Банкеръ Weekly



Bulgartabac Holding's 2000 consolidated loss is not a big problem, conclude auditors from Ernst Young in their reports, harmonized with the International Accounting Standards. The holding has lost BGN150.348MN, they say. The loss is mainly due to the fact that the company has not been subject to international auditing until 2000. According to the national standards, on the other hand, the company reported a profit amounting to BGN2MN. But why is then the management stressing on this specific loss? Are Georgi Popov and his colleagues trying to highlight slightly higher results for the year 2001 and thus imply they have improved the condition of the holding? Or they want to imply that the former management has left the company in a very poor condition?The six-digit loss is mostly caused by the great depreciation of the fixed assets and the unsold tobacco. It turns out that the balance-sheet value of the land and the buildings owned by the ailing holding subsidiaries has decreased by more than BGN180MN. The reason was that they could not be sold at the price registered in the old accounting reports. At the same time, the balance-sheet value of the assets possessed by the companies in Sofia, Blagoevgrad and other big towns has grown significantly. The growth is not registered in the profit and loss account but appears as a reserve in the balance-sheet. The price increase did not result from a sudden improvement of the real estates market situation in those regions or from repair works in the buildings. The real reason were the reduced balance-sheet values in the previous years. Now things are just being put where they belong. Increased values are registered as reserves, but since there are no previous reassessments and no reserve has been accumulated, the decrease is registered as a loss.Eventually it turns out that, according to the 2000 consolidated balance-sheet harmonized with the international standards, the total value of the fixed assets is by BGN190MN higher than the one written in the balance-sheet based on the national accounting laws. This is also a result from the increased market value of some of the assets and the reduced value of others. However, despite the startling loss of over BGN150MN, Ernst Young even made the balance-sheet value of Bulgartabac assets look better.The same is also valid for the stored tobacco and the small amount of unsold cigarettes. According to the profit and loss account, their total value has lost more than BGN21MN. That is because the market value of unsold tobacco falls significantly every year. Now the holding managers are trying to sell the 12,000 tons at once. A potential candidate is expected to appear by June 1. If no one applies, the tobacco will be sold in parts. It's worth noting that the value of the reserves, when reported in accordance with the international standards, is by BGN150MN higher than the one based on the national accounting legislation.It turns out that the net value of the assets held by Bulgartabac Holding, according to Ernst Young, is BGN362.8MN. That exceeds the previous results based on the national accounting standards by over BGN33MN.In effect, it's impossible to compare the results since this is the first report calculated according to the international standards. That is why the year 1999 cannot be used as a base for comparison. Although the data reflect the condition as of December 31, 2000, they are quite reliable even now, because assets have been recalculated until several weeks ago. Their value will not change much when the 2001 accounting results get published.It should be noted, though, that according to the consolidated budget the company also loses BGN10.7MN from its core activities. But that loss, although smaller, does not result from depreciation.Still, the report of the respected auditing company fails to consider some risks that would bring future losses to the holding. For example, the Russian claims for assets held by Bulgartabac. Ernst Young's report reads that in a letter sent on May 16, 2002 the Bulgarian Ministry of Economy informed that the claim can be defined as unreasonable. The claim laid by Vladimir Putin's administration sounds too general and does not point any specific assets. The balance-sheet does not take into account the risk provoked by the trade-mark disputes in the CIS countries. Problems also arise because of other properties of BGN10.302MN balance-sheet value, for which Bulgartabac is unable to prove ownership. The consolidated budget says nothing about the holding investments in companies in Russia, the Ukraine and Romania. According to the experts from Ernst Young, it's not at all clear whether the company will profit by these investments in the future. All companies outside Bulgaria report a negative net value of assets or operate at reduced capacity.Two of them have not reported economic activity for two years. Therefore, if they happen to be liquidated, Bulgartabac will make no profit. The information provided by the auditors shows that at least 15 of the holding subsidiaries in Bulgaria are facing financial difficulties.

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