Top Manager in Discussion: László Szalados, director general of KÉSZ Épít?
The new terminal building of Budapest’s Ferihegy airport, named the SkyCourt, was handed over to its operator, Budapest Airport, in the middle of February and will open officially in just under two weeks. It was built by Hungarian construction company KÉSZ, which is also working on another high-profile project: the Mercedes factory in Kecskemét. We spoke to KÉSZ director general László Szalados about both projects and the company’s future key customers.
What is the significance of these two projects for your company?
Last year they made up around 60 to 70 per cent of our turnover, amounting to almost HUF 37 billion (EUR 135.73 million). Those two key customers contributed significantly to the fact that last year we were among the front-runners in the construction sector, which was still under pressure because of the crisis. 2010 was a very strong year for us. We were involved in 30 projects in total. In terms of turnover we have had one or two better years in the history of our company, but from the point of view of profitability last year was our best so far. That wasn’t surprising because since the crisis hit we have devoted a lot of attention to reducing costs and refining our profile. Last year we were able to really reap the fruits of those efforts for the first time. It’s good news that public contracts make up less than 5 per cent of our turnover because almost all our past-due receivables are in that small section of our construction portfolio. Another favourable point is that we are not involved in residential construction, which is languishing. Our main focus is on the construction of industrial and warehouse buildings and to some extent office and administrative buildings as well.
If we think of few large investments around Budapest which have been on hold for several months because financing fell through, then perhaps it is not entirely accurate to say that customers in the private sector are necessarily a safer bet then those in the public sector.
Yes, of course, you can have bad luck in the private sector too but it’s possible to reduce the risks by examining the projects closely. Our many years of experience help us there. After over a quarter of a century in business we have a good idea of how sound projects proceed and what the signs are that projects are not solidly financed and in difficulty. Tell-tale signs, for example, are if technical consultations before commissioning do not make progress even after the third or fourth round of consultations and there is a tendency to get lost in details. Normally if everything is running smoothly, developers try to implement their projects as quickly as possible. It’s very important to pay attention to the behaviour of the company commissioning the project.
The crisis doesn’t seem to have affected your company in the slightest.
That’s something of an exaggeration. Of course we have also felt the effects of the crisis to some extent. There has been a clear migration of construction firms that formerly concentrated on residential construction to our market. More and more firms that previously exclusively built homes are trying their luck in tenders for industrial buildings. For lack of orders on the residential market, they bid with prices on our market that I can hardly believe when I hear them. But developers should be careful. The construction of industrial buildings is only superficially similar to that of building housing. The requirements are considerably stricter in terms of quality and deadlines for industrial buildings. Construction firms that in the past worked mainly for the state should also not have any illusions about the expectations of the private sector. On our market there is in part a totally different way of thinking and working. There are tougher contracts, less tolerance and higher quality demands.
Have you felt any other effects of the crisis?
We need to be constantly on our guard regarding suppliers in particular. Despite us paying them punctually ourselves, another customer’s failure to pay can get the supplier into trouble financially, with the result that we will not be supplied. In such situations it is imperative to act quickly: either to replace that supplier by a comparable supplier or to help the supplier to get back on its feet with a small cash injection. The safest option, however, is to be self-sufficient.
To what extent are you self-sufficient?
We built a factory for steel construction elements ten years ago, which by happy coincidence is situated in Kecskemét just a few kilometres away from the Mercedes plant. The roughly 4,000 tonnes of steel girders used during the construction only had to make a short journey to the building site. We also produce various building accessories ourselves, such as distribution cabinets, special linings and a range of outer surface coatings. That distinguishes us from our competitors, who have to buy in considerably more supplies and accept a higher risk.
Your factory nearby was surely not the only reason why you were awarded the Mercedes contract.
No, of course not. The fact that our factory was located nearby was at most an extra practical benefit. We were awarded the Mercedes contract because Daimler AG was happy with the total package offered by us including product quality, references and price. It also met with approval that we had invested a lot of engineering work in the project even in the preparatory phase. We redesigned the whole paint shop at least three times rather than just once. It was only then that we set about calculating the prices. We were not wary of putting so much work into the project in advance because we sensed that Daimler had the firm intention of awarding the contract to a Hungarian firm. In addition we were able to offer a performance that is fully up to international standards.
So you had to create a new plan for the paint shop rather than implementing already existing plans from Germany?
Yes, exactly. Outsiders sometimes have the impression that it is simply a case of taking an existing plan out of the drawer and starting to build. It’s not as simple as that. Technology is constantly changing, particularly in the automobile industry. Every two to three years it changes fundamentally. Those changes all have consequences for the building, its safety, dimensions, energy requirements and so on. Local factors such as soil properties also need to be taken into account. The outline plan provided by the company commissioning the project is just the first stage. It’s only the basis of the later construction plans. When we draw up the plans the various norms and limits in force need to be constantly taken into consideration. And of course costs needed to be borne in mind too. Since there are no existing patterns, it’s a highly creative process. To some extent we are treading entirely new ground. Incidentally, it is also a constant learning process for the authorities, which from time to time have to revise one or other of their earlier decisions. In the case of the airport project, for which we won the prestigious Tierney Clark award in the middle of January, around 40 per cent of the total time was spent on planning. There were times when we had around 100 planners working on it. That scale also sets us apart from our competitors. In Hungary a fragmented structure is more typical: there are a large number of small planning offices but only a few big ones like ours.
What was it like working together with the German companies commissioning the projects? What have you learnt from the experience?
Both projects made it very clear to us how essential it is for there to be close cooperation with the project leaders. We voiced any problems that arose clearly and then sat down together with our German colleagues to try to work out a solution. I can’t recall a single negative or emotionally charged exchange of words. All our discussions took place in a professional, constructive atmosphere. It was also helpful that we were always dealing with the people qualified to make the necessary decisions at once. What we have learnt from both projects is that it pays off to invest early on in tailored project teams, with the right technical and language skills in the right place. The projects are so unique that efficiency would soon suffer if we used teams that were not sufficiently tailored to the project. In the case of both projects we introduced entirely new reinforced-concrete installation and calculation methods that were not used anywhere in Hungary previously. That also helped to speed up the projects.
You now have two excellent reference works and two teams with excellent professionals but soon those large-scale projects will come to an end. What lies ahead?
Yes, we will be ready with the airport project by the summer. In the next few months after the construction of the paint shop, the porter buildings and the administrative building we will also gradually withdraw from Kecskemét. Although of course we will stay as long as our customers would like us to, the end is in sight. Fortunately, however, other big investors, particularly in the automotive industry, have also decided on big investments in Hungary. We would definitely like to play a part in the implementation of those projects and make use of the knowhow that we have acquired.
How many Hungarian construction firms would be in the position to cope with a project of the magnitude of the Mercedes plant in Kecskemét?
Not more than two or three serious companies.
So you have a fairly good chance of being awarded more such contracts!
We are ready and we will not be shy about what we have proven that we are capable of. The only risk I can see lies in whether or not foreign investors choose Hungarian construction companies. Only recently a big foreign investor awarded the contract for the construction of the first part of a new factory to a foreign firm. Of course we have to accept such a decision given that the tenders are open to foreign companies, partly because of EU guidelines, but of course we are not happy about it.
Has the Hungarian state represented your interests satisfactorily?
Unfortunately not until nowadays, in that respect we have noticed certain shortcomings, which we cannot understand since the creation of new jobs is right at the top of the state’s agenda. Our company and our competitors can create jobs if we have sufficient orders. When a new factory is set up, the investments in new buildings account for only a small part of the total investment. Hungarian firms should at least get a look-in there. The balance of all economic equilibrium is the creation of new jobs, which can only be reached with the contribution of large Hungarian owned companies with operation based on their own resources. In my opinion the performance of Hungarian companies and the prosperity of Hungarian construction industry also depend on the support of the Hungarian government.
KÉSZ director general László Szalados looks over the plans for the Mercedes factory in Kecskemét which his company is constructing. In February KÉSZ handed over Ferihegy airport’s new terminal, SkyCourt (top photo).