Management report
Phosphates
Phosphate segment
The phosphate segment saw a significant rebound in both prices and volumes in 2010, with the average price for DAP during the year 48% higher at USD 485/tonne (FOB Baltic) vs. USD 328/tonne (FOB Baltic) in 2009. Segment sales and EBITDA rose by 56% and 279% to RUB 48.5bn and RUB 16.8bn respectively (2009 sales: RUB 31.1bn, EBITDA: RUB 4.4bn; 2008 sales: RUB 52.0bn, EBITDA RUB 20.1bn). DAP and MAP combined sales volumes increased 11% year on year in 2010, reaching 1.85 mt vs. 1.63 mt a year earlier. As prices rose during the reported period, we benefited from our position as an integrated producer, supplying 80% of our own raw material (apatite) from the Kovdorsky GOK mine and beneficiation plant for phosphate fertilizer production.
Iron ore, a co-product of our apatite mining operation, also made a significant contribution to the phosphate segment result. Sales volumes increased 10% to 6.12 mt in 2010 from 5.58 mt in 2009 on the back of continued strong demand from China. Iron ore prices also increased, averaging USD 152/tonne in 2010 compared to USD 85/tonne (CIF China) in 2009. The non-fertilizer mining contribution to EBITDA in 2010 amounted to RUB 7.6bn.
We are a competitive producer of phosphate fertilizers due to a combination of our vertically integrated business model, high-quality raw material from Kovdorsky GOK, relative proximity to key markets and lower cost of sulphur. Sulphur prices, which were significantly lower in 2009, rose again in 2010: the average price of sulphuric acid for EuroChem-BMU rose 111% and for Phosphorit 39%compared to 2009. Our result in this segment was also 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. While prices rose across all major cost lines in 2010, significantly higher prices and volumes for phosphate fertilizers and iron ore contributed to a very strong segment result.
Sales to North and South America increased in 2010 vs. 2009 as demand recovered in these markets and supply chains were restocked.
| USD/tonne | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 |
|---|---|---|---|---|---|---|
| DAP (FOB Baltic Sea) | 237 | 246 | 411 | 923 | 328 | 485 |
| MAP (FOB Baltic Sea) | 233 | 245 | 408 | 930 | 329 | 484 |
Sources: Fertecon, The Market.
| RUB bn or as indicated | 2010 | 2009 | Change 2009-2010 |
2008 | Change 2008-2009 |
|---|---|---|---|---|---|
| Revenue (including sales to other segments) |
48.5 | 31.12 | 56% | 52.02 | (40%) |
| Cost of sales | (24.22) | (20.33) | 19% | (23.05) | (12%) |
| Gross profit | 24.28 | 10.80 | 125% | 28.97 | (63%) |
| Other expenses | (9.26) | (7.86) | 18% | (9.98) | (21%) |
| EBIT | 15.02 | 2.94 | 411% | 18.99 | (85%) |
| EBITDA | 16.79 | 4.43 | 279% | 20.15 | (78%) |
| Gross profit margin | 50% | 35% | 15pp | 56% | (21pp) |
| EBIT margin | 31% | 9% | 22pp | 37% | (28pp) |
| EBITDA margin | 35% | 14% | 21pp | 39% | (25pp) |
| Capex | 4.94 | 2.65 | 86% | 3.0 | (8%) |
| Net working capital | 12.81 | 4.55 | 182% | 5.7 | (21%) |
| Fixed assets | 18.15 | 14.93 | 22% | 14.0 | 8% |
| Total capital employed | 30.96 | 19.47 | 59% | 19.75 | 0% |
| ROCE | 83% | 15% | 68pp | 96% | (81pp) |
| Staff | 6,808 | 7,492 | (9%) | 7,860 | (5%) |
Production (MMT) |
|||||
| Apatite | 2.70 | 2.51 | 8% | 2.56 | (2%) |
| Iron ore | 5.70 | 5.57 | 2% | 5.42 | 3% |
| MAP | 0.94 | 0.67 | 40% | 0.72 | (7%) |
| DAP | 0.91 | 0.96 | (5%) | 0.79 | 22% |
| NP, NPK | 0.10 | 0.07 | 43% | 0.16 | (58%) |
Sales, including sales to other segments (MMT) |
|||||
| Apatite | 0.21 | 0.22 | (5%) | 0.27 | (21%) |
| Iron ore | 6.12 | 5.58 | 10% | 4.69 | 19% |
| MAP | 0.96 | 0.72 | 33% | 0.63 | 15% |
| DAP | 0.89 | 0.95 | (6%) | 0.76 | 26% |
| NP, NPK | 0.11 | 0.07 | 57% | 0.13 | (47%) |
| Tonnes of output per employee | 1,520 | 1,305 | 16% | 1,228 | 6% |
Phosphates sales by region 2010 (%)
| 2010 | p.p. change 2009-2010 | |
|---|---|---|
| 1 Russia & CIS | 34% | – |
| 2 Asia | 29% | -3 |
| 3 Europe | 18% | -6 |
| 4 Latin America | 13% | +8 |
| 5 North America | 5% | +4 |
| 6 Africa | 1% | -3 |
Phosphates sales by product 2010 (%)
| 2010 | p.p. change 2009-2010 | |
|---|---|---|
| 1 MAP, DAP | 53% | -4 |
| 2 Iron ore | 32% | +6 |
| 3 Feed phosphates | 6% | +1 |
| 4 Apatite | 3% | -1 |
| 5 NP, NPK | 2% | – |
| 6 Other products | 5% | – |
+56%
Increase in phosphate revenues compared to 2009.