Net profit at OAO Saturn Scientific Production Association to Russian Accounting Standards fell 36.2% from 755 million rubles in 2003 to 481.3 million rubles last year. Gross profit fell 10% (to 1.63 billion rubles) while consolidated revenue of companies in the association increased a little – 1.5%.

Saturn, set up in 2001, is now one of the largest Russian producers of various types of engines, turbines and gas pumps. The association includes the Lyulkin Scientific Technical Center, a production center (with number of companies, including producers of gas turbine units), the Lytkarinsky plant, service, marketing and other subdivisions. In particular, together with the French company Snecma, Saturn is developing one of the most ambitious projects in aviation- the SaM-146 engine (which should form the basis for the RRJ Russian regional jet). In addition, Saturn owns large stakes in engineering companies – producers of automobile components, jet skis, etc. The company’s charter capital amounts to 3.98 billion rubles (split into 1-ruble shares). The state owns 37% of Saturn, and the remaining shares are distributed among corporate shareholders (including companies with participation by the state, which actually controls the company) and private investors, including company management. Saturn is included in the list of strategic companies in which the state plans to continue to hold a significant stake.

In March company representatives announced preliminary results for 2004, which were more optimistic than the final results. That is, the revenue forecasts were close to the final figures, but the net profit forecasts (that it would be significant higher than in 2003) did not pan out. Saturn did not comment on the reason for the drop in profit. Analysts have their own opinions about this. “Good forecasts for 2004 were not surprising: every company tries to look its best on the eve of an important event such as a bond placement,” Antanta Capital analyst Ilya Makarov told RBC-Daily. “Irkut had the same good forecasts, and they also failed to materialize. In fact, the entire aviation sector turned out to be in not such a good position in 2004, including engine construction, there were disruptions with orders – both domestic and international (Malaysia, etc.) – the contrast is particularly visible with 2003, when the sector experienced a boom.”

At the end of March Saturn placed 1.5 billion rubles in three-year bonds on the MICEX. This was the company’s second foray into the debt market (the first issue, amounting to 500 million rubles, was carried out by OOO Saturn-Invest) Zenit Bank analyst Yakov Yakovlev told RBC-Daily: “The current issue can be considered to be extremely successful for the issuer – more than 100% overbooked and yields to the offer close to the lower level set by the company, indicate high market interest in the papers.” As regards disruptions with orders in 2004, the company spoke of difficulties that arose with the coming into effect of the latest strict ICAO regulations in the EU. After this orders fell at Saturn service divisions, as it is practically impossible to upgrade engines in many domestic planes to meet this standard.

“Saturn, of course, has a good security cushion in the form of orders from other sectors, but the company will only be able to take advantage of this in the future,” Makarov said. “In particular, increased orders from Gazprom for gas pumps is forecast (possibly even this year), but the main growth engine should be the RRJ project, incidentally –a lot depends on its financing and on problems with dividing up funds with serial developers (the Ufa plant),” he said. “From the Russian Accounting Standards report presented it is difficult to judge the reasons for the drop in net profit,” Gennady Sukhanov from CenterInvest Securities said. “In any case, the situation with the order book in 2004 looks good, but it seems that non-sales expenditure has increased,” he said.

“The Russian Accounting Standards report presented, of course, does not give a full picture of Saturn’s operating activity,” Murat Kiyalbekov from Business System Development told RBC-Daily. “An International Accounting Standards report would give more objective figures. But the company’s indicators may change to Russian Accounting Standards also this year: judging by reports for the first quarter, the company is changing its emphasis concerning expenditure. Recently Saturn has spent a lot on research and development: 1.4 billion rubles in 2003, 1.47 billion rubles in 2004 and now, possibly, this expenditure will turn into profit. Growth in the order book should have the same effect, particularly for supplies of equipment for Ivanovo State Regional Power Plant, I think that UES structures may buy Saturn energy equipment in the future, but as regards, Gazprom, there will be a serious fight for these orders – there are a lot of competitors on this market –including Russian competitors,” he said.