We have to make big investments if we want to be competitiv


An INTERVIEW of Rumen Sokolov, Investor BG with Daneta Zheleva, CEO of Industrial Holding Bulgaria plc

Industrial Holding Bulgaria plc is one of Bulgaria’s largest industrial holding companies. The holding supports its subsidiaries in their endeavors towards perfection in the respective spheres and stimulates its employees to improve their individual skills. Because of the success of its subsidiaries Industrial Holding Bulgaria generates substantial revenues for the benefit of its shareholders. 
The main activity of Industrial Holding Bulgaria is the acquisition, valuation and sale of company shares, management of portfolio companies and financing the companies in which it participates.
Industrial Holding Bulgaria is the fifth largest privatization fund in terms of the amount of capital accumulated on investment bonds and the number of shareholders out of the 81 privatization funds licensed in Bulgaria. Industrial Holding Bulgaria was registered with a capital of BGN 2,654,985 with 110,000 shareholders being the founders.  After several capital raisings, as at August 31, 2005, the company’s registered capital totaled BGN 21,003,235.
As at June 2005 over 78,000 natural and over 100 legal persons were shareholders in Industrial Holding Bulgaria, possessing, respectively, 51% and 49% percent of all voting shares. 39% of the capital is in the hands of foreign shareholders. As at September 2005 Industrial Holding Bulgaria was recognized as the number one company on the local market in terms of market capitalization among the former privatization funds.

R.S. The consolidated profit of Industrial Holding Bulgaria for the first six months of the year totalled BGN 10,91 million and revenues have increased by over 100% on the same period of last year. What should this good result be attributed to and what are your expectations for annual revenues and company profit for 2005?
D.Z.: This year has been very successful for the companies in Industrial Holding Bulgaria group. As can be seen from the consolidated results for the first six months of the year we have registered a significant rise of profit and revenues. Several factors are accountable for this. The first one is that all of the companies which are part of the holding company registered a substantial rise in their sales revenues. The second factor is that for the first time the holding’s consolidated report figures the company Bulyard Shipbuilding Industry through the holding’s investment in Bulyard. In view of the substantial volumes of sales of services, especially ship repair services, as well as revenues from new constructions, they have boosted the holding’s revenues. The third factor are some of the transactions of companies in the group with long-term fixed assets, the most significant being the transaction with the property in the region of Shkorpilovtsi. 
In view of Bulyard’s well-formulated construction program we can expect revenues in the ship-building industry to increase several times on last year’s figures. We have envisaged a profit of around BGN 10-11 mln for this year and we hope to improve on those projections. 

R.S.: Which of the companies from Industrial Holding Bulgaria have made the largest contribution for the holding company’s positive result over the past years?
D.Z.: Those are companies from the ZMM Bulgaria Holding Group, some of which are listed companies, Avgusta Mebel – a company which is involved in the production and sale of furniture, Dunav Tours, KRZ Port Bourgas, as well as Bulgarian Register of Shipping. 

R.S.: Industrial Holding Bulgaria distributed dividends in 1997 and over the following years whenever the company registered a profit it was allocated to reserves.  Are you planning to adhere to this policy in the future? 
D.Z.: We are currently planning to follow a policy of non-distribution of dividends. In view of the serious investment programs of all companies in the group and their high requirements, in order to remain on the market and be competitive substantial investments have to be made in the renovation of existing facilities and in new projects. We plan to allocate dividends, but we are doing our best to satisfy our investors with the increase in share prices. 

R.S.: Shares prices have risen from 78 stotinki a year ago to around BGN 4 at present. What, in your view, can the price rise be attributed to?
D.Z.: Price rises can, on the one hand, be attributed to the group’s good financial results and, on the other – to the policy we are following of complete transparency and publicity as regards information concerning the holding company. All companies inside the holding company are audited by KPMG and all hold ISO 9000 certificates, which inspires further confidence in their activity and in the holding company’s activity.  

R.S.: In July last year the holding company issued three-year convertible bonds with a total nominal value of BGN 5,250 million. How were revenues from the bond issue invested and do you envisage similar bond issues of this type?
D.Z.: Revenues from the bond issue have been invested in several projects, they were also used to strengthen those activities, but we are unable to make the necessary investments by using our own funds. Part of the bond issue was invested in several projects in Shkorpilovtsi, another part was used to purchase Bulyard shares and we have made smaller investments in Maritime Holding and Dunav Tour shares.    As a public listed company we should make the best use of the fact that our shares have been listed on the stock exchange. It can be seen from the first issue of convertible bonds, which was the first issue on the market, that it was successful for the company and that there was a high return on investment. We are prepared to utilize such a financing once again.

R.S.:  Are you planning to raise the capital of Industrial Holding Bulgaria in order to accumulate fresh resources and provide them to your subsidiaries in the form of investments? 
D.Z.: The accumulation of fresh resources by increasing the holding’s capital is a viable option, but we are not prepared for that before the fate of the bond issue has been decided – that is to say, whether the issue must be converted into capital, or paid out in portions. Afterwards it will be decided whether further issues of convertible bonds are to be made, or whether the necessary resources will be sought by raising the holding’s capital.  

R.S.:  At the beginning of September Bulgarian Register of Shipping, a subsidiary of Industrial Holding Bulgaria, was approved by USA Coast Guards as a classification organization allowed to perform activities inside the ports of USA ship repair plants. What type of activity is the company going to be involved in?
The company was privatized by the holding a couple of years ago and is Bulgaria’s only classificatory organization which certifies ships sailing under the national flag and carries out inspections on behalf of the Naval Administration, related to ships sailing under the national flag. It is affiliated to organizations such as Germany’s Lloyd, the Bureau Veritas, Lloyd Register. Recognition by USA’s coast administration is extremely important to us, as it constitutes recognition of the professionalism of the register’s experts and observation of the USA’s strict requirements. The Executive Director of BRS is soon going to leave for the USA in order to sign the contract. 

R.S.:  Shipbuilding is one of the sectors on which the holding company has focused its attention over the last years. Are you planning to focus your efforts on other spheres of the economy?
D.Z.: Shipbuilding has become the focus of attention in our company following our major investment in Bulyard Shipbuilding Industry. It has been the focus of our attention for some time since Industrial Holding Bulgaria was the second largest owner after the state in the Varna Shipyard before its bankruptcy. To us this sector of the economy is extremely important, as long as the Varna Shipyard has always been one of the ten major enterprises in the country. If we manage to develop the shipyard in the desired way, in view of the favourable conditions for the development of the shipbuilding industry, it could regain its good market positions.    We are actively developing other activities which are for the present time outside the focus of public attention. One of these is the port via Port Bourgas and Odessos in Varna which is to be upgraded as a container terminal.At this time last year we launched a river cruise ship built in Holland. We are planning to build another ship of this type, which will be launched in the lower current of the Danube river, for tours along the Danube again. 

R.S.: How many ships are under construction now in Bulyard Shipbuilding Industry?
D.Z.: At present we have signed contracts for five ships – three for Navigation Maritime Bulgare, one of which is already under construction, and two ships for one of Bulyard’s shareholders. Last week before the holidays we started out the construction of the keel of a ship with construction number 287 –  which has not been done in the shipyard since 1997. We would like to participate in projects related to the modernization of the army, because we consider the multi-purpose corvette project very attractive. We do hope the government is going to support the Bulgarian shipbuilding industry, as we are in a position to participate as subcontractors. The main contractor in the project has not been appointed yet. 

R.S.:  One of your subsidiaries, KLVK, purchased land along the sea coast subsequently sold it out. Do you envisage any such transactions in future and are you planning to purchase land for any other purpose – e.g. for construction purposes?
D.Z.: We sold the land plot in Shkorpilovtsi, because we consider that as far as the return on investment was concerned as a process and time period, the transaction could yield more profit than if we started construction works. The property market is already saturated. One of the holding’s subsidiaries – Private Engineering is running a project for the construction of a holiday village south of Sozopol. For the time being a channel connection to Sozopol has already been constructed as well as a new pumping station. Construction works are due to start at the end of the year. This is going to be a holiday village designed for resale, we are not planning at this stage to become part of the tourism industry, apart from through Dunav Tours. 

R.S.: Over the last years the number of delisted companies is bigger than the number of new companies listed on the stock exchange. Do you regard this as a regular tendency and wouldn’t it be in the interest of the capital market for the tendency to reverse?
D.Z.: More companies should be listed on the stock exchange to ensure the future of the capital market. In Bulgaria the pattern has been reversed – the companies have remained public through administrative procedures. I consider that whoever can feel the good side of public companies is trying to have its shares listed on the stock exchange and collect fresh resources from the market. It is an important indicator that Industrial Holding Bulgaria has become the leader in terms of market capitalization among public companies in the sector.We are convinced of the advantages of Industrial Holding Bulgaria becoming a public company. We have many subsidiaries which are also public companies, but we cannot derive much advantage from that. It would be more realistic and in our best interest for the holding to invest in their projects than if they started gathering resources from the market by themselves. When the management of a company is convinced of the benefits of publicity and follows a policy transparency, openness, accessibility and exposure to the public, the results can easily be felt.

the interview(pdf, 40KB)