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Vladislav Soloviov, CFO of Russian aluminium giant, Rusal

You probably have a mental picture of what the Russian aluminium industry
looks like: big, dirty, old plant and machinery, unmotivated workers, rank

Think again. The picture on this page is of Vladislav Soloviov, the chief
financial officer of Rusal, the larger member of Russia’s aluminium duopoly and
the third largest primary aluminium producer in the world after Alcoa and Alcan.
With revenues of $5.4bn, the company is proving an attractive proposition to
international bank syndicates, which have lent the group hundreds of millions of
dollars. An IPO on the London Stock Exchange is being mooted, if not actively
pursued at present.

And while, as a privately owned business – Chelsea owner Roman Abramovich
used to have a large stake – Rusal doesn’t reveal its bottom line, Soloviov says
that its profit margins are not less than those of other players in the world
aluminium industry His ambitious aim is to make Rusal the number one player in
terms of sheer size as well as efficiency and productivity.

There is one thing more striking than the fact that Soloviov is just 32 years
old, and that is the fact that he was a remarkably youthful 27 when he first
joined the company as director of the accounting department at a company that
more or less didn’t even exist at that time. Rusal was created in 2000 out of
the merger of two aluminium businesses which, between them, owned a number of
disparate mines and smelters and other assets that had changed hands several
times – sometimes violently – since the collapse of the Soviet Union.

Only one of those companies had anything that could possibly be described as
an accounting department. The other had nothing. Soloviov, then still in his
twenties but with a degree from the State Academy of Management under his belt,
had to create a finance department virtually from scratch.

“There wasn’t budgeting, there wasn’t planning, there wasn’t finance at all,”
he recalls “There weren’t the financial programmes, there wasn’t an accounting
system, there wasn’t a managerial system. But within three months we created
that: we established a system, we prepared the first business plan for the year
2001; for the year 2000 we didn’t have a business plan, we just worked through
the plans for each month. It was very difficult.”

The problems that that sort of anarchy causes can barely be imagined. “There
were a lot of problems with cash,” Soloviov says. “We faced a lot of problems
with that – every day. But after the first year we established a quite good
managerial system.” Within three years of Soloviov’s arrival at Rusal he had
initiated the installation of SAP R/3, a project that is now nearly complete.
The transformation in the company’s cash management skills has been
extraordinary. “I don’t remember the last time we sat together and said, ‘We
don’t have the money,’” he says.

“It was really difficult because it was different teams,” he says of the
merger. Then he corrects himself: “There weren’t teams at all – but there still
existed people from [the two groups]. It was a very painful process the first
year because we did not have the people, we did not have the resource.” Two main
things had to be done: get new people and change the culture of the business.

Soloviov had a very straightforward way to change the culture in a business
that had not previously been used to thinking in terms of budgeting or
accountability. “We explained to them from the very beginning that without
planning and accounting we can’t build any strategy because we do not understand
what’s going to happen tomorrow. And we explained to our functional departments
– like the sales department, the purchasing department for our smelters – if you
would like to have the money on time, please give us your forecast about
purchasing and about sales. This is a very good strength: to have the money in
one hand and explain that you don’t get it if you don’t give us a good forecast
If you have a good forecast, you will have the money – that’s how we convinced

Soloviov recruited a lot of people who had experience working in western
companies and understood how the business and its finance department should
work. Finding them wasn’t easy, but it was easier than trying to change and
educate those already in place, he says. Now, though, the company is more able
to devote a lot of money to training and development. Most of the key people on
his team have the ACCA accountancy qualification and, for all his clutch of
business school degrees, Soloviov himself is a student member and has passed six
of the 12 exams.

The finance department that Soloviov now heads is responsible for budgeting
and planning, treasury, corporate finance, tax, insurance and IT. It produces
(but doesn’t publish) accounts under US GAAP and uses international financial
reporting standards Russian GAAP is about to be dropped other than for tax

Soloviov himself is not only CFO but also chairman of the construction
committee, so he has to know a lot about how to build a smelter. Soloviov
explains that, with a growth and expansion programme as ambitious as Rusal’s,
construction is a big part of the strategy “I have to be there and I have to
understand how it works. I have to understand, do we have the right people there
or not?” Indeed, Soloviov can wax lyrical about the smelting technology that
Rusal is developing that he says will give the group a significant capital
expenditure cost advantage over almost all its foreign competitors.

But Soloviov has achieved all this while having to learn how to do it. While
he had experience in the Russian tax department and as an auditor, he had never
been part of a project of this magnitude before. “I was very experienced in
accounting because I was an auditor, and in planning and budgeting processes as
well. But I didn’t have experience of being a real financial director. For me,
it was also a painful and difficult process to educate myself to understand how
it works. Of course, a lot of mistakes were made – but I think there weren’t any
crucial mistakes.”

What sort of mistakes? “Dealing with people – that’s the main thing,” he
says. “You have to choose the right people at the right time. That’s the first
one. And the second one: you have to understand what your people are doing
better than they do. If you don’t understand what they’re doing and just hire
them and say, ‘Okay, do it,’ it’s a way to fail.”

Soloviov adds to his list of lessons learned: “You have to educate yourself
as much as possible and always understand what’s happening; you have to
understand what your competitors are doing, how the market has changed, how they
have developed competitive advantage. And as a financial director you have to be
the right hand of your CEO because you have to participate in mergers,
acquisitions and strategy.”

On the financing side, Rusal not only raised $575m in a syndicated loan led
by the likes of ABN Amro, BNP Paribas and Citigroup, it also raised $75m more
than it was initially looking for as the offering was oversubscribed. It’s a
refinancing deal designed to secure cheaper, longer-dated funding. Soloviov says
that the score of (predominantly European) banks in the syndicate are very
confident in Rusal’s financial reporting and corporate governance, and their
main questions relate to the company’s forecasts for aluminium prices, group
revenue and so on.

“We have a set of covenants, of course,” Soloviov explains, “but in terms of
organisational structure we are absolutely transparent: they have our
financials, they have annual discussions with the management. They don’t have
any specific concerns about our organisational structure or corporate

Even more ambitious is that Soloviov needs upwards of $8bn over the coming
years to finance the expansion programme. The bulk will come from project
finance which, once the individual smelter or mill projects are constructed,
will be ringfenced from the rest of the group, reducing the cost of borrowing.

Soloviov insists that while doing an IPO in London in the next year or so is
an obvious option, it isn’t something the company is actively planning or
working towards. The group now has a single shareholder, an investment group
called Basic Element owned by Russian billionaire Oleg Deripaska. He shows no
sign of wanting to liquidate any part of his holding, and Soloviov says Rusal
has enough resources to finance any acquisitions without having to issue shares
to do so.

As it is, Soloviov doesn’t see any acquisition targets on the horizon. A
merger is a different story, however, and he even points to BHP Billiton –
currently ranked fourth in the aluminium industry behind Rusal – as a possible
partner. But he adds: “A merger is much more difficult than an acquisition
because you have to marry your culture.”

There’s still a gangland feel to press stories about Russian industry. A
decade ago there were a dozen or more murders as rival gangs battled for control
of the aluminium industry. It was a scary time (“Not only in aluminium – trust
me,”) although Soloviov wasn’t in the business back then. He adds that the
people who were in the business in the mid-1990s simply aren’t around any more.

Just a few weeks ago, however, The Sunday Times reported a court case
involving a former joint venture partner, with the other side levelling
seemingly wild accusations against Rusal’s owner, Deripaska, of fraud and even
kidnapping – allegations dismissed as “crazy” by a spokesman for Deripaska.

Corruption remains a problem in Russia. Soloviov doesn’t shy away from the
issue, although he is clearly uncomfortable at any thought of being tarred with
the same brush.

“Everybody knows about corruption,” he says. “I don’t know how we can
struggle against this. Maybe by increasing the salaries of the people who work
in the government But I don’t think this will be a barrier for us,” he says with
regard to the risk that investors will be wary of dealing with the company.

While Vladimir Putin’s government is trying to take a tough stance against
corruption, Soloviov insists that business itself is trying to eradicate the
disease “because we can’t work in such an environment”.

So how, then, would Soloviov summarise the things that FDs of British
companies ought to be most aware of when dealing with Russian businesses,
whether as customers, suppliers or joint venture partners?

“You will be surprised, but there are not that many differences between
Russian and British corporations,” he says. “As more cross-border transactions
are occurring on a regular basis, Russian corporations are increasingly adopting
international best practices in their business dealings. This tendency
transcends all areas – from operational structure and financial reporting to
corporate citizenship and sustainable development. In fact, what I have
personally been hearing from many of our business partners representing large
international banks and companies is that they are amazed by the high level of
sophistication that Russian businesses offer today. Yes, we are relatively new
to the international business arena, but we are learning fast and we are
learning from the best.”

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