Download Annual Report 2006 - Foskor

CHIEF EXECUTIVE OFFICER’S REVIEWWe takephosphaterock fromthe earth.OVERVIEWThe challenges Foskor faced in the 2005/2006financial year were many and varied and anotherinteresting year was experienced, leading to theGroup being on the brink of a major turnaround.The challenge in respect of proving our safetyand environmental responsibility persisted at theRichards Bay plant. Unfortunately, on 3 February2006, Mr Xulu from a contracting firm lost hislife when he fell approximately 25 metres fromthe rock store roof. Further to this, the operationhad eight disabling incidents concerning ownemployees. A fire destroyed the main sulphur feedconveyor on 3 March 2006 and two reportableenvironmental incidents occurred at the plantin Richards Bay: the first was an ammonia leakin June 2005 and the second a sulphur trioxideemission from Sulphuric Acid Plant A inNovember 2005.The first year of the involvement of the StrategicEquity Partner, Coromandel Fertilisers Limited(CFL) from India, has drawn to a close. TheBusiness Assistance Agreement (BAA) with CFLhas culminated in the Richards Bay operationachieving record production levels.The Foskor Board and Executive Managementhave again reviewed the Foskor strategic directionand identified the strategic key initiatives that arenecessary for the short and medium term in orderto achieve the corporate vision and mission.FINANCIAL PERFORMANCEGroup revenue increased by R768m or 43%,from R1806m (annualised) in 2005, to R2574min 2006. Approximately 40% of the increasein revenue originates from a tolling agreementbetween Foskor and Sasol Nitro for themanufacture of phosphoric acid and deflorinatedacid. A 33% increase in volume of phosphoricacid sales from Richards Bay and price increasesapproaching 10%, made up the balance.Coromandel Fertilisers Limited (CFL), to providetechnical, operational, maintenance, purchasingand business assistance to Foskor. The underlyingprinciple of the BAA is to remunerate CFL forits efforts to improve Foskor’s Earnings beforeInterest and Tax(es) (EBIT) over and abovethe ongoing initiatives of Foskor. CFL is also acustomer of Foskor and the majority shareholderof Godavari Fertilisers and Chemicals (GFCL) ofIndia, in which Foskor has a 5% shareholding.Remuneration in terms of the BAA agreementis discussed in the Directors’ Report elsewhere.The real financial benefits cannot be measured atthis stage with sufficient reliability, although theimpact can be felt at the operational level.The financial remuneration payable to CFL islimited to a maximum of R300m and will beutilised to purchase further equity in Foskor ifand when audited at the end of the measurementperiod.PRODUCTION AND OPERATIONSThe Phalaborwa division produced 2.528m tons ofphosphate rock, which is 6, 2% below budget. Oremined was on budget. Waste removal was 6.7mtons, which was 2.9% below the budget. Accidentdamage to a large haul truck, which reducedthe fleet size by 8.3% for a part of the year,substantial downtime on the Extension Eight millat the beginning of the year, and lower recoverieson two of the streams were the major contributingfactors to these variances. This improved towardsthe latter half of the financial year. Costs have beenwell contained and ended on 4.7% below budget(11.5% below budget including copper credits).Extension Eight has achieved the best performanceto date and is performing as well as can be expected,but the Loesche mill remains a bottleneck in theproduction stream. Extension Eight ended the year10.4% below budget, but in the past three monthsit has achieved 3.0% above budget. A project hasbeen launched to evaluate de-bottlenecking theExtension Eight production stream.The Group achieved a major turnaround inprofitability of R552m, from a net loss after taxof R477m in 2005 to a net profit after tax ofR75m for the year under review.BUSINESS ASSISTANCE AGREEMENTIn February 2005, Foskor entered into a BAA withProduction cost of phosphate rock was wellcontrolled. The negative effect of lower thanbudgeted production was offset mainly by thehigh copper price reflected in the copper credits,but also by strict cost control and further costreduction initiatives that has been successfullyimplemented during the year.6