Today Acron (Moscow Exchange and LSE: AKRN) released its consolidated IFRS financial statements for 9M 2018.
- Revenue was RUB 77,779 million, up 12% year-on-year (9M 2017: RUB 69,289 million). In dollar equivalent, revenue was up 7% to USD 1,266 million from USD 1,188 million.
- EBITDA* was up 18% year-on-year to RUB 25,486 million (9M 2017: RUB 21,620 million). In dollar equivalent, EBITDA was up 12% to USD 415 million from USD 371 million.
- EBITDA margin was 33%, against 31% year-on-year.
- Net profit was RUB 7,366 million (USD 120 million), down 27% year-on-year (9M 2017: RUB 10,135 million) because of a number of one-off events: a net exchange loss of RUB 4,608 million due to a revaluation of assets, loans and liabilities, and a RUB 1,890 million loss on derivatives.
- Net debt was up 4% to RUB 74,105 million, against RUB 71,123 million as of 30 June 2018. In dollar equivalent, net debt remained essentially unchanged at USD 1,130 million.
- Net debt/LTM EBITDA** was 2.2, against 2.3 as of 30 June 2018. In dollar equivalent, the ratio was 2.0, down from 2.2.
- Output of key products was 5,628,000 tonnes, up 3% year-on-year.
- Sales of key products totalled 5,447,000 tonnes, almost unchanged year-on-year.
Alexander Popov, Chair of Acron’s Board of Directors, commented on the results:
"Acron Group’s financials are steadily growing and demonstrate the sustainability of Acron Group’s business model. Over 9M 2018, EBITDA increased 12% year-on-year to USD 415 million. EBITDA margin reached 33%. The decrease in net profit is not representative, as it was due to one-time factors. We are securely in control of our debt burden. Net debt/LTM EBITDA in dollar equivalent was down to 2.0.
“With higher output, positive conditions on the mineral fertiliser market and the commissioning of a new urea unit, we expect Q4 financials to hit a record high.
“After considering Acron Group’s operating results and given the current debt burden, in 2018 the Board of Directors recommended three times that the general meeting resolve to pay dividends totalling RUB 337 per share. Next year, we also plan to pay dividends three times, which is in line with the best global practices and our shareholders’ interests”.
Notes on Key Items in the Financial Statements
The Group posted 9M 2018 revenue of RUB 77,779 million, up 12% year-on-year. This growth was due to higher global dollar prices for the Group’s products and another 5% increase in the average rouble-dollar exchange rate. Sales of key products in the reporting period were almost equal to 9M 2017 results.
Average Indicative Prices, USD/t, FOB Baltics/Black Sea
|9M 2018||9M 2017||Change|
In the reporting period, the cost of sales was up 9% to RUB 41,024 million. Higher costs were mainly due to increased global prices for potash purchased for NPK production and growing depreciation. Depreciation went up after the launch of underground mining at the Oleniy Ruchey mine and the commissioning of a railway branch from the mine site to Titan station in late 2017.
Selling, general and administrative expenses were up 17% to RUB 5,983 million, mainly due to higher labour costs, Acron Group’s busier international activity and related expenses. Acron Group has continued to win markets in Latin America and Europe. In the reporting period, the Group started sales through its new trading company, Acron France SAS, and in the short term it expects to see marketing through subsidiaries in Argentina and Brazil.
Transportation expenses were up 17% to RUB 12,069 million due to the indexation of railway tariffs in Russia and higher lease rates for railcars.
EBITDA was up 18% to RUB 25,486 million. The Group posted EBITDA margin of 33% for the reporting period, up from 31% year-on-year. Veliky Novgorod-based Acron, Dorogobuzh and NWPC operated at margins of 34%, 29% and 28%, respectively.
Based on 9M 2018 results, the Group posted a net exchange loss of RUB 4,608 million due to a revaluation of assets, loans and liabilities (9M 2017: RUB 14 million loss). The Group also incurred a RUB 1,890 million loss on derivatives against a RUB 197 million profit for 9M 2017. These factors weighed down net profit 27% to RUB 7,366 million. However, it is worth noting that these factors were one-time in nature.
In 9M 2018, net operating cash flow was up 33% to RUB 17,812 million (9M 2017: RUB 13,375 million) due to the increased operating profit. Working capital was up RUB 1,796 million (up RUB 1,854 million in 9M 2017), mainly due to increased inventory before the high season.
Net cash spent on investments in the reporting period was RUB 9,089 million against RUB 8,031 million in 9M 2017. Capital expenditures were up 13% year-on-year to RUB 9,204 million (9M 2017: RUB 8,181 million).
Net cash spent on financing activities in 9M 2018 was RUB 11,011 million against RUB 13,034 million in 9M 2017. In the reporting period, Acron spent RUB 11,700 million to pay shareholder dividends (9M 2017: RUB 3,782 million). In the reporting period, the Group compensated Sberbank Investments for accumulated yield from holding a 19.9% stake in VPC by exercising the option to sell this stake and selling it back to Sberbank Investments. The compensation to Sberbank Investments was RUB 5,162 million. Net proceeds from borrowings in the reporting period were RUB 6,550 million, compared with RUB 6,662 of net repayment of borrowings in 9M 2017.
Total debt was down 4% from 30 June 2018 to RUB 87,457 million. In dollar equivalent, debt was down 8% to USD 1,333 million. Long-term debt made up 78% of total debt as of the end of the reporting period. Net debt was up 4% from 30 June 2018 to RUB 74,105 million. In dollar equivalent, net debt remained essentially unchanged at USD 1,130 million. Net debt/LTM EBITDA was 2.2 as of the end of the reporting period, down from 2.3 as of 30 June 2018. In dollar equivalent, the ratio decreased to 2.0 from 2.2.
Since June, urea prices have steadily grown on the back of strong demand in Latin America and India and short supply on the global market due to reduced Chinese exports, which plummeted 63% year-on-year over the first nine months of 2018, falling to 1.4 million tonnes from 3.7 million tonnes. Hamstrung by the high price of coal, which is a key feedstock for urea production in China, as well as by government environmental restrictions, Chinese producers are forced to hold prices over USD 300 FOB China, shifting their focus to the domestic market. October saw prices over USD 300 FOB Baltic, hitting a three-year record high. Sector analysts expect urea prices to remain high until early next year due to the traditional high season, and average 2019 prices are anticipated to exceed 2018 levels.
Because urea is a benchmark for such nitrogen fertilisers as ammonium nitrate and UAN, higher urea prices triggered increase across these products, as well. Over 2018, NPK prices saw an upward dynamic sustained by price growth in all three market segments: nitrogen, phosphorous and potash. NPK’s premium over the core product basket has remained high.
Average Indicative Prices, USD/t, FOB Baltic Sea/Black Sea
|Q3 2018||Q2 2018||Q3 2017||
Q3 2018 /
Q2 2018 change
Q3 2018 /
Q3 2017 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 65.5906 to USD 1 as of 30 September 2018 and RUB 57.6002 to USD 1 as of 31 December 2017. The average exchange rate for the first nine months of 2018 was RUB 61.4358 to USD 1. The average exchange rate for the first nine months of 2017 was RUB 58.3344 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.