Initiation the legal protection proceedings
After taking a thorough analysis of the situation and consulting the AS “Rīgas kuģu būvētava”, hereinafter referred to as the Company, council, auditors and lawyers, the Board of the Company decided to submit to the court the request to initiate the legal protection proceedings. The Company believes that the legal protection proceedings is although a very serious, but also the only right measures to get out of the complex conditions that have arisen under the influence of various recent developments.
One of the main factors contributing to the current circumstances is situation in the financial environment. Unfortunately, in Europe, and especially in Scandinavia, there is a great deal of disrespect for Latvia’s credit institutions – mainly with local capital. It was followed by a decision of the customers not to accept the guarantees of Latvian banks as collateral, and the customer's uncompleted investment portfolio led the Company to the loss of eight million euros worth orders. Also, the coerced leave of ABLV Bank AS from the Latvia’s financial market caused a significant reduction in the number of existing suppliers of materials and services, negatively affecting the costs of production.
Also, the complicated geopolitical situation affecting our region left very negative consequences. The wave of sanctions has led to a huge drop in freight transport flows in all aspects of transport, including maritime transport. This affected the total number of vessels in the aquatorium covered by the operation of the Company, as a result of which the Company lost 30% of the usual market. Likewise, the mentioned sanctions have also affected most customers’ choices to choose the Company as a repair site, as their flag states prevents ships from docking in Latvia as in a state which applies sanctions. Due to this factor in 2017 the Company lost its orders worth six million euros, not counting unplanned repair work orders. Of course, the seasonal nature of the industry must still be taken into account – the abovementioned events made it much more difficult to overcome the winter season of 2017/2018.
All of the above mentioned factors caused a decrease of current assets and forced the Company’s management to take unpopular measures, including shortening the working day to most of the Company’s employees. However, both for human considerations and in the hope that the ship repair works will continue with the opening of the spring and summer seasons, despite the difficulties, the management of Company did not perform mass dismissal, acknowledging that it will subsequently face labour force shortages afterwards. It should also be noted that the existing normative regulatory framework significantly restricts the options to attract foreign labour forces.
Unfortunately, the difficulties encountered have caused delays in various payments.
Company is thankful to the State Revenue Service and the State Labour Inspectorate for the shown understanding and cooperation in solving current problems. Company emphasizes that it does undertake to comply with its obligations towards its employees, the state and its creditors. For all last years the Company has fulfilled its obligations – every year at least two million euros were transferred to the state budget in the form of tax payments, while the wages to the Company’s employees has always been significantly higher than the industry average.
Company is one of the oldest commercial companies in Latvia. 20 years ago it was actually rescued from destruction and it has gradually reborn, just like a phoenix. Over the years, shipbuilding has been completely restored, although credit institutions have been reluctant to credit such production, and there was no European Union funding available for developing this sector as well. However, over 400 ships were built during these years, five of which were intended for the Ministry of Defence of the Republic of Latvia. Over the years thousands of ship repair works were performed, and the Board of the Company is working to restore the business to the existing difficulties alike.
Taking into consideration the tendencies, the management of the Company has partially restructured the Company, due to which the monthly expenses have already decreased considerably – even by more than 20%. As a result of the restructuring European and Southern European customers mostly have been set as the primary target market for ship repair. Also other business areas, which may be provided by the resources of the Company, are being actively developed – production of steel constructions, metal pouring and metal working services, stevedoring services, etc.
Currently the Company is performing the repair of number of ships; likewise, new ship repair orders are in the negotiation process right now, including the next one – already in early June. The completion of these orders will establish the cash flow so necessary to the Company, which would allow beginning the fulfilment of delayed obligations.
The Company is convinced that it will be able to restore the Company’s activity, ensure its stability and even increase its competitiveness. However, although the Board of the Company has a clear perspective for the recovery of the Company’s activities, it is already known that it will take time – time to restore the flow of current assets, diversification of production and attract investments. It is also known that during this period of recovery different conditions preventing the implementation of plans arising every day, and therefore the Company has submitted the court the request to initiate the legal protection proceedings. The sole purpose of the measure is to preserve the activities of the Company, to retain its working profile and to establish a situation which will make it possible to completely fulfil its obligations without worries, ensuring the Company’s development in the future. At present, the task of the Company’s management is to develop and submit the Company’s recovery plan to its creditors for approval. Of course, this will require both Company reorganization and personnel optimization, but unfortunately there are no other ways.
The Board of Directors of AS “Rīgas kuģu būvētava”
Ainārs Tropiņš
AS “Rīgas kuģu būvētava”
Mobile 29406461
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