Alexander Gerdt, the Director General of the "Uralkhimplast" holding tells in his interview to rcc.ru about the last year operational results of the company and its development strategy, describes the investment policy of the firm, and gives his assessments of the innovation processes in the company.

Alexander Emmanuilovich Gerdt was born in 1951. In 1977 he graduated from the Urals Polytechnical Institute majoring in plastics technology. He started his career at "Uralkhimplast" as an assistant operator in 1969. In 1997, he was appointed the Director General of JSC "Uralkhimplast" presently known as JSC "Urals Chemical Company". In 2003, he became the head of the Union of enterprises and organizations of the chemical industry of Sverdlovsk region.

Q. Could you tell us some words about the structure of the company. What enterprises belong to the holding?

A. During 65 years of its history the enterprise changed its name and status more than once. It bore the name of "Torfokhimzavod", plant No. 767, plastics factory; it was a production association and a joint-stock company. Today, "Uralkhimplast" is a large chemical holding with production capacities in such cities as Nizhni Tagil and Saint Petersburg, with a trade mission in Moscow, and subsidiaries in Novosibirsk, Rostov-na-Donu, Togliatti, Saint Petersburg. Its basic production facility - JSC "Urals Chemical Company" - is located in Nizhni Tagil. The recent restructuring enabled us to simplify the structure of the enterprise, to establish at its premises the first Russian-German joint venture for the production of orthocresol, as well as to organize "Uralkhimplast-Baltics" joint venture in Saint Petersburg.

Q. You have numerous entities that distribute your produce. Do you plan to expand their network?

A. In 2002-2003, we implemented the first stage of the program aimed at the development of our distribution network. As a matter of fact, we have built this network anew by opening trade missions in Togliatti, Novosibirsk, Moscow, Rostov-na-Donu, and Saint Petersburg.

These efforts pursued the strategic goal of strengthening the position of our company as a leading chemical manufacturer, of bringing the company closer to the consumer, and serving him to maximum. Our sales growth confirmed the correctness of this approach.

The second stage of the program provides for further improvement of warehouse operations, expansion of the product range offered by our representations, and establishment of new points of sales outside Russia. This March, we begin operations in Ukraine. China and Central Europe are next in turn.

Q. What new types of products do you plan to manufacture in the near future?

A. The share of new products in the total output of our enterprise is constantly growing. The general profitability factor for new products amounts to over 20 %. Over 40 new and modified products were developed and put into production by the plant for the last two years only. Some of these products are new not only for Russia, but for the West too.

When developing new products, we keep in mind not only the industries that already consume them, but also those that have the potential to become new commodity markets. We constantly expand the range of synthetic resins that we produce for such key applications as thermal insulation, wood processing, and molding. The development of novel or updated products is a prerequisite for the market success. Just a few examples to illustrate it: the molding enterprises are converting their production to state-of-the-art technologies, so, with our customers in mind, "Urals Chemical Company" offers a new assortment of resins and hardeners for the molding market.

Also in demand are new types of phenol formaldehyde resins for mineral glass wool - being ecologically friendly they are approved for use in house building; as well as resins developed by our specialists in 2003 for new wood-processing products: LVL and OSB beams.

We also offer new resins for use in oil drilling and expand the range of products based on formaldehyde, such as urotropin and materials for cement. We also plan to develop new ester plasticizers for mechanical rubber industry to strengthen our position as an innovative company.

Q. What is your development strategy based on, the expansion of product assortment or the expansion and updating of the available production capacities?

A. Each entity has to have a certain policy to control its market growth. This policy must be based on correct estimates of real and potential capabilities of the company, which will make the new products being introduced into the market serve the purpose of strengthening the company market position and enhancing its competitive advantage. Therefore, any company, which understands the market laws, must plan its development at several different levels. For example, while manufacturing certain products we have to think about "the second level", i.e. those directions, into which money has already been invested and which are about to return the expenses, and at the same time keep in mind the long-term "third level", i.e. the direction we'll follow in a year or a decade.

The expansion of production capacities is the present time level. By increasing the output today we get a resource that helps us plan for "tomorrow and the day after tomorrow", to update the range of products, and to stimulate the innovation activity. Operating with high profitability today, we mover nearer to the next stage. In other words, the company develops faster, becomes more competitive.

Q. What industries show the greatest demand for your products? What markets do you consider the most promising?

A. We are a unique enterprise oriented at all industries at once, because our produce is consumed by all the basic branches. This gives us a large safety margin, since all these branches can hardly start shrinking all at the same time. However, alongside with pluses this situation has its minuses: we have to watch for trends in so many industries at once.

The formation period, when companies could enter an unoccupied market and grasp a big share there, has ended for many industries. For those Russian markets that are relatively stable today, their major players have their own market segment and a fixed circle of customers. So, we don't have to think much when operating in those markets, since the work there is purely technical.

But there are other sales markets that are more interesting to us because of their rapid development. A boom is occurring now, especially in housing construction, which stimulates all construction-oriented industries: manufacturing of bricks, slag and wood blocks, articles made of mineral wool. It opens a lot of opportunities for us. Naturally, question number one is to choose and enter a right developing market. For example, mineral wool articles are represented by yellow mats to be placed on brickwork before facing is started. The mats based on fiber glass are impregnated by 3 - 50 % with our resin that binds the fiberglass and makes the article durable. This resin has not been produced in Russia before. In this way, new construction technologies stimulate the demand for our products.

Q. What is the ratio between the amounts you sell in the domestic market and export?

A. Traditionally, the major part of our produce is sold in the home market, though it becomes more and more difficult to progress in it. One can expand its market presence by building new production facilities, but that won't help much. Therefore, we enter foreign markets and export our produce to Europe, America, China. Unfortunately, our progress there is checked by shipping tariffs and customs duties. Speaking about CIS countries, we operate practically in all of them: Ukraine, Kazakhstan, Moldova, Uzbekistan.

Q. You have introduced an automated system for budgetary planning and personnel management in your company. Does it help to manage the holding? Did the expenses for the system justify themselves?

A. We are in the middle of the road here. We have introduced the Platinum SQL system at our enterprise. It efficiently processes financial and analytical flows, provides accounting with Russian and international accounting standards taken into consideration. The system makes a sort of a basis and core of the company corporate system. After Platinum SQL was introduced, the units of the company started to work better and the budgeting system became well-defined.

We have already mastered our "Boss-Kadrovik" system, which was introduced to make personnel management more efficient. The system enables us to eliminate crossing and duplication of functions of individual employees and company units, thus optimizing the use of human resources.

The main goal of management automation, however, is to create such a system within the holding that could operate in the real time, could compare target and actual data and track each type of product, thus enabling us to see the true state of our business.

We plan to gradually connect all units and shops of the company to the system through computers and modems. The software requires a lot of investments, of course. We'll have to spend several hundreds of thousands dollars to introduce the new system. But these expenses are justified: the company will have more precise data for managing its operations and will come a step closer to the western standards.

Have you ever thought what we have in the majority of Russian companies? Heaps of papers and reports. As a result, we get the accounting balance in March, while European companies have it in the second half of January.

Efficient work and competent business management require that the state of the business be continuously monitored, that the company management know the real situation every day, and that input and output information flows are quickly analyzed.

Q. To ensure the development of your company you have to invest. What is the investment policy of your company? Do you prefer to use your own funds or loans?

A. There are three sources of investments: own funds earned as a result of business operations; loans and credits; and investments made by an investor, who participates in your capital for a part of your property or shares. We use all the three sources.

Every year the company channels the funds earned by its business activity for the modernization of its production facilities and restoration of its production assets. In 2003, we had three major objects for investments. The first one was the orthocresol production to be launched in summer. To put this project into life, we founded a joint venture with German "Rutgers VFT".

We also commissioned a 2 Mw turbogenerator that partially satisfies the need of our production facilities in the electric power. Thus, we have cut down our energy expenses and lowered our dependence from "Sverdlovskenergo". To satisfy the domestic demand, we launched the Russia's largest plant for the production of formalin with the capacity of 120,000 mt/y. Last year, we also issued securities worth 22 million rubles. It is our first long-term bond loan. We circulate our bonds only in the Russian market. Bank credits are also widely used.

Q. What foreign companies do you cooperate with?

A. Our company promotes cooperation with several foreign companies. For example, we cooperate with Czech "ALTA" and "Keratech" to promote our resins to the East European market. We also established mutual understanding and exchange our experience with the Italian manufacturer of molding resins "Cavenaghi Spa". Besides, we maintain relations with our permanent consumers both in traditional CIS markets and in new ones like Italy and China. Suffice it to say that the world famous "Teflon", uses our powder material to manufacture handles for their frying pans and pots. In order to conclude such a contract we had to undergo a lot of trials, but we have passed this exam.

Q. Your company had a large exposition at "Chemistry-2003" exhibition. Are you going to participate in "Industry of Plastics - 2004" exhibition? If so, what are you going to exhibit there?

A. "Industry of Plastics" is one of the largest international exhibitions. Since we operate in the polymer market, we have our own stand in "Expocenter" every year.

This time we will show our latest developments: DBEA plasticizer for mechanical rubber industry that has no analogs in Russia; the "Tefleks" category of thermoelastic plastics based on PVC and synthetic rubbers; new brands of PVC elastrons. And of course, the visitors will be able to see and inquire about our traditional products such as plasticizers, polyformaldehyde, fluoroplastic articles and films, phenoplast, epoxy compounds.

Q. What is the long-term outlook for the development of your company?

A. "Urals Chemical Company" specializes in the production of synthetic resins, it is a leading Russian supplier of resins to such markets as wood processing and thermal insulation, where we supply about 37 % of phenol binders, 21 % of carbamide resins, 72 % of molding resins, about 10 % of ion-exchange resins for water treatment (by the 2003 data). Besides, we continuously modify our products, improve their quality, we also cut down the production costs and closely watch the market trends to make proper and timely decisions.

At present, one can strongly perceive that major chemical companies consolidate their efforts. And it is not a haphazard event: chemical manufactures strongly depend on the produce of natural monopolies, such as natural gas and electric power. Therefore, this market sector was the first to witness the consolidation of assets. Such associations as "Yukos", "Lukoil", "Sibur", "Nikos" group, "Amtel", "Eurokhim", ETK are well known in the market. But the consolidation of Russian chemical manufacturers is far from over.

In view of these circumstances, the coordination of efforts with other manufacturers of similar products is the only way to make normal business possible. Besides, we need to establish proper relations with feedstock suppliers and find mutual interests in such cooperation.

Q. Your company is considered to be rather successful in the market. What is the reason of this success?

A. I see two major reasons for "Uralhimplast's" success. One is the correct strategy that was initially defined and adopted by shareholders in 1995. And secondly, the ideas, on which the strategy was based, were supported by an efficient team of managers and executives both of the top and medium levels. The team has a clear understanding as to where and how we should advance and what resources we should use to reach our goals. And this factor is the most important. And finally, without competent and efficient industrial personnel we would hardly be able to maintain the high degree of quality and regularity of our end product deliveries.