Today Acron (Moscow Exchange and LSE: AKRN) released its audited consolidated 2017 IFRS financial statements.
- Revenue was RUB 94,342 million, up 6% year-on-year (2016: RUB 89,359 million). In dollar equivalent, revenue was up 21% to USD 1,617 million from USD 1,333 million.
- EBITDA* remained almost flat year-on-year at RUB 29,817 million, against RUB 29,856 million in 2016. In dollar equivalent, EBITDA was up 15% to USD 511 million from USD 445 million.
- EBITDA margin was 32%, against 33% year-on-year.
- Net profit was RUB 14,260 million (USD 244 million), against RUB 25,525 million (USD 381 million) in 2016.
- Adjusted net profit** was RUB 13,122 million (2016: RUB 13,775 million). In dollar equivalent, adjusted net profit increased 9% to USD 225 million from USD 205 million.
- Net debt was up 16% to RUB 60,221 million, against RUB 51,949 million as of 31 December 2016. In dollar equivalent, net debt was up 22% to USD 1,045 million from USD 856 million.
- Net debt/ 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.
- Output of key products was 7.332 million tonnes, up 13% year-on-year.
- Sales of key products totalled 7.279 million tonnes, up 15% year-on-year.
Alexander Popov, Chair of Acron’s Board of Directors, commented on the results:
“Driven by the Group’s record high operating results, revenue was up 21% to USD 1.6 billion in 2017. Cost management efforts boosted EBITDA 15% year-on-year to USD 511 million, and adjusted net profit increased 9% to USD 225 million despite the unfavourable USD/RUB exchange rate. We also extended the duration of our loan portfolio to 2.4, against 1.4 as of the beginning of the reporting period, increasing the share of long-term borrowings from 50% to 75%.
“In 2017, stronger financial performance and effective management of the loan portfolio helped Acron Group pay its shareholders USD 224 million in dividends. Even after the dividends, the relative debt burden remained moderate during the reporting period: net debt/ EBITDA was 2.0, against 1.9 as of 31 December 2016.
“We adopted the Group’s investment programme through 2025, which is focused on further expanding production capacity and output. The flexibility of this programme provides for a number of projects that have modest CAPEX requirements and can be completed quickly. Depending on the market environment, we have the opportunity to combine various projects and adjust our investments in the coming years. Thanks to this, we will continue to focus on paying dividends while controlling the debt burden”.
Notes on Key Items in the Financial Statements
The Group posted 2017 revenue of RUB 94,342 million, up 6% year-on-year. In the reporting period, average indicative prices for nitrogen fertilisers were up 5-16% year-on-year, while prices for complex fertilisers fell 9%. Sales of key products were up 15% year-on-year. However, the average USD-RUB exchange rate for 2017 was 13% lower year-on-year.
Average Indicative Prices, USD/t, FOB Baltics/Black Sea
While sales were up 15%, the cost of sales also went up 15% year-on-year to RUB 51,909 million, mainly affected by higher depreciation and amortisation as a result of the Ammonia-4 launch in the mid-2016. That said, the increase in cash costs did not exceed 12% due to reductions in staff, repairs and maintenance costs.
Selling, general and administrative expenses were down 8% to RUB 7,162 million due to cuts in staff costs. Transportation expenses were up 15% to RUB 13,728 million on the back of increased sales volume and adjusted railway tariffs in Russia.
In 2017, EBITDA was RUB 29,817 million, almost flat year-on-year (2016: RUB 29,856 million). In dollar equivalent, EBITDA was up 15% to USD 511 million from USD 445 million. EBITDA margin was 32%, against 33% year-on-year. Veliky Novgorod-based Acron, Dorogobuzh and NWPC operated at margins of 32%, 29% and 31%, respectively.
Based on 2017 results, the Group posted a net exchange gain of RUB 295 million due to a revaluation of assets, loans and liabilities, against a gain of RUB 5,199 million year-on-year.
In the reporting period, the Group posted a RUB 14,260 million net profit, against RUB 25,525 year-on-year. In 2016, net profit was positively affected by a number of one-offs, including:
- A RUB 5,389 million gain on disposal of investments, primarily due to the sale of the Company’s stake in Uralkali
- A RUB 5,199 million net exchange gain
- A RUB 3,268 million 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 2017, adjusted net profit** was RUB 13,122 million, against RUB 13,775 million in 2016. In dollar equivalent, adjusted net profit increased 9% to USD 225 million from USD 205 million.
In 2017, net operating cash flow was down 8% to RUB 16,634 million (2016: RUB 18,102 million). This decline was mainly due to a RUB 4,009 million increase in working capital (down RUB 1,119 million in 2016).
Net cash used in investing activities in the reporting period was RUB 10,205 million, against RUB 6,545 million in 2016. Capital expenditures were down 7% year-on-year to RUB 11,299 million (2016: RUB 12,128 million). Net cash flow from investments for 2016 was supported by proceeds from the sale of available-for-sale investments.
Net cash used in financing activities in 2017 was RUB 18,767 million, against RUB 10,611 million in 2016. Dividends paid to shareholders totalled RUB 13,047 million, against RUB 13,345 million in 2016. Cash outflow in the reporting period was up year-on-year due to repayments of borrowings obtained in the previous year.
In 2017, total debt was down 6% to RUB 74,523 million. The share of long-term debt increased to 75% from 50% at the beginning of the year. Net debt was up 16% to RUB 60,221 million. Net debt/ EBITDA was 2.0, up from 1.7 at the beginning of the year. In dollar equivalent, the ratio increased to 2.0 from 1.9 at the beginning of the year.
In 2017, global prices for urea, which serves as a benchmark for the prices of other nitrogen fertilisers, continued the upward drive that started a year earlier. This price dynamic was supported by a significant increase in production costs in China due to higher coal prices and strict environmental measures introduced by the government. Unable to withstand competition, Chinese producers reduced their exports 48% to 4.7 million tonnes, which cut into the oversupply and supported prices globally. The average FOB Baltics price was USD 218 up 12% year-on-year, and the price fluctuated from USD 180 in Q2 and Q3 2017 during the low season to USD 260 in the high season (Q1 and Q4 2017).
It is expected that in 2018 Chinese urea producers’ costs will remain elevated due to high coal prices and state environmental policies. It is likely that urea exports from China will decrease to 2 million tonnes, but the country’s higher costs will continue to support global prices during the high season. According to our evaluation, in early 2018 the cash cost for most Chinese producers increased to USD 305 (FOB), causing an increase in the FOB China price to USD 310.
In 2017, urea price had its traditional effect on the price behaviour of the premium nitrogen fertilisers, such as AN and UAN. That said, due to strong demand from Brazil, the AN premium over urea increased to 15-20%, up five percentage points year-on-year. Amid the increase in US output and stiffer competition, the UAN premium over urea, which had remained around 5% in 2015-2016, was completely eliminated.
Following a decline the previous year, in 2017 NPK prices recovered following the recovery of prices for nitrogen, phosphate and potash fertilisers. NPK still retains its premium over the basic product basket (urea, DAP and potash) at a five-year average level of 15-20%. NPK prices continued to recover in early 2018.
Average Indicative Prices, USD/t, FOB Baltic Sea/Black Sea
|USD / t||Q4 2017||Q3 2017||Q4 2016||Q4 2017 /
Q3 2017 change
|Q4 2017 /
Q4 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 57.6002 to USD 1 as of 31 December 2017 and RUB 60.6569 to USD 1 as of 31 December 2016. The average exchange rate for 2017 was RUB 58.3529 to USD 1. The average exchange rate for 2016 was RUB 67.0349 to USD 1.
* EBITDA is calculated as operating profit adjusted for depreciation and amortisation, foreign exchange gain or loss on operating transactions, and other non-cash and extraordinary items.
** The adjusted net profit is calculated as net profit adjusted for gain / loss on disposal of investments (taking into account the changes in profit tax), exchange gain / loss (taking into account the changes in profit tax), gain from derecognition of equity accounted investee and recycling of related cumulative currency translation difference (taking into account the changes in profit tax), share of profit of equity accounted investees (taking into account the changes in profit tax), gain / loss on derivatives (taking into account the changes in profit tax) and capitalised borrowing costs (taking into account the changes in profit tax).