Annual Report 2012

Segment information

Business segments represent components of the Group’s business that engage in economic activity that may yield a return or result in losses. Segment financial information includes revenues and EBITDA. Detailed information on business segments is represented in Note 6 to Acron’s IFRS financial statements.

Information on reportable segments for the year ended December 31, 2012 (RUB m)

Acron Dorogobuzh Hongri Acron Logistics Trading Mining Other Total
Segment sales 36,059 15,226 11,432 3,181 49,515 681 2,580 118,674
Intersegment sales (29,484) (11,148) (373) (2,013) (2,391) (91) (2,062) (47,562)
External sales 6,575 4,078 11,059 1,168 47,124 590 518 71,112
EBITDA 13,524 4,587 565 878 1,042 (671) (1) 19,924

Information on reportable segments for the year ended December 31, 2011 (RUB m)

Acron Dorogobuzh Hongri Acron Logistics Trading Other Total
Segment sales 33,246 16,729 9,151 2,830 44,311 2,030 108,297
Intersegment sales (24,986) (11,274) (325) (1,792) (3,159) (1,330) (42,866)
External sales 8,260 5,455 8,826 1,038 41,152 700 65,431
EBITDA 12,717 6,453 854 728 18 86 20,856

 

Production

The Group’s commercial product output in 2012 was up 1% and totalled 5.887 million tonnes. The production portfolio has changed: nitrogen fertiliser output increased 9% due to the launch of a new urea unit and an increase in both commercial urea output (37%) and UAN output (25%). NPK output decreased 4% due to short-term delays in apatite concentrate supplies to the Group’s Russian facilities. Dry blended fertiliser output in China was up 28% in view of demand growth.

The Group’s Russian facilities were its most profitable assets, with the EBITDA margin at 30–38%, against 38–39% in 2011. The decrease in profitability was due to significantly higher prices for potash and phosphate raw materials: up 44 and 24%, respectively. The EBITDA margin at Hongri Acron decreased to 5% in 2012 from 9% in 2011 due to higher prices for raw materials in China: phosphate was up 25% and potash was up 8%.

The Group has been vigorously investing in expanding its production capacity to sustain its high performance. In 2012, capital expenditure at production sites totalled RUB 4,617 million. One major project was the construction of a new 350,000 tpa urea unit. Furthermore, the Group has been investing in construction of a new 700,000-tpa ammonia unit at Acron’s site in Veliky Novgorod.

Logistics

In the reporting year, cargo traffic at the Group’s sea port terminals was up 22% to 3.5 million tonnes. Cargo throughput for third-parties was up 25% year-on-year to account for almost half of total performance. Logistics generate a sustainable EBITDA margin at 26–28%. The Group will further increase performance at its logistics facilities with its own and third-party cargo volumes.

Trading

The Group’s consolidated sales were 6.050 million tonnes against in-house commercial product output of 5.887 million tonnes. The excess results from the Group’s commitment to expanding the trading services it provides for third-party producers.

As a secondary segment, distribution generates the minimum profit required to secure its normal operations. The major objective of this segment is entry into promising sales markets. In recent years, the Group has achieved a strong footprint in rapidly growing markets in Asian and Latin American countries due to the efficient functioning of its trading companies under the international brand Agronova. The Russian Agronova distribution network is one of the largest and most efficient in the Russian mineral fertiliser market.

Mining

Mining is the Group’s most intensively developing business segment. In the reporting year this segment turned a profit for the first time since the launch of phosphate production. It is expected to generate substantial cash flows in future. In 2012, investment in mining projects totalled RUB 9,628 million. The Group’s major investment concern is the Oleniy Ruchey mine. In July 2012, North-Western Phosphorous Company started commissioning the Oleniy Ruchey mine. The first tonnes of apatite concentrate were shipped in December 2012. The Group plans to fully cover demand for phosphate raw materials at Acron and Dorogobuzh by mid-2013.

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