Finance Emerging Europe: Modernisation Test Case

Taras Popov, CFO of Optogan, leads a restless life at the moment.
His company, an LED producer, is taking root in Russia, making it one of a few innovation companies in the country. And the Russian Government is paying special attention to how Optogan performs.

>> Mr Popov, Optogan has been operating in Russia since June 2009. How difficult was it to start up a business during such times?
<< There are few innovative companies in Russia and those few are crucial for the country politically and financially. I think it is not very difficult to set up innovative companies in the current economic climate. They usually have transparent management structures, transparent sales markets and clear forms of production. This makes it quite easy for them to attract investors. Optogan, for example, receives tremendous support not only directly from the Russian government, but also from its shareholders.
>> What kind of support do you get from the Russian government?
<< Two of our three shareholders, Rosnano and Republican Investment Company of Yakutia (RIC), are fully owned by the state. We received a three-year loan worth RUB 2 billion (EUR 51 million) from them at very favourable terms and conditions. Additionally, we can use guarantees of these two state-owned companies as a financing instrument. This benefit of cheaper financing is the most important direct support the Russian government provides us. However, together the two state-owned companies own only 49 per cent of Optogan. Onexim Group, a private investment fund, and the founders hold the other 51 per cent stake. I believe we represent a very successful example of a mixed public and private investment.
>> You mentioned RIC had invested RUB 2 billion in Optogan. How much investment has your company received from the three investors in total?
<< According to our business plan we will receive RUB 3.3 billion this year, which is about EUR 85 million. In addition to the 2 billion ruble loans we received from our state-owned investors, we also have subscribed capital worth of nearly RUB 1 billion.
>> And what did you spend all this money on?
<< The billion ruble subscribed capital was used on modernisation of our technological equipment. As we did not buy this equipment in bulk, we had to pay up to 100 per cent of the total price in full. And in May this year we bought Elcoteq, a plant that will produce our LEDs. The plant itself is in great condition, and most of the technology equipment purchased will be employed directly without significant adjustments. This acquisition alone saves our project timeline one and a half years.
>> Was it complicated to buy a plant during the economic crisis?
<< It was actually quite easy - the former owners had some liquidity problems. We offered a good price against our competitors and even that sum was still 30 per cent below what would be considered a normal market price. But it is already clear that we will outgrow Elcoteq, so we plan to construct another plant near St. Petersburg in the second quarter of 2011 and extend our production unit in Dortmund, Germany. For the time being, however, our growth plan does not involve any further acquisitions.
>> What is your personal role during this period?
<< We are just beginning to establish our business in Russia, so I dedicate a large part of my time to business development and networking. I am also engaged in monitoring foreign exchange markets and carrying out the tenders for the purchase of our technology equipment. At this point, our shareholders help with establishing business contacts while I am responsible for inter- corporate relationships. This involves negotiating finance and economic schemes to determine who gets access to which funds and where the profit and loss centres are within the group.
>> What do you think of the government’s goal to modernise the economy and make it less dependent on natural resources? And how do you benefit from this?
<< Optogan is actually a pilot project under this strategy. It complements the scientific potential that was already developed during Soviet times with modern research. Our scientific founders also have profound international experience. Our task is to combine this experience in research with successful business. The government observes our successes and monitors our development, like how well we generate tax revenues. To some extent, therefore, our project will be a showcase of whether or not innovation projects can be successfully implemented in Russia.
>> Is the LED market in Russia large enough for real success?
<< Yes, it is. The federal law on the modernization of the Russian economy also drives the promotion of energy-efficient technologies. For us, that means our products will benefit from a steady increase in this specific Russian market.
>> But what happens if Russian consumers cannot afford the LED technology yet or simply buy them from established, often foreign companies?
<< Our prices for LEDs can definitely compete with world market prices. Our products are priced even lower than producers like Phillips or Osram. We also give a guarantee for our products that will create trust among our customers. Of course, Chinese manufacturers offer their LEDs even cheaper, but the quality is equally much lower.
>> Will you sell your products only in Russia?
<< Not only in Russia. Besides our other clients, we would also like to supply large LED TV producers with our products. We
plan to supply to foreign customers once our plant starts working at full capacity.
>> When are you going to implement that?
<< That is still some way down the line probably, no earlier than the second quarter of 2011. ||

The CFO
Taras Popov was born in 1978. He graduated from Amursk State University with a degree in economics, specialising in finance and credit. He started his career as an IFRS specialist at Alros, a manufacturer of aluminium product, in Moscow. Mr Popov has also held vice president positions at Continental Finance and at Grosbukhaudit, an auditing consultancy. He was also deputy prime minister for economic development in the Republic of Sakha (Yakutia). He joined Optogan as CFO in 2009.

The Company
Optogan was founded in 2004 in Espoo, Finland, by three Russian scientists and entrepreneurs, Maxim Odnoblyudov, Vladislav Bougrov and Alexey Kovsh. Since then, the company has received several rounds of financing from European and Russian venture capital and investment funds. It took Optogan five years to develop technology of high-brightness light-emitting diodes (HB LEDs) for various applications including solid-state lighting. Optogan Group has operations in Russia, Finland and Germany and achieved a turnover of RUB 1.2 billion (EUR 31m) in 2009.

Источник: Finance Emerging Europe