PhosAgro : Reports Operating and Financial Results for 3Q and 9M 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 nine months ended 30 September 2023.

3Q and 9M 2023 highlights

In 9M 2023, production of mineral fertilizers and other chemicals increased by 3.7% year-on-year to over 8.5 million tonnes. This growth was driven primarily by a 19.4% year-on-year increase in MAP production thanks to a new production complex in Volkhov that was built as part of the Company's comprehensive long-term development programme.

Total fertilizer sales in 9M 2023 increased by 2.5% year-on-year to around 8.7 million tonnes.

In 3Q 2023, robust seasonal demand in the Company's priority Russian market as well as Brazil, Europe and Africa drove a 16.9% year-on-year increase in sales of agrochemical products. Sales of phosphate-based fertilizers rose by more than 20% over the same period. Increased demand was driven by the affordability of fertilizers and the relatively low stocks in key markets, among other factors.

Revenue for 9M 2023 amounted to RUB 328.9 billion (USD 3.98 billion), down 28.4% year-on-year amid lower fertilizer prices in global markets in 2023. At the same time, revenue for 3Q 2023 declined only 5.5% year-on-year thanks to an increase in sales of agrochemical products and a slight recovery in global fertilizer prices from their low point in the second quarter.

In 9M 2023, the Company's EBITDA amounted to RUB 151.1 billion (USD 1.83 billion), down 24.2% year-on-year. Effective cost management and increased production and sales of high-margin products supported an EBITDA margin of 45.9%, up 2.5 p.p. from 9M 2022.

The Company's free cash flow amounted to RUB 81.0 billion (USD 0.98 billion) in 9M 2023, remaining essentially flat year-on-year. Cash flow in 3Q 2023 decreased due to outflows for working capital amid rising prices and sales volumes.

Net debt as of 30 September 2023 amounted to RUB 227.9 billion (USD 2.34 billion), and the ratio of net debt to adj. EBITDA at the end of the quarter was a comfortable 1.3x.

Financial and operating highlights:

Financial highlights
RUB mln	9M 2023	9M 2022	Change %	3Q 2023	3Q 2022	Change %
Revenue	328,885	459,423	-28.4%	116,133	122,914	-5.5%
EBITDA*	151,098	199,438	-24.2%	54,580	63,890	-14.6%
EBITDA margin	45.9%	43.4%		47.0%	52.0%
Adj. EBITDA**	131,274	222,477	-41.0%	48,458	57,155	-15.2%
Net profit	56,775	165,501	-65.7%	15,278	36,453	-58.1%
Adj. net profit***	82,896	150,199	-44.8%	27,124	41,646	-34.9%
Free cash flow	80,977	81,539	-0.7%	20,861	40,669	-48.7%
	30.09.2023	31.12.2022
Net debt	227,853	180,338
ND/adj. LTM EBITDA	1.3x	0.7x

Operating highlights
Production volumes by category
kt	9M 2023	9M 2022	Change %	3Q 2023	3Q 2022	Change %
Phosphate-based fertilizers and feed phosphates	6,396.3	6,184.2	3.4%	2,169.4	2,130.2	1.8%
Nitrogen-based fertilizers	1,959.1	1,875.4	4.5%	640.2	609.8	5.0%
Other products	218.0	205.6	6.0%	79.2	74.9	5.8%
TOTAL production	8,573.4	8,265.2	3.7%	2,888.8	2,814.9	2.6%
Sales volumes by category
kt	9M 2023	9M 2022	Change %	3Q 2023	3Q 2022	Change %
Phosphate-based fertilizers and feed phosphates	6,594.8	6,390.0	3.2%	2,476.9	2,054.7	20.5%
Nitrogen-based fertilizers	1,908.6	1,922.1	-0.7%	592.4	575.7	2.9%
Other products	163.0	139.9	16.5%	51.4	39.2	31.1%
TOTAL production	8,666.4	8,452.0	2.5%	3,120.7	2,669.6	16.9%

^{RUB/USD exchange rate: average 9M 2023 rate: 82.6934; average 9M 2022 rate: 70.6135; as of 30 September 2023: 97.4147; 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 year-on-year decrease in EBITDA in 9M reflects lower global fertilizer prices in 2023; however, EBITDA margin remained high, driven by factors such as production growth, a decrease in the cost of key feedstocks and flexible production chains that enabled the Company to focus its output on the highest-margin products in the current environment.

Thanks to its flexible sales policy, the Company greatly increased fertilizer sales in 3Q 2023 not only to its priority domestic market (where farmers' demand was met in full) but also to key export markets, where there a seasonal increase in demand was observed. For example, sales (primarily of MAP) to Brazil rose nearly fourfold year-on-year, driven by new MAP production capacities at the Volkhov complex. Sales also increased in Western Europe, where seasonal demand recovered following last year's contraction, when farmers postponed fertilizer purchases because of high prices.

Higher sales volumes during the last quarter alongside the start of a recovery in global fertilizer prices led to an increase in working capital (owing to an increase in accounts receivable and inventory growth). This outflow had an impact on free cash flow, which was down year-on-year but up 25% compared with the previous quarter.

Thanks to its strong financial position, controlled capital investments and robust generation of free cash flow the Company was able to service all its debt obligations on time and in full, including those denominated in foreign currency. As of the end of 9M 2023, the Company's debt load remained at a comfortable level. As of 30 September 2023, net debt amounted to RUB 227.9 billion, and the net debt/adj. EBITDA ratio was 1.3x. The growth in rouble-denominated debt was driven to a large extent by the weakening of the rouble against the US dollar throughout 2023 and the revaluation of the Company's FX-denominated debt at new rates at the end 3Q.

Market situation in 3Q 2023

The global mineral fertilizer market is showing signs of recovery following a marked decline in 2022. The recovery in demand is being supported by relatively favourable fertilizer and crop price parity and low fertilizer stocks in key markets. According to the IFA and other industry organisations, global fertilizer consumption in 2023 may grow by 2%-4%, or 6-7 million tonnes of primary nutrient, with further recovery in 2024.

Fertilizer prices in June-July 2023 reached their lowest levels in the last two years and began to gradually recover during the third quarter as a result of a widespread increase in demand.

An uptick in seasonal demand in key markets for phosphate-based fertilizers (Brazil and India) and off-season interest from the US domestic market supported an increase in DAP/MAP prices in July-August, from USD⁠ 405 per tonne (FOB Baltic) to USD 490 per tonne (FOB Baltic); prices subsequently stabilised in the range of USD 500-510 per tonne (FOB Baltic) in September 2023. The average price for MAP in 3Q 2023 was USD 468 per tonne (FOB Baltic).

The market for nitrogen-based fertilizers in 3Q 2023 was marked by high price volatility: prices during the quarter fluctuated by USD 150 per tonne owing to disruptions at key producers (in the Middle East, South-East Asia and West Africa), while seasonal demand picked up in Latin American markets and later in India. One of the key factors driving price fluctuations was inconsistency in terms of urea export volumes from China. Urea prices in 3Q 2023 ranged from USD 270 to USD 420 per tonne (FOB Baltic), with an average of USD 343 per tonne (FOB Baltic). The average export price for ammonium nitrate was USD 228 per tonne (FOB Baltic).

The prices of key commodities remained relatively stable: the price of sulphur was USD 58 per tonne (FOB Baltic), and the price of standard potassium chloride was USD 282 per tonne (FOB Baltic).

Outlook for 4Q 2023

At the moment, the main mineral fertilizer markets are marked by ongoing demand, including for the build-up of comfortable carryover stocks for the new spring season. Restrictions on Chinese exports of both nitrogen- and phosphate-based fertilizers have created an additional supply constraint in the market, supporting prices at their current levels.