Polish fertilizers and chemicals group Grupa Azoty SA posted a Pln543 million (approximately $125 million at current exchange rates) net loss for the second quarter ended June 30, 2023, according to a company statement of preliminary results. The group reported a Pln799.6 net profit for second-quarter 2022 (GM Oct. 7, 2022).
Azoty expects to report a second-quarter EBITDA loss of Pln608 million versus an EBITDA of Pln1.24 billion in last year’s second quarter.
The loss would have been even greater had it not been partially offset by a Pln289 million contribution from the sale of CO2 emission allowances purchased on the market in previous periods by Azoty subsidiaries Zakłady Azotowe Puławy S.A., Zakłady Chemiczne “Police,” and Zakłady Azotowe Kędzierzyn S.A., according to the Sept. 18 statement.
Revenues for the quarter are expected to be 46% off at Pln3.49 billion, down from the prior-year Pln6.41 billion.
Azoty’s Agro/Fertilizers segment is expected to report a second-quarter EBITDA loss of Pln520 million, down from the year-ago positive EBITDA of Pln657 million. The group reported a 24% decrease in total fertilizer sales volumes in the quarter, citing low demand. Compound fertilizer sales volumes saw an even steeper decline, with sales volumes down 49% year-on-year.
“Unfavorable conditions prevailed in Polish agriculture, with grain prices following a downward trend in the domestic market, leading to diminished demand and downward pressure on fertilizer prices,” Azoty said.
The group also cited an increase in imports of urea and ammonia into the European Union and the domestic market during the EU’s six-month suspension of tariffs on urea and ammonia. The import duties came back into effect on June 17, though some origins remain exempt from the tariffs, including Trinidad and Tobago, Egypt, and Algeria (GM June 23, p. 29). Duties on ammonia and urea imports originating from Russia and Belarus remained in effect through the six-month suspension.
Due to the weak demand, Azoty said it aligned its production in the second quarter with the prevailing supply and demand conditions. Its total fertilizer output was 43% lower in the quarter compared with last year’s second quarter, while production of compound fertilizers was down 49% year-over-year.
Azoty’s Chemicals segment, which produces sulfur, technical grade urea, and melamine, is expected to report a second-quarter EBITDA loss of Pln252 million versus the year-ago positive EBITDA of Pln431 million.
The second-quarter earnings were much lower than market expectations. Azoty’s shares dropped as much as 4.9% in Warsaw immediately following the release of the preliminary results on Sept. 18, their lowest level since June 13, according to a Bloomberg report.
Azoty earlier this month signed waiver and amendment letters with 13 financing institutions whereby they agreed to waive certain covenants laid down in loan agreements to the group and its “Police” subsidiary (GM Sept. 8, p. 26). The group had been seeking covenant waivers from its lenders since June amid an expected breach in its debt/EBITDA ratio covenants at the end of the second quarter.
For the six months to June 30, 2023, Azoty expects to report an EBITDA loss of Pln1.009 billion and consolidated revenue of Pln7.39 billion. However, Azoty expects fertilizer markets to improve during the second half of the year, based on the upward trend in fertilizer demand observed in the third quarter. This is expected to have a positive impact on the group’s financial results, Azoty said.