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Monday 6 July 2015

Who is really in charge at one of the world’s leading vodka producers?

6th August, 2012 by db_staff

Ukraine’s vodka industry has a new participant and a new look, writes Nick Kochan.

The participant is a British manager by the name of Neil Smith, the head and owner of Crimean Vodka. The new look has been given to Medoff vodka, Crimean’s primary brand, which has moved from a square to a more rounded bottle to avoid forgery, according to the company.

Smith, who now owns the Luxembourg-based Eastern Beverage Company, which bought Crimean Vodka less than a year ago in September 2011, is surprisingly little known, particularly in comparison to his company’s high profile in the Ukrainian beverage industry.  His area of expertise prior to last year’s acquisition – perhaps not surprisingly, is debt restructuring.

Crimean Vodka, based in Simferopol in south-central Ukraine, makes many of Ukraine’s largest vodka brands, including Pryrodna Kolektsia, Nasha Marka, Khutorok, Mernaya, and Longmixer, as well as the internationally known Medoff, which goes head on in the Ukrainian market place with the industry leader Nemiroff.

This performance builds on the former success of Soyuz Victan, the vodka producer previously owned by Andriy Okhlopkov which declared bankruptcy in 2009 after apparently overstretching itself.

At its peak, the company produced over 50 types of goods, including classic and special vodka under the Soyuz Victan and Medoff trademarks, low-alcohol beverages under the Longer trademark, medicinal mineral water under the Neapolis trademark, and bottled water under the Soyuz Victan trademark.

The company exported its products to the US, Germany, Russia, Britain, Israel, Spain, Australia, Kazakhstan, Armenia, Azerbaijan, Moldova, and the Baltic states. Crimean Vodka appears largely unchanged in everything but name since the days it was called Soyuz Victan. In addition to operating its predecessor’s distillery, Crimean kept a Soyuz Victan executive, Jonathan Wale,  on as CEO, and Artem Semenyuk, head of financial operations,

Prior to declaring bankruptcy, Okhlopkov had earlier claimed the company had “the largest distribution network in the country, supplying its products to more than 30,000 retail outlets,” and that “only Coca-Cola [had] a larger network.” Okhlopkov ultimately blamed the failure of his business on the impact of taxation as well as the global financial downturn.

In the wake of Soyuz’s bankruptcy, a number of banks came forward as creditors to Soyuz Victan. UkrAgroConsult, the authoritative analysts of the Ukrainian business sector, reported that the group was planning to pay off its accounts payable estimated at $170-200 million after selling its assets; the main creditors of the group are the Ukrainian divisions of OTP Bank, Sberbank, and Alfa Bank.  According to market insiders, companies affiliated to the group’s management, namely Ukraine’s Crimean Vodka Company and Russia’s AlkoRuss, were poised to obtain the production facilities of Soyuz-Victan.

Now Alfa Bank is reported to have filed a lawsuit against the company alleging it was owed 697 million rubles. While the Bank has not responded to phone calls, it is understood that creditors continue to await repayment.

Despite the declared bankruptcy of his business,Okhlopkov has not had to give up the trappings of wealth acquired when the business was at its peak. He reportedly continues to fly in his own private jet and recent purchased a home in one of Geneva’s most expensive neighbourhood’s. This has led one observer to allege, ‘There is a view in Kiyv that Okhlopkov continues to be involved in Crimean Vodka and Smith is the public face.”

As for Neil Smith, what he lacks in exposure to the alcohol industry he more than compensates for in the financial services.

Educated at the University of Cambridge, Smith has extensive experience in investment banking and asset management, particularly serving clients in Russia and Eastern Europe. In addition to his work for known companies such as Deloitte and Aviva, he has managed smaller more specialized entities active in debt restructuring in former Soviet Union countries. He is currently the owner of Moscow-based Florin Advisors, created in 2007 around the time at which Soyuz Victan began restructuring its debt. Eastern Beverage Company S.A., the only business Smith owns in the UK, is registered to Smith’s parents’ home in Northampton, and he owns no other property in the country.

Smith has told friends that he took over an ailing vodka production company in Ukraine and is in the process of turning it around. At the time of the acquisition he said that Crimean Vodka Company was  “a major acquisition,” adding that there was “huge potential to build an alcohol business in Ukraine.” Affirming his commitment to the business, Smith went on to say “I have serious intentions to develop Crimean Vodka and have a strong interest in the success of the company’s brands.”

Smith’s apparent success in building the brand has brought on some inevitable sniping, with some even suggesting that he may not even be the sole owner as the documents show.  Smith, who on paper at least is the current owner of Crimean, according to UK corporate records, still lives at his parent’s home south of London.

Phone calls to Smith were not returned, however, and James Hart, who handles his office, said in March 2012, that “Neil has told me he is happy to provide you with any resources required for you to have an in-depth understanding of the dynamics of the vodka market in Russia and Ukraine.”  No further information has been received from Hart, Smith or from Crimean Vodka.

Smith may be the new lad on the block in Ukraine, but he is keeping himself very much to himself, and leaving open the question of just who is the real owner of Crimean.

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