We continued to invest in our mining, manufacturing and distribution operations, all of which contribute to the strengthening of our vertically integrated business model.
EuroChem’s strategy for growth is based on this flexible and efficient model. With secured access to low-cost natural resources and production bases, supported by whollyowned logistics and distribution assets, we maintain tight control of our costs and respond quickly to market variations.
Market conditions remained challenging in 2015. Our consolidated sales for the year were US$4.54 billion, down 11% on 2014. This was principally a consequence of the lower pricing environment across the Group’s business, despite a slight increase in sales volumes. Nevertheless, full-year EBITDA rose 4% to US$1.58 billion as favorable currency movements continued to mitigate the effects of lower prices. Despite the year’s deteriorating market backdrop, our EBITDA margin for the year grew to 35%, compared to 30% in 2014.
Now headquartered in Switzerland, the Group continued to reinforce its foothold in Europe. Underpinned by our extensive and robust network of banking relationships, we achieved a significant milestone with our first-ever European fundraising exercise with a club of European banks at the level of EuroChem Antwerpen.
“EuroChem is well positioned to respond to today’s more challenging market conditions. Our low-cost, high-quality resource base – coupled with our strong market presence – sharpens our competitive edge. It also provides us with operational flexibility and ensures security of supply to our customers. ”
Dmitry Strezhnev, Chief Executive Officer
Our efficient distribution platform helped maintain strong sales in Europe and Russia, which accounted for 38% and 20% of total sales respectively. Sales to the CIS rose 13%, boosted by our growing distribution business.
We sold 10.8 million tonnes (MMT) of fertilizer products in the year, an improvement of 2% against our 2014 sales. Additionally, the expansion of operations at our Kovdorskiy GOK mine, where we launched a new apatite-staffelite ore processing plant, allowed us to ship 5.6 MMT of iron ore. The past year also saw Kovdorskiy GOK celebrate the production of its 600 millionth tonne of ore – testimony to the knowledge, experience and commitment of all our employees at this location.
Our acquisition of the US-based Ben-Trei Fertilizer Company helped boost North American sales at the end of the year by 5%, with the region accounting for 12% of sales in 2015. Proximity to customers is a key strategic aim for EuroChem; with its extensive customer base and strategically located assets, Ben-Trei presents valuable opportunities for us in this key market, providing improved access to our complete product range for US customers.
Towards vertical integration
Achieving cost leadership through vertical integration is a cornerstone of our strategy and we made good progress on all our key projects in 2015.
The procurement of phosphate rock is a key strategic element in our drive towards self-sufficiency. With production and intra-Group deliveries now underway from our mining project in Kazakhstan, we have taken a major step towards closing the raw material gap in phosphates.
In April we completed the acquisition of OJSC Astrakhan Oil and Gas Company, which reinforces our nitrogen integration. With natural gas accounting for a significant part of ammonia production costs, access to a low-cost supply provides us with a considerable competitive advantage in the production of nitrogen-based fertilizers.
In September we commenced construction of a new state-of-the-art ammonia production facility in Kingisepp. With an annual capacity of 1 million tonnes, this investment also aligns with our drive towards self-sufficiency in raw materials. Expected online in 2018, the project has been independently recognized for its safety, environmental and social impact and will make a significant contribution to the reliability and efficiency of our fertilizer production.
On a smaller scale, yet also capable of pushing us to new milestones, the start of the newly upgraded 1B ammonia unit helped us set a new annual ammonia production record of 3 MMT, boosting the plant’s annual output by 19%.
We continued to see good progress at our greenfield potash projects, which are key components of our organic growth strategy.
With the sinking and equipping of both shafts completed, visible progress was achieved above ground at our Usolskiy site in Russia’s Perm region. Construction activity accelerated in the second half of the year with the appointment of a contractor for the mine’s future mill. The site is expected to start production in the end of 2017.
Our VolgaKaliy potash project continued to move toward commissioning within the next 24 months. Showcasing our technical abilities, the site’s teams pushed skip shaft #1 to the potash salt layer and work began on the horizontal development of the shaft at a depth of 1,080 meters. Not too far behind, skip shaft #2 passed the lowest water bearing level and exited the freeze wall, ending the year at a depth of 880 meters. At the cage shaft, an assessment and survey identified the path of the manageable water inflow that occurred in the second half of the year. An intensive grouting program was undertaken, while plans were devised to utilize skip shaft #2 as a viable alternative for mine start-up – allowing the project to remain on schedule.
Mining, processing and construction are hazardous activities, but all our employees should expect to return home safely from work. However, despite our ongoing focus on all aspects of workplace safety, there were three fatalities in 2015. We deeply regret this tragic loss of life – and I extend my sincere condolences to the families and friends of those who died. Continuous improvement our safety systems, practices and programs remains a priority for EuroChem in the year ahead.
We continually seek to improve and extend our range of value-added fertilizer products. Our recently announced partnership with Agrinos AS aligns perfectly with this ambition and will enable us to significantly enhance our product portfolio. Combining our traditional strengths in mineral-based products with innovative microbial and specialty nutrient technologies will help us create effective new crop-enhancing solutions
During the year EuroChem became the first company in Russia to commence production of aqueous urea solution – ‘AdBlue®’ – a fuel additive used to reduce emissions of oxides of nitrogen from diesel exhausts. Demand in the CIS has tripled in the last three years and this market is poised for considerable growth. Our Novomoskovskiy plant will produce 100,000 tonnes per year, with potential demand in Russia approaching 240,000 tonnes per year.
As we started 2016, demand across global fertilizer markets remained flat, with the expectation of continued short-term pressure on pricing. However, despite a large inventory build-up across the agricultural chain we expect demand to gradually improve, albeit slowly, as the year progresses. New acquisitions and recent investments have extended our reach and secured our footing. Our low-cost, high-quality resource base – coupled with a strong market presence – provides us with operational flexibility and ensures security of supply to our customers. I am therefore confident that EuroChem is well positioned for the future.