Interview Real estate market

In Ukraine, the cost of financing of industrial construction is quite high and this limits the business in its development

Kostyantyn Ivanov, the Director of the Swedish company LLENTAB in Ukraine, told about difficulties of processing raw materials, about the impact of the political situation on the construction business and the impossibility of large credit financing production companies in the country.

: LLENTAB has been already working on the global market for over 40 years. How many years has been the company operating in Ukraine?

K. Ivanov: The company is already 46 years. The company’s business has started on the Scandinavian market, including Norway, next, progressed to Poland, the Czech Republic, Germany, Ukraine, and Slovakia. In Ukraine, the LLENTAB trademark has been represented since 2003. The first building was constructed in Kiev in 2004.

: How many projects have been finished in Ukraine during this time?

K. Ivanov: Today, we have completed about 100 projects with an area of more than 300 thousand square meters in Ukraine. In general, we have more than 10 000 projects all around Europe. During the past years a new building based on our technology is comleted almost every day.

: Who are your clients?

K. Ivanov: First of all, we construct buildings for industrial and commercial purposes. That is why we can cover almost all spheres of business, ranging from warehouses and logistics buildings to manufacturing, retail, sporting, and agricultural projects. In Ukraine, these are mostly projects are facilities for production companies which need to expand their manufacture or storage area.

: Do you construct premises for large retail shops?

K. Ivanov: We can construct such buildings and we have completed projects for quite large shopping malls in Sweden where we have built several facilities for IKEA. However, retail projects in Ukraine are commonly built with a minimum period of repayment, often using cheap technologies.

: Are you builders of premium-segment?

K. Ivanov: I would not say that. However, we construct durable and lasting Swedish buildings. They are not the cheapest, but the quality we offer is higher than the differential cost. The main part of our customers are private companies, they understand that by paying a little bit more, they can get a product which will look like a new one, even after 10-20 years. These steel buildings increase their capitalization and require a minimum of maintenance. In Sweden, builders’ labor cost is quite high, so people try to construct simple, and yet reliable buildings which require a minimum of maintenance and can resist any climate and exploitation impact.

: What material do you use for the construction and where do you purchase it?

K. Ivanov: LLENTAB has its own unique system of metal structures which are made from galvanized steel. This steel is hot-dip galvainized first, and then our light structure is made from it at the factory. Our production is fully automated. The elements are produced, next, they are delivered to a building site in a disassembled form, where the installation starts using screw connections. In substance, this is like a construction kit. This gives a very high assembling accuracy. All holes are ready and everything is in the right place. There is no need to cut and weld. It assumes a high speed and predictability of installation time without any surprises. The system is thought out to the details and has been constantly improved for over 45 years. This is the only activity of our company; we specialize in steel buildings.

: Where the production capacity is placed?

K. Ivanov: The main production is located in Sweden, and an additional steel structures factory is in Poland. Herewith, a design department is situated here, in Kyiv, where we make projects according to all technical standards, after which we send order to the production. Thanks to a high level of automation, literally few people work in production. All the main components of buildings are prefabricated there, then the whole kit is delivered directly to the customer’s building site, and our assembly teams begin construction. Thus, we deliver a steel building on a turn-key basis.

: You have factories in Sweden and Poland. Do you plan to have a plant in Ukraine?

K. Ivanov: These factories are enough so far. In recent years, significant investments have been made into existing production facilities, which highly increased the capacity for both of them. However, our main raw material is galvanized high yield strength steel which doesn’t meet required quality standards in Ukraine. In particular, steel of such grade and with such quantity of zinc covering that we need is simply not produced in Ukraine.

: You do a prefabricated construction. How long does it take to install one building?

K. Ivanov: Prefabricated buildings stand out thanks to maximum factory readiness of all elements. If this is a small uninsulated hall, it can be fully designed, produced and installed within 15 weeks. If this is a larger project, for example the one for furniture industry with the area of about 20 thousand square meters, we need 25 weeks of assembly time. We have built it in Rivne district in 2017. By the way, this is one of IKEA’s furniture manufacturers. In general, taking into account design, manufacture of stuctural elements and general construction work, we can complete a project in less than a year.

: What warranties do you provide to these buildings? What is the lifecycle?

K. Ivanov: A warranty and lifecycle are somewhat different things. We provide warranties according to the legislation. A standard warranty for construction is 10 years. However, buildings are designed for at least 60 years of exploitation. Besides that, we have been ordering special studies according to which our steel buildings can stand much longer without a need of repair, painting, etc. Zinc covering is more resistant to weather impacts than paint, it does not get rusty. Additionally, it does not prone to mechanical damages. Any paint coating can be damaged during of transportation, installation, exploitation, and the place of the damage becomes a potential corrosion source. This does not relate to zinc covering, because zinc penetrates the metal structure.

: The latest technologies are required to implement such quick projects. Tell us, please, what innovations do you use?

K. Ivanov: Today, we can purchase the most advanced equipment. This is not a problem. The whole process process is probably more important, from selling a building through design and production to assembly works. As far as the company creates only steel buildings, the whole process is thought out to the smallest details. When we give the first price calculation, it is as accurate as possible. Customers can expect the final cost based on the initial calculations, and the project price does not change to the bigger amount. We have absolutely automated production which reduces the risks of the human factor and improves the quality. Considering the fact that all elements are disassembled, they take little place during transportation. We minimize expenses by optimizing all the processes both in production and the building construction.

: How do you care about security in such buildings?

K. Ivanov: Security is a very important aspect of our work. As far as we are a Swedish company, we pay special attention to safety. First of all, we design buildings strictly following all the standards. Moreover, we use high yield strength steel, at least 30% stronger than steel we can purchase in Ukraine. Moreover, we pay great attention to the safety on the construction site – we have all the necessary equipment, means of personal protection, work clothing.

: Nowadays, energy efficiency is a global popular tendency. How do your buildings meet this? At first sight, it seems that they cool very quickly, and it is difficult to keep heat in them.

K. Ivanov: You are right – steel is a very good conductor of both heat and cold. If wall joints to the framework or roof, or wall joints itself are made incorrectly, and either windows or doors are installed incorrectly, then, of course, these may result in huge heat losses. You can use high quality materials, however, nothing will work if you don’t follow the technology and connect them incorrectly. We are one of the few companies which control the whole process of steel structures production, including the installation of buildings. All used technical solutions are typical nodes, worked out and time-proven. They are tested in different climate zones, starting from severe Swedish climate and ending with Ukrainian warmth. We have been building from Sumy to Crimea under various conditions and can confirm that our technologies work.

: Tell us about the industry itself – what are the most urgent issues and what is missing on the Ukrainian market?

K. Ivanov: First of all, our industry is connected to business investment. It is very sensitive to the macroeconomic investment climate in Ukraine. Investors decide on the business development or business start in Ukraine taking into account this information. We always feel these sentiments, whether they are active or expectant. Comparing our operation with European colleagues, most of the industrial EU projects are financed by credits. Banks are funding sources, so entrepreneurs don’t need to extract funds from the turnover to develop their production. Unfortunately, financing cost of such construction is quite high in Ukraine and this limits businesses in their development. Many companies in Ukraine construct buildings at their own expense and often cannot construct something for the future – they can only resolve current expansion needs. This is a bottleneck to us, as we can offer much more when there is sufficient funding.

: How many people work for the company? How do you motivate employees?

K. Ivanov: There are over 40 people in Ukraine, and more than 400 employees totally in the Group. We try to make our employees feel that they are working in a European company. The main goal of our approach to staff is ‘maximum development’. We invest in trainings and health of our employees. We are also ready to give an opportunity of receiving additional experience to our engineers and assemblers. We hold projects for our colleagues from other countries and even install buildings with our teams abroad. Thus, we save our resources and give our employees an opportunity to gain new experience.

: What risks do you face while working in Ukraine?

K. Ivanov: As far as we are importers, currency risks arise. We try to develop a payment system to minimize them. However, these issues are actual anyway. Besides, it is difficult to plan a construction process in Ukraine, because it depends on the unpredictability of the authorization system.

: Does the change of power affect you somehow?

K. Ivanov: The general investment climate influences us. When investors take expectant position, that affects us immediately. Customers just do not decide on construction. They can have plans, projects, pieces of land, even funding, however, they delay their decisions.

: What plans do you have for the next three years in Ukraine?

K. Ivanov: The Ukrainian market has a great potential in industrial construction. There are many old buildings which need reconstruction, many companies willing to develop and have such possibilities, huge export potential of Ukrainian manufacturers. We are optimistic, we plan to build more and expand our presence in Ukraine.

Please read: Doing business in Ukraine during the period of political instability: what to focus on

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