DJ PhosAgro 2Q and 1H 2020 Financial Results: 2Q 2020 EBITDA Exceeds RUB 20 Billion, EBITDA Margin at 34%
OJSC PhosAgro (PHOR)
PhosAgro 2Q and 1H 2020 Financial Results: 2Q 2020 EBITDA Exceeds RUB 20
Billion, EBITDA Margin at 34%
28-Aug-2020 / 12:00 MSK
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
For Immediate Release 28 August 2020
PhosAgro 2Q and 1H 2020 Financial Results:
2Q 2020 EBITDA Exceeds RUB 20 Billion, EBITDA Margin at 34%
Moscow - PhosAgro ("PhosAgro" or "the Company") (Moscow Exchange, LSE:
PHOR), one of the world's leading vertically integrated phosphate-based
fertilizer producers, today announced its consolidated IFRS financial
results for the second quarter (2Q) and first half (1H) of 2020.
2Q and 1H 2020 highlights
Revenue for 2Q 2020 increased 3.1% year-on-year to RUB 59.9 billion (USD 828
million) due to an increase in export sales while maintaining a high share
of sales to the Russian market. Revenue for 1H 2020 decreased by 4.9%
year-on-year and totalled RUB 124.0 billion (USD 1.8 billion). The decrease
in revenue was due to a downward correction in fertilizer prices over the
course of the previous year.
In 2Q 2020, EBITDA increased 11.0% year-on-year to RUB 20.3 billion (USD 281
million), with the EBITDA margin increasing to almost 34% (from 31.5% in 2Q
2019). 1H 2020 EBITDA decreased 9.9% year-on-year to RUB 38.8 billion (USD
560 million), with an EBITDA margin of 31%.
Free cash flow in 2Q 2020 totalled RUB 2.0 billion (USD 28 million),
compared with RUB 10.2 billion (USD 158 million) in 2Q 2019. This decrease
was due to an accumulation of working capital related to the active recovery
in seasonal demand in export markets and an increase in exports. In 1H 2020,
free cash flow was RUB 20.3 billion (USD 303 million).
In 2Q 2020, net profit adjusted for non-cash FX items amounted to RUB 6.9
billion (USD 95 million).
As of the 30 June 2020, the net debt/EBITDA ratio was 1.95x, increasing
since 31 December 2019 due to the lower value of the rouble against the US
dollar in June, since most of the Company's debt portfolio is denominated in
US dollars. As of 30 June 2020, net debt totalled RUB 138.8 billion (USD 2.0
billion).
Financial and operational highlights
Financial highlights
RUB million or 2Q 2Q Chng, 1H 1H Chng,
% % %
2020 2019 2020 2019
Revenue 59,938 58,146 3.1% 123,9 130,4 -4.9%
96 33
EBITDA* 20,341 18,317 11.0% 38,84 43,09 -9.9%
3 5
EBITDA margin 33.9% 31.5% 2.4pp 31.3% 33.0% -1.7pp
Net profit 20,879 11,785 77.2% 5,291 32,94 -83.9%
5
Adj net 6,861 9,197 -25.3% 21,21 22,73 -6.7%
income** 6 7
Free cash flow 2,021 10,184 -80.2% 20,27 28,95 -30.0%
4 9
30.06.2020 31.12.2019
Net debt 138,787 131,583
ND/LTM EBITDA 1.95x 1.74x
Sales, ths 2Q 2Q Chng, 1H 1H Chng,
tonnes % %
2020 2019 2020 2019
Phosphate-based 1,789 1,629 9.9% 3,877 3,558 9.0%
fertilizers
Nitrogen 604 531 13.7% 1,306 1,148 13.8%
fertilizers
Total sales 2,393 2,160 10.8% 5,183 4,706 10.1%
RUB/USD rates: average 2Q 2020 rate: 72.4; average 2Q 2019 rate: 64.6; as of
30 June 2020: 70.0; as of 31 December 2019: 61.9
* EBITDA is calculated as operating profit adjusted for depreciation and
amortisation.
** Net profit as reported minus FX gain or loss.
Commenting on the Company's financial results, PhosAgro CEO Andrey Guryev
said:
"PhosAgro delivered strong financial results in the second quarter. Revenue
and EBITDA increased year-on-year, while the EBITDA margin reached 34%.
"This growth was mainly driven by higher sales volumes amid a recovery in
fertilizer prices and continued low prices for key inputs. Our flexible
sales model enabled us to redirect sales to export markets once the high
season in the Northern Hemisphere ended, focusing on the development of
seasonal demand in Latin America and India.
"Increased profitability was also facilitated by lower production costs due
to the transfer of portion of scheduled maintenance to the second half of
the year. This was done as part of a set of measures to reduce the risk of
the spread of the novel coronavirus at PhosAgro enterprises and in the
cities where the Company operates, as it made it possible to reduce the
number of external contractors involved.
"Stable debt levels combined with solid profitability enabled us to continue
implementing our investment programme to support PhosAgro's long-term
development. Capital expenditure for the quarter amounted to 48% of EBITDA.
"In the context of these strong financial results, PhosAgro's Board of
Directors has recommended that shareholders approve a dividend payout, in
line with the Company's dividend policy, in the amount of RUB 33 per share,
which exceeds free cash flow and is equivalent to 62% of adjusted net profit
for 2Q 2020.
"In terms of our expectations for market developments in the coming months,
I would note that we are optimistic about the outlook for seasonal demand in
Europe and Africa, which should support a continued upward trend in pricing
for our products, and enable us to optimise working capital levels during
the second half of this year."
2Q 2020 market conditions
In 2Q 2020, global phosphate fertilizer markets remained stable despite
fading seasonal demand in the United States, Europe and Russia.
Export supply from China remained limited due to, among other factors,
reduced MAP/DAP production and stable demand in the domestic market.
According to preliminary estimates, DAP/MAP exports from China in 2Q 2020
decreased by 700 thousand tonnes, a 27% decline year-on-year.
In view of this, there was an earlier revival of seasonal demand in India
driven by favourable weather conditions and reduced domestic production due
to quarantine restrictions. In Brazil, demand was fuelled by the favourable
global soybean market conditions and increased fertilizer availability
(favourable pricing relationship between fertilizers and key agricultural
products). As a result, Brazil's MAP imports in 2Q 2020 amounted to 1.4
million tonnes, up 0.5 million tonnes, or 62%, year-on-year.
The average price for DAP in 2Q 2020 was USD 301 per tonne (FOB Tampa),
while the average price for MAP was USD 295 per tonne (FOB Baltic).
The off-season in key nitrogen-based fertilizer markets at the start of the
reporting period impacted urea prices, which dropped to USD 200 per tonne
(FOB Baltic) and lower. Subsequently, the resumption of tender activity in
India, along with higher demand in key Latin American markets, facilitated a
rapid recovery in prices. Export supply from China remained limited, which
also helped keep prices stable in the global market. The average price for
prilled urea in 2Q 2020 was USD 209 per tonne (FOB Baltic), and the average
price for granulated urea was USD 216 per tonne (FOB Baltic).
No significant changes were observed in the principal sulphur and phosphate
markets: prices for sulphur remained stable, ranging from USD 37 to USD 50
per tonne (FOB Black Sea) and within USD 70-90 per tonne (FOB Morocco) for
phosphate raw materials.
The average price for ammonia was USD 199 per tonne (FOB Yuzhny). These low
prices are attributable to the excess supply stemming from the off-season
decline in demand in the United States and Western Europe coupled with low
demand for commercial ammonia from industrial consumers, particularly in
Asian countries.
Potash prices stabilised in the range of USD 170-230 per tonne (FOB Baltic),
depending on product type and sales markets, following long-term contracts
for supplies to China and India signed by major global producers in May
2020.
2Q and 1H 2020 financial performance
In 2Q 2020, PhosAgro's revenue increased 3.1% year-on-year to RUB 59.9
billion (USD 828 million) mainly because of the positive trend in demand in
foreign markets, which stimulated an increase in export sales of 28.2%. An
additional factor in revenue growth was the 12.1% depreciation of the rouble
against the US dollar. At the same time, the lower price for fertilizers
compared to 2Q 2019 (down 22.9% for DAP/MAP on average) limited revenue
growth.
Following the spring application season in its priority domestic market,
fertilizer demand was strongest in Latin American and Asian markets. As a
result, the share of external markets in PhosAgro's revenue increased to
68%, up from 62% in 2Q 2019. Growth in export sales was also driven by the
decrease in fertilizer production in regions where quarantine measures were
implemented.
Gross profit in 2Q 2020 increased by 8.1% year-on-year and amounted to RUB
28.6 billion (USD 395 million). The gross margin was 48%, up from 45% in 2Q
2019. Gross profit and gross profit margin in the phosphate-based and
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DJ PhosAgro 2Q and 1H 2020 Financial Results: 2Q -2-
nitrogen-based fertilizer segments were as follows:
? Gross profit in the phosphate-based fertilizer segment increased by 5.7%
to RUB 22.6 billion (USD 313 million). At the same time, the gross profit
margin increased to 47% (from 45% in 2Q 2019).
? Gross profit in the nitrogen-based fertilizer segment increased by 18.7%
to RUB 5.8 billion (USD 81 million). The gross profit margin increased to
58% (from 56% in 2Q 2019).
PhosAgro's EBITDA for 2Q 2020 increased by 11.0% year-on-year and amounted
to RUB 20.3 billion (USD 281 million). EBITDA margin for 2Q 2020 was 34%, up
from 32% in 2Q 2019. The Company's solid EBITDA profitability was due to a
decrease in prices for basic raw materials and the postponement of a part of
scheduled maintenance work until 2H 2020.
Net profit adjusted for non-cash FX items for 2Q 2020 decreased by 25.3%
year-on-year to RUB 6.9 billion (USD 95 million).
Capital expenditure in 2Q 2020 amounted to RUB 9.8 billion (USD 135
million), which corresponds to 48% of EBITDA for the reporting period. The
Company primarily invested in the development of its resource base in
Kirovsk, the construction of new and upgrades to existing sulphuric acid and
phosphoric acid production facilities in Cherepovets and Balakovo, as well
as the comprehensive development of the Volkhov production site.
Free cash flow for 2Q 2020 amounted to RUB 2.0 billion (USD 28 million). The
main reasons for the year-on-year decline were an outflow related to higher
working capital associated with an increase in export sales (including to
Latin America) and high base effect in 2019.
As of 30 June 2020, the net debt/EBITDA ratio was 1.95?. The increase from
31 December 2019 was due to the devaluation of the rouble against the US
dollar in June 2020, since most of the Company's loan portfolio is
denominated in US dollars. Net debt as of 30 June 2020 amounted to RUB 138.8
billion (USD 2.0 billion).
Cost of sales
RUB million 2Q 2Q Chng, % 1H 1H Chng, %
or %
2020 2019 2020 2019
Amortisation 5,997 4,960 20.9% 12,223 10,669 14.6%
Materials 9,557 9,497 0.6% 20,335 20,130 1.0%
and services
Phosphate 1,976 1,916 3.1% 4,236 4,286 -1.2%
rock
transport
Repair 2,351 2,334 0.7% 4,767 4,747 0.4%
expenses
Drilling and 720 440 63.6% 1,489 995 49.6%
blasting
costs
Other 4,510 4,807 -6.2% 9,843 10,102 -2.6%
materials
and services
Raw 8,267 10,280 -19.6% 18,303 22,555 -18.9%
materials
Ammonia 1,076 667 61.3% 2,267 2,024 12.0%
Sulphur and 1,063 2,289 -53.6% 2,258 5,635 -59.9%
sulph. acid
Potassium 2,820 3,806 -25.9% 6,026 6,522 -7.6%
Natural gas 3,124 2,927 6.7% 6,921 6,576 5.2%
Ammonium 184 591 -68.9% 831 1,798 -53.8%
sulphate
Salaries and 3,527 3,000 17.6% 7,114 6,307 12.8%
social
contribution
s
Electricity 1,530 1,583 -3.3% 3,236 3,270 -1.0%
Fuel 903 1,141 -20.9% 2,047 2,654 -22.9%
Products for 1,579 1,253 26.0% 4,662 3,865 20.6%
resale
Total 31,360 31,714 -1.1% 67,920 69,450 -2.2%
Cost of sales in 2Q 2020 decreased by 1.1% year-on-year, despite growth in
fertilizer sales, and amounted to RUB 31.4 billion (USD 433 million). This
decline was mainly due to lower costs for sulphur and sulphuric acid as a
result of a drop in market prices and a decrease in external purchases of
sulphuric acid after the pilot launch of a new sulphuric acid production
line in Cherepovets. Ammonium sulphate costs also decreased after the launch
of a production line for this input.
? The cost of materials and services remained practically unchanged
year-on-year and amounted to RUB 9.6 billion (USD 132 million). The main
factor constraining cost growth was an increase in PhosAgro's own rolling
stock in 2H 2019, which made it possible to reduce transportation costs
for phosphate rock and fertilizers. Additionally, the Company postponed
part of its planned maintenance work from 2Q 2020 to 2H 2020 due to
measures introduced in the spring of 2020 to prevent the spread of
COVID-19.
? Raw material costs decreased in 2Q 2020 by 19.6% year-on-year to RUB 8.3
billion (USD 114 million) as a result of:
? A reduction in sulphur and sulphuric acid costs of 53.6% to RUB 1.1
billion (USD 15 million) as a result of a decrease in market prices for
sulphur and sulphuric acid, as well as the pilot launch of a sulphuric
acid production line, which made it possible to reduce external
purchases of sulphuric acid;
? A 25.9% decline in potash costs to RUB 2.8 billion (USD 39 million)
due to a decrease in market prices and lower production of fertilizer
grades with a high K content;
? A 68.9% decrease in ammonium sulphate costs to RUB 0.2 billion (USD 3
million) mainly due to the launch of an ammonium sulphate production
line and lower prices for this raw material;
? A rise in ammonia expenditures of 61.3% to RUB 1.1 billion (USD 15
million) due to an increase in ammonia consumption due to growth of
fertilizers output and following the launch of the ammonium sulphate
production unit.
Administrative and selling expenses
RUB million or 2Q 2020 2Q 2019 Chng, % 1H 2020 1H 2019 Chng, %
%
Administrative 4,150 4,032 2.9% 8,802 7,935 10.9%
expenses
Salaries and 2,646 2,361 12.1% 5,728 4,660 22.9%
social
contributions
Professional 534 423 26.2% 953 880 8.3%
services
Amortisation 342 350 -2.3% 678 711 -4.6%
Other 628 898 -30.1% 1,443 1,684 -14.3%
Selling and 9,329 8,487 9.9% 19,049 18,828 1.2%
marketing
expenses
Freight, port 4,574 3,521 29.9% 9,084 8,845 2.7%
and
stevedoring
expenses
Russian 2,937 3,016 -2.6% 5,923 6,107 -3.0%
Railways'
tariffs and
operators'
fees
Salaries and 713 792 -10.0% 1,582 1,323 19.6%
social
contributions
Materials and 540 592 -8.8% 1,149 1,054 9.0%
services
Customs duties 212 312 -32.1% 566 1,012 -44.1%
Amortisation 353 254 39.0% 745 487 53.0%
Administrative expenses increased by 2.9% year-on-year in 2Q 2020 to RUB 4.2
billion (USD 57 million) mainly as a result of a 12.1% year-on-year increase
in payroll and social security expenses to RUB 2.6 billion (USD 37 million)
due to a rise in the number of employees and the payment of bonuses.
In 2Q 2020, selling expenses increased by 9.9% year-on-year to RUB 9.3
billion (USD 129 million). The main drivers of growth were an increase in
freight, port and stevedoring costs of 29.9% year-on-year to RUB 4.6 billion
(USD 63 million) mainly due to an increase in sales to export markets and
rouble devaluation. However, a 22% correction in transport tariffs due to a
slowdown in economic activity partially constrained the growth in costs.
Market outlook
On 26 June 2020, Mosaic, the main producer of phosphate-based fertilizers in
the United States, petitioned the US International Trade Commission and the
US Department of Commerce to conduct an investigation in order to determine
whether Morocco and Russia were subsidising the production of
phosphate-based fertilizers and to introduce countervailing duties on
phosphate-based fertilizers imported from both countries. As a result,
supplies of phosphate-based fertilizers to the United States from Morocco
and Russia have practically stopped, which has led to a significant increase
in prices in the US domestic market of more than USD 60 to date.
Maintaining stable demand for phosphate-based fertilizers from India and
Brazil against the backdrop of limited exports from China combined with the
upcoming boost in seasonal demand in Europe and Africa are helping balance
the market as a whole and to support the upward price trend.
The nitrogen-based fertilizer market is at the peak of demand in the Indian
and Latin American markets, which is keeping urea prices at higher levels
than in 2Q 2020.
Conference call and webcast:
PhosAgro will hold a conference call and webcast today at 15:00 London time
(17:00 in Moscow; 10:00 in New York).
The call will be held in English, with simultaneous translation into Russian
on a separate line.
Webcast links:
English: https://webcasts.eqs.com/phosagro20200828/en [1]
Russian: https://webcasts.eqs.com/phosagro20200828/ru [2]
Participant dial-in numbers:
Russian Federation Toll +7 495 213 1767
Russian Federation Toll-Free 8 800 500 9283
United Kingdom Toll +44 (0)330 336 9125
United Kingdom Toll-Free 0800 358 6377
United States Toll-Free +1 313-209-4906
United States Toll 888-254-3590
Conference ID numbers:
English conference ID: 8320171
Russian conference ID: 7783528
For further information, please contact:
PJSC PhosAgro
Andrey Serov, Head of Investor Relations Department
+7 495 232 9689 ext 2183
ir@phosagro.ru
Timur Belov, Press Officer
+7 495 232 9689 ext 2652
pr@phosagro.ru
EM
Sam VanDerlip
vanderlip@em-comms.com
+44 207 002 7859
About PhosAgro
PhosAgro (www.phosagro.com [3]) 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. PhosAgro's environmentally friendly
fertilizers stand out for their high efficiency, and they do not lead to the
contamination of soils with heavy metals.
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