Moscow – PhosAgro (“the Company”) (Moscow Exchange and LSE: PHOR), one of the world’s leading vertically integrated phosphate-based fertilizer producers, today announces its interim consolidated IFRS financial results for 3Q and 9M 2019.
Revenue in 3Q 2019 rose by 3% year-on-year to RUB 64.6 billion (USD 1.0 billion) mainly due to higher sales in priority markets. Revenue for 9M 2019 increased by 12% year-on-year to RUB 195.0 billion (USD 3.0 billion).
EBITDA for 3Q 2019 decreased by 9% year-on-year to RUB 21.3 billion (USD 330 million) due to a correction in global fertilizer prices. EBITDA margin remained at a comfortable level of 33% due to lower purchase prices for key raw materials. EBITDA for 9M 2019 increased by 14% year-on-year to RUB 64.4 billion (USD 989 million), while EBITDA margin also remained at 33%.
Free cash flow in the third quarter decreased by 71% year-on-year to RUB 3.6 billion (USD 56 million) as a result of a correction in global fertilizer prices and seasonal outflows related to accumulation of working capital. Free cash flow reached RUB 32.6 billion for 9M 2019, an increase of 48% year-on-year.
Net debt/EBITDA decreased to 1.5x as of 30 September 2019, from 1.8x as of 31 December 2018, reflecting strong EBITDA performance and the gradual appreciation of the rouble against the US dollar over 9M 2019. Net debt as of 30 September 2019 amounted to RUB 122.9 billion (USD 1.9 billion).
Financial highlights
|
FINANCIAL HIGHLIGHTS
|
||||||
|
RUB million or %
|
3Q 2019
|
3Q 2018
|
Chng, % YoY
|
9M 2019
|
9M 2018
|
Chng, % YoY
|
|
Revenue
|
64,550
|
62,684
|
3.0%
|
194,983
|
173,761
|
12.2%
|
|
EBITDA*
|
21,302
|
23,385
|
(8.9%)
|
64,396
|
56,352
|
14.3%
|
|
EBITDA margin
|
33.0%
|
37.3%
|
(4.3pp)
|
33.0%
|
32.4%
|
0.6pp
|
|
Net income
|
9,762
|
7,798
|
25.2%
|
42,707
|
17,631
|
142.2%
|
|
Net income adj**
|
11,797
|
12,855
|
(8.2%)
|
34,534
|
30,844
|
12.0%
|
|
FCF
|
3,605
|
12,364
|
(70.8%)
|
32,564
|
22,061
|
47.6%
|
|
|
30.09.2019
|
31.12.2018
|
|
|
|
|
|
Net debt
|
122,882
|
135,330
|
|
|
||
|
ND/LTM EBITDA
|
1.5x
|
1.8x
|
|
|
|
|
RUB/USD rates: average 3Q 2019: 64.6; average 3Q 2018: 65.5; as of 30 September 2019: 64.4; as of 31 December 2018: 69.5.
*EBITDA is calculated as operating profit adjusted for depreciation and amortisation.
**Net profit as reported minus FX gain or loss.
Commenting on the 3Q 2019 financial results, PhosAgro CEO Andrey Guryev said:
“PhosAgro delivered a robust performance in the third quarter thanks to ongoing efforts to improve efficiency. Exceptional flexibility in both production and sales enabled the Company to increase revenue during the quarter, while also achieving lower cash cost of production for DAP.
“Despite a decrease in average fertilizer prices in the third quarter, our EBITDA margin of 33% was one of the highest in the sector. We were able to achieve this thanks to the completion of upgrades to a number of production facilities at the end of last year and higher levels of self-sufficiency in key inputs. This has further strengthened the Company’s global competitive edge.
“Our decision to postpone a significant part of planned overhauls until the fourth quarter also contributed to PhosAgro’s excellent results in the third quarter. This made it possible to take advantage of solid demand in our priority markets and to significantly ramp up production. At the same time, overhauls in the fourth quarter should not affect sales on account of the traditional seasonal decrease in fertilizer demand.
“Our flexible sales policy and robust distribution network, in turn, enabled us to increase sales to our priority markets of Russia and the CIS, Europe and Latin America, where there was a favourable pricing environment.
“We believe current pricing environment continues to present challenges to global markets. At the same time we also believe that demand in markets, where company is positioned strongly, i.e. domestic Russian market, Eastern Europe and Latin America will allow the Company to outperform global markets.”
3Q 2019 market conditions
- Prices for phosphate-based fertilizers continued to decrease in 3Q 2019, reaching a low point by the end of the quarter. The average price for DAP (FOB Tampa) was USD 327 per tonne, down by 10% from 2Q 2019 and 24% year-on-year. The main factors negatively impacting prices were: 1) a significant increase in fertilizer production this year amid stable demand; 2) an increase in exports of phosphate-based fertilizers from China as a result of a decrease in domestic consumption; 3) relatively weak demand in the US market due to changes in the timing of the harvest and delays in the application of phosphate-based fertilizers as a result of adverse weather conditions; and 4) low prices for raw materials (ammonia, sulphur, phosphate rock).
- The average price for urea (FOB Baltic) in 3Q 2019 was USD 248 per tonne, down from
- USD 260 per tonne in 3Q 2018. The main reasons for this decrease were: 1) a considerable increase in exports from China due to relatively low energy prices and weak domestic demand; 2) the continued export of nitrogen fertilizers from Iran; and 3) relatively weak demand from the United States and Europe due to bad weather conditions. High seasonal demand in India and Brazil, however, supported the prices.
- The average price of ammonia (FOB Yuzhny) in 3Q 2019 was USD 216 per tonne, down from USD 303 per tonne in 3Q 2018. Ammonia prices have decreased this year due to an increase in the supply resulting from the launch / ramp-up to nameplate capacity of new plants (in Russia and the United States), as well as a reduction in production costs of marginal producers thanks to low global prices for natural gas.
- The average price of sulphur (FOB Black Sea) in 3Q 2019 was USD 64 per tonne, a decrease of nearly 50% year-on-year. The decrease in global sulphur prices is the result of considerable stockpiles in China and pressure from the market for phosphate-based fertilizers.
- The average price for potash (FOB Baltic) in 3Q 2019 was USD 250 per tonne, up from
- USD 224 per tonne in 3Q 2018. At the end of the quarter, however, there were signs of weakness in potash prices as a result of a decrease in demand in South-east Asia and the postponement of the date for concluding annual contracts in China and India.
3Q 2019 financial performance
In 3Q 2019, PhosAgro’s revenue rose by 3.0% year-on-year to RUB 64.6 billion, mainly driven by higher sales to Europe, Latin America and Asia. Revenue growth was mitigated by a correction in global fertilizer prices and the appreciation of the rouble.
Revenue from the sale of phosphate-based fertilizers in 3Q 2019 rose by 1.3% year-on-year to RUB 44.2 billion, thanks to a faster rise in revenue from the sale of NPK(S) grades (up by 7.6% year-on-year).
Revenue from the sale of nitrogen fertilizers rose by 6.6% year-on-year in 3Q to RUB 9.2 billion, primarily due to an increase in the sale of urea and ammonium nitrate to Latin American markets, where the recovery in seasonal demand began and was reinforced by expectations of a recovery in prices for agricultural products (including soy and corn).
Revenue by product:
|
REVENUE BY KEY PRODUCTS
|
||||||
|
RUB million or %
|
3Q 2019
|
3Q 2018
|
Chng, % YoY
|
9M 2019
|
9M 2018
|
Chng, % YoY
|
|
DAP/MAP
|
21,174
|
21,046
|
0.6%
|
64,109
|
58,560
|
9.5%
|
|
NPK(S)
|
19,782
|
18,381
|
7.6%
|
55,044
|
46,926
|
17.3%
|
|
PhosRock
|
6,107
|
5,435
|
12.4%
|
19,207
|
15,789
|
21.6%
|
|
MCP
|
2,260
|
2,751
|
(17.8%)
|
7,993
|
7,678
|
4.1%
|
|
Other phosphate-based products
|
1,388
|
1,792
|
(22.5%)
|
5,037
|
4,696
|
7.3%
|
|
Nitrogen fertilizers
|
9,172
|
8,584
|
6.8%
|
28,968
|
26,777
|
8.2%
|
|
Other sales & services
|
4,667
|
4,695
|
(2.5%)
|
14,625
|
13,335
|
9.7%
|
|
Total revenue
|
64,550
|
62,684
|
3.0%
|
194,983
|
173,761
|
12.2%
|
PhosAgro’s gross profit in 3Q 2019 was RUB 29.4 billion (USD 454 million), with gross profit margin at 45%, down from 48% in 3Q 2018. Gross profit and gross profit margin in the phosphate-based and nitrogen fertilizer segments saw the following changes:
- Gross profit for phosphate-based fertilizers decreased by 5% year-on-year to RUB 23.8 billion (USD 368 million), while gross profit margin was 45% due to lower global prices;
- Gross profit for the nitrogen segment increased by 8% year-on-year to RUB 5.4 billion (USD 83 million), with gross profit margin expanding to 58% from 57% in 3Q 2018.
EBITDA for 3Q 2019 decreased by 8.9% year-on-year to RUB 21.3 billion (USD 330 million) due to a correction in global fertilizer prices. EBITDA margin remained at a robust 33% due to lower purchase prices for key inputs.
EBITDA for 9M 2019 increased by 14% year-on-year to RUB 64.4 billion (USD 989 million). EBITDA margin for 9M rose to 33%, compared with 32% for the same period the previous year.
Net profit adjusted for non-cash FX items decreased in 3Q 2019 by 8.2% year-on-year to
RUB 11.8 billion (USD 183 million).
In 3Q 2019, the rouble appreciated 1.7% against the US dollar compared with the previous year (the average RUB/USD exchange rate in 3Q 2019 was 64.4, compared with 65.5 in 3Q 2018), which had a net negative impact on profit, as prices for most of the Company’s products in foreign markets are denominated in USD, while costs are primarily rouble-based.
The weakening of the rouble in 3Q 2019 (from RUB 63.2 to RUB 64.6 per dollar) resulted in an FX loss of RUB 2.0 billion (compared with an FX loss of RUB 5.1 billion in 3Q 2018).
Net operating cash flow declined by 38% year-on-year to RUB 14.2 billion (USD 220 million) due to an increase in working capital, driven mainly by higher sales during the quarter.
Capital expenditure for 3Q 2019 amounted to RUB 10.6 billion (USD 164 million), representing 50% of EBITDA for the reporting period.
Net debt/EBITDA decreased to 1.5x from 1.8x as of 31 December 2018, reflecting strong EBITDA performance and the gradual appreciation of the rouble against the US dollar over 9M 2019. Net debt as of 30 September 2019 amounted to RUB 122.9 billion (USD 1.9 billion).
Cost of Sales
|
COST OF SALES
|
||||||
|
RUB million or %
|
3Q 2019
|
3Q 2018
|
Chng, % YoY
|
9M
2019
|
9M 2018
|
Chng, % YoY
|
|
D&A
|
(5,457)
|
(5,354)
|
1.9%
|
(16,126)
|
(14,990)
|
7.6%
|
|
Material and services
|
(11,127)
|
(10,113)
|
10.0%
|
(31,257)
|
(28,328)
|
10.3%
|
|
PhosRock transport
|
(2,399)
|
(1,976)
|
21.4%
|
(6,685)
|
(5,870)
|
13.9%
|
|
Repair expenses
|
(3,009)
|
(2,667)
|
12.8%
|
(7,756)
|
(7,113)
|
9.0%
|
|
Drilling and blasting
|
(650)
|
(375)
|
73.3%
|
(1,645)
|
(1,362)
|
20.8%
|
|
Other materials and services
|
(5,069)
|
(5,095)
|
(0.5%)
|
(15,171)
|
(13,983)
|
8.5%
|
|
Raw materials
|
(11,150)
|
(10,023)
|
11.2%
|
(33,705)
|
(30,078)
|
12.1%
|
|
Ammonia
|
(898)
|
(914)
|
(1.8%)
|
(2,922)
|
(2,720)
|
7.4%
|
|
Sulphur and sulph. acid
|
(2,217)
|
(2,732)
|
(18.9%)
|
(7,852)
|
(8,015)
|
(2.0%)
|
|
Potassium
|
(4,205)
|
(3,186)
|
32.0%
|
(10,727)
|
(7,835)
|
36.9%
|
|
Natural gas
|
(3,079)
|
(2,685)
|
14.7%
|
(9,655)
|
(9,403)
|
2.7%
|
|
Ammonium sulphate
|
(751)
|
(506)
|
48.4%
|
(2,549)
|
(2,105)
|
21.1%
|
|
Salaries and social contributions
|
(3,289)
|
(2,980)
|
10.4%
|
(9,574)
|
(9,078)
|
5.5%
|
|
Electricity
|
(1,495)
|
(1,327)
|
12.7%
|
(4,765)
|
(4,195)
|
13.6%
|
|
Fuel
|
(1,076)
|
(1,010)
|
6.5%
|
(3,730)
|
(2,898)
|
28.7%
|
|
Products for resale
|
(1,602)
|
(1,641)
|
(2.4%)
|
(5,467)
|
(4,672)
|
17.0%
|
|
Total
|
(35,196)
|
(32,448)
|
8.5%
|
(104,624)
|
(94 239)
|
11.0%
|
Cost of sales increased in 3Q 2019 by 8.5% year-on-year to RUB 35.2 billion (USD 545 million) mainly due to an increase in expenses for raw and other materials and services. Changes in salaries and energy costs had an additional impact on the cost of sales.
- Costs for materials and services increased by 10.0% to RUB 11.1 billion (USD 172 million) as a result of:
– A 21.4% year-on-year increase in the cost of transport of phosphate rock to RUB 2.4 billion (USD 37 million), which was driven by higher demand for phosphate rock at fertilizer production sites and a 3.5% increase in railway tariffs.
– Repair expenses were up 12.8% year-on-year to RUB 3.0 billion (USD 47 million), driven by scheduled maintenance of mid-stream capacities, mainly due to cost inflation year-to-date and the higher number of production lines following completion of the Company’s investment cycle at the end of last year.
– Drilling and blasting expenses increased by 73.3% year-on-year to RUB 650 million (USD 10 million) due to an increase in the share of open pit mining and an increase in total ore production by 12% year-on-year to 10.3 million tonnes.
- Costs for raw materials increased by 11.2% to RUB 11.2 billion (USD 173 million) as a result of:
– A rise in potash costs of 32.0% year-on-year to RUB 4.2 billion (USD 65 million), where 30% of the increase was due to higher purchase prices for potassium compared to the previous year.
– A 14.7% year-on-year increase in natural gas expenses to RUB 3.1 billion (USD 48 million) as a result of 17.6% year-on-year growth in ammonia production.
– A 48.4% year-on-year rise in costs for ammonium sulphate to RUB 751 million (USD 12 million) mainly due to an increase in the production of fertilizer grades containing sulphate.
– A decrease in costs for sulphur and sulphuric acid limited the increase in raw materials expenses. These costs decreased by 18.9% year-on-year to
RUB 2.2 billion (USD 34 million) mainly due to lower prices for sulphur and sulphuric acid.
- Electricity costs increased by 12.7% year-on-year to RUB 1.5 billion (USD 23 million) mainly due to a 23.2% year-on-year rise in the purchase price.
Administrative expenses for 3Q 2019 grew by 9.0% year-on-year to RUB 3.96 billion
(USD 61 million), driven mainly by a 15.2% increase in expenses for salaries and social contributions to RUB 2.3 billion (USD 35 million).
Selling expenses increased by 15.1% year-on-year in 3Q 2019 to RUB 8.9 billion (USD 137 million). The main factors behind the increase were:
- A 9.8% year-on-year increase in freight, port and stevedoring expenses to RUB 4.04 billion (USD 63 million), driven mainly by an increase in the supply of fertilizers to export markets and an increase in freight tariffs.
- A 10.6% year-on-year increase in costs for Russian Railways services and operators’ fees to RUB 2.7 billion (USD 42 million) due to an overall increase in sales and an increase in railway tariffs.
- Spending on customs duties increased by 167.5% year-on-year to RUB 428 million (USD 7 million) due to a change in the delivery terms to the European market.
Market outlook
Continued pressure is expected on the price of phosphate-based fertilizers in 4Q 2019 due to the off-season in key markets, combined with high stockpiles in India and the United States. Thus, despite a decrease in production in the United States and China, excess supply in the global market may persist until next spring.
Slow resumption of seasonal demand in key urea markets coupled with considerable supply of Chinese product may continue to curb prices.
However, upward trends in the markets for major crops and a record level of affordability in recent years will support demand and prices as they approach the main fertilizer application season in 1Q 2020.
