CEO Statement


Dear Shareholders, Investors and Colleagues,

Maxim Volkov, Chief Executive Officer, OJSC PhosAgroWe are pleased to present our first annual report for PhosAgro, an overview of what has been an important and successful year for our Company.

Highlights of 2011

2011 was a year full of significant achievements for our Company, and it has left us in a strong position from which we can further accelerate the growth of our business. In July, the Company’s initial public offering successfully raised US$ 565 million, and PhosAgro was admitted to trading on the London Stock Exchange and listed on MICEX and RTS. In December, PhosAgro’s shares were included in the RTS-2 Index, and its GDRs were added to the Dow Jones Islamic Market BRIC Equal Weighted Index. Our successful flotation is a key milestone in the development of our Company, and will allow us to capitalise on the significant growth opportunities that are present in the fertiliser sector, in particular for highly-integrated producers like PhosAgro. We are confident that we can deliver on the expectations of both the market and shareholders.

Market Environment

In 2011, the world’s farmers produced more grain than ever before. Nevertheless, global grain demand has exceeded production in seven of the last twelve years, and stocks still remain at levels below historical averages. In this environment, the demand for soft commodities is likely to continue to support prices, and farmers will be motivated to invest in increasing crop output by putting more nutrients into the ground.

Demand for food continues to grow as the world’s population expands, and economic development in areas like China and India is causing dietary changes that lead to higher grain consumption per capita. At the same time, new sources of demand like biofuels are rapidly emerging, putting further pressure on farmers to maximise crop output, while the amount of arable land per capita declines.

Soft commodity (and fertiliser) prices are not immune to volatility caused by persistent global economic uncertainties, but ultimately the long-term fundamentals prevail - farmers need to produce more food in order to feed the world, and will use fertilisers to achieve this.

Prices for soft commodities at the end of 2011 and in early 2012 have been comfortably above historical averages. The prices for corn and soya bean, crops that particularly benefit from the use of phosphate fertilisers, have been high. We believe that the recent decline in fertiliser prices is purely due to speculative factors, and does not reflect the real economic fundamentals. In fact, demand for fertilisers generally during recent months has remained very strong, and PhosAgro was able to switch to production of NPK fertilisers when MAP/DAP prices fell, enabling us to maintain 100% utilisation of our production capacity.

Our Performance and Strategic Developments

2011 was a record year for PhosAgro in many ways, as we outperformed our key financial and operating targets. Our 2011 financial results reflect the growth delivered by PhosAgro’s sound core strategy, with performance driven by a strong management team. Consolidated revenues increased by 31% year-on-year to RUB 100.5 billion, EBITDA by 73% year-on-year to RUB 35.4 billion and net profit increased by 88% year-on-year to RUB 22.5 billion. PhosAgro’s financial performance in 2011 was primarily influenced by higher prices and increased sales volumes for both phosphate-based and nitrogen-based fertilisers.

We reported a 6% rise in production and sales of phosphate-based fertilisers in 2011, which shows that we have delivered on our strategy of organic growth through increasing the processing volumes of our own phosphate rock for phosphate-based fertilisers like MAP and DAP, as well as for complex NPKs. Our flexible production model enabled us to switch from DAP to NPKs in late 2011 and early 2012, in order to meet changing market demand and to achieve higher margins. This was helped by completion of the modernisation of the 4th production line at Ammophos, as a result of which our annual NPK production capacity has reached 1.7 million tonnes. Our year-on-year production and sales volumes of NPKs increased by 28.5% and 27.3%, respectively.

Capital expenditure in 2011 amounted to RUB 16.8 billion. Throughout the reporting year we continued our modernisation programme at the production facilities of our key subsidiaries, Cherepovetsky Azot and BMF. We also focused on the construction of our new urea plant with an annual production capacity of 500 kt at Cherepovetsky Azot. We expect to complete this project as planned in May-June 2012.


Looking ahead, fertiliser demand in 2012 is expected to be buoyed by the planting of record acreage and a favourable product mix, and we believe that PhosAgro’s vertically integrated business will help us to achieve the full benefit of higher prices and minimise the effects of volatility in the prices of key inputs.

World prices for agricultural products are currently at high levels, rising by 5% in the last ten days of January 2012. In addition, the Chinese authorities in 2012 imposed significant restrictions on the export of virtually all phosphate fertilisers, which may also impact world trade and support prices.

Demand for NPK fertilisers remains strong so far in 2012, while production of DAP and MAP fertilisers will be approximately 20% lower in the first half of the year compared to the corresponding period of 2011. We have seen a significant increase in demand for our NPK fertilisers during the year under review, and thanks to our flexible production and sales strategy we expect to increase overall fertiliser production in 2012 compared to 2011.

With PhosAgro’s rich resource base in the Apatit mine, we are also seeking to increase shareholder value over the longer term by developing projects to increase the deep processing of apatite-nepheline ore for products like fluoric salts, in addition to increasing the production of our own phosphate-based fertilisers.

We are confident that our sound business practices and strong growth will enable us to continue to meet the expectations of the market, shareholders and stakeholders. I would also like to take this opportunity to express my gratitude both to our management team and to all of the Company’s employees, who have contributed so significantly to the developments at PhosAgro and to our achievements.

Maxim Volkov

Chief Executive Officer, 
OJSC PhosAgro