the challenges facing agriculture on a global scale remain...
TRANSCRIPT
It starts here.
EuroChem is one of the top 10 global producers and suppliers of mineral fertilizers.
We help the agricultural industry grow the crops needed to produce more food,
fibres and alternative fuels.
The challenges facing agriculture on a global scale remain unchanged:
emerging market expansion is leading to changing diets, population growth
means arable land per capita is declining and new sources of demand like biofuels create even greater pressure to produce
more crops every year.
The world needs feeding.
Agriculture must unlock the potential to grow.
Solutions to global challenges…
Population
Population growth is one of the core challenges facing the global food system. The world’s population is growing at a rate of around 75 million people per year according to the World Bank. Agricultural producers must continue to increase output and efficiency to keep up.
…are our opportunities
We are the 10th largest producer in the global mineral fertilizer industry by nutrient capacity. But we have embarked on far bigger plans. There are huge opportunities for us as we aim to become a top five global player in all three market segments: nitrogen, phosphate and potash.
In a commodity business our competitive advantage is to remain highly cost-competitive through vertical integration, investing in efficiency, product flexibility and securing access to lower-cost resources.
Arable land
There is a limited amount of land that is suitable to be used in feeding the world’s growing population. Between 1961 and 2007, global population increased 115%. Arable land increased just 10% during that same period – one acre of land fed 2.4 people in 1961, while that same acre must feed 4.7 people today.
Changing diets
Years of economic growth, especially in emerging markets, have led to dietary changes that have increased food consumption per capita and consumption of increasingly resource-intensive foods like meat. The World Economic Forum projects that food demand will grow 70-90% by 2050. More than 25% of the increase in grain demand will be due to changes in diet rather than population growth.
Today we produce a full range of nitrogen, phosphate and complex fertilizer products that help the agricultural industry meet the challenges of tomorrow’s world. In 2009 we added granulated urea and CAN to our product mix. By 2014 we plan to be a significant producer in the potash segment as well. We keep investing in growth and improvement because...
...the world needs fertilizers.
It starts here. EuroChem.
Emerging markets
The per capita gross national incomes (GNI – in PPP dollars) of Brazil, Russia, India and China combined rose by 119% between 1998 and 2008. US per capita GNI in the same period rose by 33%. This growth is helping to drive the dietary changes and increase consumption, and will continue to demand more from the world’s food system.
Alternative fuels
Biofuels account for a small but rapidly growing share of consumption of the world’s food resources. Since 2001, total corn production has increased rapidly (from 9.5 billion bushels to 13 billion bushels in 2007) and the share of corn used for ethanol has jumped from 7% to 24%. According to recent projections, 30% of the US maize harvest could be used for ethanol by 2010.
Soil fertility
Arable land also needs fertile soil to grow the crops that are in demand. Nitrogen, phosphate and potash fertilizers help make arable land more fertile and therefore more productive.
The key to growth
In 2009 the world consumed 99.8 MMT of nitrogen nutrient (N) in fertilizers; this is set to rise to 110.6 MMT by 2014.Sources: IFA, BSC, Fertecon, EuroChem estimates.
In 2009 we produced 2.3 MMT of N nutrient and this is set to rise to 2.4 MMT by 2014.
The key to growth: our currently planned investment for nitrogen for 2010-2014 is around US$ 800m, mostly in new products and removal of bottlenecks.
Why is nitrogen important for growth?
Key facts
• Nitrogen is a primary building block for all life. Without nitrogen crops cannot produce sufficient amino acids, proteins and enzymes
• Nitrogen plays a critical role in protein formation and is a major component of chlorophyll
• Nitrogen is a naturally occurring element in air
• Farmers need a steady supply of nitrogen fertilizers to ensure high- quality crop growth and yield
• Natural gas and atmospheric nitrogen are converted into ammonia, which is the primary raw material for nitrogen fertilizers
• The nitrogen market is the most competitive of the three fertilizer segments, given the relative abundance of natural gas in the world – access to low-cost natural gas is a key competitive advantage
• The highly competitive nature of this market makes nitrogen fertilizer prices relatively volatile
• Production lead time for new nitrogen fertilizer capacity is three years
Our strategy for the nitrogen segment
Strategy
• Ensuring energy efficiency improvements and removal of bottlenecks, leading to lower costs at both plants through incremental investment
• Achieving product flexibility in order to maximize profit margins through alignment of production to market conditions
• Ensuring best possible access to attractive markets (i.e. markets where EuroChem is most competitive on a “cash cost delivered to” basis)
• Securing access to competitively priced natural gas
Achievements in 2009
• Commissioned Russia’s first granulated urea shop (Urea-3) at Novomoskovskiy Azot with nameplate capacity of 2,000 tonnes/day in December 2009
• Launched CAN shop at Novomoskovskiy Azot with nameplate capacity of 420 KMT p.a. in October 2009
• Construction of Russia’s first melamine shop at Nevinnomysskiy Azot with 50 KMT p.a. capacity on track for launch in 2011
• Upgrade of Urea-4 shop to further expand granulated urea capacity on track for launch in 2010
Revenue contribution 2009
48% (2008: 46%)
EBITDA contribution 2009
56% (2008: 54%)
Ammonia production facilities at Novomoskovskiy Azot.
CornCorn is one of the most nitrogen-intensive crops.
6th largest global player in nitrogen fertilizer production by ammonia capacity
SWOT analysis
Strengths • Diversified customer base• Economies of scale due to vertical integration• Low-cost production mainly due to relatively
low, albeit gradually rising, natural gas prices• Broad and expanding product range allowing
margin maximization• Convenient logistics and proximity to transport
hubs (for Nevinnomysskiy Azot)• Secure long-term supply of gas
Opportunities • Large-scale project: construction of significant
new ammonia capacity with access to low-cost natural gas
• New product initiatives add flexibility and margin (e.g. compound fertilizers and low-density ammonium nitrate)
• Further incremental efficiency improvements are still possible at both plants
• Domestic Russian and CIS market potential• Reduction/elimination of import tariff barriers
in key target markets
Global position in ammonia capacity MMT p.a.
Yara 7.7CF Industries + Terra 6.9PotashCorp 3.5Agrium 3.3Togliattiazot 3.2EuroChem 2.8SAFCO 2.3IFFCO 2.2
Sources: IFA, BSC, company data.
Our current capacity in MMT p.a. Novomoskovskiy Nevinnomysskiy Azot Azot TotalAmmonia 1.63 1.16 2.79Urea 1.04 0.86 1.90AN 1.29 1.31 2.60UAN 0.43 1.02 1.45CAN 0.42 – 0.42Methanol 0.34 0.13 0.47Acetic acid – 0.17 0.17
Weaknesses• Age of equipment results in relatively high
maintenance costs and restricts maximum efficiency improvements
• Transportation costs are relatively high at Novomoskovskiy Azot due to location
Threats• Import trade barriers exist in several target
markets • Falling/low natural gas prices increase relative
competitiveness of previously marginal and unprofitable producers (increase in competitive supply)
• Gradual domestic increase in gas and energy costs may happen regardless of external natural gas and energy price dynamics
• New ammonia capacity in low-cost gas regions (e.g. the Middle East) may unfavourably alter the supply – demand balance in the sector
Urea production facilities at Nevinnomysskiy Azot.
In 2009 the world consumed 34.6 MMT of P2O5 in phosphate fertilizers; this is set to rise to 42.7 MMT by 2014.Sources: IFA, BSC, Fertecon, EuroChem estimates.
In 2009 we produced 0.9 MMT of P2O5 in phosphate fertilizers and this is set to rise to 1.2 MMT by 2014.
The key to growth: our currently planned investment in phosphates and apatite mining 2010-2014 is over
US$ 600m
Why are phosphates important for growth?
Key facts
• Crops need phosphate to stimulate root development and protect against drought
• Phosphorus plays a vital role in energy transfer, photosynthesis, nutrient transport, sugar metabolism, plant genetics, cell division and as a structural component of plants
• Crops with adequate phosphorus show steady vigorous growth and earlier maturity. Earlier-maturing crops are less susceptible to summer drought, disease infection, frost and harvest damage
• Phosphate deposits are relatively rare, with large deposits concentrated in North Africa, China, the CIS and North America
• Phosphate ore, produced by mining apatite and phosphate rock, is the key ingredient for phosphate fertilizers. Other important ingredients include ammonia and sulphur
• Production lead time for new phosphate mines and processing plants is three to four years
Our strategy for the phosphate segment
Strategy
• Increase supply of raw materials (phosphate rock, apatite)
• Grow capacity to increase the benefits of economies of scale
• Improve cost efficiency through energy-saving technologies
Achievements in 2009
• Invested in new turbine generators to re-capture steam produced in sulphuric acid production process to improve energy efficiency of Phosphorit plant
• Launched DAP production at Phosphorit plant
• Planned phosphate fertilizer line at EuroChem-BMU plant will have capability to process phosphate rock from mine at Kara Tau deposit in Kazakhstan
SoyThe soybean plant has been used in Chinese agriculture for over 5,000 years. Today the top three producers of soybeans are the United States, Brazil and Argentina.
4th largest global producer of phosphate fertilizer by MAP/DAP capacity
Revenue contribution 2009
40% (2008: 44%)
Capacity in MMT p.a. Kovdorskiy EuroChem- Nevinnomysskiy GOK Lifosa Phosphorit BMU Azot TotalApatite 2.70 0 0 0 0 2.70MAP, DAP, NP 0 0.98 0.74 0.51 0 2.23NPK 0 0 0 0.06 0.44 0.50Feed phosphates 0 0.08 0.22 0 0 0.30Total 2.70 1.06 0.96 0.57 0.44
MAP+DAP capacity global ranking MMT p.a.
Mosaic 10.2OCP 2.6Phosagro 2.5EuroChem 2.2CF Industries 2.0PotashCorp 1.9GCT 1.1Agrium 1.1
Sources: IFA, company data.
SWOT analysis
Strengths • Own supply of apatite accessible through
open-pit mining, with high P2O5 content• Plants are located close to sea ports and
close to their target markets (Europe and Russia/CIS)
• Lifosa is an EU-based plant hence no import tariffs in Europe
• Absence of ecologically harmful substances in apatite (cadmium), which is particularly important for exports to Europe
Opportunities • Securing access to phosphate ore in Kazakhstan
would remove limitation on growing fertilizer production capacity
• Further efficiency improvements are still possible, mostly at EuroChem-BMU and Phosphorit
• Large-scale project: construction of phosphate and compound fertilizer plant in Kazakhstan
Weaknesses• Transportation costs for Kovdor apatite are
relatively high for Lifosa and EuroChem-BMU• Relatively high maintenance costs and restrictions
on maximum efficiency improvements due to age of equipment
Threats• New capacity coming online (e.g. Ma’adden
project in Saudi Arabia, Bayovar project in Brazil) could unfavourably alter the supply – demand balance in the sector and/or compress the normally higher margins enjoyed by integrated producers like EuroChem
Ammonia storage at EuroChem-BMU phosphate plant.
Lifosa sulphuric acid plant HRS unit.
EBITDA contribution 2009
27% (2008: 45%)
In 2009 the world consumed 21.9 MMT of K2O in fertilizers, this is set to rise to 35.4 MMT by 2014.Sources: IFA, BSC, Fertecon, EuroChem estimates.
EuroChem’s strategy is to be a significant global potash producer by 2014, with an annual capacity of 2.3 MMT p.a. (c. 1.4 MMT p.a. of nutrient) after completing the first phase of our Gremyachinskoe greenfield project, increasing to up to 7.7 MMT p.a. (c. 4.6 MMT p.a. of nutrient) upon completion of phase II of Gremyachinskoe and phases I and II of the Verkhnekamskoe project.
The key to growth: our currently planned investment in potash to 2014 is around US$ 3.2bn. This will make us one of the only fertilizer producers in the world with a significant presence in all three of the major nutrient segments, and one of the top five fertilizer producers globally by total nutrient capacity.
Why is potash important for growth?
Key facts
• Potash is known as the quality nutrient: used as a fertilizer, it helps crops to improve water retention, yield, nutrient value, taste, colour, texture and disease resistance
• Potash is primarily mined from deposits located deep underground
• Potash producer margins are historically significantly higher than those of N and P producers
• Potash reserves are rare, and just three countries, Canada, Russia and Belarus, account for 85% of the world’s known economically viable potash reserves
• Lead time for potash greenfield projects is typically longer than for other fertilizers: from five to seven years
Our strategy in potash
EuroChem ranks among the top five fertilizer companies in the world by reserves. Our strategy is to start potash production in 2013, reaching an annual capacity of 2.3 MMT p.a. after completing the first phase of development of the Gremyachinskoe deposit.
Through a brownfield expansion of the Gremyachinskoe deposit we plan to double capacity to 4.6 MMT p.a., then we plan to add an additional 1.7 and 1.4 MMT p.a. of capacity through two phases of development of the Verkhnekamskoe deposit, resulting in a total annual capacity of 7.7 MMT p.a.
In 2008 and 2009 EuroChem acquired a significant stake in a leading global potash and salt producer, K+S AG. This has given us economic exposure to the potash sector before our own projects come online, and we are reviewing our strategic options with this investment. As of 15 March 2010, the combined stake in K+S AG held by EuroChem and its parent company was over 15%.
2013 planned start for EuroChem potash production at Gremyachinskoe deposit
5th largest global player by proved and probable potash reserves
Sunflower Application of potassium fertilizers can help increase yield and oil content in sunflowers.
Top 10 potash producers 2009 by capacityMMT p.a. of Kcl 2009
Potash Corp (Canada) 11.01Mosaic (USA/Canada) 10.81Belaruskaliy (Belarus) 8.99Silvinit (Russia) 5.70Uralkali (Russia) 5.55K+S AG (Germany) 5.20Dead Sea Works Ltd (Israel) 3.95QSL Industry Group (China) 2.20Agrium (Canada) 2.10Arab Potash Co. (Jordan) 2.10
Sources: BSC, company data.
By 2018, EuroChem currently plans to operate over 8% of global potash capacity.
SWOT analysis
Strengths • Vast reserves (est. 3.2bn tonnes*): number
five globally• Close location of Gremyachinskoe deposit
to Black Sea ports• High nutrient content in reserves in
Gremyachinskoe deposit (average 30.8% Kcl)• Both deposits – Gremyachinskoe and
Verkhnekamskoe – are located in areas with existing infrastructure
• Preliminary calculations place EuroChem among leaders on cash cost delivered to key markets curve
• Own transhipment terminal
Opportunities • Become one of the leading players in potash,
with up to 7.7 MMT p.a. production capacity• Cooperate with established potash players
in potash projects in Russia and abroad • Use advanced technology for shaft sinking
and enrichment, resulting in lower cash cost per tonne of production
Weaknesses• Limited in-house experience in mining may
lead to higher costs due to the need to engage subcontractors for planning and construction of mines and processing facilities
Threats• A significant reduction in EuroChem’s operating
cash flows due to a sustained period of low fertilizer prices
• Large number of announced greenfield and brownfield capacity expansions could increase competition on the supply side in the long term and result in lower margins available to EuroChem
Work at Verkhnekamokoye potash deposit.
* A+B+C1 according to Russian reserves classification.
In 2009 the Russian grain crop was 97 MMT, the second-highest level in 16 years.Source: RF GosKomStat.
In 2009 we provided farmers in Russia and the CIS with agronomics consulting, third-party seeds and crop protection products, and sold 1.64 MMT of our fertilizers through owned and independent distributors in Russia and CIS, 25% more than in 2008.
The key to growth: we aim to more than double our sales volumes through our distribution network in 2010-2014.
How will our sales and distribution network help us grow?
Key facts
• We expect long-term growth in Russian and CIS agricultural markets after underinvestment in the sector during the previous two decades, during which fertilizer application fell 90%
• We sell yield, not fertilizers through our network, providing agronomics advisory services and third-party seeds and crop protection products in addition to EuroChem’s own fertilizers
• Our distributors buy products from our plants and other producers, and sell at a margin to customers
Our strategy for distribution
Strategy
• “Sell yield, not fertilizers” – we take an advisory approach to farmers, helping them to increase yields through a range of methods, rather than just boost their fertilizer consumption
• Contribute to the recovery of efficient and effective agriculture in Russia and the CIS, and benefit from the agricultural recovery in this region
• Better balance sales with a strong foothold in our home market, which helps to mitigate the effects of trade barriers if and when they arise
Achievements in 2009
• Increased sales volumes in Russia by 20% and in CIS by 42%
• Opened six new outlets
Revenue for 2009*
EBITDA for 2009*
RUR 5,390m
RUR 22.4m
Wheatis Russia’s Number 1 crop: in 2009 Russia produced 61.7 MMT of wheat, up 7.9% year-on-year.
* From own distribution centres only.
39 owned and independent distribution centres in 24 Russian and Ukrainian cities
SWOT analysis
Strengths • Good coverage of most important agricultural
areas of Russia and Ukraine• Agrochemical expertise and sale of high-quality
seeds and crop protection items• Brand associated with quality and reliability;
good brand recognition• High storage capacity
Opportunities • Improve coverage of Southern and
Central Russia and Ukraine• Launch sales of new products that
only EuroChem produces in Russia, e.g. granulated urea
• Establish presence in Belarus and Kazakhstan
Weaknesses• Lack of presence in certain important agricultural
areas (mostly in Ukraine)
Threats• Further price regulation in Russia leading
to margin erosion for the domestic sales• Intensified competition from the other players
such as PhosAgro, UralChem, Acron• Currency and credit risks in Ukraine; credit risks
in Russia
Where we operate
OwnedOwned by independent distributors
How EuroChem unlocks growth
• Potash development projects on track to create value and new jobs
• Enhanced vertical integration throughout value chain
• Ongoing investments in efficiency to reduce energy usage, transportation costs and emissions
• Strong balance sheet and cash generation
• Unique access to cost-competitive raw materials, including phosphate and potash segments
• Highly competitive production and transportation costs
• Strong corporate governance, award-winning environmental and social responsibility programmes
Overall nutrient production in N, P and K, MMT p.a.:
2004
2.8
2009
3.3
2014
4.8