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