Today Acron (Moscow Exchange and LSE: AKRN) released its consolidated IFRS financial statements for 9M 2017.
- Revenue was RUB 69,289 million, up 4% year-on-year (9M 2016: RUB 66,785 million). In dollar equivalent, revenue was up 22% to USD 1,188 million from USD 977 million.
- EBITDA* was down 3% year-on-year to RUB 21,620 million (9M 2016: RUB 22,347 million). In dollar equivalent, EBITDA was up 13% to USD 371 million from USD 327 million.
- EBITDA margin was 31%, against 33% year-on-year.
- Net profit was RUB 10,135 million (USD 174 million) (9M 2016: RUB 21,423 million or USD 313 million). Net profit for 9M 2017 was positively affected by a number of one-offs.
- Net debt was RUB 52,061 million, almost unchanged against net debt as of 31 December 2016. In dollar equivalent, net debt was up 5% to USD 897 million from USD 856 million.
- Net debt/LTM EBITDA** was 1.8, against 1.7 as of 31 December 2016. In dollar equivalent, the ratio was also 1.8, against 1.9 as of 31 December 2016.
- Output of key products was 5.443 million tonnes, up 16% year-on-year.
- Sales of key products totalled 5.450 million tonnes, up 17% year-on-year.
Alexander Popov, Chair of Acron’s Board of Directors, commented on the results:
“Due to our efforts to increase output and manage expenses, Acron Group posted solid financial results for 9M 2017. EBITDA in dollar equivalent was up 13% year-on-year, despite lower NPK prices and a stronger rouble. The relative debt burden was also down: net debt/LTM EBITDA decreased to 1.8.
Nitrogen fertiliser prices started to recover in September, and the pace of the recovery is exceeding our expectations. The current price level allows us to have an optimistic outlook for Q4 and 2017 results”.
Notes on Key Items in the Financial Statements
The Group posted 9M 2017 revenue of RUB 69,289 million, up 4% year-on-year. In the reporting period, average indicative dollar prices for nitrogen fertilisers were up 0%-14% year-on-year, while prices for complex fertilisers fell 14%. Sales of key products were up 17% year-on-year. However, the average dollar-rouble exchange rate for 9M 2017 was 15% lower year-on-year.
Average Indicative Prices, USD/t, FOB Baltics/Black Sea
|9M 2017||9M 2016||Change|
Amid a 17% increase in sales volumes, the cost of sales was up 19% to RUB 37,774 million affected mainly by higher depreciation and amortisation as a result of Ammonia-4 launch in the mid-2016. At the same time, the increase in cash costs did not exceed 10% due to smart cost management.
Selling, general and administrative expenses were down 12% to RUB 5,093 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 9% to RUB 10,310 million due to increased sales volumes and indexation of railway tariffs in Russia.
EBITDA for 9M 2017 was RUB 21,620 million, down 3% year-on-year. In dollar equivalent, EBITDA was up 13% to USD 371 million from USD 327 million. EBITDA margin was 31% against 33% year-on-year. Veliky Novgorod-based Acron, Dorogobuzh and NWPC operated at margins of 31%, 28% and 33%, respectively.
Based on 9M 2017 results, the Group posted a net exchange loss of RUB 14 million due to a revaluation of assets, loans and liabilities, against a gain of RUB 3,074 million year-on-year.
In the reporting period, the Group posted a RUB 10,135 million net profit, against RUB 21,423 year-on-year. Net profit for 9M 2016 was positively affected by a number of one-offs, including:
- A RUB 5,406 million gain on disposal of investments, primarily due to the sale of the Company’s stake in Uralkali
- A RUB 3,268 gain posted when the Group ceased using the equity method to account for its stake in Grupa Azoty S.A.
- A RUB 1,544 million share of profit of Grupa Azoty S.A., formed while the equity method was used.
In 9M 2017, net operating cash flow was up 27% to RUB 13,375 million (9M 2016: RUB 10,555 million). Due to an increase in sales, working capital was up RUB 1,854 million (up RUB 1,348 million in 9M 2016).
Net cash used in investing activities in the reporting period was RUB 8,031 million, against RUB 5,093 million in 9M 2016. Capital expenditures were down 17% year-on-year to RUB 8,181 million (9M 2016: RUB 9,900 million) due to completion of the active phase of the investment cycle. Net cash flow from investments for 9M 2016 was supported by proceeds from the sale of available-for-sale investments.
Net cash used in financing activities in 9M 2017 was RUB 13,034 million, against RUB 11,214 million in 9M 2016. Cash outflow in the reporting period was due to an excess of repayments over borrowings obtained in the previous year.
In 9M 2017, total debt was down 10% to RUB 71,062 million. The share of long-term debt increased to 93%, from 50% at the beginning of the year. Net debt was RUB 52,061 million, almost unchanged against net debt as of 31 December 2016. Net debt/LTM EBITDA was 1.8, up from 1.7 at the beginning of the year. In dollar equivalent, the ratio decreased to 1.8 from 1.9 at the beginning of the year.
Nitrogen fertiliser prices had recovered considerably by the end of Q3. Urea prices rose from USD 180 FOB in early July to USD 260 in late September, driven by strong demand, in particular from Brazil and India. For example, Brazil’s urea imports over the first nine months of 2017 were up 41% year-on-year. Brazil’s total imports this year may reach a record high of 5 mn t. In September and October, India made active purchases in the market. Due to good weather conditions in the country, fertilisers have been applied heavily this year. At the same time, higher coal prices have led to increased production costs in China, forcing producers there to raise prices. As a result, urea exports from China decreased by 4 mn t to 3.5 mn t over the first nine months of 2017. Total exports may reach 4.5 mn t, compared to 8.9 mn t in 2016. Nevertheless, goods exported from China find a ready market and China’s production costs continue to support global prices. Thus, the existing combination of demand and supply factors provide strong support for urea prices.
Driven by rising urea prices, prices for other nitrogen fertilisers – AN and UAN – also went up at the end of the third quarter. In October, average AN and UAN prices were USD 230 and USD 160 FOB Baltics, whereas they dipped as low as USD 160 and USD 120 mid-year. AN’s premium over urea increased fuelled by strong demand from Brazil. There was no premium for UAN because of greater output in the United States and stronger competition.
In Q3 2017, NPK prices remained stable, increasing moderately in September following nitrogen and phosphate fertiliser prices. NPK’s premium over the basic product basket (urea, DAP and potash) remained high.
Average Indicative Prices, USD/t, FOB Baltic Sea/Black Sea
|Q3 2017||Q2 2017||Q3 2016||
Q3 2017 /
Q2 2017 change
Q3 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 58.0169 to USD 1 as of 30 September 2017 and RUB 60.6569 to USD 1 as of 31 December 2016. The average exchange rate for the first nine months of 2017 was RUB 58.3344 to USD 1. The average exchange rate for the first nine months of 2016 was RUB 68.3667 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.