PhosAgro 3Q18 EBITDA Surges 72% YoY to RUB 23.4 bn

PhosAgro 3Q18 EBITDA Surges 72% YoY to RUB 23.4 bn

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 interim condensed consolidated IFRS financial results for the three months (3Q) and nine months (9M) ended 30 September 2018.

Revenue in 3Q 2018 rose by 35% year-on-year to RUB 62.8 billion (USD 958 million), while EBITDA grew by 72% year-on-year to RUB 23.4 billion (USD 357 million). PhosAgro's third-quarter EBITDA margin increased to 37% in 2018 from 29% in 2017. PhosAgro's 3Q 2018 net income (adjusted for non-cash FX items) more than doubled year-on-year to RUB 12.9 billion (USD 197 million), bringing 9M 2018 adjusted net income to RUB 30.8 billion (USD 502 million), which is 76% higher year-on-year.

3Q 2018 financial and operational highlights

RUB/USD rates: average 3Q 2018: 65.5; average 3Q 2017: 59.0; as of 30 September 2018: 65.6; as of 31 December 2017: 57.6*EBITDA is calculated as operating profit adjusted for depreciation and amortisation.** Adjusted Net Income calculated as Net Income adjusted for Foreign exchange loss 

PhosAgro CEO Andrey Guryev said: "While 2018 has seen market turbulence throughout the year and significant uncertainties and risks still exist, PhosAgro is finishing the year in good shape with robust and sustainable growth in EBITDA, record-high quarterly Free Cash Flow generation, recovery in margins above the mid-cycle levels and a decrease in leverage. These factors clearly indicate that the successful implementation of our long-term strategy, which focuses on organic production growth, vertical integration and purity of the product produced, has enabled PhosAgro to fully monetise its cost leadership in the upward macro environment.

"Since our IPO in 2011, PhosAgro has always sought to be consistent and predictable with its capital allocation policy in order to maximise both production growth rates and returns for shareholders while minimising risks to credit quality. As part of our long-term strategy, PhosAgro has spent up to 50-60% of EBITDA on investments into its Russian assets over the past five years. Today we can see a material positive impact on our earnings from these large-scale investments, and the Company can take a slightly modified approach to its dividend policy by paying out up to 75% of free cash flow as dividends, which represents a double-digit annualised dividend yield (based on 3Q numbers). On top of the attractive dividend yield, this cash flow distribution leaves room for the comfortable repayment of RUB-denominated debt in December 2018 and to reduce further PhosAgro's leverage by the year-end.  

"In terms of the short-term outlook, while we see some signs of the seasonal price correction that is regularly seen in November-January, this is likely to be limited given the rising cash costs in the industry. For PhosAgro, we believe that the profitability metrics we achieved in 3Q 2018 are sustainable, with further potential upside from projects that are currently under construction. This will enable us to balance the volume of new investments to ensure stable high growth rates while offering existing and new shareholders profitability on par with our top peers in Russia and abroad."

3Q 2018 market conditions

In 3Q 2018, DAP (FOB Tampa) prices averaged USD 434 per tonne, up by 22% (USD 94) year-on-year. The key drivers of the recovery in phosphate prices were:

In 3Q 2018 Urea (FOB Baltic) averaged USD 260 per tonne vs. USD 205 per tonne in 3Q 2017. This price increase was driven by:

Financial performance

In 3Q 2018, headline revenue increased by 35% year-on-year to RUB 62.8 billion (USD 958 million) on solid sales in the nitrogen segment (up by 48% year-on-year to 458 kt) and meaningful increases in average prices per tonne in both the phosphate (up by 18% year-on-year to USD 390 per tonne) and nitrogen (up by 30% year-on-year to USD 283 per tonne) segments.

The Company increased export revenue by 45% year-on-year to RUB 36.8 billion (USD 561 million), backed by robust demand for phosphate-based and nitrogen-based products in North and Latin America. Revenue from domestic sales grew by 23% year-on-year to RUB 26 billion (USD 397 million).

A detailed revenue breakdown by key products is presented below:

Revenue by key products

In 3Q 2018, gross profit was RUB 30.2 billion (USD 461 million), with gross profit margin expanding to 48% from 42% in 3Q 2017. Gross profit and margin performance for the phosphate and nitrogen segments were as follows:

EBITDA in 3Q 2018 amounted to RUB 23.4 billion (USD 357 million), up by 72% year-on-year, while EBITDA margin nearly reached a three-year high at 37%. Net profit adjusted for non-cash FX items amounted to RUB 12.9 billion (USD 197 million) in 3Q 2018, more than doubling year-on-year.

The RUB depreciated by 11% year-on-year against the USD during the quarter (the average RUB/USD exchange rates for 3Q 2018 and 3Q 2017 were RUB 65.5 and RUB 59.0 respectively), which had a net positive impact, as prices for most of the Company's products are denominated in USD, while costs are primarily RUB-based. The depreciation of the RUB as of 30 September 2018 (RUB 65.6 per USD) compared to 30 June 2018 (RUB 62.8 per USD) resulted in an FX loss of RUB 5.1 billion (vs. a RUB 1.6 billion gain in 3Q 2017).

Net operating cash flow in 3Q 2018 increased by 125% year-on-year to RUB 22.9 billion (USD 350 million) primarily driven by profitability growth coupled with working capital release. The growth in net operating cash flow resulted in free cash flow (net operating cash flow minus cash flows used in investing activities) for the quarter of RUB 12.4 billion (USD 189 million) which represents a quarterly record since the Company became publicly-listed.

Capital expenditure in 3Q 2018 totalled around RUB 10.0 billion (USD 152 million). The main capex spending was on scheduled maintenance and development of the upstream business, as well as on construction of new sulphuric and nitric acid plants.

As of the end of September 2018, net debt totalled RUB 120.8 billion (USD 1.8 billion), bringing the net debt/LTM EBITDA ratio to a two-year low of 1.7x, thanks to positive dynamics in EBITDA performance and repayments of some short-term commitments.

Cost of Sales

Cost of sales rose by 21% year-on-year in 3Q 2018 to RUB 32.6 billion (USD 498 million). The key factors behind the changes are:

Administrative expenses for 3Q 2018 were up by 11% year-on-year to RUB 3.9 billion (USD 60 million), mainly due to a 9% growth in personnel costs to RUB 2.2 billion (USD 34 million).

In 3Q 2018, selling expenses increased by 36% year-on-year to RUB 7.4 billion (USD 113 million). The main factors behind this growth were: 1) freight, port and stevedoring expenses rose by 62% year-on-year to RUB 3.6 billion (USD 55 million) primarily due to 13% growth in shipping rates combined with the RUB devaluation (the majority of freight and stevedoring tariffs are denominated in USD), almost  30% year-on-year increase in export sales of fertilizers shipped by sea, as well as focus on long haul CFR destinations; 2) spending on transportation grew by 7.4% year-on-year to RUB 2.5 billion (USD 38 million), driven by a 7% year-on-year growth in overall sales.

Outlook

Market outlook

In the short term, demand is expected to remain firm with limited risk of price corrections, based on the following:

Upward factors:

Downward factors:

Conference call and webcastPhosAgro will hold a conference call and webcast today 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: http://event.onlineseminarsolutions.com/wcc/r/1880869-1/158FBA0940F08FCDFDC84DC3594EFFA8Russian: http://event.onlineseminarsolutions.com/wcc/r/1880875-1/18B7C10BC348EBE494C270C8E76A27BBParticipant dial-in numbers:Russian Federation Toll  +7 495 646 9315Russian Federation Toll-Free  8 800 500 9863United Kingdom Toll  +44 207 194 3759United Kingdom Toll-Free 0800 376 6183United States Toll-Free  1 844 286 0643United States Toll  +1 646 722 4916Conference ID numbers:English call: 34265611#Russian call: 41167413#For further information please contact: PJSC PhosAgro Alexander Seleznev, Head of Investor Relations Department+7 495 232 9689 ext 2187[email protected] Timur Belov, Press Officer +7 495 232 9689 EM Sam VanDerlip [email protected]+44 7554 993 032 +7 499 918 3134Notes 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.