Slovenia is not only "green", it is also a place of excellence
From 2009-2015, SIJ Group has significantly raised its global market share in Europe, the U.S. and Asia, selling more than EUR 570m of product in foreign markets, accounting for more than 85 percent of the group's total revenue. SIJ's Chairman, Mr Anton Chernykh, explains that the secret lies in tradition, smart investment strategy and know-how. However, the Russian businessman highlights that the Slovenian FDI environment is still poor, mostly due to the Slovene mindset which is local instead of global.
SIJ Group generated EUR 413.9m in revenue in H1,2016, a 13.5 percent increase on the same period last year, and improved profitability with an EBITDA margin of 14.5% (up 3.2 percentage points). Investment has also been increasing since the Russian group, KOKS / the Zubitskiy family, privatised SIJ in 2007. What is the total investment since 2007 and what has been its purpose?
The purpose was to survive and secondly to become a more important player and create higher added value to our company and products, and to become stronger than our competitors. When KOKS group came, two steel plants (SIJ Acroni and SIJ Metal Ravne) were not equipped properly and we changed that in first investment cycle (2007-2014), which included modernisation of the full production cycle.. In addition, in 2007 we signed an agreement with the government that the investment of the strategic investor would not be less than EUR 250m for production modernisation, which we achieved in 2011/2012. However, we continued to invest - by 2016 the total investment made since 2007 accounted for more than EUR 450m. Today, with these changes, SIJ Group is one of the leading specialist steel producers in Europe with very high profitability and a robust business model.
Crude steel production in 2016 has been increasing in China, Asia, Japan, India and South Korea. Where is Europe, together with Russia, in this and what is the competitive advantage of "our" steel?
The competitive advantage of our steel is the added value of the product. Over the years we have visited a lot of customers, trade shows and many international events and, of course, our Asian and Indian friends were everywhere. They present themselves, they are growing, but at the same time they want our knowledge and this is our power, our competitive advantage. This was proved again at our last event in Moscow when a Chinese businessman came to us and said that they are interested and open for joint cooperation, since they want our knowledge. However, this is quite complicated for them since they have all the best equipment from Europe but it is not enough, you need to know "traditional recipes" and have knowledge about the production process which takes years to fine tune. It is about the people here, their experience and the skills they have. And this is what is lacking in Chinese production because they cannot use the best European equipment to 100% of its ability of.
SIJ Group is one the most successful European steel producers with growing global market share...
For stainless steel, in terms of quality, first in Europe and third globally as estimated by EUROFER (the European Steel Association, Brussels). A part of our excellence is also our specialty and therefore, in the last four years, we have also changed our strategy.
In steel for special applications (not mass or commodity steel) we have increased the portfolio nearly 60 percent and with this product we want to expand our competitiveness in Europe, Asia and other countries. We have already increased our presence in the US and Russia and we are becoming stronger and stronger. I must emphasise that our steel is really sophisticated and as such is not used in mass production, for example in the automotive industry; in cars our special application steel is used for really complicated parts which are very small but there are many and they are crucial parts of the car.
According to the World Steel Association, the environment for the steel industry remains challenging, with escalating uncertainties driven by geopolitical situations in various parts of the world; for example the UK referendum outcome has raised further uncertainty. How does the result of the US elections influence the industry and your business?
It depends on the perspective you take; it could be nothing or it could be very important. If we talk about the business, the UK issue does not directly affect us since our biggest markets are Germany, Italy, the US, and Russia is becoming important. However, globally, everything is related - if Germany supplies the UK then it influences us. However, we do not depend on only one product line or supplying one industry; we work with pharma, oil and gas, automotive, kitchen applications, aerospace, almost everything, even 3D machines need steel to produce carbon fibre.
In 2015, SIJ Group decided to acquire the poultry maker, Perutnina Ptuj. Agriculture and food production are among growing sectors in Russia. Is there any correlation?
Not direct, it was just a smart idea about life in general if you think about what people cannot live without, and food is one of them. On the other hand, our shareholders were looking for some diversification. We wanted to distribute our risks in the steel business and be protected from disruptive market conditions. Food industry can bring us some insurance in that regard.
Based on your experience, how do you perceive the investment environment in Slovenia, for both domestic and foreign investments?
Without being polite, the FDI situation in Slovenia is quite hard. Although the government has opened some issues in this field, Slovenes are extremely divided as local communities, also in their minds, are too locally oriented so that it is complicated to introduce new ideas and encourage them to think globally instead of locally. I understand people are afraid because of their past experience with Yugoslavia, where everything was centralised and ruled by the government in Belgrade, but without globalisation and centralisation of the process it is quite complicated to build something. If you have a flat fist you cannot move anything, you need a strong fist and with our Group it is the same. Each company was working quite separately and the results was good, but not excellent; then we centralised everything and not only are the results better, but also the world recognises us as, in addition to being "green", Slovenia is a place of excellence!
We usually hear "accusations" that Slovenia is very small. Do you think this is still relevant, especially in this digital era?
It is still a problem even with globalisation, and a very simple case is transportation in Slovenia. World capital for finance - London. Do we have direct connection with London from Slovenia? Yes, but schedule could be improved. Slovenia is without air connection with cities such as Milan, Rome, Dusseldorf, etc. When talking with our business partners from Finland, Sweden, UK, Italy, sometimes it is really complicated to bring some people here since they have to spend a whole day to reach us! In our world, decisions are worth millions or billions of euros, and when you need hours to reach Ljubljana this becomes quite complicated. It is not the only problem but just one of the issues that is still open... For example, it is quite complicated to keep a good specialist in Slovenia - comparing to Austria and Germany, their tax environment is more preferable, and in Slovenia I sometimes think we are sitting on a pile of oil and gas because the taxation is really close to the highest rate of countries such as Norway.
On the other hand, regardless of the digitalisation of processes and even people in the business, what is the position of a handshake, do you consider it as indispensable on some occasions?
Going back to my previous answer, how can you arrange a handshake if you are not able to fly to a destination?