10 Nov 2016

Latvia Loses Plants Due To Russian Crisis

Latvian industry is surviving without Russian market. See examples of two plants, a perfume producer and a locomotive repairs plant, in attempt to gain government funding to compensate for loss of markets.

Based on reprint at http://inosmi.ru/economic/20161101/238109823.html , original article in Russian at http://www.bbc.com/russian/features-37800835



Riga, Latvia. As many as two companies have found themselves in a difficult situation due to the loss of the Russian markets. And while the Dzintars perfume factory seeks a remedy through conducting mass actions in social networks, the Daugavpils Locomotive Repair Plant will need a government intervention.
© AP Photo, Normunds Mezins, AFI
Without Russia

Dzintars is one of the largest Latvian companies, widely known outside the country. However, in recent years, its financial results have been far from success. The problem was in the Russian markets.

"The problems began [during the crisis] in 2008, including in Russia", says Ilya Gerchikov, CEO of the company, to BBC Russian Service. "Then we lost a lot of money. We are not leaving this market, but it is extremely unprofitable. The situation worsened with the currency crisis."

According to the CrediWeb Register, the company's turnover fell significantly in 2012. They were demonstrating no profits for a long time, however, in 2014 the losses were not just hundreds of thousands, but almost 1.5 million euros, whereas in 2015 the figure exceeded 2.5 million euros.

The statements of the factory indicate that at the moment Dzintars has paid off all debts except for the tax debts, which still comprises 3.2 million euros.

As a result, the company voluntarily requested the court to begin the process of legal protection. If the court grants the permission, the creditors represented by the state will not be able to initiate insolvency proceedings and will have to wait for payment.

"The debt was accumulating at Dzintars for years. Accumulation of losses in Eastern markets is not the best strategy. We are now at the final stage of the process. We are talking about a world-class product that could be present in those markets where it is now not available for whatever reason"- says Yury Spiridonov, Adviser to the Minister of Finance.

In the Latvian Ministry of Finance there are some who believe that the potential problems are caused by the company's [poor] management and marketing strategies. At the Dzintars, they believe that there are no problems with marketing, but there are problems with the search for new markets, which are so much desired in the conditions where CIS markets are falling.

Now, the company expects to receive a postponement of payment. "We have a marketing strategy, we know that 2015 and 2016 we are going to be at loss, and in 2018 will achieve profits" - says Ilya Gerchikov, company's CEO. In the nearest future Dzintars plans to release a new product line which they are going to sell in new markets, such as Arabic countries.

"Over the last 15 years there has been a confusion of concepts: instead of high-quality products people prefer to buy a nice packaging. We are fundamentally opposed to such policies, " - he continues. And then, he adds, customers deserve to know that "they can get a bio- or eco- product or have a [detrimental] result on their face." However, it is hard to conteract the trends of fashion.

As it turns out, however, it is quite possible. Immediately after it became known that the company is asking to launch the process of legal protection, a social media campaign was launched to "help save the Dzintars". Residents of the country, seemingly, in large numbers, went to the stores to buy skin creams of this brand, and then publish product photos in social networks.

"It turned out, people care about us" - says Gerchikov. As a result, he said, sales increased two to three times. It is still unclear whether this will help save the company, but such cases have been unprecedented in the modern history of Latvia.

The Largest Employer

The Daugavpils Locomotive Repair Plant is in a different situation: financial investments of absolutely different scale are needed.

The company is the largest factory in the region providing major repairs for railway rolling stock.

Only six months ago, it was called also the largest private employer in Daugavpils, the second largest city in the country with the highest percentage of Russian-speaking population. For extremely depressed region, its thousand jobs means a lot.

However, due to the difficult economic situation in the summer, the company announced the dismissal of 432 employees, that is, nearly a half. A few months later the plant reported about new problems: its bank refused to soften lending terms, as a result, the company is forced to ask for support from the government, at this moment, in the form of state guarantees for the bank. This means that if the plant goes bankrupt tomorrow, the debts will have to be paid by the state treasury.

Accodring to statements from the plant, the situation is described as critical. The Minister of Finance Dana Reizniece-Ozola recognizes: the company employs a lot of people, and for the region it is difficult to create new jobs. "This factor imposes an emotional and moral obligation on the government to seek solutions", - she added. However, the Minister is skeptical about the state guarantees.

According to her adviser, Yury Spiridonov, skepticism is associated with a negative experience that has been seen from providing state guarantees at all. Not long ago, the government had to pay for the loan amounting to tens of millions of euros for "Liepaja Metallurgist", another large company which faced a crisis and suspended production. A similar situation was observed in the Latvian hospitals that were unable to cope with their loans.

"We do not have materials for the assessment, we need a business plan. It all depends on the availability of long-term contracts. The plant should demonstrate where its development can be seen", - says Spiridonov. However, if the plant was not able to convince the bank in its prosperity, then it would be even more difficult to do so with the government.

All because of Russia

The plant itself explains its situation with geopolitical reasons. "There's a problem", says the Chairman of the Board of Directors, Aivars Keskula. "Both sides, the EU and Russian Federation, changed from economic management to political one. Both sides are sweeping with sanctions: these are political decisions".

However, according to the CrediWeb Register, the situation started to deteriorate long before the Russian crisis. In 2012 the company was operating with a profit reaching almost one million euros, in 2013 it already saw a loss of 263,000 euros, and in 2015 the loss reached 509,000 euros.

According to Aivar Keskuly, the main reason for that was the descreasing rouble exchange rate: at some moment, the plant received revenues which fell in value two times as compared to the initial amount.

As a result, the share of the Russian market dropped by a half (from 47% to 24%) in last year alone, according to local media. Not much help was the fact that there are Russian shareholders at DLRZ [the plant]: a quarter of the shares is indirectly owned by Globaltrans Investment PLC, which is called one of the largest private carriers in Russia.

And certainly, it is not the ownership structure that will help negotiate with the Latvian government with respect to state guarantees. Against the background of a stagnating economy, policiticians will find it extremely difficult to explain to voters why it would need to hand out money to private businesses. All the more so in this case we are talking about businessmen with a very vague reputation and problematic episodes of cooperation with government structures.

Unexpected Repairs

According to Saulvedis Varpinsh, lawyer to the Chairman of the Board of Directors, and its indirect co-owner Oleg Osinovsky, a negative role in shaping the dire financial situation at the plant could be played by criminal proceedings in which his client appeared. According to the lawyer, any bank would closely examine this kind of information.

Oleg Osinovsky, a citizen of Estonia and one of the wealthiest people in the country, was mentioned in one of the biggest corruption scandals in Latvia, with a status of a suspect accused of bribery to an official.

Eighteen months ago, Latvian law enforcement agencies detained Ugis Magonis, former head of the Latvian Railway, with a large sum of money. As a result, Magonis lost its position, and Latvia nearly lost railway communication with Russia: such possibility was reported by LDZ management, referring to unofficial information from the Russian side as to repair of rails leading to Latvia.

Several officials confirmed: those events were related, as Ugis Magonis was in close relationship with Vladimir Yakunin, the ex-head of Russian Railways. At the same period, Yakunin was dissmissed from his post too.

The Latvian media came up with assumptions that the bribe to Magonis was given by Osinovsky. Today, the fact that Osinovsky was involved in this case is not denied even by his lawyer. Companies associated with the Estonian entrepreneur have repeatedly won tenders held by the Latvian government-run railways.

The implementation of one of such orders, amounting to over 20 million euros, was delayed by the company resulting in penalties and a probe by the Economic Police. Another contract of 270 million euros was indirectly related to DLRZ and was terminated by the government even before it was started.

Despite all this the plant's management still have hopes. "Who told you that we have difficulties? We are working", - said Aivar Keskula, the chairman of the Board of Directors.

Comments



Boeslav


Russians always recognized Latvians as God's chosen people, Jews not even close.

nika_zhukova_00


At the Dzintars, they believe that there are no problems with marketing, but there are problems with the search for new markets, which are so much desired in the conditions where CIS markets are falling.

-----------------

Someone at Dzintars managenment is clearly incompetent, making such a strange statement.

After all, a part of marketing is exactly to search, explore and conquest new markets for the company's products.

vichr88


nika_zhukova_00, All is under control there. They will arrange deliveries of canned pork stew to Arabs and their business will bloom!

nika_zhukova_00


All because of Russia

----------

How is Russia involved? You have long been in the EU - and there is a huge market, which "cannot wait" to have your goods!

Again, Russia, according to your politicians and the media, is about to attack you, and you are here making reproaches that your product don't sell...

You'll have to decide somehow: do you have trade with us or war?

intolerambler


nika_zhukova_00, for them, a war was never an obstacle to trade. It is just their way of thinking.

edo.58


nika_zhukova_00, Also, Russia is a poor country. What Dzintars? They can hardly afford CHYPRE [old style perfume]...

Blade Runner


All because of Russia

=============================================

Ah you bastard Putin, has as always managed to make his way and to annoy.

Resident of Russia


Balts, rejoice, you got rid of the dependence on the Russian market! It remains to get rid of dependence on Russian gas and then the abundance comes! )))

Fikus


Resident of Russia - all what is left is to get rid of dependance on money and food)))

Baha2


Fikus, These are signs of communism, in fact.

2m


Resident of Russia, Lithuania has already gotten rid of [it]. They are leasing the Independent LPG terminal, almost at zero price ($154,000 per day, if I remember right) and is receiving a very democratic gas from there at very humane price from Norway, which is then regasified with at VERY low cost. One more joy: - Lithuania now needs to sell a part of 'independent' gas, but Poland and Latvia are not willing [to buy] and use totalitarian pipeline gas from Gazprom. Traitors of European values!

Dervish


2m, well yes, I asked one Lithuanian how much he donated to the disassemblage of the dreadful Ignalin Nuclear Plant. The fun is that it has been stopped, but there is no money to disassemble it. As little as one billion is needed. And immediately Lithuania has announced that donations are accepted to implement its disassemblage. Cool!

9cmpe6


Resident of Russia, no, there is one thing left to do: migrate the whole country to the West in order to no longer have borders with Mordor.

intolerambler


And why would not fired people and people cut from jobs go to the streets? Democracy?

levenkool:)


intolerambler, with democracy, you don't play games easily...

Fikus


intolerambler


, rough mittens of democracy

=Gudvin=


intolerambler, it is not allowed, if they go out [to the streets], it would mean that Putin personally incited them to discontent, in order to send in his Green Men)

kaa 3


Ashes of RAF and VEF knocks at our hearts. Dzintars is next.

trick


Look at this bad Russia! But the Britts, what they think? Why would not they buy those cars and perfumes. Then, and Balts would get well off too, and Russia can be left alone. But they do not buy for some reason. They want this rubbish be bought by Russia. I wonder why?

as99


Each Latvian family should buy a bottle of cream and a locomotive. And then the company mentioned in the article will be saved.

sus1


How loud was the wailing, proud demarches, contempt for the "occupiers", whom they, farmers and residents of small manors were forced to feed in so recent past. They wanted the freedom so much ... Well, here it is, the freedom from invaders, who built their industry, invested in their development, and traveled to their resorts. Here it is, the sweet word FREEDOM! Now the question is: Who was feeding whom? Are there doubts?

I am pleased that they are now finally liberated from us. Hatred will eat them up from within. I remember back in the Soviet times, a child, I was taken to a holiday at the Riga seaside. Even I, a kid, felt that evil arrogance towards the barbarians from the East. Although my mother, an intelligent woman, did not give the slightest reason for such an attitude.

Now they can enjoy the freedom without us, the "uncultural," Thank God.

Sanych


Both sides, the EU and Russian Federation, changed from economic management to political one. Both sides are waving with sanctions: these are political decisions.

-------------------------------------------------- -----------------------------------

Remind me who started it? Now cry quitely...

plush hedgehog


They were strong supporters of the sanctions against the Russian Federation and now they cry that under ruble contracts they were paid "cheap money", lessened due to the sanctions of the West.

- Do not dig a hole for someone, no?

Fikus


Russians to blame !! ....

They seem to be long in the EU, and their markets have not been redirected, clearly someone just was running and waving a EU flag instead of using their brains, so now, plants are closing, people go out [of country] looking for jobs and we turn into Moldova or Uzbekistan ...

vodopodvod


Oh, boneheads! they are so hard to please.

2m


Just trouble. Very sorry.

I would like to hear a portion of statistics from eleven Lithuanians. Where are they, by the way, with a chubby folder from Rosstat?

3lirium


Russophobia is expensive.

mig


Good territory. When the Balts die out, AgloSaxons will live there.

mrachnyi37


And Russia, in spite of the sanctions, is obliged to work with you, right?

suslik


Latvians, promising markets of Ukraine are waiting for you! Welcome! [written in Ukrainian]

Darth Vader


pleased that even in such circumstances, they smile) in the 90s, Zadornov and Petrosian [Russian comics] were a relief too

k5544


Russia has its own plants, let them sell their cars to Germany

The Independent


Silly sprats should pray for Russia.

ural2016


All three companies were built by the hated occupier and sprat robber: the USSR.

In the EU market, which they hurried so much to enter, their goods are not needed at all, and the sprats are not capable of repairing the TGV, and the rails are different, and they will not trust [you to do this]. Now you are on your own, without us, the occupiers ...

svk68


"Russophobia is expensive!". For so many years this was explained for the Limitrophes, but they still cannot get it right. Well, stupid ones!

Alexxandro


Disassemble the rails, sprats, they are no longer needed, the rails are hard to use for horse-driven carts!



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