Today Acron (Moscow Exchange and LSE: AKRN) released its audited consolidated IFRS financial statements for 2013.
Key Financials
• Revenue was down 5% year-on-year to RUB 67,904 million (USD 2,132 million), against RUB 71,112 million in 2012.
• EBITDA* was down 23% year-on-year to RUB 15,386 million (USD 483 million), against RUB 19,924 million in 2012.
• EBITDA margin was 23%, against 28% in 2012.
• Net profit was down 12% year-on-year to RUB 13,019 million (USD 409 million), against RUB 14,861 million in 2012.
• Net debt was RUB 36,633 million (USD 1,119 million), up 12% from RUB 32,671 million at the end of 2012.
• Net debt/EBITDA was 2.4, against 1.6 in 2012.
Operating Results
• Sales of the main products were 6,180 kt, up 6% year-on-year
Alexander Popov, Chairman of Acron’s Board of Directors, comments on the performance:
In 2013, Acron Group achieved full phosphate vertical integration, satisfying all its internal demand for apatite concentrate. Our Russian mineral fertiliser plants now run on our own apatite concentrate produced by NWPC at Oleniy Ruchey mine. Stable input supply ensured high production performance – in 2013, NPK output at the Group’s Russian production facilities was up 8% to 1.8 million tonnes. The Group’s total NPK output was 2.5 million tonnes. The nitrogen segment demonstrated record-high results as well. Ammonia output was 1.9 million tonnes and nitrogen fertiliser production was 3.0 million tonnes.
In the reporting year, Acron proceeded with construction of its new ammonia unit. In July 2013, the Group obtained state expert review approval and a construction permit for the new 700-ktpa Ammonia-4 unit. CAPEX on the project has already exceeded USD 150 million, or one-third of the total project budget.
In order to maintain a comfortable debt level at the peak of the investment stage, the decision was made to sell a part of the Group’s stake in Uralkali. As a result, Acron’s share in Uralkali’s authorised capital decreased in the reporting period from 2.88% to 1.77%. Portfolio investments have always provided Acron Group with additional financial support and confidence during turbulent times.
In H1 2013, the demand on the global fertiliser market was strong, encouraging optimistic expectations among market players. High prices allowed Acron Group to make large financial investments and simultaneously implement major projects. However, the markets started to decline in H2 2013. The deceleration of the global economy adversely affected all commodity markets, including the fertiliser market. A significant slump in global fertiliser prices in H2 2013 adversely affected producers. As a result, in H2 2013 Acron Group placed a priority on optimising its capital investments and operating expenses. In order to decrease production costs, Acron Group is mobilising its internal resources, primarily by strengthening vertical integration and its cost saving programme.
The collapse of the Russian-Belorussian potash joint trader in the middle of 2013 had a major impact on the global potash market. Increasing risks forced all players to reconsider their development plans. On the other hand, by postponing deadlines under our licence agreement for development of the Talitsky area (Verkhnekamsk potassium-magnesium salts deposit), Acron Group managed to achieve greater flexibility in its major potash project, which helped us reconsider our investment programme priorities. In 2015, we plan to complete the ammonia unit and make significant progress in implementing the second stage of Oleniy Ruchey phosphate project. During this time we will develop more detailed design solutions and optimise the financing structure for potash project. In late 2013 – early 2014, the potash project’s investor structure changed. Sberbank Investments replaced Raiffeisen Bank with more favourable financing terms and conditions.
Thus, in 2013 we found the optimal development option, maintaining all our key projects.
The market environment in early 2014 was calm and predictable. We believe that global fertiliser markets have reached the turning point in a 2-3-year cycle. There are currently no negative global factors that could cause fertiliser prices to deteriorate. Meanwhile, Acron Group’s competitive position is improving due to vertical integration and capacity expansion. Additionally, a number of macro-economic factors (including the weaker rouble and a freeze on tariffs charged by Russia’s natural monopolies) are favourably affecting the Group’s financial performance.
APPENDIX
Notes on Key Items in the Financial Statements
Key Financials
In 2013, revenue was down 5%, to RUB 67,904 million due to lower fertiliser prices. The average global price for NPK 16-16-16 decreased 15% in USD; the AN price was down 6%. This price drop was partially offset by a 2% decrease in the average rouble rate and 6% sales growth to a record high of 6.2 million tonnes.
The Group’s cost of sales in 2013 was RUB 42,009 million, up 4% year-on-year. Higher production costs were due mainly to increased prices for natural gas and power, as well as higher sales volume and staff costs. This increase in costs was partially offset by lower prices for potash input and coal used by Hongri Acron, the Group’s Chinese production facility, and a decrease in phosphate input costs achieved by switching to the Group’s apatite concentrate. Depreciation charges increased due to commissioning of investment projects.
Selling, general and administrative expenses decreased 4% under the cost saving programme. Transportation expenses were up 12% due to higher railway tariffs, caused by increased shipments and higher transshipment costs denominated mainly in foreign currency.
In 2013, EBITDA was RUB 15,386 million, down 23% year-on-year. EBITDA margin was 23%. The Group’s profit margin decrease was caused by higher production costs and lower mineral fertiliser prices.
Net profit shrank 12% to RUB 13,019 million, mainly because of a decline in the profit margin of the core business and a foreign exchange loss caused by revaluation of the Group’s foreign currency liability. Sale of part of Acron’s stake in Uralkali was one of major factors that favourably affected the Group’s net profit. The net profit margin decreased from 21% in 2012 to 19% in 2013.
Cash Flow
In 2013, operating cash flow was up 55% to RUB 14,360 million, against RUB 9,294 million in 2012. This growth was caused by a RUB 4,336 million decrease in the Group’s working capital (against a RUB 2,520 million increase in 2012) as its facilities worked to reduce inventory and deal more efficiently with contractors.
In 2013, net cash outflow from investment activities was RUB 9,247 million, against RUB 19,908 million in 2012. The total amount of capital investments was RUB 14,443 million, down 10% year-on-year. The structure of the Group’s financial assets changed in the reporting year. In H1 2013, Acron purchased a stake in Polish Grupa Azoty for RUB 3,840 million, and in H2 2013 it sold part of its share in Uralkali for RUB 5,541 million.
Net cash outflow from financial activities in 2013 was RUB 20,975 million, against a 2012 inflow of RUB 25,478 million. This outflow is related to a large amount of debt repayments – in 2013, the net change in borrowings was minus RUB 15,379 million, against plus RUB 15,712 million in 2012. Additionally, in 2012 the Group received cash inflow from participation of co-investors in VPC’s authorised capital in the amount of RUB 12,755 million. In 2013, Raiffeisen Bank’s share in VPC was repurchased, and that affected the item Acquisition of Non-controlling Interest, which was minus RUB 3,685 million.
Debt Burden
In the reporting period, net debt was up 12% to RUB 36,633 million. This item was impacted by a weaker rouble at the end of the reporting period. The Group’s net debt in USD equivalent increased less dramatically, and was up just 4% from USD 1,077 million as of the end of 2012 to USD 1,119 million year-on-year. The relative debt burden was up, with net debt/EBITDA ratio increasing from 1.6 to 2.4 year-on-year. As of December 31, 2013, the Group’s total debt was down 18% from RUB 61,559 million to RUB 50,187 million year-on-year. Repayment was made from available cash. Because of that, the item Cash and Cash Equivalents decreased from RUB 27,453 million to RUB 12,787 million.
Dividends
As of the date of the Financial Statements release, Acron’s Board of Directors has not yet adopted a resolution on dividend recommendations for the reporting period. No interim dividends were paid in 2013. The amount of RUB 4,456 million (RUB 110 per share) was paid out as 2012 dividends, including interim dividends, accounting for 30% of IFRS net profit for 2012. The Group’s dividend policy stipulates annual dividend payment in the amount of no less than 30% of the Group’s IFRS net profit.
The full financial statements, as well as a presentation on performance in the 2013 fiscal year, are available at www.acron.ru/en/. The Group’s operating analysis for 2013 is detailed in the 2013 Annual Report, and a draft shall be available at www.acron.ru/en/ on April 30, 2014.
Note: The exchange rate for currency conversions was RUB 32.7292 to USD 1 as of December 31, 2013 and RUB 30,3727 for USD 1.00 as of December 31, 2012. The average exchange rate was RUB 31,8480 to USD 1 in 2013 and RUB 31,0930 to USD 1 in 2012.
* EBITDA is calculated as operating profit adjusted to depreciation of fixed and intangible assets, Forex gains or losses, and other non-monetary and non-core items.