EuroChem reported second quarter 2012 consolidated revenues of RUB 41.9bn, a 36% increase over the second quarter of 2011 and a new quarterly record for the Group (or a 19% increase on a like-for-like basis excluding acquisitions). During the same period, earnings before interest, taxes, depreciation, and amortization (EBITDA) amounted to RUB 15.9bn, representing a 34% increase over the previous year’s RUB 11.9bn (26% increase on a like-for-like basis). Net profit for the second quarter of 2012 was adversely affected by a RUB 5.8bn non-cash translation loss brought on by the sharp weakening of the Russian rouble starting from May and decreased 69% to RUB 3.0bn as compared to the RUB 9.5bn registered in the second quarter 2011.
Revenue and EBITDA for the first six months of 2012 were respectively 25% and 16% ahead of the Group’s first half 2011 results (16% and 11%, respectively if excluding acquisitions).
Second quarter Nitrogen and Phosphate fertilizer sales volumes, excluding iron ore and baddeleyite mining operations, climbed 27% to 2,552 thousand metric tonnes (KMT) as compared to the previous year due to the first-time consolidation of EuroChem Antwerpen in Q2 2012; on a like-for-like basis, fertilizer sales were 7% above Q2 2011 level. On the mining side, iron ore and baddeleyite sales volumes slipped 3% to 1,401 KMT on lower production.
CEO Dmitry Strezhnev commented: “Strong demand for our products and first time consolidation of our recent acquisition in Antwerp allowed us to record our best quarter ever in terms of revenues. Against a backdrop of robust crop prices, we are consolidating significant additional value-added production capacity and expanding our global distribution reach to meet the increasing requirements of our customers, effectively building value for all our stakeholders. In the nearest future, we will focus on extracting synergies from the recent acquisitions while further advancing our potash projects.”
Excluding any major disruptions in the financial sector, the effects of expected weather related supply shocks in major grains, when combined with already below average global stock-to-use ratios, should prove to be compelling catalysts for increased fertilizer application over the quarters to come.
In nitrogen, we expect urea prices to remain stable to stronger over the next few months, above what we see is a USD 380-400/tonne floor price. Phosphates should remain stable on healthy demand (outside India) while potash could remain under pressure. To a certain extent, India will continue weighting down on both the phosphates and potash markets and pricing direction will largely reflect producer discipline.
Weaker Chinese industrial activity will continue to pressure iron ore prices with some recovery seen towards the end of Q3 on restocking.
In Q3 2012 EuroChem’s results will benefit from the first time consolidation of EuroChem Agro (former K+S Nitrogen). However, in terms of operating results Q2 2012 was a very good quarter benefiting from favorable volumes, pricing, and exchange rate movements which may not be repeated in the near future.