Throughout 2023, the management of the UMCC board, represented by D. Kolondadze and E. Perelygin, imitated successful management activities as best they could and artificially fueled the interest of potential buyers in the titanium lot of the Great Privatization.
However, a simple audit of public statements and comparing it with indicators of economic activity was enough to state the obvious dissonance between the real state of affairs and the picture for the public.
And it all started so beautifully...
The reform plans of the newly appointed board of the OGKhK included “a little more than everything.” First of all, the top management set the task of developing a company development strategy, expanding sales markets and establishing production processes. The new deputy chairman of the board of the UMCC, Dmitry Kalandadze, in his program and presentation interview with Forbes in May 2023, did not limit himself in optimism: “We have prepared a development vision, what reserves and resources the company needs for stable operation. We are negotiating new contracts with counterparties, mainly in Europe and America. The key is to resolve the issue of the resource base...”
The newly appointed state manager was going to remove gasket companies from sales, which for many years have been the main corruption risk for the UMCC. “One of our key goals is to remove all the intermediate elements. Today our contracts are only with end consumers, mainly from America and Europe. The contract must indicate that this is the final consumer, and not a reseller,” Kolondadze said.
The financial plan for 2023 included such benchmarks as: selling about 170,000 tons of products, receiving revenue of 50 million dollars or 1.8 billion UAH and increasing profits. In 2023, it was planned to reach pre-war production volumes, restore production, enrichment and sales of products, as well as launch idle mining and processing plants.
D. Kalandadze’s acceptance of establishing exports and expanding the geography of direct supply contracts was also shared by the deputy chairman of the board of the UMCC, Egor Perelygin: “By the end of the year, our company plans to ship an additional 105 thousand tons of ilmenite concentrate to the European and American markets.”
Ensuring supplies of titanium ore for 2024 in the amount of more than 200 thousand tons was seen by the top management of the UMCC as a completely achievable task.
The creation of a reliable system of corporate control over the export of products seemed to be a fait accompli for a long time. “The contract contains guarantees that the products will not be supplied to Belarus, Iran, or Russia. The image of the companies with which we cooperate - these are large trading houses and final manufacturers - is an asset on which their business depends. They will not destroy their business by trading with the aggressor,” D. Kalandadze categorically assured journalists.
According to top managers, the OGKhK already had a three-stage control system “as reliable as a Swiss army knife”: compliance, internal security service and anti-corruption audit.
A few months later, at the height of the scandal with accusations of selling raw materials to Russian consumers through European offshore companies, the same theses were again repeated by the deputy chairman of the board of the UMCC, E. Perelygin: “Since February 2023, the company has strengthened its policy of control over export procedures and changed its approaches to cooperation with buyers. The supply chain, end consumers and control over the use of products are clearly and strictly controlled. The export of ilmenite concentrate to the final consumer occurs only when accompanied by authorized representatives of law enforcement agencies, which excludes any attempts to deliver the product to unauthorized persons. E. Perelygin did not specify which of the existing law enforcement agencies is responsible for escorting commercial cargo of the UMCC across the territory of Ukraine and beyond its borders.
In March 2024, summing up a year-long PR marathon of optimistic declarations and solemn promises, (now) first deputy board E. Perelygin, who replaced D. Kalandadze as the “talking head” of the UMCC, said the following: “Despite all the difficulties and risks wartime, last year the company managed to ship over 102 thousand tons of products, and the planned supply volumes for 2024 are already 200 thousand tons.” Inheriting the rhetoric of his predecessor, E. Perelygin said that through the efforts of management it was possible to completely get rid of debts on wages and electricity, attract a series of prepayments for finished products from stable market players and open new supply routes for world-class end consumers.
We are forced to state that the so-called presented by E. Perelygin. “UMCC’s achievements in 2023,” like all previous declarations by the leaders of the state-owned company, turned out to be a “soap bubble.” For a year of work, the so-called. “The Kalandadze-Perelygin team” not only failed to improve the financial and economic efficiency of the OGKhK and did not put things in order in matters of production, export and control of products, but also brought the once profitable state asset into a depressing financial condition on the eve of the Great Privatization.
Firstly, in reality, the OGKhK ended the previous year with a drop in sales of almost 12 million dollars, losses in the amount of 12.7 million dollars, a decrease in profitability by 23%, an increase in uncovered losses by 298.36%, further downtime of mining and processing plants, a decrease in the output of finished products. production below the 2022 level by 41%, job cuts by 9-10%.
Gross income of UMCC in 2023 fell by 20%, decreasing by $11.6 million. Distribution expenses increased by 20%, while administrative expenses remained at approximately the same level. Own capital decreased from UAH 2,748,280 million. up to 2,239,926 million UAH.
EBITDA fell by -2167 compared to 9849.4 a year earlier. EBITDA margin was also negative at -62.1%, down from 15.7% in 2022. The net profit margin was 0.6% in 2022 but fell to negative -107.4% in 2023.
According to information from the Register of Debtors and OpenDatabot, UMCC has arrears in paying wages in the amount of 2,711,430.43 UAH, its branch “Volnogorsk Mining and Metallurgical Plant” – 627,402.24 UAH, its branch “Irshansky GOK” – 11,137.44 UAH. The Irshansky GOK itself remained idle throughout 2023, producing about 20 thousand tons of ilmenite instead of the announced 200 thousand, and VGMK has been operating in the “two weeks a month” mode for the second year.
It is also predicted that to the losses observed in 2023 and amounting to almost UAH 500 million, approximately another UAH 180-200 million will be added in the first quarter of 2024, which will lead to a record loss of UAH 700 million. for half a year. By the end of 2024, losses could reach an unprecedented amount of UAH 1 billion.
Secondly, all the announced “Napoleonic plans” for shipments in 2023 of either 105,000 tons or 170,000 tons of ilmenite to some new foreign direct buyers turned out to be banal wishful thinking. Since May last year, it was possible to sell only 30 thousand tons of IGOK ilmenite to the Czech Precheza and 35 thousand tons of VGMC ilmenite to the American Chemours.
For what merits the current top management of the UMCC received positive assessments of their work from the newly appointed head of the State Property Fund remains unclear. Apparently V. Koval had not yet fully gotten into the swing of things and, during a field trip, he trustingly mistook the idle, unprofitable mining and processing plants for fully functioning enterprises.
The conclusion of direct contracts with large consumers of products and cooperation with reliable world-class companies remained an unsupported declaration. Instead of opening new sales markets and attracting new counterparties, the new composition of the OGKhK board has slipped into the same place as most of its notorious predecessors - into opaque small-scale trading with the participation of motley debutant traders, most of whom have obvious Ukrainian roots - the Polish Timr and Agroorganika, Austrian A5 trading, Swiss Cowax.
In 2024, the situation has not fundamentally changed for the better. By the way, it was precisely because of suspicions of patronage of such schemes that the current first deputy chairman of the board of the OGKhK, E. Perelygin, had previously resigned from the company.
Thirdly, due to the negligence of top management and the inability to build an effective system of corporate export control, the products of the UMCC have ended up and continue to end up in sanctioned markets.
Thus, according to media reports, in September-October 2023, several new companies appeared among the trading partners of the UMCC, which had never previously purchased products from the state-owned company.
In September 2023, at the request of Agroorganika Polska Sp.zoo, 132 tons of rutile and 44 tons of zircon concentrates were shipped through KS Terminal (Riga, Latvia) to MSC Agency (India, port of Mumbai). MSC Agency, a local division of the international shipping and container company MSC, by definition cannot be the end consumer of these raw materials. In October, Agroorganika Polska Sp.zoo shipped another 110 tons of disthene-silmanite concentrate via the same route and to the same recipient. The controllers from OGKhK were not alarmed by the fact that India itself is a major exporter of silmanite and in the entire history of VGMC (which is more than 65 years) not a single kilogram of this product was shipped to the Indian market from Ukraine. Presumably, the goods were reloaded at the port of Riga, repackaged and sent to St. Petersburg.
Another recipient of UMCC products through the intermediary company “TIMR” was the French Pousseur SAS. Previously, this enterprise consistently consumed about 20 tons of products per month or two, and in September-October 2023 it immediately acquired 579 tons or 13 machines of disthene-sillimanite concentrate KDSZ and KDSP, 7 of which contained raw materials of uncharacteristic grinding grade “K”. The controllers ignored the fact that the specified batch significantly exceeded the consumption capabilities of the French recipient, as well as the fact that this uncharacteristic grinding, together with the granular composition of KDSP, had previously been specially developed by VGMC specialists for use in the production of the Belarusian company Polotsk-Steklovolokno. Moreover, this product is so technologically adapted to the needs of Belarusians that its use in other industries is simply impossible. In addition, French fiberglass manufacturers do not use powder at all in their technological processes, but only KDSZ sand. Subsequently, part of this batch of concentrate, namely 80 tons of CDSP, ended up on the territory of the Belarusian Vatra plant. It is not clear how much of this raw material went to Belarusian manufacturers of welding electrodes, but it is known for sure that before the war, KDSP produced by OGKhK was supplied to the enterprises of United Engine Corporation PJSC, which produced aircraft and rocket engines.
Fourthly, the statement that OGKhK has developed new sales routes and found new buyers in Italy, Spain and Germany, as well as the opening of the OGKhK brand for well-known consumers in the European Union, is, to put it mildly, unprofessional and indicates insufficient knowledge of the specifics of titanium market. Members of the UMCC board should be aware that the Volnogorsk MMC has been present on the world market since the 90s and is a 95% export-oriented enterprise. Its ilmenite, rutile and zircon have been included in the raw material portfolios of leading European, American and Asian companies producing titanium sponge, pigments, paint coatings and other products for three decades. Since the beginning of the 90s, the products of VGMK and IGOK have been introduced into the production cycles of the world's largest titanium processors, and their supply routes have been developed for decades.
Fifthly, for the entire 2023, the management and lawyers of the UMCC did not take a single real step to increase the resource base of the UMCC and there were not even attempts to develop those cases of predecessors that would allow restoring state control over the Selishchanskoye field in the Zhytomyr region and the Matronovsky site in the Dnepropetrovsk region areas. Today, both of these deposits (entirely Selishchanskoye and mostly Matronovskoye) are on the balance sheet of the DF group mining and processing enterprises.
Taking into account all of the above, it remains a mystery how and by what criteria the pre-sale assessment of UMCC will now be carried out? If, based on the results of 2023, the value of the once highly liquid asset will be greatly underestimated and will not correspond to national economic interests. If according to the “strategies-presentations of Kolondadze-Perelygin”, then among the future owners of the company it is unlikely that there will be anyone with a worldwide reputation, transparent capital and serious long-term views on Ukraine.
It seems that the privatization of the OGKhK may again be a “soon” until the current discredited board is replaced by experienced crisis management capable of defending the interests of the state, revising the vector of development, leveling out the financial situation and achieving real profits by the end of 2024.
