PhosAgro ao

Earnings Release • Aug 29, 2023

---

title: CONFIDENTIAL DRAFT NOT FOR RELEASE
author: Sam Vanderlip
date: 2023-08-29 08:01:00+00:00

---

29 August 2023

PhosAgro Reports Operating and Financial Results for 1H 2023

Moscow – PhosAgro Group (“PhosAgro” or “the Company”) (Moscow Exchange, LSE: PHOR), one of the world’s leading vertically integrated phosphate-based fertilizer producers, today announces its consolidated interim condensed financial results for the six months ended 30 June 2023.

1H 2023 highlights

In 1H 2023, production of mineral fertilizers and other chemicals increased by 4.3% year-on-year to over 5.6 million tonnes. This growth was driven primarily by an increase in DAP/MAP production during the ramp-up to design capacity at the production complex in Volkhov, which was built as part of the Company’s comprehensive long-term development programme.

Total fertilizer sales in 1H 2023 decreased by 4.3% year-on-year to about 5.5 million tonnes, mainly due to the stockpiling of mineral fertilizers for seasonal deliveries to markets in Latin America and Asia after meeting the needs of the Russian market. At the same time, DAP/MAP sales rose by 5.8% over the same period, driving high margins in the current price environment.

Revenue for 1H 2023 amounted to RUB 212.8 billion (USD 2.8 billion), down 36.8% year-on-year. The decrease in revenue was due to a drop in global fertilizer prices from their peak in early 2022, when a high level of uncertainty and sanctions pressure on Russian producers (the largest players in the global fertilizer market) drove up prices for all types of fertilizers amid disruptions in global supply chains.

In 1H 2023, the Company’s EBITDA amounted to RUB 96.5 billion (USD 1.26 billion), down 28.8% year-on-year. Effective cost management and increased sales of high-margin products drove an EBITDA margin of 45.4%, a 5.1 p.p. increase from 1H 2022.

In 1H 2023, the Company’s free cash flow amounted to RUB 60.1 billion (USD 0.8 billion), up 47.1% year-on-year.

Net debt as of 30 June 2023 amounted to RUB 200.2 billion (USD 2.30 billion), and the ratio of net debt to adjusted EBITDA at the end of the quarter was 1.09x.

Financial and operating highlights

RUB/USD exchange rate: average 1H 2023 rate: 76.8996; average 1H 2022 rate: 76.2975; as of 30 June 2023: 87.0341; as of 31 December 2022: 70.3375.

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

** Adj. EBITDA is EBITDA as reported minus FX differences from operating activities.

*** Adj. net profit is net profit as reported minus FX gain or loss.

The high EBITDA margin (accounting for FX differences) in 1H 2023 was driven by, among other factors, a decrease in the cost of key feedstocks and the flexibility of the Company’s production chains, which made it possible to switch to the production of the highest-margin products in the current environment.

Sales volumes and regional product distribution in 2Q 2023 were in line with seasonal changes in demand, with increased sales to markets in Russia, North America and Europe (nitrogen-based fertilizers). Overall, the Company increased fertilizer sales to North America, Latin America and the CIS countries in 1H 2023.

Excess fertilizer production compared with sales in 2Q 2023 enabled the Company to stockpile a sufficient amount of product to satisfy the expected seasonal increase in demand in 3Q from key markets in India, Brazil and other regional markets in Asia and Latin America.

Thanks to its efficient operations, the Company was able to generate a high amount of free cash flow in 1H 2023 despite a correction in global fertilizer prices.

As of the end of the first half of the year, the Company’s debt load remained at a comfortable level. As of 30 June 2023, the Company’s net debt amounted to RUB 200.2 billion, and its net debt/adjusted EBITDA ratio was 1.09x. The increase from the beginning of the year was mainly due to the depreciation of the rouble against the US dollar and the revaluation of the USD-denominated portion of the Company’s debt at the new exchange rate.

At the same time, it should be noted that the percentage of USD-denominated in debt in the Company’s loan portfolio is decreasing, thanks in part to the replacement of the redeemed PHOR-23 Eurobond issue with issues of Russian RUB- and RMB-denominated exchange-traded bonds.

Other factors that had an impact on the Company’s loan portfolio included the issuance of replacement bonds for two remaining Eurobond issues: PHOR-25 and PHOR-28. Despite the stable mechanism for separate payments on Eurobonds, the Company was one of the first Russian issuers to issue replacement bonds. Thus, the Company was able to meet the requirements of Decree of the President of Russia No. 364 of 22 May 2023, and noteholders in the Russian Federation were able to receive a high-quality liquid investment instrument. As a result of this process, more than 74% of two Eurobond issues worth USD 740.4 million were replaced.

According to the Russian Fertilizer Producers Association, PhosAgro remains the leader in terms of supplies of agrochemical products to the priority Russian market.

Market situation in 2Q 2023

According to the Russian Fertilizer Producers Association, as of mid-August domestic producers had already fulfilled more than 80% of the annual plan for all of 2023 for the supply of agrochemical products to the priority domestic market, where the Company is the largest supplier of its own agrochemicals (with a 21% share).

The mineral fertilizer market in the first half of 2Q saw the end of seasonal demand in key markets in the Northern Hemisphere (Europe, North America, the Russian domestic market, China) and the development of a downward price trend. The market situation stabilised in the second half of the quarter, and prices gradually began to rise.

Phosphate-based fertilizer markets at the beginning of 2Q were supported by strong demand from India for DAP/NPK, while seasonal demand for MAP from Brazil, the main international market, intensified in May–June. The average price for MAP in 2Q 2023 was USD 477 per tonne (FOB Baltic).

The situation in markets for nitrogen-based fertilizers stabilised in the middle of 2Q, partly in response to reduced exports, for technical reasons, on the part of a number of major producers and in connection with the ramp-up of seasonal demand in Asian and Latin American markets. The average price of prilled urea in 2Q 2023 was USD 256 per tonne (FOB Baltic), and the average price of ammonium nitrate was USD 150 per tonne (FOB Baltic).

The prices of key commodities also stabilised in the middle of the quarter, following a prolonged downward trend in prices starting in 2H 2022, due in part to improved conditions in fertilizer markets. The average price of sulphur in 2Q 2023 was USD 68 per tonne (FOB Baltic), and the average price of standard potassium chloride was USD 389 per tonne (FOB Baltic). Prices for phosphate feedstocks remained stable at USD 285 per tonne (FOB Morocco) as of the end of 2Q 2023 (for feedstocks with P2O5 content of 31%–33%).

Market outlook

The third quarter has historically been marked by increased seasonal demand from key markets for nitrogen- and phosphate-based fertilizers in India, Brazil and other regional locations in Asia and Latin America. The low levels of carry-over stocks in North American and European markets will drive an earlier resumption of seasonal demand. As a result, prices have shown a strong increase since the start of the third quarter and may stabilise above 2Q 2023 prices.

Contacts

PJSC PhosAgro

Andrey Serov, Head of the Investor Relations Department

+7 495 231 2747 ext. 2183

ir@phosagro.ru

Timur Belov, Press Officer

+7 495 231 2747 ext. 2652

pr@phosagro.ru

About the Company

PhosAgro (www.phosagro.ru) is a vertically integrated Russian company and one of the world’s leading producers of mineral phosphorous fertilizers and of high-grade apatite concentrate grading 39% P2O5 and higher. PhosAgro’s fertilizers are highly effective, ensuring the improved quality of agricultural produce.

PhosAgro Group is the largest manufacturer of phosphate-based fertilisers in Europe (by total capacity of DAP/MAP/NP/NPK/NPS production), the largest producer of phosphite grading 39% P2O5 in the world and one of the leading global producers of ammonium and diammonium phosphate, one of Europe’s leading and the only producer in Russia of monocalcium phosphate feed (MCP), and the only producer in Russia of nepheline concentrate.

The company’s main products, including phosphite, 57 grades of fertilizer, phosphate feed, ammonium, and sodium tripolyphosphate, are used in around 100 countries on all inhabited continents. Our priority markets, besides Russia and the CIS, are Latin America, Europe, and Asia.

The company's shares are listed on the Moscow Exchange and its Global Depositary Receipts (GDRs) are listed on the London Stock Exchange (MOEX and LSE ticker: PHOR).

More information about PhosAgro PJSC can be found on our site: www.phosagro.ru

*Non-controlling interests are the minority shareholders of the subsidiaries of PJSC “PhosAgro” 

1 Changes in trade and other receivables and changes in trade and other payables include effect of foreign exchange differences from operating activities.

2 The Group received cash refund from depositories paid as dividends to parties who were entitled to receive them, but didn’t receive dividends due to reasons beyond the depositories’ control.

Financial highlights	Financial highlights	Financial highlights	Financial highlights	Financial highlights	Financial highlights
RUB mln	1H 2023	1H 2023	1H 2022	1H 2022	Change, %
Revenue	212,752	212,752	336,509	336,509	-36.8%
EBITDA*	96,518	96,518	135,548	135,548	-28.8%
EBITDA margin	45.4%	45.4%	40.3%	40.3%
Adj. EBITDA**	82,816	82,816	165,322	165,322	-49.9%
Net profit	41,497	41,497	129,048	129,048	-67.8%
Adj. net profit***	55,772	55,772	108,553	108,553	-48.6%
Free cash flow	60,116	60,116	40,870	40,870	47.1%
	30 June 2023	30 June 2023	31 December 2022	31 December 2022
Net debt	200,179	200,179	180,338	180,338
ND/adj. LTM EBITDA	1.09x	1.09x	0.68x	0.68x
Operating highlights	Operating highlights	Operating highlights	Operating highlights	Operating highlights	Operating highlights
Production volumes by category	Production volumes by category	Production volumes by category	Production volumes by category	Production volumes by category	Production volumes by category
kt	kt	1H 2023	1H 2023	1H 2022	Change, %
Phosphate-based fertilizers and feed phosphates	Phosphate-based fertilizers and feed phosphates	4,226.9	4,226.9	4,054.0	4.3%
Nitrogen-based fertilizers	Nitrogen-based fertilizers	1,318.9	1,318.9	1,265.6	4.2%
Other products	Other products	138.8	138.8	130.7	6.2%
TOTAL fertilizers	TOTAL fertilizers	5,684.6	5,684.6	5,450.3	4.3%
Sales volumes by category	Sales volumes by category	Sales volumes by category	Sales volumes by category	Sales volumes by category	Sales volumes by category
kt	kt	1H 2023	1H 2023	1H 2022	Change, %
Phosphate-based fertilizers and feed phosphates	Phosphate-based fertilizers and feed phosphates	4,117.9	4,117.9	4,335.3	-5.0%
Nitrogen-based fertilizers	Nitrogen-based fertilizers	1,316.2	1,316.2	1,346.4	-2.2%
Other products	Other products	82.9	82.9	82.0	1.1%
TOTAL fertilizers	TOTAL fertilizers	5,517.0	5,517.0	5,763.7	-4.3%

| | | Six months ended
30 June | Six months ended
30 June | Three months ended
30 June | Three months ended
30 June |
| --- | --- | --- | --- | --- | --- |
| RUB million | | 2023 | 2022 | 2023 | 2022 |
| | | | | | |
| Revenues | | 212,752 | 336,509 | 96,574 | 155,831 |
| Cost of Group products sold | | (111,814) | (143,739) | (55,136) | (72,722) |
| Cost of products for resale | | (10,608) | (7,394) | (2,965) | (2,354) |
| | | | | | |
| | | | | | |
| Gross profit | | 90,330 | 185,376 | 38,473 | 80,755 |
| | | | | | |
| Administrative and selling overhead expenses | | (15,152) | (28,430) | (8,220) | (6,857) |
| Taxes, other than income tax, net | | (6,010) | (5,236) | (2,946) | (2,552) |
| Other expenses, net | | (2,070) | (1,762) | (1,361) | (999) |
| Foreign exchange gain/(loss) from operating activities, net | | 13,702 | (29,774) | 7,285 | (30,454) |
| | | | | | |
| | | | | | |
| Operating profit | | 80,800 | 120,174 | 33,231 | 39,893 |
| | | | | | |
| Finance income | | 1,255 | 1,909 | 687 | 1,558 |
| Finance costs | | (3,586) | (9,510) | (1,916) | (1,095) |
| Foreign exchange (loss)/gain from financing activities, net | | (27,977) | 50,269 | (15,722) | 66,740 |
| | | | | | |
| | | | | | |
| Profit before tax | | 50,492 | 162,842 | 16,280 | 107,096 |
| | | | | | |
| | | | | | |
| Income tax expense | | (8,995) | (33,794) | (2,842) | (21,510) |
| | | | | | |
| | | | | | |
| Profit for the period | | 41,497 | 129,048 | 13,438 | 85,586 |
| | | | | | |
| Attributable to: | | | | | |
| Non-controlling interests | | 3 | 4 | (1) | 8 |
| Shareholders of the Company | | 41,494 | 129,044 | 13,439 | 85,578 |
| | | | | | |
| | | | | | |
| Basic and diluted earnings per share (in RUB) | | 320 | 996 | 104 | 661 |
| | | | | | |
| | | | | | |
| Other comprehensive loss | | | | | |
| Items that may be reclassified subsequently to profit or loss | | | | | |
| Foreign currency translation difference | | - | (2,929) | - | - |
| Foreign currency translation difference reclassified to profit or loss upon loss of control over subsidiaries | | - | (6,302) | - | - |
| Actuarial losses reclassified to profit or loss upon loss of control over subsidiaries | | - | 61 | - | - |
| | | | | | |
| | | | | | |
| Other comprehensive loss for the period | | - | (9,170) | - | - |
| | | | | | |
| | | | | | |
| Total comprehensive income for the period | | 41,497 | 119,878 | 13,438 | 85,586 |
| | | | | | |
| | | | | | |
| Attributable to: | | | | | |
| Non-controlling interests | | 3 | 4 | (1) | 8 |
| Shareholders of the Parent | | 41,494 | 119,874 | 13,439 | 85,578 |
| | | | | | |

RUB million		30 June 2023	31 December 2022
Assets
Property, plant and equipment		285,270	274,522
Other non-current assets		11,001	8,546
Deferred tax assets		9,493	7,903
Advances issued for property, plant and equipment		9,330	9,270
Non-current spare parts		7,093	5,125
Right-of-use assets		6,123	4,277
Catalysts		2,192	1,965
Intangible assets		2,147	2,099
Investments in associates		647	592
Non-current assets		333,296	314,299
Trade and other receivables		53,494	75,741
Inventories		41,584	39,349
Cash and cash equivalents		31,673	13,356
VAT and other taxes receivable		11,313	12,565
Income tax receivable		3,996	93
Other financial assets		263	210
Current assets		142,323	141,314
Total assets		475,619	455,613
Equity
Share capital		372	372
Share premium		7,494	7,494
Retained earnings		137,754	190,664
Actuarial losses		(968)	(968)
Equity attributable to shareholders of the Parent		144,652	197,562
Equity attributable to non-controlling interests		30	158
Total equity		144,682	197,720
Liabilities
Loans and borrowings		179,205	109,784
Deferred tax liabilities		11,720	17,820
Lease liabilities		2,376	1,660
Defined benefit obligations		1,066	1,050
Non-current liabilities		194,367	130,314
Loans and borrowings		48,949	80,974
Dividends payable		44,329	82
Trade and other payables		36,662	39,412
VAT and other taxes payable		5,206	5,632
Lease liabilities		1,322	1,276
Income tax payable		102	203
Current liabilities		136,570	127,579
Total equity and liabilities		475,619	455,613

| | | | Six months ended
30 June | Six months ended
30 June |
| --- | --- | --- | --- | --- |
| RUB million | | | 2023 | 2022 |
| | | | | |
| Cash flows from operating activities | Cash flows from operating activities | | | |
| Operating profit | Operating profit | | 80,800 | 120,174 |
| Adjustments for: | Adjustments for: | | | |
| Depreciation and amortisation | Depreciation and amortisation | | 15,718 | 15,374 |
| Loss on disposal of property, plant and equipment and intangible assets | Loss on disposal of property, plant and equipment and intangible assets | | 165 | 221 |
| | | | | |
| | | | | |
| Operating profit before changes in working capital and provisions | Operating profit before changes in working capital and provisions | | 96,683 | 135,769 |
| | | | | |
| Decrease in trade and other receivables1 | Decrease in trade and other receivables1 | | 21,174 | 19,663 |
| Decrease in trade and other payables1 | Decrease in trade and other payables1 | | (4,166) | (14,116) |
| Increase in inventories, catalysts and non-current spare parts | Increase in inventories, catalysts and non-current spare parts | | (3,839) | (7,162) |
| | | | | |
| | | | | |
| Cash flows from operations before income taxes and interest paid | Cash flows from operations before income taxes and interest paid | | 109,852 | 134,154 |
| | | | | |
| Income tax paid | Income tax paid | | (20,691) | (24,599) |
| Finance costs paid | Finance costs paid | | (3,230) | (2,987) |
| | | | | |
| | | | | |
| Cash flows from operating activities | Cash flows from operating activities | | 85,931 | 106,568 |
| | | | | |
| | | | | |
| Cash flows from investing activities | Cash flows from investing activities | | | |
| Interest income | Interest income | | 737 | 1,611 |
| Acquisition of property, plant and equipment and intangible assets | Acquisition of property, plant and equipment and intangible assets | | (25,976) | (28,423) |
| Borrowing cost capitalised paid | Borrowing cost capitalised paid | | (555) | (465) |
| Advances issued for right-of-use assets | Advances issued for right-of-use assets | | (94) | (419) |
| Cash and cash equivalents disposed as a result of loss of control over subsidiaries | Cash and cash equivalents disposed as a result of loss of control over subsidiaries | | - | (36,729) |
| Loans issued | Loans issued | | - | (3,130) |
| Proceeds from disposal of financial assets measured at fair value through profit or loss | Proceeds from disposal of financial assets measured at fair value through profit or loss | | - | 1,778 |
| Other | Other | | 73 | 79 |
| | | | | |
| | | | | |
| Cash flows used in investing activities | Cash flows used in investing activities | | (25,815) | (65,698) |
| | | | | |
| | | | | |
| Cash flows from financing activities | Cash flows from financing activities | | | |
| Proceeds from borrowings, net of transaction costs | Proceeds from borrowings, net of transaction costs | | 79,562 | 29,462 |
| Refund of dividends paid2 | Refund of dividends paid2 | | 10,141 | - |
| Repayment of borrowings | Repayment of borrowings | | (75,854) | (13,798) |
| Dividends paid to shareholders of the Parent | Dividends paid to shareholders of the Parent | | (60,299) | - |
| Lease payments | Lease payments | | (692) | (854) |
| Dividends paid to non-controlling interests | Dividends paid to non-controlling interests | | (131) | - |
| | | | | |
| | | | | |
| Cash flows (used in)/ from financing activities | Cash flows (used in)/ from financing activities | | (47,273) | 14,810 |
| | | | | |
| | | | | |
| Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | | 12,843 | 55,680 |
| | | | | |
| Cash and cash equivalents at 1 January | Cash and cash equivalents at 1 January | | 13,356 | 21,710 |
| Effect of exchange rates fluctuations | Effect of exchange rates fluctuations | | 5,474 | (5,463) |
| | | | | |
| | | | | |
| Cash and cash equivalents at 30 June | Cash and cash equivalents at 30 June | | 31,673 | 71,927 |
| | | | | |