Ru En

Acron Group Posts Q2 2020 IFRS Net Profit of USD 138 Million

   Today, Acron (Moscow Exchange and LSE: AKRN) released its consolidated IFRS financial statements for Q2 and H1 2020.

Key Financials
  • Q2 revenue was RUB 28,353 million, up 1% quarter-on-quarter. In US dollar equivalent, revenue was down 8%, to USD 390 million from USD 423 million.
  • Q2 EBITDA* was RUB 8,029 million, up 10% quarter-on-quarter. In US dollar equivalent, EBITDA was up 1%, to USD 111 million from USD 110 million.
  • Q2 EBITDA margin reached 28% (up from 26% in Q1 2020).
  • Q2 net profit was RUB 9,140 million (against a loss in Q1 2020). In US dollar equivalent, net profit was USD 138 million.
  • As at Q2 end, net debt was down 7% from Q1 end to RUB 90,939 million. In US dollar equivalent, it was up 3% to USD 1,300 million.
  • As at Q2 end, Net debt/LTM EBITDA** was 3.0, unchanged from Q1 end. In US dollar equivalent, it was up to 2.9 from 2.5.
Operating Results

  • In Q2 2020, commercial output of key products was 1.973 million tonnes, up 1% quarter-on-quarter. In H1 2020, output reached 3.921 million tonnes, up 3% year-on-year.
  • Q2 sales of key products were 1.865 million tonnes, down 6% from Q1 2020. In H1 2020, sales were 3.859 million tonnes, up 1% year-on-year.
Alexander Popov, Chairman of Acron’s Board of Directors, commented on the results:

‘In Q2 2020, Acron Group saw better key financials quarter-on-quarter. Results have continued to recover after slumping in H2 2019 due to lower global prices for mineral fertilisers. The Group’s debt burden, however, remains high. We have taken a number of measures to change this, including CAPEX cuts and the sale of a potash lease in Canada and of a 10.1% stake in VPC.

‘In Q2, we completed one of our key projects in recent years with the launch of a new urea granulation unit capable of producing up to 700,000 tpa of premium product. Another two projects are in progress at the Veliky Novgorod site: upgrading the Ammonia-4 unit to increase its capacity by 70,000 tpa, and finishing the Urea 6+ project to increase the unit’s capacity by 520,000 tpa; we expect to complete these projects in Q4 2020 and Q2 2021, respectively.

‘We believe that even stronger operating results, a weaker rouble, and the expected recovery of global fertiliser prices will support our financial performance over the coming quarters’.


Notes to Key Items in the Financial Statements

Financial Performance

Acron Group posted Q2 2020 revenue of RUB 28,353 million, up 1% quarter-on-quarter, due to a 9% increase in the average USD-RUB exchange rate. Sales of the Group’s key products were down 6% quarter-on-quarter because demand traditionally softens after the first three months of the year. Global US dollar-denominated prices for a number of the Group’s key products also fell (see the Table below). In H1 2020, the Group posted revenue of RUB 56,432 million, down 7% from H1 2019.

In Q2 2020, the cost of sales was down 18% quarter-on-quarter to RUB 14,362 million, mainly due to lower sales and effective cost controls.

Q2 selling, general and administrative expenses were up 14% quarter-on-quarter to RUB 2,482 million due to higher personnel costs, since some salaries are denominated in foreign currency, including at the Group’s facilities abroad.

Transportation expenses were up 34% to RUB 5,945 million due to higher exports quarter-on-quarter (a significant share of Q1 sales went to the domestic market because of seasonal demand), and because a weaker rouble raised the cost of logistics outside Russia.

In Q2, EBITDA was up 10% quarter-on-quarter to RUB 8,029 million. The Group’s Q2 EBITDA margin was 28%, up from 26% in Q1 2020. H1 EBITDA was RUB 15,308 million, down 27% from H1 2019.

Based on Q2 2020 results, the Group posted a net foreign exchange gain of RUB 5,189 million due to a revaluation of assets, loans, and liabilities, against a RUB 12,301 million loss in the first quarter.

In Q2, the Group posted profit of RUB 891 million from sale of a potash mining lease in Saskatchewan, Canada.
Net profit in Q2 2020 was RUB 9,140 million, against a RUB 10,126 million loss in Q1 2020. For H1 2020, the Group posted a net loss of RUB 986 million (H1 2019: profit of RUB 17,196 million).

Market Trends

In Q2 2020, global urea prices saw the usual dip due to low seasonal demand; in June, however, prices started to recover in response to India’s strong demand, reaching USD 250 FOB Baltics in August. Further purchases by India, strong demand from Brazil, and recovering natural gas prices are expected to support urea prices over the coming months. In Q4, high demand in the northern hemisphere will prop up the market.

After dropping in Q2, AN prices started to recover in Q3, mimicking the dynamic of urea, which is a benchmark for other nitrogen fertiliser prices. UAN prices, on the other hand, were driven up in Q2 by strong demand in the US – the key market for this product – but then fell when the US market season was over.

Q2 NPK prices remained relatively stable on the back of similar price performance for the basic product basket. While phosphate fertiliser prices remained unchanged, lower prices for nitrogen fertilisers were offset by recovering prices for potash products.

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

Q2 2020 Q1 2020 Q2 2019 Q2 2020 /
Q1 2020 change
Q2 2020 /
Q2 2019 change
NPK 16-16-16 258
AN 153
UAN 144
Urea 207
Ammonia 197
Note: The exchange rate used for currency conversion was RUB 69.9513 to USD 1 as of 30 June 2020 and RUB 61.9057 to USD 1 as of 31 December 2019. The average exchange rate for the first six months of 2020 was RUB 69.3714 to USD 1. The average exchange rate for the first six months of 2019 was RUB 65.3384 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.

** LTM EBITDA is EBITDA calculated for the past 12 months.