SNAPSHOT:

Name: Marcus Riska
The job: Financial consultant at Svilosa AD
In brief: Established in 1966 and privatised in 1999, Svilosa AD aims to become one of the leading companies for pulp and paper production in the Balkans and the whole of Europe.
The company’s head office is based in Sofia while the mill is in Svishtov on the Danube.
Svilosa AD is a joint-stock public company. It is a holding with four registered subsidiaries – Svilocell EAD, Ecosvil EOOD, Svilosa-Bio EOOD and Hotel Complex-Svilosa EOOD, which are all 100 per cent owned by Svilosa AD. Svilosa’s main shareholder is US based Arus Ltd (87 per cent). In 2007 Svilosa became one of only two Bulgarian companies to publish a corporate calendar showing the dates when its financial reports would be published and other important events related to the company.
Revenue for 2007 was projected at 52 million leva.

Riska is a good example of this “industry link”. He works as a financial consultant at Bulgaria’s sole producer of sulphate bleached hardwood pulp, Svilosa AD.

From Riska’s words it seems there was nothing surprising in the fact that a Finnish financial consultant joined a Bulgarian company. 

“Worldwide there are three or four countries that are the leaders in this sector. We are talking about Canada, Sweden, Finland and the US. This means that these countries provide most of the expertises in this area.

“There is a network of pulp and paper consultant companies in Finland that have worked very successfully in Eastern Europe, even before the collapse of communism. If you look at all the mills from Vladivostok to Ljubljana the old engineers there will know somebody in Finland.”

After the fall of the Berlin Wall in 1990 there was a 10-year-long pause in communications between the pulp and paper mills in Eastern Europe and Finnish and Swedish companies. “It was only natural because of the social and economic changes these countries had to go through. Bulgaria was no exception.”

This changed with the progress the country achieved. “It basically started with people picking up old business cards and calling old friends.”

On the other side of the trend were Riska and his colleagues. “We were searching for a company here that could be the growth vehicle for mergers and acquisitions because it is absolutely clear that this process benefits from duplication. We were searching for year to see which company would speed up and we are very happy that things went so well for Svilosa.”

Riska’s occupation is managing director of Alfarin, which the paper and pulp consultant company Linesti has shares in. “The owner of the pulp and paper consultant company Linesti started to travel around here in 1998 and I came here first time in 2000. In 2002 I got to know Svilosa and today I am working here within the Linesti contract as a financial consultant.”

As with every new start Svilosa and Linesti’s co-operation began with a small step. “In 2002 Svilosa bought some machinery from Sweden and they needed assistance for its transfer and instalment in Bulgaria. Through that connection they got in contact with Linesti.” 

One thing led to another. “They bought a machine and started searching for financial options for the development of the expansion project they had just realised.”

Up until the end of 2007 a large-scale investment project, with a value of 55 million euro and finalised with Svilosa’s daughter company Svilocell EAD, was co-financed by the European Bank for Reconstruction and Development and Nordic Investment Bank. For this project, in 2006 Svilosa AD was granted a First-Class Investment Certificate by the Ministry of Economy and Energy. The project was expected to increase the production capacity of Svilocell EAD by up to 150 000 tons a year.

Investing in mills is the rule in this business according to Riska. “Now Svilosa is up to international standards and we can beat Western European mills. Mills in Western Europe have a heavy cost structure due to high standard of living. Now the industry is developing in eastern Europe, China, India and Latin America where profit consciousness is much stronger. We believe that such high potential producers like Svilosa, in co-operation with international financing, can grow very strongly.”

On a global scale, however, Riska agrees that mills like Svilosa’s one in Svishtov on the Danube are still rather small so there is a synergy in creating a joint management system and using that same system for attracting international assistance and financing.

“The rule of thumb is: the more intellectual work when preparing the investment and the less money spent, the bigger the profit.

“There are many mills in Eastern Europe that need a lot of modernisation, something that had to be done between 1995 and today. For me Svilosa is an example of such an operation where you have an existing mill built in 1966, a strong potential, a local-based owner and management team that has managed to attract international financing and experts and at the end achieve modernisation.” This is a concept that can be used in other mills in the region, Riska says.

“There have been other such operations done in the region but Svilosa is a clear case that has all the elements for further growth. As a public company Svilosa has a good potential in attracting funds which makes it a natural thing for it to make mergers and acquisitions.”

Last December Svilosa’s board chairman Krasimir Dachev said the company was seeking to acquire companies in eastern and south-eastern Europe as part of its plan to expand regionally. Plans are for Svilosa to complete its first acquisition abroad in the first half of 2008. Serbia, Romania, Moldova, Russia and Greece are on the company’s list.

The Danube port of Svishtov, where Svilosa’s mill is based, has a lot to do with these plans. “Svishtov is one of the most important Bulgarian harbours and an important Danube harbour from a strategic point of view. It is a great place to develop and it is a question of simply modernising it. That way Svilosa can use barges to transport wood from Serbia and other countries from the region.”

According to the company’s Good Corporate Governance Programme Svilosa AD is investigating the opportunities to build a paper mill in order to close the production cycle and integrate the production of pulp and paper and increase energy efficiency.

“Energy efficiency is a common problem in this industry. Under communism energy was so cheap that there was no energy efficiency back then. This means that eastern European industry is very energy inefficient.”

Besides expansion and modernisation of the existing port on the Danube, Svilosa AD also envisages participation in the construction of a ferry complex. The company sees potential in establishing an industrial zone and a competitive logistic network along the Danube. In that sense Svilosa’s success could mean success for the entire region around Svishtov.

“However it is not just a question of wishing it and having the money for it. You need a lot of state support and support from the community. However Svilosa’s harbour will develop and that is 100 per cent guaranteed.”

As a financial consultant labour costs are a favourite subject of Riska.

“Svilosa’s activity is based entirely on the philosophy of keeping costs low, which in the long term will define Svilosa as a winning company. The understanding of keeping cost low is much higher in this type of a company than in a traditional western European paper mill. Mills in Europe and North America have had a 100 years of monopoly which has benefited them well. This, on the other hand, has led to an increase of costs in their operations because of a certain laziness.”

In general terms, however, Riska says that the cost of labour is not that crucial for the paper industry.

“It is the cost of the wood that enters the mill. Pulp is a commodity and that means that it has a world market price. The world market prices are simply calculated as a ready made product delivered to a major port. For example you say price delivered to Rotterdam. So the total price is composed by the mill’s costs and transportation costs.”

The paper industry relies on forests and Riska has an opinion about how the one affects the other.

“Internationally production is moving from high-cost countries to countries with growing markets, low costs and rich in raw material. There is a big potential in developing the wood based industry in Bulgaria because there is still a lot of wood that needs to be harvested to keep the forest healthy and Svilosa’s daughter company Ekosvil is engaged in wood procurement and forest activities.”

As the only cellulose producer in Bulgaria one might say Svilosa should certainly feel comfortable on the market, but not Riska. “It would be really dangerous for us to feel comfortable because of that. There is a market price and we are paying it. Svilosa meets stiff competition in Bulgaria from remote suppliers.”

However he agrees that Svilosa is a market leader. “If you look at the map the nearest mill to Svilosa is a mill in Romania which produces pulp as a minor side product. They started a year ago. There is a small mill in Slovakia and then you go to the West. In the East there is nothing.” 

Although Svilosa is based in Bulgaria the company is a rare exception because of the fact that it exports 90 per cent of its production. This makes the company more an international than a domestic company. “When a company exports 90 per cent of its production it means that it feels at home in Austria, Romania, etc.”

For Riska this applies to the country in general. “When I came here the first time one of my strongest impressions was that Bulgaria had and still has a very international community. When you talk with a Bulgarian he or she is not very ‘strongly Bulgarian’ and the Bulgarian business community has a very international way of thinking. It is the opposite of countries like Finland, Sweden and Russia which are very nationalistic when it comes to doing business.”

Of course there is always something that can be done better. “There is a definite change in management of the big Bulgarian companies. From one-man-show and family-and-loyal-friends management these companies have become a professional organisations. What is needed however is modernisation of industrial management. It can be done by training Bulgarian managers, sending them abroad on exchange programmes and last but not least by accepting foreign advisers,” Riska says, revealing the recipe for the success of Svilosa.