Igor Binkovskij, CSO/CMO REHAU Ukraine Window Solutions Department

15/ 03/ 2017

“The market will survive!” – is assured Igor Binkovskij CSO/CMO REHAU Ukraine Window Solutions Department. We talked about window and construction branch condition, competition in such complex period and of course about ingredients of success of REHAU Ukraine. Several window market participants estimate its reduction. How would you estimate the situation in translucent construction market? Could you compare the size of the market in 2016 with the previous year? Let’s start with obtained numbers we all get and fix for our forecasts, analytics etc. Express-release of state statistics service of Ukraine showed decrease of window market for 13% during 2015 comparing the 2014: the first half-year of 2015 had disheartening reduction – up to 30-33%, but in the second half-year the sector had a growth which mended the overall performance. Today we can state: due to objective reasons we had reduction of building sector in 2015 for 13%. Here we take into consideration the devaluation of national currency. But if we fix prices in USD with its rate index – we will detect more serious level of the sector fall. Nevertheless, from January till July 2016 construction branch show the slender recovery. So, the comparing basis 2016 to 2015 is very low due to 2015 sector fall. Nevertheless, in 2016 the window sector increased comparing the 2015 – mainly on account of residential construction and partly of engineering structures. The growth index value is about 12-13%. So despite the fact the branch still didn’t get the 2014 level, this figures inspire the optimism, because we all know the construction sector is the mover of economy. What reserves do we have? First of all, there are constructions of permanent, residential and engineering structures. Till they are away there won’t be large investments in Ukraine, construction of large plants, airports, roads, infrastructure... Why? Because of war, of big business’s reluctance to invest in Ukrainian projects. Other reasons are devaluation of hryvna and the fall in purchasing power of population. But we have big prospects because Ukraine is very attractive as production area for west investors – because of logistic, mentality, workforces and their education level. What else do we need? We need more transparent economy and management system. And calm. We need peace. In window sector the situation is very complex. The market narrowed and the competition is very keen. When we talk about branch perspectives, I’m sure we have them, because people will always need windows. We have huge amount of old windows in residential and public buildings. But we need relevant external support for people could invest into new windows. I have talked to many market participants – large and medium-sized companies, glass, furniture and steel providers. I asked them about their vision of 2015 and 2016 market size. They all confirm the market 2014-2015 reduced by at least 25%. It is too much. So we have very low level comparative base. But if we talk about 2016 year – we see more stable situation and the growth of market size comparing to 2015. Summing this question, I think the construction sector has big perspectives and the market will survive. And I’m sure our window market will survive too. How would you estimate the Ukrainian window market share REHAU gains? Let’s define measurement units – it can be money, it can be units. I think PVC-profile market must be measured in tonnage – which corresponds with purchase profile systems amount and should correspond with amount of sold and installed windows. Our share of market in 2016 we estimate about 17.5%, the measurement error equals ±0.5%. Anyway our market share is not less than 17%. What development perspectives do you prognose for translucent construction market? First of all, I want to say – the ukrainian window market will survive! I have no doubt about it. Why? Let me replicate – we have billions square meter of windows, which must be renovated as soon as possible. The main part of them belongs among other to municipal buildings such as schools, kindergartens, medical clinics etc. Those institutions are financed from the state budget. We all understand – the best way is to renovate and make them energy-efficient instead of pay exorbitant prices for gas or any other source of heat in these buildings. Another important moment – we see the climate in Ukraine becomes warmer. It means the conditioning role also becomes more actual. And energy-efficient windows solve simultaneously two problems: in winter they keep warm and in summer keep cool in the room. And what about numbers in your forecast? Do you expect the market increase and as result sales growth? Considering the supporting credit program for energy-efficient windows, f. ex.? This program launched in April 2015 is the 1st state building insulation program which began to work. And this is very positive sign. The official statistics indicated about 80% of compensations were transferred for windows. Talking about the window market perspectives – we will have them only with external financing in the form of state credit program or in the form of international investments and international energy-efficiency funds willing to invest to get the money back by saving on resources. Similar work forms worked successfully in East Germany, Baltic countries and now they are being implemented in Ukraine. And the state credit program provided substantial support for window market in 2016. What will we get in 2017 – only heaven knows. All officials affirm this program is effective, required and safely for our country. And I hope the funding will be allocated for 2017 year. I’m sure you heard about IQ Energy program financing by EBRD through three non-governmental banks in Ukraine. Obviously this is the pilot project appointed to become the basis model for future projects. EBRD is ready to invest in Ukraine and our energy security, it requires the adoption of certain laws which are now in operation. This program should support the window market in 2017. If it all works out, we can expect the market volume at the level of 2016 year. Assuming another scenario, we should be ready for 5-10% market decline. For end-consumer and as result for window market the loyalty from banks is very important because the bank credits are very expensive today – up to 22-24%. But if the interest rate will be reduced and the sellers will make any concession - the market will become more vivacious. In other words, the market will keep its balance and volume in 2017 with external financial support. Can we expect the introduction of stricter control for energy-efficiency windows quality due to funding reduction? Or will the recompense approach stay in same manner? It must be changed. When only the technical characteristics of windows were determined there was specified the R-value (the heat transfer coefficient of resistance) as 0.75 m2K/W. But later banks turned up the disability of their managers to deal with all those numbers. Windows have their coefficients plus window-passport data. And there are also boilers and heat points with their own data. That is why the description was shortened and the description of windows only contained “energy-saving windows with energy-saving triple-pane windows with energy-saving glass” and the heat transfer coefficient of resistance number just has been removed. But situation has changed. In the IQ-Energy program we see the certainly defined requirements for energy-efficient products, including windows. And pretending to the compensation you have to choose products met all the requirements spelled out in IQ-Energy. Besides is declared random control of the installed products. On the other hand, our research shows the consumer of REHAU windows became more informed and stricter. For majority of consumers the word “euro-windows’ is similar to word “REHAU windows”. How could you achieve those kind of brand awareness and brand loyalty? In 2016 there was the 20th anniversary of the first REHAU window produced in Ukraine by the “Enran ltd.”, the old REHAU partner and in 2017 the REHAU Ukraine celebrates its 20th anniversary in ukrainian market. So the trust to our brand began to form 20 years ago. Clearly the brand-awareness can be raised to 10-15% for two years in virtue of large investments. We invested gradually but very purposefully and consistently to achieve the brand loyalty and the quality window directly associated with REHAU™. It became also possible due to our Partners I’m proud of. The quality of our product and end-consumer’s trust to our brand are very important for them and here our common values coincide and are identical. All those factors helped us to reach such kind of brand reputation and brand loyalty. The next moment – is the product quality. REHAU means not just window profiles combination but systems of complex solution for interesting unique objects. And that is also the part of brand awareness. It is also product’s range and its possibilities. The next moment – support we give to our Partners, our technical support. And I’m talking not about simple learning, we walk hand-in-hand with our partners all the time in control and window production. The ready window construction quality control system formation helps us to keep this quality permanent and continuous without reference to its amount. Very important role belongs to marketing - not advertising but marketing. I’m sure - this is an art, the part of life and concepts “marketing” and “brand” are related. Let’s remember the Steve Job’s quote - the brand is the trust. The trust contributes in brand awareness formation and brand perception. Our social responsibility is included in everything we and our partners do. We don’t promote it but we do it in our everyday job. For majority of people REHAU brand means not only five letters but people standing for it: owners, managers, all co-workers in the plants, the REHAU Ukraine Window Solutions team and the REHAU team that supports us in plants in Germany and Poland, the management of head-office REHAU Group AG+Ko. That are the ingredients of success of REHAU Brand. Are you going to open the plant here in Ukraine? No, we don’t consider even an opportunity of it and there are several reasons for it. First of all - economic component. Here in Ukraine there is no raw-stuff and it has sense to open the plant only with raw-stuff sources. The second moment - there are no customs preferences for raw-stuff in Ukraine, so neither raw nor profile systems import gives us any customs preferences. The third moment is that the advantages of local plant - cheap resources, land rent - vary in very fast way. The growth of resources price leads to the fact the cost price of any product manufactured in Ukraine, specially, material-consuming product increases vastly. Another moment - window profiles production capacities in Ukraine still exceed three times the Ukrainian window market volume. Simultaneously we have the new glorious high-performance plant in Poland and there is no sense to take away from it our purchase volume as it influences on our net-price. Considering all those facts we see no sense to open plant in Ukraine because it won’t give us any economic advantage. Every year you are the participant and the awardee of Choice of the Year rating. 2016 confirmed this trend. Tell us more about it. REHAU is the participant of ratings like Choice of the Year without applying for them. This research is carried out by Nielsen TNS Ukraine company and confirmed by Deloitte Ukraine - the both companies verify its veracity. This survey is conducted regardless if we want to participant in it. Another nuance of this research is that in case the prizewinner refuses his award-license the number two doesn’t become the winner automatically and the competition fails to recognize. But we take participant in it with a good grace because the research is very complex and of full value and it allows us to estimate our positions comparing our honorable competitors, our positions in particular regions. It helps us to adjust our route and arrange right accents. Respondents of “Choice of the Year” answer the questions like “What brand you consider the best?”, “What brand do you use?”, “What brand you wish to purchase?” etc. This quiz shows a lot. Among other we understand the position of our brand in mind of end-consumer, what is the level of our brand awareness. In 2016 24% of respondents defined REHAU as brand #1 in Ukraine, and many of respondents planned the purchase. This mark is important for us. Interviewed Tetyana Zakharchenko-Koroleva

Several window market participants estimate its reduction. How would you estimate the situation in translucent construction market? Could you compare the size of the market in 2016 with the previous year?

Let’s start with obtained numbers we all get and fix for our forecasts, analytics etc.

Express-release of state statistics service of Ukraine showed decrease of window market for 13% during 2015 comparing the 2014: the first half-year of 2015 had disheartening reduction – up to 30-33%, but in the second half-year the sector had a growth which mended the overall performance.

Today we can state: due to objective reasons we had reduction of building sector in 2015 for 13%. Here we take into consideration the devaluation of national currency. But if we fix prices in USD with its rate index – we will detect more serious level of the sector fall. Nevertheless, from January till July 2016 construction branch show the slender recovery.

So, the comparing basis 2016 to 2015 is very low due to 2015 sector fall. Nevertheless, in 2016 the window sector increased comparing the 2015 – mainly on account of residential construction and partly of engineering structures. The growth index value is about 12-13%. So despite the fact the branch still didn’t get the 2014 level, this figures inspire the optimism, because we all know the construction sector is the mover of economy.

What reserves do we have?

First of all, there are constructions of permanent, residential and engineering structures. Till they are away there won’t be large investments in Ukraine, construction of large plants, airports, roads, infrastructure… Why? Because of war, of big business’s reluctance to invest in Ukrainian projects. Other reasons are devaluation of hryvna and the fall in purchasing power of population.

But we have big prospects because Ukraine is very attractive as production area for west investors – because of logistic, mentality, workforces and their education level. What else do we need? We need more transparent economy and management system. And calm. We need peace.

In window sector the situation is very complex. The market narrowed and the competition is very keen. When we talk about branch perspectives, I’m sure we have them, because people will always need windows. We have huge amount of old windows in residential and public buildings. But we need relevant external support for people could invest into new windows.

I have talked to many market participants – large and medium-sized companies, glass, furniture and steel providers. I asked them about their vision of 2015 and 2016 market size. They all confirm the market 2014-2015 reduced by at least 25%. It is too much. So we have very low level comparative base. But if we talk about 2016 year – we see more stable situation and the growth of market size comparing to 2015. Summing this question, I think the construction sector has big perspectives and the market will survive. And I’m sure our window market will survive too.

How would you estimate the Ukrainian window market share REHAU gains?

Let’s define measurement units – it can be money, it can be units. I think PVC-profile market must be measured in tonnage – which corresponds with purchase profile systems amount and should correspond with amount of sold and installed windows.

Our share of market in 2016 we estimate about 17.5%, the measurement error equals ±0.5%. Anyway our market share is not less than 17%.

What development perspectives do you prognose for translucent construction market?

First of all, I want to say – the ukrainian window market will survive! I have no doubt about it. Why? Let me replicate – we have billions square meter of windows, which must be renovated as soon as possible. The main part of them belongs among other to municipal buildings such as schools, kindergartens, medical clinics etc. Those institutions are financed from the state budget. We all understand – the best way is to renovate and make them energy-efficient instead of pay exorbitant prices for gas or any other source of heat in these buildings.

Another important moment – we see the climate in Ukraine becomes warmer. It means the conditioning role also becomes more actual. And energy-efficient windows solve simultaneously two problems: in winter they keep warm and in summer keep cool in the room.

And what about numbers in your forecast? Do you expect the market increase and as result sales growth? Considering the supporting credit program for energy-efficient windows, f. ex.?

This program launched in April 2015 is the 1st state building insulation program which began to work. And this is very positive sign. The official statistics indicated about 80% of compensations were transferred for windows.

Talking about the window market perspectives – we will have them only with external financing in the form of state credit program or in the form of international investments and international energy-efficiency funds willing to invest to get the money back by saving on resources. Similar work forms worked successfully in East Germany, Baltic countries and now they are being implemented in Ukraine. And the state credit program provided substantial support for window market in 2016.

What will we get in 2017 – only heaven knows. All officials affirm this program is effective, required and safely for our country. And I hope the funding will be allocated for 2017 year.

I’m sure you heard about IQ Energy program financing by EBRD through three non-governmental banks in Ukraine. Obviously this is the pilot project appointed to become the basis model for future projects. EBRD is ready to invest in Ukraine and our energy security, it requires the adoption of certain laws which are now in operation. This program should support the window market in 2017. If it all works out, we can expect the market volume at the level of 2016 year. Assuming another scenario, we should be ready for 5-10% market decline.

For end-consumer and as result for window market the loyalty from banks is very important because the bank credits are very expensive today – up to 22-24%. But if the interest rate will be reduced and the sellers will make any concession – the market will become more vivacious.

In other words, the market will keep its balance and volume in 2017 with external financial support.

Can we expect the introduction of stricter control for energy-efficiency windows quality due to funding reduction? Or will the recompense approach stay in same manner?

It must be changed. When only the technical characteristics of windows were determined there was specified the R-value (the heat transfer coefficient of resistance) as 0.75 m2K/W. But later banks turned up the disability of their managers to deal with all those numbers.

Windows have their coefficients plus window-passport data. And there are also boilers and heat points with their own data. That is why the description was shortened and the description of windows only contained “energy-saving windows with energy-saving triple-pane windows with energy-saving glass” and the heat transfer coefficient of resistance number just has been removed.

But situation has changed. In the IQ-Energy program we see the certainly defined requirements for energy-efficient products, including windows. And pretending to the compensation you have to choose products met all the requirements spelled out in IQ-Energy. Besides is declared random control of the installed products.

On the other hand, our research shows the consumer of REHAU windows became more informed and stricter.

For majority of consumers the word “euro-windows’ is similar to word “REHAU windows”. How could you achieve those kind of brand awareness and brand loyalty?

In 2016 there was the 20th anniversary of the first REHAU window produced in Ukraine by the “Enran ltd.”, the old REHAU partner and in 2017 the REHAU Ukraine celebrates its 20th anniversary in ukrainian market. So the trust to our brand began to form 20 years ago.

Clearly the brand-awareness can be raised to 10-15% for two years in virtue of large investments. We invested gradually but very purposefully and consistently to achieve the brand loyalty and the quality window directly associated with REHAU™.

It became also possible due to our Partners I’m proud of. The quality of our product and end-consumer’s trust to our brand are very important for them and here our common values coincide and are identical. All those factors helped us to reach such kind of brand reputation and brand loyalty.

The next moment – is the product quality. REHAU means not just window profiles combination but systems of complex solution for interesting unique objects. And that is also the part of brand awareness. It is also product’s range and its possibilities.

The next moment – support we give to our Partners, our technical support. And I’m talking not about simple learning, we walk hand-in-hand with our partners all the time in control and window production. The ready window construction quality control system formation helps us to keep this quality permanent and continuous without reference to its amount.

Very important role belongs to marketing – not advertising but marketing. I’m sure – this is an art, the part of life and concepts “marketing” and “brand” are related.

Let’s remember the Steve Job’s quote – the brand is the trust. The trust contributes in brand awareness formation and brand perception. Our social responsibility is included in everything we and our partners do. We don’t promote it but we do it in our everyday job.

For majority of people REHAU brand means not only five letters but people standing for it: owners, managers, all co-workers in the plants, the REHAU Ukraine Window Solutions team and the REHAU team that supports us in plants in Germany and Poland, the management of head-office REHAU Group AG+Ko.

That are the ingredients of success of REHAU Brand.

Are you going to open the plant here in Ukraine?

No, we don’t consider even an opportunity of it and there are several reasons for it.

First of all – economic component. Here in Ukraine there is no raw-stuff and it has sense to open the plant only with raw-stuff sources.

The second moment – there are no customs preferences for raw-stuff in Ukraine, so neither raw nor profile systems import gives us any customs preferences.

The third moment is that the advantages of local plant – cheap resources, land rent – vary in very fast way. The growth of resources price leads to the fact the cost price of any product manufactured in Ukraine, specially, material-consuming product increases vastly.

Another moment – window profiles production capacities in Ukraine still exceed three times the Ukrainian window market volume. Simultaneously we have the new glorious high-performance plant in Poland and there is no sense to take away from it our purchase volume as it influences on our net-price.

Considering all those facts we see no sense to open plant in Ukraine because it won’t give us any economic advantage.

Every year you are the participant and the awardee of Choice of the Year rating. 2016 confirmed this trend. Tell us more about it.

REHAU is the participant of ratings like Choice of the Year without applying for them. This research is carried out by Nielsen TNS Ukraine company and confirmed by Deloitte Ukraine – the both companies verify its veracity. This survey is conducted regardless if we want to participant in it. Another nuance of this research is that in case the prizewinner refuses his award-license the number two doesn’t become the winner automatically and the competition fails to recognize. But we take participant in it with a good grace because the research is very complex and of full value and it allows us to estimate our positions comparing our honorable competitors, our positions in particular regions. It helps us to adjust our route and arrange right accents.

Respondents of “Choice of the Year” answer the questions like “What brand you consider the best?”, “What brand do you use?”, “What brand you wish to purchase?” etc. This quiz shows a lot. Among other we understand the position of our brand in mind of end-consumer, what is the level of our brand awareness. In 2016 24% of respondents defined REHAU as brand #1 in Ukraine, and many of respondents planned the purchase. This mark is important for us.

Interviewed Tetyana Zakharchenko-Koroleva