PhosAgro, Moscow, reported a three-fold increase in second-quarter IFRS net income to RUB11.79 million on revenue of RUB58.15 billion ($901 million), up from the year-ago RUB2.96 billion and RUB56.63 billion, respectively. However, net income adjusted for non-cash foreign exchange items was down 21 percent year-over-year, to RUB9.2 billion ($142 million) from RUB11.69 billion. EBITDA was also lower, down 2 percent at RUB18.32 billion ($284 million) from RUB18.67 billion a year-ago, but was in line with the average analyst estimate of RUB18.34 billion, according to Bloomberg data (range of RUB17.95 billion to RUB18.96 billion based on three estimates).
PhosAgro cited global price correction for the decline, which, it said, was partially mitigated by the ruble appreciation against the U.S. dollar.
CEO Andrey Guryev noted that 2019 so far has seen market turbulence on unfavorable weather conditions in the U.S. and Europe and high export activity in China and the Middle East. But he pointed to PhosAgro’s “resilience,” with it reporting “an industry-leading EBITDA margin of 32 percent for the second quarter, “impressive” free cash flow generation, and decreasing leverage.
The group attributed the 3 percent increase in revenue as mainly driven by “meaningful growth” in domestic sales. Second-quarter domestic sales were 37 percent higher year-over-year at 0.8 million mt, due to an early start to the high season.
However, it reported this growth was largely offset by an 18 percent decline in export sales volumes from a year ago, to 1.4 million mt. Export sales of phosphate fertilizers accounted for 62 percent of total phosphate fertilizer sales in the second quarter of 2019, down from 73 percent a year-ago, while export sales of nitrogen fertilizers accounted for 68 percent of total nitrogen fertilizer sales against 80 percent a year ago.
For the Phosphate segment, second-quarter gross profit came in 3 percent lower over a year ago, at RUB21.4 billion ($332 million) against RUB22 billion, reflecting the downturn in global prices, which was offset by the devaluation in the ruble. In contrast, the Nitrogen segment saw gross profit increase 5 percent to RUB4.9 billion ($76 million), up from RUB4.7 billion, on account of higher prices for urea and ammonium nitrate
Looking ahead at the short-term outlook, Guryev believes the group’s second-quarter EBITDA margin will be sustainable through year-end.
“This will be 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 markets and a stable nitrogen market,” he said. “Our domestic market, which is a strategic priority for us, is also expected to support sales, driven by higher farmer purchasing power.”
Regarding the six-months result, PhosAgro posted a two-fold increase in net income to RUB32.95 billion on revenue of RUB130.43 billion, up from the year-ago RUB9.83 billion and RUB111.25 billion, respectively. First-half adjusted net income came in 26 percent up at RUB22.74 billion, against the prior-year’s RUB17.99 billion. EBITDA increased 31 percent to RUB43.1 billion from RUB32.97 billion.
Six-months Phosphate Segment gross profit came in 24 percent up over a year-ago at RUB48.9 billion, up from RUB39.3 billion. The Nitrogen segment saw a first-half 19 percent increase in gross profit to RUB11.5 billion, against the year-ago RUB9.7 billion.
PhosAgro confirmed that it is maintaining its full-year 2019 production guidance of around 9.4-9.5 million mt of fertilizers. Fertilizer and MCP output in the first six months of the year amounted to 4.7 million mt, a 3 percent increase on the same year-ago period (GM Aug. 2, p. 27). If the full-year guidance is achieved, it will mark a 5-to-6 percent increase on the group’s 2018 production of fertilizers and MCP of 8.975 million mt (GM Feb. 8, p. 25). Of the 2019 output guidance, the group expects around 35 percent of overall production to comprise NPKs.
The Russian fertilizer group reported its capital expenditure in the second quarter totaled RUB9.1 billion ($141 million), a 19 percent increase over a year-ago. It said the main capex items during the reporting period were scheduled maintenance and development of the upstream business, in addition to completing the construction of midstream capacities at the Cherepovets site – namely, nitric and sulfuric acid units, and ammonium sulfate lines.
It has raised its expected capex for the full-year to RUB36 billion ($545 million) from the earlier planned RUB33-34 billion ($515 million), according to an Itar-Tass (Russia) report, citing PhosAgro’s CEO.
Guryev said the expected increase in capex is on account of the group deciding to buy out its mineral wagons from leasing on account of the leasing rates remaining unchanged despite a decrease in Russia’s Central Bank’s key rate. Additionally, he said, the ruble component of investments will also be affected by the ruble exchange rate.
Revenue by Selected Key Products
| RUB million | 2Q-2019 | 2Q-2018 | % change | 1H-2019 | 1H-2018 | % change |
| DAP/MAP | 16,824 | 18,884 | -11% | 42,935 | 37,514 | +14% |
| NPK(S) | 17,756 | 15,041 | +18% | 35,263 | 28,544 | +24% |
| Phos Rock | 6,448 | 5,492 | +17% | 13,100 | 10,364 | +27% |
| Urea/AN | 8,731 | 8,891 | -2% | 19,796 | 18,194 | +9% |
Sales Volumes1
| ‘000 mt | 2Q-2019 | 2Q-2018 | % change | 1H-2019 | 1H-2018 | % change |
| Phosphate-based and MCP | 1,628 | 1,647 | -1% | 3,557 | 3,400 | +5% |
| Of which export sales | 1,008 | 1,199 | -19% | – | – | – |
| Of which domestic sales | 620 | 448 | +38% | – | – | – |
| Nitrogen-based | 531 | 601 | -12% | 1,148 | 1,268 | -9% |
| Of which export sales | 370 | 477 | -22% | – | – | – |
| Of which domestic sales | 161 | 123 | +31% | – | – | – |
| Phos Rock | 831 | 732 | +14% | 1,657 | 1,424 | +16% |
1 Totals may not add up due to rounding