2022 was a year of turbulence for business, especially for companies in Eastern European countries. But even in such a difficult situation, some companies manage not only to maintain, but also to develop business – to enter new markets and develop new areas. We talked with NEQSOL Holding CEO Yusif Jabbarov about how to stand fast, maintain stability, and develop business in unprecedented conditions for modern Europe. Yusif Jabbarov is a top manager with more than 20 years of experience in a number of sectors (financial; oil, gas, and energy; telecommunications; construction materials production; and hi-tech) in different regions across the globe. Thanks to Yusif Jabbarov’s experience, NEQSOL Holding managed to build its work in nine countries – the UK, the USA, Turkey, Azerbaijan, Ukraine, the Netherlands, Georgia, Kazakhstan, and the UAE. Such diversification, even during global economic instability, allowed achieving positive financial indicators.
For several years, at least since the beginning of 2020, when the COVID-19 pandemic began, businesses around the world have been operating in extremely unstable conditions. 2023 promises to be difficult from an economic point of view. How have your approaches to doing business and your business accents changed in recent years?
The COVID-19 pandemic had a significant impact on the global economy: at first, we observed a temporary paralysis of the global economy, followed by steps to support the economies of different countries. As a rule, this was due to financial “injections”, which became a key change factor in many world markets: the value of securities and derivatives was at the maximum level, while energy prices declined.
The situation began to change in 2021, and the higher the expectations of a military conflict in Ukraine, the more significant the changes were. Energy prices soared, and in February , businesses had to urgently change their logistics chains, especially in the food sector, where Ukraine has always been one of the key global players. Panic began among investors: we are still seeing a drop in almost all markets where the holding operates.
At NEQSOL Holding, we have been constantly asking ourselves the question: what should we do to adapt to the new, constantly changing conditions? Diversifying the holding, both by country and by industry, allowed us to maintain our financial performance. At the same time, the war in Ukraine certainly affected us from a business point of view, but even more from an emotional point of view – we have 5,000 employees and thousands of their family members in Ukraine. And for us, they are part of our big family. And when planning our next steps, including in Ukraine, we take this factor into account.
If we talk about changes, then our vision of where to invest next has changed. Investments based on further increasing the value of assets and subsequently exiting from the investment in the next two or three years are no longer relevant. Investors are set up to invest in real assets, real production facilities, natural resources, which may not be growing so fast in price, but in the current situation are a more reliable investment tool.
Have you ever had to change the structure of your portfolio?
We are a fairly large holding company with business in nine countries around the world. Our four main industries are oil, gas, and energy; telecommunications; construction materials production; and hi-tech, where we have a fund to invest in technological solutions. We are also represented in the hydrocarbon production segment. NEQSOL Holding includes companies that own oil fields in Texas (USA) and the North Sea (UK). We are also one of the co-owners of the largest gas field in the Azerbaijani part of the Caspian Sea, Umid-Babek, where we are partners with SOCAR.
Historically, over the years, we have invested in a variety of industries, which has led to a balanced investment portfolio. And today, this has become our main advantage: even if the indicators in any one industry may be subject to decline, the holding’s overall financial performance is stable. If we look at the 2022 results, the financial results in all four main areas correspond to our budget plans and we are satisfied.
Moreover, we have plans to increase the number of areas where we are represented. Even before the outbreak of the war in Ukraine, NEQSOL Holding had approved a 5-year development strategy. It includes entering 2-3 new segments: agriculture, fintech, mining. We are currently at the stage of analyzing several projects.
How has Ukraine’s role changed in your strategy?
We have always considered and still consider Ukraine as a market with very great potential. This is due to many factors – the availability of qualified personnel, incredible natural resources, and the constant improvement of the legislative framework. These were the key factors when we made the decision to start working in the country. The war did not affect our faith in Ukraine. Yes, we had to temporarily suspend a number of planned projects. But as soon as there is a practical opportunity to implement them and we will be able to attract additional financing, we are going to close the deals that have been started.
Any war begins and ends. Of course, there are risks of physical destruction of the infrastructure owned by Vodafone Ukraine, one of the largest telecom operators in Ukraine; there are devaluation risks; and there are difficulties associated with acquiring currency and paying obligations in foreign currency. But we have learned to accept and work with these risks. And I consider our experience of working in unprecedented conditions for a modern European country to be invaluable.
Already, everyone is talking about Ukraine’s future reconstruction, which will begin after the end of the war. Are you planning to take part in the country’s reconstruction?
Yes, of course. It so happened that one of the deals that was frozen in Ukraine was entering the construction materials market. Most of the preparatory work has already been done, so I plan that we will complete this deal, which will allow us to become one of the leading players in the construction materials market and join the construction boom in Ukraine: we plan to participate in construction both as an investor and as a contractor.
Moreover, the companies belonging to NEQSOL Holding, even before the war started, signed memoranda with Naftogaz Ukraine on joint drilling work and developing and supporting gas fields.
Another area that we want to develop in Ukraine is agriculture.
Are you planning to enter new countries in the next 5-10 years?
Definitely. We can say that NEQSOL Holding is currently in the stage of inorganic growth, so we are considering all options for business development. For example, we are negotiating with a number of telecommunications companies in Eastern Europe about possibly entering into business or about acquiring the business as a whole.
There are two cement production projects that we are currently working on. These are two new markets for us. There is a high probability that we will complete at least one deal within a year. Our investment plan for these two sites, including borrowed funds, is $300 million. This is in addition to our project in Ukraine.
And there are certain developments in the oil and gas business, where we also plan to enter the markets of Western countries.
Are you interested in green energy?
Yes, we plan to develop this area. If earlier we were focused on investing in developing oil and gas fields and oil and gas services, now we are also looking at renewable energy sources. Our company Nobel Energy recently completed a strategy review, completed a rebranding, and declared a course to develop renewable energy sources. In this area, we can act both as investors and as contractors, for example, to provide services for constructing power plants.
In addition, we already have a number of “green” projects in our plans. For example, in Azerbaijan, we plan to start constructing a solar power station that will supply electricity to our NORM cement plant and our telecom operator’s data center. This station will help the plant to reduce natural gas consumption by 10% per year and reduce CO2 emissions.
In general, in the next 3-5 years, we plan to attract our own and partner funds totaling about $500 million to the green energy sector.
And although the marginality in this business is still quite low compared to traditional energy, we are investing in developing this area right now as a strategic investor. Now our main task is to maintain some kind of energy diversification within the group.
The future will be renewable energy, in one way or another, but transitioning from traditional energy sources to alternative ones will take some time, so the traditional energy business is still in our focus.
By what parameters do you choose a new country where you plan to develop your business?
Choosing a market is always a very complex process that involves evaluating a country by a number of indicators. We have a strong investment team that does tremendous preparatory work. The work begins with analyzing the economic situation in a new market, then assessing the competitive environment in a particular industry, then we look at the development potential of the industry as a whole and a specific asset in a particular country. It is important for us to understand what we can do with the asset after its acquisition. We are not interested in just investing and waiting for dividends. We are not portfolio investors. We acquire an asset only if we see opportunities to increase its value, and we are confident that we can do it.
For example, over the past year, NEQSOL Holding has invested in a number of hi-tech companies. But we are not an angel investor – we do not invest in ideas. Our goal is enterprises that are already implementing ideas and have development potential. This is usually the second or third round of a company’s development.
The war in Ukraine has significantly affected logistics around the world. How do you solve logistical problems?
All our companies in different countries are focused mainly on local markets, we do not export our products much, although we export our expertise. For example, Glensol, a subsidiary of Nobel Energy for field operation and equipment maintenance, launched a technical training program last year to train oil and gas industry technicians in the Middle East.
In this situation, we have not experienced any serious impediments. The only exception is gas transportation. As I already said, our energy company Nobel Energy owns a stake in a gas field in the Caspian Sea. Now one of the most important tasks is to enter the European markets.
At the same time, the holding had to revise procurement processes: we initiated the diversification of supply sources for all of the group’s companies. After all, given the logistics complications today, relying on only one supplier is risky enough. At the same time, we began to use the group’s volume even more actively in negotiations with potential suppliers: we make certain purchases for the entire group as a whole, and not for individual companies. Large volume purchases make it possible to talk about big discounts and more favorable conditions. For example, consolidating purchases for our telecom group in 2022 saved about $20 million.
Large-scale deals require significant financing. In recent years, it has become not only significantly more expensive to raise funds in foreign markets, but also much more difficult. How is the holding coping with this?
NEQSOL Holding is an international group, which gives us the opportunity to enter international financial markets. For example, we organized two rounds of attracting financing for the purchase of Vodafone Ukraine. In the first stage, we attracted a number of international financial institutions and funds, and in the second stage, we placed Eurobonds on the Dublin Stock Exchange. This is a fairly practical and convenient tool for us, which we can use in other markets.
In recent years, the role of compliance has grown significantly. Compliance has become an integral attribute of a company that wants to work in global markets. How is compliance developing in the holding?
This is one of the important areas of internal development for NEQSOL Holding. It is important for us that compliance is part of the holding’s culture. We started the process of implementing our own set of rules back in 2014, which became our landmark difference from many other companies and holdings operating in the same markets as us. Our international partners appreciated this step, which allowed NEQSOL Holding to become a “comfortable” partner for many international structures and corporations.
It is important for us that compliance is not just a sound to our employees, so we annually hold internal events for employees of all the group’s companies, and there are more than 30 of them. Moreover, at the end of 2022, we adopted a new Code of Conduct, which will be uniform for all of the group’s companies.
I believe that our work on compliance is successful. For example, NEQSOL Holding received the ISO 37001:2016 certificate in 2021, which confirms the effective implementation of ABMS, a management system for combating illegal actions. Our company Nobel Energy received the same certification. We expect that in the next year and a half, all of the holding’s companies will receive these certificates. This is not an easily achievable, but easily measurable KPI.
And in 2022, NEQSOL Holding received ISO 31000:2018 Risk Management certification, which was audited by LRQA, part of the British company Lloyd’s Register Group Limited. Companies belonging to the holding, such as Nobel Energy, Bakcell, Azerconnect, Vodafone Ukraine, and Norm, have successfully implemented the holding’s risk management policy and guidelines.
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