By: Vida Kocjan
Dr. Janez Žlak is the President of the Management Board of the Slovenian Sovereign Holding (SSH), which manages the state’s capital investments. We talked about what he took on, what the tasks are, and what the plans are. Namely, the government’s bill on the National Demographic Fund (ZNDS) is in the legislative process, which envisages the transformation of SSH into a demographic fund and the concentrated management of all state investments in one place, which is a great challenge for SSH.
Demokracija: You took office as President of the SSH Management Board on October 7th last year. What did you take on, did anything surprise you in the process?
Žlak: I have taken on the extremely responsible and demanding position of President of the Management Board of the umbrella manager of capital investments of the state. It is a small team, just over 50 employees, with whom I got along well and started working on a number of open issues. I like working with people, so I also moved my office among the employees so that you can better feel the pulse of society, solve some issues faster, and the motivation of employees can also be higher.
I came to SSH during the most intensive period of the year, when we started the planning process with the companies for the preparation of the Annual Management Plan. The first difficult decision we took since taking office as the founder of Slovenske železnice (SŽ) was to agree to the proposal of a strategic partnership in freight transport and logistics of SŽ. Together with the SŽ Supervisory Board, we made a good decision for the future of the company and for our logistics.
Demokracija: A closer look shows that the Nomination Committee of the Supervisory Board was looking for a new CEO through the international recruitment agency Trenkwalder. For those unfamiliar, this is a novelty, as some have tried to portray the function as a political choice. How did the procedure go? The Supervisory Board appointed you unanimously.
Žlak: The Supervisory Board has two options for finding candidates for members of the Management Board – through an international tender or through an international staffing agency. In my opinion, the procedure was very professional, as is expected of such an institution. Several rounds of interviews were conducted, as well as testing and evaluation. I was shortlisted and at the end of the procedure, the nomination committee proposed me to the Supervisory Board. I did not expect such an outcome in the beginning, especially not that the Supervisory Board would appoint me unanimously. I am very happy with this opportunity and challenge, as I believe that with another member of the Management Board and a team of committed employees, we can make a lot of positive changes and set goals in the field of management.
Demokracija: SSH is the umbrella manager of state capital investments in more than 50 companies. The portfolio is extensive and diverse. What is the hardest nut to crack and what is your biggest challenge?
Žlak: It would be difficult to point out what the hardest nut to crack is, but certainly the biggest challenges are finding compromises between economic goals and the desire to pay dividends on the one hand, and achieving strategic goals on the other. In the case of strategic investments, we would especially like to draw attention to the great challenges of validating strategies, which include new areas of development, new business models, integration and, of course, finding sources for financing investments. The green transformation and transition to a low-carbon society will be a major challenge and mouthful for many portfolio companies.
Demokracija: Data on operations for 2020 are known. What was the revenue of the companies managed by SSH?
Žlak: The results of SSH’s management portfolio in 2020 were significantly marked by the covid-19 epidemic, but at the level of SSH’s entire portfolio in 2020 we expect profitable operations.
Estimates of the performance of the companies in the portfolio show that the net return on equity (ROE) of the portfolio in 2020 will be able to reach 4.3 percent, which is 1.6 percentage points less than otherwise projected by LNU 2020. It should be noted that this is a result without taking into account the one-off effect of impairments of investments at HSE due to TEŠ and also one-off positive effects at NLB due to the takeover of Komercijalna banka Beograd. Taking these items into account, the net return on equity (ROE) of the portfolio in 2020 is 2.2 percent.
According to Umar’s forecasts for economic growth in Slovenia, the results of the portfolio show a relatively successful operation of companies managed by SSH in the given circumstances, despite the estimated decline in the ROE indicator.
Demokracija: Recently, there have been some media reports relating to the transactions of Gen-I and Elektro Ljubljana. You also paid more attention to this in SSH, what are the findings?
Žlak: The report, which was also discussed by the Supervisory Board, shows that after a detailed inspection, no irregularities were detected in the transactions of Gen-I and Elektro Ljubljana.
The findings of the SSH Management Board and professional services are based on a review of available internal documentation and obtained special reports prepared by SSH GEN, GEN-I, and Elektro Ljubljana at the request of SSH. In addition, transaction procedures were conducted in collaboration with established international consultants and estimators of values. At the same time, the effectiveness of the approach is also confirmed by the achieved business results of the companies involved, which thus increased profitability. Thus, from the point of view of legislation and taking into account the diligence of a good businessman, there are no grounds for a justified special audit.
Demokracija: Does SSH have enough necessary levers to enable the pursuit of the interests of companies with a capital investment of the Republic of Slovenia, is this legally satisfactorily regulated?
Žlak: The ownership restructuring and thus the management structure has not yet been completed due to the exercise of the option rights of Elektro Ljubljana and the possible ownership transformation of Gen-El. SSH is examining the best possible long-term solutions to achieve the optimal corporate and business management model of GEN-I, which will ensure development, good financial results, while enabling an appropriate system of stable and efficient corporate governance in accordance with the management strategy.
Demokracija: As the manager of state property, SSH also publishes offers for the sale of shares in individual companies. Based on what criteria do you decide to sell?
Žlak: Activities related to the sale of capital investments owned by the Republic of Slovenia and SSH are planned for investments for which the annual management plan (LNU), approved by the Government of the Republic of Slovenia, envisages sales activities. SSH allows the possibility, in accordance with market opportunities, to carry out sales activities for all other capital investments owned by the Republic of Slovenia and/or SSH, which belong to the group of portfolio investments, if, on the basis of the business circumstances of these companies, market conditions, the business and regulatory environment and other factors, it would be considered appropriate to start those activities. Significant sales of companies are not planned for this year.
Demokracija: How much interest is there in buying individual shares and what major investment sale procedures are open at this time?
Žlak: SSH cannot comment on the sale procedures until they are completed. We are currently in the process of selling a small package of Intereuropa shares.
Demokracija: What takes you the most time, what are your plans, vision in this term, say in the medium term?
Žlak: Our key focus is on managing the country’s capital investment. I dedicate the majority of my activities to this area. As the state is an important owner of companies in Slovenia, we have a great responsibility to be active, predictable, and professional owners. I will highlight SSH’s vision in the field of sustainable operations, which is becoming an increasingly important area. It reads that it will be a success for SSH when the companies achieve the financial success expected by the owner, while at the same time realising all three aspects and goals of sustainable business. Every year, we outline strategic and economic-financial goals for the companies, as well as define some qualitative goals that are ambitious but achievable. This document, called the Annual Management Plan, is then adopted by the Government of the Republic of Slovenia every year.
The implementation of an appropriate dividend policy is also one of the central activities of capital investment management, with which SSH pursues the goals of maximising cash flows for the owner while taking into account the performance of individual companies in the management portfolio and their development needs.
Demokracija: As a party in the proceedings, SSH also participates in proceedings on the determination of compensation for nationalised property and takes care of the ongoing settlement of liabilities from confiscated, i.e. denationalised property. How many more open proceedings are there?
Žlak: Only the most demanding denationalisation cases are the subject of the solution. These are mostly extensive claims, claims with very high damages and complex legal and factual issues.
On December 31st, 2020, SSH had a total of 222 unresolved claims in 158 cases. The denationalisation process has not yet been completed, so SSH is still receiving new claims in administrative and judicial cases or recording so-called follow-up claims, i.e. new claims in existing cases. This is a consequence of the purpose of ZDen, as the law determines the return of property in kind as the primary form of return, and compensation is determined only in the second phase.
Demokracija: SSH also settles liabilities in the name and on behalf of the state. How high are these amounts and where is the source for this?
Žlak: It is true. SSH also settles various damages in the name and on behalf of the state, e.g. victims of war and post-war violence (ZSPOZ) and compensation for confiscated property due to the abolition of the confiscation of property (ZIOOZP). On the basis of a public authorisation to conduct proceedings, we issue decisions on the amount of compensation and perform all other transactions related to their execution. We also perform all tasks related to the calculation of interest and the payment of the RS21 bond issued by the Republic of Slovenia for the payment of compensation for confiscated property.
From January 1st, 2020 to December 31st, 2020, SSH paid 1.3 million euros to beneficiaries under the ZSPOZ, and according to the ZIOOZP, compensation in the equivalent of 12,118 RS21 bonds in the amount of 747 thousand euros was paid to the beneficiaries or their legal successors. These costs are covered by the Republic of Slovenia from the budget.
Demokracija: Are there any organisational changes for SSH?
Žlak: The National Assembly’s National Demographic Fund (ZNDS) bill is in the legislative process of the National Assembly, which envisages the transformation of SSH into a demographic fund and the concentrated management of all state investments in one place. In addition to the tasks provided for in the draft law, the Demographic Fund is also supposed to exercise all its powers, competencies, rights and obligations of the company that SSH had before the transformation. For SSH, this represents a major challenge for management, process and organisational transformation, which, if the law is implemented, it will carry out in a professional, responsible and inclusive manner.