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 reviewed condensed consolidated IFRS financial results for the six months ended 30 June 2014. PhosAgro earned a net profit for the period of RUB 8.1 billion (USD 231 million), compared to RUB 4.8 billion (USD 154 million) in 6M 2013. Basic and diluted earnings per share came to RUB 60 (USD 1.72) for 6M 2014, compared to RUB 33 (USD 1.06) in 6M 2013.
6M 2014 Financial and Operational Highlights:
Result |
6M 2014 |
6M 2013 |
year-on-year change (RUB vs. RUB), % |
||
---|---|---|---|---|---|
RUB |
USD |
RUB |
USD |
||
million |
million |
||||
Revenue |
56,702 |
1,621 |
53,715 |
1,732 |
6% |
EBITDA* |
16,219 |
464 |
13,849 |
446 |
17% |
EBITDA margin |
29% |
26% |
3 p.p. |
||
Net profit |
8,097 |
231 |
4,770 |
154 |
70% |
Earnings per share |
60 |
1.72 |
33 |
1.06 |
82% |
Sales volumes |
Kmt |
Kmt |
% | ||
Phosphate-based products |
2,394.0 |
2,364.6 |
1% |
||
Nitrogen-based fertilizers |
749.2 |
659.6 |
14% |
||
Apatit mine and beneficiation plant |
1,746.4 |
1,957.2 |
(11%) |
||
Other products |
114.1 |
90.3 |
26% |
RUB/USD rates: average 6M 2014: 34.9796; average 6M 2013: 31.0169
As of 30 June 2014: 33.6306; as of 31 December 2013: 32.7292
*EBITDA is calculated as operating profit adjusted for depreciation and amortisation.
Other 6M 2014 Highlights
Production, sales and logistics flexibility:
Strategic developments:
Consolidation of ownership in production facilities and business development:
· In February 2014, PhosAgro launched a new subsidiary, LLC Smart Bulk Terminal. The Company will organize the construction and subsequent operation of the new terminal at the port of Ust-Luga that will handle fertilizers produced and sold by PhosAgro. PhosAgro owns 70% of LLC Smart Bulk Terminal.
PhosAgro’s 6M 2014 net profit was RUB 8.1 billion (USD 231 million), an increase of 70% year-on-year from RUB 4.8 billion (USD 154 million) in 6M 2013. The growth in net profit was primarily due to favourable market conditions and higher prices, in rouble terms, for the main fertilizers PhosAgro produces. Revenue for the period increased by 6% year-on-year to RUB 56.7 billion (USD 1,621 million), compared to RUB 53.7 billion (USD 1,732 million) for 6M 2013. Cost savings in cost of sales and a smaller foreign exchange loss (a more detailed discussion is provided in the analysis below) also contributed to PhosAgro’s strong net profit result for 6M 2014.
Operating profit for 6M 2014 was RUB 12.2 billion (USD 349 million), up 21% from RUB 10.0 billion (USD 324 million) in 6M 2013. EBITDA was RUB 16.2 billion (USD 464 million) in 6M 2014, 17% higher year-on-year. EBITDA margin increased to 29% for 6M 2014, compared to 26% in 6M 2013.
Cash flows from operating activities decreased by 7% year-on-year and amounted to RUB 13.4 billion (USD 383 million) in 6M 2014, compared to RUB 14.4 billion (USD 464 million) in 6M 2013. The Company’s capital expenditure (capex) in cash terms during 6M 2014 was RUB 7.1 billion (USD 203 million), consistent with RUB 7.1 billion (USD 230 million) in 6M 2013.
Net debt at 30 June 2014 stood at RUB 45.6 billion (USD 1,357 million), up from RUB 43.8 billion (USD 1,339 million) at 31 December 2013. Most of the Company’s debt is denominated in USD as a natural hedge against primarily USD-denominated sales. The depreciation of the Russian rouble against the US dollar was the primary reason for the increase of PhosAgro’s net debt in RUB terms. The Company’s net debt to annualised EBITDA ratio decreased to 1.4 as of 30 June 2014, from 1.8 as of 31 December 2013.
Commenting on the 6M 2014 results, PhosAgro Management Board Chairman and CEO Andrey Guryev said:
“PhosAgro’s earnings in the first half of 2014 grew very strongly on the back of a significantly improved operating environment combined with our successful cost cutting initiatives. Healthy global demand for phosphate fertilizers has pushed prices up to USD 500 per tonne FOB Tampa, substantially higher than the crisis levels seen in 2H 2013, when prices bottomed around USD 350 per tonne FOB Tampa in November. While average DAP prices in the first half of 2014 remained below those recorded in 6M 2013, at USD 465 per tonne FOB Tampa vs USD 486 per tonne in 6M 2013, PhosAgro’s financial results improved materially, with a gross profit margin increasing to 41% and a solid 29% EBITDA margin. These results are due to our favourable cost position and excellent production capabilities, as we were able to meet higher global demand by increasing production and sales of our fertilizers.
“In addition to delivering excellent financial results, I am pleased to report that we made significant progress on consolidating our ownership of PhosAgro-Cherepovets with the buyout of more than 10% of minority shareholders’ shares in 2Q 2014, and we remain on track to achieve full 100% ownership of all our production subsidiaries by the end of this year.”
6M 2014 Market Conditions
Phosphate-Based Products Segment
Result |
6M 2014 RUB mln |
6M 2013 RUB mln |
year-on-year change, % |
---|---|---|---|
Revenue |
48,267 |
46,120 |
5% |
Cost of goods sold |
(29,138) |
(29,896) |
(3%) |
Gross profit |
19,129 |
16,224 |
18% |
Phosphate-based products segment revenue increased by 5% year-on-year and totalled RUB 48,267 million (USD 1,380 million) in 6M 2014. PhosAgro increased production of phosphate-based fertilizers and MCP by 3.2% year-on-year in 6M 2014, while sales volumes increased by 1.1% year-on-year. Production and sales volumes for phosphate rock and nepheline concentrate decreased in 6M 2014 compared to 6M 2013 by 1.2% and 10.8%, respectively.
The increase in sales volumes was primarily due to favourable market conditions and higher demand, which enabled the Company to increase substantially the sales of both concentrated fertilizers and NPKs to Latin America and Russia.
The phosphate-based products segment’s gross profit for 6M 2014 increased by 18% year-on-year to RUB 19,129 million (USD 547 million), resulting in a gross profit margin of 40%, compared to a 35% margin in 6M 2013, which was the result of higher sales combined with cost savings (a more detailed discussion is provided in the CoGS analysis below).
Revenue per tonne for the principal phosphate-based products
Product |
6M 2014 RUB |
6M 2013 RUB |
year-on-year change, % |
---|---|---|---|
Domestic: |
|||
MAP |
16,072 |
15,596 |
3.1% |
DAP |
15,431 |
14,660 |
5.3% |
NPK |
12,891 |
14,020 |
(8.1%) |
MCP |
20,120 |
19,850 |
1.4% |
NPS |
10,603 |
11,475 |
(7.6%) |
SOP |
24,144 |
19,862 |
21.6% |
STPP |
31,132 |
30,235 |
3.0% |
Export: |
|||
MAP |
16,194 |
15,417 |
5.0% |
DAP |
16,167 |
15,073 |
7.3% |
NPK |
12,326 |
12,054 |
2.3% |
MCP |
19,692 |
17,115 |
15.1% |
NPS |
10,922 |
10,499 |
4.0% |
SOP |
24,513 |
15,734 |
55.8% |
STPP |
34,037 |
28,758 |
18.4% |
Nitrogen Segment
Result |
6M 2014 RUB mln |
6M 2013 RUB mln |
year-on-year change, % |
---|---|---|---|
Revenue |
8,093 |
7,155 |
13% |
Inter-segment transfers |
8 |
92 |
(91%) |
Cost of goods sold |
(5,004) |
(5,000) |
- |
Gross profit |
3,097 |
2,247 |
38% |
Nitrogen segment revenue increased by 13% year-on-year to RUB 8,093 million (USD 231 million) in 6M 2014 from RUB 7,155 million (USD 231 million) in 6M 2013. Production and sales volumes of nitrogen-based fertilizers increased by 4% and 14% year-on-year, respectively, in 6M 2014.
Export revenue from urea increased by 14% year-on-year from RUB 4,919 million (USD 159 million) in 6M 2013 to RUB 5,589 million (USD 160 million) in 6M 2014, in line with the 15% increase in sales volumes. Ammonium nitrate (AN) sales volumes decreased by 6% year-on-year, which, combined with a 2% decrease in revenue per tonne, was the major factor behind the 8% decline in revenue from AN sales from RUB 1,932 million (USD 62 million) in 6M 2013 to RUB 1,785 million (USD 51 million) in 6M 2014.
Nitrogen segment gross profit during 6M 2014 increased by 38% year-on-year to RUB 3,097 million (USD 89 million), in line with the segment’s revenue growth, resulting in a gross profit margin of 38% compared to 31% in 6M 2013.
Revenue per tonne for the principal nitrogen-based fertilizers
Product |
6M 2014 RUB |
6M 2013 RUB |
year-on-year change, % |
---|---|---|---|
Domestic: |
|||
Ammonium nitrate |
9,610 |
9,857 |
(2.5%) |
Urea |
11,822 |
13,022 |
(9.2%) |
Export: |
|||
Ammonium nitrate |
- |
9,591 |
- |
Urea |
11,070 |
11,225 |
(1.4%) |
NP |
10,094 |
8,961 |
12.6% |
Cost of Sales
Item |
6M 2014 |
6M 2013 |
Change y-on-y |
|||||
---|---|---|---|---|---|---|---|---|
RUB mln |
USD mln |
% of cost of sales |
RUB mln |
USD mln |
% of cost of sales |
RUB mln |
% |
|
Materials and services |
10,778 |
308 |
32% |
9,596 |
309 |
28% |
1,182 |
12% |
Salaries and social contributions |
4,976 |
142 |
15% |
6,108 |
197 |
18% |
(1,132) |
(19%) |
Natural gas |
3,694 |
106 |
11% |
3,005 |
97 |
9% |
689 |
23% |
Depreciation |
3,629 |
104 |
11% |
3,518 |
113 |
10% |
111 |
3% |
Potash |
1,957 |
56 |
6% |
2,296 |
74 |
7% |
(339) |
(15%) |
Electricity |
1,782 |
51 |
5% |
1,735 |
56 |
5% |
47 |
3% |
Ammonia |
1,599 |
46 |
5% |
2,898 |
93 |
9% |
(1,299) |
(45%) |
Fuel |
1,545 |
44 |
5% |
2,450 |
79 |
7% |
(905) |
(37%) |
Sulphur and sulphuric acid |
1,719 |
49 |
5% |
1,879 |
61 |
5% |
(160) |
(9%) |
Heating energy |
804 |
23 |
2% |
237 |
8 |
1% |
567 |
239% |
Ammonium sulphate |
354 |
10 |
1% |
706 |
23 |
2% |
(352) |
(50%) |
Other items |
15 |
1 |
- |
32 |
1 |
0% |
(17) |
(53%) |
Change in stock of WIP and finished goods |
681 |
19 |
2% |
(243) |
(8) |
(1%) |
924 |
(380%) |
Total |
33,533 |
959 |
100% |
34,217 |
1,103 |
100% |
(684) |
(2%) |
PhosAgro’s cost of sales decreased by 2% year-on-year in 6M 2014, to RUB 33,533 million (USD 959 million), while overall fertilizers sales volumes increased by 4%. This decrease in cost of sales was primarily due to the following factors:
· An increase of RUB 1,182 million (USD 34 million), or 12%, year-on-year in the cost of materials and services due to price inflation of 7% (PPI 6M 2014 vs 6M 2013) and outsourcing of certain functions, compensated by a significant decrease in personnel costs.
· A year-on-year decrease in expenditure on purchased ammonia of RUB 1,299 million (USD 37 million), or 45%, from RUB 2,898 million (USD 93 million) in 6M 2013 to RUB 1,599 million (USD 46 million) in 6M 2014. This was due to year-on-year declines in purchase volumes by 32% and prices by 19%. PhosAgro was able to decrease purchases from third parties after the modernisation of ammonia production facilities in Cherepovets, which helped to increase production of ammonia by 54 ths tonnes per year, or by 10%.
· A year-on-year increase in expenditure on natural gas of RUB 689 million (USD 20 million), or 23%, to RUB 3,694 million (USD 106 million) in 6M 2014. Natural gas is required primarily for the production of ammonia. The price per cubic metre of natural gas rose by 17%, while natural gas consumption increased by 5% year-on-year. The price increase was due to a 15% tariff increase in the second half of 2013. The 5% growth in volumes of gas purchased was due to a 10% year-on-year increase in ammonia production as a result of higher production capacity following completion of modernisations in 3Q 2013.
· A year-on-year decrease in expenditure on fuel by RUB 905 million (USD 26 million), or 37%, from RUB 2,450 million (USD 79 million) in 6M 2013 to RUB 1,545 million (USD 44 million) in 6M 2014, which was in line with a 37% decrease in fuel consumption as a result of the replacement of heating oil purchases with direct purchases of heating energy, as well as decreased open-pit mining.
· Heating energy expenses increased by RUB 567 million (USD 16 million) year-on-year, from RUB 237 million (USD 8 million) in 6M 2013 to RUB 804 million (USD 23 million) in 6M 2014, as a result of the replacement of heating oil, which is consumed in boilers generating heating energy at Apatit, with direct purchases of heating energy, providing significant savings on fuel.
· A decrease in expenditure on sulphur and sulphuric acid by RUB 160 million (USD 5 million), or 9%, year-on-year from RUB 1,879 million (USD 61 million) in 6M 2013 to RUB 1,719 million (USD 49 million) in 6M 2014. This was driven by a 14% decrease in purchase prices. The decrease in purchase prices was partly offset by a 6% increase in purchase volumes due to higher production volumes of phosphate-based fertilizers and feed phosphates.
· The decline in production of NPS/NPK, which have a high nitrogen content, led to a decrease in purchases of ammonium sulphate by RUB 352 million (USD 10 million), or 50%, year-on-year.
Administrative expenses rose by 3% year-on-year to RUB 3,955 million (USD 113 million) in 6M 2014 primarily as a result of an increase in professional services and expenses related to depreciation and amortisation.
Selling expenses rose by 39% year-on-year, from RUB 3,908 million (USD 126 million) in 6M 2013 to RUB 5,423 million (USD 155 million) in 6M 2014. This was primarily due to the following changes from 6M 2013 to 6M 2014:
PhosAgro’s foreign exchange loss decreased by 60%, from RUB 2,759 million (USD 89 million) in 6M 2013 to RUB 1,090 million (USD 31 million) in 6M 2014. This was the result of the higher Rouble depreciation during 6M 2013 by 8% (from RUB 30.3727 at 31/12/2012 to RUB 32.7090 at 30/06/2013), compared to just 3% during 6M 2014 (from RUB 32.7292 at 31/12/2013 to RUB 33.6306 at 30/06/2014).
Cash spent on capex in 6M 2014 amounted to RUB 7,117 million (USD 203 million), in line with the RUB 7,122 million (USD 230 million) spent in 6M 2013. PhosAgro’s capital expenditure, which consists of additions to property, plant and equipment, amounted to RUB 6,604 million (USD 189 million) for 6M 2014, compared to RUB 8,008 million (USD 258 million) in 6M 2013. Capital expenditure focused on construction of the main ore shaft № 2 at the Kirovsky underground mine, as well as the construction of new storage facilities for liquid ammonia at Balakovo.
Gross debt at 30 June 2014 amounted to RUB 60,490 million (USD 1,799 million), compared to RUB 52,756 million (USD 1,612 million) at 31 December 2013. Net debt at 30 June 2014 amounted to RUB 45,621 million (USD 1,357 million), compared to RUB 43,818 million (USD 1,339 million) at 31 December 2013.
Outlook
Market:
Company:
· PhosAgro’s low cash cost position and flexible production make the Company well placed to respond to changes in global demand for concentrated or complex fertilizers and NPS. The Company intends to invest further into both increasing capacity and expanding the number of NPK grades it produces.