19 September 2012
Boris Krasnyansky interview to ‘Invest Gazeta’: ‘The Frontman in the Group’
In his first interview in the capacity of Group DF’s CEO, Mr. Boris Krasnyansky shared with Invest Gazeta the immediate plans and strategic goals of one of Ukraine’s least public tycoons – Dmitry Firtash.
- What makes the position of Group DF’s CEO personally interesting for you? What was your main motivation for accepting this offer?
- My decision was predominantly driven by the magnitude of Dmitry Firtash’s, the group owner’s personality, and by the scale of objectives he has set. I loved working for PwC but it’s not every day that you meet with an opportunity to dramatically change what you are doing.
- Was assets consolidation and management structure adjustment your idea or was it Dmitry Firtash’s personal initiative?
- The concept of assets consolidation and management structure transformation came from the owner and met with support of the group’s management. Subsequently, quite a few people participated in its further elaboration. By the way, when this idea was first voiced, I was not part of the group yet. I do not think, though, that the company had an alternative. Once you have quite a sizeable assets portfolio formed, you start feeling unable to manage all this unilaterally. At the end of the day, what you want to do is go ahead and use universally accepted practices, follow the path of large businesses evolution.
Anyone leading the group is unable to embrace everything going on, no matter how genius he or she is, as there are only 24 hours in a day. In order to have management running efficiently, one has to rely on well-tested and proven-success procedures, mechanisms and processes or else your business will stall. By this token, a business consolidation and transformation allows its owner to concentrate on strategic decision making.
- For how many years is the group modernization strategy designed? When will Group DF be like what Dmitry Firtash wants it to be?
- On the one hand, our program is quite a long-term endeavor. However, building a serious strategy in Ukraine for more than 5 years ahead does not make sense. I would even argue that that it doesn’t make sense in any country as in recent years occasional factors have proved to play a significant role in essentially all markets. It is a fact of life commonly recognized in the medium of people dealing with strategies, by the way.
- Do you factor in political risks? For instance, how will the strategy be affected by elections outcomes?
- Political risks are always taken into account when devising a strategy. They influence a country’s ratings, too.
- How are corporate decisions being approved now? Does Mr. Firtash participate in the Board’s meetings?
- At this time, quite a few decisions are downshifted along the subordination hierarchy. Delegating authority and responsibility is part of the corporate management techniques.
- Are you referring to powers delegation at a Firtash-to-senior-management level? As we observe, this is not the case with a lower-ranking tier. In any event, it seems to us that as recently as a couple of years ago, the management of Group DF’s plants was way more autonomous.
- In an integrated structure of a sector-specific business, e.g. a chemical business, all companies, most obviously, must comply with the common policy – whether in production, or in investment matters, in distribution, in supplies – or else what’s the point of consolidating them? If a plant used to operate as an entirely autonomous company, it would pursue all of its objectives autonomously including supplies, production, markets research; it would independently establish contacts with suppliers and customers, and so on. In other words, when you unite several companies into an integrated business centralizing management, supply and distribution, you have a chance to raise efficiency. And – to a large extent – to make difference in the markets.
- What kind of assets are the core ones and which aren’t, according to Group DF’s vision?
- The core assets include the ones in relation to which the group has a strategic, long-term interest. The ones we do not intend to exit from, the ones we will develop and, possibly, lead them to international capital markets, to stock markets. First and foremost, this is the chemicals business: fertilizers production and titanium. Nadra Bank is also on this list.
Talking about gas distribution, Group DF does have certain assets in Ukraine and is interested in enlarging its portfolio further.
- These days, Gaztech being allegedly affiliated with Dmitry Firtash has been actively acquiring publicly-owned equities in oblgazes (regional gas distribution companies). Is this company associated with the Group, after all?
- I have no knowledge of it. The group however has always acquired assets in the secondary market. The nitrogen enterprises, for instance, had been bought from private owners.
- Do all businesses Dmitry Firtash owns officially belong to the group?
- Group DF may own certain companies in full and may hold equity in others. Or have partners at some enterprises.
- Do all the constituent documents spell it out that the ownership is with Group DF?
- This is a kind of a question that no large business group will answer. Just imagine the number of legal entities involved in any large group – they count in hundreds.
- What other long-term objectives does the group pursue?
- One of our priority imperatives is the expansion of business at the existing core assets. We are looking into acquiring production facilities abroad which refers to both chemicals and titanium businesses. In particular, we have acquired a titanium producer in Italy; the group has interests in India with its massive titano ferrite reserves.
As far as other sectors are concerned: Mr. Firtash has repeatedly spoken about the petrochemical business which is very lucrative for Ukraine. Potentially, it is one of the highest revenue-generating industries but at the moment it is in a very deplorable state. The bulk of the products are being imported even though it could well be manufactured domestically. Plus, this business perfectly fits into Group DF’s value generation chain: for example, we will be able to produce fertilizers packaging which we outsource now.
Another very promising avenue is agriculture. You will know that soon enough Dmitry Firtash will present a greenhouse complex in his native village (Synkiv, Ternopil region – editor’s note) which will be the largest greenhouse facility in Western Ukraine and one of the most advanced ones across Europe. None of Ukraine’ large companies may afford neglecting agribusiness – it is a very profitable sector.
- Will Group DF invest in hi-tech projects in the agro-industrial sector or buy up lands and grow grains?
- Thus far, we are exploring investment options in agriculture. Given our potential of fertilizers and oil products supplies, we see a lot of opportunities.
I think that initially, we will be establishing cooperation with agribusinesses and then will start investing in the sector.
- What is the group’s current share in the fertilizers retail market? Recently, we have heard a lot of comments from the group’s executives talking about reaching out the end-users. Is it a new policy of the company?
- Why not, indeed? Retail features quite high profitability rates and we are very keen to develop this sector. We are putting up a chemical supermarkets network but talking about a market share is too premature at this time – there are simply no serious players out there. In essence, we will be the ones to form this market.
- The State Property Fund will soon offer Crimean TITAN and Sumykhimprom for sale. Will the group participate in the auction?
- It sure will. We are very interested in these assets.
- Is IPO the ultimate goal of the group?
- I think that in about five years some of the individual businesses will be ripe enough for it. It doesn’t mean though that bringing them to a stock exchange is a compulsory objective. Not at all. We know of quite a few business groups that had been considering public offering, planning it carefully but then turned the idea down. Just because markets ceased to be interesting.