AmCham Business Breakfast, Tuesday, April 21, 2015, Hotel Lev, Ljubljana
Guests at the AmCham Business Breakfast were:
Gerald Martens, CEO Ring International Holding AG, chief of Helios supervisors. Despite significant challenges in the global market, Helios was restructured successfully
Douglas A. (DAK) Kaye, III, Managing Director at Albaugh Europe Sarl,. Brings development and employment security to the employees of Pinus Rače
Janko Medja, MBA, CEO, NLB d.d., Introduces changes in the system and in the mindset
Matej Runjak, Member of the Management Board, Slovenian Sovereign Holding – SDH, Professionalism and transparency, but also problems due to unclear instructions by the government.
Metod Dragonja, State Secretary, Ministry of Finance of the Republic of Slovenia. Leads the Slovenian privatization strategy formulation.
An in-depth outlook on and search for the right answers will be given by Nevenka Črešnar Pergar, Chair of the AmCham Environment and Spatial Committee.
In her opening remarks, Nevenka Črešnar Pergar pointed out that “the theme of privatization is still a very frequent conversation topic. As minister Mramor mentioned in New York, despite the fact that our economy has recovered, it is not yet the right time to be celebrating with champagne.” She further added: “Are we really a success story or is it too early for something like that? In order to become one, we certainly need good managers and good owners.”
Replying to a question regarding the expectations of purchasing Niko Železniki from Zvon Ena, Gerald Martens stated: “We bought two companies in Slovenia and chose two different approaches. Niko was a company with a very good leverage and is today an industry leader, in my opinion one of the best in Europe. The success was a mixture of profitability, the company’s favorable market position and a high internal as well as external customer satisfaction index. Our experience with Helios, however, was different, says Martens. It was somewhat harder. While the principle was the same, 14 different vendors were included, which slowed down the process significantly. It took more than a year to sign the purchase agreement and an additional 7 months to complete the transaction.”
According to Martens, the reasons for the lengthy purchasing process were as following: “I would point out the role of the company’s Supervisory Board, which I believe is poorly understood. Its role is not to represent the owners, nor the policies or the management. It is, however, a type of control over the administration, to appoint and replace managers when they aren’t successful at their job. When the supervisory board isn’t functioning well, problems arise.”
On cooperation with Zvon Ena, Martens highlighted: “We have not been entirely satisfied with them. As far as cooperation goes, the process was good. The organization of the holding itself, however, should improve. It is hard to hold a meeting with 30 instead of with 5 people. Everything takes much longer as a result.”
Martens also commented on the media speculations at the time Helios purchase. “This was something we had to deal with. Newspapers aren’t too interested in the actual facts and the real condition. In my opinion, it is not the role of the media to discuss these topics at all, but rather to report on the issue. The discussion should be the owners’ task, the politicians’ task. When we took over Niko, there were no reports or articles about us, although people were extremely satisfied with us. But not absolutely nobody wanted to write about that.”
»A part of the problem is the major centralization of state assets. It really is easier to control the process with fewer decision-makers involved. This was the main obstacle to the purchase of Helios. But I would rather point out the case of Ljubljana Airport, which was an extremely successful takeover, because we responded very quickly. It is again true that there was a lot of interest shown for this particular purchase. It is always a question of the number of stakeholders and the difficulties that arise in trying to combine all of their interests. With this, it becomes more and more complicated,” explained Matej Runjak regarding the sales processes and the corresponding time frames.
Answering the question on how certain reckless statements by politicians make it difficult to work, Runjak explained, “Unfortunately, that is a part of the macro environment. It certainly makes our tasks more difficult, but it is a part of the culture in this part of the world.” He pointed out that there is still a struggle with the sale of Telekom, but that the price is not reflected merely in the company’s value but is also determined by the macroeconomic environment.
Mister Douglas (Dak) A. Kaye, III shared his own experience with the acquisition of Pinus Rače. “Firstly let me say that Pinus is a company with a great history of more than 100 years, which also makes it very well known. At the time of the acquisition, the company was in an extremely bad state, on the verge of bankruptcy. The positive side in all this was that the company’s owners were very interested in selling, as they understood hat the company would not have survived otherwise. The negative part was the fact that it was a relatively small acquisition, which took a long time. We experienced a lot of political pressure to do “the right thing”, we also had to be transparent and open. If you are on the verge of bankruptcy, 10 months can feel like an eternity. Once the process of taking over began, things became a little easier, but it nevertheless took too much time.”
Regarding the difficulties with the unions, Kaye pointed out: “The employees greeted us with open arms. This is clear, as they had not been paid for several months and were therefore keen on the takeover, as they saw it as a solution to their employment. This situation was somewhat different.”
Answering the question on how successful the restructuring process is and how ready they are for privatization, Janko Medja pointed out: “We have been dealing with the restructuring process for 2,3 years now. The primary task of the Management Board should be to keep the business afloat. After achieving that, we began wondering how to become more competitive, how and where to invest etc. In terms of restructuring, we have done a lot, but some work still remains. I must emphasize that as a bank, we have a strong impact on the entire economy. We will do everything to ensure the companies will be able to refinance its debt in order to be restructured and privatized.”
Medja, talking about the availability of loans by banks, stressed: “In this regard, I will be direct. Those discussing these issues are simply not creditworthy. In reality, the situation regarding the giving of loans is quite similar to the one in 2004. The history must not repeat itself. We are in the upper third among the regional banks, above all terms of the percentage of the coverage, which makes us a relatively healthy bank.”
Regarding the privatization processes and their termination, Medja explained: “When NLB makes a decision, it sticks with it. But we are rarely the leader of the privatization process. We are simply one of the stakeholders and therefore must professionally cooperate with everyone. This can be difficult at times, however, a lot has been done in 2014. We must take into account all the good that has been completed last year. We need to have some pride, but must certainly complete the task.”
Metod Dragonja explained the current state of privatization: “I will never comment on individual procedures. At the Ministry, we put a lot of effort into finding the best options. The most recent example of Pivovarna Laško and the case of Mercator are both great examples of successfully carried out privatizations. We established the bad bank and are soon expecting a new strategy on the privatization of state owned enterprises.”
Dragonja continued discussing the new strategy: “The governance strategy is practically completed. A public debate on the topic has been taking place for almost an entire month. Understandably, the views and positions are very diverse and come from various sides, from financial institutions, civil initiatives as well as trade unions. The document should be assessed by the Parliament next week. The Parliament will, hopefully, confirm the document. It is not merely about the privatization of over 60 companies on the list, but also about public assed management. The document has received widespread support and is clearly a compromise and a good balance between smaller and larger enterprises, where our goal is to double the incomes in two years. Our guideline is the professionalization of the administration.”
Runjak, reflecting on the political pressure on SDH, explained: “I think it will be a difficult process, but we are moving in the right direction. We are moving slowly, but are currently not yet a fully developed economy. It is again difficult to manage 5 privatization processes simultaneously. It seems crucial to me to determine the context of the direction in which we will proceed in the next years and thus give a clear signal on what to expect. In the past, we did not have enough time to be able to adequately prepare each company for privatization. We have a little more leeway now to prepare the companies and to settle and align the different interests. It is equally necessary to prepare the (professional) public for these procedures.”
Medja on the speculations that NLB will be privately owned by the end of 2017: ”I can answer by first assuming the strategy on privatization will be passed in the government and the parliament and assuming that NLB will go on the market with a share of over 50%. The aim was supposed to be for the government to retain at least a 25% stake in the bank. However, I am not in a place to be able to comment on why a company should be privatized. What are the options? A market-sale does not seem a plausible option. The region is not exactly the “brightest star in the sky”, the countries of former Yugoslavia are very fragmented. Therefore there is not a great interest by large banking groups to buy in the region, as they find it difficult to harmonize the businesses. From Serbia all the way to Slovenia, the interest is very limited. There is some interest from private equity funds, however, I doubt they would be able to pass the strict control over the sale, as their aim would be to re-sell within a few years, rather than a long-term development. We must start with work as soon as possible. I believe the entire process will take at least a year and a half, more realistically two years and a half. The story that NLB can present is crucial here.”
Medja on the NLB story: “ We have a great story. NLB is slowly increasing its profitability; we are slowly discarding the unessential businesses, which are bringing us more losses than profits. We are continuing to strive towards our 5 strategies through which we will increase our competitiveness. We will invest in SMEs. We have a very clear story to tell investors.”
Martens on whether the business with Helios was good: “I listened to my colleagues very carefully. We came here to create a successful story. In the first year, we already halved the debt, which is very good news for us, because we created a considerable value. As my colleagues mentioned, if your rating is good, it is easier to get good credit. Helios was unable to get any loans before our arrival, the governing board was not even working on that.”
Martens also talked about the local corporate social responsibility of the company: “The value is certainly in the first place. When trying to create added value, we had some problems with the unions. We noticed the union participation in our companies has fallen by 40%. But we want as many people as possible to be involved with the trade unions. Nobody wants to be involved in the decision making process in Slovenia. At the end of the day, 15% of the employees are deciding on the fate of the remaining 85%. This is why it is crucial for everyone to participate in the decision-making process and we encourage that. As far as social responsibilities are concerned, basketball is at a higher level than ever before. However, this is not a marketing tool, but purely a social one. We also donate a lot to children and have the so-called Helios academy. In whole, I believe we have done a lot.”
»Our strategy of always taking our best managers from our other businesses and bringing them into our newly acquired companies, is equally important. In this way, some of the best Russian and Austrian managers are currently in Slovenia and we plan to do the same with our Slovenian colleagues. Expect Helios to become one of the leading companies soon,” further added Martens.
Talking about the quality of managers in Slovenia, Medja emphasized: “I personally know several excellent managers. As far as potential is concerned, we have a lot of it. What I am seeing and what makes me worried, however, is the fact that we are losing a lot of our best to foreign markets, abroad. The environment (in Slovenia) is not exactly stimulating and it is difficult to attract the best. The fact that Slovenia still does not have the so-called “social cap” is also not too good. Secondly, there is a sort of a depression in our mentality. We should remind ourselves of the successes we have achieved in the past years. I do have to emphasize that the government will have to clearly state its wishes and expectations at the very beginning of the privatization process and will have to firmly stand behind them until the end.”
Runjak on the question whether privatization should be postponed: “No, there is no reason for that. We have enough time to announce the guidelines and to start preparing the companies for privatization.” “We are still in the final stages of sales negotiations for NKBM and Telekom. I hope to reach a solution that is satisfactory to all stakeholders,” he further added in answering how the other privatization projects are developing.
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