Fertiglobe's second-quarter profit surges almost fourfold on revenue boost

Fertiglobe, the world’s largest seaborne exporter of urea and ammonia, said its second-quarter net profit surged almost fourfold, as a rise in selling prices and volume of products sold boosted revenue.

Net profit attributable to owners of the company for the three-month period to the end of June climbed to $429.4 million, from $113.3m recorded a year earlier, the company said in a statement on Tuesday to the Abu Dhabi Securities Exchange, where its shares are traded.

Adjusted net profit for the April to June period surged more than 270 per cent to $438m.

Revenue in the second quarter rose 105 per cent on an annual basis to $1.47 billion, while adjusted earnings before interest, taxes, depreciation and amortisation rose 155 per cent year on year to $770m.

“Q2 2022 marks another quarter of solid performance, driven by a favourable price backdrop supported by strong in-season demand, tight market balances and elevated gas prices in Europe, as well as higher sales volumes due to a phasing of some shipments from Q1 2022 to this quarter,” said Ahmed El-Hoshy, chief executive of Fertiglobe.

“We continue to focus on operational excellence and utilising our young, world-scale production assets efficiently while fully capitalising on global supply chains — in partnership with OCI — to capture the highest netbacks.”

Fertiglobe announced a first-half dividend of $750m, above the company’s previous guidance of at least $700m, driven by its strong earnings, healthy cash conversion and robust capital structure.

It expects to give guidance on second-half dividend around the "November timeframe" after the third quarter earnings announcement, Mr El-Hoshy told The National.

"Once that happens, we can we can probably share some more colour with the market on dividend, but obviously we're very focused on continuing to distribute all free cash flow," he said.

The company, a joint venture between Adnoc and Netherlands-listed OCI, raised about $795m in its initial public offering last year with strong demand from international, regional and local investors. The listing was the third largest on the ADX at the time.

Fertiglobe, the largest producer of nitrogen fertilisers by production capacity in the Middle East and North Africa, sold more than 1.145 billion shares in the public float, representing 13.8 per cent of its share capital.

The company said the outlook for the fundamentals of nitrogen end-markets continues to be underpinned by "tight supply, healthy farm economics and low grain stocks globally that incentivise the use of nitrogen fertilisers".

"Forward curves imply that natural gas prices in Europe will remain at elevated levels through 2023 and beyond, setting breakeven pricing well above historical average global prices for ammonia and urea," Mr El-Hoshy said.

With nitrogen prices expected to remain above historical averages, Fertiglobe’s assets are favourably positioned on the global cost curve, and the company is benefiting from a higher global gas price environment.

Fertiglobe has a significant competitive advantage with "favourable gas price supply agreements, including fixed prices in Abu Dhabi and profit-sharing mechanisms in North Africa", the company said.

Going forward, Fertiglobe will aim to fill “supply gaps to help address global food security concerns”, Mr El-Hoshy said.

Fertiglobe may experience some weakness in business if there is a global recession as demand from the automotive and construction sectors could decline.

However, "relative to other private sector businesses and governments, I think that we're in a position where we feel a lot more comfortable", he said.

The company generated free cash flow of $789m in the April-June period, more than double the $328m recorded in the second quarter of last year. Its net cash at the end of June reached $445m.

Fertiglobe has held "very good conversations" with banks and investors for potential fund raising later this year. The company has yet to decide if it will tap the bond market for a benchmark size transaction or raise finances through bank loans to pay off about $900m left on its pre-IPO $1.1bn bridge finance facility.

"We have the ability to [do it], but we're going to be very, very opportunistic about it," Mr El-Hosny said.

In June, Moody's Investors Service assigned a Baa3 long-term issuer rating to Fertiglobe with a stable outlook, while Fitch Ratings allocated a first-time long-term issuer default rating of BBB with a stable outlook. The company is also rated BBB- by S&P Global Ratings.

The Abu Dhabi company is investing in several initiatives to produce low and zero-carbon ammonia by helping existing and new clients looking to use hydrogen in the form of ammonia for marine fuels, power generation and other industrial applications, Mr El-Hoshy told The National in a January interview.

Ammonia allows for the easy transport of hydrogen, the blue form of which is derived from gas and the green version from splitting water into hydrogen and oxygen using renewable sources.

Fertiglobe, which produces 6.7 million tonnes of urea and merchant ammonia, has several projects in the pipeline that will significantly increase its capacity, he said at the time.

In March, Fertiglobe was announced as a founding constituent of the FTSE ADX 15 Index, which includes the largest and most liquid 15 companies on the ADX. It was included in the FTSE Emerging Markets Index in June.