Acron Q1 Profits Up on Prices, Forex; Volumes Flat; Talitsky K Targeted for 2023

Acron Group, Moscow, reported a 2.1-fold increase in first-quarter net profit to RUB8.77 billion on revenues of RUB29.5 billion, up from the year-ago RUB4.15 billion and RUB24.05 billion, respectively. In U.S. dollar equivalent, the net profit increase came in 82 percent up on a year-ago, at $133 million, up from $73 million, while revenues in U.S. dollar equivalent grew 6 percent, to $446 million from $423 million.

First-quarter EBITDA increased by 31 percent year-on-year to RUB10.46 billion, up from RUB7.96 billion, and in line with the forecast of Russia’s VTB Capital analysts, according to Bloomberg, citing an Interfax report.

Meanwhile, U.S. dollar equivalent EBITDA came in 13 percent higher, at $158 million against the year-ago $140 million.

“In the first quarter, the group’s key financials showed positive dynamics due to favorable market conditions,” said Acron Chairman Alexander Popov. He attributed the revenues’ boost to higher global dollar-nominated prices for most of the group’s products, as well as a 16 percent increase in the average U.S. dollar-ruble exchange rate.

But sales volumes of the group’s key products in the first quarter were essentially unchanged compared with a year earlier, at 1.802 million mt against 1.81 million mt. Output of key products increased 2 percent to 1.94 million, up from the previous year’s 1.9 million mt.

Popov noted that the group’s cost of sales was 20 percent higher than a year ago at RUB15.39 billion, mainly due to higher global prices for potassium chloride purchased for NPK production, as well as increased energy and power prices, and higher depreciation and amortization.

Russia accounted for over 20 percent of group revenues in the reporting period (Q1 2018: 21 percent); the EU 19 percent (Q1 2018: 15 percent); and Latin America 16 percent (Q1 2018: 13 percent). The U.S. and Canada accounted for 13 percent of first-quarter group revenues (Q1 2018: 12 percent); Asia, excluding China, 14 percent (Q1 2018: 13 percent); China 5 percent (Q1 2018: 7 percent); and the CIS 4 percent (Q1 2018: 12 percent).

Popov said the implementation of new projects at Acron Veliky Novgorod and at the Dorogobuzh subsidiary continues as part of the group’s development strategy. In March a new 135,000 mt/y nitric acid unit was put into operation at Veliky Novgorod, and a second unit with identical capacity will start up in mid-year, boosting the site’s aggregate nitric acid capacity to 1.8 million mt/y (GM March 8, p. 25). Production of nitric acid has been a bottleneck at Veliky Novgorod, according to Acron, and the additional supply will allow it to increase output of key products – ammonium nitrate, UAN, and NPK.

The group is also progressing the development of its Talitsky potash mine in Russia’s Perm region, and said more than half of the shaft-sinking has now been completed. It provided no further update on the project’s timeline this week, but in April said it planned to extract the first ore in 2021, with first potash product in 2023, a year earlier than previously indicated (GM June 15, 2018). A spokesperson for the group this week confirmed that timeline to Green Markets, with plans to reach the full 2.0 million mt/y capacity in 2025. Following that, there could be a subsequent expansion of production to 2.6 million mt/y.

Last November, Popov told Interfax reporters that the group may accelerate construction of the Talitsky mine.

Acron holds a 60.1 percent stake in Verkhnekamsk Potash Co., the company developing Talitsky, with the remaining shareholding held by a pool of financial investors.

Acron put the total capex to build the 2.0 million mt/y of production capacity at $1.5 billion (excluding the cost of the license), of which $150 million already has been invested. A further $0.3 billion will be required to expand production to 2.6 million mt/y.

Project financing discussions are ongoing, the spokesperson said. Popov was cited by the earlier Interfax report as saying the group is not ruling out the completion of Talitsky using its own funds. It expects to consume around 700,000 mt of the potash output in-house from 2025.

Acron’s overall first-quarter capital expenditure was 43 percent higher than a year ago at $66 million, with much of the increase on account of “acceleration” of the Talitsky project, as well as investment projects at Veliky Novgorod.

But the company said the debt burden decreased. The net debt/EBITDA position in U.S. dollar equivalent at the end of the first quarter stood at 1.7, against 1.8 at its beginning.

Looking at price trends for key products, Acron noted the price of urea recovered to $250 FOB Baltic Sea in April, but pointed out that industry experts expect urea prices to remain “almost flat” until the fourth quarter of this year because of high demand in India and Latin America. The price increase in the fourth quarter is expected due to stronger demand on the threshold of the sowing season in the Northern Hemisphere and the high price for urea available for export from China, it said.

Acron noted that the AN Baltic Sea FOB price started to rise in May after remaining almost flat during the first quarter, as the price of urea recovered. Similarly, it said UAN FOB Baltic Sea prices have been supported in the second quarter after their first-quarter decline, helped by positive developments in the urea market.

However, the group said NPK FOB Baltic Sea prices in the first quarter decreased amid negative price dynamics in the nitrogen and phosphate segments, adding that during the second quarter the NPK FOB Baltic prices have remained unchanged.

Average Indicative Prices, FOB Baltic/Black Sea ($/mt)