DJ PhosAgro Reports 3Q and 9M 2020 Financial Results: EBITDA Margin at 38%, Free Cash Flow up More Than 5x to RUB 19 bln
OJSC PhosAgro (PHOR)
PhosAgro Reports 3Q and 9M 2020 Financial Results: EBITDA Margin at 38%,
Free Cash Flow up More Than 5x to RUB 19 bln
09-Nov-2020 / 09:30 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 9 November 2020
PhosAgro Reports 3Q and 9M 2020 Financial Results:
EBITDA Margin at 38%, Free Cash Flow up More Than 5x to RUB 19 bln
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 2020.
Highlights for 3Q and 9M 2020
Revenue in 3Q 2020 increased by 10.0% year-on-year to RUB 71.0 billion (USD
965 million) due to increased sales of fertilizers in key markets and rouble
exchange rate fluctuation.
Revenue for 9M 2020 was relatively unchanged year-on-year at RUB 195.0
billion (USD 2.8 billion). The Company managed to maintain revenues in line
with the previous year despite lower average sales prices for
phosphate-based and nitrogen fertilizers in 2020.
In 3Q 2020, the Company's EBITDA increased by 27.0% year-on-year to RUB 27.1
billion (USD 368 million) thanks to an increase in fertilizer sales at a
time when global raw materials prices were lower. EBITDA margin increased by
5 pp to 38.1%.
EBITDA for 9M 2020 increased by 2.3% year-on-year to RUB 65.9 billion (USD
928 million). EBITDA margin was 33.8%.
The Company's free cash flow in 3Q 2020 increased more than fivefold
year-on-year to RUB 19.4 billion (USD 264 million). This considerable
increase was due to higher sales and more efficient management of working
capital.
Free cash flow reached RUB 39.7 billion (USD 567 million) for 9M 2020, an
increase of 21.8% year-on-year.
Net profit for 9M 2020, adjusted for the effect of currency exchange
differences, was RUB 39.3 billion (USD 557 million), up 13.8% year-on-year.
As of 30 September 2020, net debt amounted to RUB 149.9 billion (USD 1.9
billion), and net debt/EBITDA as of the end 3Q was 1.95x, remaining stable
over the past several quarters.
Financial and operational highlights:
FINANCIAL HIGHLIGHTS
RUB million 9M 9M Chng, 3Q 3Q Chng,
2020 2019 % %
2020 2019
Revenue 194,9 194,98 0.0% 70,992 64,550 10.0%
88 3
EBITDA* 65,89 64,396 2.3% 27,054 21,301 27.0%
7
EBITDA margin 33.8% 33.0% 0.8 pp 38.1% 33.0% 5.1 pp
Net income 3,958 42,707 -90.7% -1,333 9,762 n/a
Adj. net 39,31 34,534 13.8% 18,095 11,797 53.4%
income** 1
Free cash flow 39,66 32,564 21.8% 19,391 3,605 437.9%
5
30.09.2020 31.12.2019
Net debt 149,939 131,583
ND/LTM EBITDA 1.95x 1.74x
Sales, ths 9M 9M Chng, 3Q 3Q Chng,
tonnes 2020 2019 % %
2020 2019
Phosphate-based 6,124 5,517 11.0% 2,247 1,959 14.7%
fertilizers
Nitrogen 1,776 1,660 7.0% 470 512 -8.3%
fertilizers
Total sales 7,900 7,177 10.1% 2,717 2,471 9.9%
RUB/USD rates: average 3Q 2020 rate: 73.6; average 3Q 2019 rate: 64.6; as of
30 September 2020: 79.7; as of 30 September 2019: 64.4
*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:
"In the third quarter, we delivered further growth in our financial results.
PhosAgro's revenue and EBITDA increased year-on-year on the back of higher
production volumes, while global prices for key raw materials remained low.
As a result, EBITDA margin exceeded 38%.
"Efficient management of working capital and the sell-down of product
inventories enabled us to achieve significant growth in terms of free cash
flow, which exceeded RUB 19 billion, a more than fivefold increase from the
same period last year.
"The Company's debt burden remained at a consistently comfortable level
below 2x net debt/EBITDA. Capital investment in the first nine months of
2020 amounted to 42% of EBITDA, which is even slightly below internal
targets.
"Looking at our outlook on market developments, I think that the markets
look balanced at the moment, and this balance may be maintained during the
fourth quarter. Slower seasonal demand in South Asia and Latin America is
likely to be offset by rising imports in the United States, Western Europe
and Africa, while exports from China will remain limited."
Commenting on the Company's performance, Xavier Rolet, Chairman of
PhosAgro's Board of Directors, said:
"I have been a member of PhosAgro's Board of Directors for more than two
years, and last year I was elected Chairman. Throughout this entire time, I
have witnessed the efforts that the Company has undertaken in terms of its
sustainable development and reducing its environmental impact, and these
efforts are bearing fruit. In November 2020, as part of its regular review,
Sustainalytics changed the Company's ESG risk rating from 43.5 to 26.9. This
is one of the best ESG risk ratings the agency has given to large Russian
companies or to fertilizer producers globally.
"Speaking of the Company's development, I would like to reflect on our main
achievements in terms of the implementation of our Strategy to 2025. During
2020, PhosAgro successfully completed construction and fully ramped up a new
high-quality ammonium sulphate line in Cherepovets, which has already led to
a decrease in external purchases and to higher profitability for complex
fertilizers. Until the year end, we also plan to launch a new granulated MAP
production line at the Volkhov (Metachem) plant, which will mean that the
implementation of our Strategy to 2025 is proceeding according to plan.
"I would also note that at last Friday's meeting of the Board of Directors
we approved PhosAgro's financial statements for 9M 2020. Taking into account
the strong financial results, we decided to recommend that the General
Meeting of Shareholders approve a dividend payment in the amount of RUB 41
per GDR for 3Q 2020."
3Q 2020 market conditions
In 3Q 2020, the phosphate fertilizer market was characterised by an upward
price trend due to the following factors:
? The ongoing investigation by the US Department of Commerce and the US
International Trade Commission concerning Mosaic's petition to introduce
countervailing duties on phosphate fertilizers from Morocco and Russia. As
a result, DAP/MAP supplies from these countries, which account for about
85% of annual imports, were stopped, which led to an increase in demand
and higher prices for fertilizers from alternative suppliers.
? Peak seasonal demand for MAP in Brazil and DAP/NP/NPK in India.
Additional supporting factors included favourable global market conditions
for agricultural products and good weather conditions, which facilitated
an increase in crop acreage and higher demand for fertilizers.
? Continued limited DAP/MAP export supplies from China in favour of
seasonal supplies to the domestic market.
As a result, DAP/MAP prices increased in 3Q 2020 from USD 285-300 per tonne
to USD 332-343 per tonne (FOB Baltic). The average price of DAP/MAP in 3Q
2020 was USD 314 per tonne (FOB Baltic), compared with USD 297 per tonne in
2Q 2020.
Nitrogen fertilizer markets were also dominated by upward trends due to the
increase in seasonal demand for urea in key sales markets like India, Brazil
and other Latin American countries, as well as stable demand for ammonium
nitrate in Russia's domestic market. The average price for prilled urea in
3Q 2020 was USD 233 per tonne (FOB Baltic), compared with USD 209 per tonne
in 2Q 2020. The average price for ammonium nitrate in 3Q 2020 was USD 160
per tonne (FOB Baltic), compared with USD 155 per tonne in 2Q 2020.
Commercial ammonia prices were under pressure due to weak off-season demand
in key sales markets and low world prices for natural gas. The average price
for ammonia in 3Q 2020 was USD 178 per tonne (FOB Baltic), compared with USD
201 per tonne (FOB) in 2Q 2020.
No significant changes were noted during 3Q 2020 in the principal sulphur
and phosphate rock markets: prices remained stable within the range of USD
37-50 per tonne (FOB Black Sea) for sulphur and within USD 75-90 (FOB
Morocco) for phosphate raw materials.
3Q and 9M 2020 financial performance
In 3Q 2020, revenue increased by 10.0% year-on-year to RUB 71.0 billion (USD
965 million), driven by a 9.9% increase in sales and the 14.3% devaluation
of the rouble. However, lower prices for phosphate-based and nitrogen
fertilizers on a year-on-year basis (down 3.9% and 5.9%, respectively)
limited revenue growth.
Revenue for 9M 2020 remained steady year-on-year and amounted to RUB 195.0
billion (USD 2.8 billion). This was achieved despite the fact that the
average sales prices for phosphate-based and nitrogen fertilizers in 2020
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DJ PhosAgro Reports 3Q and 9M 2020 Financial -2-
were lower year-on-year by 18.9% and 10.7%, respectively. The main revenue
drivers were 10.1% sales growth and the 8.7% devaluation of the rouble
year-on-year.
Throughout the first nine months of 2020, the Company enjoyed a strong
increase in export sales of fertilizers. Export sales volumes rose by 11.8%
year-on-year. This was achieved, to a great extent, thanks to the Company's
robust sales system and the high quality of its fertilizers. Sales volumes
were also boosted by favourable weather conditions, the affordability of
fertilizers for end users and the temporary halt in fertilizer production in
India and China in the spring due to the introduction of restrictive
measures in connection with the coronavirus pandemic. All these factors
enabled PhosAgro to increase sales volumes in its priority markets of Latin
America and Europe. At the same time, sales volumes in the Company's
domestic market also increased by 6.4% thanks to the growth of the entire
agricultural sector in the Russian Federation.
Gross profit in 3Q 2020 increased by 19.8% year-on-year and amounted to RUB
35.2 billion (USD 478 million). The gross profit margin was 49.6%. Gross
profit and gross profit margin in the phosphate-based and nitrogen
fertilizer segments saw the following changes:
? Gross profit in the phosphate-based fertilizer segment increased by
25.8% to RUB 29.9 billion (USD 407 million). The gross profit margin
increased to 50% (from 45% in 3Q 2019). This change was associated with a
decrease in world prices for raw materials and the devaluation of the
rouble.
? Gross profit in the nitrogen fertilizer segment decreased by 8.4% to RUB
4.9 billion (USD 67 million). At the same time, the gross profit margin
remained at 58%, the same as a year earlier.
The Company's EBITDA for 3Q 2020 increased by 27.0% year-on-year and
amounted to RUB 27.1 billion (USD 368 million).
Despite the fact that the prices for phosphate-based and nitrogen
fertilizers in the third quarter of this year were lower compared with the
same period last year, EBITDA margin increased to 38%. The increase in
EBITDA margin was due to the improved operating efficiency of production
facilities, a decrease in global prices for basic raw materials and an
increase in sales volumes.
Net profit (adjusted for non-cash FX items) for 3Q 2020 increased by 53.4%
year-on-year to RUB 18.1 billion (USD 246 million).
In 3Q 2020, free cash flow increased more than fivefold year-on-year to RUB
19.4 billion (USD 264 million). This considerable growth was possible
because of the Company's high EBITDA margin, sales growth and efficient
management of working capital.
Capital expenditures in 3Q 2020 amounted to RUB 8.8 billion (USD 120
million), which corresponds to 33% of EBITDA for the reporting period. The
Company invested predominantly in the development of its resource and raw
material production in Kirovsk, modernisation of mineral fertilizer
production and rail infrastructure in Cherepovets, creation of a flexible
ammonium sulphate production line in Balakovo, as well as the construction
of new capacities at the Volkhov production site, the launch of which is
planned for the second half of November 2020.
As of 30 September 2020, the net debt/EBITDA ratio was 1.95x. The increase
(compared with 31 December 2019) was due to the devaluation of the rouble
against the US dollar in March 2020, since a large part of the Company's
loan portfolio is denominated in US dollars. Net debt as of 30 September
2020 amounted to RUB 149.9 billion (USD 1.9 billion).
Cost of Sales
RUB million 9M 9M Chng, % 3Q 3Q Chng,%
2020 2019
2020 2019
Amortisation 18,721 16,126 16.1% 6,498 5,457 19.1%
Materials 31,701 31,257 1.4% 11,366 11,127 2.1%
and services
Phosphate 6,682 6,685 -0.0% 2,446 2,399 2.0%
rock
transport
Repair 7,380 7,756 -4.8% 2,613 3,009 -13.2%
expenses
Drilling and 2,380 1,645 44.7% 891 650 37.1%
blasting
costs
Other 15,259 15,171 0.6% 5,416 5,069 6.8%
materials
and services
Raw 27,871 33,705 -17.3% 9,568 11,150 -14.2%
materials
Ammonia 3,480 2,922 19.1% 1,213 898 35.1%
Sulphur and 3,459 7,852 -55.9% 1,201 2,217 -45.8%
sulph. acid
Potassium 9,811 10,727 -8.5% 3,785 4,205 -10.0%
Natural gas 9,875 9,655 2.3% 2,954 3,079 -4.1%
Ammonium 1,246 2,549 -51.1% 415 751 -44.7%
sulphate
Salaries and 10,910 9,574 14.0% 3,796 3,267 16.2%
social
contribution
s
Electricity 4,919 4,765 3.2% 1,683 1,495 12.6%
Fuel 2,970 3,730 -20.4% 923 1,076 -14.2%
Products for 6,630 5,467 21.3% 1,968 1,602 22.8%
resale
Total 103,722 104,624 -0.9% 35,802 35,174 1.8%
Despite a considerable increase in fertilizer production, cost of sales in
3Q 2020 increased only slightly, by 1.8% year-on-year, to RUB 35.8 billion
(USD 487 million).
? The cost of materials and services increased by 2.1% year-on-year to RUB
11.4 billion (USD 155 million). This growth was driven by a 37.1%
year-on-year increase in drilling and blasting costs to RUB 891 million
(USD 12 million), which was the result of an increase in stripping
operations.
A moderate increase of 2.0% in the cost of phosphate rock transport, to RUB
2.4 billion (USD 33 million), helped constrain the increase in the cost of
materials and services. The main factor was an increase in PhosAgro's own
rolling stock, but the impact was limited due to a 3.5% increase in tariffs
and an increase in the volume of phosphate rock transported to the Company's
plants.
Maintenance costs declined due to ongoing equipment upgrades and the
improved efficiency of maintenance work.
? Raw material costs decreased by 14.2% year-on-year to RUB 9.6 billion
(USD 130 million) thanks to the completion of upgrades to key production
equipment at the plants in Cherepovets and Balakovo amid falling global
prices for raw materials.
? A 45.8% reduction in sulphur and sulphuric acid costs to RUB 1.2
billion (USD 16 million) was the result of a decrease in world 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 10.0% decrease in potash costs to RUB 3.8 billion (USD 51 million)
was due to a decrease in world prices. Nevertheless, a 26% increase in
sales of NPK(S) brands partially offset this effect.
? A 4.1% decrease in natural gas costs to RUB 3.0 billion (USD 40
million) was the result of a 36.9% decrease in ammonium nitrate sales
due to the end of seasonal demand.
? A 44.7% reduction in the cost of ammonium sulphate to RUB 0.4 billion
(USD 6 million) was mainly due to the global decline in prices for this
raw material and full ramp-up of the Company's own ammonium sulphate
production unit.
? A factor limiting the reduction in raw material costs was the 35.1%
increase in ammonia expenditures to RUB 1.2 billion (USD 16 million) due
to higher ammonia purchases, driven by the 26% increase in sales of
NPK(S) grades and the launch of the Company's ammonium sulphate
production unit.
? Salaries and social contributions increased by 16.2% year-on-year to RUB
3.8 billion (USD 52 million) as a result of an increase in headcount, as
well as motivational and compensation payouts, including one off
supporting payments to employees during COVID-19 pandemic.
Administrative and selling expenses
RUB million 9M 9M Chng, % 3Q 3Q Chng, %
2020 2019
2020 2019
Administrative 12,941 11,818 9.5% 4,139 3,883 6.6%
expenses
Salaries and 8,376 6,935 20.8% 2,648 2,275 16.4%
social
contributions
Professional 1,285 1,267 1.4% 332 388 -14.4%
services
Amortisation 1,019 1,036 -1.6% 341 325 4.9%
Other 2,261 2,580 -12.4% 818 895 -8.6%
Selling and 28,978 27,797 4.2% 9,929 8,969 10.7%
marketing
expenses
Freight, port 13,949 12,914 8.0% 4,865 4,069 19.6%
and
stevedoring
expenses
Russian 8,741 8,827 -1.0% 2,818 2,720 3.6%
Railways'
tariffs and
operators'
fees
Salaries and 2,318 1,954 18.6% 736 631 16.6%
social
contributions
Material and 1,810 1,871 -3.3% 661 817 -19.1%
services
Customs duties 1,037 1,440 -28.0% 471 428 10.0%
Amortisation 1,123 791 42.0% 378 304 24.3%
Administrative expenses increased by 6.6% year-on-year in 3Q 2020 to RUB 4.1
billion (USD 56 million) mainly as a result of a 16.4% increase in payroll
and social security expenses to RUB 2.6 billion (USD 36 million) due to an
increase in the number of employees and the motivational payouts.
In 3Q 2020, selling expenses increased by 10.7% year-on-year to RUB 9.9
billion (USD 135 million). The main driver of growth was a 19.6% increase in
freight, port and stevedoring costs to RUB 4.9 billion (USD 66 million) due
to a 14.1% increase in export sales and the 14.3% devaluation of the rouble.
However, an 11% decrease in freight tariffs constrained the growth in costs.
Market outlook
Phosphate-based fertilizer markets are expected to remain balanced in the
short term. A decrease in seasonal demand in South Asia (India/Pakistan) and
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