17:59 21.10.2013

Irina Mirochnik: No alternative to innovative development of economy

An exclusive interview with Ukrplastic Board Chairperson Irina Mirochnik

- “Ukrplastic” increased its sales by 14.4% in 2012. In its annual report, the company announced about the plans to increase the sales by 10 % in 2013, but it has already achieved 15% growth during the first half of the year. Will it manage to keep the pace for the remainder of the year?

- We have developed a balanced strategy of company’s development that reviews both optimistic and pessimistic scenarios. We analyse the dynamics of core indicators on a quarterly basis, however, the volume of sales are usually estimated at the end of the year. For the time being, our forecasts remain unchanged: we envision 10% sales increase for 2013.

- To what do you owe this growth? We regularly follow the data provided by the State Statistics on industrial production that has indicated steady decline. Recently there was updated GDP information that showed 1.3% decline : in within the second quarter, in the first quarter the decline equalled 1.1%. So, what allows you to increase your market share?

- In the EU countries, the segment of flexible packaging takes up nearly 45% of the packaging market, and an average European citizen consumes more than 120 kg of flexible packaging a year. These numbers correspond to the global trend that is flexible packages are going to replace the traditional packaging materials, including aluminium, glass, paper and cardboard. Although the flexible packaging consumption is still low in Ukraine, the consumers appreciate benefits of this material.

I believe the key of a stable growth at this stage and our main achievement could be establishing our own high-tech production of flexible packaging materials that would meet demands of the domestic market and could be successfully exported to the countries of Central and Eastern Europe, Russia and other CIS countries. The flexible packaging materials manufactured by “UKRPLASTIC” are considered “green,” i.e., environment friendly packaging that comply with the international quality standards. They possess high barrier characteristics, can be effectively recycled with packaging machines, significantly increase the shelf-life of products and provide protection against counterfeiting.

In addition, “UKRPLASTIC” is one of the few companies in Europe that are constantly introducing innovative technologies for packaging materials production. We offer new and interesting solutions at the market, that sometimes are unique.

- Is there a potential for the growth in Ukraine?

- Manufacturers tend to reduce the proportion of packaging without compromising its performances. Our flexible packaging materials can be thinner than a human hair, at that be effective in solving the issues of storage and logistics of goods, expand the possibilities for communication with the end-user, and open new markets. For example, the Ukrainian confectionery products in modern flexible packaging have been successfully competing in the neighbouring markets for several years. If you use a high-quality barrier film for packaging of perishable foods such as meat or fish, the producer gains a significant economic effect, let alone the marketing and logistics of preferential advantages. The shelf-life of a product like that in the fresh chilled condition is extended to 6-7 days.

Therefore we predict an increase in the market share, especially when our potential customers compare the cost of our packages to savings on shipment, and evaluate the loss from the storage of products in improper packaging leading to its fast deterioration.

- Could it be expected that stricter quality standards ensued the conclusion of an association agreement with the EU would trigger your production? For instance, the Ministry of Health suggests more stringent standards for poultry.

- When it comes to food production, the most stringent standards should be applied and the requirements for quality and safety should be strictly adhered. It is my deep conviction that the price of a compromise on this issue can be not only the life and health of specific individuals, but also an undermining of the whole national gene pool.

During a number of years, we have been defending the human right to a safe environment. As long as 16 years ago, “UKRPLASTIC” refused to produce PVC point blank. The most popular at that time food packaging emits poison, dioxin, into the environment. We have developed environmentally friendly packaging materials presently used not only by the domestic producers but also the well-known multinational companies.

The company operates under HACCP system and is certified in compliance with all established standards. The company has implemented an environmental management system according to four ISO standards, which cover activities of all the departments.

In order to be exported to the EU countries, our products undergo certification in accordance with the EU requirements. To export the products into the Customs Union countries, they are tested as to the compliance with the CU requirements. For the Ukrainian customers, we additionally certify all our products on a voluntary basis. Only since the beginning of the current year, we have received more than 50 conclusions of the state sanitary-epidemiological examination commission with the Ministry of Health of Ukraine on the conformity of our products with the requirements of the health legislation.

Certification according to the international standards requires proper investments into production and management, as well as efforts of company’s personnel. This is the way for the business to develop and transit to a new level. If the Ukrainian manufacturer wants to be competitive at the European market, its products have to meet the European standards. We, on our part, shall guarantee them a high quality packaging.

- Which industries most commonly use your packages for their production? For what industries is it important?

- Flexible packaging materials are really universal. Among our clients there are representatives of the food, cosmetic, and pharmaceutical industries. Our customers have some factors in common. For example, representatives of the highly-competitive markets such as confectionery like “Roshen,” “AVK” and “Konti” are interested in the renommee of their brands in the market, and make investments in the brand promotion. Manufacturing high-quality and popular products, they strive to protect their consumer from fraud, improve the quality of consumer products and have a clear understanding of the role of quality packaging in their businesses. Another important factor is the increasing demands for the products they manufacture, and the need to adhere to high standards. For example, producing quality meat, the manufacturer shifts to a barrier film in order to increase the shelf life of the product and to protect it from counterfeiting.

- What are the investment plans of the company?

- In 2010, we, jointly with the European Bank for Reconstruction and Development, approved the investment programme for energy efficiency and environmental standards, the development of new technologies and the restructuring of the company's balance sheet. The total investment in the Programme makes up ? 29.8 million. A production line for the manufacture of co-extruded laminates and flexible packaging material of a new generation has already been commissioned into the commercial operations. Presently, we introduce the equipment for eliminating volatile solvent vapours. This advanced technology provides environmental and economic benefits, and we shall be the first printers in Eastern Europe using the recovery at its production.

- You have mentioned before the possibility of setting-up new capacities in Russia. Are those plans still valid?

- Our plans have not changed. We are working in this direction.

- What are your plans as to construction of production facilities in Russia: do you expand the production you have, or you are forced to transfer it there, as it has been done, for example, by our confectioners?

- We feel perfectly well in Ukraine. “UKRPLASTIC” steadily operates and develops, and a transfer of the production is not the issue. The point is that the production of flexible packaging materials is specific business. It is focused on specific manufacturers. The stages of a package creation include a deep study of the design, many technological nuances that require a close collaboration of specialists, technologists, and permanent personal contacts during a long period of time. Therefore, the establishment of an industrial complex in Russia is seen as an expansion of production capacities. We shall be closer to our customers that will allow us to serve them in a more efficient way.

- There are not so many banks among your creditors; these are Ukreksimbank, ING Bank Ukraine, OTP Bank, and EBRD. Is it sufficient for your business?

- They are our reliable and tested business partners with whom we have cooperated and developed for many years.

- Cooperation with multinational companies, with which you work in Ukraine, is it a good way to promote your products around the globe?

- Cooperation with multinational companies such as Kraft, Lactalis, and Nestle is a strong argument for the international market, and a figure of merit of the products. We have been working with the companies of such level for more than 15 years, and are a multinational supplier for them. This means that the experts with “UKRPLASTIC” are working with a number of several factories in different parts of the world within the frames of the signed contracts. Moreover, the terms and conditions stipulate establishment of close cooperation with technologists and designers of the enterprise and achieve actual results within the shortest terms possible. I am pleased to note that, over the years, our staff has earned the reputation of professionals who can always help in solving the most complex technological challenges at the international level.

- “Ukrplastic” remains to be a public joint-stock company, although 98.2 % of it is owned by your family. Do you intend to use this form of ownership in some particular way, or, to the contrary, buy out a package of minority shareholders?

- “UKRPLASTIC” is a public joint stock company, and there is no changes in the plans.

- Recently Mykola Azarov, Prime Minister, said, that the state should help the chemical industry.

- The government should support the development of innovative sector of the economy, including chemical industry. Moreover there is a positive experience of such support in Ukraine gained through a special mode of innovation techno-parks introduced in 1999, which gave a powerful impetus to the development of the innovative sector. Three technological parks founded on the basis of Ye. O. Paton Institute of Electric Welding Institute, Kharkov STC “Institute for Single-Crystals” and the Kiev Institute of Semiconductor Physics, and the National Academy of Sciences of Ukraine carried out a number of projects that are still bringing considerable profits and substantial export revenues to the state. Innovative solutions developed with Ye. O. Paton Institute are successfully sold both in Europe and America. The production by STC “Institute for Single Crystals” are consumed with a number of companies with a military-industrial complex of NATO countries.

Incidentally, our company is also a concrete example of an innovative approach to the development of production within the frames of a technological park. At the time, the company faced a problem of choosing a further way for technological development. Of the options that were considered, one was accepted and supported by the majority of industry experts, while the second one, not very promising and experimental. A deep study of this issue together with the Institute of Physics has led us to an unexpected conclusion and understanding that the conventional way was a way to nowhere. As a result, the choice was made in favour of the way of the experimental development of techniques, and today, we are about five years ahead of those who then invested in the production of traditional materials. There are many examples like that. For example, in 2001, we launched realisation of an innovative project within the frames of “Institute for Single Crystals” Technological Park. The experts of the company jointly with scientists realised more than five hundred pilot programmes, made hundreds of prototypes of new packaging materials and numerous experimental batches of new products. All works on the project were supported by the National Academy of Sciences. I shall note that, in the beginning, the innovative project required significant capital investments and was unprofitable, we operated within the frames of a specific regime of innovative operations of the technological park under the unfaltering watch of many agencies, controlling bodies including: the Ministry of Economy, the Finance Ministry, and the Security Service of Ukraine. Still its implementation has led to the fact that the company has increased the payment of taxes in more than one hundred times!

- A renaissance of such technological parks seems presently be attempted.

- Regrettably, the projects were suspended, because the fiscal authorities perceived it as a way to avoid taxes. However, the structure of technological parks has not vanished completely, there are experts, and it to restore such attempts accounting for the previous experience is absolutely feasible a task. I shall note that, within the frames of innovative projects for technological parks, established were manufactures stably operating and internationally competitive in the international market without attracting of any budgetary funds. These are increasing volumes of output, transferring considerable amounts of taxes into the budget, and create new jobs for highly qualified staff with good salaries.

In my opinion, there is no alternative to the innovative way of the economy development, and it's time to go to the comprehensive implementation of the strategic plans of innovative development of the country, and do not argue about whether it is necessary to revive the parks or not. This way we are losing time, while Finland, Germany, Great Britain and other countries are actively developing in this direction.

- We have somehow raised the issue of staff. Many employers presently complain about the school and higher education is getting poorer. Do you still manage to find qualified personnel or do you have to go into training yourselves?

- Our company needs a highly qualified staff, and we are very careful about selection. Alas, the level of training of young professionals who come to us does not stand up to scrutiny. High schools graduates often neither have knowledge nor basic work skills. That is why we have to teach them to handle a tool, observe labour discipline and grow professionals. More than 45% of the staff working for “UKRPLASTIC” is prepared by the company itself. In some cases, the training from three to six months is needed before an intern be allowed to work independently.

In addition, we support the students of the specialised departments of the University of Food Technologies. We are bound by a long-term friendship with them. Nearly fifteen years the best students of this university receive a scholarship from the company. This year's scholarship was named after Alexander A. Galkin, the founder of the Ukrainian packaging industry. Recently it was decided to set up a modern chemical laboratory on the basis of NUHT. This work shall be completed by spring of the next year.

- Today large corporations set the trend general: one must go in to the educational establishments and adjust it to themselves.

- We are in this trend by the virtue of history. Why, it were students who founded “UKRPLASTIC,” the young and active youth. We have entered into an agreement with the National Technical University (KPI), the National Aviation University, the National University of Technology and Design, the National University of Food Technologies and Kiev Trade and Economics University. Our experts are reading the lectures there, we provide them with a laboratory for practical training, and the students receive the practical training with us.

- The location in Kiev, is it a plus or a minus for you? Does it repay to higher more expensive though more qualified labour?

- We have been operating in Kiev since 1927 and ever moved only once, in 1941, during the occupation. There is no reason to move the companies in the peacetime.

Our location in Kiev is a plus for us as we compete with Europe not only in production, but also for the personnel. We pay salaries by European standards. The same can be said about working conditions. Therefore we are familiar with the situation when our experts, having worked in Germany or Italy, would return home, because the home is the best.

- And how do you feel about the legislative initiative on the introduction of a levy on manufacturers and importers of packaging and packaged goods on the development of solid waste , which has been actively discussed since the beginning of this year?

- This draft requires deep elaboration and cardinal alterations. This is a consolidated opinion of experts and business representatives. The introduction of dual additional levy on manufacturers and importers of packaging, as well as importers and manufacturers of products for which the packaging was used, would hit average consumer on the pocket in the first place, because all packaged goods would soar, food including. But the positive effect of the passing after the first reading of the bill is uncertain, as well as additional revenues to the budget for the formation of solid waste processing industry. Such legal “innovations” for the industry, which has not yet formed, can destroy it never having formed a system of packaging recycling in this country.

In my view, there is a need in legislative initiatives to protect the domestic market from low-quality packaging products and domestic support. Such an approach would help effectively deal with the problem of disposal of manufactured packaging at the cooperation on the part of the producers, and strictly control of goods with unclear environmental properties and of dubious quality imported in Ukraine. That would be just in the similar vein with the global trend.

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