23 Aug 2010 13:51

EuroChem sees IFRS earnings plummet 2/3 in Q2

MOSCOW. Aug 23 (Interfax) - EuroChem's net profit to International Financial Reporting Standards (IFRS) plummeted almost two-thirds year-on-year in Q2 2010 to 2.5 billion rubles due to exchange-rate losses, the mineral and chemicals company said in a statement.

Sales revenue grew, by 38.1% to 23.8 billion rubles, and earnings before taxes, depreciation and amortization (EBITDA) rose 60% to 7.7 billion rubles.

Net profit in H1 2010 rose 23% year-on-year to 7 billion rubles.

Fertilizer sales volumes in the second quarter increased, with combined nitrogen and phosphate volumes up 12.0% from 1,785 thousand metric tonnes (KMT) in Q2 2009 to 1,999 KMT in Q2 2010 (excl. iron ore and baddeleyite). Additionally, the company's sales of iron ore in the second quarter increased 9.6% y-o-y to 1,603 KMT. Increased volumes combined with stable prices in phosphate fertilizers and strong iron ore prices all contributed to the stronger Q2 result.

EuroChem recorded a 53.3% gross margin in Q2 2010, compared to 44.5% for Q2 2009.

"This was a good quarter for us on the back of largely firmer prices and volumes. While the near-term economic outlook remains uncertain and volatile, we continue with our growth-oriented investment program because, for competitive producers, the fundamentals of our industry remain as strong as ever. Our potash development projects remain top priority for us," said CEO Dmitry Strezhnev.

The fertilizer and soft commodities markets continued to recover during Q2 2010, despite concerns over European sovereign debt and continuing uncertainty about the sustainability of the global economic recovery, EuroChem said. Driven by strong long-term factors that support demand for food, combined with short-term weather-related factors that are driving up soft commodity prices, demand for fertilizers has strengthened. These bullish factors were balanced in the short term by a reluctance in the second quarter on the part of fertilizer dealers and retailers to hold inventory between seasons: the effort to "empty bins" at the end of the northern hemisphere spring planting season contributed to downward pressure on prices during the second quarter of 2010.

During Q2 2010, average market prices for prilled urea (FOB Yuzhny) were 2.6% below Q2 2009 levels at $236/tonne, while AN (FOB Black Sea) averaged 28% higher at $185/tonne. Phosphate fertilizer prices saw a strong recovery, with DAP (FOB Baltic Sea) averaging $439/tonne in Q2 2010, up 37% over the average price for Q2 2009. Contract prices for potash fertilizers have remained stable with MOP at $292/tonne (FOB Baltic Sea) throughout the second quarter of 2010, although spot prices were higher, averaging $339/tonne during the period.

Natural gas prices averaged $2.89/mmBtu in Q2 2010 at EuroChem's nitrogen fertilizer plants, compared with $4.34/mmBtu in the United States, $5.94 in Europe (spot), and estimated $6.20/mmbtu for Ukrainian producers (delivered to plant).

Total Russian fertilizer production in Q2 2010 increased by 26% to 4,282 KMT of nutrients vs. 3,411 KMT in Q2 2009 according to AzotEcon. Compared to the second quarter of 2009, potash production saw the sharpest increase, up 98.5%; P2O5 was up 17.1% while N production actually declined 2.6% in Q2 2010.