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Acron Group’s 2019 IFRS Net Profit up 80% to USD 383 Million

  Today Acron (Moscow Exchange and LSE: AKRN) released its audited consolidated IFRS financial statements for 2019.

Key Financials

  • Revenue was RUB 114,835 million, up 6% year-on-year, (2018: RUB 108,062 million). In dollar equivalent, revenue was up 3% to USD 1,774 million from USD 1,723 million.
  • EBITDA* was down 4% year-on-year to RUB 35,749 million (2018: RUB 37,053 million). In dollar equivalent, EBITDA was down 7% to USD 552 million from USD 591 million.
  • EBITDA margin was 31%, against 34% a year before.
  • Net profit was up 86% year-on-year to RUB 24,786 million (2018: RUB 13,318 million). In dollar equivalent, net profit increased 80% to USD 383 million from USD 212 million.
  • Net debt was up 2% to RUB 75,185 million, against RUB 74,025 million as of 2018 year-end. In dollar equivalent, net debt was up 14% to USD 1,215 million from USD 1,066 million.
  • Net debt/EBITDA was 2.1, up from 2.0 as of 2018 year-end. In dollar equivalent, the ratio was 2.2, against 1.8 as of 2018 year-end.

Operating Results

  • Output of key products stood at 7,458,000 tonnes, down 1% year-on-year.
  • Sales of key products totalled 7,569,000 tonnes, up 4% year-on-year.

Alexander Popov, Chair of Acron’s Board of Directors, commented on the results:

“In 2019, Acron Group’s sales hit a record high of 7.6 million tonnes, and the sales geography expanded to cover 78 countries worldwide. Over the course of the year, the Group implemented several investment projects. The ammonia unit upgrades at Dorogobuzh and construction of the nitric acid units in Veliky Novgorod were completed and operate efficiently. Another two major projects entered the active implementation stage: urea granulation will be commissioned in the second quarter of 2020, and the construction of the Urea-6+ unit will be completed in early 2021. In 2019, the Group made capital investments of USD 294 million, its maximum amount for the last five years.

“That said, declining global mineral fertiliser prices in the second half of the year affected the Group’s financial performance. To address this situation, we decided to slow down implementation of the investment programme and refrain from taking on any new projects until the market recovers. This step will help us temporarily minimise capex and prevent the debt burden from increasing, while meeting performance targets in terms of both operations and dividends. In 2019, the Group allocated USD 221 million in dividends”.


Notes on Key Items in the Financial Statements

Financial Performance

Acron Group’s 2019 revenue was RUB 114,835 million, up 6% year-on-year due to a 4% increase in sales and a 3% increase in the average dollar to rouble exchange rate. Lower global dollar prices for most of the Group’s products prevented revenue from showing stronger growth.

Average Indicative Prices, USD/t, FOB Baltics/Black Sea

2019  2018 Change
NPK 16-16-16  296 300 -1.1%
Ammonium nitrate 189 188 +0.3%
UAN 149 179 -16.7%
Urea 240 251 -4.4%
Ammonia 235 288 -18.3%

In the reporting period, the cost of sales was up 10% year-on-year to RUB 59,784 million, mainly due to higher sales, growing depreciation and amortisation, increased prices for energy and diesel fuel, and greater payroll costs.

Depreciation and amortisation increased following the launch of a new urea unit at the end of 2018 and two nitric acid units in 2019, as well as equipment upgrades at the existing production facilities. Higher payroll costs were due to a 5% increase in the number of Group’s employees required for the development of the Oleniy Ruchey underground mine, implementation of investment projects at Acron and Dorogobuzh, and construction of the Talitsky mine.

Selling, general and administrative expenses were up 15% to RUB 9,332 million as the Group’s expanded international distribution drove an increase in sales, number of employees and leased warehouse capacity. The goal of this expansion is to increase sales to end users.

Transportation expenses were up 17% to RUB 20,774 million, mainly due to increased freight costs amid growing sales to the United States and Latin America on terms that include transportation. In addition, the cost of logistics services outside of Russia increased as the rouble softened.

EBITDA decreased 4% year-on-year to RUB 35,749 million. In the reporting period, EBITDA margin was 31%, against 34% in 2018. Veliky Novgorod-based Acron, Dorogobuzh, and NWPC operated at margins of 38%, 18%, and 23%, respectively. Dorogobuzh’s lower margin in the reporting period was temporary and caused by a stoppage of the ammonia unit to perform upgrades.

In 2019, interest expense declined to RUB 1,115 million from RUB 1,607 million in 2018. Based on 2019 results, the Group posted a net exchange profit of RUB 7,013 million, driven by the revaluation of assets, loans and liabilities, against a RUB 7,043 million loss in 2018. In the reporting period, the gain from the change in the fair value of derivatives was RUB 1,445 million, against a RUB 896 million gain in 2018.

In 2019, net profit increased 86% to RUB 24,786 million, against RUB 13,318 million year-on-year.

Cash Flow

In 2019, net operating cash flow was RUB 28,278 million, almost unchanged year-on-year. In 2019, working capital decreased by RUB 2,084 million, while in 2018, working capital was down RUB 1,025 million.

Net cash used in investing activities in 2019 came in at RUB 19,054 million, against RUB 14,439 million in 2018. Capital expenditures were up 31% to RUB 19,030 million from RUB 14,542 million in 2018. In dollar equivalent, capital expenditures increased 27% to USD 294 million as the Group pursued its Development Strategy.

Net cash allocated to financial activities in 2019 was RUB 7,328 million (2018: RUB 19,643 million). The decline in cash outflow in the reporting period was caused by lower repayment of borrowings. In 2019, net borrowings raised amounted to RUB 8,840 million, against RUB 28 million of net borrowings repaid in 2018. In the reporting period, RUB 14,313 million were paid in dividends (2018: RUB 13,278 million). In dollar equivalent, dividend payments in 2019 stood at USD 221 million against USD 212 million in 2018.

Debt Burden

In 2019, total debt was up 2% to RUB 86,541 million (USD 1,398 million in dollar equivalent). In May 2019, the Group received a two-year extension on its five-year syndicated structured pre-export loan facility for up to USD 750 million, increasing the share of long-term debt to 85% from 79% on 31 December 2018.

Net debt was up 2% from 31 December 2018 to RUB 75,185 million. In dollar equivalent, it was up 14% to USD 1,215 million due to a stronger rouble as of the end of the reporting period compared to 31 December 2018.

As of the end of the reporting period, net debt/LTM EBITDA was 2.1, against 2.0 on 31 December 2018. In dollar equivalent, the ratio increased to 2.2 from 1.8.

Market Trends

Throughout 2019, global mineral fertiliser prices declined. Urea prices were affected by several factors, including slower U.S. consumption amid adverse weather conditions, increased European output due to lower gas prices, and higher Chinese exports. In the fourth quarter, negative price trends encouraged potential buyers to postpone purchases in expectation of lower prices. As a result, by the beginning of 2020 inventories in the key markets had been depleted, which, coupled with seasonal demand in the United States and Europe, contributed to the recovery of prices in the first quarter of 2020. Prices may receive further support when India begins making active purchases amid lower Chinese exports.

As urea prices decreased, AN and UAN prices slumped as well in 2019. NPK prices were under pressure due to lower prices for nitrogen, phosphate, and potash fertilisers. However, the drop in NPK prices was moderate compared to those products, which resulted in the NPK premium over the basic product basket over 20%. Global demand for NPK continues to grow. In particular, Brazil boosted NPK imports 27% to 1.5 million tonnes, of which 63% are supplied by Russian manufacturers. Other countries in the region are also increasing their NPK consumption.

Average Indicative Prices, USD/t, FOB Baltic Sea/Black Sea

Q4 2019 Q3 2019 Q4 2018 Q4 2019 /
Q3 2019 change
Q4 2019 /
Q4 2018 change
NPK 16-16-16 270
AN 179
UAN 137
Urea 216
Ammonia 225