Company’s Strategy & Development Prospects. Interview of Yuriy Atanasov

- Foremost I would like to hear your assessment of the most significant CENTRAVIS achievements in 2013. Recently, the annual strategic meeting with SMR Research Company has been held.

According to the analysts, last year CENTRAVIS doubled the field growth rate as well as total share in the world market and delivered significant results. What achievement can be highlighted?

The Company demonstrated good result in 2013 but it is not interesting to discuss last year achievements in the middle of the current year. The results of the meeting with SMR are more interesting to be discussed in terms of prospects and potential growth. My main impression of the last year results is not just the Company’s achievements but the growth of our key competitors at least at the market level. This means growth of the potential share we are competing for. It should be noted that the analysts’ data is in conflict with a popular myth that the most market share of European and Japanese advanced manufacturers will pass to Chinese ones. This myth has not been confirmed yet.

– What is the reason?

The market is more diversified in terms of requirements to the products, technologies, steel grades, certification and supplier qualification. The example is a trend in hot finished tubes segment observed within the last years. In my opinion, sooner or later stainless steel tubes market players will understand that hot seamless tubes segment should be divided into 2 large sub-segments similar to market division between seamless and welded tubes (currently there are reverse processes happening – return to seamless tubes in some complex critical applications). Shall we call them “extruded” and “pierced” tubes. Extruded tubes are produced by extrusion applied by the top European manufacturers including CENTRAVIS. Pierced tubes are produced by piercing. Most Chinese and Indian manufacturers as well as those using their mother tubes are present in the second sub-segment.

– The segmentation principle is understood but why extruded tubes shall be demanded in the market?

It is obvious. In terms of products quality and applications pierced tubes will never compete with extruded ones. Even properly repaired they still have hidden inner defects those cannot be completely removed neither by rolling nor by grinding.

Therefore, on the results of the meeting with SMR analysts the key trend of 2013, in my opinion, was growth of European and Japanese market share actively promoting extrusion philosophy in mother and finished tubes production. According to this there are good opportunities for the further Centravis share growth as well as more competitive solutions in hot-extruded tubes segment.

– Centravis increased sales of cold-finished products taking the second place in the world by instrumentation tubes sales volume. What does this achievement mean for you?

I would not say that instrumentation tubes are something exceptional. Absolutely, this is a prospective segment. Our growth in this segment ensures planning of new investments into production development focused on expansion (purchase of new rolling mills, bright annealing furnaces) as well as process improvement – reduction of passes, finishing steps, production costs as well as labor efficiency increase. A number of companies will try to repeat our success. The main thing is keep on growing in performance and volumes. It is true, we are not the first – we are the second and the gap between us and the leader is still significant but there is a potential for our growth.

– Back to the current situation… What factors, in your opinion, will influence the Company’s operational performance in 2014?

These are mainly internal factors. External factors are favorable and we have a good background for active growth. The main thing in ensuring sales growth is not to lose the service quality and not to place our image of stable and reliable supplier in doubt.

– So, focusing on the internal factors, you mean there are no restrictions in terms of the market?

It would sound too ambitious. No manufacturer can state that all products will be sold and produced no matter what happens. But if we currently talk about priorities and key success conditions we are focusing on our operating activity. We want to achieve maximum efficiency in execution of our commitments. Enhancing or weakening of our competitive positions and, as a consequence, potential to growth and development depends on external market perception.

– You should agree that outside threats cannot be ignored. Situation in the east of Ukraine is currently extremely unstable. What influence does it have on the Company’s business? What does the Company undertake to minimize the risks?

Capabilities of the individual manufacturer related to political and humanitarian risks management in the country are limited especially in short-term. We inform our customers by all possible means on our stable production. Shipments are according to the schedule. We have redirected transport routes bypassing the risk areas. Influence of this situation on the Company’s business is insignificant. But we understand that further destabilization of the situation in the region could affect the Company’s ability to attract project orders. The key factor in this case is in-time production, no delays are possible. Therefore, the biggest customers and global players prefer to avoid any risks associated with Ukraine.

On the other hand, it should be noted that processes developing in Ukraine at the moment can have beneficial effects for our Company and Ukrainian business in general. Clearly there is a tendency to improve the business climate and build a system of relations between the producers and fiscal and regulatory agencies based on transparent and predictable rules and laws. If these trends are developing into a long-term state policy, Ukrainian companies will receive a long-expected opportunity for systematic development and become less vulnerable to any political risks. Therefore, we are optimistic. First of all, stability in the current situation is ensured by the people, our daily activities, work quality and devotion.

– What are you doing to maintain the customers’ interest and confidence in the Company in the context of events in Ukraine?

Our main argument is a stable performance of obligations under the orders. In this situation, timely and transparent communication in all matters arising in the course of the orders execution is of a great importance. Our customers shall have a clear understanding that the current situation is under our control, but not the other way round.

Meetings with our customers at our production site in Nikopol are the best way to maintain customer’s confidence in CENTRAVIS. Our main task is to be attractive supplier regardless of any difficulties.

– Talking about the prospects – while planning the future growth, CENTRAVIS has high hopes for new, unconventional markets – North America, Southeast Asia and Middle East. What are these ambitions based on?

I don’t like the word “unconventional.” “New” is better but still does not give an adequate idea of ​​the business situation. For example, in America, we have been selling our products for about 8 years. CENTRAVIS is well known here. Until now, many players and market experts aware of the Company’s potential are openly commented our sales strategy in the USA as the “strange” one. Customers are familiar with our product mix and products. They are confident in our quality and our customer service. Therefore it was difficult for them to understand why we have not increased the U.S. market share for so many years. So a year ago we finally started active work to increase sales in the U.S. resulted in a positive response from the customers.

Work over the Company’s active growth stage took us less than a year. I’m talking primarily about long length furnace tubes mix that enabled us to increase our competitiveness significantly. In addition, we got a number of certifications. In my opinion, we have a good chance to double the sales in the U.S. market in 2014.

– Talking about furnace tubes, do you mean that the target industry in the US market will be petrochemical industry…?

In general – yes. But, usually, one industry leads the other ones. I am back from USA a week ago. I do not remember the last time I experienced such an emotional lift. The U.S. market especially oil and gas industry is experiencing a colossal boom. One week stay in this environment in constant communication with experts, players, consultants and technologists gives an incredible boost of energy. Only in the USA there are now so many projects at different stages that you don’t have just enough time to fix all the places of new oil and gas refinery facilities construction. What does it mean for Centravis? It means that all these projects require the most resistant stainless steel tubes meeting the highest standards in terms of quality, length, diameter to wall thickness ratio. Not all but just few manufacturers are able to fulfill these requirements without appropriate equipment. CENTRAVIS has such equipment. We intended to take the opportunities offered by the US market to the maximum.

– What steps do you plan to take not to miss these opportunities?

We do not plan to take any special steps. We do not suffer campaigning and work on long-term programs derived from our business strategy. The example is our project on forming Team America in Ukrainian office, providing non-stop virtual and practical support of our office in Houston. This is not just an immediate decision. The concept of proximity to the customer is a part of the Company’s business strategy. We implemented it in the CIS and Europe. Now it works in the USA. Although it was not easy to do, I was pleased to hear positive reviews from American customers. No European supplier offers anything like that except us. They consider this as the main distinctive feature of CENTRAVIS as a partner going a step further, offering interesting solutions and making correction of errors constantly adjusting and developing its service.

– Since we are talking about the sales team operation which has been greatly changed this year, what conditioned these changes?

Introduction of changes in the sales team as well as all other changes within the company is one of the steps towards the implementation of our strategy. We aim to become a global player. To do this we go deeply into procurement processes and consumption of our products. We see that within the same project procurement can be made, for example, through an office in Paris, with our products processed in the other part of the globe and subsequent delivery to the third one. Thus, assessing the need in global coordination of project orders we decided to introduce the Global Products Leader Institute in the Sales Division. They are responsible for marketing and support of our area sales by target segments and sectors.

In parallel, we conducted a rotation between market sellers to activate the experience sharing process and thus accelerate our development. For many years we have been successfully operating in the CIS, Europe and America. Current consolidation and proper use of knowledge and experience by individual markets will help us to be able to build sales team with a unique set of our industry expertise.

– If you were asked to choose just one word that most accurately characterize current development of CENTRAVIS what word would you choose?

It is a difficult question… The word that first comes to mind is “performance” in English. We have been accumulating potential, investing in new equipment, developing skills and getting a unique experience with this equipment for many years. We have passed certification and proved our competence with trial supplies. As a result, CENTRAVIS team created all the necessary conditions to implement this potential in the form of sustainable growth giving stable and outstanding results.

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