Банкеръ Weekly



The Executive Director of Bulgartabac Holding Georgi Kostov has tried to convince both mass media and Economy Minister Roumen Ovcharov that the financial state of domestic tobacco factories is very healthy. It seems Mr. Ovcharov has waited for these words in order to say louder and clearer: As you know I am not an upholder of privatisation. Anyway, he did not miss to note in front of journalists on November 1 (after a visit to the Sofia BT cigarette factory) that time was needed in order to hold a series of meetings during which the strategy would be specified. He confirmed that no political decisions about Bulgartabac's future have been made so far, but that should be made until the general meeting of the company's shareholders, scheduled for December 14.
However, it is already clear what could be expected. Even Georgi Kostov voiced a stance that the holding's divestment was not desirous next year. According to him, the cigarette factories should be first restructured and some processing enterprises rehabilitated first of all. It is not known how long the restructuring will take and how it would be financed. Even if we presume that the State is a good owner, it would be hardly able to vie with companies such as Philip Morris and British American Tobacco, which have settled in Bulgaria's neighbour countries.
According to Todor Nikolov, Executive Director of the Privatisation Agency (PA), the delay of Bulgartabac Holding's divestiture (and mostly of its major factories: Sofia BT, Blagoevgrad BT, and Plovdiv Yuriy Gagarin BT) will turn it from a profit-maker into a doomed company). He believes the price is too high in order to venture making experiments. Fixed prices of cigarettes as of 2006 would hardly guarantee the financial stability of the tobacco holding. Such a decision was made by the parliamentary budget commission, which approved on second reading last week the bill of excise duties and tax warehouses. Importers and producers are now free to set themselves the prices of tobacco products. Mr. Ovcharov specified that the measure of fixing tobacco products' prices is temporary, but it did not become clear till when it would be in force. This is a protectionist measure against the dumping import of cigarettes like Marlboro, Kent, Viceroy, etc., which according to Mr. Ovcharov would compromise the holding's good results. And they, as per the reports of the tobacco factories, are not due to higher sales. Moreover, experts recall that an enterprise is usually privatized when it is prospering financially, and not when it is in a financial collapse.
Bulgartabac Holding's consolidated profit for the first nine month of 2005 totalled BGN73.8MN. It includes the results of 13 processing enterprises (without those of Dulovo BT, Harmanli BT and Vidin BT) and of the four cigarette factories in Sofia, Blagoevgrad, Plovdiv and Stara Zagora. For comparison, it amounted to BGN33.3MN for the same period of last year. According to Georgi Kostov, the improved financial performance was due to the factories' restructuring, carried out in December 2004. Then the enterprises in Shoumen, Pleven, Haskovo and Assenovgrad, were deprived of their licences for production of cigarettes, and Vidin BT was declared insolvent and entered liquidation procedures later on. The contribution of cigarette makers to the realized profit was BGN60MN, up from BGN27MN a year earlier.
Plovdiv BT reported the highest growth of its positive financial result. The company closed the first nine months of 2005 in a BGN11.17MN profit, up from BGN1.28MN a year ago. Part of it (BGN4.3MN) came from sale of assets. The enterprise's proceeds from sale of tobacco products increased from BGN22.2MN to BGN38.14MN. It should be noted that while its sales on the domestic market rose by BGN10MN, reaching BGN29.1MN, its exports went down by BGN1MN and amounted to BGN2.9MN. In fact, such a tendency could be also witnessed in the sales of other cigarette factories, too. Domestic market sales marked a 15% growth this year, while exports shrank by 33 per cent.
The non-consolidated profit of Sofia BT also showed growth. It went up by 48%, reaching BGN13.5MN. This, however, was due to the lower costs (from BGN60.6MN to BGN53.7MN) as the total proceeds dropped from BGN71.5MN to BGN70.1MN. The company has long-term liabilities of BGN4.6MN, of which BGN2.8MN to Bulgartabac Holding.
Blagoevgrad BT has also increased its non-consolidated profit, at that twice - from BGN16.3MN to BGN32.8MN. The improved financial result of this enterprise was also due mostly to the lowered operational costs, which dropped by BGN14MN and totalled BGN118.5MN. But its sales proceeds shrank by BGN3MN to BGN143.3MN. The company's long-term liabilities for the 9-month period were BGN24.7MN.
The cigarette factory Sluntse Stara Zagora was in the worse financial shape. Although it reported a profit for the first three quarters of the year, it should be born in mind that its overdue liabilities amounted to BGN730,000 and its costs for depreciation of property, equipment and investments totalled BGN3.9MN.
Plovdiv Yuriy Gagarin BT is another company, expected to bring fairly good revenues to the State if sold out. Its net profit rose from BGN3.5MN to BGN3.7MN in the first 9-month period of 2005. That was as a result of reintegrated provisions to Plovdiv BT, amounting to BGN1.2MN. Its sales proceeds dropped by BGN1.5MN to BGN32.9MN.
The enterprises for production and processing of tobacco posted an aggregate balance sheet loss of BGN4.6MN in the first three quarters of the year. The losses from the same period of 2004 amounted to almost BGN6MN. Their aggregate proceeds from sales shrank considerably, too - by 57 per cent. The lower losses were foremost a result of the sales of assets and the assistance received from the fund for financing the social costs from the privatisation of Bulgartabac Holding. Only three of the processing enterprises posted profits: Pleven BT, Dulovo BT, and Assenovgrad BT.
Pleven BT AD made a profit of BGN96,000 for the first nine months of 2005, down from BGN996,000 year-on-year. Its sales proceeds dropped by 13.77% to BGN17.8MN.
Assenovgrad BT succeeded to net a BGN81,00 profit, while it posted a loss of BGN596,000 a year earlier. However, it was not a result of increased sales either (on the reverse, they decreased by as much as 82.44%), but of reduced aggregate expenses by 43.16% to BGN2.7MN.
Shoumen BT reported a BGN745,000 loss for the first nine months of the year, while it had posted a BGN57,000 profit for the same period of 2004. Its sales proceeds melted dramatically - from BGN4.6MN to BGN848,000. The reason for that drop was the company's revoked licence for the production of cigarettes. But its operational costs also went down considerably and amounted to BGN1.8MN. The sales proceeds of another enterprise whose licence was revoked - Haskovo BT - melted too - from BGN8.9MN to BGN1.8MN. Despite of that, its loss decreased from BGN1.3MN to BGN1.08MN.

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