bn in Q4 2009.
Fertilizer sales volumes for 2010 were up 8% year-on-year, with combined nitrogen and phosphate volumes at 8,086 thousand tonnes (KMT) (excl. iron ore and baddeleyite). Iron ore and baddeleyite sales volumes increased 10% to 6,124 KMT in 2010 compared with 5,584 KMT for the year 2009.
CEO Dmitry Strezhnev said: “Our results not only reflect the rising prices for our products but also our past investments in the business, which today allow us to produce an increasing proportion of higher-margin products. Fertilizers remain a key part of the global food supply system, the security of which for the global well-being is hard to overestimate – as recent events around the world have shown. We remain committed to increasing our production capacities in response to the long-term growth in demand for our products regardless of economic cycles such as the one we just went through. We have continued to deliver on our strategy, achieving important milestones on our priority investment projects, including additional granulated urea production, heat recapture systems to generate electricity from heat produced during the production stage, as well as our potash projects, where active shaft sinking started at our Gremyachinskoye deposit.”
EuroChem Group is a top ten agrochemical company globally by nutrient capacity. It produces primarily nitrogen and phosphate fertilizers, which are supplied to agricultural producers and related intermediaries worldwide, as well as certain organic synthesis products and iron ore. EuroChem’s main manufacturing assets include Nevinnomysskiy Azot, Novomoskovskiy Azot, Phosphorit, EuroChem – BMU, Kovdorskiy GOK plants in Russia and Lifosa plant in Lithuania. The Group is vertically integrated with activities spanning from mining to production logistics and distribution. EuroChem holds licenses to develop potash reserves in Russia which entitle it to an estimated fifth-largest volume of potash reserves globally.
Consolidated audited financial information for the year ended 31 December 2010 is available on the EuroChem website: http://www.eurochem.ru/investors/financials.
Key financial and non-financial data is also available in the following table.
For more information contact:
|Olivier HarveyHead of Investor RelationsPhone: +7 495 795 25 27 ext 1519
Fax: +7 495 960 22 93E-mail: email@example.com
|Vladimir TorinHead of Public RelationsPhone: +7 495 795 25 27 ext. 1440
Fax: +7 495 960 22 93E-mail: Vladimir.Torin@eurochem.ru
Global economy and agricultural commodities
The supply shocks caused by bad weather/poor crops in many key agricultural regions (Russia, Kazakhstan, Pakistan, Canada, Australia, Argentina, etc.) in 2010 lowered global grain inventories and tightened the supply-demand balance. This, coupled with the global monetary easing, has contributed to the sharp rise in key soft commodity prices, which in turn are boosting farmer finances and their intended consumption of fertilizers.
Credit markets stabilized following their virtual closure during the 2008-2009 financial crisis, helping farmers and distributors finance the purchase of the crop inputs they required.
Combined, all of these factors have led to the robust recovery in fertilizer demand, particularly in the P and K segments, driven by a depleted supply chain coupled with the under-fertilization observed in 2009.
Further tightening in the global fertilizer supply-demand balance was caused by China’s extension of the higher export tax window for urea and MAP/DAP in December 2010.
Global agricultural consumption of nitrogen increased by 2% in 2010, from 101.9 to 103.9 MMT of nutrients. Urea prices averaged USD 287/MT (FOB Black Sea) in 2010, compared to USD 250/MT in 2009. In January 2011 to date, urea prices have averaged USD 374/MT.
Natural gas prices rose in Russia (by 15% in RUB terms to ca. USD 3.1/mmBtu for 2011), Ukraine (to USD 9.5/mmBtu delivered to plant), for Eastern European producers (to USD 9.8-10.5/mmBtu), but remain low in the US. Spot gas in Europe was relatively inexpensive in 1H 2010 at USD 5.8/mmBtu, but climbed to USD 8.5-9.0/mmBtu in Q4 2010 on tightening supply-demand balance. Oil-linked contract gas in Western Europe stood at USD 10.5/mmBtu.
Current marginal producers in Ukraine and Eastern Europe are estimated to break even at USD 280-300/tonne for urea FOB Black Sea.
Rising coal prices continue to push costs up for the Chinese producers. Additionally, China shut down an estimated 4.0-4.5 MMT p.a. coal-based ammonia and urea capacity on environmental and energy concerns.
Global consumption of phosphate fertilizers increased by 7.9% to 39.0 MMT of P2O5 in 2010 from 36.1 MMT of nutrient in 2009. Average DAP prices for 2010 recovered to USD 485/MMT (FOB Baltic) from USD 328/MMT in 2009.
Prices were driven by strong recovery in demand from farmers, low inventory levels and under-fertilization in 2009 (global consumption of phosphates decreased by 12% in 2008 and retreated a further 7% in 2009 compared to 2007) and the delays surrounding the introduction of new capacity.
Environmental issues also influenced the market in 2010, as certain leading phosphate players were forced to temporarily curtail their production of phosphate rock, while some players in Europe completely stopped production of phosphoric acid in 2010.
Global potash sales fully recovered in 2010, amounting to 53 MMT of product (KCl), with global deliveries projected to rise further to 55-56 MMT in 2011. Prices bottomed in early 2010, with China and India respectively settling contracts at USD 350/MMT and USD 370/MMT on a CFR basis.
In early 2011, BPC concluded a 6-month contract with Chinese buyers at USD 400/MMT; spot prices in Brazil and Asia rose to the USD 430-450/MMT level (all expressed on CFR basis).
The industry continues to consolidate with Uralkali and Silvinit merging in Russia, K+S acquiring a majority stake in Potash One (Canada), while the Government of Canada’s intervention in BHP Billiton’s hostile takeover of PotashCorp further highlighted the sector’s strategic role in the global food supply.
EuroChem remains the only clear contender to become a new sizeable player in the market and bring greenfield capacity online any time before 2015.
Segmental revenues (both volume and value) are shown gross, inclusive of intra-segment sales.
Sales volumes for EuroChem’s nitrogen segment increased 5%, from 5,377 KMT in 2009 to 5,671 KMT in 2010 on the back of the overall market recovery. Sales of organic synthesis products, which are also reported as part of the nitrogen segment, were up 23% compared to 2009, amounting to 455 KMT in 2010. Volumes, combined with higher prices on the overall product mix (see Market Conditions above) provided for a 19% increase in revenues for the nitrogen segment, to RUB 47.2bn in 2010 vs. RUB 39.6bn a year earlier. Nitrogen EBITDA for 2010 was RUB 13.6bn, 46% higher than the RUB 9.3bn result for 2009, primarily due to revenues rising faster than costs.
Average gas prices in 2010 for EuroChem’s NAK Azot and Nevinomysskiy Azot nitrogen plants were RUB 2,753 and 2,920 per 1,000m3 respectively (c. USD 2.80 and 2.97/mmbtu), compared to RUB 2,178 and 2,327/1,000m3 (c. USD 2.12 and 2.27/mmbtu) in 2009, following the 15% rise in Russian gas prices effective as of January 2010.
Phosphate segment performance was strong in 2010, with sales growing 56% y-o-y to RUB 48.5bn. Supported by increased volumes and significantly stronger prices, especially for iron ore, which is extracted at the Kovdorskiy GOK apatite mine and reported in the phosphate segment, EBITDA in 2010 was RUB 16.8bn, up 279% compared to RUB 4.4bn in 2009.
MAP, DAP and other phosphate sales volumes increased 14% in 2010 to 2,415 KMT vs. 2,115 KMT in 2009. Iron ore volumes were 6,116 KMT in 2010, which was 10% above the 2009 level of 5,579 KMT. Market prices for iron ore were on average 80% higher (CFR China) in 2010 than during the previous year.
EuroChem made important advances in the development of its potash deposits in the Volgograd (Gremyachinskoye deposit) and Perm (sections of Verkhnekamskoye deposit) regions during 2010 and remains on track to launch its first potash production in late 2013. While the company had initially planned to start developing the Verkhnekamskoye deposit after phase I of the Gremyachinskoye deposit came online, the decision was taken to accelerate development at Verkhnekamskoye, while continuing as planned with Gremyachinskoye, where active shaft sinking is currently underway. As of December 31 2010, EuroChem had proceeded with total investments of RUB 18.7bn and RUB 6.4bn at its Gremyachinskoye and Verkhnekamskoye deposits, respectively.
EuroChem’s Distribution business continued to grow in 2010, despite the summer drought in Russia. Distribution consists of sales of mineral fertilizers as well as items not produced by EuroChem such as seeds, crop protection etc, and services to farmers through its own retail centres in Russia and the CIS.
Sales from EuroChem-owned outlets during 2010 increased to RUB 8.54bn, up 58% from RUB 5.39bn in 2009. This represented 9% of EuroChem’s overall sales for 2010. Distribution segment EBITDA in 2010 was RUB 490m, compared to RUB 22m a year earlier. Segment fertilizer volumes (sales through outlets owned by EuroChem only) rose 50% to 858 KMT of product for 2010 against 573 KMT of product in 2009. In part due to the success and support of the distribution segment, EuroChem estimates that it achieved a Russian market share of 28% in N and 21% in P consumption as of December 31, 2010.
Driven by a recovery in prices and volumes, especially in the P segment, consolidated revenues increased by 33% in 2010 to RUB 97.8bn from RUB 73.6bn in 2009. The recovery in revenues was especially pronounced in the phosphate segment, which was more affected by the global economic downturn in 2009 than the nitrogen segment. Nitrogen fertilizer consumption tends to remain more consistent through cycles due to the critical role it plays for plant growth and the necessity to regularly replenish this nutrient in most soils. Higher prices for iron ore, a co-product of the apatite mining process at Kovdorsky GOK, contributed to the Phosphate segment result as well, adding RUB 15.7bn to segment revenues and ca.RUB 7.6bn to EBITDA. Distribution, while still a relatively small portion of EuroChem revenues, grew both on the economic recovery and continued expansion of the distribution network.
Cost of sales rose 17% in 2010 to RUB 50.2bn from RUB 42.9bn in 2009. This rise was slower than the 33% increase in revenues as nearly all of the major items in the cost structure grew at a slower pace than product prices and EuroChem’s sales during the year. Materials and components used or resold, which traditionally accounts for just over 50% of cost of sales (2010: 56%) increased 30% to RUB 28.4bn in 2010 from RUB 21.9bn in 2009. Overall gas costs for fertilizer production increased by 30% to RUB 2.8bn, or by 26% due to increased prices and by 4% due to increased volumes.
While natural gas prices in Russia continue to increase incrementally, EuroChem continues to enjoy a significant cost advantage over competitors in countries and regions with higher gas prices (Ukraine, Europe). Under the current price liberalization plans of the Russian government, although domestic gas prices are eventually expected to reach netback parity with European prices, cost advantages are expected to remain for Russian gas consumers by virtue of savings on gas transportation costs and the duty levied on natural gas exports.
Energy costs increased 22% to RUB 5.6bn in 2010 from RUB 4.6bn in 2009. This growth was primarily due to rising energy tariffs and, to a lesser degree, due to higher energy use resulting from increased production volumes.
Labour costs (14% of cost of sales in 2010) were up 14% to RUB 7.3bn in the reported period from RUB 6.4bn a year earlier. This was due to a number of factors, including a one-time salary indexation in Q1 2010 and higher bonus accruals on better corporate performance in 2010.
Distribution costs increased 5% to RUB 17.8bn in 2010 (2009: RUB 16.9bn). This was primarily due transportation costs, which account for 87% of the distribution costs line, increasing 8% from RUB 14.2bn in 2009 to RUB 15.4bn in 2010. A combination of factors contributed to the growth in transportation costs, including rising domestic rail transportation tariffs for the company’s products and increased volumes of transportation.
General and administrative (G&A) expenses increased 15% in 2010 to RUB 3.8bn from RUB 3.3bn in 2009. G&A labour costs, which account for 56% of G&A expenses, increased 31% y-o-y to RUB 2.1bn. As above, this increase was due to a one-time salary indexation in Q1 2010 and higher bonus accruals for 2010.
EuroChem’s other operating expenses in 2010 amounted to RUB 17m, compared to other operating income of RUB 225m in 2009 as restored sponsorship activities returned to previous levels and foreign exchange gains (the main reason for the other operating income in 2009) were not as pronounced as in the previous period.
Below the operating profit line, EuroChem received RUB 148m in gross dividend income from its shares in K+S AG in May 2010, compared to RUB 2.2bn a year earlier. Income of RUB 1.4bn came from the sale of shares in K+S during 2010, compared to income of RUB 967m a year earlier. EuroChem booked a financial foreign exchange loss of RUB 390m in 2010 vs. a gain of RUB 748m in 2009 as a result of translation of financial assets and liabilities, denominated in foreign currency – loans, deposits with banks and borrowings, given the slight depreciation of the RUB versus the USD that occurred in 2010.
Interest expense increased 4% year on year as the company continued to pay down the low-rate USD 1.5bn syndicated pre-export facility obtained in October 2008, while securing new longer-term finance at somewhat higher interest rates, as discussed in more detail below.
In 2010 net working capital decreased to RUB 10.8bn from RUB 12.5bn in 2009. This is mainly due to increases in inventories (up 21%) and trade receivables (up 26%) resulting from the recovery in sales in 2010 after the 2009 slowdown and increases in trade and other payables. Current restricted cash declined from RUB 551m reserved for the next principal and interest payments on bank loans in 2009 to RUB 37m held in compliance with regulatory requirements in 2010.
The company uses fixed rate and floating rate debt to finance its operations, and has obtained several new facilities in the course of 2010. In March 2010, the company signed a 10-year USD 261m ECA-backed facility for the construction of the Gremyachinskoye mine cage shaft. During the third quarter, the company signed a USD 250m 5-year credit line agreement, as well as a 13-year EUR 36.7m ECA-backed facility for the purchase of hoisting equipment at the Gremyachinskoye potash mine. New fixed rate debt is represented by two domestic bond issues of RUB 5bn each placed in July and December 2010, due in 2018 with a 5-year put option and coupon of 8.9% p.a. and 8.25%p.a., respectively.
As of 31 December 2010, EuroChem owned 16.7 million shares (8.7% of the issued share capital) of K+S AG, the German potash and salt producer, which had a fair value of RUB 37.9bn at the end of the period based on the price of EUR 56.36 per share.
Net debt to EBITDA declined throughout the year, reaching 1.13x as at December 31, 2010.
Operating cash flow for 2010 was RUB 26.2bn, compared to RUB 17.5bn a year earlier. The increase was primarily due to the higher operating profit. Free cash flow (FCF) was RUB 11.9bn, compared to a negative FCF of RUB 9.5bn in 2009.
During 2010 the company paid dividends to its shareholders of RUB 5.8bn (2009: nil).
Demand for all nutrients increased in Q1 2011 on all markets across the board, as high spring season and the strength in agricultural commodities stimulated farmers to buy more fertilizers to compensate for the previous years’ under-fertilization in phosphates and potash and increase crop output.
Certain delays in new supply (e.g. Qafco V plant now due to start in Q4 2011 compared to previous expectations of mid-2011, Ma’aden not expected to start before Q4 2011 with market impact only toward mid-2012) as well as the widening of the higher-tax window for fertilizer exports from China supported stronger pricing in nitrogen and phosphates in early 2011.
The recent events in North Africa have also affected the market somewhat, as strikes in Tunisia in January-February 2011 resulted in lower production and exports of local phosphates. There were also some suspensions in shipments of urea from Egypt due to political unrest in February, which now appear to have been resolved.
As the spring planting season finishes, there will be a seasonal price correction in nitrogen and phosphates, but overall we expect 2011 average fertilizer prices to be materially higher than in 2010. Iron ore prices remain stronger than previously expected buoyed by Chinese demand.
KEY FINANCIAL AND NON-FINANCIAL DATA
|Nitrogen (including sales to other segments)||14,315||9,882||10,969||12,056||10,303||9,306||9,718||10,250||47,222||39,577||55,920|
|Phosphates (including sales to other segments)||12,782||13,871||12,623||9,226||7,207||8,513||7,319||8,085||48,502||31,124||52,016|
|Other (including sales to other segments)||8,562||7,437||6,576||5,924||5,771||4,906||4,063||5,744||28,499||20,484||28,829|
|Including: revenues from sales of 3d party products||821||168||45||47||381||482||156||705||1,081||1,724||4,044|
|Including: revenues from exports to non-CIS markets||19,113||15,482||15,161||12,436||12,232||12,210||11,987||13,519||62,193||49,948||83,799|
|Including: revenues from exports to CIS markets||2,655||3,394||3,311||3,207||2,250||3,146||2,058||1,578||12,567||9,032||9,284|
|Cost of sales||−13,266||−12,413||−11,800||−12,727||−10,911||−11,155||−9,881||−10,936||−50,206||−42,884||−45,798|
|Including gas and energy||−4,621||−4,308||−4,198||−4,505||−3,998||−3,438||−3,334||−3,100||−17,631||−13,870||−11,899|
|Including other materials and components||−4,821||−4,091||−3,875||−3,558||−3,423||−3,529||−2,699||−2,987||−16,345||−12,639||−21,138|
|Including labour costs||−1,724||−1,672||−1,644||−2,229||−1,626||−1,483||−1,429||−1,825||−7,269||−6,362||−6,446|
|Including changes in work in progress and finished goods||761||−134||95||−137||114||−1,012||−352||−815||585||−2,065||3,090|
|Gross profit margin, %||53%||49%||50%||41%||40%||41%||43%||43%||49%||42%||59%|
|Other operating income / expense, net||250||−779||413||99||41||−521||−585||1,290||−17||225||−325|
|Operating profit margin, %||34%||22%||28%||21%||12%||12%||10%||23%||27%||15%||36%|
|Financial foreign exchange gains / (losses)||−239||984||−2,531||1,396||−56||1,885||4,549||−5,629||−390||749||−3,766|
|Financial income and expense, net||865||−517||−727||−246||576||−37||2,061||−357||−625||2,243||−345|
|Net profit after tax||8,324||4,771||2,488||4,470||2,163||3,258||7,389||−1,735||20,052||11,075||27,889|
|Net profit margin, %||30%||20%||10%||21%||12%||17%||43%||−9%||21%||15%||25%|
|Operating profit before depreciation and amortisation||10,479||6,281||7,511||5,221||3,024||2,944||2,513||5,207||29,492||13,689||43,726|
|EBITDA margin, %||38%||26%||32%||24%||17%||17%||29%||28%||31%||22%||39%|
|Dividends declared in the period||4,236||1,598||−||−||−||−||−||−||5,834||−||10,456|
|Capital expenditure on PP&E and intangible assets||6,877||6,323||4,269||2,994||4,867||4,409||4,316||5,110||20,464||18,702||18,818|
|Net debt (borrowings less cash)||33,893||35,895||34,677||33,406||36,545||35,512||40,240||47,294||33,893||36,545||25,258|
|Net Working capital||10,758||11,474||12,328||11,781||12,481||13,550||15,173||17,742||10,758||12,481||17,886|
|Finished goods, days||28||25||25||26||28||28||32||36||28||28||41|
|Trade accounts receivable, days||10||15||16||15||11||13||7||12||10||11||10|
|Accounts payable, days||16||14||13||12||12||13||11||10||16||12||15|
|Gross cash flow||8,980||5,227||6,441||4,299||2,624||1,936||3,305||5,051||24,947||12,916||33,565|
|Other cash from operations||58||795||−197||592||1,937||1,437||1,099||150||1,247||4,623||−6,809|
|Cash flows from operating activities||9,038||6,022||6,244||4,890||4,561||3,374||4,431||5,174||26,194||17,539||26,755|
|Cash flows from investing activities||−1,266||−6,381||−4,121||−2,563||−4,220||−649||−1,995||−20,181||−14,331||−27,045||−35,543|
|Free cash flow||7,772||−359||2,123||2,327||340||2,725||2,436||−15,007||11,863||−9,507||−8,788|
|Cash flows from financing activities||−4,961||−98||−3,056||−5,227||−4,236||721||−3,671||−690||−13,342||−7,876||18,031|
|Effect of exchange rates||−36||79||28||−371||28||45||−696||2,458||−300||1,834||1,914|
|Net (decrease) / increase in cash and cash equivalents||2,775||−377||−906||−3,271||−3,868||3,490||−1,931||−13,240||−1,780||−15,549||11,157|
|Sales volumes, including sales to other segments (KMT)|
|Organic synthesis products||107||103||128||117||134||91||79||65||455||369||492|
|Mineral raw materials|
|Sales, admin and other||1,909||1,901||1,886||1,901||2,212||2,364||2,459||2,581||1,909||2,212||2,359|
|Average RUB / USD exchange rate for the period||30.71||30.62||30.24||29.89||29.47||31.33||32.21||33.93||30.37||31.72||24.86|
|End of period RUB / USD exchange rate||30.48||30.40||31.20||29.36||30.24||30.09||31.29||34.01|