PhosAgro 2Q 2019 FCF up 22% to RUB 10.2 bln

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OJSC PhosAgro (PHOR) PhosAgro 2Q 2019 FCF up 22% to RUB 10.2 bln 28-Aug-2019 / 13:00 CET/CEST Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The issuer / publisher is solely responsible for the content of this announcement.


 

For Immediate Release

28 August 2019

 

PhosAgro 2Q 2019 FCF up 22% to RUB 10.2 bln

 

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 interim condensed consolidated IFRS financial results for the three months (2Q) and six months (1H) ended 30 June 2019.

 

Revenue for 2Q 2019 rose by 3% year-on-year to RUB 58.1 billion (USD 901 million). EBITDA remained almost flat year-on-year at RUB 18.3 billion (USD 284 million) in the period, with 2Q 2019 EBITDA margin at 32%.

 

2Q 2019 financial and operational highlights

RUB million or %

2Q 2019

2Q 2018

Chng, % YoY

1H 2019

1H 2018

Chng, % YoY

Revenue

58,146

56,626

3%

130,433

111,248

17%

EBITDA**

18,317

18,674

-2%

43,095

32,967

31%

EBITDA margin

32%

33%

-1pp

33%

30%

3pp

Net income

11,785

2,955

299%

32,945

9,833

235%

Net income adj*

9,197

11,687

-21%

22,737

17,989

26%

FCF

10,284

8,369

123%

29,059

9,697

200%

 

31.06.2019

31.12.2018

 

 

 

 

Net debt

109,686

135,330

 

 

 

 

ND/LTM EBITDA

1.3

1.8

 

 

 

 

Sales, 000' mt

2Q 2019

2Q 2018

Chng, % YoY

1H 2019

1H 2018

Chng, % YoY

Phosphate-based & MCP

1,628

1,647

-1%

3,557

3,400

5%

Nitrogen-based

531

601

-12%

1,148

1,268

-9%

Phosphate rock & nepheline

1,142

968

18%

2,264

1,924

18%

RUB/USD rates: average 2Q 2019: 64.6; average 2Q 2018: 61.8; as of 30 June 2019: 63.1; as of 31 December 2018: 69.5 ** EBITDA is calculated as operating profit adjusted for depreciation and amortisation. * adjusted for non-cash FX items (Net profit as reported minus FX gain or loss)  

Commenting on the 2Q 2019 financial results, PhosAgro CEO Andrey Guryev said:

 

"While 2019 has seen market turbulence on unfavourable weather conditions in the USA and Europe and high export activity in China and the Middle East, PhosAgro has shown its resilience with an industry-leading EBITDA margin, impressive free cash flow generation and decreasing leverage. This performance is driven by the successful completion of our five-year strategy, which was focused on vertical integration and flexibility in distribution. This has enabled us to maximise value for a wide range of stakeholders. Consistent strong free cash flow performance and stable dividend distributions over the last four quarters shows we achieved these goals.

 

"Equally important, by delivering double-digit growth in production over the last 5 years PhosAgro has enhanced its ability to produce and sell products with exceptional environmental characteristics that can set the global standard. As one of the world's largest fertilizer producers, with products used in 100 countries globally, we are conscious of our role in supporting food security, protecting soil resources and producing clean and healthy agricultural products on a global scale. In the long term, we aim to further leverage the unique apatite-nepheline ore that PhosAgro mines in Khibiny and implement best available technologies to achieve our strategic goals that will strengthen our position as a producer of environmentally safe phosphate-based fertilizers while also further enhancing the Company's cash cost advantage. The Board of Directors and I have full confidence that this approach will make PhosAgro an even more sustainable producer of mineral fertilizers and unlock additional value for the Company and its products.

 

"Looking ahead at the short-term outlook, we believe that our 2Q 2019 EBITDA margin will be sustainable through the year end, driven by a recovery in seasonal demand from Europe and Latin America, a correction in feedstock prices, as well as a recovery in the premium NPK market and a stable nitrogen market. Our domestic market, which is a strategic priority for us, is also expected to support sales, driven by high farmer purchasing power. We are therefore comfortable to once again reiterate our full-year production guidance of around 9.4-9.5 million tonnes of fertilizers."

 

2Q 2019 market conditions

 

  • Average prices for MAP (FOB Baltics) were down by 12% year-on-year to USD 357 per tonne due to the following factors:
    • Significant declines in consumption in the USA due to poor spring weather conditions;
    • Higher export volumes from China on slow domestic demand;
    • Faster-than-expected ramp up of new capacities at OCP and Ma'aden sites;
    • Lower prices for feedstocks, which pushed down the cash cost curve across the industry.
  • Prices for urea (FOB Baltic) increased by 11% year-on-year to USD 247 per tonne, driven by stable import demand from India and Latin America, combined with sanctions-related limitations on Iranian urea, lower domestic production levels in a number of Latin American countries and the absence of significant export volumes from China.
  • Ammonia prices (FOB Baltic) declined by 4% year-on-year to average USD 222 per tonne as a result of the ramp up of new capacities at Eurochem and relatively low prices for natural gas.

 

2Q 2019 Financial performance

 

In 2Q 2019, PhosAgro's revenue rose by 3% year-on-year to RUB 58.1 billion (USD 901 million), mainly driven by meaningful growth in domestic sales of 37% year-on-year, to 0.8 million tonnes, due to an early start of the high season. However, this growth was largely offset by a decline in export sales volumes of 18% year-on-year to 1.4 million tonnes.

 

Revenue by key products

RUB million or %

2Q 2019

2Q 2018

Chng, % YoY

1H 2019

1H 2018

Chng, % YoY

DAP/MAP

16,824

18,884

-11%

42,935

37,514

14%

NPK(S)

17,756

15,041

18%

35,263

28,544

24%

PhosRock

6,448

5,492

17%

13,100

10,354

27%

MCP

2,895

2,662

9%

5,732

4,928

16%

Other phosphate-based products

2,310

2,152

7%

5,307

4,229

25%

Urea/AN

8,731

8,891

-2%

19,796

18,194

9%

Other sales & services

3,184

3,503

-9%

8,300

7,485

11%

Total revenue

58,146

56,626

3%

130,433

111,248

17%

 

In 2Q 2019, PhosAgro's gross profit was RUB 26.4 billion (USD 411 million) with the gross profit margin at 45%, compared to 47% in 2Q 2018. Gross profit and margin performance for the phosphate and nitrogen segments were as follows:

 

  • Phosphate segment gross profit declined by 3% year-on-year to RUB 21.4 billion (USD 332 million), with a gross margin of 45%, due to a global price correction;
  • Gross profit for the nitrogen segment increased by 5% year-on-year to RUB 4.9 billion (USD 76 million), with gross margin expanding to 56% from 52% in 2Q 2018. The main driver of this performance was high prices for nitrogen-based fertilizers.

 

Consolidated EBITDA decreased by 2% year-on-year to RUB 18.3 billion (USD 284 million), with an EBITDA margin of 32% for 2Q 2019, compared to 33% in 2Q 2018. Net profit adjusted for non-cash FX items was down 21% year-on-year to RUB 9.2 billion (USD 142 million) for 2Q 2019.

 

In 2Q 2019, the RUB/USD exchange rate increased by 5% year-on-year to average RUB 64.6, from RUB 61.8 in 2Q 2018. This had a net positive impact, as prices for most of the Company's products are denominated in USD, while costs are primarily rouble-based. The appreciation of the rouble as of 30 June 2019 (RUB 63.1 per USD) compared to 31 March 2019 (RUB 64.7 per USD) resulted in an FX gain of RUB 2.6 billion (compared to a RUB 8.7 billion FX loss in 2Q 2018).

 

Net operating cash flow increased by 20% year-on-year to RUB 19.4 billion (USD 300 million) on working capital release, primarily driven by the launch of a factoring programme and an increased focus on the domestic market. In 2Q 2019, domestic sales of fertilizers accounted for 36% of total fertilizer sales volumes, compared to 27% in 1Q 2019.

 

PhosAgro's capital expenditure for 2Q 2019 totalled RUB 9.1 billion (USD 141 million), up by 19% year-on-year and representing 50% of the Company's EBITDA for the same period. The main capex items were scheduled maintenance and development of the upstream business, as well as finishing construction of new mid-stream capacities at Cherepovets (nitric acid, sulphuric acid and ammonium sulphate lines).

 

Net debt/LTM EBITDA as of 30 June 2019 declined to 1.3x from 1.8x as of 31 December 2018, reflecting solid EBITDA performance and the gradual rouble appreciation against the US dollar throughout 1H 2019. Net debt totalled RUB 109.7 billion (USD 1.7 billion) as of 30 June 2019.

 

Cost of Sales

RUB million or %

2Q 2019

2Q 2018

Chng, % YoY

1H 2019

1H 2018

Chng, % YoY

Materials and services

7,072

7,159

-1%

15,383

14,053

9%

D&A

4,960

4,882

2%

10,669

9,636

11%

Potash

3,806

2,377

60%

6,522

4,649

40%

Salaries and social contributions

3,056

2,948

4%

6,307

6,114

3%

Natural gas

2,927

3,221

-9%

6,576

6,718

-2%

Repair expenses

2,348

2,138

10%

4,747

4,269

11%

Sulphur and sulph. acid

2,289

2,405

-5%

5,635

5,283

7%

Electricity

1,583

1,441

10%

3,270

2,868

14%

Chemical fertilisers and other products for resale

1,253

1,169

7%

3,865

3,031

28%

Fuel

1,162

889

31%

2,654

1,888

41%

Ammonium sulphate

591

500

18%

1,798

1,599

12%

Ammonia

667

715

-7%

2,024

1,806

12%

Total

31,714

29,844

6%

69,450

61,914

12%

 

Cost of sales increased by 6% year-on-year in 2Q 2019 to RUB 31.7 billion (USD 491 million). The key factors behind this growth were:

 

  • Costs for potash rose by 60% year-on-year to RUB 3.8 billion (USD 59 million), due to a 41% year-on-year increase in purchase prices and a 14% year-on-year increase in sales of NPK grades with greater potash content.
  • Costs for natural gas, which is used in ammonia production, were down by 9% year-on-year to RUB 2.9 billion (USD 45 million) on lower sales of DAP (down 20% year-on-year to 306 kt) and urea (down 10% year-on-year to 427 kt), while purchase prices increased slightly by 3% year-on-year.
  • Repair expenses were up 10% year-on-year to RUB 2.3 billion (USD 36 million), driven by scheduled maintenance of mid-stream capacities, mainly at Cherepovets and at Apatit's beneficiation plants.
  • Costs for sulphur and sulphuric acid, which is used in phosphoric acid production, decreased by 5% year-on-year to RUB 2.3 billion (USD 35 million) driven by a decline in purchase prices for sulphuric acid by 30% year-on-year and a marginal decline in prices for sulphur by 1% year-on-year.
  • Electricity costs increased by 10% year-on-year to RUB 1.6 billion (USD 25 million), mainly due to growth in the purchase price by 23% year-on-year after the new DPM programme was approved by the Government in early 2019. This growth was mitigated by lower consumption levels as a result of successful energy saving initiatives at upstream assets.
  • Expenses for fuel rose by 31% year-on-year to RUB 1.2 billion (USD 18 million) in response to higher purchase prices (up 18% year-on-year) and higher consumption levels (up 11% year-on-year), due to an increase in sales of phosphate rock.

 

Administrative expenses for 2Q 2019 rose by 13% year-on-year to RUB 4.1 billion (USD 64 million), primarily due to 14% year-on-year growth in salaries and social contributions.

 

In 2Q 2019, selling expenses remained flat year-on-year around RUB 8.4 billion (USD 130 million). This performance was primarily due to:

 

  • Freight, port and stevedoring expenses decreased by 21% year-on-year to RUB 3.5 billion (USD 54 million), due to lower export sales and shipping rates. This decline was mitigated by rouble devaluation, as freight and stevedoring tariffs are denominated in US dollars;
  • Growth in costs for Russian Railways tariffs and operators' fees by 18% year-on-year to RUB 3.0 billion (USD 47 million) was driven by a change in shipment structures and indexation of railway tariffs;
  • Spending on customs duties grew by 74% year-on-year to RUB 312 million (USD 5 million), triggered by changes in delivery terms and rouble depreciation against the US dollar.

 

Market outlook

 

Phosphate-based fertilizer prices are expected to stabilise in the medium term, followed by a gradual recovery driven by the following factors:

 

  • Higher prices for agricultural products, particularly corn and soy, which will improve the affordability of fertilizers for farmers;
  • Forecasted higher demand in autumn from North America and Europe;
  • Indian nutrient subsidies being maintained at last year's level and the high margin for DAP importers will help to support seasonal demand, despite high inventory levels; Indian DAP imports are expected to reach 5.5-6.0 million tonnes;
  • The intention of major Chinese producers to decrease DAP production by 0.8-1.0 million tonnes per quarter in the coming periods in order to support prices.

 

Other factors that are expected to influence the market in 2H 2019 include the launch of new phosphate-based fertilizers production capacities at OCP and Ma'aden.

 

Conference call and webcast: 

 

PhosAgro will hold a conference call and webcast today at 14:30 London time (16:30 Moscow; 09:30 New York).

 

The call will be held in English, with simultaneous translation into Russian on a separate line. Webcast links: English: <~text text="http"><~text text="://"><~text text="event"><~text text="."><~text text="onlineseminarsolutions"><~text text="."><~text text="com"><~text text="/"><~text text="wcc"><~text text="/"><~text text="r"><~text text="/2068718-1/"><~text text="D"><~text text="1"><~text text="B"><~text text="34"><~text text="BAEC"><~text text="8"><~text text="FE"><~text text="72"><~text text="AB"><~text text="5"><~text text="FBE"><~text text="81"><~text text="D"><~text text="4207507"><~text text="AF"><~text text="?"><~text text="partnerref"><~text text="="><~text text="rss">-events Russian: <~text text="http"><~text text="://"><~text text="event"><~text text="."><~text text="onlineseminarsolutions"><~text text="."><~text text="com"><~text text="/"><~text text="wcc"><~text text="/"><~text text="r"><~text text="/2068723-1/770"><~text text="F"><~text text="2"><~text text="E"><~text text="4289"><~text text="A"><~text text="6111967147443"><~text text="A"><~text text="49"><~text text="E"><~text text="74"><~text text="C"><~text text="6?"><~text text="partnerref"><~text text="="><~text text="rss">-events              Participant dial-in numbers: Russian Federation Toll  +7 495 646 9315 Russian Federation Toll-Free  8 800 500 9863 United Kingdom Toll   +44 207 194 3759 United Kingdom Toll-Free  0800 376 6183 United States Toll-Free  1 844 286 0643 United States Toll   +1 646 722 4916 Conference ID numbers: English call: 61550404# Russian call: 50509429# For further information please contact:  PJSC PhosAgro Andrey Serov, Head of Investor Relations Department +7 495 232 9689 ext 2187 ir@phosagro.ru Timur Belov, Press Officer +7 495 232 9689  

EM Sam VanDerlip vanderlip@em-comms.com +44 7554 993 032 +7 499 918 3134

 

Dmitriy Zhadan

zhadan@em-comms.com

+7 916 770 89 09

+7 495 363 28 49

 

About the Company

 

PhosAgro 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.

 

The Company is the largest phosphate-based fertilizer producer in Europe (by total combined capacity for DAP/MAP/NP/NPK/NPS), the largest producer of high-grade phosphate rock with a P2O5 content of 39%, a top-three producer of MAP/DAP globally, one of the leading producers of feed phosphates (MCP) in Europe, and the only producer in Russia, and Russia's only producer of nepheline concentrate (according to the RAFP).

 

PhosAgro's main products include phosphate rock, 39 grades of fertilizers, feed phosphates, ammonia, and sodium tripolyphosphate, which are used by customers in 100 countries spanning all of the world's inhabited continents. The Company's priority markets outside of Russia and the CIS are Latin America, Europe and Asia.

 

PhosAgro's shares are traded on the Moscow Exchange, and Global Depositary Receipts (GDRs) for shares trade on the London Stock Exchange (under the ticker PHOR). Since 1 June 2016, the Company's GDRs have been included in the MSCI Russia and MSCI Emerging Markets indexes.

 

More information about PhosAgro can be found on the website: www.phosagro.ru.

 

 

Six months ended 30 June

 

Three months ended 30 June

 

 

2019

 

2018

 

2019

 

2018

 

 

 

RUB million

 

RUB million

 

RUB million

 

RUB million

 

Revenues

 

130,433

 

111,248

 

58,146

 

56,626

 

Cost of sales

 

(69,450)

 

(61,914)

 

(31,714)

 

(29,844)

 

Gross profit

 

60,983

 

49,334

 

26,432

 

26,782

 

 

 

 

 

 

 

 

 

 

 

Administrative expenses

 

(8,117)

 

(6,960)

 

(4,145)

 

(3,656)

 

Selling expenses

 

(18,646)

 

(16,945)

 

(8,374)

 

(8,362)

 

Taxes, other than income tax, net

 

(867)

 

(1,805)

 

(137)

 

(918)

 

Other expenses, net

 

(2,125)

 

(1,254)

 

(1,023)

 

(562)

 

Operating profit

 

31,228

 

22,370

 

12,753

 

13,284

 

 

 

 

 

 

 

 

 

 

 

Finance income

 

1,165

 

226

 

284

 

70

 

Finance costs

 

(2,287)

 

(2,445)

 

(1,087)

 

(1,205)

 

Foreign exchange gain/(loss), net

 

10,208

 

(8,156)

 

2,588

 

(8,732)

 

Profit before tax

 

40,314

 

11,995

 

14,538

 

3,417

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(7,369)

 

(2,162)

 

(2,753)

 

(462)

 

Profit for the period

 

32,945

 

9,833

 

11,785

 

2,955

 

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

      Non-controlling interests ^

 

18

 

25

 

10

 

9

 

      Shareholders of the Parent

 

32,927

 

9,808

 

11,775

 

2,946

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss)/income

 

 

 

 

 

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

           

Foreign currency translation difference

 

(970)

 

1,438

 

(359)

 

1,096

 

Other comprehensive (loss)/income for the period

 

(970)

 

1,438

 

(359)

 

1,096

 

Total comprehensive income for the period

 

31,975

 

11,271

 

11,426

 

4,051

 

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

      Non-controlling interests ^

 

18

 

25

 

10

 

9

 

      Shareholders of the Parent

 

31,957

 

11,246

 

11,416

 

4,042

 

Basic and diluted earnings per share (in RUB)

 

254

 

76

 

91

 

23

 
                             

 

 

30 June 2019

 

31 December 2018

 

 

RUB million

 

RUB million

Assets

 

 

 

 

Property, plant and equipment

 

186,540

 

186,231

Advances issued for property, plant and equipment

 

11,285

 

6,759

Catalysts

 

2,536

 

2,574

Right-of-use assets

 

1,856

 

-

Intangible assets

 

1,658

 

1,786

Investments in associates

 

526

 

506

Deferred tax assets

 

9,007

 

8,995

Other non-current assets

 

1,595

 

1,843

Non-current assets

 

215,003

 

208,694

 

 

 

 

 

Other current investments

 

277

 

313

Inventories

 

29,189

 

31,710

Trade and other receivables

 

26,621

 

36,186

Cash and cash equivalents

 

19,848

 

9,320

Current assets

 

75,935

 

77,529

Total assets

 

290,938

 

286,223

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

372

 

372

Share premium

 

7,494

 

7,494

Retained earnings

 

101,625

 

93,951

Foreign currency translation reserve

 

7,395

 

8,365

Actuarial losses

 

(556)

 

(556)

Equity attributable to shareholders of the Parent

 

116,330

 

109,626

Equity attributable to non-controlling interests

 

177

 

195

Total equity

 

116,507

 

109,821

 

 

 

 

 

Liabilities

 

 

 

 

Loans and borrowings

 

109,040

 

122,877

Lease liabilities

 

1,288

 

376

Defined benefit obligations

 

653

 

630

Deferred tax liabilities

 

9,315

 

9,023

Non-current liabilities

 

120,296

 

132,906

 

 

 

 

 

Loans and borrowings

 

18,718

 

20,679

Lease liabilities

488

 

718

Trade and other payables

 

34,929

 

21,473

Derivative financial liabilities

 

-

 

626

Current liabilities

 

54,135

 

43,496

Total equity and liabilities

 

290,938

 

286,223

 

 

 

Six months ended 30 June

 

 

 

2019

 

2018

 

 

 

RUB million

 

RUB million

Cash flows from operating activities

 

 

 

 

 

Operating profit

 

 

31,228

 

22,370

Adjustments for:

 

 

 

 

 

Depreciation and amortisation

 

 

11,867

 

10,597

Loss on disposal of property, plant and equipment and intangible assets

 

 

748

 

281

Operating profit before changes in working capital and provisions

 

 

43,843

 

33,248

Decrease in inventories&catalysts

 

 

1,446

 

290

Decrease/(increase) in trade and other receivables

 

 

7,125

 

(1,859)

Increase/(decrease) in trade and other payables

 

 

2,726

 

(434)

Cash flows from operations before income taxes and interest paid

 

 

55,140

 

31,245

Income tax paid

 

 

(6,254)

 

(1,959)

Finance costs paid

 

 

(2,000)

 

(2,757)

Cash flows from operating activities

 

 

46,886

 

26,529

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Acquisition of property, plant and equipment and intangible assets

 

 

(17,727)

 

(16,596)

Loans (issued)/repaid, net

 

 

(16)

 

90

Proceeds from disposal of property, plant and equipment

 

 

47

 

13

Finance income received

 

 

299

 

79

Other payments

 

 

(530)

 

(418)

Cash flows used in investing activities

 

 

(17,927)

 

(16,832)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from borrowings

 

 

17,195

 

61,618

Repayment of borrowings

 

 

(19,696)

 

(67,163)

Dividends paid to shareholders of the Parent

 

 

(13,463)

 

(3,836)

Dividends paid to non-controlling interests

 

 

(36)

 

-

Leases paid

 

 

(1,249)

 

(496)

Proceeds from settlement of derivatives, net

 

 

112

 

-

Cash flows used in financing activities

 

 

(17,137)

 

(9,877)

Net increase/(decrease) in cash and cash equivalents

 

 

11,822

 

(180)

Cash and cash equivalents at 1 January

 

 

9,320

 

2,691

Effect of exchange rates fluctuations

 

 

(1,294)

 

949

Cash and cash equivalents at 30 June

 

 

19,848

 

3,460

 


ISIN: US71922G2093
Category Code: IR
TIDM: PHOR
LEI Code: 635400F8A3KGJIIBIK95
OAM Categories: 1.2. Half yearly financial reports and audit reports/limited reviews
2.2. Inside information
Sequence No.: 18282
EQS News ID: 864639
 
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