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Read our exclusive interview.
|  BULGARTABAC
Manager:
Eng. Boyko Kishkov,
Chairman of the Managing Board
Contact:
BULGARIA
62, Graf Ignatiev Str.
1000 Sofia
Bulgaria
Phone: (359 2) 980 55 03 / 980 59 06
Fax : (359 2) 981 90 41
Telex : 23 288
RUSSIA
1000 Sofia Moscow,
62, Graf Ignatiev Str. 52, Mosfilmovskaya Str.
Tel: 87 52 11 / 147 1403
Fax: 87 88 20 / 143 7613
Tlx: 23 288 / 414 346
BELARUS
Kutuzovski prosp. 7/4,
Corp. 6, 1
Tel: 9748064
Fax: 9748065
Kiev, Ukraine
Minsk, Belarus
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| COMPANY PROFILE |
The administrative building of BULGARTABAC HOLDING GROUP is situated in the central part of Sofia. It houses the offices of the senior management, commercial, production and accounting departments.
BULGARTABAC HOLDING GROUP is predominantly state owned organisation which includes in its structure 22 joint-stock companies. 9 of them are cigarette factories, 12 tobacco processing plants and one for production of printing materials and spare parts for the tobacco and cigarette industry. An institute for tobacco and tobacco products and 2 tobacco research stations are also part of the Holding.
Tobacco buying, processing and export are one of the main activities of the joint-stock companies in the Holding. The oriental tobaccos constitute the biggest share of the tobaccos grown in Bulgaria. On the basis of tradition, experience and skill Bulgartabac exports the world renown oriental varieties: Djebel, Krumovgrad, Nevrokop, Dupnitza, East Balkan, Topolovgrad, Harmanli, Melnik, Ustina, North Bulgaria. The tobacco processing plants also buy and process flue cured and Burley tobaccos produced in Bulgaria.
BULGARTABAC HOLDING GROUP is among the leading cigarette manufacturers in the world. In its 9 cigarette factories are applied the most advanced technologies in tobacco preparation and manufacturing. We are one of the few cigarette manufacturers who print papers and boards, make packs and produce filter rods.
Our cigarette brands cover the whole range of international blends - Virginia, American, European and oriental.
In addition to the high quality their different price categories make them accessible and much in demand in many countries around the world.
The changes in Eastern Europe in the beginning of the nineties had an adverse impact on the exports of BULGARTABAC HOLDING GROUP. Since 1994 a partial restoration of our exports is underway and we look ahead with optimism to regain leading positions in the world tobacco and cigarette market.
Top of page.
| STRATEGY |
 Interview with Eng. Boyko Kishkov
the Chairman of the Managing Board Of Bulgartabac Holding Inc.
Q: There is no doubt that your company is a leader in Bulgaria. Could you give to our readers a brief historical background about Bulgarian tobacco producing?
A: Bulgartabac was established 50 years ago. It ranks in the 6 top companies in the world in this field. Of course, it is natural that the first top places are occupied by American companies. It is normal. This companies operate on big markets in a less restrictive tax conditions which is the difference from the European companies. We think that Bulgartabac is one of the biggest European tobacco companies. I will give you a couple of examples: the population of France is about 60 millions and the French companies produce about 42 000 tones of tobacco and about 50 000 tones annually; in Bulgaria which is a small country, the maximum amount of tobacco production was 130 000 tones annually and 80-82 000 tones of cigarettes. Bulgartabac was set up in the conditions of socialist organisation and it was like green house market. 80% of the of the production of Bulgartabac was export orientated to the USSR, Hungary, East Germany, Ukraine. But also Bulgartabac works on the Near-East markets including Israel ( we have 6-7% of the market there ).
We sell tobacco everywhere in the world, including America.
Q: What are the financial results of your company? Is it in a good financial state?
A: I will just mention the last year financial results. 240 million DEM came into the budget and the net profit is 94 million DEM. These results are achieved despite the stagnation of the whole world tobacco market and also having in mind that we have not still realised the program we adopted last year. One of the biggest programs of Bulgartabac is the one I have mentioned the conditions during it was set up; I can not just pass this program. It was an advantage in the past but now it is a draw-back. We have
4 projects running abroad: one of them starts next week, the second in a month time and by the end of the year we plan to start them all. Our target is to take our factories close to the consumer, which is the normal practice. This is the general policy of Bulgartabac, the retaining and the expansion of its market share. Nevertheless we do 20-23% of the imported tobacco products in the ex-Soviet Union countries: Ukraine, Russia, Uzbekistan, etc. We increased our market share in Mongolia to 82% of the total tobacco and cigarette consumption there. But, of course, Bulgartabac has its own problems which are mainly because it is still a state-owned company. We should admit that this fact prevents the aggressive policy of the company. And we need it like every company does. We have licensed production in more than 12 places in the ex-Soviet Union republics; they hold very good market share there.
Q: Do the American companies have a license to sell and produce there as well?
A: No, this is a specific business field. It is not normal in this field to have a joint venture because the bigger company takes over the smaller. So these are just some factories in those countries to which we are giving license to produce our cigarettes. We think that our market share is quite good, because there are three established major market segments and they do not interfere with each other. So one of the segments is the local production of cigarettes and the second is the Bulgarian cigarettes, which are well known; and the third segment is occupied by Phillip Morris, Reynolds – they have high prices but they have their share as well. The truth is that the three segments do not interfere with each other. So despite of the negative press coverage our analysis shows that each of these three segments has its own place, and there is even a greater demand. I just want to tell you that when I am speaking about tons of cigarettes that means billion pieces. This is the dimension that is used in the world practice.
| Q: There is no doubt that Bulgartabac is facing a big competition. What are your main specific comparative advantages against your competitors in a global market?
A: I think we don’t have any competition in this market. And we are not even competing with leading American companies because the prices are different. So the prices are our main advantage. You know that this market is very polarised, there are many rich people in Russia but there are many poor people. Russia is a country of contrasts and because of them there are these three segments on their market. Another advantage is that the ex-Soviet Union republics are not tobacco producers. The main oriental tobacco producers are Bulgaria, Turkey and Macedonia. We also produce American tobacco – Virginia; we also buy tobacco – 20-25 000 tones per year, mainly from the USA, Zimbabwe, Brazil and etc. The cigarette is like the perfume. You need many ingredients for the composition of a perfume, the same is for the tobacco to produce the flavour of the cigarette. The quality of our cigarettes is good. Two of our factories are running up to the world level with a very modern equipment and modern technologies. There are very good experts that are working there. There were the conditions because of the ex-socialist international agreement – Comecon, that created the tradition of the tobacco industry in Bulgaria. So the recent technologies world wide are concentrated here in Bulgartabac. There are very few companies that build their technical equipment for their factories in this business. Bulgartabac had the chance to contact these factories and equip our factories at a world level, the same machines and technologies like Phillip Morris and Reynolds. We expect a delivery of the newest, the best machines to come, machines that you could not find them every where in the world yet – top technology. So we try to maintain a good quality.
Q: Concerning the privatisation of Bulgartabac, what will be the time frame?
A: But personally, I think that Bulgartabac has to become a normal company with a private capital in it. It has to happen in order to allow the company to maintain its more aggressive policy in the market. It is true that Bulgartabac is in very good health here in Bulgaria and in Europe but we are sure that it could be much better. We think that the potential that the company has it is much bigger, it is not developed to its full extend and there is the possibility of doing that in the next two or three years. We have proposals and offers from famous companies and institutions for the construction of a big and modern factory in Russia. We are going to conduct the negotiation in the following month. you know that the market there is very risky and we are very careful, we do it step by step. We are watching very carefully the development of Russia. You can make lots of money there but you can loose them very quickly and easily. For example, the difference with Romania is very big. It is a stable market, with no fractuations. In Russia there are some specific problems which I would not mention now. Our contacts in Uzbekistan, Tadjekistan, Khazahstan dated long ago so we know the specific situation there. We have found the formula for investments there and if we do not make a mistake we will succeed because the market margin of our cigarettes is very big and good. And the market is very broad, our cigarettes are the middle segment there. We are convinced that we will make it.
I would not like to comment on the matter of the privatisation right now because a lot of interest is being shown for the consultant agents. Some of the biggest banks in the world were applying for acting as consultants – Merill Lynch, Nomura, UBS, Bankers Trust, Creditantstalt, Reifeizen Investment, etc. I think the choice will be very difficult for the Privatisation Agency. Let's not comment because it is a governmental issue. We will support a positive step in the direction of this process.
Q: Could you tell us more about your contacts with US companies?
A: We trade tobacco with US companies mainly – we buy and we sell. There are four big companies in the tobacco field. The market is expanding – these Dimon, Universal, Standard and Socotab. Since Socotab and Universal merged, they are three now. Bulgarian tobacco is in the recipes of the all world wide famous brands of cigarettes – Marlboro, Rothmans, the brands of R.J.R. and B.A.T. ; and the new brands in Russia.
Q: One of the main problems of Bulgartabac is mainly the image of the company. What could be done to improve this image?
A: What do you mean concretely?
Q: For example the image of your packages of the cigarettes.
A: We have improved the packaging and we have 18 new models just for one year. We should admit that our advertising is not at the necessary level. Our cigarettes have been smoked for more than 40 years, they are well known. They are traditional brands.
Q: Our question was directed more towards your advertising strategy compare to your competitors.
A: Yes, the traditional markets are the first reason. We have a good advertising campaign on bill boards all around Sofia. They say that this is one of the most successful campaigns in Bulgaria for the last years. But since we changed the designs of the traditional brands this year, we will invest a lot of capital in the advertising of these new design brands. These are traditional brands, so they have their market share and their traditional consumers. A person would hardly change his favourite brand of cigarettes I just because of the good advertisement. We think a lot of attention should be paid to the new brands, in terms of prices as well so you can make a smoker change his traditional brand. Next year we are going to invest again a lot of money in advertising.
Q: You are the leader of one of the biggest companies in Bulgaria. As a more global question, how confident are you for the future of this country?
A: Yes, I am confident. I would like that Bulgaria takes its merited place in all fields and structures in Europe and in the world with regard to the economy, politics and culture. I trust and fully support the program and the efforts of the Government of Bulgaria for the social and economic stabilisation of the country and to overcome the backwardness in this very complex situation of economic reform in the country, involving unpopular measures.
Q: As a more personal issue, what has been your most satisfying personal achievement since you have been the chairman of Bulgartabac?
A: We managed to develop the new brands of cigarettes. It is also the new investments abroad, the production has increased 2.5 times this year. But I will be really personally satisfied if I manage to set up four factories abroad. Then may be I will be able to give you a more direct answer.
Q: As a final issue, keeping in mind that you are reaching 2.5 million readers, what would be your final message to them?
A: I am going to say an old Bulgarian saying. It is very old. So there was this God of the Bulgarians – Tangra, who said that life was eternal but it is very short under the sun. taking this as a base I would like no conflicts existing so people could make good business. And I am convinced that people who are really capable of making business they do not create conflicts. I would like all people to be businessmen and negotiate like businessmen, and then the contrast which is present now will disappear. Conflicts are pointless, they affect everything in a negative way. This is my hope and final message.
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© World INvestment NEws, 1998.
This is the electronic edition of the special country report on Bulgaria
published in FORBES Magazine's
November 30th issue.
Developed by AgenciaE.Tv
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BULGARIA, 
