OREANDA-NEWS. In his interview to the Ukrainian Investment Newspaper InvestGazeta (#19 of May 18 2009) SCM CEO Oleg Popov told about the strategy and plans of the SCM Group, reported the press-centre of SCM.

How much did the Group earn based on the performance indicators of the previous year?
We will be able to say how much we earned at the beginning of the second quarter when we have the Group consolidated reports and the auditor's opinion. According to our preliminary estimates consolidated incomes (revenue) of the Group make about US15 billion. However, this is a preliminary figure and it can change. Let's wait for the audit and then we will be able to announce revenue for 2008 and the consolidated profit. In any case the results of 2008, which all of us will not forget soon, are going to be good as a whole due to the results of the first six months. In the first six months of the year we saw rapid growth in all sectors of the economy and in the second half of the year we experienced a rapid drop.

If talking about SCM only, the company's profit equals to UAH 184 million or US 25 million under the current exchange rate. These are retained earnings.

How did you use the money?
We will use the money on further development of the Group, its new areas: media, real estate and telecommunications. All assets will get a part from this money. The amount is not big. We will also use it to keep the liquidity.

Regarding liquidity: what is the situation with the debt liabilities? What is your current credit burden now?
At first I will tell you about SCM. In February we paid out our liabilities for the first six months of the year 2009. Payments made US 90 million (US 70 million plus interests -Editor's note). The outstanding amount, US 311 million, is due within the next three years. And by the end of this year we plan to pay another US 70 million. These amounts are not of principal importance for SCM. Thus, we feel pretty comfortable with the current credit burden.

As for our holdings, they also keep making payments on their credits. For example, in 2007 Metinvest raised a credit facility for US 1.5 bn. It has paid out more than 20% of this credit facility. The outstanding amount will be paid out within the next three years. As for DTEK, last year they raised a syndicated loan for US 150 million for two years.  As of today they have paid out the first part of the credit facility, more than US 20 million.

Do you keep to the policy of debt payment or debt restructuring?
You can't say “either-or” in this case. The Group takes care of its debt liabilities at due time and in full volume and pays out the interests on credits. As the result we can talk to our investors about debt restructuring, if necessary. Each asset has its situation and we try to find a balanced approach to satisfy our needs and keep the required level of business liquidity to avoid frustration of our creditors'. In particular, FUIB started negotiations on debt restructuring with its creditors. The negotiations are to last for several months and this decision reflects the situation on the market. And the bank will surely pay all the interests on the credits.

How do you fight for liquidity?
The recipe is simple: ensuring expense control, working with debtors and making adjustments to the investment plans. This means we postponed implementation of the projects, which are still in plans.

Which of your assets are the most profitable and which are unprofitable?
I don't think it is practically right to compare the profitability of different assets at some certain period of time. Each asset has its own business cycle. If we look at the metal sector, one or two years ago this area was one of the most profitable ones. 2008 (or the first six months of 2008) was the peak year for mining and metals. This sector can still stay profitable. However, the profit amount has reduced considerably.

Talking about telecommunications, I can say that Astelit is unprofitable considering its net profit. However, EBITDA for the last year was positive. We realize that Astelit requires additional investments and is at that cycle stage when shareholders do not expect high profits. Thus, if we compare telecommunications with mining and metals we will see that it does not generate that much revenue but it has quite a big potential.

The areas of insurance and banks have fallen into a profound crisis. What are you going to do with your financial assets?
Indeed, financial sector belongs to the areas that suffered and are still suffering from the crisis most of all. But from strategic point of view nothing has changed for us. Banking for SCM Group has been and remains strategically important, and our investments in banking are long-term investments. Our banks are stable today and they have a good margin of safety. We believe they do not need shareholders' support and can handle the challenges on their own.

As for insurance companies, we believe that this is a good business and we see it in our portfolio in the long term perspective. Just recently we have increased the Statutory fund of ASKA; and in the future we plan to increase the Statutory fund of ASKA-Life. Such actions are aimed at ensuring the liquidity of our insurance assets.

Now many owners are willing to sell their enterprises as they can't withstand the challenges of this time. For instance, weren’t you offered to purchase Industrial Union of Donbass, Ilich Steel Plant or Zaporozhstal?
We were not offered to purchase Illich Steel Plant. Once we bought 8% of its shares. We were interested in this plant and we are still interested. It might be very interesting for our Group. The issue is whether such transaction is possible. A few years ago Mr. Boiko did not want to hear about any sale proposals. Now the rumours are about that Vladimir Semyonovich is holding negotiations about the plant's sale and the negotiations are held from time to time both with Russian and global steel companies. But I will repeat again, nobody offered us anything.

As for IUD, it is not possible that they are thinking of selling the assets. They have problems with liquidity. My opinion is based on the fact that they owe us more than US 150 million for the shipped ore. We will take efforts to get our money back as we are not ready to make such presents. I have already mentioned that one of our problems is non payments of the consumers, especially in mining and metals. Still, the problem can be settled and we will keep protecting our interests.

As the result we have obvious consequences: many companies are in poor condition and you can purchase them; and sometimes the price is really cheap. But the issue is not about the price. Now you have an opportunity to acquire companies, which you were not able to purchase a year ago. Or, you can complete the pending transactions.

Just recently we have completed the transaction on the purchase of an American company United Coal. Does the Group plan to keep the strategy of external expansion by purchasing companies abroad?
We completed the UCC transaction on April 30. Negotiations on the transaction lasted for about a year. We realize that now it is the time to purchase. For this reason we are studying all opportunities emerging on the M&A market. And if we have interesting proposals we will be quite aggressive.

Still, we will not acquire just for the reason to invest money into something. If the proposed asset is in compliance with our strategy and the price is not high, then why not to acquire it?   

Can we consider the purchase of United Coal as one of the SCM steps towards New-York Stock Exchange?
You can't consider this acquisition in this way. When we purchased Spartan we did not consider this transaction as a step towards London Stock Exchange. This investment is just another step of Metinvest towards its strategic goal -to become a global steel market player due to vertical integration and leadership in production cost. United Coal has good coal, which is not produced in Ukraine. Together our Ukrainian and American mines will provide raw materials of the highest quality for Metinvest coke and chemical facilities. Thus, our metal companies will get coke of a better quality. As the result the expenses on production of pig iron will reduce and its quality parameters will get better. And steel produced by our Ukrainian plants will have additional competitive advantages: high quality and low cost of production. We will also be able to compete on the steel world market.

As for going to a stock exchange, we set the objective for Metinvest and DTEK to be ready to register the IPO. This means that the corporate governance and business structure administration must comply with the highest world standards. At present we have completed this work. Yet, we have not made any decisions about any of our holdings going for the IPO.

How are you going to deliver the American coal to your businesses in Ukraine, as the project of transhipment point construction in Sevastopol is still on tenterhooks?
You can tranship in Ukraine in other locations too, in Yuzhniy port, I mean the opportunities, which are available today. As to Sevastopol, this is a long-term project, a part of development of the whole port in Sevastopol: we wish to build there a modern complex, like in Japan or the Netherlands. The port in Amsterdam lies in the very city centre. It's not just a port but one of its attractions. I think that all ports in Ukraine, not only in Sevastopol, will transform and become not worse or even better than the most advanced global ports. As to our project, it has reached to document preparation stage.

Is the Group set to bid for state-run facilities? For which of them would you bid?
Frankly, I am not sure that privatization will be on in 2009. The reason is that the Western investors have turned down on Ukraine, while the domestic ones appear not to have enough money to buy anything. Yet we will take an active part in privatization. Firstly, SCM is interested in the businesses, which meet our core operation areas.

In power industry it is Dneproenergo. If the state-owned holding is offered for sale and we are happy with the conditions, we will bid. As to telecoms, privatization of Ukrtelecom has been talked about for a decade. This year will mark an anniversary. Therefore, we will discuss the point only after the company has been put to sale.

For example, the government has nothing more to sell in mining and metals.

Are you satisfied with the current distribution of shares at Dneproenergo? Or will you try to increase your presence at this plant?
Of course, we are interested in increasing the presence. If the government puts its share on sale, we will consider the possibility of buying it. As to distribution of shares today, if something is good for the company, it is good for us as a big though minor shareholder (today DTEK owns some 45% of shares, while the government controls 50% + 1, - Editor’s note).

The situation has been stable at the enterprise with the government and minor shareholders being able to take part in management of Dneproenergo. The company is not on the verge of bankruptcy any more. It can properly operate amid the crisis. The government and other shareholders will get dividends before June. We can, at last, provide the company with DTEK's managerial expertise.

As you know, it happened only after the meeting of Dneproenergo in March, when representatives of DTEK joined the Supervisory Board of the company. If the company hadn't been brought to paralysis in 2008, it would have shown no losses and would have had more opportunities to enter the crisis with a solid reserve of strength.

Although court proceedings are not over, they won't impede proper operation of Dneproenergo, I hope. We've got a huge work ahead. And we are ready to keep investing in Dneproenergo at least UAH 1.1bn in addition to the UAH 1bn, we've invested so far.

Do you have plans to bid to privatize other assets in the national power industry?
It is hard to call it plans... We'll see what is on sale, conditions and price ... We'll think and decide. If the assets put to sale meet our strategy and our business, we will make a bid... By the way, this doesn't refer only to power assets.

How much are you ready to spend on acquisition of assets this year?
It is hard to determine the amount we can invest to buy assets today. Indeed, we need to know first how much they cost. But to determine their value, we will have to enter the transaction process. Besides, there are different sources of resources. As to acquisitions in Ukraine, we will, certainly, have to rely only on our own funds. At least, until the global situation changes and the banks trust Ukraine again. If we buy anything abroad, we can raise external funding too. Our investment in future acquisitions will depend on combination of all these factors.

The industrial structure of SCM is, mostly, based on mining and metals sector, which strongly depends on the global market conditions. Perhaps the business should be diversified by reducing the specific weight of M&M?
We've wished to diversify our business for long. Yet the desire is not aggressive, but well-balanced. You can easily send a part of the M&M business and take the money to buy something else for your portfolio, which you don't know and even like - just to meet the diversification objective. But we don't want that. We are diversifying in another way - develop new areas, which have been delivering results. For example, we've been extensively expanding our power business over the past three years. Today DTEK is a good and strong business leading its industry.

In other words, we are not going to develop new business areas...
Today we've got six of them: mining and metals, power, finance, telecommunications, real estate and media. We are and will be developing each of them. Nothing has changed for the long term.
At the same time we try to enter new business areas, and "probing into them" try to invest not much. For example, this refers to retail. We believe this business has a huge potential for growth despite the crisis. Therefore, we will develop it actively even during the today's times affecting the industry.

As to your telecom assets... we were reported to be selling Vega. Is it true?
You can't say yes or no. Vega is being in the spotlight, which is obvious, as it ranks as the biggest private provider. The company is being considered for acquisition and partnership. We talk to people, negotiate and think... But no decision has been made so far. 

How are you going to develop your media assets?
Although the TV commercial market has slumped this year, we are still interested in TRK Ukraina. Novyny channel is running in a test mode. It will be ready to go on air and present its projects late in 2009 - early 2010. Futbol channel has been broadcasting full time.

Also, the media group based on TRK Ukraina and focused TV channels includes also a company Digital Ventures. This internet holding was founded in June 2008 and runs a number of entertainment channels.

We will definitely develop Segodnya Group. So, SCM will keep on with its media assets.

But Segodnya is cutting jobs...
Why does our country live that badly? Because labour productivity is very low. Any company must be effective to survive, in whatever industry it works: mining and metals, power or journalism. Everything is down to the product quality and labour productivity. Segodnya has a good team, which delivers goals properly. It makes a quality product. There are and will be no inefficient people that can't work well.

Does SCM have an action plan if the situation in the country unfolds by the most negative scenario - e.g. a default or mass unrest?
We are conservatives, but not pessimists (laughs). We haven't got such a plan and don't believe the country will default.

What's your outlook regarding further development of the Ukrainian economy and the industries of our presence?
I don't think that someone would dare to project the future of the Ukrainian economy... The situation is changing very rapidly. But we make our internal forecasts, obviously. Our plans this year provided for inflation of 20% and GDP of 9%. This is our vision of Ukraine's economy in 2009 year in figures.

As to our strategy, our long-term plans remain unchanged. However, the plans for 2009 have been, certainly, adjusted. A short outline of our priorities for this year will include sufficient liquidity of every operating company, realizing new opportunities and being ready to respond promptly to changes in the external environment. So, we won't be just fighting the challenges but turning the situation to good account.

Why has Rinat Akhmetov concentrated 100% of SCM? Was it his initiative or the group development strategy?
It is his personal family business. We may not make the shareholder dependent on the company's strategy and have no right to tell him what to do with his shares.

The last question. Are you flying to Istanbul to watch football?
Yes, I am (smiles).