UMCC Shows Paradoxical Statistics for Q1 2024

In Q1 2024, PJSC United Mining and Chemical Company demonstrated paradoxical statistics - the top management reported earning net profit of 30 million UAH, while the key enterprises of the holding suffered downtime and sharply reduced production. 

Thus, in early May, UMCC's first vice chairman Yegor Perelygin announced earning net profit of 30 million UAH for Q1 2024. At the same time, the key enterprises (branches) of the state holding were in crisis and had problems with production.

According to available information, production volumes of zircon, rutile and ilmenite at Vilnohirsk Mining and Metallurgical Plant (VMMP branch), which was once a leading enterprise of the titanium industry, sharply decreased in the first three months of 2024 compared to the same period in 2023. In particular, zircon output at VMMP fell by 25% to a record low of 962 tons. Rutile production decreased by 32% to 1,981 tons. The largest drop was recorded for ilmenite - a 40.8% decline to 4,891 tons. Compared to the first war quarter of 2022, the decline in output was even more dramatic: zircon -55%, rutile -59%, ilmenite -57%.

VMMP production volumes for Q1 in 2022-2024:

Q1 2024 figures compared to quarterly figures of previous years:

As for UMCC's second branch - Irshansk Mining and Processing Plant, which was previously a leader in ilmenite production, despite repeated statements by the state company's management about restarting and resuming operations at this plant, it was practically idle throughout 2023. In Q1 2024, ilmenite production at this plant amounted to 1,524 tons. For comparison, in Q1 2022, ilmenite production at Irshansk MPP exceeded 38,000 tons.

The demonstration of net quarterly profit amid a sharp decline in output by UMCC's branches is, according to some media, the result of manipulating accounting statements to conceal losses and artificially inflate financial performance. 

Indeed, after analyzing UMCC's official quarterly reports to statistics bodies, one can conclude that the stated profit did not come from the core operations of the state holding's enterprises, but from "other operating income", i.e. write-offs of accounts payable, reserves, fines charged to counterparties, etc. The amount of UMCC's "other operating income" in Q1 2024 was 209.2 million UAH, and, like the net profit of 30 million UAH, was essentially obtained through a "paper" adjustment of accounting data rather than from main production activities and actual raw material supplies.

Among the negative trends in UMCC's financial and economic performance is also an increase in production costs and a decrease in sales profitability. According to independent experts, in the face of declining production, lower profitability and rising costs, UMCC's top management, in order to pretend success in their work, may take another dangerous step along with manipulating accounting statements - they may start selling products below actual cost to create the appearance of revenue inflow. Such "window dressing" may work at the level of the State Property Fund's leadership, but is unlikely to fool any major potential honest investors. This could have negative consequences for the Large-Scale Privatization, in which UMCC is still one of the main lots.