EuroChem FY 2017 IFRS Results Conference Call 8 February 2018

Transcription

1 EuroChem FY 2017 IFRS Results Conference Call 8 February 2018 Start time: 10:00 NY / 15:00 London / 16:00 Zug / 18:00 Moscow Dial-in details

2 2 This presentation has been prepared by EuroChem Group AG ( 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 as they relate and depend on events and circumstances that may or may not occur in the future, The Company therefore 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 opinions or for any loss howsoever arising, directly or indirectly, from any use of this presentation or its contents, Due to rounding, some totals may not correspond with the sum of the separate figures Participant Joining Details UK Freefone UK Direct

3 EuroChem Group Overview Vertically integrated global business supporting regional market commitment 2017 total fertilizer production up 2% y-o-y of 10.6 MMT (2016: 10.4 MMT) Raw material mining Fertilizer production Vertical integration: own raw materials, port terminals, rail stock, construction/repair works, Europe/CIS/Americas distribution capacity 2 Kovdorskiy GOK 3 VolgaKaliy (UC) 6 Antwerpen 7 Lifosa 11 BMU 10 Novomoskovskiy Azot o 3 Nitrogen plants (2 in Russia, 1 in Belgium) nutrient capacity of 2.6 MMT of N, increasing to 3.4 in 2018 with launch of new NH 3 plant. 4 Usolskiy (UC) 5 EuroChem Fertilizers 8 Phosphorit 12 Nevinnomysskiy Azot 9 Northwest (UC) EuroChem-Migao o 3 Phosphate plants (2 in Russia and 1 in Lithuania) nutrient capacity of 1.27 MMT of P 2 O 5 (phosphoric acid) o Apatite (Russia) - P 2 O 5 -rich (37%-38%) and low-mer (1) content (0.057) apatite ore (2.8 MMT per year) covers c.75% of own production needs for all phosphate plants and Antwerp, additional volumes from Kazakhstan: 600 KMT phosphate flour o Iron ore as a co-product of apatite mining: up to 5.8 MMT of iron ore (Fe content 63.5%) o Logistics assets include transshipment capacity of c.10.2 MMT, of which c.3.5 MMT in the EU, ~ 6,400 own rail stock/depot 20 o Sales : global platform anchored on EuroChem Agro and CIS position with expanding footprint across the Americas Projects o Potash (K) : 2 greenfield projects in Russia with targeted capacity of over 8.3 MMT of KCl per year (5 MMT K 2 O). First product Q o Ammonia 1 MMT facility in close proximity to Phosphorit (Russia/Baltic Sea), startup 2018 Total employees: >25, Logistics 14 Sillamae 15 Ust-Luga (UC) 16 Murmansk 17 Tuapse Sales 18 Mexico 19 US 20 Brazil 21 Argentina 22 Spain 23 France 24 Germany 25 Switzerland 26 Italy 27 Hungary 28 Greece 29 Bulgaria 30 Moldova Expected 1H Belarus 32 Ukraine 33 Turkey 34 Russia 35 Singapore 36 China 1 Global headquarters (Zug) Romania Serbia (1) Minor element ratio UC = under construction 3

4 EuroChem Group Overview Key strategy pillars Cost leadership through vertical integration Target raw material selfsufficiency (ammonia, phosphate rock, potash) Enhance cash cost position and reduce risk/volatility of earnings Vertically integrated business model Nitrogen Natural gas (access to several deposits in proximity to Group assets) 1mmt pa Ammonia project (NH3) Phosphate Phosphate rock Phosphoric acid Iron ore Potash Potash ore reserves & resources in excess of 10 BMT (1) Growth through potash Build leading low-cost potash production Maximize internal processing of potash for NPK, NK, SOP production Proximity to Customers The proximity to customers in key home markets provided via distribution allows the Group to sell at a premium and exploit seasonality patterns 3 Nitrogen fertilizer plants c.12.9mmt of nitrogen capacity (3)(4) 3 Phosphates fertilizer plants c.4.0 MMT of phosphates capacity (2)(4) Maritime transhipment facilities in Russia, Estonia, Belgium and c.6k rail cars and 43 locomotives 2 potash projects underway in Russia with a combined targeted capacity of over 8MMT MOP Ust-Luga Value-added product range Maximize specialty products and emphasize the decommoditization of the Group s fertilizer product portfolio Obtain valuable market knowledge from direct end-user contact with regards to product quality, R&D, and services Sales to more than 100 countries supported by own distribution Ongoing and potential investment projects By-products Expand industrial portfolio Premium product R&D Source: Company data; (1) MI&I resources in accordance with Russian classification system; (2) Phosphate and complex mineral fertilizers; (3) Nitrogen mineral fertilizers and organic synthesis products; (4) The capacity data represents theoretical capacity as certain production units can produce several types of products, for example, certain production units can be configured to produce either DAP or MAP but not both at the same time. Final production volumes ultimately depend on how the production units are configured 4

5 Fertilizer Sector Market backdrop 2017 Backdrop Nitrogen (US$/tonne) More supportive fertilizer pricing backdrop following launch of new capacity Chinese fertilizer production rates decline on rising input costs and stricter environmental controls exports significantly lower year-on-year. o Urea exports down 47% y-o-y to 4.7 MMT, (2015: 13.7 MMT) o DAP exports 6% lower y-o-y to 6.4 MMT, (2015: 8 MMT) o Structural changes in Chinese cash costs (higher domestic tariffs/prices for electricity, rail/truck transportation, coal) Key themes: Chinese costs / exports / capacity rationalization New capacity Indian subsidies Acreage plans $ 500 $ 400 $ 300 $ 200 $ 100 $ 0 Phosphates (US$/tonne) Prilled urea (FOB Yuzhniy) AN (FOB Black Sea) Ammonia (FOB Yuzhniy) UAN (FOB Black Sea) $ 500 Global nutrient demand N: slight increase to MMT of N P: stable at 48.2 MMT P 2 O 5 K: up 2% to 35.4 MMT K 2 O Key themes: India / Brazil subsidy and currency MEA capacity Producer discipline $ 450 $ 400 $ 350 $ 300 $ 250 $ 200 Average market prices for key products (US$/tonne) Ammonia (FOB Yuzhny) Prilled urea (FOB Yuzhny) AN (FOB Black Sea) MAP (FOB Baltic) MOP (FOB Baltic, spot) Iron ore (63.5% Fe, CFR China) Q4-17 Q4-16 Y-o-Y, chng % Y-o-Y, chng % $283 $ % $265 $ % $246 $ % $220 $ % $216 $ % $191 $ % $360 $ % $348 $338 +3% $235 $221 +7% $228 $235-3% $67 $72-7% $73 $60 +22% Iron ore (US$/tonne) Key themes: China steel demand Global supply dynamics CNY movements $ 120 $ 80 $ 40 $ 0 MAP (FOB Baltic) DAP (FOB Baltic) NPK 16:16:16 (FOB Baltic) Iron ore (CFR China) Averages are derived from weekly prices 5

6 6 EuroChem Group Overview Selected key events Brazil Distribution Acquisition of Fertilizantes Tocantins with blending facilities and established network of 2,000 customers in the North, Northeast and Mid-West of Brazil. Distribution Centre in Hungary New center to mainly distribute EuroChem products and specialty fertilizers from Fertilia Ltd., a leading Hungarian producer and distributor. Completed tender on 2017 LPNs ($426m) and placed $500m Eurobonds issue First Ural-20 mining machine starts at Usolskiy Acquisition of a minority interest (50%-1 share) in Hispalense de Liquidos EuroChem acquires Argentinian Fertilizer Distributor Emerger Fertilizantes Strategically located in Brazil s emerging fertile farming regions in the North, Northeast and Mid-West. Blending facilities, market expertise and established network of 2,000 customers. Double digit sales growth for 7 consecutive years. Acquisition of a minority interest (50%-1 share) in Hispalense de Liquidos, a family-owned producer of liquid NPK blends located in the south of Spain. The deal gives EuroChem access to additional production capability and technical know-how, enabling the Group to expand the scope of its premium product offering. The acquisition of the privately-owned distributor of premium and standard fertilizers in Argentina will further strengthen EuroChem s footprint in Latin America which is an important region currently accounting for 11% of the Group s fertilizer sales. The market for fertilizers in Argentina is expected to increase by 40% to 5.5 MMT in EuroChem Places US$ 500m Eurobond EuroChem Group AG obtains Unsecured $750 Million Facility EuroChem launches new subsidiary in Bulgaria In November 2017 the Group divested its Severneft-Urengoy gas operator future oil & gas focus to center on the exploration and development of gas condensate fields in the Astrakhan and Saratov regions in Russia, and the Kamenkovsky gas field in Kazakhstan EuroChem sells Severneft-Urengoy EuroChem Usolskiy Potash readies for commissioning of MOP production mill Usolskiy beneficiation system filled with ore and brine as of early February. Initial production to begin in the second half of February/early March, with regular production and sustained ramping-up of operations to follow from early May.

7 7 EuroChem Group Overview Global market presence Group sales geography (2017) Group sales volumes (KMT) 32% 20% 17% 12% 10% 7% 2% Group 20,534 +2% 20,909 Europe % Russia % Top 2 in Russia/CIS with more than 55% of Russian domestic sales directly to farmers Top 2 in Europe, anchored by Europe EuroChem Antwerpen / Agro North America % CIS % 1300 Entering transformational stage with potash Growing presence in the Americas and Europe supported by several acquisitions Latin America % 2602 Africa % 498 Asia % 3659 Diversified presence in non-domestic markets Mining products split between Russia and Asia From 2018, added focus on Brazilian market with world s 2016lowest cost 2017potash Growing industrial product offering

8 EuroChem Group Overview Key 2017 figures Revenues (US$bn), Gross margin (%) EBITDA (US$m), EBITDA margin (%) 41% 34% 35% 36% 40% 35% 35% 37% 37% 37% $4,375 $4,866 32% 21% 22% 27% 26% 23% 22% 22% 26% 23% $1,133 $1,130 $1,255 $1,013 $1,054 $1,053 $1,336 $1,061 $1,172 $1,296 $402 $210 $234 $286 $349 $241 $254 $286 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q Key ratios (LTM) Revenues ($m) Gross margin (%) 12M-16 3M-17 6M-17 9M-17 12M-17 Net debt 1 / EBITDA 2.85x 2.82x 2.87x 2.90x 2.88x Funds from operations / Gross debt 1 20% 18% 18% 17% 18% Geography of sales (% of total) EBITDA ($m) EBITDA margin (%) 2% 1% 1% 7% 5% 2% 3% 3% 3% 1% 1% 2% 10% 10% 6% 8% 8% 7% 8% 7% 4% 11% 13% 12% 11% 15% 15% 16% 22% 17% 20% 18% 11% 14% 15% 10% 6% 15% 8% 12% 11% 15% 12% 8% 10% 12% 10% 16% 9% 10% 9% 20% 21% 19% 18% 19% 18% 17% 20% 24% EBITDA / interest coverage 5.36x 5.00x 4.80x 4.46x 4.43x 44% 31% 34% 35% 35% 25% 33% 32% 36% 32% Return on capital employed 17% 16% 16% 16% 17% Europe Russia Asia Pacific North America Latin America CIS Africa (1) Defined as per bank covenants. 8

9 EuroChem Group Overview EBITDA development EBITDA remained in line y-o-y at $1,130m Despite higher prices, profitability adversely affected by impact of rouble appreciation and one off items. EBITDA, $m $1,133 $1, Rouble appreciation overshadowing stronger product pricing environment Product Ammonia (FOB Yuzhny) Prilled urea (FOB Yuzhny) AN (FOB Black Sea) MAP (FOB Baltic) Iron ore (CFR China) RUB/USD Exchange rate 40 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Y-o-Y, chng % $265 $ % $220 $ % $191 $ % $348 $338 +3% $73 $60 +22% EuroChem products only Selected sales volumes (KMT) Y-o-Y, chng % Y-o-Y, chng % Fertilizer products 13,470 13,415 +0% 9,678 10,022-3% Feed phosphates % % EBITDA 12M-16 Sales Prices (incl. volumes and FX) mix (EuroChem) Other sales (incl. 3rd party products) Variable production costs Fixed costs (excl. effects of FX rates) Effects of FX rates on fixed costs FX gain/loss from operations Other items net* EBITDA 12M-17 Mining products 5,927 6,029-2% 5,916 6,022-2% Industrial products 1,512 1,494 +1% 1,512 1,494 +1% * Other items (net) mainly comprised of bad debt provisions of $14.3m, VolgaKaliy write-off of $5.7m, iron ore swap losses of $3.9m, and Murmansk Port disposal effect of $23m. 9

10 10 EuroChem Group Overview History of prudent financial policy backed by shareholder commitment Highlights / recent developments Debt (1) mix as of 31 December 2017 Commitment to conservative financial policy: To keep Net debt/ltm EBITDA within a conservative range throughout the various stages in the fertilizer cycle Ample liquidity proportionate to short-term debt Debt structure with a balanced maturity and interest rate profile EuroChem s LT ratings (Fitch/S&P): «BB» (negative) / «BB-» (stable) recently affirmed Very modest refinancing needs in ; in 2020 new EBITDA from new projects should exceed $300m Sizeable and committed shareholder support: Agreement with AIM Capital SE for perpetual debt financing with a limit of up to $1.5bn ($250mm drawn as of now) 2 significant investment projects financed through non-recourse project financing facilities (Northwest and Usolskiy) Bond/bilateral loans/syndicated facility Long-term/short-term Unsecured/secured $/RUB/BRL Float/Fixed Covenant/Off-covenant 46.0% 75% 64% 34% 33% 21% 25% 99% 1% 36% 1% 66% 78% 22% Project finance repayment ($m) and beyond Total Usolskiy Project Finance Northwest (Baltic ammonia) Net covenant debt (1) / EBITDA dynamics (x) Covenant debt: $3.48n Covenant debt (1) maturity profile as of 31 December 2017, $m Bank debt covenant level 3.5x As of 31 Jan-2017: c.$203m undrawn committed lines c.$356m cash x 2.75x 2.85x 2.82x 2.87x 2.90x 2.88x Undrawn committed lines $296m Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Cash and equiv (1) Defined as per bank covenants (does not include project finance facilities) Unsecured syndicated facility Eurobonds Rouble bonds Bilateral loans

11 EuroChem Group Overview Strategic projects largely funded Project finance $417m Group CAPEX (US$m) Project Finance (US$m) Usolskiy potash project Despite large-scale projects the Group maintains the flexible CAPEX outlay Amount of total investment funded to date: c. 60% c. $1,191m c. $3,000m 29% of 2017 CAPEX from non-recourse project financing $160m: EuroChem Usolskiy (potash) 221m : EuroChem Northwest (ammonia) 1,323 1,496 $1,809m $750m Annual Group sustaining CAPEX requirements: c.$150m 378 CAPEX spent to date CAPEX outstanding Total estimated CAPEX² PF Usolskiy Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q Mining PF Usolskiy PF Northwest Fertilisers Oil&Gas Logistics Sales Other EuroChem-Northwest ammonia project Amount of total investment funded to date c. 68% $680m $286m CAPEX spent to date PF Northwest c.$297m $270m Remaining CAPEX c.$977m Total estimated CAPEX Excluding temporarily unallocated CAPEX 2- including all development phases and all social infrastructure 11

12 Urea cost on DDP basis, $/t DAP cost on DDP/FCA basis, $/tonne Jan-16 Jan-16 Feb-16 Feb-16 Mar-16 Mar-16 Apr-16 Apr-16 May-16 May-16 Jun-16 Jun-16 Jul-16 Jul-16 Aug-16 Aug-16 Sep-16 Sep-16 Oct-16 Oct-16 Nov-16 Nov-16 Dec-16 Dec-16 Jan-17 Jan-17 Feb-17 Feb-17 Mar-17 Mar-17 Apr-17 Apr-17 May-17 May-17 Jun-17 Jun-17 Jul-17 Jul-17 Aug-17 Aug-17 Sep-17 Sep-17 Oct-17 Oct-17 Nov-17 Nov-17 Dec-17 Dec EuroChem Group Overview Competitive advantages rooted in low-cost raw materials Assets benefiting from advantageous location and upstream integration From Q3-18, self sufficiency in ammonia following launch of Northwest project Internal phosphate rock production covers c.75% of annual consumption By-products (iron ore, baddeleyite ) further improve cost competitiveness of the business Nevinnomysskiy urea cost (FOB Black Sea), US$/tonne $300 $250 $200 $217 Additional cost efficiency through vertical integration in logistics and distribution Own port facilities with annual capacity of 8.8MMT (Russia) and 3.5MMT (EU) Fleet of 6,400 railcars and 43 locomotives Distribution network covering CIS, US, Latin America, Europe and Asia $150 $100 $50 $0 Gas price Conversion cost Transportation FCA-FOB FOB Price BS Low-cost nitrogen and phosphate operations on DDP basis Urea Urea global global cost cost curve curve in 2016 in Gas/Coal Transportation FCA-FOB Import duty NAK NEV Azot Azot MMT Conversion cost Freight DAP global cost curve in MMT Phosphate rock Ammonia Sulphur Conversion Transport to port 100Rmb export duty Lifosa Freight Import duties DAP cost based on mix phosrock price Lifosa DAP costs (FOB Baltic), US$/tonne, with iron ore credit $500 $400 $300 $200 $100 $0 PhosRock Apatite Ammonia Sulphur Sulphuric acid Conversion cost $378

13 Potash projects

14 14 Potash Gradual introduction of potash Key considerations Potash sourcing, 2017 (KMT) Usolskiy initial start-up sequence delayed to mid-q1 2018, VolgaKaliy online from summer Base case ramp-up assumes 3 years for each development phase to reach full capacity MOP SOP Production to initially phase out current 3 rd party purchases for processing c.440 Long-term target to channel over 1 million tonnes of potash for downstream complex fertilizer production Balanced approach - the Group will seek to maximize shareholder returns, while remaining mindful of market dynamics as capacity is commissioned and operationally tested Nevinnomysskiy Azot EuroChem Antwerpen Trading of 3rd-party product Expected capacity ramp-up (KMT) Potential for higher internal consumption from complex fertilizer production in Kazakhstan and China 2017/18 capacity and production estimates impacted by delayed start at Usolskiy. Limited revision to ramp-up plan beyond that. 6,000 7,100 8,300 3,500 4,600 2, /25 Usolskiy VolgaKaliy

15 Potash cost on DDP basis, $/t 0 VolgaKaliy Usolskiy 5 Belaruskali Belaruskali 20 Uralkali 25 Uralkali 30 China 35 SQM PotashCorp 50 PotashCorp 55 K+S Legacy Agrium 60 Mosaic APC 75 ICL (DSW) 80 Others K+S 85 Intrepid 15 ICL (EU) Potash Favorable positioning Potash assets conveniently located for intragroup logistics and beyond within global EuroChem sales network Global HQs supporting expected global cost leadership position CIS HQs Mining Fertilizers Oil and gas Logistics Distribution Sales market in 2017 Potash global cost curve (delivered to market, 2022) MMT estimated 2017 KCl demand* 69 MMT : estimated 2022 KCl demand Expected average price range Global potash capacity, MMT Site Cost Delivery to port Freight Capacity additions *Interger: 62.4 MMT, IFA: 66.5 MMT

16 VolgaKaliy Update 16 Capacity (KCL, MMT) Phase 1 Phase 2 Average KCl content of 39.5% and modern mining operations Approximately 500km to EuroChem s Tuapse port facilities

17 Usolskiy Update 17 Capacity (KCL, MMT) Phase 1 Phase 2 Eight continuous mining machines operating underground

18 Usolskiy Update 18 Ore in storage prior to beneficiation

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