Moscow – PhosAgro ("PhosAgro" or "the Company") (Moscow Exchange, LSE: PHOR), a leading global vertically integrated phosphate-based fertilizer producer, today announces its reviewed consolidated interim condensed IFRS financial statements for the six months ended 30 June 2013. PhosAgro earned a net profit for the period of RUB 4.8 billion (USD 154 million), compared to RUB 10.8 billion (USD 353 million) in 1H 2012. Basic and diluted earnings per share came to RUB 33 (USD 1) for 1H 2013 compared to RUB 68 (USD 2) in 1H 2012.
1H 2013 Financial and Operational Highlights:
Result |
1H 2013 |
1H 2012 |
year-on-year change (RUB vs. RUB), % |
||
---|---|---|---|---|---|
USD |
RUB |
USD |
RUB |
||
Revenue |
1,732m |
53,715m |
1,644 m |
50,359m |
7% |
EBITDA* |
432m |
13,407m |
559 m |
17,137m |
(22%) |
EBITDA margin |
25% |
25% |
34% |
34% |
(9 p.p.) |
Net Profit |
154m |
4,770m |
353m |
10,802m |
(56%) |
Earnings per share |
1 |
33 |
2 |
68 |
(51%) |
Sales volumes |
Kmt |
Kmt |
% | ||
Phosphate-based fertilizers |
2,307.3 |
2,123.2 |
9% |
||
Nitrogen-based fertilizers |
659.6 |
479.6 |
38% |
||
Apatit mine and beneficiation plant |
1,957.2 |
2,187.7 |
(11%) |
||
Other products |
147.6 |
166.9 |
(12%) |
RUB/USD Rates: average 1H 2013: 31.0169; average 1H 2012: 30.6390
As of 30 June 2013: 32.7090; as of 31 December 2012: 30.3727
*EBITDA is calculated as operating profit adjusted for depreciation and amortisation.
Other 1H 2013 Highlights
Production and sales flexibility:
Organic growth through capacity expansion and greater operational efficiency:
Urea production volumes increased by 83% from 251 kmt in 1H 2012 to 460 kmt in 1H 2013. Export revenue per tonne for urea increased by 2% in 1H 2013 compared to 1H 2012.
Consolidation of ownership in production facilities:
PhosAgro reported its 1H 2013 net profit of RUB 4.8 billion (USD 154 million), a decrease of 56% year-on-year from RUB 10.8 billion (USD 353 million) in 1H 2012. Revenue for the period was up 7% year-on-year to RUB 53.7 billion (USD 1,732 million), compared to RUB 50.4 billion (USD 1,644 million) for 1H 2012.
Operating profit for 1H 2013 was RUB 9.6 billion (USD 310 million), a 31% decrease from RUB 13.9 billion (USD 455 million) in 1H 2012. EBITDA margin decreased year-on-year to 25% compared to 34% for 1H 2012.
Cash flow from operating activities amounted to RUB 14.4 billion (USD 464 million) in 1H 2013, compared to RUB 13.2 billion (USD 430 million) in 1H 2012. The Company’s capital expenditure (capex) in cash terms during the six months ended 30 June 2013 was RUB 7.1 billion (USD 230 million) compared to RUB 6.7 billion (USD 218 million) in 1H 2012.
Net debt at 30 June 2013 stood at RUB 29.4 billion (USD 900 million), up from RUB 26.8 billion (USD 883 million) at 31 December 2012. Net debt increased due to the significant cash outflow for the Apatit minority shareholder buy-out as a result of the mandatory tender offer, which was funded through PhosAgro’s successful long-term USD 500 million debut Eurobond issue. The Company’s net debt to annualised EBITDA ratio temporarily increased to slightly above the target level of 1x as of 30 June 2013.
Commenting on the 1H 2013 IFRS results, PhosAgro Management Board Chairman and CEO Andrey A. Guryev said:
“In the first half of 2013 we increased revenue by 6.7% year-on-year as a result of growth in fertilizer production and sales by 13% and 14%, respectively. We are in the third consecutive year of DAP prices being under significant pressure, with FOB Tampa prices dropping another 10% from an average of USD 539 in 1H 2012 to an average of just USD 486 in 1H 2013. As a low cost producer during a time when DAP prices are substantially below the cash cost of marginal producers PhosAgro managed to generate a 25% EBITDA margin and to maintain almost 100% production capacity utilisation, which I believe distinguishes us from our peers.
“Despite challenging market conditions, which caused a significant decline in our financial results, the Company continues to have strong cash conversion results, which enables us to generate free cash flow for dividend distribution. We are committed to return profit to our shareholders, and currently we are working on increasing operational efficiency as well as reviewing our development programme to ensure that we continue to adhere to our financial policies.
“We believe that fertilizer demand will strengthen and that DAP prices will stabilize closer to the levels of marginal phosphate producer cash costs. Although in the short term we might see additional price pressure, in the longer term industry fundamentals remain strong, and we continue to be in the best position to deliver any type of phosphate-based fertilizer to farmers either in concentrated or in complex triple (NPK) and even quadruple (NPKS) nutrient form.”
1H 2013 Market Conditions
Demand from the markets nearest to PhosAgro remained very strong: domestic sales volumes of phosphate-based products increased more than 40% year-on-year, in the CIS by 54% and in Western Europe volumes increased 35% in 1H 2013.
Feed stock prices declined, supporting margins going forward:
Despite the decline in feed stock prices, DAP spot prices remain below cash cost levels for marginal producers of concentrated phosphate fertilizers.
Phosphate-based products segment
Result |
1H 2013 RUB mln |
1H 2012 RUB mln |
year-on-year change, % |
---|---|---|---|
Revenue |
46,120 |
44,024 |
5% |
Cost of goods sold |
(30,918) |
(27,216) |
14% |
Gross profit |
15,202 |
16,808 |
(10%) |
Phosphate-based products segment revenue increased by 5% year-on-year and totalled RUB 46,120 million (USD 1,487 million) in 1H 2013. PhosAgro increased production of phosphate-based fertilizers and MCP by 6% year-on-year in the first half of 2013, while sales volumes were up 9% year-on-year. Production and sales volumes for phosphate rock and nepheline concentrate decreased in 1H 2013 compared to 1H 2012 by 0.5% and 11%, respectively.
Revenue growth for the phosphate-based products segment was largely due to the addition of export sales of STTP (sodium tripolyphosphate) and SOP (potassium sulphate) of RUB 1,599 million (USD 52 million) and RUB 491 million (USD 16 million), respectively, in 1H 2013 as a result of the consolidation of Metachem at the end of 2012. Revenue from NPK export sales decreased by 18% year-on-year, from RUB 9,041 million (USD 295 million) in 1H 2012 to RUB 7,424 million (USD 239 million) in 1H 2013. This was mainly the result of a 13% decline in revenue per tonne from export sales of NPK. Revenue from DAP/MAP sales was nearly unchanged year-on-year, increasing from RUB 15,950 million (USD 521 million) in 1H 2012 to RUB 16,004 million (USD 516 million) in 1H 2013. This small increase was due to lower market prices counterbalancing an 8% increase in DAP/MAP sales volumes. Revenue from domestic sales of phosphate rock decreased by 16% to RUB 4,368 million (USD 141 million) in 1H 2013 due to lower sales to a significant Russian customer and higher internal use following the consolidation of Metachem. The decrease in domestic sales of phosphate rock also led to a 9% year-on-year increase in export sales of the product to RUB 4,239 million (USD 137 million).
The phosphate segment’s gross profit for 1H 2013 decreased by 10% year-on-year to RUB 15,202 million (USD 490 million), resulting in a gross profit margin of 33%, compared to 38% in 1H 2012. This was primarily a result of a decrease in prices for the Company’s main phosphate-based products.
PhosAgro is largely self-sufficient in key raw materials for phosphate fertilizer production, and therefore is not subject to price inflation for phosphate rock. However, higher production volumes and changes in the production mix in 1H 2013 meant the Company had to increase external purchases of other inputs, which led to an increase in cost of sales (a more detailed discussion is provided in the CoGS analysis below).
Revenue per tonne for the principal phosphate-based fertilizers and feed phosphate
Product |
1H 2013 RUB |
1H 2012 RUB |
year-on-year change, % |
---|---|---|---|
Domestic: |
|||
MAP |
15,596 |
18,066 |
(14%) |
DAP |
14,660 |
17,763 |
(17%) |
NPK |
14,020 |
14,677 |
(4%) |
MCP |
19,850 |
19,342 |
3% |
NPS |
11,475 |
12,065 |
(5%) |
Export: |
|||
MAP |
15,417 |
15,936 |
(3%) |
DAP |
15,073 |
16,485 |
(9%) |
NPK |
12,054 |
13,809 |
(13%) |
MCP |
17,115 |
16,864 |
1% |
NPS |
10,499 |
11,025 |
(5%) |
Nitrogen segment
Result |
1H 2013 RUB |
1H 2012 RUB |
year-on-year change, % |
---|---|---|---|
Revenue |
7,155 |
5,829 |
23% |
Inter-segment revenues |
1,114 |
2,826 |
(61%) |
Cost of goods sold |
(5,000) |
(4,091) |
22% |
Gross profit |
3,269 |
4,564 |
(28%) |
Nitrogen segment revenue was RUB 7,155 million (USD 231 million) in 1H 2013, an increase of 23% year-on-year from RUB 5,829 million (USD 190 million) in 1H 2012. Production and sales volumes of nitrogen-based fertilizers increased by 44% and 38% year-on-year, respectively, in 1H 2013.
Urea sales volumes increased by 62% year-on-year following the launch of the new urea plant at PhosAgro-Cherepovets in the second half of 2012. Export revenue from urea increased by 66% year-on-year from RUB 2,970 million (USD 97 million) in 1H 2012 to RUB 4,919 million (USD 159 million) in 1H 2013 as a result of higher export sales volumes (up 63%) and a 2% increase in export revenue per tonne. The structure of ammonium nitrate (AN) sales shifted from export to domestic in 1H 2013. Domestic AN sales increased by 75% to RUB 1,770 million (USD 57 million) in 1H 2013 from RUB 1,014 million (USD 33 million) a year earlier.
Inter-segment revenues decreased by 61% year-on-year in the first six months of 2013, to RUB 1,114 million (USD 36 million). This was a result of the merger of Ammophos and Cherepovetskiy Azot, which represented the phosphate-based and nitrogen-based segments, respectively.
As a result of higher expenses for purchased ammonia (a more detailed discussion is provided in the CoGS analysis below), nitrogen segment gross profit decreased by 28% year-on-year to RUB 3,269 million (USD 105 million) in 1H 2013, with a gross profit margin of 40%, compared to 53% in 1H 2012.
Revenue per tonne for the principal nitrogen-based fertilizers
Product |
1H 2013 RUB |
1H 2012 RUB |
year-on-year change, % |
---|---|---|---|
Domestic: |
|||
Ammonium nitrate |
9,857 |
8,383 |
18% |
Urea |
13,022 |
12,515 |
4% |
Export: |
|||
Ammonium nitrate |
9,591 |
10,333 |
(7%) |
Urea |
11,225 |
11,032 |
2% |
Cost of sales
PhosAgro’s cost of sales increased by 22% year-on-year in 1H 2013 to RUB 34,672 million (USD 1,118 million), in line with the growth in fertilizer sales volumes of 14%, PPI inflation of 3.5% year-on-year from 1H 2012 to 1H 2013 in addition to the 4% increase as a result of the Metachem consolidation. This increase in cost of sales was primarily due to the following changes from 1H 2012 to 1H 2013:
· A RUB 1,961 million (USD 63 million) or 24% increase in the cost of materials and services. Higher production of NPS/NPK, which have a high nitrogen content, led to an increase in purchases of ammonium sulphate of RUB 485 million (USD 16 million).
· The consolidation of Metachem into PhosAgro led to a 7% increase in materials and services expenses of RUB 596 million (USD 19 million).
· A RUB 1,512 million (USD 49 million) or 109% increase in ammonia expenses. Higher production volumes of nitrogen-based fertilizers and changes in product mix meant that PhosAgro’s third party ammonia purchases increased to RUB 2,898 million (USD 93 million) in the six months ended 30 June 2013 from RUB 1,386 million (USD 45 million) in the six months ended 30 June 2012.
· An increase in expenditure on natural gas of RUB 468 million (USD 15 million), or 18%, from RUB 2,537 million (USD 83 million) in the six months ended 30 June 2012 to RUB 3,005 million (USD 97 million) in the six months ended 30 June 2013. Natural gas is required primarily for the production of ammonia. The price per cubic meter of natural gas rose by 15%, while natural gas consumption grew by 4% year-on-year. The price increase was due to an approximately 15% tariff increase in the second half of 2012. The increase in volume was due to the launch of a gas-powered electric generation facility in the second half of 2012, and additional volumes consumed by Metachem, which was consolidated by PhosAgro from the end of 2012.
· An increase in expenditure on electricity of RUB 97 million (USD 3 million), or 6%, from RUB 1,638 million (USD 53 million) in 1H 2012 to RUB 1,735 million (USD 56 million) in 1H 2013. This was mainly due to the consolidation of Metachem.
The increase in cost of sales was partially offset by a year-on-year decrease in expenditure on potash of 9%, or RUB 235 million, to RUB 2,296 million (USD 74 million) in the six months ended 30 June 2013. This was due to a 13% decrease in potash purchase volumes. Although production volumes of NPK increased by 1%, the share of NPK brands with low potash content in the overall production mix increased.
Item |
1H 2013 |
1H 2012 |
Year-on-year change |
|||||
---|---|---|---|---|---|---|---|---|
RUB
|
USD
|
% of cost
|
RUB
|
USD
|
% of cost
|
RUB mln |
% |
|
Materials and services |
10,165 |
328 |
29% |
8,204 |
268 |
29% |
1,961 |
24% |
Salaries and social contributions |
6,678 |
215 |
19% |
5,738 |
187 |
20% |
940 |
16% |
Ammonia |
2,898 |
93 |
8% |
1,386 |
45 |
5% |
1,512 |
109% |
Potash |
2,296 |
74 |
7% |
2,531 |
83 |
9% |
(235) |
(9%) |
Natural gas |
3,005 |
97 |
9% |
2,537 |
83 |
9% |
468 |
18% |
Depreciation |
3,520 |
113 |
10% |
2,966 |
97 |
10% |
554 |
19% |
Fuel |
2,450 |
79 |
7% |
2,430 |
79 |
9% |
20 |
1% |
Sulphur and sulphuric acid |
1,879 |
61 |
6% |
1,834 |
60 |
6% |
45 |
2% |
Electricity |
1,735 |
56 |
5% |
1,638 |
53 |
6% |
97 |
6% |
Other items |
35 |
1 |
- |
15 |
- |
- |
20 |
133% |
Change in stock of WIP and finished goods |
11 |
- |
- |
(854) |
(28) |
(3%) |
865 |
(101%) |
Total |
34,672 |
1,117 |
100% |
28,425 |
927 |
100% |
6,247 |
22% |
Administrative expenses rose by 25% year-on-year to RUB 3,657 million (USD 118 million) in the first half of 2013 as result of inflation and the consolidation of Metachem and an increase in personnel costs for reasons similar to those discussed in cost of sales.
Selling expenses rose by 3% year-on-year, from RUB 3,947 million (USD 129 million) in the first half of 2012 to RUB 4,077 million (USD 131 million) in the first half of 2013. This was primarily due to higher sales volumes, as well as a 7% year-on-year increase in Russian Railways infrastructure tariff and operators’ fees in 1H 2013.
Cash spent on capex in 1H 2013 amounted to RUB 7,122 million (USD 230 million) compared to RUB 6,694 million (USD 218 million) in the first half of 2012. PhosAgro’s capital expenditure, which consists of additions to property, plant and equipment, amounted to RUB 8,008 million (USD 258 million) for 1H 2013, compared to RUB 6,759 million (USD 221 million) in 1H 2012. Capital expenditure focused on construction of the main ore shaft № 2 at the Kirovsky underground mine (expected to enable the mine to increase production to 14 mtpa in 2-3 years), as well as the construction of new storage facilities for liquid ammonia at Balakovo Mineral Fertilizers.
Total debt at 30 June 2013 amounted to RUB 48,498 million (USD 1,483 million), compared to RUB 36,469 million (USD 1,201 million) at 31 December 2012. Net debt at 30 June 2013 amounted to RUB 29,441 million (USD 900 million), compared to RUB 26,805 million (USD 883 million) at 31 December 2012.
Outlook
Market:
· Expectations of improved crop yields have recently pushed corn and soybean futures down, however, soft commodities prices are expected to remain well above historical averages;
· DAP prices relative to the soft commodities basket are at very low levels , meaning almost record crop nutrient affordability;
· Morocco continues to delay the launch of new capacities;
· Global supply of phosphate-based fertilizers remains at very low levels due to significant cash cost for most producers, and no significant new capacities are expected to be added in the near future, minimizing pricing pressures from the supply side;
· On the demand side, India remains a question mark given the significant weakness of the local currency; at the same time, imbalanced fertilization for the third consecutive year (over-application of nitrogen vs. phosphate) may eventually force delayed purchases to be made;
· The global economic slowdown is affecting not just the Indian market: currencies across emerging markets are weakening (the Brazilian Real for example has depreciated against the USD by 15% from the beginning of 2013). While the long term effect for net exporters of soft commodities is not necessarily negative, in the short term this causes customers to be cautious about importing fertilisers;
· Recent potash market developments may have an impact on all fertilizers in terms of cautious customer behaviour with respect to partial delay of fertilizer purchases until the MOP price stabilises in the short term.
Company:
· While concentrated phosphate fertilizer demand remained under pressure in 1H 2013, PhosAgro sees very high global demand for complex fertilizers and NPS; the Company intends to further invest into both increasing capacity and expanding the number of NPK grades it produces;
· All major development project are on track: new ammonia plant designed to increase cost efficiency and support expansion of complex fertilizer capacity, as well as new NPK/NPKS project in Balakovo;
· After completion of the squeeze out of remaining shareholders of Apatit, PhosAgro will fully consolidate Apatit in 3Q 2013;
· Management focus on cost optimisation will help to reduce the Company’s material costs in addition to recent ammonia, sulphur and potash price developments;
· The Management Board is revising the capital expenditure programme to comply with PhosAgro’s financial policy with respect to capital spending and leverage.