Today Acron (Moscow Exchange and LSE: AKRN) released its consolidated IFRS financial statements for the first half of 2016.
- Revenue was RUB 51,199 million (USD 729 million), down 2% year-on-year (H1 2015: RUB 52,077 million)
- EBITDA* was down 9% year-on-year to RUB 18,408 million (USD 262 million) (H1 2015: RUB 20,261 million)
- EBITDA margin was 36%, against 39% year-on-year
- Net profit was up 6% year-on-year to RUB 12,837 million (USD 183 million) (H1 2015: RUB 12,063 million)
- Net debt at the end of the reporting period was up 16% to RUB 59,477 million (31 December 2015: RUB 51,185 million). In dollar equivalent, net debt was up 32% to USD 926 million from USD 702 million
- Net debt/LTM EBITDA** was 1.5, against 1.2 as of 31 December 2015.
- Output of key products was 3.206 million tonnes, up 3% year-on-year, including the Group’s Russian facilities, whose output was up 9% to 3.037 million tonnes.
- Sales of key products totalled 3.350 million tonnes, up 9% year-on-year, including the Group’s Russian facilities, whose sales were up 14% to 3.113 million tonnes.
Chair of Acron’s Board of Directors Alexander Popov commented on the results:
“Despite the complex global market environment and increasing level of competition, Acron Group has high production potential, and achieving that potential in the near future will help us keep financial performance at a sustainable level despite stagnant global prices.
“The main phase of the investment cycle at our Russian facilities is over. The first stage of the Oleniy Ruchey mine has reached its full capacity, and the new ammonia unit has been put into operation. These milestone events will drive continued production growth at the Group’s Russian plants for several years to come.
“With the sale of Hongri Acron in Q3 2016, we will focus on our top performing assets by increasing their efficiency and competitiveness.
“As we pursue a long-term increase in the Group’s shareholder value, we changed the partnership structure for our future Talitsky potash project by purchasing Eurasian Development Bank’s stake. We structured this transaction to minimally impact the Company’s balance sheet by selling our remaining interest in PJSC Uralkali.
“The successful symbiosis of production, investment and financing allows us to look into the future with confidence and increase the portion of profit allocated for dividends, thus ensuring a higher rate of return on shareholders’ equity. I would like to emphasize that the Board of Directors has already recommended paying interim dividends of RUB 155 per share based on H1 2016 results”.
Notes on Key Items in the Financial Statements
The Group’s revenue in the first half of 2016 was RUB 51,199 million, down 2% year-on-year. In the reporting period, global fertiliser prices decreased 12% to 30% in dollar equivalent, which was mainly offset by a 9% growth in sales and a weaker rouble exchange rate. In the first half of 2016, the average RUB to USD exchange rate was down 22% year-on-year.
Average global indicative prices for the Group’s main products in the first six months of 2016 were: USD 317 per tonne FOB for NPK 16-16-16, USD 170 per tonne FOB for AN, USD 195 per tonne FOB for urea, and USD 147 per tonne FOB for UAN.
Despite a 9% increase in sales, the cost of goods sold in the reporting period was only RUB 25,888 million, up 1% year-on-year. This growth was limited by lower potassium chloride prices and decreased output and sales at the most cost-intensive facility, Hongri Acron in China.
Selling, general and administrative expenses were up 8%, mainly due to indexation of rouble-denominated wages at Russian facilities. Transportation expenses were up 15% due to a 14% increase in sales by the Group’s Russian facilities, indexation of railway tariffs and reclassification of some costs of raw materials delivery from Cost of Sales to Transportation Expenses.
In the first half of 2016, EBITDA was RUB 18,408 million, down 9% year-on-year. EBITDA margin was 36% against 39% year-on-year. Veliky Novgorod-based Acron and Dorogobuzh facilities operated at 36% and 35% margin, respectively. NWPC reached 63% for EBITDA margin due to expanded operations and streamlined costs. In the reporting period, Hongri Acron posted a negative margin of -17%, as it was not running at full capacity in the challenging market conditions. The Group announced the sale of its share in Hongri Acron in Q3 2016.
Based on the results of the first half of 2016, the Group posted a net foreign exchange profit of RUB 2,388 million from revaluation of assets, loans and liabilities against a significant loss of RUB 17,772 million year-on-year.
In the reporting period, the Group reduced its share in Polish Grupa Azoty S.A. from 20% to 19.8%. The subsequent reclassification of this investment resulted in the equity method no longer being applied. For this reason, a loss of RUB 3,616 million was recorded under Result from Suspension of Use of Equity Investee Method related to a decrease of Grupa Azoty S.A. shares market price. In addition, the share in Grupa Azoty S.A. profit accrued based on equity method before the reclassification totalled RUB 1,544 million, against RUB 1,412 million year-on-year.
In the reporting period, Acron Group posted gain on disposal of investments in the amount of RUB 5,391 million, which was mainly due to the sale of the entire stake in PJSC Uralkali.
Therefore, net profit for the first half of 2016 was up 6% year-on-year to RUB 12,837 million.
In the first half of 2016, net operating cash flow was down 66% to RUB 3,789 million (first half of 2015: RUB 11,027 million) due to increased working capital and reduced profit from operations.
Net cash spent on investments in the reporting period was RUB 369 million, against RUB 5,654 million in the first half of 2015. Capital investments were up 9% from RUB 6,160 million in the first half of 2015 to RUB 6,703 million in the reporting period. Capital expenditures were offset partially by proceeds from sale of available-for-sale investments.
Net cash spent on financing activities in the first half of 2016 was RUB 7,502 million, against generated net cash of RUB 2,666 million in first six months of 2015. The cash outflow was generated by payment of RUB 7,187 million in dividends during the reporting period and the acquisition of non-controlling interest of RUB 8,952 million. Most of this amount came from the repurchase of the stake of a partner in Talitsky potash project. Against these expenditures, there was a net increase of borrowings in the amount of RUB 9,151 million.
In the reporting period, net debt in rouble equivalent was up 16% year-on-year to RUB 59,477 million. The relative debt burden also increased, and net debt / LTM EBITDA in rouble terms was 1.5, against 1.2 at the beginning of the year. This greater debt burden was mainly due to dividend payment and repurchase of the stake in the Talitsky potash project, which were partially offset by proceeds from the sale of investments.
In the first half of 2016, global prices for nitrogen and complex NPK fertilisers continued to decrease due to oversupply. In the second quarter, there was a reduction in the premium for such nitrogen products as AN and UAN, which significantly impacted Acron Group’s profitability. However, urea and phosphate prices stabilised on the back of decreased Chinese exports. In general, the continuing downtrend for fertiliser prices makes them more accessible for consumers around the globe, which eventually stimulates demand. This year demand is unstable: there is weaker demand in India, while farmers in the US and Russia are purchasing larger volumes and demand is stabilising in Brazil.
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 64.2575 to USD 1 as of 30 June 2016 and RUB 72.8827 to USD 1 as of 31 December 2015. The average exchange rate for six months of 2016 was RUB 70.2583 to USD 1. The average exchange rate for six months of 2015 was RUB 57.3968 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 past 12 months.