Izhora Plants

Consulting support of the restructuring process

Project Description

From October 1998 to January 2000 "ALT RC" provided consulting support for restructuring of "Izhora plants."
JSC "Izhora Plants" – an urban development enterprise employing 17,000 people with annual sales of about $  100 million (1999). The main activity of "Izhora Plants" is the production of equipment for nuclear power, mining, petrochemical industry, as well as the production of special steels and semi-finished products from them. In addition, "Izhora Plants" includes a number of other small industries.

In mid-1998, a controlling stake of JSC "Izhora Plants" acquired the holding "Ural Heavy Machinery." The Holding management and the CEO of "Izhora plants" have decided to attract the consultants of "ALT RC" to solve the problems of integration of the holding and to improve the performance of "Izhora plants."

The work of  "ALT RC" consisted of 3 stages:

  1. Diagnosis and development of the restructuring program (3 months)
  2. Support for the restructuring (1 year)
  3. Preparing the companys management to implement self-transformation (2 months).
The Stage diagnosis showed that "Izhora plants" as well as many other industrial giants are in a difficult financial situation and in the real threat of bankruptcy. Based on the findings of diagnostic results, ALT RC experts and the management of "Izhora Plants" had jointly developed a set of transformation activities, divided into three groups of problems:

  1. Debt restructuring
  2. Restructuring of the property complex
  3. Business Restructuring
The results of  "ALT RC" in supporting the restructuring of "Izhora Plants".

Before we give a list of specific performance results of the consultants work, it seems necessary to emphasize those intangible changes that, in our opinion, are extremely important:

  • The top management of the company began to think in economic categories
  • Priority of long-term goals over short-term became obvious to many managers of functional areas and industries
  • Gradually, people began to realize that they must produce what sells, and not sell what is produced.
  • Due to the constant public debates of most pressing problems of the company, people have realized that only a joint and open discussion may give the desired results
  • The Staff of the Enterprise was initially cautious to the new owner but began to perceive themselves as a part of the holding "Uralmash" afterwards, which allowed to develop a common position and to coordinate actions on a number of fundamental issues
I. Restructuring accounts payable and property complexes
1. Achieved a debt control and stability in relationships with major creditors by transferring most of the overdue debt in the long term. A key role in the restructuring had played the following:

  • the overdue debts to the major monopolies ("Mezhregiongaz", "Lenvodokanal" and "Lentransgaz") for a total of 500 million rubles had been turned into debts with a maturity of 3 to 5 years.
  • reached an agreement on a partial repayment of debt to the territorial budget of St. Petersburg through the transfer of social assets to the city ownership. In addition,  there had been concluded an agreement for settlement of debts by offset against the supply of products of JSC "Izhora plants."
  • a plan of restructuring "Izhora plants" in accordance with the requirements of the St. Petersburg Administration, which affected into considerable support during the debt restructuring before the monopolists and the budgets of various levels.
  • the Ministry of Taxes and Levies of the Russian Federation decided to restructure the debt "Izhora Plants" on payments to the federal budget in accordance with the Government regulation № 1002 under the "6 +4" options.
  • prepared the Agreement on the restructuring of contributions to the pension fund.

2. Worked on the inventory and assessment of the property complex of "Izhora plants" in order to create a plan for further sale and rent in the area of free and unused land. The disbursement from the company and the sale of the company’s non core business.
 
3. The concept of Economic Development Zone "Izhora", negotiations with the Administration of St. Petersburg on support of "Izhora Plants" actions on the adoption of the Act of the Legislative Assembly of St. Petersburg.
II. Restructuring of Business and company management
1. Developed and implemented a set of measures to improve the manageability of the company and enter the break-even point

  • Due to the concerted efforts, the main activity of "Izhora Plants" became profitable, the revenue and the percentage of "real money" had increased
 
Figures                                                  1998                    01.10.99
Sales, million Rub.                                 1804                      1616
The share of “live money “                      17%                      40%
Operating profit, million Rub.                -162                        105
  

  • A method of cost sharing on the variables and constants, and recommendations on pricing for the products of the metallurgical complex.
  • A computer model of "Izhora Plants," and, separately, metallurgical enterprises.
  • Partially implemented cost reduction program in the metallurgical complex. For example, liquidated the damages in the production of seamless pipes (45% in 1998) and reached 5% of return.
  • Prepared an enlarged financial plan for the period up to 2009 based on projections of sales volumes in key areas of the company.
  • Methodological framework designed and the budgeting system implemented. Simplified the procedure of planning by optimizing the interaction service centers responsible for the preparation and approval of sale plans.
  • Initiation of the formation of the management team, capable of thinking in economic terms to implement the program of restructuring.
  • Created a new unit - Center for Restructuring of the Company - which provides coordination of all services and departments of the company by restructuring outstanding debt and the property complex.    
2. A strategy for development of core businesses

  • The main business of the company:
- Nuclear Engineering
- Manufacturing of machinery for mining companies.
- Special Metals
- The equipment for the petrochemical industry
  • As a priority area for development highlighted the creation of complex services and after sales services provided to buyers of equipment for nuclear power plants
  • A pre-sale preparation and evaluation of noncore businesses: plate rolling mill 5000 (to be used in conjunction with JSC "Severstal"), the production of seamless pipes and mufflers production.
  • On the basis of seamless tubes production is projected a future product-based model of governance.
  • Initiated the creation of business units in the field of production and sales of mining equipment that combines design and marketing divisions.

3. Ongoing integration of "Izhora plants" into the holding company "Ural Heavy Machinery."

  • Cooperation improvement between "Uralmash" and JSC "Izhora Plants," which resulted in improved coordination of current activities and a start of joint development of business strategies in the production of mining equipment.
  • The management system of "Izhora plants" built into the management system of "UMP". 
  • Analysis of the possibilities for the integration of the metallurgical complex "Izhora Plants" into the metallurgical production of "Uralmash"
  • To determine the strategic alternatives of "Izhora Plants" development, the consultants of "ALT" made a considerable range of current activities, in particular:
  • Assessment of the economic viability of the project of manufacturing of the equipment for nuclear power plants in China.
  • Development of an economic model for "Izhora Plants"
  • Evaluation of the production of "auto kits" and drafting a financial plan until 2002.
  • Assessing the economic efficiency of production of rolled steel of various grades at mill 5000
  • Cost-effectiveness analysis of production of seamless pipes
  • Analysis of market prospects for production of metallurgical complex
  • Market Forecast for excavators and spare parts to them.
  • Analysis of the profitability of production forgings.
  • Assessment of the prospects of "Izhora plants" in the market of valves for nuclear power plants
  • Forecast of production of equipment for nuclear power plants.
  • Analysis of the effectiveness of steel units
  • Designing the ideology for the program of restructuring.
  • Assessment of the feasibility of the project for economic development zones "Izhora".
  • Analysis of the wage system.
  • Assessment of the economic viability for the project of creation Izhora Pipe Plant.
  • Others