OREANDA-NEWS. April 01, 2010. Amid a downturn in sale prices, both companies have faced a decline in margins. However, even without the revaluation of assets, the companies managed to keep margin figures at fairly robust levels. We are positive about the FY2009 RAS financial results from Acron and Dorogobuzh.

The companies of Acron Group’s Russian division, Acron and Dorogobuzh, have released non-consolidated unaudited RAS financial statements for FY2009. Both companies publish IFRS reports on a regular basis, and their RAS financials are of interest only because they are published earlier than IFRS results and can therefore shed light on essential trends, reflected afterwards in the IFRS report. In case of Acron, the IFRS report is likely to differ quite notably from the one according to RAS, as Acron is the head company of the group, and the IFRS report will cover the results of all its subsidiary companies. As for Dorogobuzh, the difference between its RAS and IFRS statements should not be that significant.

In 2009, Acron reported a 34% y-o-y slump in revenue, which looked natural on the back of a 48-51% drop in average annual prices for nitrogen fertilizers. Dorogobuzh managed to offset the price decline by a rise in productive output. Thanks to capacity modernization efforts taken when the market was on the rise, Dorogobuzh raised its ammonia nitrate produce by 39% last year, up to 926,000 tons, and increased NPK produce by 43% to 576,000 tons. As a result, Dorogobuzh’s RAS revenue advanced by 1% in 2009. Manufacturing costs grew quite significantly at both companies, up 13% at Acron and up 37% at Dorogobuzh, mainly due to a reason beyond the companies’ control: an upturn in domestic prices for gas. At Dorogobuzh, the advance in manufacturing costs largely resulted from the upturn in productive output.

Following a downturn in sales prices, both Acron and Dorogobuzh saw a decline in profit margins. However, even without the revaluation of assets, the companies managed to keep margin figures at fairly robust levels. For this reason, we assess Dorogobuzh and Acron’s RAS financials as positive.

In line with its charter, Dorogobuzh must allocate 10% of its annual RAS net income to preferred share dividends. In 2009, therefore, the company should allocate a total of RUB 358 million, or RUB 3.32 per share, to preferred share dividends. With the current market price of RUB 14.60 per share, this corresponds to a 16% dividend yield. We note that, in theory, the BoD may issue a recommendation to the shareholders’ meeting that dividends on preferred shares not be paid, in which case preferred shares will qualify to vote.