Chief Executive’s review

Dear Shareholders, Colleagues and Partners,

It has become a tradition that Acron Group’s operating performance improves each year. In 2014, our output hit a record of 6.3 mn t of fertiliser and other industrial products, up 2% year-on-year.

The Oleniy Ruchey mine (NWPC) in the Murmansk region contributed most of all, as it increased apatite concentrate output 39% to 891,000 t during the past year. This project supplies all the phosphate feedstock for our chemical facilities, and the excess apatite concentrate is sold both domestically and for export.

In the chemical sector, Acron (Veliky Novgorod) was a top performer in nearly all the key products – ammonia, nitrogen and complex fertilisers. In particular, UAN output was up 16% to 937,000 t.

Investment Programme

Acron (Veliky Novgorod) made headway in construction of its new ammonia unit. The 700,000-tpa Ammonia-4 unit will be the largest and most efficient production facility in Russia. This project will be the key to expansion of processing operations, reduction of the Group’s capex, improved financial performance and, as a result, increased free cash flows.

Construction of the second stage of the Oleniy Ruchey mine is underway as scheduled. In the reporting year, we minimised capital expenditures by performing capital mining operations without subcontracting. According to the timeline, mine construction and processing plant capacity build-up to increase apatite concentrate output will be complete in 2017.

In 2014, the potash project implemented by VPC to develop the Talitsky area of the Verkhnekamsk potassium and magnesium salt deposit in Perm Krai focused mainly on preparing design documentation and constructing temporary buildings and structures for freezing and shaft sinking operations. This year we plan to complete the design engineering for the Talitsky mine and obtain state expert review approval for the main facilities of the mine and above-ground complex. In 2015, we will continue construction of temporary buildings and structures followed by ground freezing and shaft sinking.

Together with our co-investors, we have identified optimal ways to finance the potash project. Sberbank Investments acquired a stake in the project in early 2014. In December 2014, Acron Group and a syndicate of Indian companies led by NMDC Limited (India) executed a Memorandum of Understanding on the sale of a 30% stake in VPC, the holder of the subsoil licence for the Talitsky area of the Verkhnekamsk deposit. The parties agreed to carry out comprehensive due diligence, upon completion of which the Indian party will propose terms for acquisition of this stake.

Portfolio Investments

In the reporting year, Acron Group increased its holding in Grupa Azoty (Poland) to 20% from 15%, having invested RUB 4.1 billion, and improved our minority position in one of the largest European fertiliser producers.

Acron Group also sold some of its Uralkali shares for RUB 4 billion, reducing its stake to 0.93% from 1.77%. The market value of the remaining shares as of 31 December 2014 is RUB 3.5 billion.

Financial Results

According to the consolidated IFRS financial statements, Acron Group’s revenue was up 10% to RUB 74.6 billion as a result of higher sales.

The cost of production was up 2%, primarily because of greater depreciation and the cost of repairs, fuel and electric power. Selling, general and administrative costs increased 22%, and transportation costs were up 17%, primarily due to the significant forex component.

EBITDA was up 32% to RUB 20.2 billion. EBITDA margin increased from 23% in 2013 to 27% in 2014. NWPC contributed 6% to the Group’s 2014 EBITDA.

Net profit in the reporting period was RUB 6.9 billion, down 47% year-on-year. The main reason behind the lower net profit was the exchange rate loss from revaluation of the Group’s currency loans. Because the rouble was weaker by the end of 2014, the net exchange rate loss was RUB 17.8 billion.

Capex was RUB 11.5 billion, mostly spent on the Ammonia-4 project, upgrades to chemical operations and implementation of the second stage of the phosphate project by North-Western Phosphorous Company. The Group allocated RUB 0.5 mn for its potash project.

The Group earmarked RUB 6.2 billion as dividends in 2014.

In the reporting year, total debt rose to RUB 80.6 billion from RUB 50.2 billion. However, this increase was due to a decline in the rouble exchange rate, and the Group’s dollar-denominated debt actually went down to USD 1,432 mn from USD 1,533 mn. The relative debt burden contracted, as well.

To improve the Group’s liquidity and credit, in late December 2014 we executed a 5-year syndicated structured pre-export finance facility for up to USD 525 mn with a club of international and Russian banks. This long-term loan facility helps us mitigate refinancing risks, which is especially important in the complicated Russian debt finance market since the end of 2014.


We believe that Acron Group contributes to the development of its footprint regions with its stable financial and operating results. We continue our beneficial cooperation with local authorities to promote social and economic development through our active involvement in creating and modernising healthcare, education and cultural facilities. Charitable giving has also been part of the Group’s social responsibility programme for many years.

Since the Group operates major production and mining assets, we are committed to the health and safety of our employees and adhere to the best professional safety practices. The Group’s Russian production facilities have introduced mandatory standards developed based on an analysis of injury causes, perform environmental monitoring and implement effective measures to minimise environmental impact. In 2014, a secondary sedimentation tank for biologically treated waste water and a waste water supply pipeline were launched at the Dorogobuzh facility. Our new operations are built using the newest resource-saving technologies.

Acron Group has identified ambitious tasks for the coming year: upgrading its chemical operations, pursuing its challenging investment programme and improving competitiveness. I am convinced that we have all the resources we need, with competent managers and a talented team of seasoned professionals and young specialists.

Vladimir Kunitsky
Chief Executive Officer

My Annual Report

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