I manage Finvest with much less emotion than my father did

The wood industry is the only segment of production that has a positive foreign trade balance. However, what is currently happening with the exchange rate leads us to seek government assistance, which we cannot access. It is unacceptable that the government spent three months discussing whether Sunday should be a working day or not, while we here, with 40,000 employees, still have not had the opportunity to meet with them.

Interviewed by: Amir Kulenović
[email protected]
Photo: Ratko Mavar

The wood industry in Croatia, a sector that has traditionally been developed, especially in the rural areas of the country, has in recent years transformed into a branch that mostly produces and exports raw materials, and increasingly less finished products with some added value. Finvest, as a company that employs more than 1,000 workers in its two factories, in Čabar and Bosanski Drvar, is one of the larger companies in this sector. In addition to wood, Finvest has also stepped into tourism by purchasing a hotel resort in Njivice, and will soon open a factory for the production of wood pellets in Gorski Kotar, thus embarking on ‘green energy’ projects. We spoke with Finvest’s CEO Marin Filipović about opportunities in the wood industry, attempts to diversify the business, and motives for investing in other publicly traded companies (Finvest owns eight percent of Industrogradnja shares).

• Since last December, your father has entrusted you with the management of the company. What are your first impressions? – I must admit that my appointment was a great surprise to everyone, both due to my father’s very active participation in managing the company, regardless of his age, and due to a somewhat different way of thinking and doing business.

• Was that transition difficult?
– No, all the collaborators remained the same, we have a good team, and I believe that my way of managing the company is certainly much less emotional than my father’s way. I am not saying that the previous management style was bad – Finvest would not be where it is today if my father were not an exceptionally capable man, but we definitely differ in our approach.

• Are the recent moves towards business diversification your doing? – Finvest is de facto the largest processor of wood mass in the former Yugoslavia in the technical wood segment. We operate at three locations, two in Bosnia and Herzegovina, one in Croatia, and in addition, we have an additional vertical structure that connects through semi-finished products to final products. Wood has had quite a few fluctuations over the past years, and we saw that we should turn to something else.

• Why did you turn to tourism?
– Given that we had retained earnings, we thought about what would be compatible. We could not find anything in the wood industry segment that would attract us, so we opted for tourism because it is an export product. That is why we decided on the Njivice hotels, as one of the tourist companies that remained with a long-term undefined owner, although the owner was Rijeka Bank, from which we purchased a majority stake.

• Do you believe you have enough know-how for tourism? It is, after all, an activity that is quite different from the wood industry? – In the decision to purchase Njivice, we were guided by the relationship between price and the state of the company and the growth potential. By deciding on them, we had a good, compact management that worked in the three-star segment, and I believe we are a destination with good three stars.

• What are your further plans? Will you raise the quality of the offer?
– We want to raise one or two facilities to four stars, while leaving the rest at three. Demolishing the existing bungalow settlement that connects our hotels and building a new four-star one is a step in that direction. I believe that Krk can develop as a four-star destination, but the lack of content is problematic. That is why we were very interested in developing golf, as tourists in Krk have nothing to do in the off-season and winter.

• Why did you choose golf?
– I am a passionate golfer and I know their purchasing power. Moreover, it can be played ten to eleven months a year. With the proximity of Italy, Austria, and low-budget flights to Istria and Kvarner, the absolute goal should be the development of golf. We need to work on that.

• Has that project failed? – The problem is the unresolved issue of tourist land. We were interested, but putting ourselves in a situation where we invest in a project that can be halted by someone with their two thousand square meters is too risky. Depending on 300 plots is an impossible story. It turns out that it is a good thing that Albania exists, so we are not the only country in the Mediterranean that used to be without golf courses.

• Are Njivice the only interesting place for you on Krk?
– We hope to soon start more concrete discussions with the municipality of Vrbnik. Letters of intent have been exchanged, and we are interested in launching a new type of tourism there. These should be smaller hotels, but of a much more exclusive type. To get started, we are waiting for their green light. Vrbnik has almost no accommodation capacity, and I believe we have shown our long-term interest.

• What kind of investments are we talking about? – From three to twelve million euros until the final phase.

• When do you expect a response?
– Soon.

• Does this mean that investments could start at the end of this year or the beginning of next?
– We have already started working on conceptual solutions for the hotel, but given that Vrbnik is under certain conservation oversight, I doubt we will start building this year.

• You are soon opening a plant for the production of wood pellets in Gerovo?
– In the last year and a half, we have been upgrading the wood sector segment. We realized that with a daily cut of a thousand cubic meters of raw material in two countries, regardless of the relatively quick turnover of capital, Finvest cannot avoid the influence of external factors without new investments, which are the current conjuncture and unsustainable exchange rate policy.

• Do you think that expanding production in that direction will bring the desired effects?
– We hope that the plant will start operating in January next year. This is an investment that is very important to us, given that we will process the raw material that we are currently selling abroad. This is new added value, and a long-term investment, very capital-intensive and profitable in the long run.

• How much does that investment amount to?
– Approximately seven million euros was the total investment cycle in the wood segment of the business.

• In your hotels, are you planning a new pellet power plant and why?
– We see our calculation in that we use our own raw material for that plant, and the investment will reduce our energy costs, which, along with the unfavorable exchange rate, is one of the biggest obstacles to achieving higher levels of profitability. In addition, it would also be a showcase plant of that type in Croatia on renewable energy sources and the promotion of our own product and energy source.

• Do you plan to engage in tourism in Gorski Kotar as well? That area has recently become increasingly popular for this type of investment. – For now, in the short term, no. The problem in Gorski Kotar is primarily the lack of young and educated staff. For that reason, we have also introduced the 20 keys program with Deloitte Tohatsu and continue to invest in increasing the automation of the wood business, as qualified labor is becoming increasingly scarce. But despite that, in the last year, we have managed to employ a certain number of young and very promising staff, which makes me very happy.

• Is the factory in Drvar your last investment in Bosnia, or are there other attractive companies for acquisition?
– For now, we do not plan further expansion in that market. Depending on how the pellet market develops, we plan a similar factory there, but with a larger capacity. Of course, all of this depends on the energy market, but for now, we believe we will not go into acquisitions in Bosnia, but will develop tourism.

• What is the situation in the wood industry today in Croatia?
– The key thing is that the wood industry is absolutely the only relevant segment of production that has a positive balance. Secondly, the fact is that the wood industry employs people where there are no other opportunities. Thirdly, the industry uses domestic raw materials in 90 percent of cases; it is not shipbuilding where we import sheet metal. And fourth, it is a sector where investments are made. Therefore, we have absolutely all the reasons for the state to support it. I note that the relevant ministry has done a lot for the wood industry – last year we received incentives of 40 million kuna, and this year 46 million or even a bit more is planned.

We in the wood industry are happy and satisfied if we receive 46 this year, as we did not receive anything until a year ago. Considering that the textile industry receives 120, that agriculture receives amounts in billions, that shipbuilding, which employs about 12,000 people, receives billions, I believe that the disproportion is too great. We need to reflect on the 26,000 people employed in the wood industry, plus 10,000 employed in Croatian forests, plus cooperatives. What is problematic, despite having extraordinary support from both the relevant minister Čobanković and state secretary Sušnik, we lack contact with the government. It is unacceptable that the government spent three months discussing whether Sunday should be a working day or not, while we here, with 40,000 employees, still have not had the opportunity to meet with them.

• Does this mean that you are lobbying poorly?
– On the contrary, the wood industry has taken a stance, at least we who are in the chamber of commerce, to talk positively, without exerting pressure, because we believe that our ministry, given the above, does not deserve it. Given that I am the president of the primary processing group, our goal is to speak positively. No one aims to go out on the street or create some dramas. However, we do not claim that what is happening lately – the increase in raw material prices, the increase in electricity prices, our main energy source – is unreasonable, but the exchange rate has brought us to a deadlock, so we requested an urgent meeting with those responsible in the government. I believe that funds can certainly be found to improve this in some way. We have confirmation for an upcoming meeting, which is commendable.

• Finvest currently has about 250 million kuna in retained earnings and legal reserves. Will you use that money for acquisitions?
– Certainly, we would be interested if something appears that is within our development segment, within our goals, especially if it is related to tourism. At one time, we showed interest in acquiring the wood industry Vrbovsko, which ended up in bankruptcy, but after analyzing the situation, business materials, and the technical level of the company, we withdrew from the whole story.

• How did Finvest’s stock perform in this crisis? – Croatia is absolutely not immune to what is happening in the world, and its stock market is relatively small. The global crash had an impact, and our stock lost value, but I believe that Finvest has a certain stability. We know that a certain minus is the illiquidity of the stock, as we have one majority shareholder who has a stake of about 90 percent, but our goal is to profile the company first. In both segments, industry and tourism, we want to move forward, and after that, when we position the company in an even better position, we will think about increasing the free float or some other way of entering the market. However, the management’s desire is to first complete ongoing investments, start some new ones, so that the stock becomes more interesting and healthier.

• Will you use the reserves of about 200 million kuna for further investments?
– Yes.

• What is the perspective when you spend that money, is it some IPO?
– It is crucial to set up the company and profile it better. Our plans, especially those related to tourist land, condition that we only enter the market in two or three years.