Paint maker Policolor Bucharest began a restructuring process at the end of last year, in order to boost profits. It closed a productive department and laid off 40% of employees.
Still, until producing the much-desired profit-boosting effects, the restructuring has seriously affected the company's financial situation, as it logged preliminary accounting losses worth more than 1 million euros (39.45bn ROL) last year. Policolor had made 0.8 million euro profit in 2001 and had planned to make 1.5-2 million euro profit in 2002.
The losses that resurfaced at Policolor after two years of balance are due to the 52.7bn ROL (1.5 million euro) provisions deposited by the company for the depreciation of the assets in the department closed and the severance pays to those laid off.
"Had we not made these provisions, which we see as restructuring costs, 2002's financial result would have been similar to that in 2001 (21.72bn ROL)," Marius Golopenta, Policolor general manager said. The company had set 63.91bn ROL as net profit target for 2002.
Another reason why provisions impacted on the final result is the fact that they are not deductible, so that the company had to pay the tax levied on the gross profit before provisions. Which makes the net loss - 39.45bn ROL higher than the gross loss - 27.92bn ROL.
On the other hand, the company did not register too spectacular a turnover performance, as sales remained relatively constant in nominal terms given that the euro, the currency used by Policolor for its calculations gained 25.2% in 2002. Policolor's turnover reached 668.1bn ROL last year, compared with 657.18bn in 2001.
The decision to subject Policolor to an operational restructuring by closing the resins producing department and laying off the staff was prompted by financial reasons, after the company management and the main shareholders came to the conclusion it is cheaper to import resins than to produce them.
"The price of our resins (i.e. Policolor's) is not competitive. One of the reasons is the introduction of high excises on some of the raw materials used for making resins and the long and laborious procedure the producers have to go through just to get these taxes back," the company management at the end of last year said.
Policolor can import resins from Bulgaria, as it controls the main resin producer of the country, Orgachim.
The number of employees has already gone down to 714 from 850 at the moment the restructuring began, with the company planning to keep only 510 employees in the end.
Policolor was privatised in 1997, when two of the largest investment funds in Romania, Romanian Investment Fund (RIF) and Romanian American Enterprise Fund (RAEF) bought the controlling interests.
The erosion of Policolor's market share in its post-privatisation years prompted the two funds to hire an American management company that carried out the first extensive restructuring programme, which also ended in massive layoffs.
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