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Tuesday 22.08.2017 | Name days: Rudīte, Everts

Audit report: Liepājas metalurgs is on the brink of insolvency

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AS Liepājas metalurgs (LM) in on the brink of insolvency. On top of that, it has serious liquidity problems, as noted in the report about LM’s financial state.

According to the management of LM, if the situation does not improve or there is no agreement with large creditors, LM will become incapable of continuing its work in April 2013 already, as stated in the report. The LM has received an insolvency warning letter from Latvenergo. In this letter, Latvenergo requests the payment of the debt for supplying electrical energy by March 28, otherwise LM will be declared insolvent. At the same time, auditors believe that if LM does not pay its debt by March 28, Latvenergo could cut off the energy supply to the enterprise.

The sensitivity analysis carried out by Ernst & Young (E&Y) suggests LM will experience a serious lack of money in an approximate amount of 96.1 million LVL in 2013.

LM currently lacks a net working capital. In January 2013, the enterprise’s net working capital was negative – minus 17.5 million LVL. LM’s minimum net working capital with a 30-day money circulation cycle is 27 million LVL. The optimal amount with a 45-day cycle is 40 million LVL at the planned net turnover of 2013.

LM’s total amount of credit obligations was 103.6 million LVL in the end of 2012. LM owes 51.7 million LVL to UniCredit, 22.4 million LVL to SEB and Citadele Bank. There is also a debt of 10.5 million LVL to Stemcor. LM also owes Latvenergo 8 million LVL.

LM’s general money flow of 2012 was largely positive – 16.4 million LVL and it was largely due to the delay of credit payments. Otherwise the money flow would have been negative – minus 1.1 million LVL. Losses worth 8.8 million LVL were covered from the net working capital.

It was previously reported that the government decided to wait before getting involved in the saving of LM. According to the government, the shareholders of LM should have a more active role in solving this problem.

It is incredibly hard to come up with a positive solution to LM’s problems if its shareholders do not have a clear business plan, as well as the will to get involved in problem solving, Finance Minister Andris Vilks said.

In his interview to Vesti Segodnya newspaper, LM’s largest shareholder Sergei Zakharin said that he would gladly give his shares if the state provides support to the enterprise. There have been no talks about this option so far. He added that the management of LM has submitted an action plan to overcome the crisis, and now everything is in the hands of the government – whether or not it decides to help LM.

LM is also prepared to cooperate with creditors and suppliers. The action plan also provides for the reduction of expenses for the administrative apparatus, as well as the increase of production efficiency and the reduction of sponsor volume.

According to the unaudited review of 2012 published in NASDAQ OMX Riga, LM’s net turnover was 321.3 million LVL in 2012, which is 45% more than that of 2011.

Last year, LM’s consolidated losses reached 7.3 million LVL.


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