Acron Group’s 9M 2019 IFRS EBITDA up 9% to USD 453 mn
27 November 2019Acron Group’s 9M 2019 IFRS EBITDA up 9% to USD 453 mnToday Acron (Moscow Exchange and LSE: AKRN) released its consolidated IFRS financial statements for 9M 2019.Key FinancialsRevenue was RUB 89,615 million, up 15% year-on-year, (9M 2018: RUB 77,779 million). In dollar equivalent, revenue was up 9% to USD 1,377 million from USD 1,266 million.EBITDA* was up 16% year-on-year to RUB 29,503 million (9M 2018: RUB 25,486 million). In dollar equivalent, EBITDA was up 9% to USD 453 million from USD 415 million.EBITDA margin was 33%, unchanged year-on-year.Net profit more than tripled year-on-year to RUB 22,988 million (9M 2018: RUB 7,366 million). In dollar equivalent, net profit increased by a factor of 2.9 to USD 353 million from USD 120 million.Net debt was up 6% to RUB 78,672 million, against RUB 74,025 million as of 2018 year-end. In dollar equivalent, net debt was up 15% to USD 1,221 million from USD 1,066 million.Net debt/LTM EBITDA** was down to 1.9 from 2.0 as of 2018 year-end. In dollar equivalent, the ratio was 1.9, against 1.8 as of 2018 year-end.Operating ResultsOutput of key products was 5,800,000 tonnes, up 3% year-on-year.Sales of key products totalled 5,800,000 tonnes, up 6% year-on-year.Alexander Popov, Chair of Acron’s Board of Directors, commented on the results:“Over the first nine months of 2019, output and sales of Acron’s commercial key products hit a record high of 5.8 million tonnes, which supported our financial results: EBITDA for the period was USD 453 million, up 9% year-on-year. The growth was driven by expanded capacity: in late 2018, we commissioned a new 210-ktpa urea unit at the Acron site, and in 2019, two new 135-ktpa nitric acid units came on stream. Now we are looking forward to launching another nitric acid unit at the Acron site and completing upgrades at the Dorogobuzh ammonia unit.“It is worth noting that in late third quarter, the global fertiliser market saw an unexpected slump in the pricing environment, which caused us to review the speed of our flexible investment programme and temporarily minimise capex until the market recovers. That said, we will not delay projects that have already entered the active implementation phase. We believe that, with the current measures in hand, we will prevent the debt burden from increasing and meet the performance targets in term of both operations and dividends. With this in mind, in November, the Board of Directors recommended a third dividend payment for 2019 at a rate of RUB 101 per share.“In our view, the deferred demand for mineral fertilisers created in the fourth quarter of 2019 will be met in early 2020, in which case we will make up for any delays in our investment programme”.
APPENDIXNotes on Key Items in the Financial StatementsFinancial PerformanceAcron Group posted 9M 2019 revenue of RUB 89,615 million, up 15% year-on-year. This growth was due to a 3% increase in sales, higher average global dollar prices for most of the Group’s products, and another 6% increase in the average rouble-dollar exchange rate.Average Indicative Prices, FOB Baltics/Black SeaIn the reporting period, the cost of sales was up 13% year-on-year to RUB 46,233 million, mainly due to higher sales and labour costs, increased prices for energy and power, and growing depreciation and amortisation.The higher labour cost was due to an increase in the number of employees at the Oleniy Ruchey underground mine, bonuses for the launch of new production units at Acron (Veliky Novgorod) and higher payroll expenses for employees whose salaries are denominated in foreign currency and affected by a weaker rouble. Depreciation and amortisation increased following the launch of a new urea unit in November 2018 and an equipment upgrade performed at existing production facilities, including an upgrade of the NPK and urea units at the Veliky Novgorod site.Selling, general and administrative expenses were up 17% to RUB 7,010 million, mainly due to higher personnel costs driven by the expansion of the Group’s international distribution segment and an increase in fees paid to third parties as part of a commercial strategy to increase sales to end users.Transportation expenses were up 21% to RUB 14,557 million, mainly due to increased sales to the United States and Latin America on terms that include transportation. In addition, the cost of logistics services outside of Russia increased due to a weaker rouble. Railcar lease rates were also up.EBITDA increased 16% year-on-year to RUB 29,503 million. In the reporting period, EBITDA margin was 33%, unchanged year-on-year. Veliky Novgorod-based Acron, Dorogobuzh and NWPC operated at margins of 35%, 25% and 21%, respectively.
In 9M 2019, interest costs increased to RUB 1,545 million from RUB 853 million in 9M 2018 because of a reduction in loan expenses capitalised in the value of construction in process and the cost of mining licences.
Based on 9M 2019 results, the Group posted a net exchange profit of RUB 6,149 million due to the revaluation of assets, loans and liabilities, against a RUB 6,029 million loss in 9M 2018. In the reporting period, the gain from the change in the fair value of derivatives was RUB 3,060 million, against a RUB 1,890 million loss in 9M 2018.In 9M 2019, net profit increased by a factor of 3.1 to RUB 22,988 million, against RUB 7,366 million year-on-year.Cash Flow
In 9M 2019, net operating cash flow decreased 8% to RUB 16,456 million (Q3 2018: RUB 17,812 million). In 9M 2019, working capital increased by RUB 5,929 million, while in 9M 2018, working capital was up RUB 1,796 million.Net cash used in investing activities in 9M 2019 came in at RUB 12,579 million, against RUB 9,089 million in the same period of 2018. Capital expenditures were up 38% to RUB 12,696 million from RUB 9,204 million in 9M 2018. In dollar equivalent, capital expenditures increased 30% to USD 195 million as the Group implemented its Development Strategy.Net cash allocated to financial activities in 9M 2019 was RUB 7,312 million (9M 2018: RUB 11,011 million). The reporting period’s cash outflow was caused by a decrease in proceeds from borrowings. In 9M 2019, net borrowings were down to RUB 5,200 million, against RUB 6,550 million in 9M 2018. In the reporting period, RUB 10,394 million were paid as dividends (9M 2018: RUB 11,700 million).Debt BurdenIn 9M 2019, total debt was up 1% to RUB 84,979 million; in dollar equivalent, it was USD 1,319 million.In May 2019, the Group received a two-year extension on its five-year syndicated structured pre-export loan facility for up to USD 750 million, increasing the share of long-term debt to 83% from 79% on 31 December 2018.Net debt was up 6% from 31 December 2018 to RUB 78,672 million. In dollar equivalent, it was up 15% to USD 1,221 million due to higher working capital and a stronger rouble as of the end of the reporting period compared to 31 December 2018.As of the end of the reporting period, net debt / LTM EBITDA was 1.9, against 2.0 on 31 December 2018. In dollar equivalent, the ratio increased to 1.9 from 1.8.Market TrendsIn Q3 2019, global urea prices dropped in response to higher Chinese exports coupled with the seasonal decrease in global demand. In 9M 2019, China exported 3.2 million tonnes of urea (9M 2018: 1.1 million tonnes).
Demand for nitrogen fertilisers traditionally recovers in the fourth quarter. This year, however, demand is unexpectedly weak in such key regions as Europe, the US, Brazil, Southeast Asia and Australia. Demand is affected by adverse weather conditions and negative price trends: buyers postpone purchases in expectation of lower prices, causing urea prices to slip in the fourth quarter. Industry experts believe deferred demand will support prices in the first quarter of 2020.
As urea prices decreased, ammonium nitrate prices slumped in the third quarter as well. UAN prices were stable in the third quarter after falling in H1 2019 due to weaker demand in the US resulting from adverse weather conditions.
In the third quarter, NPK prices decreased due to lower prices for nitrogen, phosphate and potash fertilisers. In Q3 2019, the NPK premium over the basic product basket was high, at approximately 20%.Average Indicative Prices, FOB Baltic Sea/Black SeaThe full version of Acron Group’s financial statements is available at www.acron.ru/enNote: The exchange rate used for currency conversion was RUB 64.4156 to USD 1 as of 30 September 2019 and RUB 69.4706 to USD 1 as of 31 December 2018. The average exchange rate for the first nine months of 2019 was RUB 65.0789 to USD 1. The average exchange rate for the first nine months of 2018 was RUB 61.4358 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.
APPENDIXNotes on Key Items in the Financial StatementsFinancial PerformanceAcron Group posted 9M 2019 revenue of RUB 89,615 million, up 15% year-on-year. This growth was due to a 3% increase in sales, higher average global dollar prices for most of the Group’s products, and another 6% increase in the average rouble-dollar exchange rate.Average Indicative Prices, FOB Baltics/Black SeaIn the reporting period, the cost of sales was up 13% year-on-year to RUB 46,233 million, mainly due to higher sales and labour costs, increased prices for energy and power, and growing depreciation and amortisation.The higher labour cost was due to an increase in the number of employees at the Oleniy Ruchey underground mine, bonuses for the launch of new production units at Acron (Veliky Novgorod) and higher payroll expenses for employees whose salaries are denominated in foreign currency and affected by a weaker rouble. Depreciation and amortisation increased following the launch of a new urea unit in November 2018 and an equipment upgrade performed at existing production facilities, including an upgrade of the NPK and urea units at the Veliky Novgorod site.Selling, general and administrative expenses were up 17% to RUB 7,010 million, mainly due to higher personnel costs driven by the expansion of the Group’s international distribution segment and an increase in fees paid to third parties as part of a commercial strategy to increase sales to end users.Transportation expenses were up 21% to RUB 14,557 million, mainly due to increased sales to the United States and Latin America on terms that include transportation. In addition, the cost of logistics services outside of Russia increased due to a weaker rouble. Railcar lease rates were also up.EBITDA increased 16% year-on-year to RUB 29,503 million. In the reporting period, EBITDA margin was 33%, unchanged year-on-year. Veliky Novgorod-based Acron, Dorogobuzh and NWPC operated at margins of 35%, 25% and 21%, respectively.
In 9M 2019, interest costs increased to RUB 1,545 million from RUB 853 million in 9M 2018 because of a reduction in loan expenses capitalised in the value of construction in process and the cost of mining licences.
Based on 9M 2019 results, the Group posted a net exchange profit of RUB 6,149 million due to the revaluation of assets, loans and liabilities, against a RUB 6,029 million loss in 9M 2018. In the reporting period, the gain from the change in the fair value of derivatives was RUB 3,060 million, against a RUB 1,890 million loss in 9M 2018.In 9M 2019, net profit increased by a factor of 3.1 to RUB 22,988 million, against RUB 7,366 million year-on-year.Cash Flow
In 9M 2019, net operating cash flow decreased 8% to RUB 16,456 million (Q3 2018: RUB 17,812 million). In 9M 2019, working capital increased by RUB 5,929 million, while in 9M 2018, working capital was up RUB 1,796 million.Net cash used in investing activities in 9M 2019 came in at RUB 12,579 million, against RUB 9,089 million in the same period of 2018. Capital expenditures were up 38% to RUB 12,696 million from RUB 9,204 million in 9M 2018. In dollar equivalent, capital expenditures increased 30% to USD 195 million as the Group implemented its Development Strategy.Net cash allocated to financial activities in 9M 2019 was RUB 7,312 million (9M 2018: RUB 11,011 million). The reporting period’s cash outflow was caused by a decrease in proceeds from borrowings. In 9M 2019, net borrowings were down to RUB 5,200 million, against RUB 6,550 million in 9M 2018. In the reporting period, RUB 10,394 million were paid as dividends (9M 2018: RUB 11,700 million).Debt BurdenIn 9M 2019, total debt was up 1% to RUB 84,979 million; in dollar equivalent, it was USD 1,319 million.In May 2019, the Group received a two-year extension on its five-year syndicated structured pre-export loan facility for up to USD 750 million, increasing the share of long-term debt to 83% from 79% on 31 December 2018.Net debt was up 6% from 31 December 2018 to RUB 78,672 million. In dollar equivalent, it was up 15% to USD 1,221 million due to higher working capital and a stronger rouble as of the end of the reporting period compared to 31 December 2018.As of the end of the reporting period, net debt / LTM EBITDA was 1.9, against 2.0 on 31 December 2018. In dollar equivalent, the ratio increased to 1.9 from 1.8.Market TrendsIn Q3 2019, global urea prices dropped in response to higher Chinese exports coupled with the seasonal decrease in global demand. In 9M 2019, China exported 3.2 million tonnes of urea (9M 2018: 1.1 million tonnes).
Demand for nitrogen fertilisers traditionally recovers in the fourth quarter. This year, however, demand is unexpectedly weak in such key regions as Europe, the US, Brazil, Southeast Asia and Australia. Demand is affected by adverse weather conditions and negative price trends: buyers postpone purchases in expectation of lower prices, causing urea prices to slip in the fourth quarter. Industry experts believe deferred demand will support prices in the first quarter of 2020.
As urea prices decreased, ammonium nitrate prices slumped in the third quarter as well. UAN prices were stable in the third quarter after falling in H1 2019 due to weaker demand in the US resulting from adverse weather conditions.
In the third quarter, NPK prices decreased due to lower prices for nitrogen, phosphate and potash fertilisers. In Q3 2019, the NPK premium over the basic product basket was high, at approximately 20%.Average Indicative Prices, FOB Baltic Sea/Black SeaThe full version of Acron Group’s financial statements is available at www.acron.ru/enNote: The exchange rate used for currency conversion was RUB 64.4156 to USD 1 as of 30 September 2019 and RUB 69.4706 to USD 1 as of 31 December 2018. The average exchange rate for the first nine months of 2019 was RUB 65.0789 to USD 1. The average exchange rate for the first nine months of 2018 was RUB 61.4358 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.