Chief Executive’s review
As highlighted by our results, our unique asset base is well positioned to drive and support robust cash flow generation across the business cycle. The ensuing value creation is set to be boosted by our targeted strategic initiatives, such as in potash, nitrogen and phosphates, which will serve to further entrench our resilience
On balance, and in light of the volatile market backdrop, 2013 was a good year for us. Despite the growth in fertilizer demand falling short of market expectations, we continued to challenge ourselves to increase volumes and gain market share and were able to deliver another strong set of results. We took action to further consolidate our position in key markets and our expanding offering of both commodity and specialty products, combined with the growing strength and depth of our vertically integrated model, provided us with the flexibility to unlock value throughout our business.
RESULTS AND OPERATIONS
Our extended asset base helped us mitigate the year’s more challenging market conditions and drove our full year revenues 6% higher to RUB 176.9bn (US$ 5.6bn). While slightly down, our EBITDA for the year nonetheless amounted to a satisfactory RUB 43.0bn (US$ 1.3bn). This was realised on the back of a 788,000 tonne increase in annual nitrogen and phosphates sales volumes which lifted our total for the year to a record 10.6 million tonnes. Mining raw material sales volumes, which include iron ore and baddeleyite, added over half a million tonnes and grew to 5.9 million tonnes as compared to 2012.
In potash, while market participants focused on short-term disruptions, we reiterated our long-term commitment and continued work at both our greenfield projects. In October a significant milestone was reached as we completed cage shaft sinking operations at our Usolskiy Potash project in Russia’s Verkhnekamskoe deposit. Further west, at our VolgaKaliy potash project, our team resumed sinking on skip shaft 1 and had reached a depth of -630 meters as of 5 March 2014, at which time sinking efforts were close to starting at skip shaft 2. As for the site’s cage shaft, we overcame the setbacks brought on by our original contractor, and had progressed to -178 meters as of early March 2014. Above the shafts, we made good progress on the construction of the main process beneficiation building, warehousing facilities, and loading and shipping facilities. As others re-evaluate the feasibility of their potash plans, I am very pleased to see EuroChem moving ahead with the most advanced greenfield potash projects globally, on deposits that will make it among the world’s lowest cost producers.
In phosphates, I am pleased to report that our phosphate rock mining project in Kazakhstan officially commenced in October 2013. With drilling and blasting underway, we expect the first product from these new operations to integrate our production chain in 2014, moving us closer towards self-sufficiency in this resource base.
With the Americas accounting for almost a quarter of our nitrogen sales in 2013, and the evolution of natural gas dynamics in the United States, a logical step for us is to establish production operations closer to our customers. With this in mind, in July we announced plans for a potential ammonia and urea production plant in Louisiana to manufacture and distribute fertilizer products in the US and other markets. To the east, we also announced our intention to form a joint venture with a China-based specialty fertilizer producer. Expanding our presence in China, one of the world’s most dynamic agricultural markets, is a strategically important step for EuroChem.
While the short-term outlook is not without its challenges, sector fundamentals and the long-term global food security agenda are clear as ever. As such, EuroChem continues moving forward with its strategy as highlighted by the most recent milestones achieved at our VolgaKaliy and Usolskiy projects. Our latest results have shown that our unique asset base is well positioned to drive and support robust cash flow generation across the business cycle. The ensuing value creation is set to be boosted by our targeted strategic initiatives which will serve to further entrench our resilience and enhance our ability to support the farmers increase agricultural yields and help the world grow.
Chief Executive Officer