June 2000 saw completion of the first stage of restructuring in Dnepropetrovsk region’s public joint-stock company Nikopol Pivdennotrubny Works, one of the largest tube-making mills in the world.
NIKOPOL PIVDENNOTRUBNY WORKS: RESTRUCTURING CONTINUES
June 2000 saw completion of the first stage of restructuring in Dnepropetrovsk region’s public joint-stock company Nikopol Pivdennotrubny Works, one of the largest tube-making mills in the world.
In terms of manufacturing methods applied and product mix, Nikopol Pivdennotrubny Works (NPTW) has no rivals in Ukraine. It makes various-purpose tubes and pipes of carbon, alloy, and stainless steels, as well as of titanium, copper, and zirconium-based alloys.
Tubular goods made by the NPTW find their application in power industry, oil & gas extraction, chemical, machine building, and aircraft industry.
The main suppliers of the NPTW are the Ukrainian metallurgical mills that make hollow sections and skelp, namely Petrovsky Metallurgical Works of Dnepropetrovsk, Dneprovsky Iron and Steel Works named after Dzerzhinsky, and Donetsk Metallurgical Works.
Just recently Germany’s certification society TUF Berlin-Brandenburg issued certificates on NPTW products. Today, products made by this Ukrainian company meet ISO and DIN international standards, while thecompany’s quality management system complies with ISO-9001 standard. So far, the State has been the main shareholder in the NPTW holding 96.7% of company’s stocks.
Meanwhile, according to NPTW director Alexander Neustroyev, the company had found itself in a difficult financial situation with great outstanding debts before the restructuring that commenced about a year ago. For instance, the NPTW owed its employees more than UAH 22 million worth of wages and salaries, while the outstanding amount of VAT payable equaled UAH 54 million. In 1998 the company suffered losses amounting to UAH 50 million.
Therefore, a team of managers that had emerged in late spring of 1999 generated an anti-crisis program of measures to reach the highest production efficiency. The concept of company’s restructuring and management policy adjustment as regards joint-stock company as a whole has become the pivotal point of this program. Acknowledging that the standard approach to privatization of a large industrial mill with extensive infrastructure and high manufacturing diversification would prove deficient, specialists from the State Property Fund and the Ukraine’s Ministry for Industrial Policy also proposed a step-by-step restructuring.
Prior to commencement of fundamental reforms, there was taken a set of operational steps to stabilize company’s performance on a fixed level. Firstly, the cost-is-no-object business approach was blocked up, thus suspending the growth in product costs. As a result, losses suffered in 1999 amounted to UAH 41 million, i.e. UAH 9 million less than in 1998. Secondly, by getting rid of totally dominating barter transactions, the managers were able to build up the amount of current assets. For instance, back in the 1st quarter of 1998 only UAH 6 million out of the total settlements were paid in money with barter accounting for the rest, while during one month of this year money settlements already totaled some UAH 6-7 million. Introduction of these steps has paved the way for subsequent strategic transformations.
On June 22, 1999, the Ukraine’s Cabinet of Ministers issued an order to establish an interagency work group comprising representatives of the State Property Fund of Ukraine, Ministry of Economy, Ministry for Industrial Policy, Dnepropetrovsk Regional and Municipal State Administrations, and NPTW experts. This group started searching for and selecting investors to set up independent business entities that would use assets of selected NPTW divisions.
Spadework continued all the way till September 1999. In the course of this time the group received and considered 15 applications from potential investors and singled out 7 companies to compile business plans and prepare investment proposals. All the investment proposals submitted were thoroughly studied by NPTW experts and discussed twice during the meetings of the interagency work group. As a result, the work group recognized business plans of four companies, namely Interpipe, YuVIS, Trubostal, and Stalprom (all of which are located in Dnepropetrovsk region), as the most attractive and economically justified, and recommended these business plans to NPTW shareholders’ meeting.
In September 1999 the first shareholders’ meeting approved the restructuring program and its concept, while in January 2000 the meeting made a decision to establish four private joint-stock companies on the basis of six divisions of the NPTW. The Works became a co-founder of these private companies that were set up using assets of tube-rolling mill No.7 and exploration tube treatment shop No.6 with participation of Interpipe company; tube-pressing shop No.4 and tube-drawing shop No.2 with participation of YuVIS company; tube foundry with participation of LLC Trubostal; and tube-drawing mill No.1 with participation of LLC Stalprom. The investors hold 50.1% stakes in these private joint-stock companies, while the NPTW owns 49.9% interests respectively. Besides to private companies, there were founded 9 subsidiary companies fully owned by the NPTW.
The investors undertook commitments to perform technical re-equipment of manufacturing facilities; to attain at least a 5% profitability rate (in fact, profitability was negative at -11% last year); to pay the workers at least 2.5 minimum wages; and to pay off the outstanding wages and salaries payable in 6 months. The aggregate investments in the NPTW will sum up to UAH 87.2 million, including UAH 54 mln. to be contributed by Interpipe, UAH 25.7 mln. coming from YuVIS, UAH 2.1 mln. from Trubostal, and UAH 5.4 mln. from Stalprom.
In June 2000 all the private joint-stock companies were officially registered and got into their own business. Development programs for new private companies mainly mention reduction in product costs and product quality enhancement up to requirements of international standards. Notably, Interpipe plans to install finishing, testing, and product quality control equipment, as well as hold certification of products and quality control system to acquire a right to use the API program. Besides, this company donates current assets that will be spent to purchase hollow sections, fuel, power, and other materials for the Works. NPTW experts believe that application of in-house current assets will make it possible to abandon the intermediary link, lower the cost of hollow sections, and slash at least 5 to 7% off the main costing items.
YuVIS has also generated a number of steps involving technical re-equipment of its private JSC to launch the international markets for tubes and pipes. It is planned to acquire new machinery, repair and upgrade the main productive machine tools, introduce more cost-efficient technologies, arrange for labeling and transportation of tubes and pipes, reconstruct and fully equip the section of finished tubes’ nondestructive testing in compliance with international standards.
In turn, to upkeep the workshop going and expand the markets, Stalprom intends to replace nondestructive testing facilities, reconstruct the shielding gas station, install 4 pickling bathes, and assemble an automated tube packaging and labeling line. During the first year of business of this new private company, renewal of tangible fixed assets will require at least over a million hryvnyas. Some more UAH 2.6 million will be allocated to replenish current assets. It is planned to get ISO-9002 certificates for production and DIN and ASTM certificates for tubes and pipes.
At last but not least, Trubostal plans to purchase 5 centrifugal merchant casters and certify its production in compliance with ISO-9002 to lower product costs.
Alexander Neustroyev pointed out that all the four private companies were established to suit technological interests of the investors and ensure the highest possible degree of internal cooperation. Therefore, the restructuring process has kept up the essential internal manufacturing links, which back the integrity of the whole technological process.
It is worth mentioning that the NPTW has a highly diversified production, e.g. more than 30 divisions of the company (out of the total of 63) are ready to do business on the markets for goods and services on their own. During the first stage, 6 out of the 30 divisions have already turned into independent businesses, while the second and the third stages will bring transformations to the other 24 divisions.
Higher management of the NPTW views raising of significant amounts of investments, which will make it possible to advance production to a completely new level of technologies, as the main result of the first restructuring stage. According to Alexander Neustroyev, the future successful development of the NPTW will depend on coordinated efforts of investors, the head company, and the State. Now, a new model of economic relations between the new independent divisions and the Works is taking shape. The new relations will rest on the two basic principles, namely economic justification of mutually rendered services and settlements in money only. It means that competition will be nourished from inside of the company.
During the second stage of restructuring, the NPTW management plans to adhere to the very same principles effected in the course of the first stage, i.e. consideration, competitive analysis, and singling out of proposals submitted. At this point of time, the Works has already received a number of investment proposals, some of which are truly worthwhile, some are purely technical, while some reveal the momentary consumer interests. However, Alexander Neustroyev emphasized that, when selecting the proposals, the NPTW will enforce a principle that the Works does not need simple investments, but investments in the future development.