Today Acron (Moscow Exchange and LSE: AKRN) released its unaudited consolidated condensed IFRS financial statements for Q1 2014.
• Revenue was up 5% year-on-year to RUB 17,351 million (USD 496 million)
(Q1 2013: RUB 16,561 million)
• EBITDA* was down 4% year-on-year to RUB 4,263 million (USD 122 million)
(Q1 2013: RUB 4,461)
• EBITDA margin was 25%, down fr om 27% year-on-year
• Net profit was down 39% year-on-year to RUB 1,437 million (USD 41 million)
(Q1 2013: RUB 2,358 million)
• Net debt was down 11% to RUB 32,525 million (USD 911 million)
(RUB 36,633 million as of December 31, 2013)
• Net debt/LTM EBITDA** was 2.1, against 2.4 as of December 31, 2013.
• Sales of key products totalled 1.583 million tonnes, up 13% year-on-year.
Chair of Acron Board of Directors Alexander Popov comments:
Timely decisions to optimise Acron’s investment programme, decrease production costs, strengthen vertical integration and monetise financial assets have helped the Group remain confident and maintain its leading position in the market. The Group’s EBITDA margin recovered to 25%, while relative debt burden scaled down. We are optimistic about the mid- and long-term prospects of the mineral fertiliser market, and well-prepared for possible temporary negative scenarios for short-term development. Over the years we have proved our global competitiveness while continuing development, building new capacity and embarking on the manufacture of new products.
Notes on Key Items in the Financial Statements
The Group’s revenue in Q1 2014 was up 5% year-on-year to RUB 17,351 million. The major factor driving revenue up was a 13% increase in sales volume. Product prices in dollar equivalent were lower year-on-year; however, this was partially offset by a weaker rouble exchange rate.
Average world indicative prices for the Group’s main products in the first three months of 2014 were: USD 339 per tonne FOB for NPK 16-16-16, USD 309 per tonne FOB for ammonium nitrate, USD 328 per tonne FOB for urea, and USD 273 per tonne FOB for urea-ammonium nitrate.
The cost of goods sold in the reporting period was RUB 10,418 million, up 10% from 2013. On the back of a 13% increase in sales, higher production costs were reined in by a lower potash purchase price.
Selling, general and administrative expenses decreased 2% thanks to Acron’s cost control programme. Transportation expenses were up 5% due to higher railway expenses as a result of increased rail shipments and higher transshipment costs, tariffs for which are primarily set in foreign currency.
In Q1 2014, EBITDA was RUB 4,263 million, down 4% year-on-year. EBITDA margin was 25%, against 27% in Q1 2013. The Group’s lower profitability accounts for higher production cost and lower mineral fertiliser prices.
Fluctuations in the RUB/USD exchange rate in the reporting period had a material impact on the Group’s financial performance. At the end of the reporting period, the Group recorded a net foreign exchange loss related to revaluation of the Group’s assets, debts and liabilities of RUB 2,442 million, against a loss of RUB 544 million for Q1 2013.
Thus, Q1 2014 net profit was RUB 1,437 million, down 39% year-on-year. Most of this decrease was caused by the foreign exchange loss.
Operating cash flow in the reporting period declined 58% to RUB 1,861 million (Q1 2013: RUB 4,445 million) as a result of an increase in the Group’s working capital by RUB 2,045 million, against a release of RUB 2,072 million in the previous year. The increase in working capital was attributed to greater amount of accounts receivable and less advances paid by customers.
Net cash spent on investment activity in the reporting period was RUB 1,763 million (Q1 2013: RUB 5,075 million). CAPEX was RUB 2,230 million, down 22% year-on-year.
Net cash flow from financial activity in Q1 2014 was RUB 5,030 million (Q1 2013: RUB 298 million). Cash inflow came from the sale of a stake in Verkhnekamsk Potash Company (VPC) for RUB 6,673 million.
Net debt in the reporting period was down 11% to RUB 32,525 million, mainly due to the sale of a 19.9% stake in VPC to Sberbank Investments. In dollar terms, net debt decreased more significantly (19%) from USD 1,119 million at the end of 2013 to USD 911 million at the end of Q1 2014. The relative debt burden was also down, with Net Debt/LTM EBITDA at 2.1 (against 2.4 in late 2013). Total debt was up 4% to RUB 52,379 million on the back of a weaker rouble exchange rate. In dollar terms, this index decreased 4%. Short-term debt in the reporting period contracted 17% to RUB 22,894 million.
In Q1 2014, buyer activity and demand in the mineral fertiliser market were high as expected prior to spring seeding season in the northern hemisphere. Global prices for nitrogen, phosphorous and complex fertilisers surged from wh ere they had been at the end of 2013. Prices in the potash segment did not show an upward trend, but global sales of potassium chloride nearly reached record highs.
Prices for nitrogen fertilisers started to decline in late March-early April as lower export duties in China contributed to oversupply. At the same time, a scale back of Ukrainian production had a positive impact on the supply and demand equilibrium, partially offsetting temporary global oversupply of urea. The nitrogen segment is expected to reach its price floor in July or August, after which it may start recovering.
The NPK market was strong in the reporting period, despite increased volatility in the nitrogen and potash segments. Sales remained high. For the most part, the NPK market was stable due to stability in the potassium chloride market.
The full version of Acron Group’s financial statements is available at www.acron.ru/en.
Note: The exchange rate for currency conversion was RUB 35.6871 for USD 1 as of March 31, 2014, RUB 32.7292 for USD 1 as of December 31, 2013. The average exchange rate in Q1 2014 was RUB 34.9591 for USD 1.
* EBITDA is calculated as operating profit adjusted for depreciation of fixed and intangible assets, Forex gains or losses, and other non-monetary and non-core items.
** LTM EBITDA is EBITDA calculated for last 12 months.