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OJSC PHOSAGRO - PhosAgro 9M 2016 Net Profit up 54% to RUB 48.5 bln

PR Newswire

London, November 17

PhosAgro 9M 2016 Net Profit up 54% to RUB 48.5 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 reviewed interim consolidated IFRS financial results for the nine months ended 30 September 2016.

PhosAgro’s revenue for the period grew by 4% year-on-year to RUB 147.6 billion (USD 2,159 million). EBITDA for 9M 2016 was RUB 58.9 billion (USD 862 million), with an EBITDA margin of 40%.

9M 2016 financial and operational highlights:

RUB/USD rates: average 9M 2016: 68.3667; average 9M 2015: 59.2777

as of 30 September 2016: 63.1581; as of 31 December 2015: 72.8827

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

Dividend recommendation:

Highlights

Production and sales:

Strategic developments:

EBITDA for 9M 2016 decreased by 6% year-on-year to RUB 58.9 billion (USD 862 million) from RUB 62.8 billion (USD 1,060 million) in 9M 2015. The EBITDA margin for the period declined 4 p.p. to 40%, compared to 44% a year earlier. PhosAgro’s operating profit in the reporting period was RUB 51.3 billion (USD 750 million), a 9% decrease from RUB 56.2 billion (USD 948 million) in 9M 2015.

Net profit for 9M 2016 grew 54% year-on-year to RUB 48.5 billion (USD 710 million), compared to RUB 31.6 billion (USD 532 million) in 9M 2015. Basic and diluted earnings per share increased by 54% to RUB 375 (USD 5) for 9M 2016 from RUB 244 (USD 4) in 9M 2015.

The higher average USD exchange rate during 9M 2016 in comparison with 9M 2015 (average USD foreign exchange rates for 9M 2016 and 9M 2015 were RUB 68.37 and RUB 59.28, 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 September 2016 (RUB 63.16 per USD) compared to 31 December 2015 (RUB 72.88 per USD) resulted in a foreign exchange gain of RUB 13,022 million (USD 190 million) in 9M 2016; in 9M 2015 the foreign exchange loss was RUB 12,533 million (USD 211 million).

Cash flow from operating activities decreased by 3% year-on-year in 9M 2016, to RUB 49.5 billion (USD 724 million), compared to RUB 50.9 billion (USD 858 million) in 9M 2015, due to lower operating cash flow and higher income tax payments, which was partially offset by more favourable dynamics in working capital.

Gross debt at 30 September 2016 decreased to RUB 118.3 billion (USD 1,873 million), compared to RUB 134.5 billion (USD 1,846 million) at 31 December 2015. Net debt at 30 September 2016 stood at RUB 95.1 billion (USD 1,506 million), down from RUB 105.2 billion (USD 1,443 million) at 31 December 2015, as a result of rouble appreciation vs USD as of 30 September 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 1.21 as of 30 September 2016, from 1.28 as of 31 December 2015.

Commenting on the 9M 2016 results, PhosAgro CEO Andrey Guryev said:

“I am delighted to report a 9M 2016 EBITDA margin of 40%, coupled with strong earnings per share, in what is a very challenging year for the global fertilizer market across all nutrient groups. Prices for all concentrated fertilizers have bottomed out at levels seen in 2009, during the financial crisis, while in urea specifically we saw prices going as low as 2005 levels. Even in these conditions, the Company generated over RUB 20 billion of free cash flow in a peak period of our capital expenditure programme, enabling the Board of Directors to recommend another dividend of RUB 39 per share (RUB 13 per GDR). This would bring total dividend payouts for this year to RUB 135 per share (RUB 45 per GDR). On an annualised basis, this indicates a 7% dividend yield. We continue to deliver successfully a mix of organic production growth and cost optimisation, providing high returns to shareholders. I think that this makes PhosAgro a rather unique case in our industry at the moment.

“Our excellent financial results were supported by strong operating achievements, with 8% year-on-year production growth on the back of continuing modernisation and debottlenecking projects that cost significantly less than new brownfield or greenfield projects. In terms of product mix, most of our volume growth is coming from complex fertilizers, which is in line with global trends; an increasing share of farmers favour complex fertilizers, which provide a better solution for many crops and a variety of types of soil.

“In terms of the market environment, we saw another year of record yields across most agricultural markets, which has kept grain prices under pressure. In addition to favourable weather conditions in most agricultural regions, such yields were due to solid fertilizer consumption. India looks stable year-on-year, although P2O5 fertilizer imports has been partially offset by increased local production, as we see higher phosphoric acid imports. In Latin America (the #1 global soybean producer), we saw a significant increase in imports of phosphate-based fertilizers: for 9M 2016 Brazil and Argentina were up by 15% and 70% year-on-year, respectively. Brazil is an especially interesting case, with the import of complex NPK fertilizers up by over 80% year-on-year.

“Looking at our domestic market, supplies of phosphate-based fertilizer grew by an impressive 28% in January-September 2016, while overall nutrient demand is up by nearly 20% compared to 9M 2015. We are extremely pleased that our home market holds one of the best opportunities globally in terms of the potential of the agricultural sector, as Russian agricultural enterprises become more competitive thanks to the depreciation of the ruble and state support for the sector. Our sales to local farmers grew by 34% year-on-year in 9M 2016, while our share of the overall Russian fertilizer market is nearing 30%, with the second-largest supplier among Russian fertilizer producers lagging far behind.

“Alongside positive dynamics on the demand side, we saw dramatic changes on the supply side. Ambitious, large-scale development projects in the sector combined with a gradual shift in the behaviour of several large market players has put pressure on global prices. Additional production volumes were supported by continued declines in feedstock prices as ammonia and sulphur hit lows not seen in many years. However, the average cash cost in the industry, for both the phosphate and nitrogen nutrients we produce, is well above current prices. This suggests that the current low price environment should lead to a rationalisation in the industry, and gradual closure of non-efficient or less integrated and non-subsidised market players. In fact, we are already seeing signs of such rationalisation, with Chinese phosphate fertilizer exports in 9M 2016 down by 30% year-on-year, which was replaced by volumes from new production capacities of the major industry players. Last week, for the first time ever, we saw an unprecedented release from Chinese phosphate fertilizer producers announcing further substantial cuts in production, by 30% for the biggest producers, 20% by companies with 1 to 2 million tonnes of annual capacity, and 10% by smaller phosphate producers already operating at very low utilisation rates, around 60%.

“We are currently in low season, but looking at future price developments I think we are unlikely to see any further downside. In addition to significantly reduced utilisation rates in China, we already see feedstock prices going up, specifically ammonia, where prices recently fell below the cash costs of most producers that sell ammonia, and we saw a significant increase in Chinese production cash costs due to increased coal prices and as a result the curtailment of capacity in China. We are also witnessing the first signs of improvement in the urea market, which normally reacts faster than the DAP market .

“Looking to 2017, I am very hopeful that we will be closer to normal seasonal price dynamics, as we are approaching the new season from a lower base, which is very supportive for global demand. I would be cautious about predicting any significant upside, however, as further capacity additions are scheduled for next year, although at the moment it appears this will be less than current curtailments in China. At PhosAgro, we will focus on completing our main investment projects on schedule. The new ammonia and urea units will not only add additional volumes, but will help to significantly reduce our cash costs even further, though we are already at one of the lowest levels in the industry on this measure. This contribution, in addition to reduced capital expenditure, should further improve our free cash flow, which I would expect to be reflected in returns to shareholders.”

9M 2016 market conditions:

Main feedstock prices:

Phosphate-Based Products Segment

Phosphate-based products segment revenue grew by 5% year-on-year and totalled RUB 132,583 million (USD 1,939 million) in 9? 2016. PhosAgro increased production and sales volumes of phosphate-based fertilizers and MCP by 9% and 8%, respectively, year-on-year in 9? 2016. Sales volumes for phosphate rock and nepheline concentrate in 9M 2016 increased by 26% 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 DAP, NPK and phosphate rock to both domestic and export markets.

The phosphate-based products segment’s gross profit for 9M 2016 rose by 1% to RUB 72,400 million (USD 1,059 million), resulting in a gross profit margin of 55%, compared to a 57% margin in 9M 2015.

Nitrogen Segment

Nitrogen segment revenue decreased from RUB 15,953 million (USD 269 million) in 9M 2015 to RUB 14,537 million (USD 213 million) in 9M 2016. PhosAgro increased production and sales volumes of nitrogen-based fertilizers by 5% year-on-year in 9? 2016.

Export revenue from urea was down, from RUB 11,222 million (USD 189 million) in 9M 2015 to RUB 9,891 million (USD 145 million) in 9M 2016. An increase in sales volumes by 12% year-on-year was balanced by a decrease in revenue per tonne of 18% year-on-year. Total revenue from ammonium nitrate (AN) decreased by 9% year-on-year, from RUB 4,353 million (USD 73 million) in 9M 2015, to RUB 3,942 million (USD 58 million) in 9M 2016, due to a 8% year-on-year decrease in sales volumes and a 2% year-on-year decrease in revenue per tonne.

Nitrogen segment gross profit for 9M 2016 decreased by 10% year-on-year to RUB 6,635 million (USD 97 million). The gross profit margin for 9M 2016 was the same as in 9M 2015, at 46%. This was due to a 13% decrease in average revenue per tonne for the Company’s nitrogen-based fertilizers, which was partially offset by a 5% year-on-year increase in sales volumes.

Cost of Sales

PhosAgro’s cost of sales increased by 8% year-on-year in 9M 2016, to RUB 68,524 million (USD 1,002 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 13% year-on-year to RUB 9,403 million (USD 138 million) in 9M 2016, primarily due to an increase in personnel costs of RUB 668 million (USD 10 million), or 14%, year-on-year. The increase was mainly due to the indexation of salaries, PhosAgro 15th-anniversary bonuses, and the relocation of a significant proportion of operational management to Cherepovets.

Selling expenses rose by 19% year-on-year, from RUB 12,787 million (USD 216 million) in 9M 2015 to RUB 15,158 million (USD 222 million) in 9M 2016. This was primarily due to the following changes:

PhosAgro’s foreign exchange gain in 9M 2016 was RUB 13,022 million (USD 190 million), versus a foreign exchange loss of RUB 12,533 million (USD 211 million) in 9M 2015. This was primarily the result of the devaluation of USD-denominated debt due to the rouble’s 13% appreciation against the US dollar during 9M 2016 (from RUB 72.8827 at 31/12/2015 to RUB 63.1581 at 30/09/2016), in comparison with 18% rouble depreciation against the US dollar during 9M 2015 (from RUB 56.2584 as of 31/12/2014 to RUB 66.2367 as of 30/09/2015).

Cash spent on capital expenditure in 9M 2016 amounted to RUB 29,536 million (USD 432 million), a decrease of 3% in comparison with RUB 30,580 million (USD 516 million) in 9M 2015. PhosAgro’s capital expenditure, which consists of additions to property, plant and equipment, amounted to RUB 31,279 million (USD 458 million) for 9M 2016, compared to RUB 28,703 million (USD 484 million) in 9M 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 9M 2016 results at 13:30 London time (16:30 Moscow; 8:30 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=1287408&s=1&k=03F76191540108BC45720DD697A5039CRussian: http://event.onlineseminarsolutions.com/r.htm?e=1287443&s=1&k=6E9F628989C3FCFAA7FB4FE410E2463FParticipant dial-in numbers:Russia:+7 495 221 65238 10 8002 0414011UK:+44 203 043 244008082381774USA:1 877 887 4163Conference ID numbers:English call: 99669701#Russian call: 59954788#For further information please contact:PJSC PhosAgroIrina Evstigneeva, Head of Corporate Finance and Investor Relationsir@phosagro.ru+7 495 231 3115 

Alexander Seleznev, Head of Investor Relations Department+7 495 232 9689 ext 2187

Timur 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.