Today Acron (Moscow Exchange and LSE: AKRN) released its unaudited consolidated condensed IFRS financial statements for H1 2014.
Key Financials
• Revenue was up 4% year-on-year to RUB 35,746 million (USD 1,022 million) (H1 2013: RUB 34,251 million)
• EBITDA* was down 3% year-on-year to RUB 8,586 million (USD 245 million) (H1 2013: RUB 8,818)
• EBITDA margin was 24%, down from 26% year-on-year
• Net profit was up 25% year-on-year to RUB 6,550 million (USD 187 million) (H1 2013: RUB 5,236 million)
• Net debt was up 3% to RUB 37,891 million (USD 1,127 million) (RUB 36,633 million as of 31 December 2013)
• Net debt/LTM EBITDA** was 2.5, against 2.4 as of 31 December 2013.
Operating Results
• Sales of key products totalled 3.271 million tonnes, up 11% year-on-year.
Senior Vice President Alexander Popov comments on the performance results:
“Despite difficult market conditions and lower global product prices this year, we posted solid results due to higher output and effective cost controls. Specifically, we furthered our vertical integration and implemented a successful cost-cutting programme. Profitability was sustained by the weakening of the rouble against the US dollar. EBITDA was stable over the past two quarters, and we do not see any factors that could negatively impact our operations in the months ahead.
“In the reporting period, CAPEX was RUB 3,987 million as we focused on priority projects. This year, we expect to see the peak phase of the investment cycle for our major Ammonia 4 investment project and to further benefit from investment projects already completed (the Oleniy Ruchey mine, Urea and UAN projects).
“In line with plans, during the reporting period we sold part of our stake in Uralkali for RUB 3,030 million; as of 30 June 2014, our stake in the company’s authorised capital decreased to 1.1%. Taking into account additional proceeds from the sale of financial investments, we are able to maintain a satisfactory level of debt burden, even during active implementation of our investment programme. We expect the debt burden to scale down after the launch of the new ammonia unit, which is scheduled for late 2015.”
APPENDIX
Notes on Key Items in the Financial Statements
Financial Performance
The Group’s revenue in H1 2014 was up 4% year-on-year to RUB 35,746 million. The major factor driving revenue was an 11% increase in sales volume. Product prices in dollar equivalent were lower year-on-year, but this was partially offset by a weaker rouble exchange rate.
Average world indicative prices for the Group’s core products in the first six months of 2014 were: USD 344 per tonne FOB for NPK 16-16-16, USD 284 per tonne FOB for ammonium nitrate, USD 310 per tonne FOB for urea, and USD 256 per tonne FOB for urea ammonium nitrate.
The cost of goods sold in the reporting period was RUB 21,635 million, up 9% from 2013. On the back of an 11% increase in sales, higher production costs were reined in by lower potash prices.
Selling, general and administrative expenses decreased 2% thanks to Acron’s cost control programme. Transportation expenses were up 17% due to increased rail shipments and higher transshipment costs, for which tariffs are primarily set in foreign currency.
In H1 2014, EBITDA was RUB 8,586 million, down 3% year-on-year. EBITDA margin was 24%, against 26% in H1 2013. The Group’s lower profitability stems from lower mineral fertiliser prices.
Fluctuations in the RUB/USD exchange rate in the reporting period had a material impact on the Group’s financial performance. At the end of the reporting period, the Group recorded a net foreign exchange loss related to revaluation of the Group’s assets, debts and liabilities of RUB 1,287 million, against a loss of RUB 1,601 million for H1 2013.
H1 2014 net profit was RUB 6,550 million, up 25% year-on-year. This increase was generated by the sale of part of the Group’s stake in Uralkali; the net profit from this transaction was RUB 2,491 million.
Cash Flow
Operating cash flow in the reporting period was RUB 2,534 million, against RUB 8,588 million for H1 2013, because of a RUB 2,100 million increase in the Group’s working capital, against a decrease in working capital of RUB 2,320 million in the previous year. The increase in working capital was attributed to greater accounts receivable and fewer advances paid by customers. It should be noted that the working capital essentially increased in Q1 2014, while there were no major changes in Q2 2014.
Net cash spent on investment activity in the reporting period was RUB 4,741 million (H1 2013: RUB 8,588 million). CAPEX was RUB 3,987 million, down 40% year-on-year. In addition, in the reporting period the Group increased its interest in the Polish company Grupa Azoty to 20%, having allocated RUB 4,222 million for that purpose. This expenditure was partly offset by proceeds from disposal of RUB 3,243 million in available for sale investments (including Uralkali shares).
Net cash flow from financial activity in H1 2014 was RUB 8,138 million, against cash outflow of RUB 4,480 million in H1 2013. This cash inflow originated from the sale of subsidiaries’ shares, including a stake in Verkhnekamsk Potash Company (VPC), for RUB 6,673 million. Furthermore, Acron paid out RUB 6,220 million in dividends and saw its borrowings increase in the reporting period.
Debt Burden
Net debt in the reporting period was up 3% to RUB 37,891 million, due to a number of factors: the sale of a 19.9% stake in VPC to Sberbank Investments, dividend distribution, sale of Uralkali shares and purchase of Grupa Azoty shares. In dollar terms, net debt remained almost unchanged and amounted to USD 1,127 million, against 1,119 million at the end of 2013. The relative debt burden was up slightly, with Net Debt/LTM EBITDA at 2.5 (against 2.4 in late 2013). Total debt was up 13% to RUB 56,967 million against the backdrop of a weaker rouble exchange rate and higher cash balances.
Market Trends
Fertiliser markets were noticeably volatile in H1 2014. The spring upward trend in Q1 was followed by a downward trend on the back of increased exports of urea form China. At the same time, the complex NPK fertiliser experienced stability, with prices only edging up at the end of Q2. In early Q3, the nitrogen market started to recover as Chinese inventories decreased, supplies from Ukraine, Egypt and Algeria were restricted and demand became stronger in Europe and Latin America.
The full version of Acron Group’s financial statements is available at www.acron.ru/en.
Note: The exchange rate for currency conversion was RUB 33.6303 for USD 1 as of 30 June 2014 and RUB 32.7292 for USD 1 as of 31 December 2013. The average exchange rate in H1 2014 was RUB 34.9796 for USD 1.
* EBITDA is calculated as operating profit adjusted for depreciation of fixed and intangible assets, Forex gains or losses, and other non-monetary and non-core items.
** LTM EBITDA is EBITDA calculated for the last 12 months.