Today Acron (Moscow Exchange and LSE: AKRN) released its audited consolidated IFRS financial statements for 2015.
- Revenue was up 42% year-on-year to RUB 106,055 million (USD 1,740 million) (2014: RUB 74,631 million)
- EBITDA* more than doubled to RUB 42,416 million (USD 696 million) (2014: RUB 20,410 million)
- EBITDA margin was 40%, up from 27% year-on-year
- Net profit increased by a factor of 2.4 year-on-year to RUB 16,706 million (USD 274 million) (2014: RUB 6,904 million)
- Net debt was down 8% to RUB 51,185 million (31 December 2014: RUB 55,788 million). In dollar equivalent, net debt was down 29% to USD 702 million from USD 992 million
- Net debt/LTM EBITDA** was 1.2, against 2.7 as of 31 December 2014. In dollar equivalent, Net debt/LTM EBITDA was down to 1.0.
- Output of key products was 6,431 million tonnes, up 3% year-on-year
- Sales of key products totalled 6,296 million tonnes, showing almost no change year-on-year.
Chair of Acron’s Board of Directors Alexander Popov comments on the results:
“2015 was difficult for the mineral fertiliser market. There were a number of factors suppressing demand, including low prices for farm products and weaker national currencies in major consumer countries. Prices across all market segments declined due to oversupply.
“Negative market conditions notwithstanding, Acron Group’s key financials are among the best in its history. The Group posted net profit of USD 274 million. Despite of a 10% decline in revenue in dollar equivalent (USD 1,740 million), we were able to increase EBITDA by 31% to USD 696 million, and EBITDA margin was 40%.
“The Group’s financials were sustained by a weaker rouble and improved efficiency at NWPC. In early 2015, the Oleniy Ruchey mine reached its first stage design capacity of 1.1 mtpa. Oleniy Ruchey’s EBITDA margin outperformed the Group’s other facilities and reached 56%. NWPC also contributed a considerable USD 90 million to the Group’s consolidated EBITDA.
“Another dramatic source of support for Acron Group and the Russian mineral fertiliser industry as a whole was the commitment by the Russian Government to support the free currency exchange market and not increase the fiscal burden on businesses. With these measures in place, Acron Group and other Russian mineral fertiliser producers remained competitive despite the considerable decline in global prices.
“2015 was the seventh successive year that the Group posted increased production results. We are progressing with our investment projects and have every reason to believe that this trend will continue in the coming years. In 2015, Acron almost finalised construction of the new Ammonia-4 unit based in Novgorod, and we hope to start production in late April 2016. Commissioning of the new facility will drive production results for the next two years. Starting in 2017, the second stage of the Oleniy Ruchey mine will additionally contribute to boosted output.
“As we passed the investment cycle peak, Acron’s debt burden continued to sustainably decrease. Net debt was down to USD 702 million from USD 992 million, and the net debt/EBITDA ratio was down to 1.0 from 1.9.
“We believe that as the final stages of these investment projects are implemented, the Group will generate enough cash flow to support its debt burden at a comfortably low level and increase dividend payments, even taking into account the Talitsky potash project.”
Notes on Key Items in the Financial Statements
The Group’s revenue in 2015 was up 42% year-on-year to RUB 106,055 million. The major factor driving revenue was a weaker rouble, while sales volume of key products did not change year-on-year. Output volume was down at Hongri Acron due to an equipment upgrade to improve environmental safety and at Acron in Veliky Novgorod due to a scheduled overhaul. However, this was offset by increased output at the Oleniy Ruchey mine, which reached Stage 1 design capacity in March 2015, and increased output at Dorogobuzh due to fewer overhauls.
Average global indicative prices for the Group’s main products in 2015 were: USD 355 per tonne FOB for NPK 16-16-16, USD 223 per tonne FOB for ammonium nitrate, USD 198 per tonne FOB for UAN, and USD 267 per tonne FOB for urea. In 2015, average prices for complex fertilisers did not change year-on-year, and were down 15 to 20% for nitrogen fertilisers.
The cost of goods sold in the reporting period was RUB 50,119 million, up 17% year-on-year. The higher cost of goods was mainly driven by the higher price of potash, which is linked to the dollar exchange rate.
Selling, general and administrative expenses were up 30% due to indexation of rouble-denominated wages at Russian facilities and foreign currency-denominated personnel expenses, including at the Group’s foreign facilities. Transportation expenses were up 30% due to indexation of railway tariffs and the weaker rouble, given that a considerable portion of the expenses that make up this item are denominated in foreign currency.
In 2015, the Group’s share in Grupa Azoty S.A.’s profit calculated based on equity accounting was RUB 2,241 million.
In 2015, EBITDA more than doubled year-on-year to RUB 42,416 million. EBITDA margin was 40%, up from 27% in 2014. Novgorod-based Acron and Dorogobuzh facilities operated with margins of 44% and 45%, respectively. NWPC’s margin reached 56% due to expanded operations and streamlined costs.
In 2015, the Group posted a net exchange loss of RUB 7,730 million from revaluation of assets, loans and liabilities, against a loss of RUB 17,772 million year-on-year.
In 2015, net profit increased by a factor of 2.4 year-on-year to RUB 16,706 million.
Net cash generated from operating activities in the reporting period increased by a factor of 2.9 to RUB 36,531 million (2014: RUB 12,694 million), mainly due to higher net profit and the release of RUB 2,931 million in working capital (2014: working capital increased by RUB 4,088 million).
Net cash used in investing activities in the reporting period was RUB 14,818 million, against RUB 11,408 million in 2014. CAPEX was RUB 15,107 million (2014: RUB 11,478 million). This growth was mainly due to intensified CAPEX on the Ammonia-4 project.
Net cash used in financial activities in 2015 was RUB 23,116 million, against RUB 1,107 million received in 2014. Cash outflow was caused by loan servicing: in 2015, net loan changes were RUB -16,504 million, against RUB 1,073 million year-on-year.
The percentage of long-term debt in the Group’s total debt increased to 84% from 35% as of the beginning of the year. Net debt in rouble terms in the reporting year was down 8% to RUB 51,185 million. In dollar terms, net debt was down 29% to USD 702 million.The relative debt burden also decreased in rouble terms, and net debt / LTM EBITDA was 1.2, against 2.7 at the beginning of the year. In dollar terms, net debt / LTM EBITDA was down to 1.0.
As of the publication of the IFRS statements, the Board of Directors has not resolved on a recommendation regarding dividends for the reporting year. Interim dividends were not distributed in 2015. In 2014, the dividends amount (paid from retained profit of past years) was RUB 5,565 million (RUB 139 per share), which was 82% of 2014 IFRS net profit. It should be noted that the Group’s dividend policy requires annual dividends to be no less than 30% of IFRS net profit. The Group plans to increase dividends starting with distributions for 2016.
According to the IFA, in 2015 demand for nitrogen fertilisers remained flat year-on-year, while ammonia and urea production was up 2%. The market is oversupplied.
Urea consumption was up in India. In Brazil, demand went down as farmers’ purchasing power decrease due to low prices on agricultural goods, a weak national currency and rising loan interest.
Urea production increased in West and South Asia, China and Algeria. Production decreased in Ukraine due to the political crisis and in Egypt because of interrupted gas supplies. China retained its position as the world’s largest urea exporter, with a market share of 30%. Chinese exports were high because of a significant decrease in export duties.
Urea prices slipped throughout the year due to excess supply coupled with lower production costs in key regions. Producers in developing countries became more competitive as their national currencies lost ground. In Europe and the U.S., costs decreased due to lower natural gas prices. Chinese producers benefitted from a weak yuan and a drop in the price of coal, the main feedstock for urea production in the country. However, by year-end increased competition pushed urea prices below the cost of production for most Chinese producers, which is estimated at USD 240.
Urea prices continued to decline at the beginning of 2016. The prices dropped to USD 200 FOB China, after which Chinese producers refused to decrease prices further. China is expected to pull back production, which will stabilise the market. China’s urea export in February was the lowest since June 2014. Eventually there will be a gradual substitution as the most cost ineffective producers are replaced by new capacity based outside of China. However, due to the country’s market share in global urea production and export, Chinese producers’ costs will continue to determine global prices.
Prices for premium products such as ammonium nitrate and UAN decreased more than urea prices (main feedstock) in 2015. UAN prices were affected by aggressive Chinese exports. In 2015, China’s UAN export increased 84% to 411,000 t, 80% of which was shipped to the United States. American consumers benefited from the excess supply and delayed UAN procurement in Q3 and Q4 until the spring sowing in order to buy at the lowest prices. Ammonium nitrate prices went down due to weak demand from Brazil.
Despite the decrease in prices for nitrogen products, Russian producers remained competitive in the global market. NPK prices remained stable in H1 2015. In H2 of the reporting year, lower main feedstock prices led to a drop in NPK prices. However, the NPK price decrease was more gradual, causing an increase in the product basket premium.
The full version of Acron Group’s financial statements and the 2015 performance presentation are available at www.acron.ru/en. Detailed analysis of the Group’s operation is included in the 2015 report, a draft of which will be available at www.acron.ru/en 30 April 2016.
Note: The exchange rate for currency conversion was RUB 72.8827 to USD 1 as of 31 December 2015 and RUB 56.2584 to USD 1 as of 31 December 2014. The average exchange rate in 2015 was RUB 60.9579 to USD 1. The average exchange rate in 2014 was RUB 38.4217 to USD 1.
* EBITDA is calculated as operating profit, including the share of profit of equity accounted investees, 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 the last 12 months.