2008/272/EC: Commission Decision of 28 November 2007 on State aid C 6/07 (ex N 558/06) planned by Poland for Techmatrans S.A. (notified under document number C(2007) 5616) (Text with EEA relevance)
Date: 2007-11-28
Institutions: European Commission
Subjects: Poland, State aid, aid for restructuring, control of State aid, hoisting equipment, industrial building, technology

L 86/28

EN

Official Journal of the European Union

28.3.2008

COMMISSION

COMMISSION DECISION

of 28 November 2007

on State aid C 6/07 (ex N 558/06) planned by Poland for Techmatrans S.A.

(notified under document number C(2007) 5616)

(Only the Polish version is authentic)

(Text with EEA relevance)

(2008/272/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
Community,
and in particular
Article 88(2) thereof,

establishing the European
subparagraph of
the

first

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to those provisions (1),

Whereas:

I. PROCEDURE

By letter dated 21 August 2006, Poland notified the
Commission of the planned restructuring aid for Tech-
matrans. Poland provided the Commission with further
information by letter dated 14 December 2006. By letter
dated 21 February 2007,
the Commission informed
Poland that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of the
aid for Techmatrans. The Commission decision to initiate
the procedure was published in the Official Journal of the
European Union (2). The Commission called on interested
their comments and received no
parties
comments from interested parties. The Polish authorities
submitted further information by letters of 10 April and
24 July 2007.

to submit

II. DETAILED DESCRIPTION OF THE MEASURES

The Beneficiary

Techmatrans
engineering
company created in 1972. It employs 112 workers. In

a 100 % state-owned

is

(1)

(2)

(1) OJ C 77, 5.4.2007, p. 43.
(2) See footnote 1.

2006 the company's turnover amounted to PLN 8,1
(EUR 2,0) million and the balance sheet totalled PLN
6,3 (EUR 1,6) million. With these figures the company
meets the SME thresholds, however due to the State
ownership it is classified as a large enterprise. It does
not belong to a larger business group.

and modernisation of

The company's main activities are providing repair,
service
technology
systems as well as supply of new lifting transport tech-
nology systems for industrial plants of the automotive,
metallurgical and construction sectors. The company has
a low market share on the Polish market (0,2-1,0 %) and
an even lower market share on the European market.

transport

Since 2002 the owner and the management of Tech-
matrans have made efforts to privatise the company. In
July 2005 in reply to the invitation to buy between 51 %
company’s
and 85 % of
two bidders
submitted offers. No negotiations were launched and in
September 2005 the procedure was terminated. The
Polish
the
procedure was stopped.

explained why

authorities

shares,

have

not

the

(3)

(4)

(5)

Techmatrans is based in a region eligible for aid under
Article 87(3)(a) of the EC Treaty.

The company's difficulties

(6)

company

incurred
Between 2000 and 2004 the
cumulated net
losses amounting to PLN 7,7 million
and own capital fell from PLN 11,2 million in 2001 to
PLN 4,0 million in 2004. In 2005 the company made a
profit of PLN 277 000, however in 2006 the company
made losses again, amounting to PLN 1,1 million.

(7)

(8)

(9)

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Official Journal of the European Union

L 86/29

As the main reasons for the difficulties the Polish auth-
orities mention a lack of orders,
low profitability of
contracts performed, and high costs of employment
restructuring.

(14)

Techmatrans admits that the difficulties are caused by
internal deficiencies: low level of production technology
compared to competitors, poor production management,
poor quality and low technical level of products, and old
and obsolete assets (on average production assets are
90 % depreciated). In fact since 2001 no major moder-
nisation or even replacement
investments have been
implemented.

Certain restructuring measures have been already imple-
mented. Overheads have been reduced: the company's
activity was concentrated on one localisation, which
reduced the costs of maintenance and operating costs;
part of the redundant assets were sold in 2004, and
employment was reduced from 133 workers in 2003
to 112 in 2005. As a result,
the company made a
small profit in 2005. The employment restructuring is
considered to have been accomplished, and so no further
employment reductions are planned.

Due to the lack of funds the marketing activity of Tech-
matrans is limited; accordingly, the company's current
companies with
consists mainly of
customer base
Its
which Techmatrans has
liquidity
the
have
problems
company's situation.

cooperated previously.
exacerbated

further

(10)

The company's liquidity indexes are too low to raise
the
long-term loans on the market. Due to losses
equity of Techmatrans has decreased by 65 % since
2001, while the company was unable to take on long-
term debts. Accordingly, around 30 % of operations are
financed by short-term liabilities in respect of suppliers
or public authorities.

(11)

(12)

The restructuring

The planned restructuring consists mainly in assets
restructuring. The restructuring plan envisages significant
investments
in production assets: purchase of new
machines, know-how and licences and modernisation
of
these investments is to
increase the production efficiency and extend the range
of the company's products.

IT systems. The aim of

to lower

In order
purchase new vehicles and modernise
water and energy supply systems.

the costs the company plans to
the heating,

(13)

The planned capital injection will stabilise the financial
situation of the company and improve financial indices.

(15)

In order to lower fixed costs and accumulate capital for
restructuring, Techmatrans plans to sell the redundant
assets: real estate in 2007, redundant stocks (over one
year old) and old machines and cars during the restruc-
turing period, when the new ones are bought. The
market value of the real estate according to an inde-
pendent expert is between PLN 1,8 million and PLN
3,1 million, depending on the method of evaluation.
the planned
Therefore
company assumed that
revenue from the real estate sale should amount
to
PLN 2 million. As for the sale of stocks, it is assumed
that the revenue will amount to 25 % of the book value,
i.e. they will amount to PLN 100 000. The estimated
revenue from the sale of cars and machines amount to
PLN 100 000.

the

(16)

In addition, Techmatrans secured a merchant credit of
PLN 110 000 with a longer repayment deadline than
usual on the market. Poland has
also proposed
considering the profits made by Techmatrans in 2005
as an own contribution.

(17)

Restructuring costs according to the notified restruc-
turing plan amounted to PLN 5,35 million, PLN 2,8
million was planned to be financed from the state aid
and the remaining PLN 2,55 million was supposed to be
financed by Techmatrans.

(18) As regards the compensatory measures,

the company
planned to cease one of its activities, i.e. design of tech-
nological transport control systems. The control systems
would remain part of
their
design would be commissioned from other companies.

the company's offer, but

L 86/30

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Official Journal of the European Union

28.3.2008

(19)

(20)

(21)

(22)

(23)

(24)

The measure

The notified aid consists of a capital injection from the
state-owned Industrial Development Agency (IDA) to an
amount of PLN 2,8 (EUR 0,7) million. The legal basis for
the capital injection is the Commercialisation and Priva-
tisation Act of 30 August 1996 (3).

The current owner — the State Treasury — will reduce
the share capital of Techmatrans in order to cover the
losses incurred in 2001-2004. Then the company will
issue new shares, which will be bought by IDA, which
the Techmatrans
in this way will acquire 41,5 % of
shares. The injected capital will be spent on investments.

In addition to the above notified measure, the Polish
authorities have informed the Commission that Tech-
matrans had received state support in 2004 and 2005
in the form of arrangements for debt repayment
in
instalments. The support was granted as de minimis aid.

III. DECISION TO OPEN THE FORMAL INVESTIGATION
PROCEDURE

The formal
investigation procedure was opened as the
Commission had doubts that the planned restructuring
aid complied with the Community Guidelines on state
aid for rescuing and restructuring firms in difficulty (4)
(hereinafter ‘the Guidelines’).

to

sufficient

the Commission had doubts that

the envisaged
First,
long-term
restructuring was
viability. The projected profit margin was
so
presumably it would have not been acceptable for a
private
company's actual
situation in 2006 was much worse than projected, so
the restructuring plan had to be updated.

In addition,

investor.

restore

low,

the

Second, the proposed own contribution was lower than
required by the Guidelines. Moreover, certain measures
proposed as an own contribution raised doubts as
compliance with the Guidelines. The
regards
restructuring costs also seemed to have been underes-
timated. As such, coverage of restructuring costs by the
real own contribution was probably even less smaller
than indicated.

their

(3) According to Article 56(2) of the Act, 15 % of the yearly profits
from privatisation and the accumulated interest is transferred to the
Entrepreneurs’ Restructuring Fund. The Fund’s assets are used for
in difficulty. According to
firms
rescue and restructuring of
Article 56(5) of the Act, the State Treasury increases the capital of
ARP S.A. by an amount equal to 1/3 of the income of the Entre-
preneurs’ Restructuring Fund for the purpose of supporting the
rescue and restructuring of large companies in difficulty, including
the ones to be privatised.
(4) OJ C 244, 1.10.2004, p. 2.

(25)

(26)

(27)

(28)

(29)

(30)

regards

the Commission had doubts as

the
Finally,
the compensatory measures
economical rationality of
proposed. The activity which was
supposed to be
ceased seemed to be technologically more advanced
and more profitable than the company's other activities.
company’s
This
industrial strategy.

also raised doubts

regarding

the

IV. COMMENTS FROM POLAND

in the

First, Poland did not share the Commission’s doubts
surrounding the future profit margins envisaged by the
company
restructuring plan. Evidence was
provided to show that a profit margin of around 2 %
to 4 % is typical
in the mechanical engineering sector
for similar companies producing technological transpor-
tation systems like Techmatrans. Poland presented an
example of a successful company listed on the Polish
stock exchange, which is active in the same market
segment and achieves similarly low profit margins.

enabling effective

The Polish authorities stressed that the planned capital
injection is supposed to be a temporary support
for
the
restructuring of
Techmatrans
company and its successful privatisation in 2009/2010.
Poland emphasised that
IDA's participation in the
company was planned purely as a temporary investment
and that both IDA and the State Treasury would sell their
shares in Techmatrans once the situation of the company
had improved.

The Polish authorities noted that significant restructuring
measures, such as reduction of employment, reduction of
overheads and organisational restructuring with a long-
term impact on the results of the company had already
been implemented in Techmatrans.

The Polish authorities submitted an updated restructuring
plan of Techmatrans. The financial projections have been
corrected taking into account the results achieved by the
company in 2006 and including repayment of the rescue
loan.

Poland noted that the company managed to obtain addi-
tional private financing in the restructuring period. Tech-
matrans signed agreements with banks on its receivables
discounting (on 19 July 2006 and 27 March 2007). On
the basis of these agreements the bank takes over Tech-
matrans’ receivables which are due in less than 90 days,
while immediately paying out cash to Techmatrans.
Poland argues that this financing has a similar effect to
revolving credit and should be considered as an own
contribution of Techmatrans.

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Official Journal of the European Union

L 86/31

V. ASSESSMENT

1. State aid within the meaning of Article 87(1) of
the EC Treaty

some of the typical characteristics of such companies,
such as mounting debt or falling or nil net asset value.

(31) Article 87(1) of the EC Treaty declares any aid granted by
a Member State or through State resources in any form
whatsoever which distorts or threatens to distort compe-
tition
the
certain
production of certain goods and affects trade between
Member States incompatible with the common market.

undertakings

favouring

by

or

(32)

(33)

The capital injection of PLN 2,8 (EUR 0,7) million will be
paid by the state-owned Industrial Development Agency
(IDA) from a fund created by law and financed through
public revenue and thus from State resources.

Techmatrans competes with other European companies
on the Polish and EU market. The criterion concerning
the impact on trade within the Community is therefore
fulfilled.

(34)

Therefore, the above-mentioned measure is considered to
be state aid within the meaning of Article 87(1) of the
EC Treaty.

(35)

The measures received by Techmatrans as de minimis aid
in 2004 and 2005 do not
the criteria of
Article 87(1) of the EC Treaty and therefore will not
be covered by these proceedings in accordance with
point 69 of the Guidelines.

fulfil all

(36)

2. Derogations under Article 87(2) and 87(3) of
the EC Treaty

the aid concerns the restoration of

The exemptions in Article 87(2) of the EC Treaty do not
apply to the present case. As to the exemptions under
Article 87(3) of
since the primary
the EC Treaty,
the
objective of
long-term viability of an undertaking in difficulty, only
the exemption of Article 87(3)(c) of the EC Treaty, which
authorises state aid granted to promote the development
of certain economic activities where such aid does not
adversely affect trading conditions to an extent contrary
to the common interest, can be applied. Therefore, the
aid can only be considered compatible on the basis of
Article 87(3)(c) of the EC Treaty if the conditions laid
down in the Guidelines are respected.

2.1. The eligibility of the company

(37)

The Guidelines consider a firm to be in difficulties if it is
unable to recover through its own resources or by raising
the funds it needs from shareholders or borrowing and
without the intervention of public authorities will almost
certainly go out of business. The Guidelines also list

(38)

(39)

(40)

(41)

(42)

(43)

Techmatrans has to be considered as a ‘firm in difficulty’
within the meaning of the Guidelines. In the last 5 years
Techmatrans has lost more than half of its equity and has
made losses both on sales and its net result. The accu-
mulated losses in the period 2002-2004 totalled PLN 7,3
(EUR 1,9) million. In the same period sales went down
from PLN 15,7 (EUR 4,1) million (in 2001) to PLN 8,5
(EUR 2,2) million (estimated for 2006), i.e. by 46 %.

In the period 2001-2005 the working capital fell from
PLN 7,7 (EUR 1,9) million to PLN 2,3 (EUR 0,6) million.
In the same period the share of stocks in the working
capital grew from 16 % to 38,5 %.

In view of the above, the Commission considers that
Techmatrans qualifies as a ‘firm in difficulty’ within the
meaning of the Guidelines and is consequently eligible
for restructuring aid.

2.2. Restoration of viability

to analyse in detail

In order for a measure to be deemed compatible with
Community law under points 34-37 of the Guidelines,
the restructuring plan has
the
problems which have led to the difficulties and set out
the means by which to restore the long-term viability
and health of the firm within a reasonable timescale.
This has to be done on the basis of realistic assumptions
as to future operating conditions. The expected return on
capital must be enough to enable the restructured firm to
compete in the marketplace on its own merits.

In the opening decision, the Commission raised doubts
as to whether the planned restructuring was sufficient in
order for Techmatrans to achieve viability and pointed
out that the restructuring plan needed to be updated and
completed. With the additional
information submitted
following the decision to initiate the formal investigation
procedure,
the Polish authorities have allayed these
doubts as regards restoration of viability.

Firstly,
the poor results generated by Techmatrans in
2006 have been duly explained. As the notified capital
injection had to be postponed, the company, faced with
liquidity problems, started to require advance payments
from its clients amounting to 40 % of
the value of
orders. As a result, a considerable number of orders
was lost. Once the company had managed to improve
its liquidity in the second half of 2006,
its results
improved significantly. The restructuring plan has been
updated accordingly,
the results
recorded by Techmatrans in 2006.

taking into account

L 86/32

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Official Journal of the European Union

28.3.2008

(44)

Secondly, as regards the Commission's concerns with
respect to the low level of the expected profit margin
of 3 % at the end of the restructuring period in 2010, the
Polish authorities explained that such a level of expected
profit margin corresponds to the situation in the sector,
where margins oscillate between 2 % and 4 %. Examples
of private companies active in the same sector and
generating similar profit margins have been presented,
including one company listed on the Polish stock
exchange.

(45) A more detailed analysis of the situation in the market
segment in which Techmatrans is active confirmed that a
relatively low profit margin is typical
for companies
producing and providing services for the automotive
industry, as the margins are squeezed by clients with a
strong negotiating position. Therefore the projected level
of return is justified.

(46)

(47)

(48)

company

restructuring activities

consist mainly of new
The
investments which should allow the
to
exploit its potential in the long run (and which, in the
short-term, by increasing depreciation, have a negative
restructuring
impact on the net
restructuring, partial
measures,
restructuring
assets
and organisational
have been already implemented. Finally,
the company
has no significant debts to repay, and all the restructuring
aid will be spent on improving productivity and compe-
titiveness.

such as employment

result). Significant

restructuring

The mechanical engineering industry is an industry with
predominantly small and medium sized companies,
mainly because products are customised and sold in
cyclical which requires
small batches. Demand is
In many
companies to flexibly adjust their capacities.
cases products are know-how based and long-standing
experience is necessary. Techmatrans seems to be a
company which meets these requirements and the imple-
mentation of the investment program envisaged in the
restructuring plan should ensure restoration of long-term
viability.

Finally,
the Polish authorities plan to privatise the
company in 2009/2010 following the restructuring
process. This should additionally secure the position of
the company in the long-term perspective. Market belief
in the company has already been demonstrated in 2005
when two potential investors expressed their interest in
acquiring it (the negotiations, however, did not lead to a
successful privatisation at that time).

(49) Having analysed and verified the above explanations and
in particular the investment
this

the planned restructuring,
programme,

the Commission considers

that,

if

is

implemented, Techmatrans

should
restructuring
achieve viability in the long term. On the basis of
the
these elements,
implementation of
lead to
restoration of viability.

the Commission concludes

the restructuring plan will

that

(50)

(51)

(52)

2.3. Aid limited to the minimum

Pursuant to points 43-45 of the Guidelines, the aid must
be limited to the minimum necessary and the beneficiary
is expected to make a significant contribution to the
restructuring from its own resources or from external
financing. The Guidelines clearly indicate
commercial
that a significant part of the financing of the restruc-
turing must come from own resources,
including the
sale of assets not essential to the firm’s survival and
from external financing at market rates.

The own contribution to cover the restructuring costs of
Techmatrans will come from asset sales: sale of real
estate (PLN 2 million), stocks (PLN 0,1 million) and old
In
cars and production machines (PLN 0,1 million).
addition
longer-term
has
merchant credit of PLN 0,11 million.

Techmatrans

secured

a

In addition Techmatrans has obtained receivables
receivables to be
discounting. The expected total of
discounted in 2007 amounts to PLN 3 160 000. This
estimate is based on the agreements on receivables
discounting already signed with banks and clients.
Assuming that the expected shortening of the payment
period would be similar to the effect achieved in 2006
(80 days), the financing achieved on this basis in 2007
should have an effect equivalent
to the long-term
financing of
PLN 702 000 (PLN 3 160 000 × 80
days/360 days).

(53) As Techmatrans acquired this financing at market rates,
while being in difficulties and before state aid was
awarded, the Commission considers that it is justified
to assume that similar financing will be available to the
company for the whole period of restructuring and under
financial conditions which are at least as good. Therefore
the Commission considers that
this financing can be
accepted as an own contribution within the meaning of
the Guidelines.

(54)

The restructuring costs according to the updated restruc-
turing plan would amount
to PLN 5,959 million
(investments: PLN 5,359 million, repayment of rescue
loan: PLN 0,6 million). The own contribution to
financing
to PLN 3,012 million
(revenue from the sale of assets: PLN 2,2 million,
longer-term merchant credit: PLN 110 000, receivables
discounting: PLN 702 000).

amount

should

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Official Journal of the European Union

L 86/33

The own contribution of Techmatrans to the overall
restructuring can be considered the maximum possible
and equal to at least 50 % of restructuring costs which is
in line with the Guidelines. The Commission can
therefore accept the level of the own contribution.

(60)

(55)

(56)

2.4. Avoiding undue distortions of competition

Pursuant to points 38-42 of the Guidelines, action must
be taken to mitigate as far as possible any adverse effects
of the aid on competitors. The aid must not unduly
distort competition. This usually means limiting the
company’s market share at the end of the restructuring
period. The compulsory limitation or reduction of the
company’s share of
the relevant market represents a
compensatory factor in favour of
It
should be in proportion to the distortive effects of the
aid and to the relative importance of the firm on its
market or markets.

its competitors.

(57) According to point 56 of the Guidelines, the conditions
for authorising aid are less stringent as regards necessary
compensatory measures in assisted areas. When analysing
the consequences of the restructuring aid on the market
the Commission has taken
and on the competitors,
account of the fact that Techmatrans is located in an
Article 87(3)(a) of the EC Treaty assisted area.

(58) As for compensatory measures, the doubts surrounding
the measures proposed
the economical rationality of
raised by the Commission in the opening decision have
to cease activities
been allayed. Techmatrans plans
connected with the design and sale of
technological
transport steering systems because outsourcing in this
field will be more rational
than in others where the
company is active. Contrary to the company's other
activities, subcontracting of this activity will not neces-
sitate passing on to potential competitors the specialist
knowledge inherent in the company's core activity. In
addition,
require
significant adjustments to be made within the company.

activities will not

ceasing

these

(59)

The activity which Techmatrans plans to cease is profi-
table, and therefore the resignation is not motivated by

viability concerns. In recent years this activity generated
between 5 and 8,6 % of Techmatrans’ revenue.

The Commission notes that the market share of Tech-
matrans is low, that it is in terms of size an SME (while
formally not qualifying as an SME because it is State
owned) and that
the planned aid is
the amount of
rather limited (EUR 0,7 million). Therefore the distortion
of competition that the compensatory measures aim to
insignificant. The Commission therefore
address
considers the proposed compensatory measure to be
sufficient.

is

VI. CONCLUSION

(61)

The Commission concludes that the notified state aid in
favour of Techmatrans for the implementation of the
above-mentioned restructuring process can be deemed
compatible with the common market,

HAS ADOPTED THIS DECISION:

Article 1

The state aid which Poland is planning to implement according
to the restructuring plan of Techmatrans, amounting to PLN
2 800 000,
is compatible with the common market within
the meaning of Article 87(3)(c) of the EC Treaty.

Implementation of the aforementioned aid of PLN 2 800 000 is
accordingly authorised.

Article 2

This Decision is addressed to the Republic of Poland.

Done at Brussels, 28 November 2007.

For the Commission

Neelie KROES
Member of the Commission