KAMAZ finishes ‘nervous year’ with record-high revenue
Director General of the lorry giant Sergey Kogogin explained how this became possible despite disrupted supply chains to China and Europe
According to the International Financial Reporting Standards, KAMAZ demonstrated a profit of 3,1 billion rubles despite the “uneven and nervous last year”, said Director General of the lorry plant Sergey Kogogin. The enterprise managed to smash the target, though a year earlier, it was unprofitable. Answering Realnoe Vremya’s questions, the head of the lorry giant explained how the factory suffered from disrupted supplies to Europe and China and how it tries to solve the problem of losing containers with Chinese freight for five months at times. Read in Realnoe Vremya’s report how results the company expects this year and what for Kogogin criticised Chairwoman of the Central Bank Elvira Nabiullina and Gazprom.
Profit despite coronacrisis
KAMAZ has published the group’s last year’s financial numbers according to the International Financial Reporting Standards (IFRS). Consolidated revenue rose by 12% totalling 216,9bn, net profit did 3,1bn rubles. This became possible, as the company itself noted, thanks to increasing sales, effective use of clients’ funding, initiatives taken to reduce costs and improve workforce productivity. Moreover, a year earlier, KAMAZ had shown 1,9bn of net loss, that’s to say, the company’s financial result grew by 5 billion rubles at once in a year.
The development of the product portfolio of leasing services led to a 28% rise in incomes from financial leasing compared to 2019. Revenue in this segment amounted to 4,6bn rubles. In 2020, KAMAZ PJSC GC demonstrated a solid operational money flow equal to 10,7bn rubles in total simultaneously with a fall in net debt to 778bn rubles (in 2019, the debt was almost 80bn rubles). “In the tough economic conditions, KAMAZ PJSC continues production re-engineering and new model development programmes”. Investments in modernising and mastering new technologies reached 10,5bn rubles.
37,028 lorries were sold in domestic and foreign markets, as a result of which the share of KAMAZ PJSC in the Russia lorry market with the total weight of over 14 tonnes rose by 4% and reached 48%. Revenue increased due to the growth of lorry sales in the domestic market, including thanks to the launch of a new model of K5 lorries — KAMAZ-54901. Obviously, the results here were worse because of the closure of foreign markets as a result of quarantine measures. But Sergey Kogogin considers that foreign exports of 4,369 lorries in 2020 (5,009 in 2019) quite a good result. A record-high revenue was registered in buses, electric buses and special machinery. Revenue in the corresponding segment soared by 61% year on year and totalled 27,9bn rubles.
Logistic problems in Europe and China
Commenting on the IFRS financial statement, Sergey Kogogin almost immediately noted the serious problems KAMAZ had to face during the pandemic. Moreover, the issues haven’t been completely resolved yet. In 2020, supplies were disrupted, Chinese suppliers became the first problem due to obvious reasons. After the quarantine, KAMAZ set up a taskforce, started to look for ways to balance the lorry production, which turned out to be tough.
When head of Russia’s Central Bank Elvira Nabiullina was explaining the unexpected rise in the key rate — for the first time in two years — from 4,25% to 4,5% in late March, she said that at the moment supply didn’t catch up with growing demand. Precisely because of undermined supplies during the pandemic. Later, it became known about a world crisis with a shortage of containers to transport freight — most empty containers accumulated in the USA, while China didn’t have the time to produce new ones. And huge queues consisting of those who wished to finally ship freight with components and commodities for new containers immediately appeared. In reply to Realnoe Vremya’s correspondent’s question about how KAMAZ solved and was solving the problems with undermined logistic chains, European and Chinese suppliers, Sergey Kogogin noted that supplies in Russia anyway had never stopped.
“In 2020, the whole chain of Russian suppliers of KAMAZ worked in the country. I talked about this with every region’s governor during the lockdown. None of our suppliers was suspended then in the end. Even our dealer chain got an opportunity for working. Obviously, there was no other way because one thing is when passenger car producers were imposed restrictions, another thing is when commercial transport production is limited. If a vehicle transporting waste breaks down, for instance, and the repair shop can’t service it, nobody will feel better, but everybody will feel worse!” he explained.
Chinese supplies had to be shifted to railway
Sergey Kogogin also admitted that European countries and suppliers caused “the most problems” last year — during the pandemic and quarantine measures. Today, the head of KAMAZ noted, the commercial transport market is also recovering and growing in Europe. But after last year’s contraction of the market and companies’ plans, they find it tough to add additional components for KAMAZ:
“They provide us with spare parts in the business plan, we don’t complain. But what we ask them to add causes heated debates there. This is why we physically cannot expand the production of the new K-5 KAMAZ additionally to 12,000 lorries a year,” Kogogin noted.
There is another serious problem with China. The road cargo supply chain was severely undermined. However, KAMAZ transporters found a recipe to solve at least a part of the problem:
“Now a part of tractor units enters the neutral zone, tows a trailer or semi-trailers from the Chinese territory and carries freight [with components] here. Is this enough? This isn’t. Secondly, we shifted the main part of the freight to the railway, containers were shipped by railway in the end. But we faced a problem here too — the capability of the [Russian-Chinese] border turned out to be lower than expected. Here we also found a recipe: we agreed with the Chinese in contracts that the delivery to the border and entrance from the territory of China to the territory of the Russian Federation in the best way was up to them. While we transport the freight on the territory of Russia. This allowed significantly stabilising the situation,” Kogogin said.
A glut of electronic microchips
So today the freight that belongs to Chinese companies are tracked better. However, there are mishaps too. So the director general of KAMAZ PJSC remembered that the Moscow government decided to deliver an electric bus to every class of schools in capitals. KAMAZ ordered a batch of buses in China. And the KAMAZ specialists looked for a container with such buses for five months.
“The plant shipped the container in China, while we lost it. Thank God, it is just buses, but components! Problems arise from time to time, unfortunately, we have to change something on the conveyor belt, which leads to bad consequences in the whole production chain. But we somehow adapted to this over the last year. We manage to do it today too,” the head of the lorry giant replied.
Other global problems, particularly problems with the supplies of chips, microchips, electronics, overlapped with the KAMAZ problems. Due to a shortage of microchips, some enterprises even have to close factories around the world (some companies rushed to look for electronic components bypassing suppliers). The problem affects everybody, Kogogin noted. In the end, if KAMAZ forecasts growth of production and sales in 2021, this will happen not because of the new lorry models K-4 and K-5, which have a lot of electronics, but because of the old lorry model K-3, which doesn’t have a lot of electronics.
“Everybody understands that there is a glut of chips. And it will take more than a year to solve the problem. I think that the problem of the shortage of chips will disappear by 2022,” Kogogin assumed.
“As an industrialist, I dislike the decision to raise the key rate”
The next week, he said, will be dedicated to the reconsideration of the business plan to ramp up production, rethink the market state. At the moment, the forecasts are true, and we will likely have to expand the production volume. Moreover, the car market in general fell during the first two months of 2021, while KAMAZ kept growing.
The head of KAMAZ PSJC also criticised the decision of the Central Bank and Elvira Nabiullina to raise the key interest rate, which hasn’t yet significantly impacted KAMAZ’s preferential leasing programme.
“But I think it is bad. As an industrialist, I dislike the decision to raise the key rate. We already struggle, while these losses... By my calculations, if the rate is raised by a per cent, not some fractions but a per cent, this year, it will hurt the whole economy.”
Despite the all above-mentioned words, the EBITDA of KAMAZ turned out to be record high in 20 years. In 2020, it reached 13,4bn rubles. To compare, KAMAZ’s best result was in pre-crisis 2007 when the EBITDA was 13,1bn rubles. The pre-crisis 2012 is second when the indicator amounted to 114bn rubles. In 2018, KAMAZ’s EBITDA was just 9,6bn rubles. The net debt-to-EBITDA ratio, however, is not small — 5,8 in 2020 (8,22 in 2019).
But Kogogin considers that for the company that is in a “deep investment phase”, it is not a catastrophe because profitability anyway increased. Nevertheless, feedstock prices rose too, which doesn’t let the company forecast the prime cost long-term. Particularly a rise in prices for metal severely hit the company, since metal components account for up 70% of KAMAZ’s production budget. The company will decide after the first half of the year if prices for lorries will be raised.
“There were huge investment costs. We justified them”
Revenue turned out to be record high since 2005 (in 2005, the company’s turnover didn’t exceed 50,8bn rubles). Moreover, KAMAZ had actively been growing since 2016 annually from today’s 216,9bn rubles.
“Our revenue was over 200 billion. For me personally, the bar of 200 billion was specific. We hit the ceiling,” Kogogin said joyfully. “There were huge investment costs. We justified them. The main reason is that we transitioned to another pricing segment, to the premium segment. Today we are simultaneously launching three KAMAZ generations. We are expanding the market share to 48% by partly occupying the premium segment.”
In 2021, the company plans to manufacture 2,400 new K-5 lorries, 6,700 in 2022, over 11,000 in 2023. At the same time, sales rose in all segments during the first quarter this year, just by 51% compared to the same period last year: from 6,500 to 9,800 vehicles. Of course, mainly thanks to the Russian market. Bus sales rose by 25% (to 323 in the first half of 2021). Revenue increased in the end too, by 31% nearly to 50 billion rubles, which is equal to the annual result in 2005. And if the loss in the first quarter of 2020 totalled 1,8bn rubles, this time KAMAZ reached profitability by 600 million rubles.
Contracts until September
Kogogin assures us that KAMAZ is full of contracts until September, oil companies account for a big share of sales. KAMAZ started 2021 with the production of 185 lorries a day, then it made 190 vehicles and began to produce 200 lorries last week. The plan for the second half of the year is 210 vehicles a year. Moreover, today it is hard to forecast, the top manager of the lorry giant said. There are a lot of reasons for the growth of demand. Firstly, the stress in 202 when many postponed purchases for various reasons, what Nabiullina talked about. The second fact is linked with KAMAZ itself — the appearance of the premium segment with the production of the K-4 tractor unit. Today KAMAZ sells such units more than anybody else in Russia: up to 6,000 lorries a year. Another 1,400 K-5 vehicles will appear in 2021.
Kogogin also talked about the sore issue of a deficit of workforce at KAMAZ, as a result of which the company plans to found an iron casting plant in Kazakhstan where the prime cost of products will be lower. Moreover, KAMAZ’s market share in Kazakhstan is already 42%. The second solution is production automation.
“Today we try to take new plants to the places where economic conditions and workforce allow doing this,” the top manager explained. “There is a deficit of workforce everywhere, at all stages, not only qualified workers as it was previously. Today plants have six robots per 10,000 workers across Russia on average, while we already have 26. Our goal is to have 100 robots and 10,000 workers. There is also a problem of drivers in transport companies, the second problem is qualification. Highways appear, advantages of the car are plain to see. Cargo transportation will certainly switch to cars. The role of humans in the cabin should also be minimised.”
Bus and e-bus market come to a halt
Sergey Kogogin especially noted the growth of bus sales, e-bus sales increased by 71% (by 16% in e-buses). Nevertheless, KAMAZ is very cautious about forecasts now. The problem is that few cities can now start using e-buses as passenger transport, it is expensive for everybody except Moscow. Meanwhile, Kogogin assures us that diesel buses haven’t paid back in the last years. And purchases of not only buses running of motor fuel but also e-buses are growing.
The company will soon open the final phase of e-bus assembly in Moscow in 2021. The modernisation is over, the staff has been recruited. Costs on repairs of buildings were bigger. But as a result, KAMAZ will considerably save on logistics: if supplies for e-bus production used to come from Europe, after the appearance of a Moscow plant, supplies come from Moscow.
Talking about Naberezhnye Chelny, which had to give NEFAZ buses back to KAMAZ, Kogogin noted that to provide state support for gas transport in municipalities, which is a 60% discount for five years, it is necessary to meet certain requirements. For instance, a mandatory transition to cashless settlement.
“Otherwise, there will be a semi-criminal market. Individual transporters will say this is prohibited, that is prohibited. We don’t have a problem. The city has a problem. I regret that tramways were given to the city. When we had them, everything was effective, we weren’t concerned about subsidies. We transported workers around the clock,” Kogogin remembered with regret.
At the same time, he forecasts that other cities will also have problems despite the federal government’s course for stimulating passenger transport running on gas. According to the Ministry of Transport, firstly, the city should take measures itself and only then hope for financial aid. KAMAZ PJSC has already begun supplying buses to Kazan, Yekaterinburg and Perm in a federal subsidisation programme.
“I don’t think the implementation of the programme will be simple. Today small vehicles service passengers, for instance, in many small cities. There will certainly be a fight between mayors and governors due to this. But there is no other way.”
“Gazprom is building petrol stations, but unfortunately, not in that place”
Restrictions on selling gas vehicles — including lorries — are also linked with insufficient infrastructure. Consumers in Moscow Oblast, for instance, spend up to three hours at petrol stations — the capacity of petrol stations in the Russian Federation isn’t enough.
“Gazprom is building petrol stations, but unfortunately, not in that place [we need],” Kogogin criticised the state company with sad laughter. “Petrol stations are necessary on highways. We calculated transport shoulders with consumers, found out where stations should be located. 50,000 tractor units can consume a billion cubic metres of gas a year. The numbers aren’t big for Gazprom, but the dynamics grow. While Gazprom’s network is only 25-30% full.”
Finally, the head of KAMAZ PJSC admitted that dividend payouts had already been discussed in 2021. But the company is waiting for an instruction from Rostech, the majority shareholder. What it will decide will happen.
“Our net money flow is fine. We can pay them out,” Kogogin concluded.