OREANDA-NEWS. Chair of Acron’s Board of Directors Alexander Popov commented on the results:

“Despite the complex global market environment and increasing level of competition, Acron Group has high production potential, and achieving it in the near future will help us keep financial performance at sustainable level, even considering the stagnant global prices.

“The main phase of investment cycle at our Russian facilities is over. The first stage of the Oleniy Ruchey mine has reached its full capacity, and the new ammonia unit has been put into operation. Thanks to these milestone events, we will see continuing production growth at the Group’s Russian plants for several years to come.

“With the sale of Hongri Acron in Q3 2016, we will focus on the most performing assets by increasing their efficiency and competitiveness.

“Pursuing a long-term increase of the Group’s shareholder value, we changed the partnership structure for our future Talitsky potash project by purchasing Eurasian Development Bank’s stake. Besides, we did it with the minimum burden on the company’s balance by selling our remaining interest in PJSC Uralkali.

“The successful symbiosis of production, investment and financing allows us to look into the future with confidence and increase the portion of profit allocated for dividends, thus ensuring higher rate of return on shareholders’ equity. I would like to remind that the Board of Directors has already recommended paying the interim dividends based on H1 2016 results in the amount of RUB 155 per share”.

Financial Performance

The Group’s revenue in the first half of 2016 was RUB 51,199 million, down 2% year-on-year. In the reporting period, global fertiliser prices decreased 12% to 30% in dollar equivalent, which was mainly offset by a 9% growth in sales and a weaker rouble exchange rate. In the first half of 2016, the average RUB to US dollar exchange rate was 22% lower year-on-year.

Average global indicative prices for the Group’s main products in the first six months of 2016 were: USD 317 per tonne FOB for NPK 16-16-16, USD 170 per tonne FOB for AN, USD 195 per tonne FOB for urea, and USD 147 per tonne FOB for UAN.

Despite a 9% increase in sales, the cost of goods sold in the reporting period was only RUB 25,888 million, up 1% year-on-year. The growth was limited due to lower potassium chloride prices, and decreased output and sales at the most cost-intensive facility - Hongri Acron in China.

Selling, general and administrative expenses were up 8%, mainly due to indexation of rouble-denominated wages at the Russian facilities. Transportation expenses were up 15% due to a 14% increase in sales by the Group’s Russian facilities, indexation of railway tariffs and reclassification of some costs of raw materials delivery from Cost of Sales to Transportation Expenses.

In the first half of 2016, EBITDA was RUB 18,408 million, down 9% year-on-year. EBITDA margin was 36% against 39% year-on-year. Veliky Novgorod-based Acron and Dorogobuzh facilities operated at 36% and 35% margin, respectively. NWPC reached a high level of 63% for EBITDA margin due to expanded operations and streamlined costs. In the reporting period, Hongri Acron posted negative margin of -17%, as it was not running at full capacity in the challenging market conditions. The Group announced the sale of its share in Hongri Acron in Q3 2016.

Based on the results of the first half of 2016, the Group posted a net exchange profit of RUB 2,388 million from revaluation of assets, loans and liabilities against a significant loss of RUB 17,772 million year-on-year.

In the reporting period, the Group reduced its share in Polish Grupa Azoty S.A. from 20% to 19.8%. The subsequent reclassification of this investment resulted in inapplicability of equity method. Due to this, the loss of RUB 3,616 million was recorded in Result from suspension of use of equity investee method related to decrease of Grupa Azoty S.A. shares market price. In addition, the share of Grupa Azoty S.A. profit, accrued based on equity method before the reclassification, totalled RUB 1,412 million against RUB 1,412 million year-on-year.

In the reporting period, Acron Group posted profit on sale of investments in the amount of RUB 5,391 million, which was mainly due to the sale of the whole stake in PJSC Uralkali.

Therefore, net profit for the first half of 2016 was up 6% year-on-year to RUB 12,837 million.