ARKS Group President Dmitry Simarev on Gennady Timchenko’s influence on the company’s business

The general contracting group ARKS, created in the early 2000s, was practically not widely known. But as soon as businessman Gennady Timchenko became a co-owner of the company, ARKS received an increase in the volume of orders from the Moscow City Hall. In an interview with Kommersant, the president of the group, DMITRY SIMAREV, explained why US sanctions against Mr. Timchenko would not affect the company and why ARKS did not build in Sochi and St. Petersburg.

Photo: Kommersant / Gleb Shchelkunov / buy photo

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Federal orders are the future. But this is a complex story, which requires other tools not used in the normal construction process.

Photo: Kommersant / Gleb Shchelkunov / buy photo

If you need to build a kilometer-long bridge span, then you need to use super technology. In ordinary life, the tasks are simpler. For example, so that the asphalt lasts longer

Photo: Kommersant / Gleb Shchelkunov / buy photo

— Will the sanctions imposed by the United States against one of the company’s shareholders, Gennady Timchenko, affect the business of ARKS?

— Our entire business is located in Russia: all contracts are within the country. There are no common projects with American companies yet, so sanctions cannot in any way affect the ARKS.

— Has the value of ARKS changed after the company joined the united construction holding under the management of Gennady Timchenko’s Volga Group?

“I’ll be able to answer when I’m not bound by obligations.” We have a non-public business. The merger in our case occurred more for coordination and a more reasonable use of all capacities - on a geographical or thematic basis. A natural process has occurred: the business is being structured and it is difficult to be absolutely independent. What is more important is what the threshold of independence is. Look at the process of creating any financial and industrial group - if they want to develop a new business, they look for a partner.

— Will Gennady Timchenko increase his share in ARKS?

— There is an agreement drawn up as comfortably as possible for each of the parties. In accordance with it (the structure of the Volga Group. - "Kommersant" ) receives a block of shares (25%. - "Kommersant" ) and the opportunity to increase it to a control size.

— If it weren’t for Gennady Timchenko, would someone else have taken over the company?

— Nobody absorbed ARKS. Gennady Timchenko is one of the shareholders and strategic partner of our company.

— Does this partnership give you confidence, for example, that, thanks to the personality of one of the shareholders, the company will always have orders?

— I would really like ARKS to always have a job. We have 8.5 thousand people on our staff: over the past 12 years, we have never delayed their salaries. Even in the crisis year of 2009, our workers received wages. But judging by the dynamics of the value of the order portfolio in recent years, it is clear that there is no surge. I agree that the reputation of our partner gives more opportunities, because our customers know that if something goes wrong, they can put pressure on us through the co-owner of the company. This helps, but it places much more responsibility on the ARKS leadership.

— ARKS is perhaps one of the few large general contractors that was not involved in construction in Sochi. Now, when after the Games such large Olympic contractors as Efim Basin’s Inzhtransstroy and NPO Mostovik began to go bankrupt, you probably don’t regret that you didn’t fight for Sochi orders...

— ARKS has enough orders outside Sochi. I understand perfectly well that the Olympics affects the image of the country, but we did not have the goal of participating in this at any cost.

— But you have a chance to distinguish yourself in the reconstruction of the Luzhniki Grand Sports Arena for the 2018 FIFA World Cup. Deputy Mayor of Moscow Marat Khusnullin announced the possible participation of ARKS in this project. Will your company be a subcontractor to the curator of this construction, Mosinzhproekt?

— So far we have not signed any binding documents. OJSC "Olympic Complex "Luzhniki" (on its balance sheet until the summer of last year there was a Grand Sports Arena . - Kommersant ) was interested in our competencies. Therefore, my partners and I, including the Italian construction company Codest, created a consortium capable of completing the required amount of work. Then Luzhniki handed over the facility to the city. A traditional mechanism for searching for a general contractor was launched, and following the results of the competition it became Mosinzhproekt (100% owned by the city . - Kommersant ). We have technologies that can be applied to the project, the question is the timing. This arena is a rather complex object. For example, the stands are an architectural monument; they must be preserved and other work must be carried out at the same time.

— ARKS has a large volume of work commissioned by the Moscow City Hall. Has the portfolio structure changed over the past year?

— Nothing radically new has happened to the portfolio. We are focused on infrastructure projects and continue to develop in this direction. Last year turned out to be difficult; we had to make every effort to meet deadlines for projects already launched in the capital. In May, two tunnels were commissioned on Kashirskoye Highway, in July - the Rublevskaya overpass, in August - an overpass on Michurinsky Prospekt, and in September - an overpass at the intersection of Dmitrovskoye and Dolgoprudnenskoye highways. It was not an easy story, as the deadlines were very tight. Over the course of a year, we managed to increase the speed of work two to three times on major construction projects.

— Is it true that last year your company, like other general contractors, was asked by the city authorities to deliver projects ahead of schedule in order to be in time for the mayoral elections?

- What does this have to do with elections? This is the policy of the Moscow authorities, who believe that we are able to build faster. These demands continue after the elections, and work continues at the same pace.

— In addition to the deadlines, the mayor’s office is also reducing costs for orders. Did this affect you?

— You can reduce costs in different ways. Increasing the speed of construction also means reducing costs: the inflation rate in calculations decreases. But this dependence, alas, is nonlinear. For example, the project for an overpass on Rublevskoye Highway involved the construction of first one part, then the other, and we built both at the same time. At the same time, we needed a crane with five times the lifting capacity, which costs ten times more than a conventional one. That is, this is a complex calculation. I can't say that we gain much if we build faster. In addition, construction materials are becoming more expensive. Let's say the tender was held in January, and the construction season begins in the spring, prices rise. Manufacturers of sand and concrete are not very interested in what is written in our estimates. It’s easier for us because we have our own asphalt concrete plant, which allows us to build up reserves of raw materials.

— To ensure high speed of execution, you need to work with a well-prepared project. Have you noticed an increase in the quality of project documentation that your major customer, the Moscow City Hall, provides to you?

— We like that the latest projects that we carried out for the city were released immediately at the “working documentation” stage (in this case, the general contractor receives a detailed assignment for the scope of work . — Kommersant ). Previously, we first received documentation only at the “project” stage, which gave no more than a general idea of the volume of construction and upcoming costs.

— What is the share of government orders in the ARKS portfolio?

— Approximately 70%.

— What non-road related construction projects does the company carry out as a general contractor?

— For Don-Stroy Invest we are building a residential complex “Setun Valley” on Mosfilmovskaya Street. Until recently, construction of a multifunctional residential complex on Mytnaya Street, which includes the reconstruction of the Trud stadium, was proceeding less intensively until recently. This facility, whose area reaches 205 thousand square meters. m, was announced in 2009, but the customer had problems with financing. There is an interesting project for the construction of new buildings of the Medical and Dental University on Kuskovskaya Street, which ARKS is implementing under government orders. Another commercial facility is the modern clinical diagnostic center "Medsi" on Presnya.

— Is the profitability of contracts you receive from commercial structures fundamentally different from government contracts?

— For commercial orders, profitability is several percent higher; last year it was about 12%. The profitability of a commercial project depends on the customer’s investment resources. If he starts having problems, our profitability drops. It takes time to reallocate production resources. I don’t know where the contractor’s 30% profitability comes from, which some of our colleagues talk about.

— What is the group’s revenue?

— In 2012, this figure amounted to 30 billion rubles. We have not yet officially disclosed the company's performance results for last year. But, according to preliminary data, in 2013 revenue reached 40 billion rubles. That is, the growth will be 25-30%. The volume of orders is about 100 billion rubles.

— You can increase your portfolio of orders, given that the state now allocates enough funds for road construction?

“We have never traded our name or tried to take on all possible contracts, because in such a situation there is a risk of not being able to digest this volume. If we receive a large order, we strive to increase our own competence for such work. Otherwise, the process gets out of control. I am convinced that the general contractor should do at least half, and preferably 60% of the work himself. But there is a limit to the development of competencies. Abroad, the preparation of documents for large projects takes several years, so the general contractor comes to an empty, completely finished site. He does not need to develop, for example, the ability to install electrical networks, since there is a company that has been doing this for a long time. In Moscow, the general contracting market is very narrow: in Moscow we know all the specialized companies, they know us. Therefore, when we come and ask to remove the pipe, the pipe is removed.

— During the 2008 crisis, the profitability of development fell sharply. Developers realized that they could not work with a high credit load, as before 2008. What has changed in the general contracting market?

— In mid-2009, we were very squeezed in expenses. By decision of the shareholders, they retained key personnel, but reduced salaries, canceled bonuses and bonuses. Eight months later, the budget began to fill up again. We had advantages - we did not try to earn money by wasting government money, we did not have a credit burden, and it still tends to zero, with the exception of current loans of 3 billion rubles. And we were able to explain the current situation to people, convey that if we leave everyone, the company will die, but if some of the employees go on vacation, the business will survive and they will have somewhere to return. It worked. We have retained the core of the team, including unique, experienced specialists. Turnover in our company does not exceed 2-3%, despite the fact that we are not market leaders in terms of salaries. But we are trying to involve people using the benefits of the social package, although right now there is a big problem with personnel.

— After the crisis, the market cleared. Do you see new niches for ARKS - for example, housing construction?

— It can be interesting, you just need to develop the appropriate competencies. This is a borderline economy - if the market grows, you will earn a little, if not, then no. We are interested in this niche, but we need to move gradually to arrive at the project ready. There is an interesting technology for constructing frameless residential buildings up to six floors high. Perhaps we will formulate an appropriate investment proposal for the Moscow region or New Moscow.

— The son of the founder and co-owner of ARKS, Vladimir Lavlentsev, was appointed vice-governor of St. Petersburg a year ago. Will this allow you to increase government contracts in this city?

— If you are hinting at an administrative resource, then we do not use it. ARKS did not work and does not work in St. Petersburg.

— Are you ready to reach the level of federal orders?

“Strategically, we understand that federal orders are the future. But this is a complex story that requires other tools not used in the normal construction process. For example, attracting consultants, creating consortiums with banks.

— Do you already have such projects?

— We would like to take part in the construction of the Central Ring Road. We are looking for options to participate in the construction of a backup route for Kutuzovsky Prospekt, because historically we are tied to the exit point of this highway by the Molodogvardeyskaya interchange, which we are building. We look at the competitions that Rosavtodor announces.

— Do you feel increased competition due to the appearance of foreign companies in the construction market?

— Many thought that foreign companies would quickly occupy the market, but this did not happen. Apparently, they are guided by common sense - just try to work in any European city, they won’t welcome us there either. And in the East, it looks good on the outside, but the mentality is completely different. Those who came to Russia are divided into two groups. One has an advantage in technology, the other in labor costs. Today we ourselves are ready to use any technology known in the world. But the fact is that in ordinary life there is practically no place for new technologies because of their cost. Technological excellence is important in unique facilities. If you need to build a kilometer-long bridge span, like on Russky Island in Vladivostok, then it is necessary to use super technologies. In ordinary life, problems are simpler, and everything to solve them has long been invented. For example, ensuring that the asphalt lasts longer: these are not magical technologies, but painstaking work on the quality of waterproofing.

— Are there any interesting targets on the market for ARKS to take over?

— The main question: for what? It happens that absorption is necessary for development. For example, someone has bases located in convenient places. If the owner comes and proposes a merger in any form, we will consider it. For technological perfection - hardly. We might take a closer look at a road construction company. But in practice it turns out that the technology they use is not suitable for us. Therefore, it is easier to buy people whom you have been observing for a long time.

Interviewed by Ekaterina Gerashchenko and Khalil Aminov

"We never traded the name"