Unofficial Translation

Gorod N

Vladimir Melnikov: "Our Goal Is $1bln. in Turnover a Year"

By Sergei Stroitelev
April 23, 2003
Page 2

In April 2003 Interactive Research Group (IRG), an independent market research firm, presented a list of the "Top 100 Emerging Companies of the Russian Consumer Market" in Moscow and London. Two enterprises from the Rostov region, Gloria Jeans and Yug Rusi, appeared on the list. Judging from the research, the analysts tried to indicate to Western investors the most promising, fast-growing and financially attractive Russian companies. We plan to publish an interview with the head of Yug Rusi, Sergei Kislov, in one of our next issues. Gloria Jeans' president Vladimir Melnikov pointed out two reasons behind the company's breaking onto the "tidbits list." The market for jeans is very promising in Russia, but the firm was also given credit for its transparency. He added that both factors would greatly favor Gloria Jeans in the near future either in negotiations with strategic investors or in the course of entering Western stock markets.

Q: What is your attitude toward this research? In your opinion, why did Gloria appear in the list?

A: There are neither raw material companies nor well-known companies, such as Wimm-Bill-Dann, on the list. In other words, IRG analyzed the "second echelon," fast-growing Russian companies in the consumer market, targeting a turnover of $1 billion. I think there should have been a firm representing the agricultural business on the list. As for my company, we have just demonstrated that the agricultural segment is not the only area to reach success. The experts probably took into consideration the market prospects (believe me, the prospects are very good), as well as the corporate structure, reputation and transparency of the company.

Q: What do you mean when you refer to the transparency of your company?

A: We are ready to answer any questions from our partners about the company's activities, ownership structure, salaries, the situation on the market or labor management. Part of this information is accessible on our website free-of-charge; more detailed questions are promptly handled by our experts. There is a considerable flow of requests from abroad. The company has been offered joint ventures, promotion of our products in new markets and investments. We invariably stress our openness. In my opinion there is no other way to develop. Try to ask me a question I would not be able to answer.

Q: In terms of ownership the situation is clear: in purchasing the 25 percent stake from the EBRD, you became the sole owner of the company. How much did you pay? As far as I can remember, this information was classified. By the way, have you paid it off? Is the deal finalized?

A: The shares have already been transferred to me. The agreement with the EBRD was that we would pay in installments. The last payment of $600,000 is coming soon. The total price for the 25 percent stake stands at $6,000,000.

Q: The EBRD had bought this stake for $3,000,000, which means they received a 100 percent profit after four years.

A: Or 25 percent yearly interest in hard currency.

Q: That is not bad, even for venture capital.

A: I hope that this experience will help us in our further search for an investor.

Q: When you decided to part with the EBRD you mentioned your need for a strategic investor. Many ask why, given the good shape and fast growth of your company.

A: It is quite simple. Our goal is to reach a turnover of $1bln, compared to the current figure, which is slightly over $100,000,000. It might take us 10-12 years to do this by ourselves. With the help of a strategic investor, it would be feasible within 4-5 years. Investors can provide the company with cheap money and advanced technology. I am certain that I would rather own a small part of a large business, than vice versa.

Q: You have not found such a partner yet. What is the problem?

A: It is a double-sided problem. We must work out a new strategy and rearrange our priorities. Our old strategy was formulated back in 1998. Then, our production volume accounted only for $15,000,000 a year. Now the scope is different. This means that we should change the team and set up new goals. We are going to invite one of the top three consulting companies in the world to work on Gloria's new strategy. This service is extremely expensive - $5-7 million. Some people are trying to talk me out of it. After all, we worked really hard to make this profit. However, we have to go for it in order to keep progressing to new levels. Actually, we are not quite ready to answer the questions of serious investors. On the other hand, serious investors are shunning us. They just say: "Your country has always swindled us." They need high-level guarantees. This is certainly another problem.

Q: Are there any other ways to boost your development?

A: We have interesting offers to place our shares on the New York and London stock markets. I think when we reach $250,000,000 we will be able to do that. The prospects for getting large amounts of cheap money for further development will be real then.

Q: To what extent is the attractiveness of the region and location of the investment subject important for a particular investor? If a company is evaluated in terms of market prospects and transparency, what is the main attraction to a particular region?

A: Certainly this is taken into account. We can see some common traits in firms. If a company is not transparent and is engaged in shady business, I, as a chief, would appoint people personally loyal to me to key positions. These top managers are trusted. If I am in a legal business, I have no need for loyal people. In this case I invite professionals and set only professional tasks. Only professionals are able push a company forward. Although in politics the situation is not as simple, transparency is a great advantage for both a company and a particular region.