• Eng

Recouping Market Share With New Strategy

12.11.2013
Alex MacDonald / Wall Street Journal (US)

LONDON--Russian potash producer Uralkali JSC (URKA.RS) is already recouping lost market share and generating more stable cashflows as a result of its new revenue maximization strategy, said the company's acting chief executive in an interview.

Uralkali, the world's largest potash producer last year, announced a new business strategy after abruptly ending a long-standing marketing partnership with Belarus in July. Uralkali ended the partnership in part because Belarus began to sell potash outside the marketing agreement. As a result of this and more aggressive sales from rivals at lower prices Uralkali lost market share and forfeited revenues in recent quarters. Uralkali's global market share dropped to 17% in the first half of 2013 compared with 22% in the same period a year earlier.

"It is clear that our last strategy destroyed our revenues because we cut production, decreased sales in terms of tons but at the same time prices went down. That's why the rationale of changing the strategy was obvious," Viktor Belyakov said in an interview with The Wall Street Journal.

The company is now focused on revenue maximization, which means adjusting its volume to make sure it will be able to generate profits under any operating environment, Mr. Belyakov said. In the near-term, this means focusing on a volume-over-price strategy to restore market share to historical levels but in the future, the company could return to a price-over-volume strategy, depending on demand, he said.

The new revenue maximization strategy is already beginning to pay off, Mr. Belyakov said.

As an example, the company has increased its market share in Brazil to 12% over the first nine months of the year compared with 10% over the same period a year ago. At the same time it is generating more stable cashflows compared with five years ago when the company's cashflow see-sawed given the company's price-over-volume strategy, Mr. Belyakov said. This strategy was scrapped once the trading partnership came to an end this summer.

He said more stable cashflows has allowed the company to decrease the proportion of secured debt on the company's balance sheet to about 20% of the total compared with around 50% last year. "Banks are happy to provide us with some [unsecured] loans because of the predictability of cash flow and because of our high profit margin" business, he said. "All of our lenders have considered this switch in the strategy as a positive thing," he noted. He added that credit agencies have also accepted the new strategy and doesn't expect them to downgrade the company's credit rating as a result.

Uralkali plans to produce 10.5 million metric tons of potash this year and 12.5 million tons next year as global potash demand rises to 54 million tons this year and 58 to 60 million tons next year, he added. Meanwhile potash prices will hopefully pick up next year from the low levels seen this year.

Mr. Belyakov expects Uralkali to be well positioned to benefit from global potash demand growth given its position in growth markets such as India, China and Brazil and the fact that Uralkali is the world's cheapest Potash producer.

Separately Mr. Belyakov said that Uralkali has more than enough greenfield opportunities within its own portfolio to satisfy its needs and isn't interested in purchasing a minority stake in any project. BHP Billiton Ltd (BHP) is currently looking for a minority investor in its multi-billion dollar Canadian Jansen potash project.

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