Sistema: creating businesses of the future

30/05/2019

In a fresh-off-the-press interview with Vedomosti, Russia’s leading business publication, Sistema CEO Andrey Dubovskov talks about the corporation’s vision for its core businesses, recent acquisitions and intra-asset synergies.

Highlights:

Sistema

Our management structure has seen a lot of change: we have launched an institute of managing directors, each responsible for their own piece of business.

As for the funds – most were launched prior to changes in the management model. The funds vary in their aims and goals. Two of them are venture funds, while others pertain to the strategy Sistema adopted last year. Sistema_VC and Sistema Asia Fund have both claimed their turf. Sistema Capital is showing growth in assets under management (AUM).

Telecom as a platform

Telecom is the perfect platform for creating businesses of the future. Some of our businesses, including agro, Detsky Mir, are very different at the core. There is no point in trying to stack them onto the telecom platform.

Detskiy Mir has its own ecosystem in terms of e-commerce, brand and customer loyalty. MTS’s role would be quite limited in this case.

Meanwhile, fintech, software and cloud services are 100% complimentary to MTS. MTS Bank, for one, is showing positive results granted in part by the telecom backing (MTS currently owns 95% in the bank). The level of intra-penetration of these businesses is higher than that at our peers. For one, big data analytics competencies enable MTS Bank to determine the probability of loan repayments with high precision, allowing the bank to further tailor its service offering to appeal to both the company and the customer.

SmartMed, the joint telemedicine venture of MTS and Medsi, is also complimentary to MTS, since Medsi holds medical big data compiled from millions of patient visits per year), which, combined with telecom big data and basic connectivity services, creates a truly breakthrough offering.

Steppe Agroholding

Sistema is very active in the sector. We acquired a large grocery packing business, allowing to significantly increase revenue. Last year we launched a grain trading division, which showed phenomenal results in its first year of operations, ranking in the top-6 of the country’s largest agro traders.

The strategic goal is to increase the land bank to over 600,000 ha, and the company is on track to reaching it: Steppe recently purchased 11,000 ha in Stavropol region. The company’s land bank is well configured in terms of both geography and logistics. Sistema is very ambitious about the asset and aims for Steppe to reach leading positions in Russia’s agro sector.

On Steppe’s IPO: That is primarily a matter of business valuation and market capacity. We will take the company public once we know the company has reached a valuation that can let us hope for a successful placement. The market and institutional investors have to be prepared. Once these two factors are in accord, the decision can be made. 

Detsky Mir

As an investor, a year ago, we believed it was the right moment to exit. While this is still under consideration, currently, we do not see an obvious need for the exit: the company pays RUB 3-4 bn in dividends annually and is able to pay more without inhibiting its ability to grow. Detsky Mir is a sustainable and high-quality business with substantial development prospects. The company continues to grow in its domestic market, while continuing expansion in Kazakhstan and Belarus. Entering other markets is also a possibility.

Detsky Mir will continue to grow by increasing market share. We can grow in places with no children’s retail, in places where we have weaker competition. Our other upside is multifold growth in online sales.

Ozon

Our strategy lies in assisting Ozon in its development. The company has potential to become the national e-commerce leader. In classic e-commerce, there are two general paths: growing the product matrix and fine-tuning logistics and delivery competencies. Additional products, such as Ozon Travel, are part of the larger ecosystem. As to whether we see possible integration with other business – we do not exclude this, but are not planting any ideas with Ozon’s management; they remain completely independent in their decisions.

Real Estate Development

The reason we decided to enter Etalon as the largest minority shareholder is because with trust the company’s management and understand that our partners have built a strong business.

We would like to see thorough integration between Leader and Etalon. We are now assessing each company’s strengths and are looking for synergies. Tougher regulation to be introduced this summer will likely lead to a decrease in the number of players on the market. With that, we could gain leadership in both Moscow and St. Petersburg.

To read the full interview in Russian please follow the link Vedomosti