Download Annual Report 2006 - Foskor

CHIEF FINANCIAL OFFICER’S REVIEWThe main drivers influencing the period’s results are tabled below.Key Drivers 2006 2005 2005 2004 VariancePeriod months 12 Annualised 9 12 2006/2005Exchange Rate – R/$ average 6,37 6,17 6,17 6,83 0,20 3%Revenue – R'm 2 574 1 806 1 354 2 051 769 43%Volume – Sales– Phosphoric Acid (P 2O 5) – 000’ tons 581 437 328 435 144 33%– Granular – 000’ tons 177 173 130 296 4 2%– Phosphate Rock – 000’ tons 2 605 2 575 1 931 3 016 30 1%Volume – Production– P 2O 5– 000’ tons 626 541 406 575 85 16%– Phosphate Rock – 000’ tons 2 528 2 791 2 093 2 642 (263) (9)%Prices – Sales (average)– P 2O 5– CFR Price – $/t 440 399 399 356 41 10%– Phosphate Rock – FOR Price – $/t 59 54 54 43,3 5 9%Prices – Raw material cost– Sulphur – delivered – Price – $/t 85 86 86 80 (1) (1)%We use ourphosphate rockto producephosphoric acid.REVENUEGroup revenue increased by R768m or 43% fromR1,806m (annualised) in 2005 to R2574m in2006. The major contributors to the change inrevenue were:• The 3% weakening of the South African Randagainst the US Dollar (US$) from an averageof R6.17/$ during 2005 to R6.37/$ during2006. The positive impact of this change onrevenue exceeds R80m.• The selling prices for both phosphate rock andphosphoric acid are determined in the worldmarket in US Dollar terms. Approximately75% of revenue is derived from exports andmore than 95% of total revenue is based ondollar denominated prices.• Sales volume of phosphoric acid increased by33% from 437k tons (annualised) to 581ktons. All phosphoric sales are exported, mainlyto India. The positive impact of this additionalvolume on revenue has been R366m.• The average CFR price of phosphoric acidincreased by $46/t or 12% from $399/tduring the year to March 2005 to an averageof $440/t ($445/t at year end). The positiveimpact of this price variance has been R152m.• Sales volumes of granular fertiliser increased by2% from 173k tons (annualised) to 177k tons.The positive impact of this on revenue has beenR48m from both price and volume increase.• Phosphate rock sales increased marginally by1% from 2575k (annualised) tons to 2605ktons. More than 75% of the sales are exportedor sold to our Richards Bay plant with thebalance being sold to the local market.• The average FOR price of phosphate rockincreased by 9% from $54/t to $59/t.TOLLING ARRANGEMENT WITH SASOLNITRO• The tolling agreement came into effect as from1 September 2005 whereby Foskor suppliesthe raw materials to Sasol Nitro and sells thefinished goods to the local market. For thisservice, Foskor pays Sasol Nitro a monthlyfixed fee as well as variable charges per productproduced.• The production outputs from Sasol Tollinghas been 113k tons of phosphoric acid, whichincluded 27k tons used to produce def acid.• Sales volumes of phosphoric acid were 82k tonsand 26k tons of def acid. Sulphuric acid salesamounted to 59k tons. All sales were made inthe local market.• The revenue generated from Sasol Tolling salesamounted to R320m.PRODUCTION• Production of phosphoric acid increased by 85ktons or 16%, from 541k tons (annualised) to626k tons. This improvement was achieved withthe assistance from staff seconded to Foskoras per the Business Assistance Agreement(BAA) between Foskor and CoromandelFertilisers Limited (CFL) of India. Productionof granulation increased by 29k tons or 18%,from 161k tons (annualised) to 190k tons.• Production of phosphate rock declined by 9%or 263k tons, from 2791k tons (annualised) to2528k tons. The major reasons for this declineare that Foskorite ore reserves are diminishingrapidly and come to its end in about three yearstime; most of the higher quality ore has alreadybeen processed. Declining grades on the oneFoskorite stream and operational challenges(mineralogical) on the other Foskorite streamhave resulted in lower product output. In10