In a challenging year for the fertilizer industry, EuroChem passed several key milestones. Our capital investment program proceeded apace – and the work we undertook in 2016 sees us well positioned to take advantage of the upturn when it comes.
Our consolidated sales for the year were US$4.38 billion, down 4% on 2015. As with last year, this resulted mainly from depressed pricing. EBITDA declined 30% to US$1.1 billion, due to lower prices combined with an appreciating rouble, which adversely affected our mainly Russian cost base as the year progressed. Whereas the previous year had seen favorable currency movements offset the impact of lower prices, the currency headwinds of 2016 compounded their detrimental effect.
Volumes were up across most of our product lines. Higher production output allowed a 13% increase in our own fertilizer volumes to 10.53 million tonnes (MMT). The consolidation of distribution assets in the US and Brazil supported a 60% year-on-year growth in sales of non-EuroChem products, which carried the Group’s total fertilizer sales to 13.61 MMT, 20% higher than in 2015. Our global coverage was helped in part by the strategic acquisition of Fertilizantes Tocantins, a Brazilian distributor, in the second half of the year, as well as by a full year’s benefit from 2015’s acquisition of the Ben-Trei distribution assets in the US. Now integrated into our business, these operations are an excellent fit and have helped ensure we are well prepared to manage additional volumes when our potash projects come on stream.
“EuroChem is a strong, flexible and growing business. Everything we have done over the last year, whether in production, distribution or customer service has helped to prepare us to take full advantage of the opportunities that lie ahead.”
Dmitry Strezhnev, Chief Executive Officer
Potash project progress
We continued to strengthen the vertical integration of our business, working towards self-sufficiency in raw materials. In pursuit of this aim, we made excellent progress on our two strategically important potash projects, which are due to begin operating over the next 18 months.
Our Usolskiy project in Russia’s Perm region passed a series of notable milestones during the year. In June, the rail spur connecting the site to the Russian Railways network was completed and the site welcomed its first train. Once the mine is operational towards the end of 2017, this rail connection will provide our product with global market access, including via the Baltic ports and rail links to China. In October, we assembled and lowered equipment to commence the development phase of the mine. To date, over 1km of tunnels have already been worked and construction of surface buildings and facilities remains on track. The first phase of the project is now on schedule for commissioning later this year.
At our other potash project at VolgaKaliy in the Volgograd Region, the second skip shaft reached the upper salt layer. We coped well with the earlier setbacks experienced with the cage shaft – and the revised plan leaves us confident that mining will commence in 2018. When complete, these two projects will create over 5,000 jobs, aligning with our commitment to being an active driver for economic growth and social improvement in the Russian regions.
Getting closer to our customers
We continued to develop our home-based markets for EuroChem’s value-added product range during the year. In Russia, we opened a distribution center in the key agricultural region of Belgorod. We also expanded our remit beyond simply the manufacture and delivery of fertilizer products to the provision of relevant expertise and training. Through supporting farmers, we provide them with the specialist knowledge and tools to optimize their use of our products and enhance their crop yields.
During the year we acquired Fertilizantes Tocantins, a leading distributor in Brazil. With an established network of over 2,000 customers, this acquisition supports our strategy of creating a global distribution network and moving closer to our customers in our core markets – both in terms of distance and specific regional product requirements. We also opened a new distribution operation in Hungary, as well as a new blending facility for premium slow release fertilizers in Greece.
Health, safety and the environment
The well-being of our employees is paramount. Since we were founded 15 years ago, we have been committed to an unrelenting focus on safety. Over this time it has been heartening to see the various indicators improving, with an overall downward trend in serious incidents. In 2016, the Group’s lost time injury frequency rate (LTIFR), by which we measure our progress, declined from 1.08 per million man-hours in 2015 to 0.97. This reflects the work we have done to drive a stronger culture of safety awareness and action. While we’ve made excellent progress across all our sites, sadly we experienced two fatalities in 2016. Such tragedies are inexcusable. They drive us to redouble our efforts in taking safety to the next level: extending it beyond the workplace and embedding it into every aspect of our employees’ daily life, including travelling to and from work.
Environmental issues also took center stage in 2016. All our new facilities bear the hallmark of best-in-class environmental and emissions reduction technologies, including our state-of-the art Northwest ammonia production facility in Kingisepp, scheduled for start-up in 2018.
We rolled out an award-winning clean water program, focusing on the modernization of municipal water and waste management systems, which will be developed further in 2017. 2017 is Russia’s Year of Ecology, designed to raise public awareness of environmental issues, maintain ecological diversity and promote ecological security. As a high profile corporate citizen, we intend to play a full and active role throughout the year through a variety of environmental initiatives.
Investing for the future
Although we are a global business, our roots are manifestly Russian, and Russia remains a cost-competitive place to do business. We remain wholeheartedly committed to investing in our Russian projects and production assets over the long term.
Recent bumper crop yields – combined with a global excess of capacity – suppressed the market’s appetite for fertilizers in 2016. However, demand is still there and will continue to grow. EuroChem is a strong, flexible and growing business. Everything we have done over the last year – whether in production, distribution or customer service – has helped to prepare us to take full advantage of the opportunities that lie ahead.