eurochem-annual-report-2011

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Business review Chief Executive’s review “ We celebrated our tenth anniversary with record financial results. In a period marked by credit fears and macroeconomic uncertainty, the unique fundamentals of our industry once again stood out as a reminder of the crucial role our products play. As we proceed with the integration of newly acquired assets and move further down the path to potash, we are now strategically positioned for unparalleled value creation and growth.” Dmitry Strezhnev Chief Executive Officer 12 EuroChem Annual Report and Accounts 2011 i Follow our path to potash See pages 44-47 2011 will be remembered as a transformational year for EuroChem. While we continued working on adding potash to our production mix, we also ventured further upstream and refined our global footprint. We started the year with a great first half performance and, despite the macroeconomic gloom that followed, we closed 2011 with revenues of RUB 131bn and EBITDA of RUB 50bn, which represented increases of 34% and 66% on the previous year, respectively. While nitrogen and phosphate fertilizer sales volumes remained fairly stable, we saw a noticeable increase in the share of higher-margin products. Investments in granulated urea production proved justified as sales of this premium urea product increased 32% year-on-year. In potash, delays in the sinking of the Gremyachinskoe cage shaft prompted us to halt the cementation process in favour of freezing technology. By using this very same technology, the sinking rate at the future mine’s skip shaft #1 remained steady throughout the year and the VolgaKaliy team had reached a depth of 400 metres by year end – and 506 metres as of 15 March 2012. At the same time, we went ahead and brought forward the sinking of skip shaft #2. While the start of production at VolgaKaliy is now unlikely before 2014-15, we nevertheless aim to reach a full annual capacity of 4.6 MMT in 2016-17. In retrospect, this delay further validated our initial decision to mitigate sinking risks by using two competing technologies. Building on our experience with freezing technology, we announced the start of active sinking at our second potash project. Sinking at the Verkhnekamskoe skip shaft #1 began in December and work on the cage shaft followed in March 2012, leading us to pencil in 2016 for initial production. While we expect VolgaKaliy to complete the sinking of the skip shaft #1 in early 2013, the next months will continue to represent considerable risks as we cross significant aquifers under increasing pressures. Combined, the risks and commitment these investments represent constitute the sizeable barriers to entry which make potash such a unique product. In nitrogen, we complemented our investments targeting efficiency improvements at our two nitrogen plants with the acquisition of natural gas assets in Western Siberia and downstream nitrates and NPK production in Belgium. With sufficient existing capacity to meet up to a quarter of our annual needs, the former should, over time, boost our ammonia gas efficiency and support our cost advantages. Meanwhile, the BASF fertilizer assets fit perfectly within our manufacturing footprint strategy by providing us with both a world-class production base from which to grow our position in the premium European market, and the ideal platform to expand our global sales.
A record RUB 131bn in revenues 66% increase in EBITDA In phosphates, we updated the wet-process phosphoric acid shop at Phosphorit and proceeded with the overhaul of the plant’s industrial measurement and monitoring equipment. We continued our dialogue with the Kazakh authorities to secure additional feedstock reserves for our phosphate facilities and are now expecting to start phosphate rock mining from 2013. In our phosphate raw material mining operations, we announced plans to allocate in excess of RUB 97m to Kovdorskiy GOK to implement a series of measures to upgrade production processes and equipment, increase production efficiency and further enhance environmental protection. Our environmental programmes were praised as the best in Russia last year. As part of our efforts to better understand and address the impact of our operations, we installed environmental monitoring stations near our Nevinnomysskiy and EuroChem-BMU plants and launched the award-winning “Novomoskovsk Clean Water Program.” In mid-year, we reached a milestone in our logistics development with the operational debut of our Tuapse Transhipment Terminal. The terminal is a key future driver of the global competitiveness of our Gremyachinskoe potash production. Most importantly, as our track record shows, we have accomplished all the above at a reasonable price. By prioritising sound and prudent financial management we have not only secured sustainable and profitable production and shareholder returns, but also placed EuroChem in a position to seize further value-building opportunities. 2011 2012 March • Two air-quality monitoring stations are installed at Nevinnomysskiy Azot. • Decision to allocate RUB 1.5bn to tackle effluent emission at Novomoskovskiy Azot in a programme running through to 2015. May • EuroChem officially launches the Tuapse Transhipment Terminal. June • Commissioning of the Gremyachaya rail station. July • EuroChem cargo ships pioneer use of the Northern Sea Route to deliver iron ore concentrate to China. • EuroChem secures a five-year USD 1.3bn Pre-Export Finance term loan facility from a pool of 15 banks, making it the largest bank debt financing in the chemicals sector in Central and Eastern Europe since 2009. August • The Tuapse terminal successfully completes its inaugural loading operations. • EuroChem takes top honours at the seventh annual “Best National Russian HR programme” awards. September • Fitch reaffirms EuroChem at “BB” with stable outlook. • EuroChem announces its intention to acquire 100% of BASF’s fertilizer assets in Antwerp, Belgium. October • EuroChem-VolgaKaliy named “Prospector of the Year” at the seventh international MINEX mining forum. • Standard & Poor’s confirms EuroChem’s corporate credit rating of “BB”/stable. • EuroChem signs long-term RUB 20bn loan agreement with Sberbank. November • EuroChem recognised as Russia’s 2011 Corporate Charity Leader by the Russian Ministry of Economic Development for its youth programmes and regional development of ice sports. • The Russian Union of Industrialists and Entrepreneurs rewards EuroChem for its implementation of environmental monitoring networks. January 2012 • EuroChem completes the acquisition of 100% of natural gas operator Severneft-Urengoy. • EuroChem announces plans to invest USD 32m in environmental protection at its Phosphorit plant. March 2012 • EuroChem completes its acquisition of BASF’s fertilizer assets in Antwerp, Belgium. Annual Report and Accounts 2011 EuroChem 13 Business review
Page 1 and 2: Enabling our future Annual Report a
Page 3 and 4: ...by supplying world markets Our s
Page 5 and 6: 2011 Operational highlights > Succe
Page 7 and 8: Potash 912 MMT of proven and probab
Page 9 and 10: 16 Estonia Lithuania 7 14 15 Belaru
Page 11 and 12: Raw materials Up to 80% self-suffic
Page 13: Ten years of performance Ten years
Page 17 and 18: 4. Global economy Emerging economie
Page 19 and 20: Ranking by nutrient capacity MMT p.
Page 21 and 22: Despite the significant breakthroug
Page 23 and 24: Business review Our strategy Our st
Page 25 and 26: Enabling our future... ...by supply
Page 27 and 28: 7billion World population in 2011 9
Page 29 and 30: Severneft-Urengoy Novy Urengoy, Yam
Page 31 and 32: Environmental footprint -16% decrea
Page 33 and 34: Our commitment We have committed US
Page 35 and 36: Vertical integration > 2.8 MMT p.a.
Page 37 and 38: Employee participation Our employee
Page 39 and 40: The following table highlights our
Page 41 and 42: Nitrogen segment RUBbn, or as indic
Page 43 and 44: Over the next five years (2012-2016
Page 45 and 46: Phosphate segment RUBbn or as indic
Page 47 and 48: EuroChem’s main planned investmen
Page 49 and 50: i Along with nitrogen and phosphate
Page 51 and 52: Distribution RUBbn, or as indicated
Page 53 and 54: i At Tuapse, one of our priorities
Page 55 and 56: Cost of sales and gross margin As i
Page 57 and 58: 2011 2010 2009 RUBm % of total % ch
Page 59 and 60: Balance sheet Working capital Worki
Page 61 and 62: Environment We’ve come a long way
Page 63 and 64: Occupational health and safety We s
Page 65 and 66:
Strategic risks We classify as stra
Page 67 and 68:
Area Ref. code Nature Description S
Page 69 and 70:
Richard Sheath Audit Committee Chai
Page 71 and 72:
Nikolay Pilipenko Audit Committee Q
Page 73 and 74:
Where did we focus in 2011? The Boa
Page 75 and 76:
The Strategy Committee The Strategy
Page 77 and 78:
1 Andrey Melnichenko (39) Chairman
Page 79 and 80:
Financial information Consolidated
Page 81 and 82:
Financial information Consolidated
Page 83 and 84:
Financial information Notes to the
Page 85 and 86:
2 Basis of presentation and signifi
Page 87 and 88:
2 Basis of presentation and signifi
Page 89 and 90:
3 Critical accounting estimates, an
Page 91 and 92:
4 Adoption of new or revised standa
Page 93 and 94:
6 Segment information continued The
Page 95 and 96:
8 Intangible assets Note Acquired s
Page 97 and 98:
10 Mineral rights continued As of 3
Page 99 and 100:
13 Cash and cash equivalents and fi
Page 101 and 102:
15 Bank borrowings continued Intere
Page 103 and 104:
17 Derivative financial assets and
Page 105 and 106:
22 Distribution costs Distribution
Page 107 and 108:
26 Income tax continued The movemen
Page 109 and 110:
29 Business combinations Acquisitio
Page 111 and 112:
31 Contingencies, commitments and o
Page 113 and 114:
32 Financial and capital risk manag
Page 115 and 116:
Page 117 and 118:
Page 119 and 120:
Financial information Main producti
Page 121 and 122:
Q4 2010 Q3 2010 Q2 2010 Q1 2010 201
Page 123 and 124:
Forward-looking statements This ann
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