Phosagro · RUS:PHOR

Phosagro — UBS EMEA One-on-One Conference 2014

55 slides from Phosagro's conference presentation, June 2014

  1. Slide 1: One-on-One Roadshow Presentation for Non-Deal

    UBS EMEA Presentation One-on-OneRoadshow for Non-Deal Conference June 2-3, 2014 December 2011 2 1

  2. Slide 2: Disclaimer

    Disclaimer THIS PRESENTATION IS STRICTLY CONFIDENTIAL AND HAS BEEN PREPARED BY OAO "PHOSAGRO" (THE "COMPANY") SOLELY FOR YOUR INFORMATION. THIS PRESENTATION MAY NOT BE REPRODUCED, DISTRIBUTED OR PASSED ON, DIRECTLY OR INDIRECTLY, TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR IN PART, BY ANY MEDIUM O

  3. Slide 3: 1. Phosphates – an attractive industry

    1. Phosphates – an attractive industry

  4. Slide 4: PhosAgro at a glance

    PhosAgro at a glance  #1 global producer of high-grade phosphate Leading global phosphate rock producers (by production) World class rock integrated 2013, mln t, excluding Chinese producers phosphate  #3 global DAP/MAP producer(1) 26.4 #1 producer of high-grade producer  Overall fertilizer capaci

  5. Slide 5: The only pure play phosphates producer

    The only pure play phosphates producer Gross profit breakdown by segment Phosphate segment gross profit margin Average gross profit breakdown by segment for 2011-2013 Average gross profit margin of phosphate segment for 2011-2013 7% 14% 18% 18% 39% 52% 60% 31% 47% 25% 54% 22% 86% 18% 27% 48% 35% 21%

  6. Slide 6: Strong demand fundamentals for fertilizers

    Strong demand fundamentals for fertilizers Population growth and decrease of arable land per capita Yield Indexed to USA 8 0.30 2012 Fertilizers are 0.27 widely under- Rice applied and/or 7 0.24 0.25 Soybean 0.23 0.22 India inefficiently Corn applied in 0.20 Wheat 6 0.19 0.20 developing countries 5.

  7. Slide 7: Demand for increasing yield from limited arable land supports greater fertilizer use

    Demand for increasing yield from limited arable land supports greater fertilizer use 2,000 9.0 1,800 8.0 1,600 7.0 1,400 6.0 1,200 5.0 1,000 4.0 800 3.0 600 2.0 400 200 1.0 0 - 1990 1995 2000 2005 2010 2015 2020 2025 2030 Harvested Area, mln ha Average Yield, t/ha (rhs) Global Population, bln (rhs)

  8. Slide 8: Global crop production continues to grow

    Global crop production forecast Global crop production continues to grow 12,000 1990-2010 2010-2030 CAGR: 9.0 9,0 Global Population Growth(1) +1.9% CAGR: 8.0 8,0 +3.2% 10,000 +353 7.0 CAGR 7,0 +573 +1.8% Crop production, mln t Global population, bln CAGR: 6,0 8,000 6.0 +2.6% +283 +598 CAGR: 5.0 5,0

  9. Slide 9: Global crop production and fertilizer consumption forecast

    Global crop production and fertilizer consumption forecast Growth rates for major crop groups will change over next two decades Increase crop production, mln t 1,200 Remain very high 1,000 1,178 1,001 800 920 600 598 573 400 500 200 353 283 0 1990-2010 2010-2030F 1990-2010 2010-2030F 1990-2010 2010-

  10. Slide 10: Historical and forecast nutrient demand

    Historical and forecast nutrient demand Demand for phosphates will accelerate 250 N P2O5 K2O 200 CAGR: 35 2.8% CAGR: 2.9% mln t of nutrients 150 CAGR: 0.2% 50 CAGR: CAGR: 2.7% CAGR: 2.9% CAGR: 1.9% CAGR: 1.6% 100 3.1% CAGR: CAGR: CAGR: 1.7% 1.4% 120 50 1.6% CAGR: 2.7% 0 2002 2003 2004 2005 2006 2007

  11. Slide 11: High grain prices motivate farmers to use more fertilizers

    High grain prices driven by market imbalances motivate farmers to use more fertilizers Cereals basket to DAP price spread High correlation between cereals basket and 1400 DAP prices 250 10 year correlation 1,400 R2=0.86 1200 1,200 DAP and cereals basket price, $US/t 200 DAP spread relative to basket

  12. Slide 12: 2. Market challenges

    2. Market challenges

  13. Slide 13: Fertilizer price developments

    Fertilizer price developments Fertilizer prices bottoming in the end of 2013 followed by a recovery in phosphate prices 550 Uralkali split with BPC 100 US$ 343 DAP FOB Tampa DAP: +19% 500 Local currencies rebased to 100 90 450 80 USD USD/INR: +6% 400 70 350 Urea:-2% 60 300 Potash: -16% 50 250 Mar-14

  14. Slide 14: Phosphate fertilizers imports and consumption in India

    Phosphate fertilizers imports and consumption in India DAP imports and consumption in India decreases -32% Utilization rate of local production capacities was below 50% in 2013 12,000 - 3.9 11,303 mn t 10,000 -55% - 4.1 7,828 mn t 8,000 7,400 6,000 kmt 4,000 3,700 2,000 2010 2012 2013 2010 2012 2013

  15. Slide 15: India: crop production and El Nino effect

    India: crop production and El Nino effect P2O5 : N ratios, wheat yields, and , and El Nino P2O5 : N ratios, rice yields, and El Nino Normal P2O5 :N ratio Normal P2O5 :N ratio 3400 55 2700 55 3200 50 50 2500 3000 45 45 2300 40 P2O5:N ratio, % 2800 40 Wheat Yield, kg/ha Rice Yield, kg/ha P2O5:N ratio,

  16. Slide 16: Phosphate fertilizers imports and consumption in India

    Phosphate fertilizers imports and consumption in India Recovery potential of DAP imports and consumption in India -32% 12,000 11,303 10,000 -55% 8,000 7,828 7,400 6,000 kmt 4,000 3,700 2010 2010 2012 2013 2012 2013 2014 2014 2,000 2011 2011 0 Consumption Import Source: CRU, FAI 17

  17. Slide 17: Development of Chinese phosphate exports

    Development of Chinese phosphate exports Commissioning of new H3PO4 Chinese phosphate rock exports Chinese exports of DAP / MAP / NP / TSP capacities kt kt kt 5,000 8,000 12,000 NP/TSP DAP/MAP 6,000 10,000 4,000 -45% 4,000 8,000 3,000 2,000 6,000 2,000 0 4,000 1998-2002 2003-2007 2008-2012 2013F- 20

  18. Slide 18: Need for feedstock combination and complex production act as barriers to entry

    Need for a combination of feedstocks and complexity of production process act as barriers to entry Integrated phosphate-based production model (1) Replacement cost Ma’aden Phosphate ore Beneficiation 15.9 mln t (12.9% P2O5) 4.60 mln t (39% P2O5) MAP, DAP, NPK, NPS, Key products DAP Urea, AN Replacem

  19. Slide 19: Access to abundant local resources

    Access to abundant local resources Russian Federation Potash Consumption in Russia – 2.1 mln.t PhosAgro – Biggest consumer current supply Uralkali PhosAgro Potash Production – 9.0 mlt t 34% Farmers 10% others 2% Acron 23% Uralchem 7% Minudobrenia- Eurochem Rossosch Belaruskali 8% 16% Potash Producti

  20. Slide 20: Estimated DAP production cash cost curve

    Estimated DAP production cash cost curve (US$/t, FOB) in April 2014(1) 600 Integrated Integrated into phosphate rock into Not integrated phosphate rock and ammonia 500 DAP FOB Tampa: $450/t 400 300 (2) China (Non-integrated producers) USA (Integrated producers) 200 China (Large producers) India (Pho

  21. Slide 21: Commissioning phosphate rock and phosphoric acid capacities

    Commissioning phosphate rock and phosphoric acid capacities Delays in addition of new phosphate rock capacities (excl. China) Changes in world fertilizer capacities (excl. China) mln t mln t nutrients 180 30 170 5 years 25 160 150 4 years 20 140 15 130 120 10 2008 2009 2010 2011 2012 2013 2014 2015

  22. Slide 22: Timing and completion of new capacities is uncertain

    Timing and completion of new capacities is uncertain mln t of P2O5 0.5 6.7 6.7 0.9 1.5 2.9 Utilization rate of 82% Utilization - 4.6 rate of 71% OCP seeks to extract the maximum value from its phosphate ore reserve. Joint Venture Mosaic Management has recently and Ma’aden estimated 40.5 57.0 indicat

  23. Slide 23: 3. Company Highlights

    3. Company Highlights

  24. Slide 24: High quality resources and in-house R&D enable flexible production output

    High quality resources, combined with in-house R&D capabilities, make it possible to quickly adjust our production output across a wide range of products in response to changing fertilizer demand from farmers Phosphate resources High margin NPK demand drives production mix Phosphate Rock 2.1 10 Down

  25. Slide 25: Flexible business model

    Flexible business model Fertilizers and feed phosphate sales by region Comment In volume terms  Fertilizer sales to Russia and CIS increased year-on-year by 33% and Russia 18% 18% 19% 46%, respectively, to a record volume 23% Russia of 1.7 million mt CIS(1) 5% 4% 4% Asia 8% 8% 6% CIS(1) 12%  Sales

  26. Slide 26: PhosAgro increases market share in fast-growing and premium markets

    PhosAgro increases market share in fast-growing and premium markets mln. tonnes +78% +92% FSU +26% +9% 0.4 Europe 0.3 -59% +27% +123% 2.7 2.1 N. America +23% 2012 2013e 1.5 1.2 2012 2013e -100% 2012 2013e -37% India 6.4 -40% -88% -25% 3.8 Unchanged Africa Other Asia 1.2 -29% +8% +11% S. America 0.8

  27. Slide 27: Long term strategy for volume growth of fertilisers

    Long term strategy for volume growth of fertilisers Here we are Largest current development Future Phosphate rock Total: 7.7 mln t Overall 6.4 mln t AN 0.5 38% External sales UREA 1.0 New ammonia plant SOP 0.1 Start up first half 2017 STPP 0.1 MCP 0.2 Internal 62% consumption MAP DAP NPS 2.6 Sustain

  28. Slide 28: 3. Financial Overview

    3. Financial Overview

  29. Slide 29: Q1 2014 performance highlights

    Q1 2014 performance highlights Key financial highlights % change %change Q1 2014 Q4 2013 Q1 2013 q-o-q y-o-y (RUB million, except EPS) Revenue 29,416 23,290 26% 28,902 2% Cost of sales (17,443) (16,003) 9% (18,618) (6%) Gross profit 11,973 7,287 64% 10,284 16% Gross profit margin 41% 31% 10 p.p. 36%

  30. Slide 30: FY Revenue, EBITDA and Net Profit

    FY Revenue, EBITDA and Net Profit Revenue (FY2010-2013) EBITDA (FY2010-2013) Net Profit (FY2010-2013) Total Average DAP FOB Tampa Revenue Decrease: 3% US$ 620/t 35% US$ 535/t 3,420 3,387 33% 215 190 3,283 161 US$ 498/t 1,204 493 1,123 626 27% 530 US$ 443/t 2,534 US$, mn 23% 23% US$, mn US$, mn 171 2

  31. Slide 31: Cost of goods sold

    Cost of goods sold CoGS structure – key items CoGS drivers Q1 2014 RUB 17,443 mln RUB 16,003 mln RUB 18,618 mln • Personnel costs declined 20%, or RUB USD 499 mln USD 492 mln USD 612 mln 668 million (USD 19 million), y-o-y as Am. Sulphate result of the staff optimisation programme 2% Changes in stoc

  32. Slide 32: Overview of debt

    Overview of debt Total debt and net debt / annualised EBITDA Comment 2.50 2.14  PhosAgro carefully manages its balance sheet 1.81 2.00 and cost of financing for all current initiatives, 1.78 including both the consolidation of subsidiaries 1.50 and growth projects 1.07 1.32 0.83 1.00  Net debt / a

  33. Slide 33: Capital expenditure

    Capital expenditure Capex / EBITDA Comment RUB mln  Capex defined as all additions to PP&E – additions to PP&E do not necessarily match cash flow in the same period Main projects:  Construction of ore shaft № 2 at Kirovsky underground mine (in progress)  Commencement of construction of new 760 kt

  34. Slide 34: CAPEX 2013

    CAPEX 2013 EBITDA vs Capex¹ Development CAPEX 2010 - 2013 EBITDA Total capital expenditures (lhs) 35,370 34,695 23,934 20,464 16,801 17,662 14,881 17% 10,614 37% 7% 2010 2011 2012 2013 39% Downstream end-products overall capacity increase Overall capacity +28% 6.4mln t Overall capacity Mining and be

  35. Slide 35: Revenue per tonne for key products

    Revenue per tonne for key products 1Q2014, 4Q2013, 1Q2013 Average revenue per tonne - export 1200 985 1000 945934 USD/t 800 670 565 547559 572 600 493 494 491 444 449 474 394 393 390 387373 371 400 342 333 350 323 276 269 285 243 172208 200 0 Phosphate DAP MAP NPK NPS APP MCP SOP Urea STPP rock 1Q 2

  36. Slide 36: Revenue per tonne and volume developments for key products

    Revenue per tonne and volume developments for key products Phosphate-based fertilizers and MCP sales DAP MAP volumes Peak 2008 FOB Baltic price: US$1,190/t (1) 700 700 5,000 4,672 592 602 4,243 594 584 568 600 580 4,063 600 544 3,842 535 4,000 465 483469 ths of tonnes 500 US$ per tonne 500 447 451 U

  37. Slide 37: Dividend history

    Dividend history per share, per GDR, per GDR, Post-IPO dividends RUB RUB US$ 2011 April-December 57.5 19.17 0.61 2012 82.9 27.63 0.88 Dividends 1H2013 15.45 5.15 0.16 2H2013 Recommended 19.30 6.43 0.18* Total 2013 34.75 11.58 0.34 Net profit attributable to Post-IPO dividends Dividends, PhosAgro sha

  38. Slide 38: Consolidated income statement

    Consolidated income statement (USD in millions) 2010 2011 2012 2013 Revenues 2,534 3,420 3,387 3,283 Cost of Sales (1,570) (1,912) (1,934) (2,139) Gross Profit 964 1,508 1,453 1,144 Selling, General & Administration (387) (426) (462) (526) Other Income (Expense) (93) (84) (85) (111) Operating Profit

  39. Slide 39: Consolidated balance sheet

    Consolidated balance sheet (USD in millions) 2010 2011 2012 2013 Cash and Equivalents 173 526 318 273 Accounts Receivable 522 339 416 371 Inventory 253 314 406 376 Other Current Assets 108 66 40 50 Total Current Assets 1,056 1,244 1,181 1,070 Net Property, Plant & Equipment 1,525 1,774 2,186 2,320 I

  40. Slide 40: Consolidated cash flow statement

    Consolidated cash flow statement (USD in millions) 2010 2011 2012 2013 Profit before taxation 515 963 1,004 315 Depreciation, amortisation + reversal of impairment loss 190 206 210 245 Finance Costs 14 45 47 71 Finance Income (50) (28) (67) (36) Other (15) 16 (60) 105 Operating Profit before changes

  41. Slide 41: Appendix

    Appendix

  42. Slide 42: RUB devaluation: EBITDA sensitivity

    RUB devaluation: EBITDA sensitivity(1) 1,600 1,400 1,200 EBITDA, $US mn 1,000 800 600 400 200 0 400 425 450 475 500 525 550 DAP, $US RUB/USD: 36 RUB/USD: 31 in mln USD 2014E DAP FOB Baltic price, $/tonne 400 425 450 475 500 525 550 31 506 622 739 856 973 1 089 1 206 32 569 686 803 919 1 036 1 153 1

  43. Slide 43: High quality production assets

    High quality production assets Apatit Resources(1) Murmansk Cherepovets production complex - largest in Europe Apatite-nepheline ore: 2 060 mt Kirovsk PhosAgro Cherepovets Al2O3: 283 mln t Capacity by product REO(2): 7.5 mln t MAP/DAP/NPK/NPS: 3.1 mln t Ammonia: 1,150 kt St. Petersburg Capacity by p

  44. Slide 44: Flexible production capacity

    Flexible production capacity PhosAgro production capacities Capacity growth 2011-2013 2013(1), mln t MAP/DAP 2011 – 2013, mln t(2) DAP/MAP/NPK/NPS 2.45 1.85 4.3 2013 1.85 NPK capacities 2011 1.7 +9% Urea 0.98 MAP/DAP/NPK: fully flexible production lines with NPK production 2011 – 2013, mln t(2) AN/A

  45. Slide 45: India depends on P2O5 imports

    India depends on P2O5 imports India is the major purchaser of DAP/MAP… … and importer of feedstock for phosphates production World DAP/MAP Imports : ~9.6 mln t of P2O5 per annum(1) Global Phosphoric Acid Imports of 4.3 mln t P2O5 India 1.9 FSU Others Oceania 2% Europe 1% 4% Asia (excl. India) East A

  46. Slide 46: Uncertain policy for nutrient subsidies in India

    Uncertain policy for nutrient subsidies in India decrease fertilizer imports and unbalance fertilization Evolution of N : P2O5 : K2O ratio in India Unbalanced fertilization N P2O5 K2O 0.5 0.5 Balanced ratio 4.0 2.0 1.0 0.4 2010/11 4.3 2.0 1.0 2011/12 6.9 3.1 1.0 P2O5 /N ratio 0.3 2012/13 7.7 3.0 1.0

  47. Slide 47: India DAP import demand set to rise

    India DAP import demand set to rise Quarterly DAP imports to India Average annual DAP import for 2010-2013: 5.8 mln t 3,028 Expected DAP import volumes 3,000 to India of more than 5 mln t 2,500 2,000 1,488 1,500 kt 1,000 950 500 422 140 0 1Q 2Q 3Q 4Q 2010-2013 average 2014 (est) 2014E Source: FAI, A

  48. Slide 48: China is the major consumer of phosphate fertilizers

    China is the major consumer of phosphate fertilizers The biggest portion of the world’s growing 7 bln population(1)… Limited arable land stimulates fertilizer consumption Breakdown of World population by countries Europe 11% China 0.10 North America China 5% 19% Latin America 9% India 0.14 India ha

  49. Slide 49: Growing food consumption in China drives demand for phosphates

    Growing food consumption in China drives demand for phosphates China’s Economy keeps growing Food Imports are growing in China Grain Imports % 16 12,000 50 CAGR +7% 40 CAGR +15% 30 CAGR+57% 14 mln t 10,000 20 12 10 0 8,000 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2023/24F 10 Soybean Imports U

  50. Slide 50: Growth in phosphate rock production capacities 2000-2011

    Growth in phosphate rock production capacities 2000-2011 Morocco controls most of world phosphate ore reserves Net addition to phosphate rock production capacities Russia 2%Others 5% (excl. China) of 14 mn t USA 2% Jordan 2% with 0.8% CAGR Algeria 3% Syria 3% China 5% Morocco Iraq 8% and Western Sah

  51. Slide 51: Phosphate rock/DAP price ratio

    Phosphate rock/DAP price ratio 700 60% 600 50% 500 40% 35% 400 29% 30% 25% 300 20% 23% 200 10% 100 0% 0 -10% DAP, FOB Tampa (lhs) Phosphate rock, FOB Morocco (lhs) Phosphate rock/DAP price ratio (rhs) Average Ratio (rhs) Source: FMB 52

  52. Slide 52: Premium/discount to the most affordable Moroccan phosphate rock

    Premium/discount to the most affordable Moroccan phosphate rock High grade phosphate rock Apatit (PhosAgro)  Phosphate ore affects production costs associated with impurities  The benchmark: K10 phosphate rock, made by OCP (Morocco)  Important characteristics included:P2O5 content, CaO content, M

  53. Slide 53: Control of world's premium phosphate resource base

    Control of world’s premium phosphate resource base 100 Higher cadmium Phosphate rock 100 GCT with MER > 0.10 content in 29% sedimentary Mosaic significantly OCP 32% rocks 28.5% increases costs for PCS production of Average Cadmium content in ppm 29.5% CF Industries 10 DAP 29% 10 Agrium 33% 1 1 Euroc

  54. Slide 54: GDR performance

    GDR performance 180 Eurobond offering 50 PhosAgro ADTV ($000) in LSE SPO 3 months 5,482 170 45 1 month 3,979 1 week 2,274 160 40 150 Uralkali announced 35 split with BPC 140 GDRs included in Dow 30 Daily Turnover, $US mn Rebased to 100 Jones Islamic BRIC Index 130 Announcement of GDRs inclusion into

  55. Slide 55: GDR performance and DAP prices

    GDR performance and DAP prices % May 2014 price: GDR: US$ 11.75 110 DAP FOB US Gulf: US$ 450/t 100 90 May 2014 Rebased to 100 80 70 60 1st Jan 2012: 50 GDR: US$ 8.44 DAP FOB US Gulf: US$ 535/t 40 14-Nov 14-Dec 14-Nov 14-Dec 14-Nov 14-Dec 14-Oct 14-Feb 14-Mar 14-Oct 14-Feb 14-Mar 14-Oct 14-Feb 14-Mar

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