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. Last Updated: 07/27/2016

OMZ Posts GAAP Sales of $241M

MTFinancial analysis chief Sergei Nikolayev, Kosolapov and investor relations director Yelena Odyagailo announcing results Friday.
United Heavy Machinery, or OMZ, on Friday released GAAP results showing sales of $241 million and a net profit of $0.34 million in 2000, becoming the country's first machine-building company to publish U.S. GAAP accounts.

OMZ joins a small group of Russian companies with U.S. GAAP financial statements, including most of the oil majors and several mobile telecommunications companies.

Under GAAP, OMZ's sales increased 157 percent in 2000 over 1999, when the company took a loss of $132 million. Under Russian accounting standards, the company saw in 2000 sales of $239 million and a net profit of $11.3 million. The relatively weak results reflect the price of fighting for a strong market position, said a company representative.

OMZ GAAP Results

(millions of dollars)
Sales revenues241.0293.83
Gross profit19.98loss 15.80
Operating loss39.78loss 142.91
Pretax profit5.10loss 151.08
Tax3.53credit 0.34
Net profit0.34loss 132.05
Source: Reuters

OMZ finance director Mikhail Kosolapov said the company plans to list level one American Depositary Receipts in London in 2002. The company has 21.8 percent of its shares involved in the ADR-1 program, which it launched in January. The company plans an eventual ADR-3, equivalent to an initial public offering, but no earlier than 2003.

The U.S. Securities and Exchange Commission requires companies planning to list ADRs to present their financial statements in accordance with U.S. GAAP.

"The advantage [of a GAAP audit] is that the company, with the help of these accounts, can get access to one of the biggest financial markets in the world," said Sergei Ishchouk, audit partner at Ernst & Young, which audited OMZ's GAAP accounts. "The drawback is the higher demands than in other financial markets, that is, higher management accountability and the need to implement accounting and management information systems that would allow information to be provided to investors more quickly and in greater volume than IAS and RAS."

"The results were not particularly strong, but the positive spin is that there is strong underlying growth and the company is expanding rapidly," said Kim Iskyan, analyst at Renaissance Capital. "The next step is to integrate the moving parts to achieve economies of scale and post an operating profit."

Renaissance Capital maintains its strong buy recommendations on OMZ stock.

Other analysts were less bullish.

"We are lowering our recommendations because we are lowering our expectations for sales and operating profitability," said Andrei Kormilitsin, a manufacturing analyst at Troika Dialog. "They forecast sales for the full year of 2001 -- Russian accounting for the sales revenue should not differ strongly from GAAP -- to be about $350 million, which is lower than they previously expected and lower than we expected."

Nevertheless, having a GAAP audit "is clearly a positive factor," said Kormilitsin.

The company provides commentary on all its results, all numbers," he said. "Its disclosure is very good, and this lowers the corporate governance risk. We consider OMZ to be one of the most open companies on the Russian market."

OMZ's order book is about $700 million. According to a OMZ statement, the holding produces 70 percent of the country's drilling equipment, 60 percent of special steels, more than 90 percent of the mining equipment, 78 percent of the metallurgical equipment and about 50 percent of the nuclear power stations.