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Acron Releases 2014 IFRS Financial Statements

 Today Acron (Moscow Exchange and LSE: AKRN) has released its audited consolidated IFRS financial statements for 2014.
Financial Results 
  • Revenue was up 10% to RUB 74,631 million (USD 1,943 million) against RUB 67,904 million year-on-year 
  • EBITDA* was up 32% to RUB 20,249 million (USD 527 million) against RUB 15,386 million in 2013 
  • EBITDA margin was 27% against 23% last year 
  • Net profit was RUB 6,904 million (USD 180 million), down 47% year-on-year from RUB 13,019 million 
  • Net debt was up 52% to RUB 55,788 million against RUB 36,633 million at the end of 2013. At the same time, net debt denominated in dollars actually decreased to USD 992 million from USD 1,119 million. 

Operating Results 
  • Output of the main products was 6.267 million tonnes, up 2% year-on-year. 
  • Sales of the main products were 6.3 million tonnes, up 2% year-on-year. 

Alexander Popov, Chairman of Acron Board of Directors, comments on the performance: 

Many of us will remember 2014 as a year of dramatic geopolitical events, which naturally affected the Russian economy and Russian companies. Because Acron Group chose the optimal business model it operated with confidence and posted solid financial results. 

Although the global fertiliser market was relatively stable in the past year, it did not show any growth. World fertiliser consumption was up just 0.5%, far below expectations. Competition gained strength as China increased its exports of major fertilisers, considerably limiting the growth potential of world prices. The market remained balanced due to difficulties with export supplies in some countries, including Ukraine and Egypt. Because Acron Group has diversified and balanced the structure of its sales markets, it was able to react flexibly to changes and maintained 100% sales. The Group expanded its sales geography in 2014 and currently supplies its products to 66 countries. 

With global prices for our products stagnant, we focused on reducing costs with a cost saving programme. These efforts had a positive impact on our financial performance, leveraged by the full vertical integration of the Group’s Russian companies for phosphate feedstock, as well as macroeconomic factors, such as a weaker rouble and frozen tariffs for Russia’s natural monopolies. As a result, Acron Group enhanced its competitiveness in the global context, and its EBITDA margin reached 27%, against 23% last year. 

The adjusted development strategy approved in 2013 helped us focus on the most efficient investment projects, maintaining fiscal discipline and passing the debt burden peak in the third quarter of 2014. Due to macroeconomic factors, we subsequently decreased our debt burden. Dollar-denominated net debt/EBITDA at year-end was 1.9, against 2.4 the previous year. 

In 2014, the Group demonstrated considerable progress in implementing its investment projects. The Oleniy Ruchey mine in the Murmansk region produced 891,000 tonnes of apatite concentrate. In addition to supplying apatite concentrate to our chemical operations, we started selling it in the domestic market and for export. The construction of the second stage of the Oleniy Ruchey mine is underway according to schedule and is to be completed in 2017. 

Our 2015 priorities include: completing construction and starting the test-run of the new ammonia unit, which will be the first project built since Soviet times and the most powerful unit of its kind in Russia. Ammonia-4 project is the key to reduction of the Group’s capex, improved financial performance and, as a result, increased free cash flows. 

With regard to the potash project implemented by Verkhnekamsk Potash Company (development of the Talitsky area of the Verkhnekamsk potassium and magnesium salt deposit) in Perm Krai, together with our co-investors, we have identified optimal ways to finance the potash project. Sberbank Investments acquired a stake in the project in early 2014. In 2015, we plan to complete the design engineering for the Talitsky mine and obtain state expert review approval for the main facilities of the mine and above-ground complex. This year, we will continue construction of temporary buildings and structures followed by ground freezing and shaft sinking. 

We also plan to focus on significantly reducing the Group’s debt burden in 2015 while continuing to invest heavily in strategic projects. To improve the Group’s liquidity and credit, in late December 2014 we executed a 5-year syndicated structured pre-export finance facility for up to USD 525 million with a club of international and Russian banks. This long-term loan facility helps us mitigate refinancing risks, which is especially important in the complicated Russian debt finance market since the end of 2014.


Notes on Key Items in the Financial Statements 

Financial Results 

World fertiliser prices showed slightly negative dynamics in the reporting year. The average world dollar-denominated prices decreased 8% for NPK 16-16-16 and 2% for AN. Lower prices were offset by 21% weaker rouble and 2% increase in sales to a record of 6.3 million tonnes. Thus, the revenue in 2014 was up 10% to RUB 74,631 million. 

Cost of sales in 2014 totalled RUB 42,684 million, up 2% year-on-year, mainly due to higher expenses and prices for fuel and power as a result of greater production volume, higher cost of repair and maintenance and higher cost of materials and components. Depreciation increased due to commissioning of capital construction projects. To some extent, the increase was mitigated by lower prices for potash feedstock and reduced phosphate input costs as part of the Group’s transition to own apatite concentrate supplies, as well as lower personnel costs. 

Selling, general and administrative expenses went up 22%, and transportation expenses were up 17%, primarily due to the significant forex component. 

In 2014, EBITDA was RUB 20,249 million, up 32% against 2013. EBITDA margin was up 4 percentage points to 27%. The increased profitability of the Group is mainly due to weakening of rouble. 

Net profit in the reporting period was RUB 6,904 million, down 47% year-on-year. The main reason behind the lower net profit was the foreign exchange rate loss from revaluation of the Group’s currency loans, which was partially offset by gain on disposal of investment. 

Cash Flow 
In 2014, net cash flow generated from operating activities was down 12% to RUB 12,694 million (2013: RUB 14,360 million), mainly due to increase in the Group’s working capital by RUB 4,088 million, against its decrease by RUB 4,336 in 2013. The increase in working capital was caused by higher value of inventories, trade receivables and other accounts receivable and advance payments to suppliers. 

Net cash used in investment activities was RUB 11,408 million in 2014 against RUB 9,247 million in 2013. Capital expenditures were RUB 11,478 million, down 21% year-on-year. The structure of the Group’s financial assets changed in the reporting year as it acquired shares of Grupa Azoty for RUB 4,115 million and sold its Uralkali stake for RUB 3,984 million. 

In 2014, net cash inflow from financial activities was RUB 1,107 million against outflow of RUB 20,975 million in 2013. The inflow was due to the sale of VPC stake and less amount of debt repayments that previous year. The outflow related to dividend distribution totalled RUB 6,161 million against RUB 2,598 million last year. 

Debt Burden 
In the reporting year, net debt in rouble equivalent was up 52% to RUB 55,788 million, as a result of sharp weakening of rouble at the end of 2014. Dollar-denominated debt actually decreased 11% to USD 992 million. Relative debt burden in dollar equivalent contracted as well, and net debt/EBITDA ratio was 1.9 against 2.3 last year. 

As of the date of the Financial Statements release, the Board of Directors has not yet adopted a resolution on dividend recommendations for the reporting period. No interim dividends were paid in 2014. Dividends paid for 2013 (out of retained earnings for previous years) was RUB 6,161 million (RUB 152 per share) and accounted for 47% of IFRS net profit for 2013. The Group’s dividend policy stipulates annual dividend payment in the amount of no less than 30% of the IFRS net profit. 

The full financial statements, as well as a presentation on performance in the 2014 fiscal year, are available at The Group’s operating analysis is detailed in the 2014 Annual Report, and its draft shall be available at on 30 April 2015. 

Note: The exchange rate for currency conversions was RUB 56.26 to USD 1 as of 31 December 2014 and RUB 32.73 for USD 1.00 as of 31 December 2013. The average exchange rate for 12 months of 2014 was RUB 38.42 to USD 1. 

* EBITDA is calculated as operating profit adjusted to depreciation of fixed and intangible assets, Forex gains or losses, and other non-monetary and non-core items.
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