Akron Overview: we earn on mineral fertilizers

Обзор «Акрона»: зарабатываем на минеральных удобрениях

Akron (MCX: AKRN) is one of the leading producers of mineral fertilizers not only in Russia, but all over the world. It is a vertically integrated holding. The main enterprise of the group of companies is located in Veliky Novgorod, although the office is located in Moscow.

About company

Shares of the group of companies are traded on the Moscow Exchange in rubles and on the London Stock Exchange in US dollars under the ticker AKRN. They show positive medium-term dynamics.: for the last 12 months on the Moscow Exchange, they grew by 47%. The initial placement of securities was carried out at the Moscow Exchange 11 October 2006, securities are at the second level of listing, they have average liquidity.

History. Novgorod Chemical Plant, founded in 1961, received the first product - methanol - in 1967. In 1975, the production association "Azot" was formed on its basis.. These are the predecessors of the Akron Novgorod plant - the key production facility of the group.

In 1969, the production of ammonia and ammonia water began. This was followed by urea, urea-formaldehyde resins, additional ammonia production, ammonium nitrate. After that, the development of the Dorogobuzh chemical plant, the second largest enterprise, began., in the future, which formed the group of PJSC "Acron", now it is called PJSC "Dorogobuzh". Dorogobuzh also began to produce ammonia and nitrogen-phosphorus-potassium fertilizers, and ammonium nitrate - in Akron. During the years of perestroika, Akron began producing acetylene, acetaldehyde and acetic acid.

In the early nineties, both enterprises were privatized and merged into a single structure.. By 1997, Acron had built a distribution network in major agricultural regions and was named the winner of the Best Russian Companies competition. In 2002, Dorogobuzh began production of liquid carbon dioxide.

In 1998, the Akron-Trans railway carrier entered the group of companies.. In the following years, there was an expansion of the range of industrial fertilizers.. Expansion of the group to the Chinese market continued, she entered the mining market, to the logistics market and ultimately to stock market.

After 2010, the group entered the Polish market and expanded its mining operations. Geological exploration began in Canada. In 2015, Dorogobuzh became a public joint stock company. The next year, the construction of its own railway began in the Murmansk region, new production of rare earth metals in Veliky Novgorod.

In 2017, state awards were presented to key figures in the group, the group entered the markets of the Rostov region and France, as well as to the agro-industrial market of the Nizhny Novgorod region, continued expansion of production.

In 2018 the group entered the Latin American markets, a railway line was put into operation. The following year, the group took part in several exhibitions and received awards.. At the same time, a deposit of potassium and magnesium salts was actively developed in the Perm Territory.. In 2020, despite the economic crisis and pandemic, additional production capacities were launched at the main enterprises.

Composition of the group of companies. The main companies of the holding are Acron and Dorogobuzh. The group has a business not only in the Russian Federation, but also in other states. Expansion into emerging and borderline economies is a positive factor for investors, since such economies are recovering faster from the pandemic crisis, than developed.

Composition of Acron Group

Activity profile Share of the holding in the capital
PAO "Akron" holding company, chemical production 100%
JSC "SZFK" Phosphate mining 100%
North Atlantic Potash Inc. Potassium mining 100%
AS DBT Port terminals 100%
Andrex LLC Port terminal 100%
JSC "Agronova" Distribution in Russia 100%
Beijing Yong Sheng Distribution in China 100%
Acron USA Inc. Distribution in the USA 100%
Acron Switzerland AG Distribution in Switzerland 100%
Acron Brazil Ltd. Distribution in Brazil 100%
Acron Argentina S.R.L. Distribution in Argentina 100%
Acron Colombia SAS Distribution in Colombia 100%
LLC "NPC" Akron Engineering "» Engineering 100%
LLC "Fertility" Agriculture 100%
PAO Dorogobuzh Chemical production 96,7%
VKK JSC Potassium mining 50%
Grupa Azoty Fertilizer production in Poland 19,8%
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Akron shareholders and key figures

Akron Group JSC 55,00%
Redbrik Investments S. but. p. l. 30,98%
PAO "Akron" (treasury account) 9,32%
NCO JSC "National Settlement Depository" 2,52%

Two key figures in the company can be distinguished: this is the main shareholder of the group Vyacheslav Kantor, which through the above companies owns most of its shares, and CEO Vladimir Kunitskiy, who has held this post since 2011, and has been working at the enterprise since 1983.

Geographic structure of sales. The largest share of revenue comes from Latin America, and the same region showed the largest increase in the first half of 2021 in comparison with the same period of the previous year.

The percentage of revenue from sales in the Russian Federation is at the average level among the regions, and in terms of growth, revenue in the Russian Federation takes the last place. Orientation towards Latin America reflects the general foreign economic picture in Russia. As the countries of the region are seeing an increase in agricultural exports and, respectively, its production, this detail of the revenue structure of a group of companies can be considered its strong point: this will also work for the long term.

The question of a relatively low share of Russia can be assessed neutrally: one side, she is not that low, so that we can talk about complete inattention to the Russian market, on the other hand, low sales dynamics is consistent with poor industry performance in the first half of 2021. In such a situation, the geographic diversification of the group looks like a good risk mitigation factor..

Acron's revenue by country and region, million rubles

Revenue in 1H2021 Revenue in 1H2020 The change Share in 2021
Latin America 25 844 13 882 86,17% 30,06%
the Russian Federation 14 457 11 870 21,79% 16,81%
USA and Canada 14 333 8456 69,50% 16,67%
Asia (not including PRC) 10 048 7436 35,13% 11,69%
EU countries 8936 6838 30,68% 10,39%
PRC 4792 2938 63,10% 5,57%
CIS 1052 863 21,90% 1,22%
Other regions 6520 4149 57,15% 7,58%
Total 85 982 56 432 52,36% 100,00%

What makes money

Products and services. The largest share of products is ammonia, and the largest increase was shown by porous and technical ammonium nitrate. The increase in ammonia production was in line with global market forecasts, where an explosive growth in demand may occur in the near future - ammonia may become an alternative to natural gas.

Ammonia prices are now recovering to pre-dock levels amid supply chain disruption, rally in crop prices, shortages in the US after shutdowns of chemical plants in Texas and a number of other factors. Such production dynamics can be considered a strong factor in favor of the investment attractiveness of the group..

Dynamics of production, in thousands of tons

2016 2017 2018 2019 2020 Increase for 2020 Share in 2020
Ammonia 2201 2595 2616 2583 2729 5,65% 21,92%
Ammonium nitrate 1748 1975 1798 1951 2430 24,55% 19,52%
NPK 1878 2219 2329 1892 2236 18,18% 17,96%
Apatite concentrate 1142 1167 1214 1084 1182 9,04% 9,50%
Urea 762 882 1015 1253 1180 −5,83% 9,48%
Urea-ammonia mixture (KAS) 1125 950 1422 1729 1096 −36,61% 8,81%
Calcium carbonate 449 514 473 466 515 10,52% 4,14%
Porous and technical ammonium nitrate 172 132 170 189 318 68,25% 2,55%
Urea-formaldehyde resins (KFS) 162 181 193 206 174 −15,53% 1,40%
Formalin 143 162 174 173 151 −12,72% 1,21%
Industrial urea 60 72 119 131 140 6,87% 1,12%
Mixed fertilizers 75 675 190 133 136 2,26% 1,09%
Methanol 80 102 108 106 98 −7,55% 0,79%
Liquid carbon dioxide 54 56 55 48 55 14,58% 0,44%
Argon 6 6 7 7 7 0,00% 0,06%
Total 10 057 11 688 11 883 11 951 12 447 4,15% 100,00%
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EBITDA structure. In terms of profitability, the main share is accounted for by Acron products, Dorogobuzh is predictably in second place by a significant margin. In 2020, obviously amid a global decline in fertilizer prices due to coronavirus, as well as increased transportation costs due to covid restrictions, the fall showed the profitability of "Acron", and even an increase in the profitability of Dorogobuzh did not save from a slight decrease in EBITDA. The increase in Dorogobuzh's profitability can be attributed to an increase in global demand for ammonia after, how the first peak of coronavirus was passed.

Acron EBITDA structure, million rubles

2020 2019 Growth Share
Akron 20 110 26 944 −25,36% 55,38%
Dorogobuzh 6144 3922 56,65% 16,92%
Trading activities 4451 1190 274,03% 12,26%
NWPC production 2948 2543 15,93% 8,12%
Logistics 951 2221 −57,18% 2,62%
Other 707 −71 −1095,77% 1,95%
Total 36 311 36 749 −1,19% 100,00%

Financial performance. In 2020, there was a decrease in the net profit of the group of companies several times, but this can be attributed not to poor operating results or even to an increase in logistics costs, and with financial expenses - in particular, with redemption of own shares.

But in the first half of 2021, all indicators increased, and the net profit increased by more than 3000%. This gives confidence in the continued growth of stocks., especially amid ongoing buybacks.

Financial performance of Acron by years, million rubles

2016 2017 2018 2019 2020
Revenue 89 359 94 342 108 062 114 835 119 864
EBITDA 29 856 29 817 37 053 35 749 35311
EBITDA margin 33% 32% 34% 31% 29%
Net profit 25 525 14 260 13 318 24 786 3836

Financial performance of Acron by half-year, million rubles

1п2021 1п2020 The change
EBITDA 40 271 15 308 163,07%
EBITDA margin 47% 27% 74,07%
Revenue 85 982 56 432 52,36%
Net profit 29 678 −986 3109,94%

Plans

At the moment, the group adheres to the development strategy until 2025., adopted in 2017. The strategy includes the further construction and expansion of the production capacity of the Talitsky Potash GOK, which has been under construction since 2018.

The company plans to become one of the largest producers of NPK fertilizers in the world through investments in the construction of this production facility.. In the long term, the implementation of the project may become a significant support for the company's shares. Now there is a tendency for NPK prices to rise due to the increase in energy prices.

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Capital expenditures for the construction of the GOK have been increased this year. This is an adequate response to positive changes in the financial indicators of the group of companies..

It is planned to increase the production of urea at the existing sites, ammonium nitrate and ammonia, which is logical when world demand and prices for fertilizers increase. And this factor will be a long-term support for the price of Akron's shares.. It is also planned to build a new production of calcium nitrate.. This fertilizer is the main one in the agriculture of Western Europe., at the same time there are forecasts, that ammonium nitrate will give way to calcium, since the latter does not acidify the earth so much.

Risks

The only risk is competition with global fertilizer producers. This year, urea plants were launched in Nigeria with a total capacity of more than 4 million tons per year.. In 2022, the competitive situation will worsen due to the prospects for solving logistic problems of one of the largest African chemical companies Dangote and putting into operation additional production facilities.. Also in 2022, an increase in the export supplies of urea by the Nigerian company Indorama is expected due to the launch of a new line.

Despite, that while on the African continent "Akron" is not represented, these manufacturers can theoretically create competition for the group in those regions, where does she sell products: in Africa, agriculture is carried out mainly in the traditional way, and local chemical companies, Most likely, export oriented.

2022 the year could be a crisis for Akron in terms of international competition. In addition to placing a significant amount of African products on the market, expected, that new urea plants will be commissioned in India and Brunei. The volumes will also increase due to the commissioning of new production facilities and supplies to the world market of ammonia and phosphates from Saudi Arabia.

As we can see, the main risks are associated with competition in the world urea market. The group of companies increases its production, but this does not reduce the risk of competition, it remains serious - it should have taken a less competitive niche in export supplies. Therefore, the risk of international competition is definitely, weak point of "Akron".

conclusions

Acron is a strong and promising business with low risks. The risk of competition in the global urea market can be assessed as low, since in the production of the group it occupies a small share even with a significant increase in its production.

Such risks, as political or reputational, can be completely reduced to zero, since the company has existed since Soviet times, is one of the city-forming in Veliky Novgorod. Dubious, that the power will raise a hand on him. But even a theoretical and unlikely procedure for transferring it into state ownership is unlikely to lead to a significant drop in shares.. The enterprise is headed by strong business executives and specialists, CEO - Honored Chemist of Russia.

Strong point of the issuer, which could ensure a further rally in its stock, - the ability to diversify supplies, otherwise I say, adjust to the world market conditions.

Wide geography of not only supplies, but also production can be regarded as a successful hedging of the risks of the domestic market of the Russian Federation, especially associated with a decrease in food consumption by the population in connection with a new round of coronavirus in the country. In many other countries, there is no such deterioration in the situation..

You can make a conclusion, that the rally in Akron shares will continue and for the investor they will remain attractive in the long term.

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