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Chairman's statement
As we entered 2009, we knew that we would face a challenging year. EuroChem was well positioned, however, to navigate this difficult period and was able to remain flexible in the changing market conditions: the company produced and sold more fertilizers in 2009 than it did in 2008. While lower prices drove financial indicators lower, EuroChem earned a profit of 11.1bn roubles in 2009, generated operating cash flow of 17.5bn roubles and, most importantly, continued to invest in the efficiency of its existing business and growth into new segments. Total capital expenditure in 2009 was 18.7bn roubles, broadly in line with 2008.
These investments, and the investments that we have been making since 2002, put EuroChem on track to achieve its strategic goal of becoming a top-five global fertilizer producer by nutrient capacity and profitability within the next five years. We plan to achieve this goal by countering the effects of rising domestic costs (primarily gas and railway tariffs) in the nitrogen and phosphate businesses through increased efficiency, new value-added products and enhanced logistics operations and by developing distribution channels in target markets of Russia, the CIS, Europe and the Americas.
The key value driver for EuroChem, however, is our planned entry into the potash segment. We are well positioned to become one of the global leaders in potash by cost-efficiency starting in 2013, and by production volumes over the next seven/eight years. Short term volatility in the potash market has no bearing on the pace of this investment, and the threat of overcapacity from new entrants will be offset by EuroChem’s position as a cost leader.
We have gained economic exposure to the potash sector even before we launch our own operations through our stake in K+S AG. As a sign of our belief in the long-term outlook for the company, both EuroChem and its parent company MCC Holding Ltd decided to support the November 2009 rights issue by K+S AG. Time will show whether our shareholding leads to closer strategic cooperation between EuroChem and K+S AG.
In addition to strategic progress in our business segments, we continued to strengthen the institutions that govern our company in 2009. Our objective has been to raise EuroChem’s corporate governance to a level that would be expected of a publicly traded international company and we believe this has largely been achieved – before the company has declared any specific plans to become public. Going forward, the Board of Directors will continue to focus on oversight of strategy execution and the development of our management and control systems.
We take pride in EuroChem’s position as a responsible corporate citizen: our corporate social responsibility programme was named the best in the Russian chemical sector in 2009, and we continued to invest in the health and safety of our workers and the communities where they live. Key safety and environmental indicators maintained their trend toward fewer accidents, lower emissions and more efficient energy use. These are not only priorities from a competitive standpoint, but are also key to the long-term sustainability of our business as a part of the Russian economy.
Looking ahead, there are undoubtedly still rough spots to be dealt with in the near term, but we are cautiously optimistic about the future. The global economy is showing signs of recovery and our markets are stabilizing following a difficult year. Last year we promised our stakeholders that, despite the crisis, EuroChem had “the power to grow”. We delivered by reaching the end of 2009 profitable, financially sound, with our long-term strategy unchanged and execution on track. The next round of growth starts now, and it starts here, with EuroChem.
