Group

FINANCIAL HIGHLIGHTS FOR 2013

 
2013

2012
RUB
Change
RUBbn US$m RUBbn US$m Y-o-Y, %
Revenue 176.9 5,556 166.5 5,354 +6%
EBITDA 43.0 1,349 49.2 1,581 (13%)
Net profit 12.3 385 32.6 1,047 (62%)
Cash from operations 36.2 1,135 38.9 1,250 (7%)
  31 December 2013 31 December 2012  
Net debt/ LTM1 EBITDA2 2.07x 1.53x  
  • US$ figures are provided for the convenience of the reader and are not part of EuroChem audited financial statements. These are derived by converting the underlying RUB figures at the average exchange rate of the relevant period. Average RUB/US$ exchange rates: 2013; 31.85; 2012: 31.09; Q4 2013:32.53; Q4 2012: 31.08
  • 1 Last twelve months
  • 2 Including estimated EBITDA for EuroChem Antwerpen and EuroChem Agro for the period prior to their respective acquisition as well as pro-rata Murmansk Commercial Seaport net income

REVENUE

Consolidated revenues for the twelve months ended 31 December 2013 grew 6% to RUB 176.9bn (US$ 5.6bn). The additional 838 KMT in nitrogen sales volumes coupled with an 11% increase in iron ore sales volumes helped alleviate the pricing erosion in phosphates and drive the year-on-year revenue expansion. Excluding EuroChem Antwerpen and EuroChem Agro, consolidated from Q2 and Q3 2012 respectively, our revenues and EBITDA for 2013 amounted to RUB 135.0bn and RUB 39.2bn respectively.

Revenue structure
(RUB m) 2013 % change

2012

% change

2011

Nitrogen

100,064

8%

92,468

47%

63,108

Phosphates

58,280

(4%)

60,766

(5%)

63,925

Distribution

16,975

(1%)

17,138

23%

13,974

Other

1,618

(142%)

(3,895)

(60%)

(9,709)

Total

176,937

6%

166,478

27%

131,298

Revenue drivers – volume, prices
Total change in revenues (RUB m)
2013/2012
2012/2011
Volume effect Price effect Other Total Volume effect Priceffecte
Nitrogen 1,110 (3,898) (2,788) 3,638 4,275
Phosphates (354) (4,694) (5,048) 1,103 (251)
Mining 1,739 1,304 3,043 (1,077) (3,067)
Resale 2,066 (536) 1,530 (1,835) 337
New acquisitions 13,071 13,071
Other sales 651 651
Total 4,561 (7,824) 13,722 10,459 1,829 1,295

COST OF SALES AND GROWTH MARGIN

For the twelve months ended December 2013, our total cost of sales displayed a 15% increase over the previous year and amounted to RUB 112.8bn. The increase in costs outpaced the 6% revenue growth as average costs and tariffs for key raw materials such as natural gas, phosphate rock, ammonia, and energy moved slightly higher than in the previous year. In line with the growth in production volumes, group costs for materials and components used or resold increased from RUB 64.6bn in 2012 to RUB 70.1bn in 2013. However, their share within the Group’s costs of sales structure decreased four percentage points to 62%.

Within cost of sales, labour costs, which include social fund contributions, increased 11% in 2013 and amounted to RUB 10.9bn. Most of the rise in labour costs was driven by a salary indexation in January 2013 combined with an increase in personnel brought on by the integration of assets acquired in the previous year. As in 2012, labour costs comprised 10% of the Group’s total costs of sales in 2013.

COST OF SALES STRUCTURE

Structure of materials and components
RUB m 2013 2012 2011 2010
Natural gas 15,305 14,663 13,619 12,006
Sulphur 2,282 2,828 2,964 1,499
Apatite 10,178 10,705 7,566 5,442
Potassium chloride 2,507 2,868 1,295 1,038
Ammonia 13,491 11,621 2,990 264
Goods for resale 13,744 11,236 5,296 2,991
Other 12,606 10,632 6,871 5,111
Total 70,113 64,552 40,601 28,351
Cost of sales structure
2013
2012
2011
RUB m % of total % change RUB m % of total % change RUB m % of total
Materials and components 70,113 62% 9% 64,552 65% 59% 40,601 61%
Labour 10,931 10% 11% 9,842 10% 22% 8,064 12%
Energy 7,995 7% 14% 6,983 7% 4% 6,694 10%
Depreciation of plants and equipment 8,012 7% 24% 6,467 7% 77% 3,656 5%
Utilities and fuel 4,625 4% 5% 4,407 4% 22% 3,618 5%
Changes in work in progress and finished goods 1,618 1% (218%) (1,372) 0% (52%) (2,850) 0%
Other costs 9,503 8% 38% 6,889 7% 79% 3,858 6%
Total 112,797 97,768 63,641

Despite the considerable increase in production volumes, the share of energy costs within our cost structure remained flat at 7%. Although we registered a 14% year-on-year increase in energy costs following the upward revision to tariffs in the Russian power generation, our efficiency upgrade programme yielded substantial savings. Particularly, in addition to increasing internal power generation capacity at Phosphorit, the replacement of obsolete catalysts at Novomoskovskiy Azot provided RUB 45m in energy savings in 2013.

DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES

Total distribution costs ticked up 8% to RUB 25.3bn as compared to RUB 23.3bn for the same period in 2012. Within S&D costs, transportation expenses registered a slight 3% growth to RUB 18.6bn (2012: RUB 18.1bn). Despite increasing year-on-year, transportation costs comprised 74% of total distribution expenses in 2013, down from 78% a year earlier. While lower maritime freight rates provided a 14% reduction in transportation costs, the savings were offset by an increase in rail shipments of iron ore concentrate to Zabaikalsk (Chinese border).

General and administrative (G&A) expenses for the Group increased 20% from RUB 5.6bn in 2012 to RUB 6.7bn in 2013. Accounting for 47% of G&A expenses, labour costs increased 16% over the same period. Total staff costs, including social expenses, grew to RUB 16.6bn, up 15% from RUB 14.4bn a year ago. As highlighted earlier, the growth in staff expenses was primarily linked to recent acquisitions and organic growth initiatives. Some of the key ongoing projects of 2013 were the development of phosphate rock mining operations in Kazakhstan, the launch of our railcar depot to service the Group’s 6,500+ rolling stock, and our ambitious VolgaKaliy and Usolskiy potash projects in Russia.

2013
2012
2011
RUB m % of total % chg RUB m % of total % chg RUB m % of total % chg
Transportation 18,590 74% 3% 18,114 78% 14% 15,838 84% 3%
Export duties
Other distribution costs 6,671 26% 29% 5,177 22% 66% 3,114 16% 31%
Subtotal Distribution 25,261 23,291 100% 23% 18,952 100% 7%
Labour 3,148 47% 16% 2,720 49% 12% 2,436 52% 16%
Audit, consulting and legal 683 10% 10% 623 11% 141% 258 6% 33%
Provision for impairment of receivables 118 2% 101% 59 1% 110% 28 1% (15%)
Other G&A expenses 2,760 41% 26% 2,197 39% 14% 1,932 42% 35%
Subtotal G&A 6,709 100% 20% 5,599 100% 20% 4,653 100% 24%
(Reversal of provision)/provision for tax risks
Sponsorships 839 63% 516 15% 447 7%
Foreign exchange (gain)/loss (393) (250%) 263 31% 200 (196%)
Other operating (income)/expenses, net (21) (98%) (1,149) 152% 456 137%
Subtotal other net operating (income)/expenses 425 100% (215%) (371) 100% (294%) 191 100% 1,023%

For the full year 2013 we recognised other operating expenses of RUB 425m versus other operating income of RUB 371m in 2012. The main items behind other operating expenses for the period were sponsorship expenses of RUB 839m (2012: RUB 516m) and foreign exchange gains of RUB 393m (2012: losses of RUB 263m). The main sponsorship expenses included a new sports facility in Ke.dainiai, Lithuania, constructed as part of celebrations commemorating Lifosa’s 50th anniversary, and the upgrade of social infrastructure and public utilities in Novomoskovsk, site of our Novomoskovskiy Azot nitrogen facility.

Below the operating profit line, we recognised unrealised financial foreign exchange losses of RUB 5.9bn, compared to an unrealised gain of RUB 4.3bn in 2012. Changes in these non-cash items reflect the impact of the weaker Russian rouble on the Company’s primarily US dollar-denominated debt which matches our mainly US dollar-denominated revenues.

Interest expenses for 2013 increased in line with the Company’s higher debt level and amounted to RUB 5.2bn (2012: RUB 4.3bn). For 2013 we recognised other financial losses of RUB 945m on changes in the fair value of US$/RUB non-deliverable forward contracts and changes in the fair value of cross currency interest rate swaps in amounts of RUB 535m and RUB 165m respectively.

2013
2012
2011
RUB m/% % chg RUB m/% % chg RUB m/%
Operating profit 31,743 (21%) 40,191 (8%) 43,860
Revenues 176,937 6% 166,478 27% 131,298
Operating profit margin 18% (6pp) 24% (9pp) 33%
EBITDA margin 24% (6pp) 30% (8pp) 38%

EuroChem-Annual-Report-2013-46

BALANCE SHEET

Working capital needs decreased slightly as lower prices for finished goods slightly balanced higher prices for certain raw materials. The Company’s net working capital decreased 3% from RUB 23.9bn in 2012 to RUB 23.1bn as at 31 December, 2013.

Working Capital
2013
2012
2011
RUB m % chg RUB m % chg RUB m
Inventories 22,671 (1%) 23,006 54% 14,957
Incl finished goods 10,091 (17%) 12,205 89% 6,446
Trade receivables 11,895 13% 10,568 208% 3,436
Other receivables and current assets 8,731 (13%) 10,082 (1%) 10,191
Subtotal 43,297 (1%) 43,656 53% 28,584
Trade payables 8,539 2% 8,387 174% 3,061
Other accounts payable and current liabilities 11,632 2% 11,390 34% 8,479
Subtotal 20,171 2% 19,776 71% 11,540
Net working capital 23,126 (3%) 23,880 40% 17,044
Finished goods, days 33 46   37
Trade debtors, days 25 23   10
Trade creditors, days 28 31   19

EuroChem’s portfolio of borrowings from banks remained fairly unchanged until late August when we successfully closed a club facility for an amount of US$ 1.3bn. Structured as a five year unsecured finance facility and priced at LIBOR 3M + 1.8%, the facility includes a two year grace period. The proceeds were immediately used to pay down the outstanding amount under EuroChem’s 2011 US$ 1.3bn pre-export facility.

While the Company’s debt ratio remained well below bank covenant levels and at all times within our targeted across-the-cycle range, the volatility in the fertilizer markets prompted the Group’s shareholders to proceed with a pre-emptive US$ 300m capital injection in the fourth quarter of 2013 through the acquisition of 2.36% of share capital of the Group’s holding company. Consequently, we closed 2013 with a net debt to 12-month rolling EBITDA ratio of 2.07x as compared to 2.27x in Q3 2013 (2012: 1.53x). Highlighting EuroChem’s strong product and geographic diversification, its partial vertical integration and its advantageous position on the industry cost-curve as its core strengths underpinning its cash flow generation, Fitch Ratings and Standard & Poor’s both affirmed EuroChem at BB/stable outlook in 2013.

Cash flow

At RUB 36.2bn, operating cash flow for the twelve months ended 31 December 2013 remained within 7% of the previous year’s level.

Our total CAPEX spending for the January to December 2013 period amounted to RUB 32.6bn (US$ 1.0bn), comprised of investments of RUB 12.4bn in potash, RUB 10.4bn in nitrogen and RUB 8.6bn in phosphates. The remainder was allocated to our distribution network and logistics infrastructure.

CAPEX
RUBbn 2013 2012 2011
Nitrogen 10,380 6,324 4,677
Phosphate 8,614 5,791 6,402
Potash 12,354 13,602 10,561
Other 1,246 2,812 2,166
Total 32,594 28,530 23,806
2013 corporate developments

In 2013 the Group finalised the acquisition of 54,613 ordinary shares of OJSC ‘Murmansk Commercial Seaport’ for a total consideration of RUB 3.15bn. These ordinary shares represent 48.26% of the total number of the ordinary shares and 36.20% of the total issued share capital of the Company. As at 31 December 2013, the Group held 36.20% of the OJSC ‘Murmansk Commercial Seaport’ voting rights.

On 10 July 2013, EuroChem announced its intention to consider building an ammonia and urea production plant in Louisiana. A final decision on the parameters and location of the facility should be taken later in 2014. On 29 July 2013, we announced our plans to create a joint venture (JV) with the Migao Corporation, a specialty potash fertilizer producer based in the southern Chinese province of Yunnan. The JV is expected to bring up to 60,000 tonnes per year of potassium nitrate (NK) and 200,000 tonnes per year of chloride-free NPK capacity online by the end of 2014.

Legal proceedings

In October 2012 the Group filed a claim against Shaft Sinkers (pty) ltd and Rossal 126 (pty) limited (formerly known as Shaft Sinkers (pty) ltd.), (‘Shaft Sinkers’), the contractor involved in the construction of the mining shafts at the Gremyachinskoe potash deposit, seeking compensation for the direct costs and substantial lost profits arising from the delay in commencing potash production, due to the inability of that construction company to fulfil its contractual obligations. Further details of the proceedings are available in note 34 of the Group’s 2013 IFRS accounts.

In March 2013 the Group filed a claim against International Mineral Resources B.V. (‘IMR’) which, the Group believes, held a controlling interest in Shaft Sinkers, claiming IMR is responsible for its subsidiary’s actions. In July 2013, a Dutch court granted EuroChem definitive leave for levying the requested prejudgment attachments against IMR’s Dutch assets, while fixing the amount for which the leave is granted, including interest and cost at euro 886m. The court held an in-depth hearing on 21 January 2014 where it considered the arguments and witnesses of both sides, following which, the court notified that a final judgment is to be rendered on 16 April 2014.