Neochim Q2 2024 Individual Results

Drop of revenues due to macroeconomic factors, improvement of profitability

• The extraordinary performance, which the company recorded in 2021 and 2022 was followed by a steep decline in the first half of 2023 and continued at a lesser degree till now, mid 2024. The great gains in 2021 and 2022 were due to the increased prices of LNG on the world markets resulting from the conflict in Ukraine which disrupted the LNG supply channels and brought a great degree of insecurity. LNG is responsible for 87% of the cost of the production at Neochim (as per 2023 financials, 79% as per 2022 financials) and deviations in the input prices directly affect end produce prices.
• Sales recorded a 13.5% YoY decline in Q2 2024 reaching BGN 126mln. This was a lesser decline than the 2023 sales drop of 53% compared to 2022 figures. The major contributor to the drop was the LNG price deviation, while volumes sold were nearly the same, where only the Ammonia, which is responsible for 8% in numerical value in 2023 dropped amounts sold by slightly over 10%, while the main business line – Ammonium Nitrate (fertilizer) – responsible for 89% of sales, sold the same quantity. The figures are for the 2023 and 2022 years, disclosed in the respective financial reports, so we relied on them as no breakdown was given in the intermediary reports. The dynamics is illustrated in the tables below:

• The table below, aggregated from data from TradingEconomics shows how LNG prices shot up more than 3.5x on average during the conflict and later, with the introduction of alternative routes and the entry of Turkey as a distributor of LNG from the Caspian Sea, as well as the LNG trade deal with Russia, brought the prices even below pre-conflict times.
• Operational risk was mentioned as a significant factor in our previous report in Q1 2023. According to the 2023 reports, however, the Ammonium Nitrate production facility worked only 3.8% less working hours in 2023, which was largely due to adjustments to the production of nitric acid, the main component for the production of the fertilizer.
• While sales to clients dropped 13.5% YoY to BGN 126mln, the cost for raw materials dropped nearly 35% to BGN 76mln. This can be an indicator for an improved way to negotiate and plan LNG supplies. About 75% of the deliveries in 2023 were done by Bulgargaz EAD, which is an improvement since 2022 when they had sole monopoly delivering 100% of the LNG to the group.
• In 2024, sales of ammonium nitrate are expected to be slightly higher than in 2023 and the realized volume will be around 387,000 tons. The expectations for the domestic market are to increase the levels from the previous year and to realize about 275,650 tons. Sales on international markets are expected to decline and end the year at around 111,350 tonnes. The expected total revenue from sales of ammonium nitrate in 2024 will be BGN 228mln.
• The profitability metrics ROE, ROA, ROIC mark improvement to previous periods. However, they are still negative on TTM basis due to the major decline in 2023.

Full report can be accessed here.