The owner of “Aurum Group” Alona Lebedieva – about the company’s production plans and the problems of the car-building industry
– The rule changes in the tariff formation for freight transportation at “Ukrzaliznytsia” and the acute shortage of gondola cars led to the fact that in 2018 the profitability of freight car use began to grow. Ukrainian business began to increase its own freight car fleets. In total, according to the state monopoly, from 2016 to 2018, the volume of investments in the rolling stock of the country increased from UAH 5.8 billion to UAH 20 billion. How does one of the railcar manufacturers and car fleet operators live? What are its plans for 2019? The correspondent of GMK Center talked about this with Alona Lebedieva, the owner of the investment-industrial holding company “Aurum Group”, whose structure includes a car-building plant “Diesel Plant”, a car-repair shed “Ahrehatbud” and freight market operators “Aurum Trans”, “Aurum Rail” and “Trans Energy”.
What is the reason for creating a car building and car repair holding company?
– Our companies have been representatives of the heavy engineering and rail transport market for more than 15 years. During this time, we have come a long way, having formed an almost closed-loop cycle production: from our own development of freight car and bogie models and the production of a whole range of components to the full construction of cars, their repair and operating our own car fleet. In general, it was a natural process of creating a vertically integrated group of companies in order to increase the efficiency of the entire business.
What were your production figures for car building and car repair in 2018? What are your plans for 2019?
– During 2018, 258 freight cars (10 grain-carriers and 248 gondola cars) were built on the basis of our car-building enterprise “Diesel Plant”. In 2019, we plan to triple the production volumes – primarily due to the construction of gondola cars. Gondola car servicing and repair in our group is carried out by the car-repair shed “Ahrehatbud”, where freight cars undergo all types of repair works: roundhouse servicing, overhaul and current repair. All nuances of car maintenance considered, we focus on the quality of works, therefore we maintain contact with each client. It is essential for us to make everyone satisfied with our work.
You not only manufacture cars for sale to third-party customers but also increase your car fleet. What is the reason for this strategy?
– “For several years in a row, we can observe a shortage of rolling stock in Ukraine, its high depreciation, as well as growing demand for freight traffic. Therefore, every year we actively invest in the renewal of our own rolling stock. For example, in 2018, these investments amounted to about UAH 100 million. As a result, our fleet increased to 509 units. Of course, all the cars were purchased from the “Diesel plant”. But I would like to mention that the internal corporate order did not exceed 25% of the enterprise total output. The remaining volume was purchased by other customers. In fact, we have a rule: all group enterprises should be primarily focused on the market and be self-sufficient, including in orders.
What are the main difficulties you can point out in car building today?
– There are many of them, but I would like to dwell on a few, key ones, in my opinion. The freight fleet of railcars in Ukraine had been worn out by more than 90% by 2018. In 2018, the log jam broke, and due to the private car-building plants of Ukraine, a record number of freight cars was delivered to the domestic market, approximately 8,500 units. It is evident that the dynamics are encouraging but for one “but”. In the same period, in the course of 2018, according to unofficial figures, at least 4 thousand freight cars were written off in Russia. With their help, some private Ukrainian companies are trying to reduce a still high shortage of gondola cars in Ukraine. It is the demand for gondola cars in our country that makes utilization of freight cars in Russia economically impractical. Our companies offer 30-50% more for written-off gondola cars than Russian companies that specialize in utilization. That is, gondola cars, whose service life is 22 years and which the Russian Federation is getting rid of, continue to work in Ukraine for another 5-7 years, causing irreparable damage to the railway infrastructure, and the main thing is that they can cause major accidents, as a result of which people will suffer. Therefore, instead of replenishing the car fleet by building new cars, officials reduce the shortage through the procedure of “extending the service life of cars” that is still used by Ukrzaliznytsia. However, 4 thousand renewed cars are equal to 47% of all newly built cars by the private car-building plant for the same 2018. Moreover, most of the companies that invest in car-building note the lack of their own funds, which they could allocate for purchasing cars. Last year, 21% of the total number of cars produced by private car builders in Ukraine were released through leasing programs. Today, unfortunately, only a few banks and leasing companies offer loans subject to the lending purpose “purchase of cars”. Our “Diesel Plant” is accredited at FUIB Bank and at “OTP Leasing”. This gives us an opportunity to help clients obtain targeted financing, if necessary of course.
What prospects do you see for car building and for railroad transportation respectively in the country?
– I suppose I will express the general hope of the car builders of the country: I think that the construction of freight cars will continue in the current year. However, today there is a certain imbalance in the market – the demand for freight rail transportation is steadily increasing, while service speed is falling. First of all, this is caused by the obsolete traction fleet of Ukrzaliznytsia and the deterioration of the railway infrastructure in the city. According to various estimates, due to inefficient logistics, export-oriented agricultural enterprises alone lose $5-10 billion a year. It turns out that even despite the fact that rail transportation is one of the most economically sound types of transport; the problems of the industry, which have not been solved for years, force shippers to switch from rail to road transportation. In 2018 alone, the volume of goods transported by motor transport in Ukraine increased by 6.3% compared with 2017, and by rail, on the contrary, decreased by 5.06%. Moreover, this trend will continue to grow.
Which industries form a portfolio of freight orders through your freight market operators “Aurum Trans” and “Trans Energy”?
– I think our situation is fully consistent with market trends. The major freight industry sectors are mining, construction and metal production. If to analyze the regional cross-section, leading enterprises in terms of freight volumes are Dnipropetrovsk, Donetsk and Zaporizhia regions.
What companies does “Aurum Group” buy rolled metal products for cars and other necessary components from?
– Among our main suppliers are “Metinvest”, “Kramatorsk MPZ” and “Dnipro MZ”. In the production of cars and their repair, Aurum Group enterprises, in addition to the products of the foundry industry, use a wide range of rolled metal products from structural and low-alloyed steel grades, including simple long products, shaped, flat and special rolled products.
What is the total volume of metal consumption in your production? What are your plans regarding metal consumption increase for 2019?
– In 2018, the total consumption of metal in the car-building and repair sectors of Aurum Group, excluding casting and components, amounted to 3.6 thousand tons. In 2019, the consumption of rolled metal products is expected to be 9-10 thousand tons. The prospective sector of industrial pump engineering can double the consumption of rolled metal products as relating to the existing level, that is, from 2 thousand tons to 4 thousand tons.
Will “Aurum Group” expand its portfolio of industrial projects in the future?
– The plans for 2019 are the creation of a wheel shop on the basis of the “Diesel plant”, which is in Kryvyi Rih, as well as the launch of the car-repair shed, where all types of car-repair works will be done. Thus, we, on the one hand, plan to satisfy the growing demand for roundhouse servicing of gondola cars in one of the largest saturation regions of Ukraine – Kryvbas. On the other hand, to form a full cycle of services for our clients: from the sale of cars, including leasing, to their effective operation and providing high-quality maintenance services using our own car-repair shed facilities. This will reduce the operating expenses of customers and ensure their fleet against premature wear. That means “Aurum Group” can become a “single window” for car owners, to which they can address with any production issues and on the top of that receive prompt and high-quality service. Nowadays, together with the growth of container transportation, there is a high demand for the construction of fitting platforms and we are exploring this area.