August 23, 2018 - 6:00 AM EDT
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PJSC PHOSAGRO - PhosAgro 2Q18 EBITDA Grows 53% YoY to RUB 18.7 bn
For Immediate Release 23 August 2018

PhosAgro 2Q18 EBITDA Grows 53% YoY to RUB 18.7 bn

Moscow – PhosAgro ("PhosAgro" or "the Company") (Moscow Exchange, LSE: PHOR), one of the world’s leading vertically integrated phosphate-based fertilizer producers, today announces its interim condensed consolidated IFRS financial results for the three months (2Q) and six months (1H) ended 30 June 2018.

Revenue grew by 27% year-on-year in 2Q 2018 to RUB 56.6 billion (USD 916 million). EBITDA for the second quarter amounted to RUB 18.7 billion (USD 302 million), with PhosAgro’s EBITDA margin expanding to 33% in 2Q 2018 from 27% in 2Q 2017. Net income (adjusted for non-cash FX items) for 2Q 2018 jumped by 91% year-on-year to RUB 11.6 billion (USD 188 million), bringing 1H 2018 adjusted net income to RUB 18 billion (USD 303 million).

2Q 2018 financial and operational highlights

RUB million or % 2Q 2018 2Q 2017 Chng, %YoY 1H 2018 1H 2017 Chng, %YoY
Revenue 56,626 44,723 27% 111,248 89,121 25%
EBITDA* 18,674 12,212 53% 32,967 24,887 32%
EBITDA margin 33% 27% 6 pp 30% 28% 2 pp
Net income 2,955 1,469 101% 9,833 13,732 -28%
Net income adj** 11,627 6,081 91% 17,970 11,719 53%
30.06.2018 31.12.2017
Net debt 122,910 119,985
ND/LTM EBITDA 2.07x 2.34x
Sales, 000' mt 2Q 2018 2Q 2017 Chng, %YoY 1H 2018 1H 2017 Chng, %YoY
Phosphate-based 1,646 1,637 1% 3,399 3,170 7%
Nitrogen-based 600 435 38% 1,267 896 41%
Phosphate rock 733 657 12% 1,424 1,344 6%

RUB/USD rates: average 2Q 2018: 61.8; average 2Q 2017: 57.2; as of 30 June 2018: 62.8; as of 31 December 2017: 57.6
** EBITDA is calculated as operating profit adjusted for depreciation and amortisation.
** Net Income adjusted calculated as Net Income minus Foreign exchange gain (net)
 

PhosAgro CEO Andrey Guryev said: “We have been able to significantly strengthen our financial performance by delivering on PhosAgro’s carefully-chosen long-term development strategy, which includes a focus on organic production growth and vertical integration, constant control over operating costs, and completion of large-scale investment projects on time and on budget at a time when the first signs of price recovery have begun to emerge. With a 50% increase in EBITDA, doubling of net income and a reduction in our leverage, we continue to strictly adhere to our dividend policy (the size of the dividend recommended by the Board of Directors nearly doubled year-on-year) while maintaining investments at the level required to further advance our development.

“As part of our long-term strategy, PhosAgro has spent up to 50-60% of EBITDA on investments into its Russian assets over the past five years. In addition to nearly double-digit growth in production output, this has allowed us to maintain our industry leadership in terms of cash cost of production, and to weather a period of consistently low prices and trade restrictions—both embargoes and duties—with minimal impact on our financial stability. In an extremely volatile macroeconomic situation, the predictability and stability of fiscal policy remains a fundamental factor in making investment decisions, especially taking into account the long period required to earn a return on investments and our status as a public company with a significant share of foreign minority shareholders.

“In terms of the medium-term outlook, we believe that the positive trend in prices is sustainable, as is PhosAgro’s return to mid-cycle profitability levels, enabling us to balance the volume of new investments to ensure stable high growth rates while offering existing and new shareholders profitability on par with our top peers in Russia and abroad.”

2Q 2018 market conditions

  • The average price of DAP (FOB Tampa) in 2Q 2018 was USD 410 per tonne, which implies a year-on-year increase of USD 54, or 15%, per tonne.
  • The key drivers of the recovery in phosphate prices were: 1) idling of Plant City by Mosaic, resulting in a deficit on the North American market and higher import volumes; 2) robust import demand in India due to loss-making domestic production of DAP 3) slower than expected ramp up of new units in Saudi Arabia and Morocco. 
  • The average price of urea (FOB Baltic) in 2Q 2018 was USD 223 per tonne vs. USD 191 per tonne in 2Q 2017. The price increase was driven by further cuts in urea exports from China, growing cash costs for nitrogen producers in Europe (due to higher gas prices) and expectations of lower export from Iran once sanctions are fully back in force.

Financial performance

In 2Q 2018 revenue increased by 27% year-on-year to RUB 56.6 billion (USD 916 million) on the back of doubling in revenues from DAP and urea sales, which was partially offset by a 19% year-on-year drop in MAP revenue (overall company’s MAP sales declined by 35% year-on-year due to lower demand in Brazil). The weighted average revenue per tonne (in RUB) for DAP/MAP, NPK and Urea increased by 25%, 20% and 23% year-on-year, respectively.  

Comparing export and domestic markets, the Company managed to increase export revenue by 38% year-on-year due to an increase in overall volumes (up by 13% year-on-year) and an increase in RUB-denominated prices (up by 23% year-on-year), while domestic revenue remained almost flat, growing by 5% year-on-year.

A detailed revenue breakdown by key products is presented below:

Revenue by key products

RUB million 2Q 2018 2Q 2017 Chng, % YoY 1H 2018 1H 2017 Chng, % YoY
DAP/MAP 18,884 15,883 19% 37,514 31,035 21%
NPK(S) 14,651 11,534 27% 27,764 21,216 31%
PhosRock 5,491 5,045 9% 10,354 10,795 -4%
Nitrogen-based 9,082 5,342 70% 18,637 11,476 62%

In 2Q 2018 gross profit increased by 37% year-on-year to RUB 26.8 billion (USD 433 million), with gross profit margin expanding to 47% from 44% in 2Q 2017. Gross profit and margin performance for the phosphate and nitrogen segments were as follows:

  • The phosphate segment saw a 24% year-on-year increase in gross profit to RUB 22.0 billion (USD 356 million), with a gross margin of 48%, compared to 47% in 2Q 2017.
  • Gross profit for the nitrogen segment almost tripled year-on-year to RUB 4.7 billion (USD 76 million). Gross margin for the segment jumped by 22 p.p. year-on-year to 52%.

EBITDA in 2Q 2018 amounted to RUB 18.7 billion (USD 302 million), up by 53% year-on-year, while EBITDA margin expanded to 33% from 27% in 2Q 2017. Net profit adjusted for non-cash FX items amounted to RUB 11.6 billion (USD 188 million) in 2Q 2018, up by 91% year-on-year.

The RUB depreciated by 8% year-on-year against the USD during the quarter (the average RUB/USD exchange rates for 2Q 2018 and 2Q 2017 were RUB 61.8 and RUB 57.2 respectively), which had a net positive impact, as prices for most of the Company’s products are denominated in USD, while costs are primarily RUB-based. The depreciation of the RUB as of 30 June 2018 (RUB 62.8 per USD) compared to 31 March 2018 (RUB 57.3 per USD) resulted in an FX loss of RUB 8.7 billion (vs. a RUB 4.6 billion loss in 2Q 2017).

Net operating cash flow in 2Q 2018 increased by 74% year-on-year to RUB 16.1 billion (USD 260 million) primarily driven by the growth in profitability. Free cash flow in the second quarter was positive at RUB 8.4 billion (USD 136 million).

Capital expenditure in 2Q 2018 was RUB 7.6 billion (USD 124 million), up by 29% year-on-year primarily due to the low base effect (in 2017 some capex payments were postponed until the second half). The main capex spending was on scheduled maintenance and development of the upstream business, as well as on construction of new sulphuric and nitric acid plants.

As of the end of June 2018, net debt totalled RUB 122.9 billion (USD 1.96 billion), representing a decrease in the net debt/LTM EBITDA ratio to 2.07x thanks to positive dynamics in EBITDA performance.

Cost of Sales

RUB million 2Q 2018 2Q 2017 Chng, % YoY 1H 2018 1H 2017 Chng, % YoY
Materials and services 9,110 7,739 18% 17,915 14,736 22%
D&A 4,882 3,072 59% 9,636 5,873 64%
Natural gas 3,221 1,967 64% 6,718 3,904 72%
Salaries 3,174 2,703 17% 6,375 5,576 14%
Sulphur and sulph. acid 2,296 1,594 44% 5,174 2,772 87%
Potash 2,284 2,295 0% 4,556 3,739 22%
Fertilisers for resale 1,169 1,031 13% 3,031 2,678 13%
Electricity 1,441 1,307 10% 2,868 2,725 5%
Ammonium sulphate 500 285 75% 1,599 1,020 57%
Ammonia 715 2,196 -67% 1,806 4,364 -59%
Fuel 889 805 10% 1,888 1,756 8%
Heating energy 163 150 9% 332 418 -21%
Total 29,844 25,144 19% 61,898 49,561 25%

Cost of sales grew by 19% year-on-year in 2Q 2018 to RUB 29.8 billion (USD 483 million). The key factors behind the growth were:

  • Materials and services grew by 18% year-on-year to RUB 9.1 billion (USD 147 million) mainly driven by an 8.5% year-on-year increase in PPI and 9.2% growth in overall fertilizer production;
  • Depreciation rose by 59% year-on-year to RUB 4.9 billion (USD 79 million) as a result of the commissioning of new ammonia and urea facilities in 3Q 2017 and modernisation of ANOF-3;
  • Costs for natural gas were up by 64% year-on-year to RUB 3.2 billion (USD 52 million) on the back of 60% year-on-year growth in ammonia production, where gas is the main feedstock;
  • Salaries and social contributions increased by 17% year-on-year to RUB 3.2 billion (USD 51 million), due to an increase in headcount and growth in average salary;
  • Sulphur and sulphuric acid costs increased by 44% year-on-year to RUB 2.3 billion (USD 37 million) on the back of a 52% year-on-year increase in the average realised sulphur price (sulphur equivalent);
  • Electricity costs rose by 10% year-on-year to RUB 1.4 billion (USD 23 million) on the back of a 13% growth in purchase prices, which was partially offset by lower consumption;
  • Ammonium sulphate costs were up by 75% year-on-year to RUB 0.5 billion (USD 8 million) due to more than doubling NPS production volumes year-on-year;
  • Costs for ammonia decreased by 67% year-on-year to RUB 0.7 billion (USD 12 million) thanks to the ramp up of PhosAgro’s new ammonia line and the ensuing substantial decrease in purchased volumes.

Administrative expenses for 2Q 2018 grew by 5% year-on-year to RUB 3.4 billion (USD 54 million) due to an increase in personnel costs to RUB 2.0 billion (USD 32 million).

In 2Q 2018, selling expenses increased by 36% year-on-year to RUB 8.7 billion (USD 140 million). The main factors behind this growth were: 1) freight, port and stevedoring expenses rose by 76% year-on-year to RUB 4.4 billion (USD 71 million) primarily due to a 27% year-on-year increase in export sales of fertilizers shipped by sea, as well as 18% growth in shipping rates and changes in incoterms (more CFR sales) combined with RUB devaluation; 2) spending on transportation grew by 8% year-on-year to RUB 2.6 billion (USD 43 million), driven by the 10% year-on-year growth in overall volumes.

Outlook

Market outlook

  • The demand outlook remains firm on the back of:
    • Healthy imports of phosphates to India, which are expected to reach 5.5 million tonnes of DAP in 2018/19, despite the current weakness in the rupee;
    • Seasonal growth in demand for DAP/MAP in Europe, US and Africa (Ethiopia);
    • More activity from Brazil as a result of the favourable price environment for soybeans (growth in demand from China) and the lag in buying activity in 2018 (10-30% year-on-year decrease);
    • The start of the high season in China in October-December, when local producers will turn their focus to the domestic market.
  • At the same time, rising competition and the ramp-up of new capacities from Ma’aden 2 and the final, fourth unit at OCP are the main factors that could limit further upward movement in phosphate prices.   
  • According to IFA, global fertilizer consumption between 2018/19 and 2022/23 is due to rise with a CAGR of 2.0-2.5%. The growth in consumption of phosphates and potash (excluding China) is forecast to outperform growth in nitrogen fertilizer use.

Conference call and webcast

PhosAgro will hold a conference call and webcast today at 14:00 London time (16:00 Moscow; 09:00 New York).

The call will be held in English, with simultaneous translation into Russian on a separate line.

Webcast links:

English: https://event.onlineseminarsolutions.com/eventRegistration/EventLobbyServlet?target=registration.jsp&partnerref=rss-events&eventid=1819200&sessionid=1&key=6A0AC5F2EEB4465220F594CECC5EC927&regTag=&sourcepage=register

Russian: https://event.onlineseminarsolutions.com/eventRegistration/EventLobbyServlet?target=registration.jsp&partnerref=rss-events&eventid=1819203&sessionid=1&key=A141320F8C96EF2C65B82A91CF21578F&regTag=&sourcepage=register

Participant dial-in numbers:

Russian Federation         +7 495 221 6523
Russian Federation         8 10 8002 041 4011
United Kingdom               +44 203 043 2440
United Kingdom               0808 238 1774
United States                    1 877 887 4163

Conference ID numbers:

English call: 82882668#
Russian call: 30905574#
 

For further information please contact:

PhosAgro

Alexander Seleznev, Head of Investor Relations Department
+7 495 232 9689 ext 2187
[email protected]
Timur Belov, Press Officer
Anastacia Basos, Deputy Press Secretary
+7 495 232 9689

EM
Sam VanDerlip
[email protected]
+44 7554 993 032
+7 499 918 3134

PhosAgro (www.phosagro.ru) is one of the world’s leading vertically integrated phosphate-based fertilizer producers in terms of production volumes of phosphate-based fertilizers and high-grade phosphate rock with a P2O5 content of 39% and higher (according to IFA, Fertecon and CRU).

PhosAgro’s main products include phosphate rock, 39 grades of fertilizers, feed phosphates, ammonia, and sodium tripolyphosphate, which are used by customers in 100 countries spanning all of the world’s inhabited continents. The Company’s priority markets outside of Russia and the CIS are Latin America, Europe and Asia.

PhosAgro’s shares are traded on the Moscow Exchange, and Global Depositary Receipts (“GDRs”) for shares trade on the London Stock Exchange (under the ticker PHOR). Since 1 June 2016, the Company’s GDRs have been included in the MSCI Russia and MSCI Emerging Markets indexes.

PJSC “PhosAgro” Consolidated Interim Condensed Statements of Profit or Loss and Other Comprehensive Income for the three and six months ended 30 June 2018 (unaudited)

Six months ended
30 June
Three months ended
30 June
2018 2017 2018 2017
RUB million RUB million RUB million RUB million
Revenues 111,248 89,121 56,626 44,723
Cost of sales (61,898) (49,561) (29,844) (25,144)
Gross profit 49,350 39,560 26,782 19,579
Administrative expenses (7,011) (7,005) (3,368) (3,218)
Selling expenses (16,910) (11,951) (8,650) (6,363)
Taxes, other than income tax (1,805) (1,230) (918) (603)
Other expenses, net (1,254) (1,058) (562) (637)
Operating profit 22,370 18,316 13,284 8,758
Finance income 123 274 51 84
Finance costs (2,445) (2,237) (1,243) (1,178)
Foreign exchange (loss)/gain (8,137) 2,013 (8,672) (4,612)
Share of profit/(loss) of associates 84 151 (3) 26
Profit before tax 11,995 18,517 3,417 3,078
Income tax expense (2,162) (4,785) (462) (1,609)
Profit for the period 9,833 13,732 2,955 1,469
Attributable to:
      Non-controlling interests ^ 25 (2) 9 (5)
      Shareholders of the Parent 9,808 13,734 2,946 1,474
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Foreign currency translation difference 1,438 (429) 1,096 435
Other comprehensive income/(loss) for the period 1,438 (429) 1,096 435
Total comprehensive income for the period 11,271 13,303 4,051 1,904
Attributable to:
      Non-controlling interests ^ 25 (2) 9 (5)
      Shareholders of the Parent 11,246 13,305 4,042 1,909
Basic and diluted earnings per share (in RUB) 76 106 23 11

   PJSC “PhosAgro” Consolidated Interim Condensed Statement of Financial Position as at 30 June 2018 (unaudited)

30 June 2018 31 December 2017
RUB million RUB million
Assets
Property, plant and equipment 178,354 175,113
Advances issued for property, plant and equipment 3,701 2,334
Intangible assets 1,865 1,773
Investments in associates 958 969
Deferred tax assets 7,244 5,371
Other non-current assets 1,878 1,955
Non-current assets 194,000 187,515
Other current investments 389 352
Inventories 27,397 27,345
Trade and other receivables 36,005 33,727
Cash and cash equivalents 3,460 2,691
Current assets 67,251 64,115
Total assets 261,251 251,630
Equity
Share capital 372 372
Share premium 7,494 7,494
Retained earnings 90,626 85,480
Other reserves 6,205 4,767
Equity attributable to shareholders of the Parent 104,697 98,113
Equity attributable to non-controlling interests 154 129
Total equity 104,851 98,242
Liabilities
Loans and borrowings 112,688 76,530
Finance lease liabilities 694 1,004
Defined benefit obligations 941 950
Deferred tax liabilities 8,496 7,914
Non-current liabilities 122,819 86,398
Loans and borrowings 12,078 44,025
Finance lease liabilities 910 1,117
Trade and other payables 20,593 21,848
Current liabilities 33,581 66,990
Total equity and liabilities 261,251 251,630

   PJSC “PhosAgro” Consolidated Interim Condensed Statement of Cash Flows for the six months ended 30 June 2018 (unaudited)

Six months ended 30 June
2018 2017
RUB million RUB million
Cash flows from operating activities
Profit before tax 11,995 18,517
Adjustments for:
Depreciation and amortisation 10,597 6,571
Loss on disposal of property, plant and equipment and intangible assets 281 754
Finance income (123) (261)
Finance costs 2,445 2,224
Share of profit of associates (84) (151)
Foreign exchange loss/(gain) 8,137 (1,784)
Operating profit before changes in working capital and provisions 33,248 25,870
Decrease/(increase) in inventories 290 (2,937)
(Increase)/decrease in trade and other receivables (1,859) 1,891
Decrease in trade and other payables (434) (1,415)
Cash flows from operations before income taxes and interest paid 31,245 23,409
Income tax paid (1,959) (5,061)
Finance costs paid (2,757) (2,085)
Cash flows from operating activities 26,529 16,263
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (16,596) (14,889)
Repayment of loans issued, net 90 107
Proceeds from disposal of property, plant and equipment 13 77
Finance income received 79 120
Other payments (418) -
Disposal of investments, net - 422
Cash flows used in investing activities (16,832) (14,163)
Cash flows from financing activities
Proceeds from borrowings 61,618 51,546
Repayment of borrowings (67,163) (42,017)
Dividends paid to shareholders of the Parent (3,836) (8,936)
Dividends paid to non-controlling interests - (5)
Finance leases paid (496) (730)
Cash flows used in financing activities (9,877) (142)
Net (decrease)/increase in cash and cash equivalents (180) 1,958
Cash and cash equivalents at 1 January 2,691 7,261
Effect of exchange rates fluctuations 949 232
Cash and cash equivalents at 30 June 3,460 9,451

Source: PR Newswire (August 23, 2018 - 6:00 AM EDT)

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