The Next Winning Move | The situation in the region has affected the sales of Sopharma. Ognian Donev believes there is a cure for this

THE MOST INFLUENTIAL ENTREPRENEURS – OGNIAN DONEV

The office of Ognian Donev is on the 17th floor in one of the towers of Sopharma Business Towers. The ambitious office complex, worth at least 50 million Euro and built and put into operation while the property market was going down, is one of many proofs that the 58-year-old entrepreneur knows how to turn almost everything he touches in money.

The business background of Donev is long and goes through projects in all kind of niche markets: from videogames and toys, though metal trading, to stock investments and media. But his big business which is one of the largest employers and largest public companies in Bulgaria, is the pharmaceutical company Sopharma. Donev managed to build a business around it with annual revenue of BGN 875 million which places him among the most influential Bulgarian entrepreneurs. Pharmaceutics is a counter-cyclical industry that is considered immunized against the crisis. This was very true for Sopharma as well, a company Donev privatized around the year 2000, and then started turning it into a money machine, buying other manufacturers of medicines and taking a strong position in the trade in medicines. In 2009, while economy in Bulgaria shrank by near 6%, consolidated revenues of Sopharma increased by 11%. A year later the turnover increased by another 19% and reached BGN 600 million. The expansion of the pharmaceutical company continued also throughout the following years. In the last months, however, Sopharma showed indications of slowdown. The reason – political and economic problems in the region where Sopharma realises a great part of its export. Russia and Ukraine are the two largest foreign markets for Sopharma which explains why the instability in Russia and the political and economic crisis in Ukraine exert a negative effect on the total company sales. The consolidated statement of Sopharma for he first quarter of 2016 has shown incomes of BGN 216 million which is about 2.6% lower than the same period last year. Apart from that, Sopharma already announced a 10% decrease in revenues for the first half year which is due mostly to the drop in the sales abroad. But the events in Russia and Ukraine are only a part of the problem. Sopharma sells its medicines to large markets such as Turkey where the situation aggravated considerably after the attempted coup in July. “The situation in Europe and in the world is complicated at the moment” said Ognian Donev. “Crises come one after the otherstarting with the debt crisis in Europe – Greece, Portugal or Italy. On the other hand, recent events in neighbouring Turkey, the inability of our other neighbours, both Serbs and Macedonians, to reform their economies, as well as the severe economic situation related to Ukraine and Russia, all this surrounds us and one should be very careful with respect to the situation.”

The situation in some of the key markets abroad leads to the question of what measures Sopharma could take. The main shareholder says that forecasting is a difficult thing. “Our dependence on markets in the East has always been very large.” says Ognian Donev. “To plan anything in this situation of uncertainty is not possible. This is like the eternal dispute with banks – if they can forecast the exchange rate in Ukraine and Russia, I can forecast the markets there. They say that it is impossible to forecast the exchange rates. Well, how can I forecast my sales in Ukraine and Russia then?”Donev himself has not shown any signs that these disturbances worry him very much. Despite the main part of the production of Sopharma is realised abroad, the incomes from sales of the production are below 30% of the annual revenue of the parent company or BGN 247 million according to figures for 2015. The main item of revenue for Sopharma is the trade in medicines generating BGN 628 million annually, over 70% of which come from the Bulgarian market. That allows Donev to soften the drop in sales abroad so that they will not affect the finances of Sopharma. “Compensating one country with another is possible and I am glad that so far we have not allowed the company operational profit to decrease regardless of the sales-related issues” he says. “We rather manage to maintain profitability with activities within the company and even to increase it a bit.”

For now, it seems investors do not react considerably to the news of decreased sales either. The shares of Sopharma are being traded for about BGN 2.78 at the beginning of August which is a minimum change upward compared to the beginning of the year. The shares of Sopharma Trading, also a public company, have shown about 0.5% growth for the same period. Meanwhile, Sopharma management decided to make some other strategic moves as well, as for instance to sell its share in the Serbian manufacturer of medicines Ivanchich and Sons in which it had a little over 50%. Ognian Donev described the transaction, the price of which was not announced, as “one good offer where we decided to sell unanimously with the partners in Serbia”.

However, Donev is adamant that he has no plans of leaving the Serbian market. Sopharma Trading remains there as a trader, and furthermore, in the spring Sopharma was one of the companies that showed interest to take part in the privatisation of the Serbian manufacturer of medicines Galenika. To a direct question whether he plans to expand his presence on the pharmaceutical markets in the region through acquisitions, Donev did not give a definite answer. “Always when such an opportunity appears, it is negotiated about such things but this is a process that we report to the Bulgarian Stock Exchange,” he said. “We have not stopped looking for opportunities to expand on the markets we are present.”Which means that Donev is probably only on standby in what he is best in: to make the next winning move.

Forbes magazine