New life for Ljig-based Livnica - Adopted reorganization plan brings full capacity production and drastic downsizing

After a strike due to unpaid salaries, after debts to suppliers of raw materials and Tax administration, Livnica Ljig can finally relax. Recently adopted Reorganization plan is likely to bring the company back to life.

The plan anticipates that accumulated debt of RSD 140 mil should be returned practically to two groups of creditors.

The first one refers to unsecured, commercial creditors, mostly suppliers for goods and buyers who paid in advance.

- They agreed to a very serious program which implies repayment of debt in 10 years. 10% will be paid in the first two years with minimal interest rate, the next two will be grace period and after that, debt shall be paid in six years time - Milan Marinkovic, partner in WM Equity Partners, the consulting company which produced the Reorganization plan for Livnica Svrljig, says for eKapija.

Marinkovic explains this reorganization is specific because Tax administration, which basically makes a group of creditors, voted "for" twice when adopting the Plan. Debt to Tax Administration totaling EUR 650.000 and will be settled in line with the legislation. The period implies 2 years of grace period. After that, debt shall be paid within next two years in equal annuities. Interest rate does not exist and the amount will be aligned with the retail price increase index.

Collocutor of eKapija says this way the company will have the opportunity to reorganize within the first two years in a sense it does not have any commitments, only to return two times 5% of the principal amount. Marinkovic says it is not a big sum because the company can accumulate satisfying level of working capital to operate normally.

Although the plan is radical they think Livnica has chances to survive and since it has market, competitive product and already signed contracts.

Competitors are in an inconvenient situation which is good for them, such as Guca which is a part of Farmakom and other companies which are in problems.

Livnica Ljig will have real obligations in two years time when it has a reprogram of tax obligations which the plant should solve in 24 equal annuities.

Although the Plan is radical, its creators think Livnica got the opportunity to survive, since the company has the market, a product competivite both at local and foreign markets as well as already signed contracts.

They are lucky because competitor is facing problem, such as Guca which is a part of Farmakom and other foundries.

Lay offs inevitable

The plant is working with full capacity now but that is not the case with the whole year since the biggest problem of Livnica is that they have a large fluctuation rate with respect to capacity occupation.

The basic problem in the previous period were uncontrolled fixed costs which in cases of the lack of the economy of scope generated losses. " Good example is the fact of letting furnace into operation which costs at least a million dinars so the production less than 60 tons is not profitable, i.e. generates losses. Therefore, in this period Livnica will work with halts in production, therefore lay offs are inevitable.
Therefore, in the first stage of the implementation of the Reorganization plan, Livnica will function with significant halts in business. Therefore, measure of laying people is absolutely necessary", the Reorganization plan text says.

Out of 100 staff, 85 should be laid off. However, the management will hire the same number or even more with close end labor contracts i.e. in the period when the factory operates.

Staff with whom labour contract will be terminated will have priority when employing through close-end contracts, the Reorganization plan implies.

- It will not be ideal conditions, the staff will be a month or two without salaries but they will have a job in the remaining ten months. - collocutor of eKapija says.

History

Livnica Ljig was set up in December 1986. It had 170 staff and was one of the rare plants which did not decrease the scope of work, neither during sanction times or bombing. Salary was regular even then, as they say.

Jelena Djelic

Livnica Ljig d.o.o. Beograd

WM Equity Partners doo Beograd

Poreska uprava Srbije

Koncern Farmakom MB Šabac

Reorganization plan of Livnica Ljig

reorganization

Milan Marinkovic

Guca