Uralkali stabilises sales, but profits tumble

Uralkali's decision to ditch efforts to control potash prices has paid off in terms of reviving sales, but not yet profits, the group's results revealed, with a fall in earnings accelerating in the second half of last year, in part thanks to a windfall payment to managers.

The Russian potash giant, which stunned the industry in July by breaking up the Belaruskali marketing consortium which controlled more than 40% of world trade, reported revenues down 15.9% to $3.32bn for 2013.

That implied a flat performance in the second half of the year, a sharp improvement on the 28% decline in the January-to-June period, before Uralkali quit Belaruskali and opted to maximise its potash market share, rather than defending prices by restricting its sales volumes.

"Uralkali's adherence to a rigid price-over-volume strategy in the first half of 2013 resulted in a significant decrease in the company's market share, as other producers sought to gain market share through aggressive pricing," said Dmitry Osipov in his first results statement as Uralkali chief executive.

The group had seen "some improvement" in its results since in July boosting its "flexibility to respond to market dynamics".

Profits fall

Indeed, potash sales volumes rose 5.3% for the year, implying a 30% jump in the second half.

However, with prices tumbling, undermined by a reluctance by consumers to buy until the full implications of the Belaruskali break-up became clear, earnings before interest, taxation, depreciation and amortisation (ebitda), while improving on the full-year decline of 31%, still fell 18.1% in the second half.

And a decline in after-tax earnings accelerated in the July-to-December period, to 64%, compared with the 58% decline, to $666m, for the full year result.

The fall in full year earnings reflected, besides lower operating profits, a quadrupling in finance costs, such as foreign exchange adjustments and interest charges, to $343.0m, but also a quadrupling to management compensation expenses to $62.8m.

'One-time payment to managers'

Indeed, managers received a windfall payout after the change of control at Uralkali in December, when funds linked to Mikhail Prokhorov's Onexim Group and billionaire Dmitry Mazepin bought a 47% stake from investors including Suleiman Kerimov.

Last year "several conditions" of the long-term incentive programme for Uralkali mangers had been "changed to reflect market developments and specified the conditions in case of changes in shareholder structure", Uralkali said.

"In December 2013, a one-time premium payment to top management was accrued in accordance with the programme due to acquisition of company's shares" by funds controlled by Messrs Prokhorov and Mazepin.

Market outlook

Uralkali said that potash demand had begun to "pick up" since September, adding that it expected to "build on this momentum" this year.

"We remain confident in the strong potash market fundamentals," said Mr Osipov, chief executive since December 24, adding that the group was "well positioned for 2014 and beyond".

The group forecast a rise to 56-58m tonnes in in global industry potash volumes this year, implying growth comparable with the 5-7%, to 53m-54m tonnes, achieved in 2013.

Uralkali depositary receipts, a proxy for shares, closed up 0.9% at $23.49 in London.

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