Puławy, September 3rd 2009

Press Release

A Successful Year for Zakłady Azotowe Puławy

In the financial year 2008/2009 Zakłady Azotowe Puławy SA achieved one of the best financial results in the entire history of the Company despite the unfavourable conditions created by the global economic crisis and slowdown on the chemicals markets. The operating profit exceeded PLN 338m, which is nearly 5.7% less than the last year’s record profit.

The net profit amounted to nearly PLN 195m, being a remarkable performance in comparison to other players in the chemicals sector. Relative to the last year’s achievement, EBITDA dropped to PLN 407.2m (94.2% of the 2007/2008 level). The sales revenue reached PLN 2.4bn – only 4.2% less than the revenue recorded for 2007/2008, the best financial year in the history of ZA Puławy. 

The Company managed to achieve higher margins in the sales of fertilisers by capitalising on favourable market trends and higher foreign exchange rates. Fertiliser sales revenue exceeded the previous year’s performance by 9.8%, mainly due to strong domestic sales.

This financial year was a difficult time when many companies from the chemicals sector were put to severe test. The flexible production system along with intensified business contacts enabled us to maintain our position on all strategic markets. The company had to cope with such adversities as considerably higher prices of natural gas compared with the previous year (16% rise in purchase costs) as well as periodic limitations in gas supplies. We begin the new financial year with a wide-ranging PLN 400m investment plan that will help us to increase the production capacity and boost our operating efficiency, says Paweł Jarczewski, President of the Management Board of Zakłady Azotowe Puławy SA.  

The Company’s performance also benefited from the cost optimization project for 2009–2015, in preparation since July 2008. The program aims at cost optimisation in such business areas as technology, power, human resources and logistics, by means of nearly 60 various initiatives currently underway.  

Situation in the Fertilisers Market

The protracted period of extremely low precipitation in the last two quarters of the 2008/2009 financial year caused delays in application of fertilisers and frequently resulted in dropping the last stage of the fertilisation process. The vigorous growth in import from the countries east of Poland had a significant impact upon the domestic prices of fertilisers. A drop in the fertilisers sales volumes recorded in May and June 2009 was due to the spring fertilisation season coming to an end.    

In contrast to the nitrogen and phosphate fertilisers, the global prices of potassium remained high and stood at USD 700 per tonne, despite a dramatic drop in demand, which started in H2 2008. According to initial estimates, the cereal growing area in the 27 countries of the European Union will be 58.5m ha in 2009/2010 (compared with 59.6m ha in 2008/2009).

The European Commission maintained the anti-dumping duty of EUR 33 per tonne for ammonium nitrate from the Ukraine.

Another factor of importance for the market is a pause in the operation of installations for the production of ammonia in one of the plants of the Yara concern in Belgium, with the nitrogen fertiliser production capacity of 920,000 tones per year, following an explosion in June 2009.

The Chinese government reduced the export duty on urea to 10% for the period July 1st – September 15th 2009. From September 16th to October 31st it will be increased again to 110%. On the other hand, from November 1st 2009 to January 31st 2010 the 10% rate is to be reintroduced.

The Chemicals Market

The fourth quarter was characterised by low demand for melamine on the European market. The price fell by approximately 12.5 % from the previous quarter.

Increased demand for caprolactam combined with higher prices on the Asian market enabled the Company to use 100% of its production capacity (the capacity usage ratio in Europe amounted to 75%).

Significant Japanese and Brazilian players discontinued the production of caprolactam.

The continuing slowdown in the paper manufacturing sector resulting from the global financial crisis had an adverse impact on the hydrogen peroxide market in Europe. A strong decrease in production on the European market was observed (closures, shut-downs of production units).

Despite the negative effect of the global economic crisis on the transport services market, which was reflected in the growth rate of AdBlue’s consumption, the Company increased its sales three times compared with the previous quarter.