Management report
Nitrogen
Segmental revenues (both volume and value) are shown gross, i.e. inclusive of intrasegment sales. A reconciliation of segmental revenue to external revenues is provided after the segment review on this page.
Nitrogen segment
While application of nitrogen fertilizers is generally more uniform across economic cycles, sales volumes and prices improved in 2010 as supply chains were restocked globally after being kept empty between selling seasons through most of 2009 and early 2010. Segment sales increased 19% to RUB 42.7bn from RUB 39.6bn a year earlier (2008: RUB 55.9bn). Segment EBITDA increased by 46% to RUB 13.6bn in the reported period from RUB 9.3bn a year earlier (2008: RUB 23.9bn). Sales volumes for urea and ammonium nitrate (AN) increased by 13% and decreased by 7% both to 1.71 mt respectively in 2010. Average urea prices during the reported period were 15% higher at USD 288/tonne (FOB Black Sea), while AN was 38% higher at USD 231/tonne (FOB Black Sea) compared to 2009. Increased sales volumes in the organic synthesis product methanol, which is also reported in the nitrogen segment, also contributed to the result, organic synthesis products represent only a small portion of segment volumes and revenues.
Expenses for natural gas used as a raw material at our nitrogen plants increased by 30% to RUB 12.0bn in 2010 from RUB 9.3bn in 2009. For a discussion of the impact of natural gas prices on EuroChem’s business, see this page. Through capex aimed at improving efficiency and reducing natural gas consumption, we have successfully made incremental improvements on the amount of gas used per tonne of ammonia, which is illustrated in the table below:
| 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |
|---|---|---|---|---|---|---|---|---|
| Novomoskovskiy Azot* | 42.15 | 42.36 | 39.80 | 40.00 | 41.10 | 40.01 | 39.42 | 39.2 |
| Nevinnomysskiy Azot* | 37.38 | 36.55 | 36.91 | 37.16 | 36.73 | 37.12 | 36.58 | 36.0 |
| Most efficient plant out of 50 plants globally | 32.5 | |||||||
| Average of 50 plants globally | 38.0 |
* Based on actual annual average caloric content of gas supplied to plants.
Source: EuroChem, Integer research.
The regional breakdown of sales in 2009-2010 was overall stable, with some increase in the share of sales to North America due to significant supply-chain restocking that took place during the reported period.
Through investments in new production lines (2009: launched granulated urea and CAN; 2010: launched second granular urea line; 2011: planned launch of melamine line), we have been able to increase product flexibility and reduce the gas content per unit in some of our products. In line with our strategy we have sought to increase sales of higher-margin products like CAN, urea and complex fertilizers, as opposed to low-margin products like ammonia. Investments and other measures taken to improve efficiency are represented by a 6.5% increase in tonnes of ammonia produced per employee, from 337 in 2009 to 358 in 2010.
| USD/tonne | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 |
|---|---|---|---|---|---|---|
| Urea (FOB Black Sea) | 219 | 222 | 306 | 492 | 250 | 288 |
Sources: Fertecon, Fertilizer Week, FMB, The Market.
| RUB bn or as indicated | 2010 | 2009 | Change 2009-2010 |
2008 | Change 2008-2009 |
|---|---|---|---|---|---|
| Revenue (including sales to other segments) |
47.22 | 39.58 | 19% | 55.92 | (29%) |
| Cost of sales | (25.04) | (20.30) | 23% | (18.85) | 8% |
| Gross profit | 22.17 | 19.28 | 15% | 37.07 | (48%) |
| Other expenses | (10.25) | (11.36) | (10%) | (14.79) | (23%) |
| EBIT | 11.92 | 7.92 | 51% | 22.28 | (64%) |
| EBITDA | 13.57 | 9.31 | 46% | 23.87 | (61%) |
| Gross profit margin | 47% | 49% | (2pp) | 66% | (17pp) |
| EBIT margin | 25% | 20% | 5pp | 40% | (20pp) |
| EBITDA margin | 29% | 24% | 5pp | 24% | – |
| Capex | 5.25 | 6.79 | (23%) | 7.01 | (3%) |
| Net working capital | 2.43 | 3.72 | (35%) | 7.02 | (47%) |
| Fixed assets | 27.94 | 24.21 | 15% | 19.18 | 27% |
| Total capital employed | 30.37 | 27.93 | 9% | 26.20 | 8% |
| ROCE | 39% | 28% | 11pp | 85% | (57pp) |
| Staff | 7,701 | 8,285 | (7%) | 9,146 | (9%) |
Production (MMT) |
|||||
| Ammonia | 2.76 | 2.79 | (1%) | 2.57 | 8% |
| Urea | 1.98 | 1.80 | 10% | 1.51 | 19% |
| Ammonium nitrate | 2.35 | 2.30 | 2% | 2.17 | 6% |
| CAN | 0.15 | 0.03 | 440% | – | – |
| UAN | 0.69 | 0.68 | 1% | 0.93 | (27%) |
| Methanol | 0.43 | 0.32 | 34% | 0.46 | (30%) |
| Acetic acid | 0.16 | 0.17 | (6%) | 0.14 | 18% |
Sales, including sales to other segments (MMT) |
|||||
| Ammonia | 0.52 | 0.64 | (19%) | 0.62 | 3% |
| Urea | 1.71 | 1.51 | 13% | 1.17 | 29% |
| Ammonium nitrate | 1.71 | 1.83 | (7%) | 1.48 | 24% |
| CAN | 0.14 | 0.02 | 770% | – | – |
| UAN | 0.68 | 0.67 | 1% | 0.92 | (27%) |
| Methanol | 0.33 | 0.23 | 43% | 0.38 | (39%) |
| Acetic acid | 0.13 | 0.14 | (7%) | 0.12 | 17% |
| Tonnes of ammonia produced per employee | 358 | 337 | 6% | 281 | 20% |
Nitrogen sales by region 2010 (%)
| 2010 | p.p. change 2009-2010 | |
|---|---|---|
| 1 Russia & CIS | 36% | +8 |
| 2 Europe | 22% | +2 |
| 3 Latin America | 15% | -3 |
| 4 North America | 12% | +3 |
| 5 Asia | 10% | -9 |
| 6 Africa | 4% | -1 |
| 7 Australasia | 1% | – |
Nitrogen sales by product 2010 (%)
| 2010 | p.p. change 2009-2010 | |
|---|---|---|
| 1 Urea | 31% | +1 |
| 2 Ammonium nitrate | 23% | -2 |
| 3 UAN | 9% | – |
| 4 NPK | 9% | – |
| 5 Ammonia | 9% | -2 |
| 6 Methanol | 6% | +1 |
| 7 Acetic acid | 4% | -1 |
| 8 Other products | 9% | +1 |
+19%
Increase in nitrogen revenues in 2010.