Q2 and H1 2011 IFRS Results Conference Call 17 August 2011 17 - - PowerPoint PPT Presentation

Q2 and H1 2011 IFRS Results Conference Call

17 August 2011

17 August 2011

Disclaimer

This presentation has been prepared by OJSC MHK EuroChem (“EuroChem” or the “Company”) for informational purposes, and may include forward- looking statements or projections. These forward-looking statements or projections include matters that are not historical facts or statements and reflect the Company’s intentions, beliefs or current expectations concerning, among other things, the Company’s results of operations, financial condition, liquidity, performance, prospects, growth, strategies, and the industry in which the Company operates. By their nature, forward-looking statements and projections involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements and projections are not guarantees of future performance and that the actual results of operations, financial condition and liquidity of the Company and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements or projections contained in this presentation. Factors that could cause the actual results to differ materially from those contained in forward-looking statements or projections in this presentation may include, among other things, general economic conditions in the markets in which the Company operates, the competitive environment in, and risks associated with operating in, such markets, market change in the fertilizer and related industries, as well as many other risks affecting the Company and its operations. In addition, even if the Company’s results of operations, financial condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements or projections contained in this presentation, those results or developments may not be indicative of results or developments in future periods. The Company does not undertake any obligation to review or confirm expectations or estimates or to update any forward-looking statements or projections to reflect events that occur or circumstances that arise after the date of this presentation. This document does not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of the Company in any jurisdiction, nor shall it or any part of it nor the fact of its presentation, communication or distribution form the basis of, or be relied on in connection with, any contract or investment decision. No reliance may be placed for any purpose whatsoever on the information contained in this document or on assumptions made as to its completeness. No representation or warranty, express or implied, is given by the Company, its subsidiaries or any of their respective advisers, officers, employees or agents, as to the accuracy of the information or

• pinions or for any loss howsoever arising, directly or indirectly, from any use of this presentation or its contents.

By participating in this meeting, you agree to be bound by the foregoing.

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Potash Segment H1 Performance Nitrogen Segment Phosphate Segment Industry Update Outlook

Industry Context in H1 2011

 Stronger agricultural commodity prices (H1 2011 avg.

• v. H1 2010 avg.)
• Corn: +94% (1 July to date: +2%)
• Wheat: +61% (1 July to date: +5%)
• Rice: + 13% (1 July to date: +23%
• Soybeans: +43% (1 July to date: -2%)

 Demand for fertilizer supported by attractive farmer

economics

 Supply is tight across all nutrients on low stocks and

high demand

 China: new sliding export duties restrict exports of

DAP and urea. Plans to build new urea capacity over the next five years halved to 5 MT

 Consolidation continued (Uralkali-Silvinit, Ukraine)  Demand from China supports iron-ore prices. New

supply takes longer than expected to shape up

• Iron ore: H1 11 avg. price + 22% over H1 2010
• avg. (1 July to date: +5%)

50 100 150 200 250 01/08 03/08 05/08 07/08 09/08 11/08 01/09 03/09 05/09 07/09 09/09 11/09 01/10 03/10 05/10 07/10 09/10 11/10 01/11 03/11 05/11 US$ per tonne IronOre (CFR China) 200 400 600 800 1000 1200 1400 01/08 03/08 05/08 07/08 09/08 11/08 01/09 03/09 05/09 07/09 09/09 11/09 01/10 03/10 05/10 07/10 09/10 11/10 01/11 03/11 05/11 US$ per tonne

Urea, DAP, MOP

Prilled urea (FOB Yuzhniy) DAP (FOB Baltics) MOP (FOB Baltics, Spot)

4 Iron ore, CFR China

Nitrogen 39% (-4) Phosphates 47% (+1) Distribution 12% (+2) Other 2% (+1) Russia and CIS 41% (+2) Asia and Australasia 16% (-6) Europe 16% (-) Latin America 16% (+2) North America 8% (+2) Africa 3% (-)

Performance Overview

Key Figures H1 2011 vs. H1 2010

Sales H1 2011 by segment Sales H1 2011 by region

H1 2011 Change to H1 2010

Revenue

RUBm

62,085 +37% EBITDA

RUBm

23,426 +80% Net profit

RUBm

20,883 +200% Gross margin

%

51% +5 p.p. EBITDA margin

%

38% +9 p.p. Sales volumes Nitrogen*

KT

2,928 +1% Phosphate (excl. iron

• re and baddeleyite)

KT

1,254 +3% Phosphate (iron ore and baddeleyite)

KT

2,755

• 8%

*Nitrogen includes organic synthesis products.

(in brackets – change in percentage points relative to H1 2010) (in brackets – change in percentage points relative to H1 2010)

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37,927 54,977 7,462 7,109 7,610 5,630 4,553 435 784 907 45 (244) (151) (2,519) 10,000 20,000 30,000 40,000 50,000 60,000 70,000 H1 2010 Gross Revenue Realised Price Effect (N) Realised Price Effect (P) Realised Price Effect (Iron Ore + Badd.) Volume and Mix Effect (N) Volume and Mix Effect (P) Volume and Mix Effect (Iron Ore + Badd.) Transport Price and Mix Effect FX Effect 3rd Party Product Sales Other H1 2011 Gross Revenue

Transport Transport Net revenue Net revenue

H1 2011 Revenue

+37% (+45% net of transport costs)

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RUB m

H1 2011 Cash Flow

RUB m

7

23,426 15,530 9,962 2,706 1,579 (3,278) (4,287) (331) (9,853) 5,000 10,000 15,000 20,000 25,000 H1 2011 EBITDA Taxation Working Capital Other Items Operating Cash Flow CAPEX Equity Investments Other H1 2011 Free Cash Flow Effective tax rate = 17.5% Increase in trade receivables and inventories due to rising prices Details on page 12 Sale of K+S AG shares

H1 2011 H1 2010 EBITDA RUBm 23,426 13,009

• Depreciation and amortisation

RUBm (2,150) (1,618)

• Idle property, plant and equipment write-off

RUBm (18) (84) + Gains on available-for-sale investments RUBm 914 91

• Financial fx loss - net

RUBm 2,588 (1,135)

• Interest expense

RUBm (1,174) (889)

• Other financial income/(loss) - net

RUBm 1,730 (410) +/- Non-controlling interest RUBm (2) 43

• Income tax expense

RUBm (4,432) (2,049) Net profit RUBm 20,883 6,958

H1 2011 Net Profit

Reconciliation of EBITDA to Net Profit

8

RUB/USD volatility Sale of shares of K+S Group Mainly realized on US$/RUB non-deliverable forward contract and changes in the fair value of cross currency interest rate swap

H1 2011 H1 11 / H1 10 Change Revenue RUBm 15,401 +23%

• Distribution

RUBm 7,622 +77%

• Others

RUBm 7,779

• 5%

EBITDA RUBm 862 +3,492%

Business Segments: Others

Revenue and EBITDA, other segments

EuroChem distribution and sales outlets registered a 92% increase in sales in Q2’11 v Q2’10. Sales reached RUB 3.5bn or 11% of EuroChem’s overall sales for Q2 2011 Including logistic and other services rendered to

• ther segments and third parties, third party

product sales, etc

Fertilizer sales volumes through own distributors increased to 669 KT in H1 2011, 39% higher than H1 2010

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H1 2011 H1 2010 H1 11 / H1 10 Change Gas (raw materials) 6,995 5,997 +17% Sulphur 1,231 655 +88% Other materials and components 10,402 6,778 +53% Energy 3,464 2,706 +28% Utilities and fuel 1,875 1,549 +21% Transportation 6,705 7,393

• 9%

Labour 5,700 5,419 +5% Change in WIP and FG (765) 43 NM Other 5,157 4,248

• 21%

Total* 40,764 34,788 +17%

Costs

Strong demand and tight supply drove price increases

*Includes cost of sales, distribution and G&A expenses

Cost Structure, RUBm

Primarily brought on by the liberalization of the wholesale electricity market from January 2011 and increases in energy tariffs Increases in raw material prices Due to higher prices for diesel fuel (45%) and oil (10%), as well as the expansion of heavy vehicle fleet vehicles and acquisition of excavators at Kovdorskiy GOK Due to salary indexation and increased social insurance contributions Annual nat gas increase: for 6M11, average gas prices at NAKAzot and NEVAzot facilities were RUB 3,178 and 3,342 per 1,000m3 respectively compared to RUB 2,748 and 2, 909/1,000m3 in 6M10

10

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Debt

*Including current portion of restricted cash

Key debt metrics, RUBm (30/06/11) Debt maturity as of 30/06/11, USD m equivalent



On July 28 2011 EuroChem signed a 5-yr USD 1.3bn pre export facility (PXF) at L+180bp with a grace period of 2 years for principal repayments



USD 0.5bn was used to repay the previous 4-yr USD 1.5bn PXF



The new facility significantly extended the Company’s debt maturity profile largely beyond 2013



Other committed and unsecured sources of liquidity include unsecured bilateral lines and margin loan lines against K+S shares (c.USD 400m)



Net Debt / EBITDA as of 31 July 2011: 0.73x



Expected Net Debt / EBITDA at 2011-end: c. 1.20x

Comment on new PXF and unsecured liquidity sources

H1 2011 Original currency (m) Syndicated loan (PXF) 15,446 USD 550 Eurobonds 8,127 USD 289 Ruble bonds 9,962 Bank loans 6,846 USD 100 EUR 100 ECA-backed facilities 2,108 USD 53 EUR 15 Gross debt 42,489 Less cash and cash equivalents* 8,540

Net debt 33,949 11

Debt maturity after new PXF, USD m equivalent

419 878 38 40 404 40 200 400 600 800 1,000 2011 2012 2013 2014 2015 2016 USDm 100 429 210 475 839 306 200 400 600 800 1,000 2011 2012 2013 2014 2015 2016 USDm

Capital Expenditure Analysis



Nitrogen:

• 1. Granulated urea (Urea 3 shop) with 2.0KT per day at

Novomoskovskiy, launched in December 2009, first in Russia

• 2. CAN shop with 420 KT per annum capacity at

Novomoskovskiy, launched in November 2009

• 3. Construction of melamine production (50 KT p.a.) along with

the revamp of urea shop at Nevinnomysskiy

• 4. Construction of new granulated urea facility with 1.15 KMT

per day capacity at Novomoskovskiy (Urea 4 shop)

• 5. Technical rehabilitation of plants to increase efficiency



Phosphate:

• 1. Rebuilding of sulphuric acid production with capacity increase

by 720 KT p.a.

• 2. Reconstruction of phosphate acid production with capacity

increase by 300 KT p.a. / potential construction of 6 MW turbine

• 3. Technical rehabilitation and modernization of existing

facilities



Potash:

• 1. Construction of skip and cage shafts / Gremyachinskoe

deposit, ground freezing operations at Verkhnekamskoe

• 2. Industrial and social infrastructure construction
• 3. Railway link and Gremyachaya Station



Others: Tuapse bulk terminal construction

Main Projects to date

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2.01 2.27 1.37 0.64 1.33 2.89 1.55 1.84 1.05 1.09 4.16 1.96 2.65 1.51 1.07 0.79 1.49 0.14 0.65 0.77 9.85 7.27 6.00 3.85 4.26 0.00 2.00 4.00 6.00 8.00 10.00 12.00 H1 11 H1 10 Q2 11 Q1 11 Q2 10 RUB bn Nitrogen Phosphate Potash Other

Brief Summary of 6M11 Performance by Segment (vs. 6M10)

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 N prices strengthened on demand and low Chinese supply  Fertilizer sales volumes are up 1% over the same period last year  N margin stands at 37%, up from 29% the previous year  Melamine project on track at Nevinnomysskiy Azot (production to start by 2011-end)

Nitrogen Segment (N) Phosphate Segment (P)

 P prices have been strong since throughout H1, supported by demand and restricted

supply

 Fertilizer sales volumes are up 3% over the same period last year  Iron ore sales volumes are down 8% year-on-year but catching up gradually  P margin for 6M 2011 is 38%, up from 31% in the same period last year

Potash Segment (K)

 Cumulative investment in potash: USD 1.05bn  Shaft sinking in Volgograd: good progress on the skip shaft (freezing technology, -220m

currently, first water layer successfully passed); catching up at the cage shaft (cementation technology, -90m, first water layer is being passed)

Distribution (D)

 Sales volumes up to 669 KT in H1 2011, 39% higher than the same period last year  H1 2011 revenues are up 77% year-on-year  EBITDA has doubled in the same period to RUB 0.5bn (USD 16m), margin: 6%

Strong operating and financial performance across all business segments

Nitrogen Segment

Revenue*, RUBbn EBITDA margin Key investment projects

Nitrogen segment includes nitrogen fertilizers and organic synthesis products *Revenue and sales volumes include sales to other segments

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Nitrogen Phosphate Potash

Russia and CIS 40% (-2) Asia 7% (-3) Europe 16% (-4) Latin America 24% (+11) North America 9% (-1) Africa 3% (-1) Australasia 1% (-) Urea 37% (+8) Ammonium Nitrate 21% (-3) UAN 10% (+1) NPK 8% (-2) Ammonia 5% (-6) CAN 4% (+4) Other 7% (-1) Acetic Acid 3% (-) Methanol 5% (-1)



CAN – 420 KT p.a. – completed



Granular urea 3 – 2,000 T p.d. – completed



Granular urea 4 – 1,200 T p.d. – completed



Melamine – 50 KT p.a. – expected in Q4 2011



Future projects: deep modernization of ammonia plants; LDAN production **in brackets – change in percentage points relative to H1 2010

Sales by region**, H1 2011 Sales by Product**, H1 2011

37% 29% 35% 39% 37% 17% 26% 31% H1 11 H1 10 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 29.5 23.0 14.3 15.2 14.3 9.9 11.0 12.1 H1 11 H1 10 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10

Phosphate Segment

Revenue*, RUBbn EBITDA margin

*Revenue and sales volumes include sales to other segments Phosphate segment includes included iron or and baddeleyite, byproducts of apatite production at Kovdorskiy GOK mine

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Nitrogen Phosphate Potash

Key investment projects

Russia/CIS 38% (+5) Asia 24% (-10) Europe 19% (+5) Latin America 9% (-7) North America 8% (+6) Africa 2% (+1) MAP, DAP 53% (-1) Feed 7% (+1) Apatite 2% (-) Baddeleyite 1% (-) Iron ore 32% (+1) NP, NPK 2% (-1) Others 3% (-1)



Increase sulphuric acid capacity: at Phosphorit from 720 to 1,000 KT p.a.; at EBMU from 520 to 720 KT p.a.



Increase phosphoric acid capacity: at Phosphorit from 350 to 400 KT p.a.; at EBMU from 240 to 300 KT p.a.



Build NPK production at EBMU: 800 KT p.a. (to correspond to K production coming online in Volgograd)



Feed phosphates at Lifosa: 150 KT p.a. – completed



Kazakhstan: phosphate rock supply (300 KT planned for 2013)

Sales by region**, H1 2011 Sales by Product**, H1 2011

**in brackets – change in percentage points relative to H1 2010

31.0 21.8 15.7 15.3 12.8 13.9 12.6 9.2 H1 11 H1 10 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10 38% 31% 40% 37% 40% 36% 39% 19% H1 11 H1 10 Q2 11 Q1 11 Q4 10 Q3 10 Q2 10 Q1 10

Potash Segment: Construction Underway

500 1,000 1,500 2,000 2,500 3,000 3,500 prior to 2010 2010 2011 2012 2013 2014 2015 US$ m

Gremyachinskoe cumulative capex Phases I+II (2010-completion)

Phase II cumulative capex Phase I cumulative capex

Mining starts Now

Nitrogen Phosphate Potash

2010 2011 2012 2013 2014 2015

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500 1,000 1,500 2,000 2,500 3,000

prior to 2010 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

US$ m

Verkhnekamskoe cumulative capex Phases I+II (2010-completion)

Phase II cumulative capex Phase I cumulative capex

Mining starts 3.4 MMT 2.0 MMT Now

• Phase I: capacity of 2.3 MT p.a., involves construction of

social infrastructure, cage shaft, skip shafts and processing facility.

• Phase II: capacity doubled to 4.6 MT p.a., involves construction of

additional skip shaft and expansion of processing facility.

• Current status: -220m at the skip shaft, first water layer passed
• successfully. -90m at the cage shaft, adaptation of cementation

technology to subsoil conditions longer than previously planned. No changes to the overall project timetable.

Volgograd Region (Gremyachinskoe deposit)

• Phase I: capacity of 2.0 MT p.a., involves construction of

social infrastructure, cage shaft, skip shafts and processing facility.

• Phase II: additional capacity of 1.4 MT p.a., involves construction
• f additional skip shaft and expansion of processing facility.
• Current status: freezing equipment installed and active ground

freezing operations to begin in August. Start of headframe assembly in Q3.

Perm Region (Verkhnekamskoe deposit)

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 Global stock-to-use ratios in major grains to remain below their long-term averages over the

next few quarters and continue acting as main drivers behind fertilizer application

 Strong autumn fertilizer application period  Urea trade benefiting from Chinese sliding export tax  Phosphate demand to remain robust in the third quarter from strong fall application and

depleted supply chain; although possible Ma’aden effect should not be completely ignored

 Iron ore prices to remain stable as Chinese steel producers build up inventory; appreciation of

Chinese Yuan also beneficial

Outlook

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Questions & Answers

ir@eurochem.ru www.eurochem.ru