R&P Polyplastic Managing Partner Andrey Menshov summarized the results of Q1 in an interview to Russian plastic industry’s portal Plastinfo. The speaker also told about the company’s work in the face of the coronavirus epidemic and provided his forecasts for the year 2020.
R&P Polyplastic is a leading Russian producer of compound materials, the company is among TOP-10 European compounders. Can you already summarize the results of the first three months of the year?
After finalizing the financial statements, we can say with certainty that this was the best Q1 in the company’s history not only in terms of sales volumes and Ruble revenues but also concerning absolute profits. We managed to ship 22 thousand tons of finished products amounting to 2 billion Rubles with 230 million Rubles of sales profits, which is a certain record for the company.
Stable and well-coordinated work of all segments of the production chain from the supply of raw materials to product sales was the key to our success based primarily on responsible work of each member of our team. Another great contribution to our success was the confidence of our consumers achieved by R&P Polyplastic in over 28 years of manufacturing activities and the attention paid to each customer regardless of its demands.
How did the COVID-19 pandemic affect your Q1 results?
In the first quarter, R&P Polyplastic was not affected by the shutdown measures because in Russia they were implemented at the latter end of March. For this reason, our customers did not trim sales against the previously coordinated plans. Moreover, we can be proud of new large customers, which came to us in Q1, for instance MOBIS – molder of Hyundai Motor Company, Genesis Motors and Kia Motors. Their production plant is located in Saint Petersburg where our mineral filled compounds under the ARMLEN trademark will be used for production of auto components of the abovementioned brands.
However, I will agree that most likely it was an impetus in managerial decision-making and most of our customers made a decision not to sequestrate their production plans in the midst of beginning pandemic in order to achieve their personal key performance indicators. In a good sense, we managed to take advantage of this situation and satisfy their appetite. Whereby, in April, we encountered serious negative trends of collapsing demand and our sales plan was reduced to 4 thousand tons, which is almost two times less towards previously submitted requests. That being said we did not suspend production operations increasing the stocks of finished products. This decision was encouraged by the status of a systematic company received by R&P Polyplastic in Saratov and Samara regions – our regions of presence.
In Q1 the raw materials market was seriously influenced by decrease of oil prices and as a result – Ruble exchange rate depreciation. What are the main pros and cons for plastics processors from these market characteristics?
It is hard to draw conclusions just yet. The situation is very ambiguous. On the one hand, depreciation of the national currency exchange rate makes our products more attractive to consumers due to a small share of the so called Euro content in commodity costs and processing costs, which are also nominated in Rubles. On the other hand, commodity prices did not compensate oneself for the oil decline and all of its derivatives such as polypropylene and polyamide are still quoted at the same level. However, I would like to underline that at the current moment these factors cannot be considered determining. The main risk today is coronavirus and the uncertainty which we are all facing. The main challenge now is to gain confidence in the future and have an understanding of when will demand recovery start.
R&P Polyplastic produces high-tech polymer materials. A substantial part of these materials is used in the auto industry. According to Russian Statistical Service, national carmakers produced 323 thousand light vehicles, which is 15.8% lower than during the same period last year. Meanwhile in March 111 thousand cars were produced (a 19% decrease). How did these rates influence the company’s results?
The share of auto companies among our customers is indeed very high and amounts to approximately 30%. There are obvious risks of a market decline and by the end of March many carmakers in Russia and around the world had to resort to interruptions of production. Volkswagen, PSA Group and Renault announced a temporary stoppage of their localized Russian plants. Volvo closed their truck plant in Kaluga until the end of April. Sollers Group considered options of putting on hold production of Ford and UAZ cars whereas the country’s largest car manufacturer AvtoVAZ sopped production from May 1 to May 12.
At R&P Polyplastic, we are trying to be rational optimists and rely on measures of government support announced by President Vladimir Putin. Start of sales of cars produced in Russia with a 10% discount and allocation of additional 7 billion Rubles to the program of preferential loaning shall reduce the fall in demand and smooth the negative effect for car manufacturers. Moreover, they were the first ones to start production after self-imposed isolation relief.