Window business is a delicate matter

A release in the weekly “Business Bulletin” of June 22, 2011

The right strategy chosen for the company during the economic boom ensures the stability of its operations in times of crisis as well. This has been proven by one of the largest companies in the local market specializing in the production of plastic windows - ARUTECH PARIMAD AKNAD OÜ. Areg Arutyunyan, its Member of the Board, speaks on the development of the company.

- Areg, at the beginning of this year, your company has moved to new premises and in May you installed a new production line. How did you manage to keep your head over water in a difficult period and to reach a new stage of development?

– This happened due to a number of reasons. First, rather large competitors had left the market and their regular customers had to change their supplier somehow. And in the spring of 2010 we have done everything possible to attract the maximum amount of such customers, including the setting of rather favorable prices for our products. I must say that we did not expect such a growth ourselves: in high season the waiting period for the ordered windows had increased up to two months. Our production volumes could have been even greater, but our production area has not allowed us to increase the production, as well as people were not ready yet. Therefore, at the end of last year, we started looking for new premises, especially as we have long wanted to expand our production base. We have had a second production line ready, but we hadn’t got any place to install it, and the growing volume of production just pushed us to search for new production areas, which lasted three months. Finally, we decided to opt for the former factory building of GLASKEK, since it is well adapted for the production of quality windows in large quantities. Thus, we have increased the production area from 1 500 to 3 000 square meters – a twofold increase.

- What is the workload of your enterprise this year?

– If in 2010, as compared with 2009, the turnover has increased by 57% and profits – by 7.5 times, this year we don’t observe such a growth, although we have fostered certain hope in this aspect. The boom of the last year was motivated, as I noted earlier, by some internal factors in the market: the crisis breaks fresh ground for efficient enterprises. In addition, the demand in the times of crisis is postponed, so to speak - the customers, who wanted to change their windows within two or three years but could not afford it, after a difficult period has passed, again started to order our products. What concerns the current year, it is no wonder: the people were concerned before transferring to the Euro, and not without reason - prices are rising. In addition, prices of foodstuffs and utilities rose sharply this year, and consumers are postponing their investments in order to make ends meet. Salaries also are rising gradually, but they don’t keep pace with the rapid increase in prices. Our products also did not escape a rise in price due to rising costs of materials, sometimes reaching 10-15%. Some materials, by contrast, have fallen in price, but in general everything becomes more expensive. The demand is also not standing still, but here an artificial shortage played its role, caused by the fact that a number of companies had frozen their production. The production is not restored and the price of goods rises. Last year, for example, I have heard that many regions are facing problems with the supply of glass, due to the fact that some old furnaces did not start the production.

In times of crisis ARUTECH proved itself as a stable enterprise, from a financial point of view. Whether this is due to the fact that during the boom you have avoided the credit load?

– During the period of economic boom, we had chosen the so-called “counter-cyclical” strategy, that is: when the market is on the rise, one should not borrow and spend frenetically, but rather – one should save, thus creating a “money cushion” for the period of recession, in order to have certain working assets, which may help you to overcome the crisis - after all, economic cycles have not been canceled. Yet in 2006 and 2007, I have foreseen, where it is all going, and my senses have dictated which strategy is preferable. I'm not against credit, but I’m for a reasonable, prudent decision. Who knows what will happen with the economy in 20 years? But you have to repay the money regularly anyway. My personal approach to this question is: a credit may be taken, if an item is worth as much as you can pay for it right away, but you still must have the same amount of money, just for the case of "sagging" Simply put, if the thing costs 50 Euros, then you should have 100 Euros, if you need the operating funds. In this case the loan is helpful, but if you have only 100 Euros, and you take out a loan of 150 Euros, the result could be disastrous

- How do you assess the potential of the local market? Are there any plans for export activities?

– Within several years, the technology of production of windows has stepped forward in such a way that today windows are twice as warm. For instance, if their thermal conductivity was 1.7, nowadays it reaches 0.86, and the prices are quite reasonable – even with new structure, new kind of glazing units. Some customers, who ordered plastic windows 10 years ago, are now changing them for more ergonomic ones. For Estonia – and it is still a northern country - the question of heat saving is very relevant. So, I think that these trends will gain momentum here as well. By the way, there exist already some scientifically proven designs of vacuum glazing units, which the thermal conductivity rate is even smaller, so the windows will be even warmer than the walls.

We do have exports, albeit in a very modest amount, though we would like to consider this trend seriously. Production capacity that we have at the moment, allow us to produce more than we do now. Today, our facilities are ready to produce about 400 glazing units a day. We consider, for example, the possibilities of entering the market of Scandinavia.

- What can you say about the current level of competition in the local window market?

– Despite the fact that some major companies have suffered bankruptcy (not to mention smaller firms), information about some new resellers of windows, reopening businesses, etc. is arriving all the time. Certainly, one of the competitors for us is Poland - Polish producers. Basically, to date, Poland is the largest producer of windows in Europe. Therefore, along with six-chambered units, that is – the most modern profile present in our range of products, we have a sort of an “economy class” that is competing with the Polish windows. It is worth noting that for the client (even if the price is the same, or even below than that of a Polish producer) it is more advantageous to order products from a local company, which, in contrast to the reseller, will provide a real guarantee and will not skimp on the details. After all, it is not a secret that in the Polish windows there are some flaws that, ultimately, affect the quality.

- And how is changed the number of employees in your company?

– Today the company employs 130 people, of which 30 are engaged in the production, and the rest are installers, office workers, etc. If all goes as we planned, we shall hire, as it seems, around 60-70 new employees. At the peak of our activities, the number of employees has reached 200 people, and we want to reach this number again.

To date, we are the only company that provides a complete chain all by itself - from production to installation. And installation work requires lots of things: transport, tools, personnel, etc. Of course, it would be easier for us to give away orders for the installation to the mediators, but then certain misunderstandings may arise with our clients. And in our case, we fully accept the guarantee of the outcome. Today, of course, it’s difficult to find a qualified labor force, but we do have a special training program. In my opinion, in the construction sector, in general, the unemployment is minimal. We have started to slowly raise wages of our staff. There was a time when we brought in skilled workers from Ukraine, and I do not exclude the possibility that in two or three years we shall get back to this practice.

- Tell us about your plans for the future. What you will pay more attention to, in order to ensure the further development of the company?

– First, we shall expand our market share in Estonia. This year we have opened several new branches and we continue to open them. We have a serious export program and we continue to work strenuously on it. In addition, we are following closely all the novelties and new technologies in the production of windows to be on the cutting edge of the progress and to offer our customers the very best. – In addition to the manufacturing of windows, we have started to provide financial services: we have opened a small leasing company, which provides loans and financial services to our customers, who prefer to buy a window according to the installment plan. In the future, we would like to continue developing this activity. This is quite an interesting business, which requires a reasonable and conservative approach. We finance this company all by ourselves, we provide financing to our customers on very favorable conditions, but – a the same time - we carry out a very strict selection – we give out loans not for everyone, and if we refuse to grant a loan due to certain criteria, we recommend and assist a person to turn to another leasing company. Yes, it is a rigorous approach, but – on the other hand – with this scheme we do not have any debtors.

Olga Kudrjavtseva