AKRN.L Regulatory News (AKRN)

26 Mar 2019 08:01

Annual Financial Report

26 March 2019

Acron’s 2018 IFRS EBITDA up 16% to USD 591 Million, EBITDA Margin Reaches 34%

Today Acron (Moscow Exchange and LSE: AKRN) released its audited consolidated IFRS financial statements for 2018.

Key Financials

Revenue was RUB 108,062 million, up 15% year-on-year (2017: RUB 94,342 million). In dollar equivalent, revenue was up 7% to USD 1,723 million from USD 1,617 million.EBITDA* was up 24% year-on-year to RUB 37,053 million (2017: RUB 29,817 million). In dollar equivalent, EBITDA was up 16% to USD 591 million from USD 511 million.EBITDA margin was 34%, against 32% year-on-year.Net profit was RUB 13,318 million (USD 212 million), down 7% year-on-year (2017: RUB 14,260 million) because of a one-off event: a net exchange loss of RUB 7,043 million due to a revaluation of assets, loans and liabilities.Net debt was up 23% to RUB 74,025 million, against RUB 60,221 million as of 2017 year-end. In dollar equivalent, net debt was up 2% to USD 1,066 million from USD 1,045 million.Net debt/ EBITDA was 2.0, unchanged compared to the end of 2017. In dollar equivalent, the ratio was 1.8, down from 2.0.

Operating Results

Output of key products was 7,514,000 tonnes, up 2.5% year-on-year.Sales of key products totalled 7,265,000 tonnes, almost unchanged year-on-year.

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

“The sustainable growth in Acron Group’s financial performance contributes to our development efforts. In 2018, the Group’s EBITDA was up 16% to USD 591 million. EBITDA margin reached 34%. Our flexible investment programme is already delivering results. At the Veliky Novgorod site in 2018, the Group commissioned a new 200-ktpa urea unit and upgraded and expanded current UAN, urea and NPK capacity, which promptly resulted in a 5% increase in commercial output at this site and a 2.5% increase for the Group. In the Murmansk region, we commissioned a rail link from the Oleniy Ruchey mine to the Titan station, which cut apatite concentrate transportation costs. As we see the potash market upward trend, we have commenced active construction of the Talitsky mine in Perm Krai, as potash remains one of our key inputs for NPK production. Shaft sinking has been in progress, and as of today a total of over 280 metres have been sunk for two shafts, which is one-third of the required depth. Total CAPEX was USD 232 million, up 20% year-on-year.

In 2018, in pursuance of shareholders’ interests, Acron Group remained focused on paying dividends and allocated a total of USD 212 million for that purpose. Following the best global practices, payments were made in three instalments. At the same time, the Group’s debt burden decreased. At the end of the reporting period, net debt/ EBITDA in dollar equivalent was down to 1.8 from 2.0 at the beginning of the period.

In 2019, we proceeded to implement investment projects at Acron and Dorogobuzh as part of our Development Strategy for 2017-2025 and furthered construction of the underground mine at the Oleniy Ruchey phosphate mining and processing facility and of the Talitsky potash mine. We believe that the Strategy will bring the Group’s commercial output to more than 10 million tonnes in 2026, up 40% from the 2017 level. The Group will also reach complete potash self-sufficiency, the last key component to produce complex NPK fertilisers, our crucial product, which, in turn, will boost the Group’s margin.

In the context of the Strategy, we can also adjust CAPEX by reviewing and reconsidering the list of projects at Acron and Dorogobuzh, which makes it possible for us to remain focused on dividends while keeping the debt burden under control. On 11 March 2019, Acron’s extraordinary general meeting approved dividends at the rate of RUB 130 per share. Following its 2018 practice, this year the Board of Directors intends to recommend two more dividend payments”.

APPENDIX

Notes on Key Items in the Financial Statements

Financial Performance

The Group posted 2018 revenue of RUB 108,062 million, up 15% year-on-year. This growth was due to higher global dollar prices for the Group’s products and a 7% increase in the average dollar-rouble exchange rate. Sales of key products in the reporting period were almost equal to 2017 results.Average Indicative Prices, USD/t, FOB Baltics/Black Sea

	2018	2017	Change
NPK 16-16-16	300	265	+13	%
AN	188	193	-2	%
UAN	179	145	+23	%
Urea	251	218	+15	%
Ammonia	288	267	+8	%

In the reporting period, the cost of sales was up 5% year-on-year to RUB 54,444 million, mainly due to increased global prices for potash purchased for NPK production and growing depreciation and amortisation. Depreciation and amortisation went up after the launch of underground mining at the Oleniy Ruchey mine and the commissioning of a rail link from the mine site to the Titan station. In that context, increase in cash costs was limited to 3%.

Selling, general and administrative expenses were up 13% to RUB 8,115 million, mainly due to higher staff costs, Acron Group’s more intense international activity and related expenses. Acron Group has continued to win markets in Latin America and Europe. In the reporting period, the Group launched 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 29% to RUB 17,715 million due to multiple causes. First, the Group is expanding distribution under its commercial strategy, and more sales are made on the delivery basis. Second, ocean fright tariffs have surged. Third, logistics services outside Russia became more expensive because of rouble depreciation. Indexation of railway tariffs in Russia and higher lease rates for railcars also contributed to higher transportation expenses.

EBITDA was up 24% to RUB 37,053 million. The Group posted EBITDA margin of 34% for the reporting period, up from 32% year-on-year. Acron, Dorogobuzh and NWPC operated at margins of 35%, 31% and 35%, respectively.Based on 2018 results, the Group posted a net exchange loss of RUB 7,043 million due to a revaluation of assets, loans and liabilities, against a RUB 295 million profit in 2017. This factor pulled net profit down 7% to RUB 13,318 million.

Cash Flow

In 2018, net cash flow from operating activities was up 71% to RUB 28,406 million (2017: RUB 16,634 million) mainly due to the increased operating profit. There was a release of working capital of RUB 1,025 million, with a RUB 4,009 million increase in 2017.

In 2018, net cash used in investment activities in the reporting period was RUB 14,439 million (2017: RUB 10,205 million). CAPEX was up 29% year-on-year to RUB 14,542 million, against RUB 11,299 million in 2017. In dollar terms, CAPEX was up 20% to USD 232 million as Acron and Dorogobuzh implemented investment projects under the Development Strategy and the Talitsky potash mine entered the active construction phase.

Net cash used in financing activities in 2018 was RUB 19,643 million, against RUB 18,767 million in 2017. In the reporting period, Acron distributed RUB 13,864 million as dividends (2017: RUB 13,047 million). In the reporting period, the Group compensated Sberbank Investments for accumulated yield from holding a 19.9% stake in VPC by exercising an option to sell the stake and selling it back to Sberbank Investments. Compensation to Sberbank Investments was RUB 5,162 million. Net repayment of borrowings in the reporting period was RUB 28 million, against net proceeds from borrowings of RUB 2,906 million a year before.

Debt Burden

Total debt was up 13% from 31 December 2017 to RUB 84,485 million. In dollar equivalent, debt was down 6% to USD 1,216 million. Long-term debt made up 79% of total debt as of the end of the reporting period, and foreign currency-denominated debt was 74%. Net debt was up 23% from 31 December 2017 to RUB 74,025 million. In dollar equivalent, net debt was up 2% to USD 1,066 million. Net debt/ EBITDA remained unchanged compared to the end of 2017 at 2.0. In dollar equivalent, the ratio decreased to 1.8 from 2.0.

Market Trends

Urea prices continued to escalate in 2018. The average FOB Baltic price was up 15% year-on-year to USD 251 and shot past USD 300 in October, hitting a three-year record. Global prices for this product were supported by a deficit of urea supply caused by shrinking exports from China. 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 were forced to hold prices over USD 300 FOB China for most of the year, shifting their focus to the domestic market. Exports from China continued to decrease but still were in demand on the global market, and the need to attract them supported global prices. UAN prices strengthened on the back of growing urea prices. The average FOB Baltic price was up 23% year-on-year to USD 179. The average AN price, on the other hand, fell 2% in 2018 to USD 188 FOB Baltic. This weakening in AN prices was due to a temporary glut on the global market after the Ukrainian market was closed for Russian producers. Acron Group pivoted quickly by ramping up UAN output to the maximum and rechannelling part of its AN.Over 2018, NPK prices saw an upward dynamic sustained by price growth in all three market segments: nitrogen, phosphate and potash. The average price of NPK 16-16-16 was up 13% to USD 300 FOB Baltic. NPK’s premium over the core product basket hovered around 15%.

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

USD/t	Q4 2018	Q3 2018	Q4 2017	Q4 2018 to Q3 2018 change		Q4 2018 to Q4 2017 change
NPK 16-16-16	316	308	271	+2	%	+16	%
AN	186	213	218	-13	%	-15	%
UAN	229	174	162	+32	%	+41	%
Urea	293	263	239	+11	%	+22	%
Ammonia	336	303	286	+11	%	+18	%

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 69.4706 to USD 1 as of 31 December 2018 and RUB 57.6002 to USD 1 as of 31 December 2017. The average exchange rate was RUB 62.7078 to USD 1 in 2018, and RUB 58,3529 to USD 1 in 2017.

* 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.

Media contacts:

Sergey DorofeevAnastasiya GromovaTatiana SmirnovaPublic RelationsPhone: +7 (495) 777-08-65 (ext. 5196)

Investor contacts:Ilya PopovInvestor RelationsPhone: +7 (495) 745-77-45 (ext. 5252)

Background Information

Acron Group is a leading vertically integrated mineral fertiliser producer in Russia and globally, with chemical production facilities in Veliky Novgorod (Acron) and the Smolensk region (Dorogobuzh). The Group owns and operates a phosphate mine in Murmansk region (North-Western Phosphorous Company, NWPC) and is implementing a potash development project in Perm Krai (Verkhnekamsk Potash Company, VPC). It owns transportation and logistics infrastructure, including three Baltic port terminals and distribution networks in Russia and China. Acron’s subsidiary, North Atlantic Potash Inc. (NAP), holds mining licences for 11 parcels of the potassium salt deposit at Prairie Evaporite, Saskatchewan, Canada. Acron also holds a minority stake (19.8%) in Polish Grupa Azoty, one of the largest chemical producers in Europe.

In 2018, the Group sold 7.3 million tonnes of various products to 67 countries, with Russia, Brazil, Europe and the United States as key markets.

In 2018, the Group posted consolidated IFRS revenue of RUB 108,062 million (USD 1,723 million) and net profit of RUB 13,318 million (USD 212 million). Acron’s shares are on the Level 1 quotation list of the Moscow Exchange and its global depositary receipts are traded at the London Stock Exchange (ticker AKRN). Acron employs approximately 11,000 people.

For more information about Acron Group, please visit www.acron.ru/en.