Today Acron (Moscow Exchange and LSE: AKRN) has released its consolidated IFRS financial statements for H1 2017.
- Revenue was RUB 46,889 million, almost no change year-on-year (H1 2016: RUB 46,865 million). In dollar equivalent, revenue was up 21% to USD 809 million from USD 667 million.
- EBITDA* was down 17% year-on-year to RUB 14,638 million (H1 2016: RUB 17,596 million). In dollar equivalent, EBITDA was up 1% to USD 252 million from USD 250 million.
- EBITDA margin was 31%, against 38% year-on-year.
- Net profit was down 90% year-on-year to RUB 1,946 million (USD 34 million) (H1 2016: RUB 19,721 million or USD 281 million). This decline was due to a non-monetary loss from a change in the fair value of derivative financial instruments totalling RUB 6,515 million, while H1 2016 net profit was positively affected by a RUB 5,391 million gain on the sale of investments (a one-time factor).
- Net debt was up 4% year-on-year to RUB 54,061 million (31 December 2016: RUB 51,949 million). In dollar equivalent, net debt was up 7% to USD 915 million from USD 856 million.
- Net debt/LTM EBITDA** was 2.0 against 1.7 as of 31 December 2016. In dollar equivalent, the ratio was also 2.0 against 1.9 as of 31 December 2016.
- Объем производства основной продукции составил 3 599*** тыс. т, что на 19% выше аналогичного показателя за первое полугодие 2016 года.
- Объем продаж основной продукции составил 3 610 тыс. т, что на 20% выше аналогичного показателя за первое полугодие 2016 года.
Alexander Popov, Chair of Acron’s Board of Directors, commented on the results:
“Due to our efforts to increase output, Acron Group’s revenue for H1 2017 in dollar equivalent was up 21% year-on-year, which resulted in positive dollar trend for EBITDA, despite the weaker market for NPK (our key product) and a stronger rouble than a year before. Net profit for the reporting period was affected by a non-monetary loss and is not representative.
“We also improved the Group’s loan portfolio, cutting total debt 14% and increasing the share of long-term debt to 93%, from 50% at the beginning of the year. Loan portfolio duration also increased to 2.9, from 1.4 at the beginning of the year.
“These results allowed Acron’s Board of Directors to recommend that the extraordinary general meeting resolve to pay dividends of RUB 235 per ordinary share for H1 2017.
“Today, Acron group is entering a new phase with an updated strategy. We will continue to expand production capacity while focusing on optimising existing capacity. Acron Group’s new investment programme combines a number of relatively small capex projects with fairly short implementation periods. This diversification will help us invest flexibly over the years to come. This helps us keep focused on dividend payment while controlling the debt burden”.
Notes on Key Items in the Financial Statements
The Group’s revenue for H1 2017 was RUB 46,889 million, demonstrating almost no change year-on-year. In the reporting period, global dollar prices for mineral fertilisers showed a multidirectional trend compared to H1 2016: prices for nitrogen fertilisers were up 0-10%, while prices for complex fertilisers fell 15-20%. Sales of key products were up 20% year-on-year. However, the average rouble-dollar exchange rate for H1 2017 was 17% lower year-on-year.
Despite a 20%-increase in sales, the cost of products sold was up 17% to RUB 24,933 million. The increased cost was mitigated by lower potash prices.
Selling, general and administrative expenses were down 4% to RUB 3,603 million due to cuts in personnel costs, since some salaries are denominated in foreign currency, including at the Group’s foreign facilities. Transportation expenses were up 15% to RUB 7,005 million due to increased sales and indexation of railway tariffs in Russia.
EBITDA for H1 2017 was RUB 14,638 million, down 17% year-on-year. EBITDA margin was 31% against 38% year-on-year. Veliky Novgorod-based Acron, Dorogobuzh and NWPC operated at margins of 32%, 26% and 34%, respectively.
Based on H1 2017 results, the Group posted a net exchange loss of RUB 235 million due to a revaluation of assets, loans and liabilities, against a gain of RUB 2,388 million year-on-year.
In the reporting period, the Group posted a RUB 6,515 million loss from a change in the fair value of derivative financial instruments. This paper loss was caused by the expiration of a call option on a stake held by Sberbank Investments in the Talitsky potash project and revaluation of the remaining options.
In this context, the net profit for H1 2017 was RUB 1,946 million, against RUB 19,721 million year-on-year. It is worth mentioning that the net profit for H1 2016 was positively affected by a RUB 5,391 million gain on the sale of investments, which was mainly due to the sale of the Company’s stake in Uralkali.
In H1 2017, net operating cash flow was up 75% to RUB 6,647 million (H1 2016: RUB 3,789 million), due to reduced profit tax paid and a smaller increase in working capital year-on-year.
Net cash spent on investments in the reporting period was RUB 5,482 million, against RUB 369 million in H1 2016. Capital investments were down 15% year-on-year to RUB 5,702 million (H1 2016: RUB 6,703 million) due to completion of the active phase of the investment cycle. Net cash flow from investments for H1 2016 was supported by proceeds from the sale of available-for-sale investments.
Net cash spent on financing activities in H1 2017 was RUB 13,809 million, against RUB 7,502 million in H1 2016. Cash outflow in the reporting period was due to an excess of repayments over borrowings obtained in the previous year.
In H1 2017, total debt was down 14% to RUB 68,330 million. The share of long-term debt increased to 93%, from 50% at the beginning of the year. Net debt in H1 2017 was up 4% to RUB 54,061 million. The relative debt burden increased, and net debt / LTM EBITDA was 2.0, up from 1.7 at the beginning of the year. In dollar equivalent, the ratio increased moderately: to 2.0 from 1.9 as of 31 December 2016.
In Q2 2017, urea prices fell due to traditionally low seasonal demand and increased output in the U.S. With new capacity put on stream in 2016–2017, the U.S. is gradually improving its urea self-sufficiency, decreasing imports and increasing exports. Iran also boosted supplies, with urea exports up 48% in the first seven months of 2017. The market was stabilised by China, where, unlike in previous years, the cost of production is preventing bulk exports of urea. Chinese producers are selling products on the domestic market, where prices are higher. In H1 2017, Chinese exports were down 45%. In the same period, Ukraine, which has traditionally been a major exporter, slashed its exports 66%.
After reaching bottom in Q2, in August, global urea prices started recovering (to USD 200 from USD 180 FOB Baltics), supported by strong demand from Brazil and Turkey. Over the first seven months of 2017, Brazilian urea imports were up 55%, making it the largest global importer. Turkish imports were up 30% in H1 2017.
The U.S. plans to put another two urea facilities on stream by the end of the year, the first of them scheduled for late September. Algerian AOA is expected to resume operations in September, as well. However, demand is expected to increase in India and peak in Brazil at the same time, which will sustain prices. Forecasts show intensive fertiliser application in India through the end of the year due to good weather conditions. India is expected to buy fertilisers until December.
In Q4, traditionally strong seasonal demand is expected to further support prices in advance of the spring sowing season in the Northern hemisphere. According to sector experts, a balance between supply and demand will keep urea prices over USD 200 FOB Baltics until Q1 2018. That said, any potential rise in global prices will be limited by Chinese pricing (USD 220 to 225 FOB), which will revive the competitiveness of Chinese urea exports.
Q2 also saw lower prices for premium nitrogen fertilisers, ammonium nitrate and UAN. In August, these prices started to recover following urea prices. The premium of ammonium nitrate over urea is supported by strong demand from Brazil, which boosted imports 35% over the first seven months of 2017. This year, the UAN premium is almost non-existent due to new capacity put on stream in the U.S. and stronger competitiveness. Over 2017, NPK prices have been relatively sustainable. NPK still retains its high premium over the basic product basket: urea, DAP and potash.
Average Indicative Prices, USD/t, FOB Baltic Sea/Black Sea
|Q2 2017||Q1 2017||Q2 2016||
Q2 2017 / |
Q1 2017 change
Q2 2017 / |
Q2 2016 change
The full version of Acron Group’s financial statements is available at www.acron.ru/en
Note: The exchange rate used for currency conversion was RUB 59.0855 to USD 1 as of 30 June 2017 and RUB 60.6569 to USD 1 as of 31 December 2016. The average exchange rate for the first six months of 2017 was RUB 57.9862 to USD 1. The average exchange rate for the first six months of 2016 was RUB 70.2583 to USD 1.
* EBITDA is calculated as operating profit adjusted for depreciation and amortisation, foreign exchange gain or loss, and other non-cash and extraordinary items.
** LTM EBITDA is EBITDA calculated for the past 12 months.
*** Commercial output by Acron Group for Q2 2017 was revised.