News
- 14.12.05
Sergei Odegov: «We do know competitive advantages of our neighbours well»
Russian companies, which don't belong to the sectors of oil production and processing, are not really well-known to a wide circle of investors. This year some metallurgical companies, which for many years preferred not to pass information concerning themselves outside their professional circuit, have joined the club of "publicly known" companies. Now there is the turn for those sectors of industry, which serve the interests of process industries. In this regard the process of business consolidation is has came close to the phase of completion, and now the companies are almost ready "to show" themselves towards the investors. Circle of such companies includes "Magnezite Group" - the leading manufacturer of refractory materials, which represent the important component of processing chain for companies, engaged in metallurgical production and manufacturing of construction materials. Concerning the business of "Magnezite Group" and plans of the company's development we can learn from the following interview with its General Director Sergei Odegov, which he gave towards RBC daily.
Note
Refractory material - is a sort of material, which contacts directly with such materials, whose production require constant maintaining of high temperatures. When the treatment temperature exceeds 800-900 degrees the refractory materials represent one of the key components of the processing chain in production of steel, cement, glass, many types of ceramics. Nowadays refractory materials, produced from the natural magnesite, dominate at the market of refractories.
"Magnezit Group" includes a production division, which includes OJSC ""Magnezit" Plant" (Satka, Cheliabinsk Region), Kuischtuim Refractory plant (Kuischtuim, Cheliabinsk Region), Russian-German joint-stock venture LLC "Magnezite Intocast Satka", (Satka, Cheliabinsk Region), joint-stock venture Yingkou Dalmond Refractories LTD (People's Republic of China) and Feuerfest Siegburg GmbH (Germany). "Magnezit Group" Ltd (Satka, Cheliabinsk Region; Moscow office also performs as an administrative and strategic center of the Group) and Dalmond Refractory Materials LTD (UK, Export-import operations) are responsible for sale of products and engineering. Total sales volume of the Group in 2005, according to the appraisal of the company's management, is going to exceed USD 250 mln.(data are presented on the basis of internal accounting).
- Market of refractory materials is well-known within rather close circle of specialists only. What was the way of "Magnezit Group" towards its present position?
- Recently many branch markets, especially markets of raw materials demonstrate the obvious tendency for consolidation of production and infrastructure capabilities of the main players. Competition at the market of refractories is rather severe, and in our opinion, the pace within our industry will be set by the companies, which possess their own raw materials base. In the beginning of 2003 owners of certain companies, specialized in production and sale of refractory materials, made a decision to establish a centrally administered group of companies, which represent the vertically integrated chain of production/sale processes: from mining works to delivery of products and engineering service of heating units for the final consumer of refractories. The main production unit of the newly established structure became the "Magnezit" plant - one of the oldest manufacturers of refractory materials, situated in Satka.
- What position does the company occupy at the Russian and international markets at present?
- For now "Magnezite Group", together with such companies as RHI, Vesuvius, Saint Gobain, belongs to the circle of the leading players at the world market of refractories. According to the data of marketing investigation of market of refractory materials, carried out by Hatch Beddows - rather competent and respected company for participants of the metal market, - nowadays "Magnezit Group" provides more than 60% of magnesia refractories market and more than 25% of the market of refractory products of Russia and CIS counties. However, market is a changeable milieu, and if you want to keep you market share, it is necessary to undertake regular internal changes, outpacing the dynamics of market changes. In order to answer the market demands the available production base was extended and specialized; new production units were established in China and Germany; some joint ventures with the leading world manufacturers of refractories are to be set in the nearest time. Perhaps, we have formed the largest commercial network, engaged in supply of refractory materials, in Russia and CIS. Trade agencies have been opened in some countries of the European Union and in China.
- Who is the main consumer and user of products of "Magnezit Group" companies?
- Nowadays we deliver refractory materials to more than a thousand of consumers - from China up to Western Europe. At the end of October the international conference of consumers of refractory products, organized and carried out by "Magnezit Group", took place in Satka, Cheliabinsk Region. More than 200 enterprises of ferrous and non-ferrous metallurgy, cement industry, represented the interests of the biggest manufacturers and production groups - Magnitogorsky metallurgical integrated plant, "Severstal", "Mechel", "EvrazHolding", "Uralskaya stal", "Krivorozhstal", "Eurocement" and some others, - took part in that conference. Metallurgical industry is traditionally the main consumer of our refractory materials. The share of ferrous metallurgy enterprises within the structure of total sales volume of "Magnezit Group" is about 70%.
- This year the Group has worked out a complex strategic program of development up to 2010. What are the priorities of the strategic development?
- According to the program up to 2010 "Magnezit Group" should become a large specialized company with annual sales volume more than USD500 million. We are planning to keep the mono-industry business structure. The main line of business will still be production and sale of refractory materials, and furnishing of complex services in using of these materials. Our investment program corresponds with the main stream of general strategy of the company development, approved by the shareholders this May. In particular, this program includes the achievement of the most preferable for the consumers ratio of price and quality of our product at the CIS market due to modernization of production, enlargement and changing of structure of our product assortment, preferential development of system of engineering services, multiple increasing of sales volumes at the markets beyond the CIS, widening and development of the raw material base. According to the plan, the general amount of investments for business development of the Group up to 2010 should reach 6 bln. roubles.
- Are you interested in attraction of outside investors or IPO organizations?
- It is too early to speak about exact plans and terms. Shareholders have just fixed the target for the nearest future - within the nearest years to prepare the company for entering the stock markets. We are planning to pay special attention towards the increasing of efficiency of business-processes. Certain principles and procedures of corporate management have been already determined; we are working at formalization of corporative structure of the Group that will provide certain grounds for the development of some consolidated financial ratios to be presented towards the interested parties.
- The market can suffer significant changes within a few years. Are you aware of any dangers for the company in future?
- Within the segment of the market, where we carry out our business activity, the main menace is represented by the Chinese manufacturers of refractories. Not least in order to understand the driving forces of our competitor we have already established our own production in the People's Republic of China. At present active works are carried out in the sphere of creation of the second Chinese enterprise with our participation. As a result we started to sell out "Chinese" products directly at the home Chinese market. So, it is possible to say, that we do know the competitive advantages of our neighbours and we undertake active steps to protect out future interests at the market.
- Does the range of risks include only the Chinese products?
- Another group of possible risks includes the changes in technologies of our consumers. For example, it is well known that within the next few years steel-making by open-hearth process will become a history. Traditionally the products of our main enterprise - "Magnezit" plant - technologically was in the main oriented towards open hearth furnaces. However, the metallurgists are really making certain headway, and nowadays they actively reorganize their manufacturing process with the use of electric arc furnaces and converter heating units. Such challengers, expressed in these changes at the enterprises of our customers, were responded by the medium-termed investment program of "Magnezit Group". We intend to update a number of technological processes in order to change the products assortment in accordance with the demands of our partners. Besides, technology of production of the refractory materials also changes. For example, modern technology of steel-making required a new type of refractory material, which even lately we haven't been able to offer in the necessary volume and quality. In order to eliminate this drawback we accomplished a joint project with the German company Intocast AG. The newly established enterprise was provided with the most modern technologies and equipment, which gave an opportunity to produce the required volume with guaranteed quality of European level. As for the future alliances, "Magnezit Group" possesses certain alternatives towards the now realized plans of strategic development, but it seems better to speak about them after their realization.
- In what way are you going to keep and widen your share at the market?
- A special set of different refractory materials, which form the inner layer of a heating unit, which is in constant contact with, for example, boiling steel, is called lining. Let's turn to the steel-making furnace. The inner part of the furnace is lined with products of various chemical composition and production technology. Nowadays, after establishing of "Magnezit Group", which includes also the enterprises with various technological processes of production of refractories, we are able to offer to our consumers the complete lining of a heating unit. At present we supply the really large assortment of refractories materials within the CIS territory. Besides, at our enterprises we also develop certain highly specialized productions in adjacent areas: complete deliveries, maintenance service, introduction of automated systems of control over the heating units. Also, the program of Group development includes the widening of servicing practice of complete maintenance of thermal devices - Total Refractory Management. It means that the metallurgist company deals with only one supplier, who takes upon itself designing of the lining, delivery of all the necessary materials, lining works, warranty service and further control over the integrity of lining, in spite of the fact, whether the supplier manufactures the whole range of the required refractory materials or not. For now there is almost no such practice in Russia.
- And who provides the marketing information? In fact, it is not an open market, where the total demands of the customers are well known towards each player?
- We carry out our business activity in the close contact with our current and potential consumers, and we try to foresee their demand: we follow the modifications in the steel-making technology, replacement of thermal devices, etc. Such work with consumers is carried out by our regional trade agencies, the main of which are situated in Moscow, St.-Petersburg, Novokuznetsk, Taganrog and Satka. Out trade agencies also performs in Ukraine (Donetsk, Dnepropetrovsk, Krivoi Rog), in Kazakhstan, Uzbekistan, Poland, Slovakia, Germany and China. As for the market of the Western Europe, there we supply products on the basis of melted magnesite (periclase) and articles for cement industry. The point is that the manufacturers of cement use the same furnaces as we use for production of fireproof materials. That is why in the sphere of technologies of lining the furnaces for the needs of the cement industry we can be considered real experts. And our periclase articles for the ferrous metallurgy respond all the requirements for quality, set for the products, subject to usage in Europe. Since the beginning of the next year we are starting to supply our manufactures articles towards the market of China - the leading world manufacturer of ferrous metals. Besides, we are really interested in making contacts with manufacturers of the countries of Latin America, the Near East and Northern Africa.
- You have just mentioned consolidation of production and infrastructural units within the Group, but nothing was said about the raw materials. Couldn't you face the deficit for raw materials or uncontrolled increase of their prices?
Overall stock of natural magnesite in our main deposits in Satka is estimated as 150 mln. T. In case of annual level of mining of about 2,6 - 2,8 mln. T we are provided with the stock for at least half of a century. Of course, reproduction of the raw materials base requires significant investments. In particular, while developing the Satka deposits we gradually turn from the mainly quarry method of excavation towards the more technologically advanced mine method. Simultaneously we carry out permanent searching for optimal decisions in the sphere of rational utilization of raw materials. Within the nearest three years we are going to invest up to 500 mln. roubles into the development of the raw materials base. Also we plan to make serious investments towards the exploration of new deposits in the Ural Region. At present we carry out the project of development of a new promising deposit of magnesites in Krasnoyarsk Region. Even the first prospecting data proved the availability in this deposit of not less than 15 mln. T of the top-rate raw materials. We have all the grounds to believe that the additional exploration will show much more significant reserves volume.