Annual Report 2012

Financial performance

Revenue

In physical terms, the Group’s fertiliser and industrial products sales volume was up 1% year-on-year and surpassed the record high sales volume of 6 mt to reach 6.6 mt with recently started sales of apatite-nepheline ore.

Acron Group’s sales (kt)

  2012 2011 Change (%)
Ammonia 158 195 (19)
Nitrogen fertilisers 2,329 2,019 15
Complex fertilisers 2,354 2,493 (6)
Organic and non-organic compounds 990 1,085 (6)
Resale of third-party products 219 228 (4)
Fertiliser and industrial products 6,050 5,994 1
Apatite-nepheline ore 564

Most of the Group’s revenue is generated by sales of nitrogen and complex fertilisers. In 2012, Russia, China, Brazil, the US and Thailand were the Group’s key markets by volume.

In 2012, the Group’s revenue was up 9% to RUB 71,112 million. This positive dynamic was driven by an increase in nitrogen fertiliser sales.

Changes in the revenue geography were driven by a 25% increase in sales to the most dynamic Asian markets. The 28% revenue increase in the Russian market resulted from higher product prices, the start of apatite-nepheline ore sales and higher additional revenues from other operations. Export to the CIS was down 24% due to deceleration of economic growth in the region and stronger competition.

Revenue by region (RUB m)

  2012 2011 Change (%)
Russia 13,138 10,284 28
European Union 8,570 8,597
Commonwealth of Independent States 3,327 4,357 (24)
US and Canada 5,943 5,633 6
Latin America 10,983 11,049 (1)
China 18,605 15,584 19
Asia (excl. China) 9,279 6,640 40
Other regions 1,267 3,287 (61)
Total 71,112 65,431 9

Cost of sales

In 2012, the total cost of the Group’s sales amounted to RUB 40,440 million, up 14% year-on-year. This increase was due to higher prices for natural gas, raw materials and energy, as well as higher staff costs, but was partially offset by a change in inventory of finished goods and work in progress.

Cost of sales (RUB m)

  2012 2011 Change (%)
Change in inventories of finished goods and work in progress (1,908) (1,699) 12
Staff costs 4,614 4,040 14
Materials and components used, including: 19,079 16,522 15
Phosphate 4,951 4,223 17
Potash 6,643 5,729 16
Coal 1,175 1,003 17
Sulphur 1,109 1,158 (4)
Other 5,201 4,409 18
Fuel and energy 4,081 3,729 9
Natural gas 7,884 7,349 7
Depreciation and amortisation 1,970 1,917 3
Impairment (reversal)/loss (102) (164) (38)
Services 502 109 361
Production overheads 546 309 77
Repairs and maintenance 3,256 2,984 9
Social expenditure 518 361 43
Total 40,440 35,457 14

Change in inventories of finished goods and work in progress

In 2012, the index of change in inventories of finished goods and work in progress was negative RUB 1,908 million (increase in inventory). This change was caused by increased inventory at Acron and Dorogobuzh production facilities and the trading companies Agronova Europe AG and Agronova International Inc. Hongri Acron, by contrast, reduced inventories of finished goods and work in progress.

Staff costs

Staff costs only include the cost of production personnel. The cost of administrative staff is included in selling, general and administrative expenses. In 2012, staff costs reflected in the cost of sales were up 14% to RUB 4,614 million.

Total staff costs reflected in the cost of sales and in selling, general and administrative expenses in 2012 amounted to RUB 6,959 million, up 18% year-on-year (against RUB 5,913 million in 2011). Higher staff costs were mainly triggered by an increase in the number of personnel. In 2012, the Group’s total average staffing was up 10% year-on-year, to 15,644 (against 14,160 in 2011). This staffing increase was necessitated by expansion of the Group’s business and construction of new production facilities.

Materials and components used. Fuel and energy. Natural gas

Materials and components used, fuel and energy and natural gas account for the majority of costs. In the reporting year, these costs increased due to higher prices for all primary resources in Russia and greater resource consumption in China caused by expanded production output.

Inputs and energy consumption

  2012 2011 2010
  Price (RUB*) Quantity Amount (RUB m) Price (RUB*) Quantity Amount (RUB m) Price (RUB*) Quantity Amount (RUB m)

Acron and Dorogobuzh

Natural gas (m3 million) 3,446 2,288 7,885 3,217 2,285 7,350 2,891 2,223 6,427
Acron 3,418 1,528 5,225 3,185 1,468 4,676 2,861 1,474 4,216
Dorogobuzh 3,498 760 2,660 3,274 817 2,673 2,951 749 2,211
Apatite concentrate (‘000 t) 5,123 699 3,579 4,250 746 3,171 3,913 725 2,840
Acron 4,948 481 2,378 4,131 484 2,001 3,814 486 1,855
Dorogobuzh 5,510 218 1,201 4,468 262 1,170 4,113 239 984
Sylvite (potassium chloride) (‘000 t) 10,278 458 4,411 7,397 493 3,532 5,358 464 2,486
Acron 10,145 316 3,208 7,330 323 2,364 5,263 310 1,633
Dorogobuzh 10,578 142 1,500 7,405 170 1,282 5,549 154 853
Bonuses for NPK supplies to Russian market     (297)     (114)      
Energy (kWh m) 2,279 1,055 2,404 2,352 1,064 2,503 2,079 1,042 2,166
Acron 2,278 782 1,781 2,351 771 1,813 2,046 768 1,572
Dorogobuzh 2,282 273 623 2,354 293 690 2,166 274 594
Thermal power (‘000 Gcal) Acron 649 1,147 744 618 931 575 535 999 535

Hongri Acron

Phosphate ore (‘000 t) 3,366 407 1,372 2,690 391 1,052 2,416 361 873
Potash (‘000 t) 14,628 153 2,232 13,578 153 2,082 10,508 149 1,562
Coal (‘000 t) 6,133 192 1,175 6,073 165 1,003 5,279 165 871
Sulphur (‘000 t) 8,027 138 1,109 7,677 151 1,158 5,250 155 811

* Inclusive of transportation costs and related expenses; unit prices: natural gas – per 1,000 cubic meters; phosphate and potash inputs, coal and sulphur – per 1 tonne; energy – per 1,000 kWh; thermal power – per 1 Gcal.

Transportation expenses

In 2012, transportation costs were up 3% year-on-year, partially due to an overall increase in sales volume. It is important to note that container transport costs decreased 23%, while conventional bulk shipment costs increased 25%, since large sea vessels freight rates were considerably lower.

Transportation expenses (RUB m)

  2012 2011 Change (%)
Railway tariff 2,177 2,078 5
Freight 929 1,011 (8)
Maintenance 669 613 9
Container transport 974 1,268 (23)
Handling of goods 1,516 1,216 25
Other 486 400 22
Total 6,751 6,586 3

Selling, general and administrative expenses

Selling, general and administrative expenses were up 20% in 2012 to RUB 5,476 million (2011: RUB 4,574 million). For the most part, this increase was due to higher administrative staff costs (up 25%) and higher representation expenses.

EBITDA

EBITDA is calculated as earnings before tax, interest, depreciation and amortisation adjusted for operating foreign exchange gain or loss, result on disposal of property, plant and equipment and investments and extraordinary items. In 2012, EBITDA amounted to RUB 19,924 million, down 4% year-on-year. Profitability in 2012 decreased to 28% (against 32% in 2011) because production costs outpaced fertiliser prices.

EBITDA calculation (RUB m)

  2012 2011
Operating profit, plus: 18,729 27,731
Depreciation and amortisation 1,970 1,917
Foreign currency losses (497) (252)
Gain on disposal of investments (309) (4,188)
Gain on disposal of licenses, land and leasehold (4,839)
Loss on disposal of property, plant and equipment 31 487
EBITDA 19,924 20,856

Finance income/(costs)

In 2012, the Group’s finance income amounted to RUB 1,560 million (against RUB -401 million in 2011). This considerable increase is related to the positive effect of revaluation of the Group’s currency assets and liabilities due to appreciation of USD against RUB. Foreign currency net gains were RUB 1,222 million in 2012 (against net losses of RUB 1,268 million in 2011).

Profit

In 2012, the Group’s profit was down 27% to RUB 14,861 million (against RUB 20,328 million in 2011). This decrease is due to the fact that the Group sold its exploration permits for RUB 4,839 million (before tax) and disposed of its investments in a subsidiary that held shares of JSC Apatit for RUB 4,260 million (before tax). Adjusted net profit for 2011 (before these transactions) was RUB 13,210 million. Thus, the adjusted net profit margin increased to 21% in 2012 from 20% in 2011. These indices demonstrate the increased financial efficiency of the Group’s core business.

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