Interview Ukrainian macroeconomics

The less government will stand in the way of business and try to control it somehow, the better

Igor Chervak, the General Director of Lantmannen AXA, told us about the absence of necessity for motivating the employees, about the demand of consumers for dry breakfasts and about the expectations of big business from the new authority.

: Tell us please, what is your company doing in the world? Where are the largest production capacities situated?

I. Chervak: The company is headquartered in Stockholm. Lantmannen AXA is a Swedish company founded by farmers, and its structure is a cooperative. Capacities are located all around the world – these are mostly territories of Scandinavia and the North Sea. We are represented in Australia and in the United States; we have business in China, Japan and Korea. Mainly, capacities are in Sweden, Norway and Denmark.

: You told us about bakeries. Why are they not in Ukraine yet?

I. Chervak: It is so because the subdivision responsible for baking does not see opportunities to invest in Ukraine so far. Here, the bakery market is extremely corrupted and is strongly influences by politics. Thus, there are no such plans, however, they’ll come here, keep watching how everything develops.

: How has the demand for ready breakfasts changed in Ukraine for the last years?

I. Chervak: It depends on what to consider as last years. Last year, we came to a level of 2013 in terms of sales. There was a recession in 2014. It happened after we lost Crimea, part of Donetsk and Luhansk regions, from where we had been receiving considerable income. The recession also happened because Ukrainians started to spend less. However, over the last five years, we see that sales are constantly growing. Still, if we look at the past seven years, there was no increase.

: What distinguishes the Ukrainian market of dry breakfasts from the European?

I. Chervak: There is no difference from the perspective of legislative regulations. There is a significant difference in consumption per capita. Of course, we have leader cities for consuming dry breakfasts, however, this is connected primarily with cultural assumptions. There are cities in Europe, where the consumption of our products is quite high. There are East European countries, where the consumption is significantly lower than in Germany or Austria, but higher than ours. In Ukraine, the consumption of any kind of food per capita, per one person, is very low – we have a very low income level. From another perspective, this is a very prospect market and we have a lot to grow and develop.

: How has the export volume of dry breakfasts from your production changed for the last years and what countries do you export to?

I. Chervak: Till 2015, the main export was to Russia, Kazakhstan and Belarus. If till 2014 the export to these countries was about 40% of the total trade, it is now about 5%. Thus, we have essentially increased our export to other countries. We have increased sales to the Baltic countries – these are Estonia and Lithuania. We also deliver to China a lot. We feel good in Caucasus (Armenia, Georgia, Azerbaijan), and in Moldova. At the same time, we are trying to develop other markets – African countries and the Middle East.

: How did you pass through the crisis of 2014? Maybe there were some reductions or shortcomings?

I. Chervak: We have not had any serious reductions. We are now continuing to increase volumes, however, we have to reimburse expenses of 2015, at the expenses of other markets.

: Tell us about the production, please. How often do you update your equipment?

I. Chervak: The plant was built in 1998, and almost every year, we invest in new equipment, new machines.

: How are the plant capacities loaded?

I. Chervak: To explain exhaustively, I will note that we work day-and-night, without weekends.

: Where do you buy raw materials? Do you use Ukrainian materials or import them?

I. Chervak: What we do for Ukraine – we try to buy in this country. However, there are such types of raw materials, which we are not able to purchase here, they have to be imported. There are also raw materials, quality of which is not enough high for us, so we are forced to import them as well.

: How many people work for your company?

I. Chervak: As for April 1, we had about 250 people working for us.

: Do you feel the lack of qualified personnel?

I. Chervak: No, we do not. I believe that there is no sense to motivate people. If they come to work, that means they are already motivated well enough. That is why I think, our main task is not to demotivate people. To make them be interested in work, so that they are satisfied with the work conditions, payment terms, the mood in the team, and relationships with management. And when people come to us, they work at the enterprise quite a long time. The average work period Among the employees is almost eight years. We have a very low employee turnover. We are trying to do everything together with the personnel, for workers to want to come to work every day.

: You are probably the only company which does not complain about the lack of qualified personnel.

I. Chervak: Well, what is the point to complain? We need to work with those people we have. We pay a lot of attention to the trainings of personnel. We grow them up ourselves. We have internal training programs, we also involve contractors. We have own master classes for employees. The obligation of each manager is the development of his/her employees.

: Does the company plan to expand the production of dry breakfasts in Ukraine?

I. Chervak: Yes, we plan to expand. We invest in additional production capacity at a plant in Boryspil.

: Do you borrow funds in bank for increasing circulating capital or fo you lend them from the controlling company?

I. Chervak: Nowadays, we have enough financial flow in order not to attract credit funds. We earn our own money. They are enough to meet our needs in circulating capital. An exception is that we have a seasonal business. There are periods when there are quite serious expenses and sales volume – accordingly, there are accounts receivable. This usually happens in February and March, before Easter. We have peak sales during the Lent. So, we attract money from Ukrainian banks by May.

: What banks do you cooperate with?

I. Chervak: We cooperate with SEB bank.

: What risks do large enterprises face while working in the Ukrainian market? How do you minimize them?

I. Chervak: All of us face equal risks – it is unpredictable Ukrainian economy development, a high volatility, dependence on the situation on foreign markets, currency volatility. As we are an import-export company, it is important for us to predict currency rates, work with exchange risks, hedge them. We can say much about the problems with the property rights protection, but we have not faced such a problem so far. Maybe, this is so because our company is fully credited by foreign investors.

: Do the sudden inspections by public authorities often happen?

I. Chervak: We have not faced this after the Maidan. We had inspections, but they were scheduled, and we knew about them in advance.

: What do you expect from the governmental changes?

I. Chervak: I hope that the change of authority will not negatively impact our business activity. I hope we will finally come to the way when it would not be important who the president is, but would be crucial that the economy stays stable. The less government will stand in the way of business and try to control it somehow, the better. And I am glad that people change in power, because when there the same people are in power for a long time, it does not end well.

Please read: Doing business in Ukraine during the period of political instability: what to focus on

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