Head of ER-Telecom, Andrei Kuzyaev: “Moscow is not number one in our priorities”

Former head of LUKOIL Overseas and head of ER-Telecom, Andrey Kuzyaev, told RBC about his past and future projects, about the family business that has grown into a private investment fund, about the failure of ER-Telecom's IPO, about the state of the telecommunications market, about projects M & A and much more.

"Megamind" leads the most interesting quotes from the interview .

About work in LUKOIL and transition to “Er-Telecom”

After a certain stage of development of LUKOIL Overseas, I fulfilled all my obligations to LUKOIL and found myself at a fork. We discussed the situation with Vagit Yusufovich. And he and I decided that I could leave and engage in private business and this would not do any harm to LUKOIL or me. In LUKOIL I gained experience in managing large investment projects and I know that the quality of the decisions made is important in them.
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While I was working in LUKOIL, I was the passive shareholder of ER-Telecom. After I decided to go into private business, I worked for a while as Chairman of the Board of Directors of ER-Telecom. But this status did not give me the opportunity to effectively manage the processes in the company. The chairman of the board of directors has no right to give instructions, orders. Together with [the director general of ER-Telecom] Andrey Nikolayevich [Semerikov], Baring Vostok and other shareholders, we decided to introduce the position of the head responsible for the long-term strategy.

Another problem is that for a long time ER-Telecom and the Perm financial-production group ( PFI -group) was a symbiosis, where PFIG had some of the management functions of ER-Telecom. Due to the fact that we decided to attract new investors and expand debt financing, ER-Telecom was to become a full-fledged corporation. We have introduced two positions - the general director and the president, who have clearly distributed powers. The president is in charge of development strategy, public relations and financing issues, and the general director is responsible for operations and investor relations.

About Perm Financial and Industrial Group

PFI-NGF is a private investment fund of my family, and ER-Telecom is a company with a different set of shareholders. I, through the Cyprus jurisdiction, own all the assets of PFIG. We from ER-Telecom make a full-fledged corporation with a flat management structure and good decision-making speed. I have been in business since 1990. PFIG next year marks 25 years, we are one of the oldest companies in Russia. ER-Telecom is the PFI-group money, which we earned, including from the sale of our stake in LUKOIL-Perm. But we had other sources.

Our direct investments in ER-Telecom amounted to about $ 240 million at the rate of 33–35 rubles per dollar. The cumulative investment in ER-Telecom amounts to about $ 850–900 million. Besides our own money, there was a rather large [credit] leverage of Sberbank . We are actively cooperating with all major banks of Russia, in particular with VTB .

About the revenues of PFIG and ER-Telecom

ER-Telecom has 22 billion rubles, while Neftservice Holding has 24 billion rubles. Consolidated revenue of PFIG for 2014 - about 54 billion rubles. We are a non-public company, so you will not see our reporting in the public domain.
Over the last five years, ER-Telecom has been growing at a rate of 40–45%, in 2008–2009 - 100–150% per year. We were the fastest growing company in Western and Eastern Europe, North Africa and the Middle East. In the Deloitte-500 rating from 2010 to 2012, we were in the top three fastest growing companies in Russia.

About new partners of ER-Telecom

Now is a bad time to attract new partners, so for now we plan to independently develop all our projects. You can attract money in different ways. In the conditions of crisis and devaluation, it is obvious that raising equity capital is not an attractive way for us to finance our projects. We have a stable financial position and high investment international ratings, they are not public, but we work with two international rating agencies. These ratings allow us to obtain financing in an acceptable amount and the necessary scale in both Russian and international markets.

On refusal of ERO-Telecom IPO

We did not refuse, but the market refused. As soon as the market returns to its former state, we will also return.
Now in Russia there is a panic: the dollar has strengthened to almost 70 rubles, the price of oil has dropped below $ 50 a barrel. According to experts, we will get out of this situation for years.

Obviously, we will choose a certain amount of time, but the crisis creates sources of growth for new investments, and this is a positive thing. Another positive point is that opportunities are opening up for further import substitution, the development of our own engineering, instrument making, and food production. All this new features.

About M & A projects

A new type of business, which we had not previously engaged in, appeared - M & A [Mergers and Acquisitions - mergers and acquisitions]. We stated that we were entering the public investment market, so we needed a leader who, together with the CFO [Chief Financial Officer - CFO], would deal with issues of interaction with the investment community. M & A is a long process, you need the right time, financing, it is necessary for the company to meet your strategic goals.

Today, about 60–65% of the cable television and broadband Internet access markets are controlled by five players along with ER-Telecom [ Rostelecom , VimpelCom , MTS , MegaFon ]. The remaining 40% is an unconsolidated market: over 200 companies work in the market. We are present somewhere in the 60% of the market and have chosen those assets that interest us: we negotiate with them, analyze their opportunities for acquisition.

On expanding influence in the markets

Today, if we talk about households, our penetration in Russia is 27%. We are aiming at a rate of 45–50%. If we have free money, then first of all we direct it to organic growth and consolidation of those markets where we are already present. The higher the penetration, the higher the EBITDA. Our EBITDA margin is 45%. Last year we ended up with 40%.

In our priorities, Moscow is not number one. To enter Moscow, it is necessary to have the appropriate financial potential and financial resources. And we should be fine behind our backs. If ER-Telecom has investment resources, then first of all they will go to our regional assets. So for Moscow, I can confidently say, we have not yet matured.

We have several competitor groups. The Russian fixed business market is one of the most competitive in the world. In Europe, residents of one apartment building have the opportunity to connect to one or two operators. In Russia, these are three, four, five operators. In addition to the federal, there are regional operators, and these are strong companies. For the six regional markets, they are the undisputed leaders, they are stronger than any federal player.