Chairman’s statement

Dear Shareholders,

Many of us will remember 2014 as a year of dramatic geopolitical events, which naturally affected the Russian economy and Russian companies. Because Acron Group chose the optimal business model it operated with confidence and posted solid financial results.

Although the global fertiliser market was relatively stable in the reporting year, it did not show any growth. World fertiliser consumption was up just 0.5%, far below expectations. Competition gained strength as China increased its exports of major fertilisers, considerably limiting the growth potential of world prices. However, the global market remained balanced due to difficulties with export supplies in some countries, including Ukraine and Egypt. Because Acron Group has diversified and balanced the structure of its sales markets, it was able to react flexibly to changes and maintained 100% sales. The Group expanded its sales geography in 2014 and currently supplies its products to 66 countries.

With global prices for our products stagnant, we focused on reducing costs with a cost saving programme. These efforts had a positive impact on our financial performance, further augmented by the full vertical integration of the Group’s Russian companies for phosphate feedstock, as well as macroeconomic factors, such as a weaker rouble and frozen tariffs for Russia’s natural monopolies. As a result, Acron Group enhanced its competitiveness in the global context, and its EBITDA margin reached 27%, against 23% last year.

The amended development strategy approved in 2013 helped us focus on the most efficient investment projects, maintaining fiscal discipline and passing the debt burden peak in the third quarter of 2014. Due to macroeconomic factors, we actually decreased our debt burden. Dollar-denominated Net Debt/EBITDA at year-end was 1.9, against 2.4 the previous year.

In 2014, the Group demonstrated considerable progress in implementing its investment projects. The first stage of the Oleniy Ruchey mine reached capacity of 1 mtpa of apatite concentrate. The Group passed the peak of the Ammonia-4 investment phase and continued searching for a strategic co-investor for the Talitsky potash project.

Our 2015 priorities include: completing construction and starting the test-run of the new ammonia unit, which will be the first project completed since Soviet times and the most powerful unit of its kind in Russia; improving the performance of our phosphate business; and identifying the best ways to finance the potash project in Russia. We also plan to focus on significantly reducing the Group’s debt burden in 2015 while continuing to invest heavily in strategic projects.

The investment community acknowledged the Group’s economic success by including Acron’s shares in the MICEX Quotation List A Level 2 in May 2014. After the listing reform, Acron’s shares were transferred to the Level 1 (highest) quotation list.

On behalf of the Board of Directors, I would like to thank the management and all of Acron Group’s employees for their excellent performance in 2014.

Alexander Popov
Chairman of the Board of Directors

My Annual Report

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