Phosagro S Regulatory News (PHOR)

OJSC PHOSAGRO - PhosAgro 6M 2016 Net Profit up 30% to RUB 36.1 bln

PR Newswire

London, August 17

PhosAgro 6M 2016 Net Profit up 30% to RUB 36.1 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 six months ended 30 June 2016.

PhosAgro’s revenue for the period increased by 9% year-on-year to RUB 102.0 billion (USD 1,452 million). EBITDA for 6M 2016 was nearly unchanged year-on-year at RUB 41.6 billion (USD 591 million).

6M 2016 financial and operational highlights:

RUB/USD rates: average 6M 2016: 70.2583; average 6M 2015: 57.3968

as of 30 June 2016: 64.2575; as of 31 December 2015: 72.8827

*EBITDA is calculated as operating profit adjusted for depreciation and amortisation.

Highlights

Dividend recommendation:

Production, sales and logistics flexibility:

Strategic developments:

Operating profit for the period was RUB 36.5 billion (USD 520 million), down 2% from RUB 37.1 billion (USD 647 million) in 6M 2015. PhosAgro’s EBITDA was RUB 41.6 billion (USD 591 million) in 6M 2016, nearly unchanged from the previous year’s result of RUB 41.5 billion (USD 723 million). The EBITDA margin decreased to 41% for 6M 2016, compared to 45% in 6M 2015.

Net profit for 6M 2016 increased by 30%, to RUB 36.1 billion (USD 514 million), compared to RUB 27.7 billion (USD 482 million) in 6M 2015. Basic and diluted earnings per share increased by 30% to RUB 279 (USD 4) for 6M 2016 from RUB 214 (USD 4) in 6M 2015.

The higher average USD exchange rate during 6M 2016 in comparison with 6M 2015 (average USD foreign exchange rates for 6M 2016 and 6M 2015 were RUB 70.26 and RUB 57.40, respectively) had a net positive impact on PhosAgro’s results in the reporting period, as prices for most of the Company’s products are denominated in USD, while costs are primarily RUB-based. Appreciation of the rouble as of 30 June 2016 (RUB 64.26 per USD) compared to 31 December 2015 (RUB 72.88 per USD) resulted in a foreign exchange gain of RUB 11,279 million (USD 161 million) in 6M 2016; in 6M 2015 the foreign exchange gain was RUB 11 million (USD 0.19 million).

Cash flow from operating activities decreased by 10% year-on-year in 6M 2016, to RUB 29.5 billion (USD 420 million), compared to RUB 32.7 billion (USD 569 million) in 6M 2015, due to increase of income tax payments.

Gross debt at 30 June 2016 decreased to RUB 123.4 billion (USD 1,920 million), compared to RUB 134.5 billion (USD 1,846 million) at 31 December 2015. Net debt at 30 June 2016 stood at RUB 97.2 billion (USD 1,512 million), down from 105.2 billion (USD 1,443 million) at 31 December 2015, as a result of rouble appreciation vs USD as of 30 June 2016. Most of the Company’s debt is denominated in US dollars as a natural hedge against primarily USD-denominated sales. The Company’s net debt to EBITDA ratio decreased to 1.18 as of 30 June 2016, from 1.28 as of 31 December 2015.

Commenting on the 6M 2016 results, PhosAgro CEO Andrey Guryev said:

“Fertilizer markets are going through challenging times across all nutrient groups. Prices for concentrated fertilizers have reached the lowest point in several years, similar to 2009 levels, and we see declining margins across the industry. Despite this trend, I am extremely pleased to report excellent financial results in such a challenging environment, with our H1 2016 EBITDA margin of 41% and net profit margin of more than 35%. This clearly shows that our strategy of integrated flexible low-cost production is paying off, particularly in what is a difficult time for the industry, and we will stick to this strategy.

“Fertilizer price movements in early 2016 were mostly driven by global uncertainty related to overall pressure on oil and other commodity prices. Although we saw some recovery in soft commodities in May-June, further recent pressure was actually due to a positive underlying factor – specifically the very favourable growing conditions in many regions globally and, as such, very strong harvest expectations. This bodes well for next season’s nutrient demand as soil is depleted and very low nutrient prices provide more incentive for farmers to replenish the soil.

“Overall on the demand side most factors remain supportive.

“As to the supply side, the current picture is very different to what we have seen in the last couple of years for both of our major nutrients – phosphate and nitrogen. In essence, we are seeing oversupply in the market, specifically in terms of capacity. In terms of production, it is a bit more complicated, as we do not have a clear picture on Chinese production of both DAP/MAP and urea, and taken as a whole China as a region is the largest producer. However, we see a significant reduction in exports from the country of both nutrients, which supports the view that most local production is high-cost.

“At the same time, other players on the phosphate spot market are increasing utilisation rates, notwithstanding a significant deterioration of margins. We see the most notable increase in sales volumes from Morocco, which was expected given their substantial development programme. I would say that this was the major reason why we saw a further decline of DAP prices in the second quarter, which are now at just USD 340 per tonne, FOB Tampa.

“As to PhosAgro, I would specifically point out that in addition to our well-known competitive advantages in terms of low-cost flexible production and production of some of the best-quality fertilizers in terms of impurities, we now have one more significant advantage over our international peers – this is our growing domestic market, which has one of the highest potentials of any market for future growth. Our domestic sales have grown almost 50% on phosphate-based products and over 30% on nitrogen. I see more potential as well on the back of the Russian Government’s import substitution programme and ongoing support to local farmers.

“We have continued focusing on other priority markets as well. Phosphate-based fertilizer sales to Europe, the CIS and Latin America represented almost 74% of our export sales and we will continue our marketing efforts in these strategically important regions.

“In terms of product mix, most of our volume growth was from complex fertilizers, particularly NPS, as opposed to DAP/MAP. This is fully in line with the trend that we see globally: farmers are ready to pay higher prices per nutrient in complex fertilizers, which represent a better solution for various types of soils. Our production flexibility allows us to meet this changing demand: we offer 30 different grades of phosphate-based fertilizers and can expand our portfolio further in response to demand from farmers. This is one of the benefits of our exceptionally pure phosphate rock and our flexible production lines, which obviously contributes to our margins.

“We generated very solid free cash flow in the challenging environment that prevailed during the first half of 2016, and we continue to give back to our shareholders. The Board of Directors has suggested a dividend of 33 per share.

“Looking ahead to the rest of the year, I believe the market is in the process of bottoming out. We might see production curtailments, especially in phosphates, relatively soon and in turn that should drive prices higher. I am comfortable with respect to our ability to generate cash even in the current pricing environment, which is why we continue to finalize all of our investment projects. I look forward to 2017, when we will start production at our new plants, which will not only bring additional volumes but more efficient and lower-cost production and, as such, even better returns to our shareholders.”

6M 2016 market conditions:

Main feedstock price dynamics:

Phosphate-Based Products Segment

Phosphate-based products segment revenue grew by 11% year-on-year and totalled RUB 90,529 million (USD 1,289 million) in 6M 2016. PhosAgro increased production and sales volumes of phosphate-based fertilizers and MCP by 8% and 7%, respectively, year-on-year in 6M 2016. Sales volumes for phosphate rock and nepheline concentrate in 6M 2016 increased by 19% year-on-year.

The growth in fertilizer sales volumes was primarily due to the Company’s flexible production and sales models, which enabled it to increase substantially sales of MAP and NPK to the domestic market, NPS to the export market and phosphate rock to both markets.

The phosphate-based products segment’s gross profit for 6M 2016 increased by 8% year-on-year to RUB 50,546 million (USD 719 million), resulting in a gross profit margin of 56%, compared to a 57% margin in 6M 2015.

Nitrogen Segment

Nitrogen segment revenue changed insignificantly from RUB 11,164 million (USD 195 million) in 6M 2015 to RUB 11,207 million (USD 160 million) in 6M 2016. PhosAgro increased production and sales volumes of nitrogen-based fertilizers by 10% year-on-year in 6M 2016.

Export revenue from urea was slightly down, from RUB 7,342 million (USD 128 million) in 6M 2015 to RUB 7,316 million (USD 104 million) in 6M 2016. An increase in sales volumes by 13% year-on-year was balanced by a decrease in revenue per tonne of 12% year-on-year. Total revenue from ammonium nitrate (AN) decreased by 3% year-on-year, from RUB 3,548 million (USD 62 million) in 6M 2015, to RUB 3,433 million (USD 49 million) in 6M 2016, due to a 2% year-on-year decrease in sales volumes and a 2% year-on-year decrease in revenue per tonne.

Nitrogen segment gross profit for 6M 2016 was almost unchanged: RUB 5,576 million (USD 79 million) in 6M 2016 vs RUB 5,598 (USD 98 million) in 6M 2015. The gross margin for 6M 2016 was the same as in 6M 2015, at 50%. The 10% year-on-year increase in sales volumes was balanced by the 9% year-on-year decrease in average revenue per tonne denominated in roubles.

Cost of Sales

PhosAgro’s cost of sales increased by 12% year-on-year in 6M 2016, to RUB 45,895 million (USD 653 million), while overall fertilizers sales volumes increased by 8% year-on-year. This cost of sales performance was primarily due to the following factors:

Administrative expenses rose by 27% year-on-year to RUB 6,600 million (USD 94 million) in 6M 2016, primarily due to an increase in personnel costs of RUB 1,240 million (USD 18 million), or 44%, year-on-year. The increase was mainly due to the indexation of salaries, PhosAgro 15 year anniversary bonuses and reallocation of operational management to Cherepovets.

Selling expenses rose by 16% year-on-year, from RUB 9,156 million (USD 160 million) in 6M 2015 to RUB 10,620 million (USD 151 million) in 6M 2016. This was primarily due to the following changes:

After the commissioning of Smart Bulk Terminal in June 2015, the Company transferred its shipping activity from Baltic ports to Ust-Luga. This helped the Company to achieve sustainable savings in freight, port and stevedoring expenses, which decreased by 7%, from RUB 4,825 million (USD 84 million) in 6M 2015 to RUB 4,499 million (USD 64) in 6M 2016.

PhosAgro’s foreign exchange gain in 6M 2016 was RUB 11,279 million (USD 161 million), versus a foreign exchange gain of RUB 11 million (USD 0.19 million) in 6M 2015. This was primarily the result of the devaluation of USD-denominated debt due to the rouble’s 12% appreciation against the US dollar during 6M 2016 (from RUB 72.8827 at 31/12/2015 to RUB 64.2575 at 30/06/2016), in comparison with a 1% rouble depreciation against the US dollar during 6M 2015 (from RUB 56.2584 as of 31/12/2014 to RUB 55.5240 as of 30/06/2015).

Cash spent on capex in 6M 2016 amounted to RUB 18,302 million (USD 260 million), an increase of 20% in comparison with RUB 15,214 million (USD 265 million) in 6M 2015. PhosAgro’s capital expenditure, which consists of additions to property, plant and equipment, amounted to RUB 19,724 million (USD 281 million) for 6M 2016, compared to RUB 13,805 million (USD 241 million) in 6M 2015. Capital expenditure focused on construction of the new 760 ths tonnes/year ammonia plant and the new 500 ths tonnes/year urea plant at PhosAgro-Cherepovets.

Outlook

Market outlook

Company:

Conference call and webcast

Today PhosAgro will hold a conference call and webcast to present its 6M 2016 results at 15:00 London time (17:00 Moscow; 10:00 New York).The call will be held in English, with simultaneous translation into Russian on a separate line.Webcast links:English: http://event.onlineseminarsolutions.com/r.htm?e=1210107&s=1&k=F8916405379063DF41FF07DF926461B8 Russian: http://event.onlineseminarsolutions.com/r.htm?e=1210108&s=1&k=96ED83139F06272B1CB38C1E7E7C3CFBParticipant dial-in numbers:Russia:+7 495 221 6523UK:+44 203 043 244008082381774USA:1 877 887 4163Conference ID numbers:English call: 84966010#Russian call: 92412161#For further information please contact:PJSC PhosAgroIrina Evstigneeva, Head of Corporate Finance and Investor Relationsir@phosagro.ru+7 495 231 3115Timur Belov, Press OfficerAnastacia Basos, Deputy Press Secretary+7 495 232 9689EMSam VanDerlipvanderlip@em-comms.com+44 7554 993 032+7 499 918 3134Tom BlackwellBlackwell@em-comms.com+7 919 102 9064 

Notes to Editors

PhosAgro is one of the leading global vertically integrated phosphate-based fertilizer producers. The Company focuses on the production of phosphate-based fertilizers, feed phosphate and high-grade phosphate rock (P2O5 content of not less than 39%).

The Company is the largest phosphate-based fertilizer producer in Europe, the largest producer of high-grade phosphate rock worldwide and the third largest MAP/DAP producer in the world (excluding China), according to Fertecon. PhosAgro is also one of the leading producers of feed phosphates (MCP) in Europe, and the only producer in Russia. It is Russia’s only producer of nepheline concentrate.

PhosAgro’s main products include phosphate rock, 33 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.

^ non-controlling interests are the minority shareholders of the subsidiaries of PJSC “PhosAgro”