Known for its work in the mineral extraction and processing sector, UMG has decided to reposition itself. Now, it has become an investment business specialising in commodities. The magazine “Top-100. Ratings of Major Companies. 500 Largest Production Companies of Ukraine” asked UMG President Andrey Gorokhov why this has happened and what changes can be expected in the company’s operations
UMG has an established image as an industrial company operating in commodities markets. When and why did you decide to become an investment company?
There are no investment companies in Ukraine that consistently invest in commodities and basic industrial processing. This area requires a substantial set of skills and, as such, does not appeal to Ukrainian direct investment funds. Without them, it is quite a risk to enter this sector.
In 2011, UMG’s clay extraction business achieved maturity in its organic growth. By that time, the management company’s team had accumulated a set of important skills, such as product development and entering new markets, logistics, alignment of business processes, and cost optimisation. Critical “soft” qualities were added, including a strategic vision, a sense of purpose and an entrepreneurial approach to problem solving. As a result, we created a close and vibrant team which knows how to create and promote businesses, which we did effectively by successfully implementing several new projects and finding our investment niche in Ukraine.
What types of investments and in which areas is UMG most interested and why?
We consider direct investments, i.e. buying or creating new businesses for future development and sale. Investing in commodities and basic processing will remain in our focus for the next 2-3 years. We are also looking at agriculture. For example, in 2015 we started trading in agricultural products.
In the future, we might expand our operations by entering areas that we think hold strategic appeal for Ukraine. When this happens, we will reinforce the team with experienced specialists with expertise in industries new to us.
What resources does the company plan to use to pursue investment?
There are several such resources. These include our equity and loans from Ukrainian and/or foreign banks, and export and import financing of equipment purchases from producer countries. Through this process, loans can be often received of up to 80% of investment in fixed assets for 3-5 years at 7-10% in Euros.
We also consider co-investors as a source of funding. We are prepared to work with both financial and strategic investors. Such partnerships are possible as long as UMG’s share is at least 50% of the business and our company will be in charge of operations management, while providing the partner with the required levers of control.
Investments involve not only buying, but also selling. As far as I understand, UMG does not yet have such experience.
Indeed, we have been more involved in developing businesses from scratch or acquiring undervalued businesses. But, as an investment company, we are relatively young, so it will take time to create a track record of exiting businesses.
We will have the requisite track record as soon as the country’s investment appeal improves and investors are willing to pay a fair price for assets.
I wonder how your potential investors and buyers of businesses evaluate the current investment environment in Ukraine. Do they see it moving in the right or wrong direction?
Today, due to the risk associated with the country, many investors are not prepared to enter Ukraine, though they are closely following what is going on in our country, which is a good sign.
However, Western investors are not fully aware of the opportunities. They focus on risks, but cowards die a thousand deaths, as they say. On the contrary, we carefully assess the risks and focus on looking for investment opportunities, and so we see many interesting projects. This is why it is crucial to keep investors regularly informed and in your close network. It is important to make them aware of projects where the benefits outweigh the risks.
What have you done specifically to find investors?
We are starting to systematically contact and meet strategic investors from our businesses’ areas of operation.
In November, we will speak at Mines and Money, an international conference in London. This is a target conference for investors in the commodities market.
We plan to tell them about the pros of investing in Ukraine and dispel some of the myths and unfounded concerns regarding our country.
There are two centres for raising funds for mining and processing projects worldwide — one in Hong Kong, for Asia, and another one, in London, for the whole world. So, we’ve chosen it in order to be able to talk with as many investors as possible.
Does the company expect any staff changes with its operations in the new format?
The organisational structure should reflect the transition to the investment company model. We are going to reinforce the investment line by further developing our people and hiring fresh blood with experience in investment banking, private equity and consulting. We will also designate a unit for strategic development of newly created businesses.
We follow the so called hands-on approach to investing, i.e. we manage a company through deep involvement in its operations. And so, we will create a team in the back office to support portfolio businesses with our commercial and production expertise.
Are you planning to hire any new “stars” to make it easier to contact foreign investors?
It all depends on the business need. If the business really needs someone stellar, someone bright, and thus expensive, I would not rule out making that decision.
However, UMG has been developing its own employees for 10 years, because people who grow within the company share our corporate values more and work better with each other. They are a team, which is crucial for us.
In terms of networking, we are continuously expanding our contacts. In addition to participating in sector conferences and improving personal contacts with investors worldwide, another thing that proved useful was my recent study at Harvard and London Business Schools. During these studies, I was able to build relationships with investment managers and investment company owners.
Contacts and personal communication are especially critical in this type of business. This is how you get your foot in the door so you can be heard. Then you have to demonstrate real performance and provide interesting and attractive opportunities for investment.