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Financial Times: SIBUR’s Konov aiming for Expansion

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A recent Financial Times piece analysing SIBUR’s expansion plans under Dmitry Konov, its longstanding chief executive. Under Mr Konov, the company is investing $1bn on two new plants which are expected to boost polymer production six-fold in the span of a decade. This is just one step for the company who are determined to become a truly international player. The others have been selling off non-core assets, such as tyre production, and focusing on being a petrochemical producer.

Notable developments for the company include the $8.5bn ZapSibNeftekhim, which will be operating at a rate of 2m tonnes of polymers per annum from 2019 and the $7.5bn Amur plant which will become operational by 2024. These successes are being matched by management changes. SIBUR has given more autonomy to regional operations as opposed to running a heavily centralised operation from the headquarters. This helped to provide a greater focus on strategy and fresh growth opportunities.

Founded in 1995, today SIBUR is a leading Russian integrated petrochemical company, employing over 27,000 people and serving customers in over 80 markets around the world in a range of industries including FMCG, automotive and chemical. It focuses on production of petrochemicals required by manufacturers to delivers quality goods around Russia and the world.

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Financial Times: SIBUR’s Konov aiming for Expansion

  1. 1. Dmitry Konov says he has given up trying to understand the chemical reactions that fizz and bubble through pipes that run through the processing plants of Russia’s largest petrochemical company. That is probably for the best. He has far bigger things to worry about. A decade ago, Sibur was a mid-stream gas company making a steady living as a cog in Russia’s vast energy industry wheel. Now it is halfway through a period of extraordinary growth and a change of focus that will transform it into one of the world’s biggest petrochemical producers — and give Mr Konov one of corporate Russia’s biggest to-do lists. Formed in 1995 by the Russian government, the company was an unwieldy collection of 60 or so Soviet-era companies that spanned everything from gas processing to rubber production when Mr Konov took charge. Taken private in 2010, it spent Rbs650bn ($9.7bn) in his first decade as chief executive on upgrading plants and building new ones. Now, a $16bn bet on two new production plants will see the company’s production of polymers grow six-fold over the decade to 2024. Mr Konov is weighing whether to proceed with an initial public offering. And his growth strategy means he has thrust himself to the forefront of Russia’s quest to deepen ties with China. At the same time Sibur has upended its culture and outlook, leaving the 48-year-old chief with another pressing challenge: how to build a major global company from the inside. “We are taking big steps towards the international big league,” he says. “We like to joke that it is only because we started from a low base”. That means new ways of thinking and a new language: “Sibur started out as a mid-stream company. When we talked about working for customers, we were referring to our suppliers,” he explains. “Now we have started to see customers as the people who buy our products. And that’s a big change in the culture.” Mr Konov marks a dozen years as CEO this year. In that time, he has disposed of non-core assets such as tyre production, and repositioned the company as a producer of petrochemicals: an industry where Russia lags behind other energy superpowers, such as the US. Instead of exporting crude oil and raw gas to unpredictable markets, Mr Konov’s strategy is to use Sibur’s Dmitry Konov: betting on expansion | Financial Times https://www.ft.com/content/f8ec06d6-a7c9-11e8-926a-7342fe5e173f 1 of 3 10/10/2018, 17:22
  2. 2. those raw products to make higher-margin plastics, and he has bet on two new projects that will turn Sibur into a global company. They will also mark his tenure as a success — or a failure. In Siberia, the $8.5bn ZapSibNeftekhim will start producing 2m tonnes of polymers a year from 2019. As soon as ZapSib is running Mr Konov will focus on another mega-project: the $7.5bn Amur plant close to Russia’s eastern border with China. Sibur reckons it could start production after 2024 and add 50 per cent output to its production. “We are basically doubling our petrochemical capacity with ZapSib, and almost trebling with Amur,” says Konov sitting in Sibur’s dark wood and glass boardroom in southern Moscow. Mr Konov anticipated the expansion by rebuilding the company’s management in 2016, replacing his CFO and devolving power to regional operations. He reasoned a bigger company could no longer be run solely from Moscow. “We shifted our management structure a little to focus more on strategy and new growth opportunities,” he explains. Mr Konov is frank compared with many Russian chief executives. He is younger than most, and he speaks flawless English — another uncommon trait among senior Russian business people. His relaxed approach to the media and investors casts him as a western-style leader, and reflects his belief that a culture change should be led from the top. He scribbles pencil charts on the back of his company presentation to explain how it plans to restructure the geography of sales. Self-deprecating remarks about Sibur’s lack of international recognition follow jokes about US sanctions and foreign politicians. “I realised one moment that I would never be able to understand all the chemical reactions, so I quit trying,” he says. “I know what products go to each industry and the economics of each process. That’s enough for me.” Then with enthusiasm, he sketches out a 30-month process to show how a particular Sibur product ends up making bottles for eyedrops, as I struggle to keep up. His biggest difficulty has been persuading others that his strategy is right. The massive investment programme — funded by cash generation — has met resistance: “People who have been observing us for the past decade are a little tired of us investing everything we earn — including our bondholders,” he says. “The most common question is: ‘When the hell are you going to finally stop investing all your profits?’” How does he answer? “I tell them, listen: ZapSib costs us in capital expenditure about $2bn a year. We earn $3bn of ebitda. So even if ZapSib doesn’t earn us anything when we stop spending money on it, we still have enough money for you as bondholders to get paid. So don’t worry.” On an IPO, he says only that he is “struggling to reject attempts from banks to lend us more money”. But people briefed on the talks say discussions are under way, and a $2-2.5bn listing could take place this year or next. Previously solely domestic, in 2015 Sibur sold 10 per cent of its shares to China’s Sinopec for Sibur’s Dmitry Konov: betting on expansion | Financial Times https://www.ft.com/content/f8ec06d6-a7c9-11e8-926a-7342fe5e173f 2 of 3 10/10/2018, 17:22
  3. 3. $1.3bn. A year later, China’s Silk Road Fund bought another 10 per cent. Those deals unlocked cash for the projects, but more importantly gave Mr Konov a foothold in China, where Sibur expects most of its new production to be exported. He may not understand how gas becomes plastic, but he does know that increasing output 500 per cent in a decade is pointless without new customers. “In the past, whatever we bought, we had no problem to sell. We had twice as many buyers as products,” he says. “Now, the guy with the hardest job in the company is clearly the guy in charge of sales.” Sibur’s Dmitry Konov: betting on expansion | Financial Times https://www.ft.com/content/f8ec06d6-a7c9-11e8-926a-7342fe5e173f 3 of 3 10/10/2018, 17:22

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