Our Values, Our Responsibility

“In order for us to be competitive in the Serbian market all these years, we made some investments into developing the organisation, our staff, products and market positioning, as well as our current assets. The share capital of Imperial Tobacco SCG stands at 25 million euros, and more than 100 million euros of the working capital we brought into the country is still in the monetary flow in Serbia today.” Vladimir Mikic

Imperial Tobacco Group, headquartered in the United Kingdom, is one of the leading international tobacco companies with a balanced market share and a unique portfolio of tobacco products in all categories. The company’s largest competitive advantage is its “Total Tobacco” approach. ITG is the world’s leading producer of fine-cut tobacco, rolling papers and cigars. Imperial Tobacco has a presence in more than 160 markets, with 49 factories in countries around the world and about 38,000 employees.

The history of the company begins in 1786 when Henry Wills opened his first shop. His shop was located two kilometres from today’s headquarters of Imperial Tobacco, in Bristol, England. In 1901, an agreement was reached to amalgamate 13 important family firms into one company, and the Wills family, which owned the largest firm, provided the company’s first chairman – William Henry Wills.

Another five companies entered Imperial Tobacco in 1902. In 1996, after 10 years of operating as part of the company Hanson Trust plc, Imperial Tobacco again became an independent company and actively strengthened its position in the markets outside the United Kingdom.

Today the company is among the 300 most successful companies in the world according to the Financial Times, and among the four largest companies in the world producing, distributing and selling a wide range of cigarettes, tobacco and cigars in the world.

Imperial Tobacco has been present in Serbia since 2003.

Although it did not participate in the acquisition of tobacco companies in Serbia, Imperial Tobacco gained a substantial market share which has tripled since 2009. Imperial Tobacco has brought more than 140 million euros of operating capital to Serbia in the last three years.

Mr.Vladimir Mikic, CEO of Imperial Tobacco, Serbia, speaks for Profit Magazine.

1.Mr. Mikić, where were you born? Where did you grow up and go to school?

I was born in Skopje, but neither I nor my parents have ever lived there. I spent my childhood and school days in Knjazevac, where my parents still live and where my family and I are frequent visitors.

My mother and my sister, who is five years older than me, are both architects by profession and perhaps that encouraged me to choose the architecture course of study in secondary school with the intention of making it my future vocation. However, after I graduated from secondary school, I realised that architecture was more like a hobby for me, and to this day I still enjoy it, but it is not a vocation I would like to do professionally.

At that moment I decided to follow in the footsteps of my father, an economist by profession, and I spent the summer prior to my compulsory military service preparing the differential exams I had to pass in order to enrol in the university of my choice. My college days were marked with frequent changes of location caused, to a certain point, by the situation in Serbia at the time, but far more by my adventurous spirit and my desire to change my future and find the type of success many young people fantasise about at the beginning of their careers. At first, I enrolled in an economics course in Niš, after two years I transferred to Belgrade, but ultimately I ended up earning my degree in economics in London.

From this perspective, I realise that these changes have shaped my life because, on the one hand, I have met various people of different backgrounds and from different cultures with whom I have gained invaluable experience and knowledge, whereas, on the other hand, it also shaped my professional career because at such an early stage I recognised the direction I wanted my professional career to go in.

2.When did you join Imperial Tobacco?

Well, I can’t really say that I came to Imperial Tobacco, rather I’d say that they came to me. In 2002, I started working for the German tobacco company Reemtsma which was taken over in 2004 by Imperial Tobacco in one of the biggest acquisitions in the tobacco industry in recent years and integrated into its structure.

After the merger of these two companies, I was appointed CEO of Imperial Tobacco for Serbia and Montenegro and I still hold this position. Many of my colleagues in Imperial, especially those who work in Europe, originally worked at Reemtsma, so I have known and cooperated with some of them for a long time; on the other hand, we’ve all been working for Imperial for seven years now, and we have grown to be not only colleagues, but close friends as well. I believe that this closeness and openness among the people running this company is one of the most important factors of the business success we have achieved for the company in the past decade.

3.Imperial Tobacco is an international company with a presence in more than 160 countries worldwide. When did this company enter the Serbian market? How much has Imperial Tobacco invested in the operations of its company in Serbia so far? How many employees are there currently?

The headquarters of Imperial Tobacco are in Bristol, the United Kingdom. Until recently, several major sectors were located in London, but now the entire corporate administration is in Bristol.

Imperial Tobacco did not take part in the acquisition of Serbian tobacco companies and for that reason there were no any direct investments in the Serbian market.

Having in mind that we bought the Slovenian company “Tobacna Ljubljana” and the Macedonian company “Tutunski kombinat Skoplje” prior to the privatisation of the Serbian tobacco companies, as well as that Reemtsma had been taken over by Imperial at the time, we were unable to participate in tenders in Serbia simply because the consolidation of the acquisitions had still not been finalised, which was Imperial’s primary goal at the time.

Imperial Tobacco SCG currently employs 70 employees working in various sectors. An additional 600 people are involved in the distribution of our products under a joint venture agreement we have concluded with the company Veletabak, in addition to dozens of people from various agencies and companies who provide various outsourcing services under long-term agreements that benefit our company.

4.When it comes to the sale of tobacco products, why is Serbia such an important segment of the Southeast European market? What results did you expect in 2012 and what was actually achieved?

Serbia is the most populous country in the region and as such, potentially the biggest market. Having in mind that all major global tobacco companies, including Imperial Tobacco, have long-term strategies designed specifically for a certain market, we have concluded that our presence on this market has strategic importance and that Serbia could, with significant economic development, become one of the most important markets in this part of Europe. Certainly, such a strategy requires constant investments in the development of the existing organisation, but that is the only way to achieve a good position for better times which will, we hope, come soon.

I have to be satisfied with the results we achieved in 2012 because we achieved exactly what we planned. Even with the drastic rise in prices, we managed to maintain the results we achieved in the previous years, and even saw sales increase slightly, considering that the entire tobacco product market experienced drastic decline in the previous year.

5.What are the primary problems the tobacco industry, including your company, faces when it comes to the sale and placement of tobacco products in Serbia?

Apart from the host of problems that exist in the global trade sector, the tobacco industry, which is not immune to the global economic crisis, faces additional problems in the form of various restrictions on our products and our business operations.

These are, more or less, the same problems we face in the Serbian market.

Tobacco product “black market”

After nearly a decade, a decade during which Serbia was one of the best regulated markets in this respect, during the past few months we have witnessed a drastic increase in the sale of illegal tobacco products, such a cut tobacco and cigarettes, sold in marketplaces and streets, and even online, on which no excise or other taxes have been paid. These products are even being smuggled abroad and traded illegally. In light of recent consumer protection activities, I don’t need to point out that these products did not undergo any sanitary inspection during the process of production, transport, storage and sale, as well as that the origin of these products is usually unknown. In this particular case, I’m talking about the cut tobacco produced by uncontrolled “handicraft businesses” in the countries bordering Serbia and subsequently illegally smuggled into Serbia.

I’m also talking about cigarettes of suspicious origin and unknown producers, as well as famous tobacco brands that are also smuggled into Serbia from the surrounding countries.

If state administration is not concerned, because of these facts, about the business of the tobacco industry, although logically it should be, it should be concerned about its own budget, but also about the safety of the people, especially when it comes to the sanitary safety of the products sold on Serbian market.

Our estimate is that the Serbian budget loses 5 million euros a month due to the illegal tobacco product trade, under the presumption that excise and other taxes applicable to the cheapest cigarettes are applied to these products.

Of course, the actual amount could exceed 5 million euros, and we have estimated that this year the state budget will be deprived of 100 million euros if adequate measures are not adopted. We expect that the Serbian Government will soon take the necessary measures because it is the obligation of all administrations to immediately take all the necessary measures at the mere indication of such activities.

6.A tobacco industry excise law has recently been adopted. Has this law brought Serbia closer to or further from EU legislation? Has the adoption of this law affected the business of Imperial Tobacco and in what way?

The new excise law was drafted with the intention of bringing Serbia closer to EU standards over the next few years, and it is in fact a “double-edged sword”.

To a large extent, EU standards correspond to the standard of living of the population in European countries, which includes individuals’ purchasing power, which is not the case in Serbia.

If the purpose of the excise law is for cigarettes in Serbia to be the same price as cigarettes in EU countries, it is clear even to the layman that the people of Serbia will not be able to afford such expensive products and the consequence will be that the market is flooded with illegal products. In fact, many European countries, which are bigger, wealthier and, if I may add, better organised than Serbia, have not managed to prevent this.

Over the past few months we have been monitoring these activities taking place on the Serbian market outside the system and we have informed the relevant authorities of the scope and method of the sales taking place in marketplaces and streets. Furthermore, we met with representatives of the Ministry of Finance and shared our fear that this excise law will result in the “black market” flourishing, but we also informed them that there is a positive practise in European countries which may prevent this form of illegal trade of tobacco products; many European countries have relaxed their excise laws as regards semi-products like cut tobacco, thus enabling less wealthy social groups to purchase cigarettes and allowing the trade of such products to operate within the legal framework.

If the purpose of the excise law is for cigarettes in Serbia to be the same price as cigarettes in EU countries, it is clear even to the layman that the people of Serbia will not be able to afford such expensive products.

We hope that the negative experiences we have witnessed recently will serve as a positive example for the Ministry of Finance and that they will recognise the potential flaws of the current excise law.

7.Are the increased prices of your company’s products directly influencing a fall in sales?

Of course, but this applies to all products even in countries much richer than Serbia. Simply put, by increasing the prices of certain products, “you exit” the framework of the financial capabilities of individuals, and they are no longer able to pay for a product. For this reason, it is important to enable, through positive legal measures, the substitution of certain products that will take place in legal frameworks and courses.

On the contrary, a certain number of people will stop using a specific type of product, but a large number of people will resort to products available on the “black market” which, in this case, cannot be controlled primarily due to the huge demand but also due to the large financial interests of those offering illegal products. In this case, you have two large groups looking after their own interests, buyers and sellers, but also all of society which suffers great consequences and is not even aware of it. This, in itself, is a serious problem that the relevant institutions should look at in time, and react to in an appropriate way. The more momentum this “phenomenon” gains, the more difficult it will be to eradicate it and return it to legal frameworks. Not wishing to be a pessimist, but Serbia’s bad experience in the not so distant past in this regard causes us in the tobacco industry to be cautious and a “red light” turns on.

8.The tobacco industry is on the list of industrial branches that the budget of our country contributes to the most. What, in your opinion, should the state do or change so the situation in the tobacco market in Serbia recovers and stabilises?

I think that over the last 10 years or so Serbia has generally led a very good “policy” in terms of the tobacco industry and the laws the define this field.

This industry, without a doubt, is the most competitive economic branch in Serbia and an example of how positive market “competition” brings a wealth of benefits to all of society.

All large, international tobacco product producers have a direct presence in Serbia, competition is huge, the availability of products and services for customers is at a high level, and prices are more competitive than in all the countries in the region. On the other hand, the excessive share of the tobacco industry in contributions to the Serbian budget, compared to the practice in developed countries, shows that other industrial branches have not experienced an expansion of competition, as well as production and supply, and yes, as you put it, the “State” should seriously devote itself to this problem.

Economic development and increased purchasing power of the population will also help the tobacco industry to stabilise its operations to a great extent.

9.The Law on Protecting the Population from Tobacco Smoke prescribes very strict rules on the consumption of tobacco products in public places and violations are punishable by high fines. Does the application of this law have a direct impact on the fall in sales of the products of Imperial Tobacco? What would you say about the application of this law?

The model of the Serbian law that regulates this area is very good because it gives both social groups, smokers and non-smokers, the possibility to separate and not interfere with others’ right to choose. This is a balanced model which we can find being applied in many European companies, and further afield, and which allows a high level of control of the application of the Law itself. On the other hand, the law absolutely protects so-called risk groups such as kindergartens, schools, hospitals, public institutions, etc.

Also, the law does not violate basic human rights and freedoms because it is not in the spirit of human rights and freedoms to solve the rights of one group at the expense of the rights of the other group. The discussion of whose rights are “more important” and “better” is pointless and leads to a spiral of restrictions and repression which, as the history of human society bears witness to, always leads to great dissatisfaction and social upheaval. And besides all of this, I believe that society faces much greater risks to its survival than tobacco smoke and that the focus on this topic is the result of the activities of some interest groups rather than actual worry for human health.

I don’t know how to explain the fact that in some countries the law allows people to buy weapons more easily than cigarettes, while in some countries the consumption of drugs is permitted, but not cigarettes…

10.Public advertising of tobacco products in Serbia is also very clearly defined by the Advertising Law, which is stricter than in most European countries. How does your company present new products to the public?

With this Advertising Law it is very difficult to present any new product to consumers. I agree with you that the law is too restrictive because this is a legal product that is in free circulation like every other product and, if nothing else, this law deprives consumers of their need to be informed about the product they use.

Because of this, many countries left in their legislation the possibility of controlled advertising because they believe that every legal product which is available to buyers within legally envisaged frameworks has the right to be advertised to those same buyers. Not to mention the cynicism of this kind of this legislation when you bear in mind that this a ban on communicating a product that is burdened by huge financial levies that are, again, collected directly to the benefit of the budget revenues which represent the income of all of society.

11.What is your company’s basic development plan for the Serbian market in the next period? What investments have you planned for 2013 and will you create new jobs this year?

Our fiscal year finishes and begins every year on 1 October, so we started the 2013 business year six moths ago and we have already carried out new hirings for the positions with which we planned to improve the existing organisation and structure this year. Our development strategy is always long-term and is not taken on a “year-by-year” basis.

In this sense, we adopted the development strategy for this period a few years ago, and we will try to stop new market circumstances from preventing us in our intention to achieve the planned flow of development. On the other hand, in the conditions of the current crisis, we are primarily focussed on retaining the level of results achieved in the previous period but we never use our existing caution as an excuse for not being able to do more and to do better. At Imperial Tobacco Group, Serbia is defined as a country with huge growth potential which needs to be invested in and we will try to justify this status.

12.Is the business environment in our country more favourable compared to a few years ago or have we not made any substantial progress? In your opinion, what should be changed so foreign investors invest more in our economy?

Since, because of the nature of my work, I frequently meet with people who do not live in Serbia and do not belong to our nation, who work in large international companies and have highly positioned administrative officials in their countries, I can freely say that the trend of looking at Serbia as a country that has finally moved in the right direction, intending to overcome the many mistakes of the past and use all of the indisputable potentials it has, is more the noticeable.

The Serbian Government is of the opinion that is it necessary to implement major changes and this attitude is generally accepted and welcomed by all the relevant stakeholders outside Serbia. However, a huge amount of work in all fields awaits the current Administration because, in the end, only results are valued, not good intentions. For Serbia the most important thing is that this Government, during its term, establishes institutions which will enable business predictability within existing laws, as well as investment security that does not depend on the current needs of the Administration, but is protected by the long-term stability of legal frameworks.

These are the decisions and levers that are always in the hands of the current “establishment”, and it’s only a question of their readiness to implement them or not. Everything else is up to the individuals and companies that will take advantage of such an environment.

13.Are you a smoker?

Yes.

14.How do you find relief from the everyday stress your job undoubtedly brings?

I started working for large internationals back in the mid-nineties and, for a period, for local companies in high managerial positions that entailed a relatively high level of daily stress.

Over time I learned to live with it, to somehow separate less important things from the more important things, and also to organise my business activities in a way that prevents unnecessary stress. Alongside my daily obligations, I try to think about work strategically and in the long-term, and to solve possible problems before they come up.

On the other hand, I have managed to surround myself with an exceptionally good team of people with whom I work and cooperate, and this makes the obligations and problems I face much easier than they would have been.

Of course, there are times when none of this helps, but, time and experience has taught me how to cope well with stressful situations.

15.How do you spend your free time? Do you have a favourite place in Belgrade? Which destinations do you chose to go to on holiday?

Mainly at home, with my family. However, I don’t have a lot of free time and I have adapted, and devoted, my personal life to my work. Over time, more and more of the people with whom I cooperate in business have also become my personal friends who I regularly socialise with and see during my free time. We speak for a few minutes about our families, sport, the weather, and then it’s back to talking about work. I see less and less of my friends who are not part of my business environment. But, I have grown accustomed to this kind of life, I love the work I do and this keeps me fully content, my work day lasts 12 hours or more, and I often devote Saturdays and Sundays to business obligations and I don’t see a need to change this.

I don’t visit a large variety of places in Belgrade unless I have to, as my wife loves to say, fulfil my social duties, so then I will attend some events in the city. I usually go with friends and family to restaurants and it’s very difficult for me to change a place when I have become used to going there. I often go to Madera, Franc, Pomodoro Pizzeria and the floating river restaurant Zabar.

During summer, I use every opportunity to go out on the Sava river in my boat, and then I normally go to the small river raft restaurant exotically called “Kod Ljubice”, where I spend my entire time barefoot and in shorts, which greatly satisfies me as an escape from my ordinary, daily environment.

My wife and daughters have long planned annual vacation and holiday destinations and the sole imperative I impose on them is that every year we go to a different country.

16.If you had the opportunity, what would you change about your career to date?

I’m not sure that would be possible in the circumstances and time I have lived. Maybe in some other place, at some other time.

I am pleased with my career; I was quite young when I started working and at that time, when it was difficult to do so, I quickly got the chance to begin working for one of the world’s largest corporations which is among the top 10 largest in the world today.

I did work that enabled me to meet some of the business world’s biggest global “players”, to cooperate with them and to learn from them. I got an early opportunity to become a high level manager in large international and local companies, and now, I am the only Serb to have ever been director of one of the largest international tobacco companies in this region. In the end, at least another twenty years of work ahead of me, and my thoughts are more on the future than the past. But, we will speak about that in twenty years’ time...