Izhmash: get out of the crisis


Continued interview with the CEO of "Izhmash" Maxime Kuzyuk. The first part here.

Recently, the Russian company "Izhmash" has completed the main phase of the reorganization, while receiving an operating profit of 310 million rubles. In parallel with the reorganization of the company conducts and modernization. What is the need of the Group and when the restructuring plan to its completion, read the continuation of the interview CEO of "Izhmash" Maxime Kuzyuk.

In 2011, the restructuring of "Izhmash". Actually, what was the background to why it took her off?

I’ll start with the story. "Izhmash" from the 90s experienced difficulties because the fallen state defense order, due to the collapse of the USSR operational links and communication supplies, including our commercial production that were lost. Then the "Izhmash" was a major holding, which included "IzhAvto" worked largest European motorcycle manufacturing, weapon, tool, and many other companies — from logging, printing, finishing the full range of social infrastructure institutions. It was a city-forming enterprise, employing 68,000 people.

With the collapse of the Soviet system in the enterprise difficulties began. Different businesses have lived a different life. Somewhere demand grew, in some places it has fallen significantly, and then it became necessary to separate them. The separation was very small, the company organized a multi-level structure, where "Izhmash" was at the top of the holding company that controlled only financial investment, not even the assets directly. Why? Because underneath it, there were two other companies. One of them — Concern "Izhmash" — the core business, non-core — "Izhmash-Holding", which included the then Motozavod. 

So, these two structures are governed by specific assets, that is, their "daughters" It turns out this three-tier system. When the state corporation "Russian Technologies" took over "Izhmash" (it was three and a half years ago), she saw only the tip of the iceberg. What was going on inside, could not see. But in 2010, the audit examined the company more deeply and found that, it turns out, the situation is dire: there’ve been about a dozen of the bankruptcy process on the "grandson" and "daughters", there was a large debt burden, it is at the "grandson", the tax authorities .

By the end of 2010 were wage arrears. When I arrived (in February 2011), the debt is three months or more, just do not pay wages, taxes are not paid, not even paying personal income tax. In my experience, this was the first time, even though I was busy with such matters. Seeing this, the corporation realized that it is necessary to undertake a thorough analysis of the entire group. I’m with a team of experts on crisis management, korporativschikov lawyers, charted possession, and there mutual ownership — "daughter" — "granddaughter" were, cross-ownership, a lot of assets was based on bills of exchange, that is, in fact, they are empty, but on the financial statements there existed some assets.

By checking all of this, making a large table in terms of assets, debts, we found that in fact a group of negative net assets. This means that the share capital is no longer there, that is not all creditors will receive. Accordingly, when we launched it, analyzed and made conclusions, began offering options such as the restructuring of.

One way to be — get subsidies from the state. We felt that we had about 7.5 billion rubles. That is simply not there to upload and count on their return. The alternative was to go on a hard path, but that stimulates the creation of an effective enterprise, plus will broaden this elaborate scheme because the infusion of money that would not have allowed. We would have had a long restructuring process, which dragged out for years. The task was to quickly improve the efficiency of the enterprise, to keep all core businesses, so we opted for bankruptcy with the translation of the net in the company. Analogue of such a project — General Motors in the United States, there was the same case.

Why do I know him well, I was working at Boston Consulting Group, which was co-counsel in the restructuring of GM. I was not a member of the team and, of course, do not speak the secret details, however, I know how it was done in principle. Here, we conducted a similar restructuring. The only — GM stayed for a month at a time in and out of bankruptcy, we’re now doing it without stopping, it’s generally a unique project, and in Russia, probably the only one in scale and complexity.

So that we can clearly understand what is going on, we had to buy controlling debt. The main creditors are the Federal Tax Service, a number of banks, "Rosoboronexport" (it is controlled by "Russian Technologies" company), and had a mutual debt. Then we put the management company, changed the governing bodies of the major enterprises, but not for everyone: small "daughter" just once in the elimination of clutter, and the main company put under the control of the management company and began to more effectively manage all this economy and in terms of operating activities and from the point of view of the consolidation of administrative functions. They removed all of these add-ins, since there are three levels, and the third level is not ruled anything at all, just sitting a number of highly paid managers, who actually did not add any value to the enterprise. This was the first step of the key.

The second stage — this, of course, the launch of bankruptcy procedures, the creation of a new company NPO "Izhmash", in which a part of the bankruptcy procedures translate the desired assets. They will allow us to carry out core activities. Thus we create efficient company not burdened by debt baggage that came in the last 10-15 years.

A non-core will go on satisfaction of creditors. Including the fact that we will buy back, too, will go to satisfy creditors’ claims. Although it is a major creditor of NGOs "Izhmash" focused on it right requirements for enterprises of the group.

The process is complex. I can easily and quickly tell about it, in fact we now translate people contracts. In order not to stop the process, you need to translate one day work in process inventories, which are now used in the production process. Making plans, inventory, because there are thousands and thousands of names — is being prepared in the previous nine months of very active mode, and now we implement it. Have now been translated into all the production units, the remainder of managers will be moved to May. And we can say that the second stage, a very important, very complex and critical completed. The next step — buying property.

And in general, when it is planned to complete the process? 

This phase will be completed in the first quarter of 2013. Sometimes we have some bias, but just for a month. Now we go according to plan, which wrote a year ago. No one believed, even in the "Russian Technologies", although they are very actively involved in this. General management corporation has shown special care and attention because the "Izhmash" — a landmark facility and a very big problem. Most importantly — they were given the opportunity to approach the box.

The standard approach which we have used? If something really bad, something goes bankrupt, stop activity, and then to restore the ruins of something, or do not rebuild. Another way — is to take the state a lot of money, go and inject delay problem f
or some time. But the corporation understands that we need innovative approaches, moreover, our process has become a model for the restructuring of many other businesses in the corporation, which may not be that large, but run parallel.

In January 2012, the Chief of the General Staff Nikolai Makarov said that with the "Izhmash" is now possible to enter into contracts, because the concern is already bankrupt, and NGOs have not yet received a license. Now this issue is resolved?

The fact that it was just a statement on January 24, when Dmitry Rogozin was on a visit to the "Izhmash", and it was then that we have demonstrated, and the AK-12, and declaring the existence of the new company, which we have received by the time the license . It’s just that the Defense Ministry was no information. There may be, including our fault, but we’re on the same day sent a copy of the license. That is, the new company has all the licenses necessary for the production, intellectual property management, engineers who work production personnel, facilities, which we now rent from group companies. That is the contract we rent these facilities and they are producing. The company is fully prepared to execute any contract. And now all new contracts for state defense orders, through the PTS are the main enterprise. And there are no restrictions.

And what about the rooms? Vladimir Popovkin, a former deputy defense minister, said that "Izhmash" is a machine that is in a single large room. It is heated and protected, but the production on this machine worth big money. As things stand now? 

Now, we have revised our area, our utility costs — heating and electricity, we checked the equipment that is there, and last February, when I started to audit is a production system, it turned out that we have a fleet of modern machines, more than 40 units . This is a modern machining centers that have been downloaded by only 20 percent.

This equipment allows you to spend ten times less energy to produce ten times faster, requires fewer people and less areas: almost 20 times more compact you can place them. And this is a modern and efficient equipment was not used. There are several reasons: machines were once purchased a large contract under monoizdeliya, three have mastered the details, and no one was more mastered. We have developed a program of development and by the end of the year already downloaded by 70 percent this year, one hundred percent load — with these machines will work in three shifts.

In this case, we have a few months of learning to work on them, that is the first part, which we did, made not the most efficient way. Now for some details of the efficiency has doubled. So, actually, "Izhmash" had problems here have openly admit it. How do we solve them? On the one hand, we concentrate production — downloading modern machines, we are releasing less efficient production lines, release the space to be allocated, and then they will either be realized or rented out. Depends on what will be the greatest demand.

Concentrating in our workshops, we allow in the same room to produce more products. Plus, we are working to expand the sales market, significantly increasing the output, respectively, the production is much more efficient. We have also developed a program of modernization, where we will be older and less efficient equipment requiring large areas to change to a new — and thus reduce our costs. And of extra space, we plan to get rid of.

In addition, we have developed and implemented an energy efficiency program, under which revised heating system, lighting system, and we will save on energy efficiency, with a number of measures pay for itself within two years. Can you imagine how much potential there is a "Izhmash"? I have most of the investment project pay for itself within two years. In an efficient enterprise considering draft five-year payback period. And we have a large number of projects that pay off in two years. So now we are all potential investment resources will be spent on such projects, and the results will be noticeable.

Share experiences about?

I personally and we as the "Izhmash" already share experiences, including "Russian Technologies" and are ready to share with other businesses.

Returning to the machines: they produced in Russia or foreign?

We have the tools and the Russian production, but, well, they are less productive. We have our own stankoproizvodstvo, we’re out there working on the question of running a new machine with numerical control, which will be similar in performance with foreign ones. Of course, in this respect, Russia is lagging behind in mechanical engineering. Most modern machines have foreign production: the European, and Asian.

A professional enough to work for them? 

This is also one of the problematic issues that immediately was obvious. Because for our modernization program for all machine-building enterprises of trained professionals is not sufficient. We are working in this direction. IzhSTU — is specialized university on the basis of which to train specialists. We work with them and even students of the third-fourth year attracting, including the work on these modern machines.

We also have our own training program and staff training — preparing them to work on more modern machines, looking for talent within the team are also working with colleges, to take out the most talented. Raise wages, doing interesting schemes that allow the worker to earn more if he thus produces a greater amount of detail, but with the required quality and looks of the equipment — that is, change and motivation system.

Speaking of markets abroad: the main buyers, as you said, it’s the U.S.?

Civil arms — yes, the United States, by far.

And if you take a whole-in-arms at all? 

I can not talk about numbers of military products. Civil arms — of course, the United States. If we talk about the weapons of war — the U.S. interested in our arms for operations in places such as Afghanistan and the Middle East as well. There conditions mountain, desert, sand, and there reliability of our weapons plays a big role — they understand that perfectly.

However, the question of the relationship is not within the purview of "Izhmash" — is "Rosoboronexport" has FSMTC that govern the relationship. For us, the most promising from the point of view of military products — India, for example. It is a country where a retooling. They’ve now rifle INSAS — is a bad copy of the "Kalashnikov", which is unreliable, does not work as well as Kalashnikov, while manufacturing technology is quite old.

And right now, they gathered to announce a tender?

They announce a tender, a large-scale rearmament of the army, and we are going to actively participate in this process. Large-scale purchases they will not do. India has adopted the doctrine of containment, transfer of technology, so it will be a licensed production in India. Here we are competing not so much with Western companies that produce fairly expensive weapons, but rather with the former Soviet clones. Therefore, we welcome the initiatives that are currently supported Dmitry Rogozin, to limit, at least, the export of those former licensed production in Bulgaria, Romania and so on to protect our position.

But we are confident that we will have a better product, because our clones still make products closer to the AK-47, not even an AK-74. Therefore, we hope to win in these tenders. The only thing you have to put a lot of effort, "Izhmash" was not so flexible, and in general our export system is not as flexible because even the coordination of documents in order to write a test batch, long enough. This is a problem that we, too, as part of an i
nteragency working group will organize. We raise these issues and try to solve. Then we will be better all around.

And some joint ventures abroad are planned? 

 There are already a number of companies. This issue is strictly confidential, I can not talk about where and what businesses are planned and there, but, of course, we work. We even have a unit, "Izhmash" knows how to build factories. There are also joint development experience supplying arms to India. It is known that the fifth generation planes jointly developed, localized production, including, our tanks. I do not rule out the possibility of producing a special version of the machine and its localization in India, together with one of the state-owned companies, which is engaged in the production of armaments. It is possible. And we are ready to go that route. Moreover, we are even more interesting for them to develop a special version that will not compete with our products.

And what about China, which is actively producing copies, including weapons, "Izhmash"? In terms of intellectual property any agreement with him there?

Unfortunately, the forces of lawyers from "Izhmash", we can not resolve this issue. Dmitry Rogozin, has set a goal to deal with this problem, if there are difficulties. In China all the intellectual property rights of the AK-47 has already expired. Chinese weapon while competing only on price, on quality, it does not hold — as long as they have not learned to do as securely as effective. The only thing — the African market is dominated by China, because they sell much cheaper, but also much lower quality. And to effectively deal with it can only be releasing a better, higher quality products. I see as a businessman, head of the enterprise, it is a way to protect against copies, fakes.

And, accordingly, keeping some internal developments.

That’s right.

And some specific order of the country to conduct these developments there?

Again, I can not disclose details, but there is funding, including development.

Online rumors that you are planning to leave the "Izhmash" after the completion of the bankruptcy and restructuring group. Is that true?

The fact that it is not I define. There are "Russian Technologies", which I was invited to have appointed, they also define where I can find a better use. So definitely say about their fate I can not either. Decide on the level of this corporation.

That is, you are a lifesaver: trouble somewhere, and you invited?

You could say that. In general, we state the problem with effective managers. Because the Soviet system worked differently. She did not require such a large number of managers, as there were a limited number of people who, in general, is determined by the entire policy. As part of the deficit is such specialists talking about how to most effectively use them. I myself, of course, it would be interesting not just to participate in the next project, I would like to complete the project.

At the same time I understand their competence, what are my strengths. But gradually the restructuring process becomes independent. Today, for the "Izhmash" it is important to solve production problems. We are with our new leaders in the manufacture of introducing elements of "lean production", and they do not require a large-scale program, we just launched a few "pilot", and people feel the difference. For example, cleaning the workplace, both in terms of cleanliness, and from the point of view of part blanks, can significantly increase the production and correct, reliable production planning can reduce unwarranted delays. These things can be a lot to achieve 30 percent efficiency is achieved in the first year. Therefore, the value for my "Izhmash", in general, is gradually declining.

Recently appeared on the Internet an open letter to an employee of a "Izhmash" in which he describes all these processes. Can you comment? 

Let’s start with the fact that there are some facts. For example, it says that my salary — three million a month. This is not true. I requested to Ministry of Industry, I filed legal papers, which I return. The letter contained such things as facts — supposedly 60 percent of the members of our engineering and design center weapons will be fired. The same is not true, we, on the contrary, are expanding. Because we are developing many more products.

Indeed, the translation is carried out through the discharge (transfer of staff of Concern "Izhmash" in NGOs "Izhmash" — note "Heathcliff"). This is done because we are not entirely legal successor. If we become the successor, we would have taken away all the problems with you. Naturally, people converted, but when translated, in many units we increase salaries. That is it that in an NGO environment better. And now many have already experienced it. And the designers as well.

The third — that the people are unhappy. Always in the bankruptcy process is the uncertainty. As long as you did not get the contract, did not get my first paycheck, you’re always in doubt, did the right thing or not. In particular, it may be my fault that I spend more time in the process. I work 16 hours a day and can not afford a little more to talk with employees. But I do have employees, have subordinates who are doing it, so that the feedback we get, too.

Statements were made that the "Izhmash" closes. But the "Izhmash"-that is thriving. We have in the past year, if you take a group of "Izhmash" in general, analyzed all the activities. Of course, we had to write off losses of previous years in the form of a provision for impairment of financial investments. Of course, when a company goes into the process of observation, we are required to form such provisions and write them off as losses. If we remove it and write off bad "debetorki" we have already made a profit — 68 million. What does this mean? What we are self-finance.

We do not attract, except for redemption of accounts payable, any additional loans to carry out their activities. We sold the remains of the stock, we now have money in accounts that we can spend on our business. We have developed software production, we will pay wages on time — there are facts that suggest that the "Izhmash", on the contrary, it is. Here, and in a letter written that we will close. As such trust? Apparently, there are unmet interested persons, including former executives.

Interview conducted by Vasily Sychev 

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