Phosphates

As with the nitrogen segment, the driving factor in the phosphate segment was prices, which were 65% lower in 2009 than in 2008. Sales (including sales to other segments) and EBITDA in the phosphates segment declined by 40.2% and 78.0% to RUR 31.1bn and RUR 4.4bn respectively (2008 sales: RUR 52.0bn, EBITDA RUR 20.1bn; 2007 sales: RUR 21.7bn, EBITDA: RUR 8.44bn). DAP production volumes increased significantly as a result of an overhaul at Phosphorit that enabled us to produce either MAP or DAP on the same lines (and as a result MAP volumes decreased). Combined MAP and DAP production levels were higher at 1,632 KMT in 2009 than in 2008 (1,508 KMT), but were slightly lower than the 1,710 KMT produced in 2007.

Volumes for iron ore, a mining by-product at our Kovdorskiy GOK apatite mine, increased significantly on the back of continued strong demand from China.

We are a competitive producer of phosphate fertilizers due to a combination of our vertically integrated business model, high-quality raw material from Kovdorskiy GOK, relative proximity to key markets and lower cost of sulphur. Apatite from our Kovdorskiy GOK mining complex supplies nearly all of the raw material consumed by our phosphate plants. Nonetheless our EBITDA in this segment was impacted by rising rail tariffs in Russia as we transport apatite from Kovdor in the far north of Russia to EuroChem-BMU in southern Russia by rail. Sulphur prices were significantly lower in 2009: expenditures on sulphur and sulphuric acid fell 73.1% and 78.3% respectively compared to 2008.

Sales in Russia and the CIS accounted for a larger portion of segment revenues, as our own distribution network grew and increased sales year on year in 2009. Asian sales, which accounted for an abnormally high portion of sales in 2008 due to extremely high demand and prices in that year, fell in 2009 relative to 2008, but were still nearly triple 2007 levels as demand, supported by state subsidies, in that region remained relatively high.

Phosphate segment
      Change   Change
RUR bn or as indicated 2009 2008 2008-2009 2007 2007-2008
Revenue (including sales to other segments) 31.12 52.02 (40%) 29.65 92%
Cost of sales (19.06) (22.19) (14%) (14.50) 55%
Gross profit 12.07 29.83 (60%) 15.15 143%
Other expenses (9.13) (10.84) (16%) (7.70) 14%
EBIT 2.94 18.99 (85%) 7.45 284%
EBITDA 4.43 20.15 (78%) 8.44 232%
           
Gross profit margin 39% 57% (18pp) 51% 12pp
EBIT margin 9% 37% (28pp) 25% 20pp
EBITDA margin 14% 39% (25pp) 28% 17pp
           
Capex 2.65 3.0 (8%) 3.2 2%
           
Net working capital 4.55 5.7 (21%) 4.2 24%
Fixed assets 14.93 14.0 8% 11.7 26%
Total capital employed 19.47 19.75 0% 15.88 25%
ROCE 15% 96% (81pp) 47% 49pp
Staff 7,492 7,860 (5%) 8,417 (7%)
           
Production (MMT)
Apatite 2.51 2.56 (2%) 2.50 3%
Iron ore 5.57 5.42 3% 5.24 3%
MAP 0.67 0.72 (7%) 0.86 (17%)
DAP 0.96 0.79 22% 0.84 (6%)
NP, NPK 0.07 0.16 (58%) 0.09 78%
           
Sales, incl. sales to other segments (MMT)
Apatite 0.22 0.27 (21%) 0.03 753%
Iron ore 5.58 4.69 19% 5.44 (14%)
MAP 0.72 0.63 15% 0.87 (33%)
DAP 0.95 0.76 26% 0.84 (10%)
NP, NPK 0.07 0.13 (47%) 0.10 1%
           
Tonnes of output per employee 1,305 1,228 6% 1,133 8%

Phosphate sales by region
(including sales to other segments)

Phosphate sales by region
  2009
%		 2008
%
–Russia and CIS 35 28
–Asia 32 41
–Europe 23 21
–Latin America 5 7
–Africa 4 1
–North America 1 2

Phosphate sales by product
(including sales to other segments)

Phosphate sales by product
  2009
%		 2008
%
–MAP, DAP 57 59
–Iron ore 26 21
–Feed phosphates group 7 8
–Others 4 3
–Apatite 3 4
–Baddeleyite 1 1
–NP 1 3
–Complex fertilizers 1 1