Vladimir Potanin: 'Business is not a sport'

Vladimir Potanin. Source: Nikolai Korolyov

Vladimir Potanin. Source: Nikolai Korolyov

Vladimir Potanin, co-owner and general director of the world’s largest nickel producer, Norilsk Nickel (Nornickel), and who, according to Forbes, is worth $12.6 billion, spoke with RBTH about the sale of foreign assets of the company, as well as his drive to improve the firm’s efficiency.

RBTH: In the last year you successively sold some foreign assets. Why did your company leave these markets? Was it part of a larger strategy?

Vladimir Potanin: We are actively getting rid of unprofitable assets, which were dragging the company backwards. That is why we completely left the investment projects in Australia, keeping only one Australian license, and are currently working to leave the African projects. Selling these assets was planned long before the beginning of the political turbulence in our long-term strategy.

RBTH: How much has the political turbulence influenced Norilsk Nickel’s work?

V.P.: We are a private and a law-abiding company, we are incorporated in all the regulatory mechanisms and we are represented on international stock exchanges. The company’s production is very important for the economy. In particular, Nornickel supplies Europe with nickel for the steel industry. The political tension we are experiencing should not affect the company’s activity, since the company is deeply integrated in international economic processes.

Economic sanctions damage all the participants of economic relationships and always signify defeat for politicians. If politicians are obliged to impose sanctions, that is, decrease the value of assets located on the perimeter, it means they are not doing something right.

RBTH: How much is the company tied to European and American consumers? What damage will the expansion of sanctions bring you?

V.P.: Nornickel actively sells its products in Europe and the U.S.; for example, we supply palladium for the production of car exhaust systems. Palladium is used for the production of carbon dioxide emission traps, which is a not big, but nevertheless important element in automobile production. If a car that costs $30,000 does not have a $1,000 catalytic converter, it cannot be sold.

Nornickel feels comfortable in the current conditions and we do not expect that sanctions or any other political-economic measures will affect us. However, we do have a plan B, which foresees the diversification of currencies in which we keep our resources, as well as the reorientation of our company towards Asian markets in case of problems in other markets.

RBTH: Do you fear a reduction of demand for your product on Western markets?

V.P.: A big part of Norilsk Nickel’s production is stock exchange products, so these can be sent from one market to another. These are not consumer goods, like when a person buys a particular dress, particular shoes and a particular car. People just buy nickel, regardless of its varieties. That’s why we are not worried that there will be significant problems with nickel. The European steel industry is used to our high quality nickel and in the U.S. the enterprises that buy our product are those for whom quality is more important than quantity, so from this perspective ‘the better kills the good’. As regards the Asian market, we were less tied to it. It's only in recent years that we've been paying more attention to it.

RBTH: What made you create the 2013 Norilsk Nickel strategy?

V.P.: All companies need a strategy that is clear for investors. The strategy helps people judge how efficiently the management is able to lead the company. The 2013 strategy mainly intended to concentrate on first-rate assets and the increase of management efficiency.

RBTH: Have you been able to attract new investors with the new strategy?

V.P.: Yes, thanks to dividend yields, we’ve attracted new investors who are looking for high yields with low risks. And the higher the investment base, the lower the volatility of the shares. During the roadshow, investors give us their feedback; they either become shareholders or decide to review the acquisition of Norilsk Nickel shares in the near future. In this case, we’re speaking about investors with a different point of view. They don't focus on the country; they focus on the sector, on the risk. Norilsk Nickel suits them in terms of yields and risk. These investors mostly come from the U.S. and Europe. There are not many of them, but we have them.

RBTH: In the context of the new strategy, which achievements do you think are the most important?

V.P.: According to the EBITDA indicator, we demonstrated a profitability of 44%, which means that only BHP Billiton (48%) came in ahead of us. Moreover, we witnessed a significant improvement in terms of contracts with banks and rating agencies, as well as for what concerns restructuring bank credits. In particular, we increased credit periods, excluded mortgage loans and increased the flexibility of our portfolio management. 

RBTH: Was the decision to transfer some of the payments to Hong Kong dollars a part of the new strategy?

V.P.: Yes, our plans to concentrate on the Asian markets were determined some time ago, when Vladimir Strzhalkovsky was general director. Back then, due to the marketing block, we bolstered our efforts to penetrate the Chinese market and opened new offices. From that moment our presence on the Asian markets grew substantially. This is a natural increase in attention toward markets that are the main drivers of the world economy, as well as the prices of our products. However, I would not label this as a reorientation from west to east. Most likely it’s just a search for our niche in the east, and because of the geopolitical turbulence, we had to accelerate the process. Currently, we have converted part of our available resources into Asian currency, the Hong Kong dollar and the Yuan. This is a rebalancing of our interests. Moreover, we are preparing the construction of the Bystrinsky mining plant in the Zabaikalsky Territory, which will produce a concentrate of iron ore and copper ore. China will be the obvious consumer of this product, and the participation of partners from a number of international companies is possible. Our orientation towards the Chinese market is a natural development, but the circumstances, in which it is vital for us to have a backup plan, make a focus on these markets very clear.

RBTH: Why will the nickel plant in Norilsk be closed two years early? How is this related to the company's strategy?

V.P.: What we're talking about here is not the closure of the enterprise, but rather the transference of its power systems to the Nadezhdinsky plant. This project is part of the modernization of all of Norilsk Nickel's production apparatus. The nickel plant in Norilsk was built back in 1942. For the last 25 years the plant's management has been trying to close it, but no one has done so. The Russian government gave its support to our proposal to close the plant two years earlier than planned. I was decided to nullify export duties on nickel and copper on nickel and copper, and we will funnel the savings into workers' social adaptation. They will be offered working positions on different production platforms or retraining if there is no opportunity to find work according to their profession. Government support has coincided with our intentions and in the summer of 2016 we will fully conclude the story of this nickel plant. This, along with the modernization of our Norilsk Nickel enterprises in the industrial district, will reduce emissions in the city by 90 percent.

RBTH: You said that Norilsk Nickel is the second most efficient company in the world. Do you plan on surpassing BHP Billiton and becoming the first company, and if so, what do you need to do to realize this objective?

V.P.: Business is not a sport where there is no room for those who don’t come first. My friend, the world-famous hockey player Vyacheslav Fetisov, said that the first step off the pedestal is down.

Long-term planning always has two alternatives. Depending on how we develop our mining policy, we will either have a big volume of marketable products with a slightly smaller EBITDA margin, or the contrary.

Now we have set a target to keep our profitability at 40% for first-rate assets. Business is not a sport, but the earning of money, and BHP Billiton should not be relaxing.

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