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 nine months ended 30 September 2014. PhosAgro earned an EBITDA for the period of RUB 25.8 billion (USD 728 million), compared to RUB 20.8 billion (USD 657 million) in 9M 2013.
9M 2014 Financial and Operational Highlights:
Result |
9M 2014 |
9M 2013 |
year-on-year change |
||
---|---|---|---|---|---|
RUB |
USD |
RUB |
USD |
||
million |
million |
||||
Revenue |
86,758 |
2,452 |
81,276 |
2,571 |
7% |
EBITDA* |
25,750 |
728 |
20,758 |
657 |
24% |
EBITDA margin |
30% |
26% |
4 p.p. |
||
Net profit |
6,273 |
177 |
9,094 |
288 |
(31%) |
Earnings per share |
46 |
1.30 |
64 |
2.02 |
(28%) |
Sales volumes |
Kmt |
Kmt |
% | ||
Phosphate-based products |
3,614.1 |
3,568.3 |
1% |
||
Nitrogen-based fertilizers |
1,080.1 |
930.6 |
16% |
||
Apatit mine and beneficiation plant |
2,556.9 |
3,034.0 |
(16%) |
||
Other products |
173.7 |
143.8 |
21% |
RUB/USD rates: average 9M 2014: 35.3878; average 9M 2013: 31.6170
As of 30 September 2014: 39.3866; as of 31 December 2013: 32.7292
*EBITDA is calculated as operating profit adjusted for depreciation and amortisation.
Other 9M 2014 Highlights
Interim dividend recommendation:
· At its meeting on 18 November 2014, PhosAgro’s Board of Directors recommended that shareholders approve an interim dividend of RUB 2,590 million for the first nine months of 2014, which represents RUB 20 per share (RUB 6.7 per global depositary receipt). The Board has called an EGM to vote on the dividend recommendation for 31 December 2014.
Production, sales and logistics flexibility:
Strategic developments:
Consolidation of ownership in production facilities and business development:
Revenue for the period increased by 7% year-on-year to RUB 86.8 billion (USD 2,452 million), compared to RUB 81.3 billion (USD 2,571 million) for 9M 2013. Favourable market conditions led to higher prices year-on-year for most PhosAgro products. Cost savings in cost of sales (a more detailed discussion is provided in the analysis below) also contributed to PhosAgro’s strong operating profit result for 9M 2014: operating profit for the period was RUB 19.7 billion (USD 558 million), up 32% from RUB 15.0 billion (USD 474 million) in 9M 2013. EBITDA was RUB 25.8 billion (USD 728 million) in 9M 2014, 24% higher year-on-year. EBITDA margin increased to 30% for 9M 2014 compared to 26% in 9M 2013.
Significant RUB depreciation resulted in a foreign exchange loss of RUB 9,471 million (USD 268 million), which impacted PhosAgro’s bottom line in 9M 2014. The Company’s 9M 2014 net profit was RUB 6.3 billion (USD 177 million), a decrease of 31% year-on-year from RUB 9.1 billion (USD 288 million) in 9M 2013. Basic and diluted earnings per share came to RUB 46 (USD 1.30) for 9M 2014, compared to RUB 64 (USD 2.02) in 9M 2013.
Cash flows from operating activities increased by 35% and amounted to RUB 21.5 billion (USD 606 million) in 9M 2014, compared to RUB 15.9 billion (USD 502 million) in 9M 2013.
Gross debt at 30 September 2014 amounted to RUB 73.3 billion (USD 1,861 million), compared to RUB 52.8 billion (USD 1,612 million) at 31 December 2013. Net debt at 30 September 2014 stood at RUB 52.7 billion (USD 1,339 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 1.5 as of 30 September 2014, from 1.8 as of 31 December 2013.
Commenting on the 9M 2014 results, PhosAgro Management Board Chairman and CEO Andrey Guryev said:
“The favourable market conditions, supported by supply-demand fundamentals and a strong pricing environment, have improved PhosAgro’s margins back to what we consider to be normal levels, with gross profit margin close to 42% and a solid EBITDA margin of 30%. Healthy global demand for phosphate-based fertilizers has pushed DAP prices to USD 500 per tonne FOB Tampa and higher in 3Q 2014. The average DAP FOB Tampa price for the first nine months of 2014 was up 2% year-on-year to USD 475, compared to an average of USD 466 last year. While current DAP prices have softened to around USD 455 FOB Tampa as a result of the seasonal slowdown, they are still about USD 100 per tonne higher than they were at this time last year.
“Our cost-cutting initiatives also contributed to PhosAgro’s improved financial results, and the recent substantial RUB devaluation has further strengthened our cost advantage. We also continued to operate at close to 100% utilization thanks to our excellent production flexibility.
“In addition to delivering strong financial results, I am pleased to report that we have completed the buyout of the remaining minority shareholders in PhosAgro-Cherepovets, with only minor technical procedures outstanding. This means we have successfully completed our three-year effort to consolidate 100% ownership in all of our main production subsidiaries.”
9M 2014 Market Conditions
Phosphate-Based Products Segment
Result |
9M 2014 RUB mln |
9M 2013 RUB mln |
year-on-year change, % |
---|---|---|---|
Revenue |
74,233 |
70,926 |
5% |
Cost of goods sold |
(44,222) |
(46,312) |
(5%) |
Gross profit |
30,011 |
24,614 |
22% |
Phosphate-based products segment revenue increased by 5% year-on-year and totalled RUB 74,233 million (USD 2,098 million) in 9M 2014. PhosAgro increased production of phosphate-based fertilizers and MCP by 3.8% year-on-year in 9M 2014, while sales volumes increased by 1.1% year-on-year. Production and sales volumes for phosphate rock and nepheline concentrate decreased in 9M 2014 compared to 9M 2013 by 3.2% and 15.7%, 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 9M 2014 increased by 22% year-on-year to RUB 30,011 million (USD 848 million), resulting in a gross profit margin of 40%, compared to a 35% margin in 9M 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 |
9M 2014 RUB |
9M 2013 RUB |
year-on-year change, % |
---|---|---|---|
Domestic: |
|||
MAP |
16,854 |
15,589 |
8.1% |
DAP |
15,712 |
15,068 |
4.3% |
NPK |
13,671 |
14,149 |
(3.4%) |
NPS |
10,605 |
11,438 |
(7.3%) |
MCP |
20,562 |
19,952 |
3.1% |
PKS |
10,581 |
- |
- |
SOP |
24,274 |
19,890 |
22.0% |
STPP |
30,937 |
30,209 |
2.4% |
Export: |
|||
MAP |
16,904 |
15,329 |
10.3% |
DAP |
16,558 |
15,040 |
10.1% |
NPK |
12,789 |
12,363 |
3.4% |
NPS |
10,948 |
10,487 |
4.4% |
MCP |
19,709 |
17,520 |
12.5% |
PKS |
11,234 |
- |
- |
SOP |
25,382 |
16,727 |
51.7% |
STPP |
34,222 |
29,193 |
17.2% |
Nitrogen Segment
Result |
9M 2014 RUB mln |
9M 2013 RUB mln |
year-on-year change, % |
---|---|---|---|
Revenue |
12,018 |
9,802 |
23% |
Inter-segment transfers |
8 |
95 |
(92%) |
Cost of goods sold |
(7,297) |
(7,171) |
2% |
Gross profit |
4,729 |
2,726 |
73% |
Nitrogen segment revenue increased by 23% year-on-year to RUB 12,018 million (USD 340 million) in 9M 2014 from RUB 9,802 million (USD 310 million) in 9M 2013. Production and sales volumes of nitrogen-based fertilizers increased by 12% and 16% year-on-year, respectively, in 9M 2014.
Export revenue from urea increased by 24% year-on-year from RUB 6,681 million (USD 211 million) in 9M 2013 to RUB 8,271 million (USD 234 million) in 9M 2014, in line with the 22% increase in sales volumes. Ammonium nitrate (AN) sales volumes decreased by 5% year-on-year, which, combined with a 2% decrease in revenue per tonne, was the major factor behind the 7% decline in revenue from AN sales from RUB 1,941 million (USD 61 million) in 9M 2013 to RUB 1,799 million (USD 51 million) in 9M 2014.
Nitrogen segment gross profit during 9M 2014 increased by 73% year-on-year to RUB 4,729 million (USD 134 million), as a result of the significant revenue growth and minimal cost inflation, resulting in a gross profit margin of 39%, compared to 28% in 9M 2013.
Revenue per tonne for the principal nitrogen-based fertilizers
Product |
9M 2014 RUB |
9M 2013 RUB |
year-on-year change, % |
---|---|---|---|
Domestic: |
|||
Ammonium nitrate |
9,607 |
9,852 |
(2.5%) |
Urea |
11,083 |
12,959 |
(14.5%) |
Export: |
|||
Ammonium nitrate |
- |
9,591 |
- |
Urea |
11,014 |
10,868 |
1.3% |
NP |
10,664 |
9,121 |
16.9% |
Cost of Sales
Item |
9M 2014 |
9M 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 |
16,986 |
480 |
34% |
15,190 |
481 |
29% |
1,796 |
12% |
Salaries and social contributions |
7,264 |
205 |
14% |
9,271 |
293 |
18% |
(2,007) |
(22%) |
Natural gas |
5,545 |
157 |
11% |
4,353 |
138 |
8% |
1,192 |
27% |
Depreciation |
5,482 |
155 |
11% |
5,322 |
168 |
10% |
160 |
3% |
Potash |
3,036 |
86 |
6% |
3,416 |
108 |
7% |
(380) |
(11%) |
Sulphur and sulphuric acid |
3,035 |
86 |
6% |
2,812 |
89 |
6% |
223 |
8% |
Electricity |
2,674 |
76 |
5% |
2,574 |
81 |
5% |
100 |
4% |
Ammonia |
2,209 |
62 |
4% |
3,687 |
117 |
7% |
(1,478) |
(40%) |
Fuel |
2,126 |
60 |
4% |
3,284 |
104 |
6% |
(1,158) |
(35%) |
Heating energy |
919 |
26 |
2% |
292 |
9 |
1% |
627 |
215% |
Ammonium sulphate |
491 |
14 |
1% |
892 |
28 |
2% |
(401) |
(45%) |
Other items |
14 |
- |
- |
47 |
2 |
- |
(33) |
(70%) |
Change in stock of WIP and finished goods |
870 |
24 |
2% |
608 |
19 |
1% |
262 |
43% |
Total |
50,651 |
1,431 |
100% |
51,748 |
1,637 |
100% |
(1,097) |
(2%) |
PhosAgro’s cost of sales decreased by 2% year-on-year in 9M 2014, to RUB 50,651 million (USD 1,431 million), while overall fertilizers sales volumes increased by 4%. Such changes in cost of sales were primarily due to the following factors:
· An increase of RUB 1,796 million (USD 51 million), or 12%, year-on-year in the cost of materials and services due to price inflation of 6% (PPI 9M 2014 vs 9M 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 1,478 million (USD 42 million), or 40%, from RUB 3,687 million (USD 117 million) in 9M 2013 to RUB 2,209 million (USD 62 million) in 9M 2014. This was due to year-on-year declines in purchase volumes by 30% and prices by 15%. 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 142 ths tonnes, or by 19% in 9M 2014.
· A year-on-year increase in expenditure on natural gas of RUB 1,192 million (USD 34 million), or 27%, to RUB 5,545 million (USD 157 million) in 9M 2014. Natural gas is required primarily for the production of ammonia. The price per cubic metre of natural gas rose by 12%, while natural gas consumption increased by 14% year-on-year. The price increase was due to a 15% tariff increase in the second half of 2013. The 14% growth in volumes of gas purchased was due to an 18% 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 1,158 million (USD 33 million), or 35%, from RUB 3,284 million (USD 104 million) in 9M 2013 to RUB 2,126 million (USD 60 million) in 9M 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.
· The decline in production of NPS/NPK grades with a high nitrogen content led to a decrease in purchases of ammonium sulphate by RUB 401 million (USD 11 million), or 45%, year-on-year.
· Heating energy expenses increased by RUB 627 million (USD 18 million) year-on-year, from RUB 292 million (USD 9 million) in 9M 2013 to RUB 919 million (USD 26 million) in 9M 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.
· An increase in expenditure on sulphur and sulphuric acid by RUB 223 million (USD 6 million), or 8%, year-on-year from RUB 2,812 million (USD 89 million) in 9M 2013 to RUB 3,035 million (USD 86 million) in 9M 2014. This was driven by a 6% increase in volumes consumed due to higher production of phosphate-based fertilizers and feed phosphates, and by a 2% increase in purchase prices.
Administrative expenses rose by 5% year-on-year to RUB 6,039 million (USD 171 million) in 9M 2014, primarily due to an increase in payroll expenses as result of the implementation of the new management KPI incentive system that links overall Company performance with semi-annual bonus payments (previously annual bonus payments were made once a year), and expenses for professional services.
Selling expenses rose by 30% year-on-year, from RUB 5,964 million (USD 189 million) in 9M 2013 to RUB 7,767 million (USD 219 million) in 9M 2014. This was primarily due to the following changes from 9M 2013 to 9M 2014:
PhosAgro’s foreign exchange loss increased by 276% year-on-year, from RUB 2,517 million (USD 80 million) in 9M 2013 to RUB 9,471 million (USD 268 million) in 9M 2014 as a result of significant RUB depreciation during 9M 2014 by 20% (from RUB 32.7292 at 31/12/2013 to RUB 39.3866 at 30/09/2014), compared to just 6% during 9M 2013 (from RUB 30.3727 at 31/12/2012 to RUB 32.3451 at 30/09/2013). Over RUB 9 billion of that loss represents an unrealized exchange loss on outstanding long-term USD denominated debt.
Cash spent on capex in 9M 2014 amounted to RUB 11,981 million (USD 339 million), decreasing by 8% in comparison with RUB 13,086 million (USD 414 million) spent in 9M 2013. PhosAgro’s capital expenditure, which consists of additions to property, plant and equipment, amounted to RUB 12,132 million (USD 343 million) for 9M 2014, compared to RUB 12,150 million (USD 384 million) in 9M 2013. Capital expenditure focused on construction of the main ore shaft № 2 at the Kirovsky underground mine, the new 760 ths tonnes/year ammonia plant at PhosAgro-Cherepovets as well as the construction of new storage facilities for liquid ammonia at Balakovo.
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.
· Dramatic RUB depreciation from the middle of September 2014 has led to a further significant decrease in the Company’s production cash costs, although going into 2015 it may result in higher RUB costs inflation.
Conference call and webcast
On 20 November 2014, PhosAgro will hold a conference call and webcast at 13.30 London time (16:30 Moscow; 08:30 New York). The call will be held in English, with simultaneous translation into Russian on a separate line.
Webcast links:
English: www.media-server.com/en
Russian: www.media-server.com/ru
Webcast links:
Participants Dial-in numbers:
Russia
Local: +7 499 677 1050
FreeCall: 8 10 800 2409 2044
UK
Local: +44 844 871 9382
FreeCall: 0800 694 5723
USA
Local: +1 646 741 2122
FreeCall: 1 866 434 1115
Conference ID numbers:
English call: 38104474
Russian call: 38140054