Power Engineering - Russia's Power Machines reports earning drop

11 July 2006 - Annual results from Russian power equipment manufacturer Power Machines Group saw earnings drop from $79 to $25m for 2005 while sales revenues edged ahead up $5m to $667m.

Power Machines' portfolio of orders in 2005 exceeded $1.4bn. This is an almost 20 per cent increase compared with 2004. Sales revenues also rose in 2005. At the same time, according to the IAS data, the company had losses, but based on Russian Accounting Standards (RAS) results, the company's profit reached $6.865m. Differences between the company's IAS and RAS results arise from general differences between RAS and IAS. In particular the company's IAS results make provision for potential losses of $27.719m, which could appear in the future in the fulfillment of long-term contracts.

A number of the factors have influenced the company's financial performance. First of all, there are long-term factors relating to engineering services and the supply of complete factory equipment to Wong Bi Thermoelectric Power Plant, Vietnam, and Sipat Thermoelectric Power Plant, India. These contracts, concluded in 2003-2004, had very strict pricing and technical provisions. At the same time the contracts allowed Power Machines to enter the thermoelectric markets of Vietnam and India and then expand its presence in these regions.

Currently the company is negotiating with a Vietnamese customer with regard to the supply of equipment and services for two units with 300 MW capacity and two others with 600 MW capacity. Pricing of the contracts is being calculated on the basis of experience gained on the first project in the country. Moreover in 2005 the company concluded agreements for equipment supply with Playkrong Hydroelectric Power Plant (for $30m), with A Vuong Hydroelectric Power Plant (for $17m, and with Boun Kuop Hydroelectric Power Plant (for $18m).

Entry into the Indian thermoelectric market with Power Machines' newest 660 MWt steam turbine with supercritical steam parameters allowed the company to sign one further agreement for equipment supply with the Barkh Thermoelectric Power Plant. Power Machines succeeded in winning this contract in the face of serious competition from world leaders in the machine building industry such as Alstom, Marubeni-Toshiba and others. Multiple sales of this equipment will raise the company's sales profitability.

Power Machines' shareholders and management are currently developing 5-year and 10-year strategies for the company's development. These strategies envisage doubled sales and production in 2008 in comparison with 2006 and a reduction in the cost of sales. Two aspects have been taken into consideration.

Power Machines companies produced around 70 per cent of the equipment used at Russian electric power plants built in the Soviet era. At the current stage of the Russian electrical energy industry's investment planning Power Machines expects to compete successfully for orders for the supply of the equipment to electricity plants belonging to Russian generating companies.

One of the most important elements of Power Machines' strategy is the development of new models of equipment on the basis of modern technologies being developed jointly with Siemens Corporation, a Power Machines shareholder.

Completion of Power Machines' long-term strategies is expected by autumn 2006.

Add RSS Feed