In conditions of economic experiment, financial indicators illustrating the 2000 performance of enterprises embraced by Metallurgprom Association featured significant changes compared to the figures registered in the first quarter of 2001. What is more, r
EXPERIMENT: CHANGES FOR THE WORSE
EXPERIMENT: CHANGES FOR THE WORSE
In conditions of economic experiment, financial
indicators illustrating the 2000 performance of enterprises embraced by Metallurgprom
Association featured significant changes compared to the figures registered in the first
quarter of 2001. What is more, recession of manufacturing output taking shape in mining
and metallurgical complex of Ukraine has been proved by financial and economic indicators
reported in April 2001.
In 2001, mining and metallurgical enterprises of Ukraine
fell into a double trap. Worsened economic situation on world markets together with
incremented tariffs for energy resources and railway transportation immediately brought in
negative implications.
In the first place, let’s analyze manufacturing and
economic performance of metallurgical enterprises brought together by Metallurgprom
Association (hereinafter referred to as the Association) starting from July 1, 1999 to
January 1, 2001. According to acquired data, during that period metallurgical enterprises
managed to boost their manufacturing output featuring simultaneous recovery of financial
and economic indicators. The only exception related to OJSC Kuybishev Metallurgical Works
of Kramatorsk and OJSC Konstantinovka Metallurgical Works, which aggravated their
financial performance compared to the figures registered before. At the same time, OJSC
Komintern Metallurgical Works of Dnepropetrovsk and OJSC Kerch Iron and Steel Works were
notable for quite ambiguous financial situation. What is more, OJSC DZPV also suffered
from lowered financial indicators. All mentioned enterprises (save for OJSC Kerch Iron and
Steel Works) do not participate in the economic experiment.
In general, enterprises being a part of the Association
report distinct recovery of manufacturing and economic performance. In 2000, production of
cast iron grew by 11.7% against the 1999’s figures, steel output witnessed a 15.9%
augmentation, output of finished rolled products incremented by 17% while ferroalloy
production increased by 35.6%.
Net proceeds from sale (earnings) rose by 56.6% (worth UAH
10.2 bln.) while share of export supplies in the net profit grew by 6.82%.
As regards expenditures per hryvnya of sale proceeds
(earnings), such indicator lowered 1.2 times.
Profitability of sold products went up 3.5 times.
In 2000, deficiency of floating assets went down to UAH
995.4 mln. (i.e. diminished 3.8 times).
Overall budget deductions drifted upward 1.8 times and
reached the high of UAH 1.13 bln. Thus, the Association accounted for 61% of budget
deductions performed by mining and metallurgical enterprises.
On the average, monetary payments spurred four times making
up 80% of the sales. Expenditures for capital assets renovation grew by 23%.
Arrears of wages and salaries narrowed 2 times.
Practically, there is no current backlog of natural gas and
electric power consumption (with an exception for three enterprises).
For the most part, mentioned achievements were stipulated
by participation in economic experiment and favorable economic situation on world market
for ferrous metals. In such circumstances, enterprises managed to pursue expedient pricing
policy and did not augment prices for metal products sold on domestic market (for the
whole year) despite grown prices for raw materials, fuel and power resources, and
increased railway tariffs.
Reference note. Taking into account the final results
of the 2000 performance, recovery of prices for metal products and their constituents
featured the following dynamics: in 2000, prices for pig iron incremented by 16.8% while
prices for ferrous rolled products rose by 20.7%. At the same time, prices for raw
materials and energy resources grew as follows:
– sinter ore – 41.0%
– concentrate – 37.9%
– pellets – 44.9%
– oven coke – 21.2%
– natural gas – 60.9%
– electric power – 20-70%
– railway tariffs – 25%
– dollar exchange rate – 4.2%.
Augmentation of manufacturing and economic performance
reported by enterprises embraced by the Association is accompanied with improved financial
indicators. Estimated solvency of these entities has been deduced from such coefficients
as:
- general solvency (defrayal);
- quick liquidity;
- absolute liquidity.
General solvency and quick liquidity indicate the ability
of an enterprise to pay off existing liabilities with current assets. As regards the
Association, these coefficients feature distinct recovery. Along with this, such
enterprises as OJSC Azovstal Iron and Steel Works and OJSC Zaporozhstal Iron and Steel
Works were notable for the highest rate of the mentioned indicators and their stable
upward movement (table 1).
Table 1. Coefficient of general solvency calculated
for mining and metallurgical enterprises
| Enterprise | Normative value should exceed 1.0, optimal value equals 2.0-2.5 |
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| 01.01.01 | 01.10.00 | 01.07.00 | 01.01.00 | 01.07.99 | |
| Total for the Association, including: | 0.985 | 0.98 | 0.874 | 0.703 | 0.68 |
| OJSC Azovstal Iron and Steel Works | 2.308 | 2.39 | 1.869 | 1.425 | 1.382 |
| OJSC Zaporozhstal Iron and Steel Works | 2.241 | 2.31 | 1.778 | 1.023 | 0.878 |
These data show that two mentioned entities presently enjoy
positive balance of liquidity and solvency and thus are able to fully pay off existing
liabilities, which can also attract possible creditors and investors.
However, it should be noted that in the fourth quarter of
2000, mentioned indicators suffered from noteworthy curtailment stipulated by worsened
economic situation on foreign markets, grown prices for energy resources and raw
materials, and incremented railway tariffs.
According to table 2, coefficient of general solvency
generally reached its normative value on most enterprises. However, in the fourth quarter
of 2000 large export-oriented enterprises and power-consuming entities witnessed certain
reduction of its value. For the most part, such tendency was typical for OJSC Ilyich Iron
and Steel Works, (the most severe cutback), OJSC Zaporozhye Ferroalloy Works, and OJSC
Dneprospetsstal Electrometallurgical Works.
Table 2. Coefficient of general solvency calculated
for mining and metallurgical enterprises
| Enterprise | Normative value should exceed 1.0, optimal value equals 2.0-2.5 |
||||
| 01.01.01 | 01.10.00 | 01.07.00 | 01.01.00 | 01.07.99 | |
| Total for the Association, including: | 0.985 | 0.980 | 0.874 | 0.703 | 0.68 |
| OJSC Ilyich Iron and Steel Works | 1.707 | 2.176 | 1.835 | 1.3 | 1.019 |
| OJSC Zaporozhye Ferroalloy Works | 1.649 | 1.699 | 1.461 | 1.668 | 0.869 |
| OJSC Dneprospetsstal Electrometallurgical Works | 1.521 | 1.572 | 1.425 | 1.391 | 1.459 |
| OJSC Nikopol Ferroalloy Works | 1.325 | 1.108 | 0.986 | 0.828 | 0.762 |
| OJSC Stakhanov Ferroalloy Works | 1.253 | 1.011 | 0.947 | 0.677 | 0.863 |
| OJSC Donetsk Metallurgical Works | 1.242 | 1.235 | 1.226 | 1.316 | 1.282 |
| State-owned Krivorozhstal Iron and Steel Works | 1.113 | 1.018 | 0.894 | 0.645 | 0.775 |
| OJSC Kerch Iron and Steel Works | 1.019 | 1.058 | 1.146 | 1.365 | 0.887 |
At the same time, coefficient of quick liquidity, i.e.
ability to pay off existing liabilities with floating assets (not including reserves),
failed to reach its normative value on enterprises listed in table 2 (normative value
equals 1). Such situation was stipulated by excessive share of reserves in the pattern of
floating assets belonging to these enterprises. The only exception relates to OJSC
Zaporozhye Ferroalloy Works, and OJSC Ilyich Iron and Steel Works, which managed to retain
the coefficient of quick liquidity on its normative level (1.223 and 1.040 respectively).
Solvency of other enterprises today does not correspond to
normative level. Fluctuations of the quick liquidity coefficient on such enterprises are
shown on diagrams 1,2 (depending on periods under review).
Diagram 1. The first group of enterprises
(coefficient of general solvency amounts to 0.33-0.893 and is accompanied with upward
dynamics)
Diagram 2. The second group of enterprises
(coefficient of general solvency equals 0.18-0.651 and is accompanied with unstable
dynamics)
As regards the coefficient of absolute liquidity, no
enterprise can boast of having its normative value (0.2) with an exception for
Zaporozhstal Iron and Steel Works (0.429, as compared to 0.013 reported on January 1,
1999). In other words, mentioned enterprises possess quite scarce monetary reserves to
fully pay off current liabilities, which evidences the existence of hidden barter
transactions. At the same time, the Association features slight augmentation of such
indicator, compared to its distinct shrinking in the fourth quarter of 2000 (see table 3).
Table 3. The coefficient of absolute liquidity (total
for the Association)
| Enterprise | Normative value should exceed 0.2 | ||||
| 01.01.01 | 01.10.00 | 01.07.00 | 01.01.00 | 01.07.99 | |
| Total for the Association | 0.035 | 0.042 | 0.034 | 0.009 | 0.008 |
Analysis of enterprises’ solvency also applied to the
coefficient of account payable turnover, which describes the timeliness of payments made
by enterprises to settle up with their creditors. Such coefficient embraces wages and
salaries paid to workers, payments for consumed resources and budget deductions.
Enterprises listed in table 4 boast to make the most timely payments to their creditors.
Table 4. Timeliness of payments made by mining and
metallurgical enterprises
| Enterprise | Time needed to clear off accounts payable, months |
||||
| 01.01.01 | 01.10.00 | 01.07.00 | 01.01.00 | 01.07.99 | |
| Total for the Association, including: | 5.3 | 5.5 | 5.7 | 7.2 | 7.6 |
| OJSC Nikopol Ferroalloy Works | 2.2 | 3.9 | 4.3 | 3.9 | 4.5 |
| OJSC Donetsk Metallurgical Works | 2.6 | 3.0 | 3.2 | 3.4 | 3.6 |
| OJSC Ilyich Iron and Steel Works | 2.7 | 2.4 | 2.6 | 3.8 | 4.6 |
| OJSC Azovstal Iron and Steel Works | 2.8 | 2.6 | 2.4 | 3.6 | 3.7 |
| OJSC Zaporozhye Ferroalloy Works | 2.9 | 2.9 | 2.8 | 2.7 | 3.0 |
| OJSC Zaporozhstal Iron and Steel Works | 3.0 | 3.0 | 3.3 | 5.7 | 4.9 |
| OJSC Dneprospetsstal Electrometallurgical Works | 3.2 | 3.1 | 3.4 | 4.0 | 4.3 |
| OJSC Stakhanov Ferroalloy Works | 3.6 | 5.5 | 7.4 | 12.4 | 15.0 |
| OJSC Alchevsk Metallurgical Works | 4.9 | 5.1 | 5.0 | 6.8 | 8.8 |
Almost all enterprises participating in economic experiment
witness stable recovery of this indicator (except for OJSC Konstantinovka Metallurgical
Works). Its value ranges from 6.2 months (State-owned Krivorozhstal Iron and Steel Works)
to 65.6 months (OJSC Konstantinovka Metallurgical Works).
Effectiveness of funds application was estimated on the
basis of the following coefficients:
- volume of operating capital;
- turnover of circulating assets;
- turnover of reserves;
- sales profitability;
- capital productivity.
As regards the whole Association, deficiency of operating
capital (i.e. existence of available circulating assets) decreased 24 times.
As of January 1, 2001, the following enterprises indicated
the highest volumes of released operating capital (i.e. floating assets of such entities
exceed their current liabilities):
- OJSC Azovstal Iron and Steel Works;
- OJSC Ilyich Iron and Steel Works;
- OJSC Zaporozhstal Iron and Steel Works.
Besides, some other enterprises possess released operating
capital as well. Among them, the following entities should be mentioned:
- State-owned Krivorozhstal Iron and Steel Works;
- OJSC Dneprospetsstal Electrometallurgical Works;
- OJSC Zaporozhye Ferroalloy Works;
- OJSC Nikopol Ferroalloy Works;
- OJSC Stakhanov Ferroalloy Works;
- OJSC Donetsk Metallurgical Works;
- OJSC Kerch Iron and Steel Works.
Other enterprises suffer from deficiency of operating
capital since their functioning was ensured with loan assets, which in turn lowered their
solvency.
Analyzing the coefficients of circulating assets turnover
and reserves turnover, it becomes clear that almost all enterprises managed to augment the
efficiency of their assets’ utilization, which also indicates the grown stability of
manufacturing performance. At the same time, average turnover of circulating assets
accelerated 1.3 times (from 5.44 months to 4.16 months) while average turnover of reserves
speeded up 1.2 times (from 2.1 months to 1.8 months).
Effectiveness of manufacturing and commercial performance
is characterized with the coefficient of sales profitability, which shows the ratio
between net profit and sales revenues after all relevant expenses and taxes are paid.
Enterprises from table 5 enjoy the highest values of such indicator.
Table 5. The coefficient of sales profitability
calculated for mining and metallurgical enterprises
| Enterprise | Sales profitability | ||||
| 01.01.01 | 01.10.00 | 01.07.00 | 01.01.00 | 01.07.99 | |
| Total for the Association, including: | 0.114 | 0.154 | 0.123 | 0.008 | -0.04 |
| State-owned Krivorozhstal Iron and Steel Works | 0.228 | 0.247 | 0.226 | -0.011 | -0.008 |
| OJSC Azovstal Iron and Steel Works | 0.173 | 0.188 | 0.099 | 0.026 | -0.047 |
| OJSC Zaporozhstal Iron and Steel Works | 0.17 | 0.211 | 0.211 | 0.172 | 0.068 |
| OJSC Enakievo Metallurgical Works | 0.163 | 0.151 | 0.129 | 0.099 | 0.061 |
| OJSC Ilyich Iron and Steel Works | 0.141 | 0.179 | 0.192 | 0.057 | -0.039 |
In the fourth quarter of 2000, mentioned enterprises and
the Association witnessed certain curtailment of sales profitability.
At present, enterprises listed in table 5 enjoy
comparatively low capital productivity since major part of their productive capacities
remains idle. However, such enterprises managed to boost their profitability owing to
increased production volumes, utilization of their own raw materials (in case of
Krivorozhstal Iron and Steel Works), and grown export supplies in 2000.
Estimated financial stability of mentioned enterprises
(i.e. their long-range solvency) has been deducted from such indicators as the coefficient
of autonomy, coefficient of financial stability, and provision with own circulating assets
(table 6).
Table 6. The coefficients of autonomy and financial
stability, and provision with own circulating assets
| Indicator | 01.01.01 | 01.10.00 | 01.07.00 | 01.01.00 | 01.07.99 |
| Coefficient of autonomy (normative value should equal or exceed 0.5) |
0.511 | 0.502 | 0.472 | 0.437 | 0.456 |
| Coefficient of financial stability (normative value should exceed 1.0) |
1.049 | 1.012 | 0.895 | 0.777 | 0.839 |
| Provision with own circulating assets (normative value should exceed 0.1) |
-0.287 | -0.281 | -0.445 | -0.825 | -0.697 |
As regards the periods under review, the Association was
notable for stable recovery of mentioned indicators (with the only exception for such
coefficient as provision with own circulating assets featured slight downswing in the
fourth quarter of 2000). Such situation proved that mentioned enterprises did not depend
on borrowed assets.
As of January 1, 2001, enterprises listed in table 7
indicated the highest values of mentioned coefficients.
Table 7. Mining and metallurgical enterprises
enjoying the highest financial stability (as of January 1, 2001)
| Enterprise | Coefficient of autonomy (normative value should equal or exceed 0.5) |
Coefficient of financial stability (normative value should exceed 1.0) |
Provision with own circulating assets (normative value should exceed 0.1) |
| OJSC Azovstal Iron and Steel Works | 0.784 | 3.689 | 0.511 |
| OJSC Zaporozhstal Iron and Steel Works | 0.776 | 3.476 | 0.351 |
| OJSC Ilyich Iron and Steel Works | 0.766 | 3.301 | 0.364 |
| OJSC Dneprospetsstal Electrometallurgical Works | 0.689 | 2.225 | 0.332 |
| OJSC Nikopol Ferroalloy Works | 0.568 | 1.405 | 0.027 |
| OJSC Zaporozhye Ferroalloy Works | 0.565 | 1.297 | 0.189 |
| OJSC Kerch Iron and Steel Works | 0.548 | 1.21 | -0.395 |
| State-owned Krivorozhstal Iron and Steel Works | 0.539 | 1.168 | -0.153 |
It should be noted that lingering suspension of
manufacturing performance, miserable profits, and absence of financial replenishment
witnessed by Voykov Metallurgical Works led to situation when negative value of such
indicator as provision with own circulating assets coincided with normative values of
other indicators. At the same time, similar situation traced at Krivorozhstal Iron and
Steel Works resulted from its significant losses in the past years, which currently are
covered with its own circulating assets. What is more, the enterprise continuously
diminish their deficiency.
Financial stability of other enterprises is far from being
normative.
It is worth mentioning that despite in 2000 manufacturing
output as well as financial and economic performance of the mentioned enterprises featured
noteworthy positive changes, the fourth quarter of 2000 distinctly cut these indicators. A
number of factors contributed to such setback.
In the fourth quarter of 2000, economic situation on
foreign market abruptly worsened: world prices for flat-rolled steel and billets dropped
by 30%, prices for wire rod and rebars grew by 10%. Along with this, Russia and the USA
initiated antidumping inquiries against Ukrainian metal producers.
Situation on domestic market worsened as well: prices for
energy resources rose by 20-70%, prices for coking coal and blast-furnace coke added 15%
while prices for certain refractory materials, ferroalloys and other resources also saw
the same augmentation.
Being major consumers of raw materials and fuel and power
resources, in the fourth quarter of 2000 metallurgical enterprises suffered from slackened
profits and subsequently dropped solvency.
During the mentioned period, for instance, overall expenses
per sales revenues (earnings) went up 1.1 times against the figures reported in the third
quarter of 2000.
Net profit lowered by UAH 514.87 mln.
Sales profitability dropped 1.6 times.
Monetary payments narrowed by UAH 280 mln. (-10%) while
budget deductions fell by UAH 11.1 mln.
The first quarter of 2001 indicated the same downward
tendencies. Grown prices on domestic market (tariffs levied on natural gas transportation
added 25%, tariffs for cargo transportation spurred by 25%, and prices for coal
concentrate grew by 20%) increased expenses for metal products output, lowered gross
revenues and profitability, and subsequently cut budget deductions. At the same time,
prices for pig iron and ferrous rolled products remained the same.
Reference note. In the first quarter of 2001, revenues
obtained in result of average economic activity and taken prior to taxation decreased by
UAH 267.2 mln. (-40%), compared to figures registered in the fourth quarter of 2000. Most
enterprises suffered from lowered sales profitability, which dropped 2-7 times against the
2000’s figures. In the first two months of 2000, 6 enterprises sustained losses while in
2001, their number incremented to 12 entities.
Taking into account the existing situation, it is quite
possible to forecast further worsening of financial and economic indicators at
metallurgical enterprises in the second quarter of 2001 since continuous augmentation of
prime cost will inevitably lead to resumption of barter transactions and lower their
solvency. As a result, budget deductions will keep on shrinking. To compare, in the first
quarter of 2001 overall budgetary earnings abridged by UAH 88 mln. against the figures
reported in the fourth quarter of 2000.
Pursuant to the President’s Resolution No. 1-14/68 dated
January 22, 2001, relevant ministries had to smooth pricing disproportion in fuel and
energy complex, and mining and metallurgical complex, and also ensure flexible correction
of prices for coking coal and fuel and energy resources. Such measures should have been
implemented by February 2001. However, the Ministry of Economy simultaneously permitted to
boost tariffs for railway cargo transportation arguing that such upsurge would have little
impact on prices for finished metal products.
Should prices for electric power and natural gas be
incremented as well, metallurgical industry would cease to be the major taxpayer (61%) in
the framework of mining and metallurgical complex.