Daily analyst comments

On November 19, Acron posted its 9M 2008 financials audited to IFRS. In the reporting period, the holding’s revenue rose by 76.3% y-o-y to USD 1.49 billion, EBITDA grew 3.4x from USD 200 million to USD 675.6 million and the EBITDA margin went up from 23.5% to 45.1%. Acron 9M 08 net profit surged 3.5x to USD 435.4 million from USD 126 million y-o-y. As a result, the company’s net margin almost doubled from 14.8% to 29.1%.

Table 1. Acron: Key IFRS Financials 9M 2008, USD million

	9M2007	9M2008	9M2008/9M2007
Revenue	849.8	1,498.1	76.3%
Cost of production	554.1	640.2	15.5%
Gross profit	295.8	857.9	190.0%
Transportation costs	35.1	86.3	146.1%
Business, general and administrative expenses	86.6	130.9	51.2%
Operating profit	170.8	642.0	275.9%
Operating margin	20.1%	42.9%	,
EBITDA	200.0	675.6	237.9%
EBITDA margin	23.5%	45.1%	,
Net profit	126.0	435.4	245.7%
Net margin	14.8%	29.1%	,

Net margin 14.8% 29.1% , Source: company data, Finam estimates

The main driver behind the growth of Acron’s financial indicators was the rise in the market prices of the company’s key products, since Acron actually reduced its productive output in 9M 08. The volume of manufactured nitrogen fertilizers fell by 9% from 1.39 million to 1.27 million tons. Overall production of compound fertilizers dropped 19% from 1.96 million to 1.58 million tons, while the output of inorganic chemical products went down by 1% from 695,000 to 687,000 tons. The main reason for this was the seasonal drop in demand, which became even stronger in late September due to the global financial crisis.

We are generally neutral on Acron’s financial results. On the downside, we note a considerable rise in the company’s transportation costs: these more than doubled in 9M 08. However, in view of the financial crisis and the company’s program to cut expenses, we expect this indicator to come down in future.

The favorable environment on the mineral fertilizer market helped Acron boost its 9M 08 financials; however, in October, the situation changed sharply for the worse. As a result, in late October, Acron announced that it would temporarily reduce production at all its facilities due to the unfavorable market environment. In particular, output at Acron’s Novgorod plant will be reduced by 30% for ammonia, 50% for mineral fertilizers (ammonia nitrate, carbamide, NPK and dry compound fertilizers) and 20% for inorganic chemical products. Dorogobuzh plans to lower its production volume by 15% for ammonia and 50% for ammonium nitrate.

Meanwhile, prices for Acron’s key products on global markets have shown downbeat performances: since early October, carbamide prices have fallen by 45%, prices for ammonia have dropped 42%, and ammonium nitrate is now 63% cheaper. Taking this into account, 4Q will most likely be the least favorable quarter for the company in the current year.

However, the most important question, both for Acron and the whole mineral fertilizer industry, is how soon the global mineral fertilizer market will revive? In our opinion, this may happen as early as in mid-1Q 2009.

We do not currently have an official recommendation for Acron (RTS: AKRN).