Miscellaneous 27 August 2018 Acron Group’s H1 2018 IFRS

27 August 2018

Acron Group’s H1 2018 IFRS Net Profit up 76 % to RUB 3 . 4 billion 

Today, Acron Group (Moscow Exchange and LSE: AKRN) has released its consolidated IFRS financial statements for H1 2018.

Key Financials

• Revenue was up 5% year-on-year to RUB 49,413 million (H1 2017: RUB 46,889 million). In US dollar equivalent, revenue was up 3% to USD 833 million from USD 809 million.
• EBITDA* was up 7% year-on-year to RUB 15,666 million (H1 2017: RUB 14,638 million). In US dollar equivalent, EBITDA was up 5% to USD 264 million from USD 252 million.
• EBITDA margin was 32%, against 31% year-on-year.
• Net profit was up 76% year-on-year to RUB 3,425 million (H1 2017: RUB 1,946 million). In US dollar equivalent, net profit was up 72% to USD 58 million from USD 34 million.
• Net debt was up 18% to RUB 71,123 million (31 December 2017: RUB 60,221 million). In US dollar equivalent, net debt was up 8% to USD 1,133 million from USD 1,045 million.
• Net debt/LTM EBITDA** was 2.3 against 2.0 as of 31 December 2017. In US dollar equivalent, the ratio was 2.2 against 2.0 as of 31 December 2017.

Operating Results

• Output of key products was 3.758 million tonnes, up 4% year-on-year.
• Sales of key products totalled 3.665 million tonnes, up 2% year-on-year.

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

“Despite volatility on the global markets, Acron Group’s key financial indices are sustainably on an upward drive. The constant gains in production, made possible by smart investment projects over the past several years, ensure our progress and offset the negative impact of foreign markets. We are pursuing a new investment programme at our Russian facilities to maintain output growth and our competitiveness in global markets. Upgrades and new construction at Acron and Dorogobuzh are proceeding according to schedule. Underground mining is picking up stream at the Oleniy Ruchey mine, and mine shafts are being constructed at the Talitsky area”.

APPENDIX

Notes on Key Items in the Financial Statements

Financial Performance

Acron Group posted H1 2018 revenue of RUB 49,413 million, up 5% year-on-year. This improvement was due to an increase in sales (up 2%) and the average USD-RUB exchange rate (also 2%). In the reporting period, average indicative dollar prices for the Group’s products were on diverse trends compared with the same period in 2017: while prices for NPK fertilisers, UAN and urea increased, ammonia and ammonium nitrate prices fell.

Average Indicative Prices, FOB Baltic Sea/Black Sea

In the reporting period, the cost of sales was up 6% to RUB 26,475 million, mainly because of a 2%-rise in sales and higher depreciation and amortisation. Depreciation and amortisation increased following the start of underground mining operations at the Oleniy Ruchey mine and the launch of the railway route connecting the mine’s production site and the Titan station late last year. That said, the increase in cash costs did not exceed 4%.

Selling, general and administrative expenses were up 15% to RUB 4,133 million, mainly due to higher personnel costs. Transportation expenses were up 9% to RUB 7,633 million, driven by increased sales, Russian Railways rate adjustments and higher railcar lease rates.

EBITDA was up 7% year-on-year to RUB 15,666 million. In the reporting period, EBITDA margin was 32%, against 31% in H1 2017. Veliky Novgorod-based Acron, Dorogobuzh and NWPC operated at margins of 34%, 24% and 33%, respectively. Based on H1 2018 results, the Group posted a net exchange loss of RUB 2,189 million due to the revaluation of assets, loans and liabilities, against a RUB 235 million loss in H1 2017.

In the reporting period, net profit was up 76% to RUB 3,425 million due to a RUB 1,778 million loss on derivatives, against a RUB 6,515 million loss in H1 2017.

Cash Flow

In H1 2018, net operating cash flow increased 42% to RUB 9,467 million (H1 2017: RUB 6,647 million). This jump was mainly due to an increase in profit before taxation and a moderate upswing in working capital. In H1 2018, working capital increased by RUB 3,185 million, while in H1 2017 working capital was up RUB 3,913 million.

Net cash used in investing activities in H1 2018 was RUB 6,894 million, against RUB 5,482 million in H1 2017. Capital expenditures were up 9% to RUB 6,201 million (H1 2017: RUB 5,702 million).

Net cash generated from financial activities in H1 2018 was RUB 2,052 million, against an outflow of RUB 13,809 million year-on-year. In the reporting period, the Group compensated Sberbank Investments for accumulated yield from owning 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. Debt raised in the reporting period resulted in cash inflow when compared with borrowings repaid in H1 2017. Dividends paid to shareholders for the reporting period totalled RUB 5,094 million.

Debt Burden

In H1 2018, total debt was up 22% to RUB 90,956 million. In dollars, the total debt increase was more moderate – up 12% to USD 1,449 million. Net debt was up 18% to RUB 71,123 million. In dollar equivalent, net debt was up 8% to USD 1,133 million. Net debt/ LTM EBITDA at the end of Q2 was 2.3, against 2.0 as of 31 December 2017. In dollar equivalent, the ratio was 2.2 against 2.0 as of 31 December 2017.

Market Trends

Early in Q2, when seasonal demand for nitrogen fertilisers is traditionally low, prices for urea, ammonium nitrate and UAN predictably dropped. Urea prices declined to USD 215 FOB Baltic Sea in May, from USD 230 in March. However, in June urea prices showed unexpected, explosive growth, reaching USD 270 FOB Baltic Sea by July. This dynamics in a period of low seasonal demand can be explained by the lack of supply in the global market due to export cuts in China. In H1 2018, China exported just 0.7 million tonnes of urea, down 75% from 2.8 million tonnes in H1 2017. Chinese producers are hamstrung by the high price of coal, which is a key feedstock for urea production in China, as well as by government environmental restrictions. With their prices stuck at USD 300 FOB China this year, Chinese producers were unable to compete globally. The missing tonnes of Chinese urea were still in demand, however, and prices in other regions were forced up as a result. The higher urea price triggered price increases for other nitrogen fertilisers. Ammonium nitrate prices reached USD 220 FOB Baltic in August, up from USD 150 in May. UAN prices reached USD 180 FOB Baltic, up from USD 145 in May. As of August, urea prices stand at about USD 260 FOB Baltic, and industry experts expect moderate growth in September-October due to strong demand in Brazil and India. Further price growth is possible in Q4 due to traditionally strong demand in anticipation of the spring sowing season in the Northern hemisphere. High urea prices are expected to support prices for other nitrogen fertilisers, ammonium nitrate and UAN, in particular, because urea is typically a benchmark product.

In Q2 2018, NPK prices remained stable. The positive dynamics for basic products prices (urea, DAP and potassium chloride) that started in June drove the NPK price to USD 315 FOB Baltic in August, up from USD 290 in May.

Average Indicative Prices, FOB Baltic Sea/Black Sea

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 62.7565 to USD 1 as of 30 June 2018 and RUB 57.6002 to USD 1 as of 31 December 2017. The average exchange rate for the first six months of 2018 was RUB 59.3536 to USD 1. The average exchange rate for the first six months of 2017 was RUB 57.9862 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.

Media contacts:

Sergey Dorofeev Anastasiya Gromova Tatiana Smirnova Public Relations                    Phone: +7 (495) 777-08-65 (ext. 5196)

Investor contacts: Ilya Popov Investor Relations                 Phone:  +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 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 has a wholly owned 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 licenses for 13 parcels of the potassium salt deposit at Prairie Evaporite, Saskatchewan, Canada. Acron also holds a minority stake (19.8%) in Polish Grupa Azoty S.A., one of the largest chemical producers in Europe.

In 2017, the Group sold 7.3 million tonnes of various products to 65 countries, with Russia, Brazil, Europe and the United States as key markets.

In 2017, the Group posted consolidated IFRS revenue of RUB 94,342 million (USD 1,617 million) and net profit of RUB 14,260 million (USD 244 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 .