It is the first time during 12 years when there is a threat of financial crisis to the company. The reason is evident – dramatic drop in production output. Initially it was caused by stoppage of half of BFs, then failed attempt to restart BF-9 after capital repair, and finally the recent actions of the railwaymen. They supported their colleagues from Ukrzaliznytsia in their protest and it resulted in almost complete stoppage of the plant. There are talks that June salary payment is doubtful.
Sergey Plichko, Chief Financial Officer of PJSC ArcelorMittal Kriviy Rih, explained the situation.
– To begin with, please tell about losses in terms of production.
– In April production losses due to the accident in the first block of BFs in the beginning of March made 229 thousand tons of steel. The estimated losses in May due to failed attempt to restart BF-9 after capital repair will be over 250 thousand tons of steel.
– What was the effect on financial results of the company?
– We completed the month of April with negative cash flow of over 600 million UAH. In other words, we spent more than we earned. As for the month of May, by our preliminary estimates, the financial losses will make over 1.5 billion UAH approximately. In total, the two-month loss will go over 2.1 billion UAH, which is a threat for further financing of our on-going operations. We are now at the line and if it is crossed, the processes will be irreversible.
– What steps will be taken to overcome the crisis?
– In order to survive in this severe financial situation we already need to make decisions about suspending some projects and social programs. Speaking about social expenditures, most of them will be affected.
– Many people ask whether you have enough money to pay May salary? And what is the forecast for June?
– We have analyzed and understand: even with such big losses, we can get over May. So far, it’s hard to say about June. It all depends on whether we can stabilize production till the end of May and achieve acceptable cash flow, allowing us to continue our business operation. Unfortunately, all our plans regarding production recovery were disrupted as a result of unplanned protest of the employees of the Railway Transport Operation Shop. Due to their actions, we were forced to stop a number of facilities and shops. This protest doubts our possibility to stabilize the production within the time limits planned before. If things continue like this, it will result, first of all, in complete stoppage of the plant, and secondly, in more drastic financial consequences. In this case, we will be forced to recommend CEO of the plant to transfer the employees from the majority of shops to part-time job, idling, maintaining minimum guarantees for salary payment that are provided for by the terms of collective agreement. The total annual salary fund is more than 3 billion UAH. Compare this with the amounts that we lost in April and May, and you will understand the gravity of the financial situation.
– Did you try to explain that to your railwaymen who joined the initiative of their colleagues from Ukrzaliznytsia?
– Of course. Many managers, including me, visited railwaymen and spent many hours talking to people, explaining them the financial crisis in the company – with figures, with all data. People do not understand. They do not want to listen to. Now, it is the worst time for the protest you can ever imagine. Now the issue is not about the salary level, but about the availability of cash in general. If the protests are continued, we will come up to the point when there is no money for the salary at all – neither for the current level, nor for the increased one. There will be no money, you know. The problem is that certain political forces use people. They do not even mask themselves and openly support these protests in social networks and mass media. It is enough to watch news on one famous TV channel. One well-known member of Verkhovna Rada of Ukraine regularly appears there with his comments and appeals for the sake of the foregoing presidential election. It should not be allowed to plunge the companies and economy in chaos. What will be the result then? Many companies have already been suffering from these protests, including Ore Mining and Benification Complexes in Kriviyi Rih. They cannot ship their products; the problem there is also growing incrementally. Do we want to harm ourselves for the sake of somebody’s political ambitions?
– Will the most important payments be stopped – for raw materials, utilities, cargo transportation by railway and sea?
– Due to decrease in production output, we’ve started spending less money for the purchase of raw materials and various commodities. Why should we buy anything when we speak about shutdown of blast furnaces?
– What can you say about the demands to increase the salary up to EUR 1000?
– This issue was converted into political one. And we also see that they are trying to stir up not only at our company, but also at other companies of mining and metallurgical industry. Solution regarding the salary should be found by negotiations. But first of all, we need to recover the production, to start products shipment to the ports, to receive money from sales, and only after that we can speak about the salary. If we have empty warehouses, we will not be able to ship the products to the customer – so, where will the money come from?
– There is a common belief that you sell products in foreign currency, but salary is paid in UAH. What can you say about it?
– First of all, our costs are not just salary. Secondly, all our raw materials are nominated in foreign currency. I would like to remind that mining and metallurgical complex of Ukraine has already been integrated into the world economy for a long time. At present we have to purchase a lot of raw materials on the world market for convertible currency. Moreover, the market prices are very unstable, and often subject to fluctuations, which bring additional pressure on our operating costs. For example, coke price grew to $375 per ton at the end of last year. Thirdly, our costs are continuously growing. The tariffs for electricity increased by 15% at the beginning of this year, for rail transportation – by 15-20% from the end of last year. During recent months, natural gas price has increased by 12%. Last year all energy resources (both purchased and own ones) cost us an enormous amount – $1.2 billion. And this year they can cost even more. Next. Since this year, the City Council has increased the land tax rate for our company more than 2-fold, from 0.9% to 1.9% and that would result in additional costs. Based on our calculations, this year we will have to spend 643 million UAH for this tax. Besides, the City Council is now considering the further increase in the land lease rate several times for 2019. It is too early to speak about the amount of the rate, but, for sure, it will grow. All these issues shall be taken into account when revising the salary level to avoid the situation when we are not able to pay it in due time.
– In your opinion, will you find a way out of this difficult situation?
– We do not lose hope and expect that people will understand the consequences of their actions. I am not even talking about process risks, about pipelines and gas transportation system of the company: there is a possibility of losing the plant – and after that, there will be nothing to argue about. Within last three months, we have managed to keep the situation under control, to work in accordance with the plan aimed to recover the stable level of production at the company, so that we hoped for improving of financial situation. However, the last protest of railwaymen and destructive position of trade union leaders, as well as populism of political leaders put the implementation of these plans at threat. Much will depend on common sense of the people. (AMKR/Ukrainian metal)