Sergey Kolesnikov and Igor Rybakov spent their summers in the early 1990s fixing rooftops around Moscow, a job that paid them about $500 a month.
The work gave the aspiring scientists, who were roommates at the Moscow Institute of Physics and Technology, Russia’s top research university, a chance to become entrepreneurs after the fall of the Soviet Union.
“We earned two degrees, one in physics and one in roofing,” Kolesnikov said in an interview at his central Moscow office.
The roofing degree paid off. Closely held Technonicol, the company they founded while in college, is now the country’s largest roofing-supply company, with a network of 700 distribution outlets across the country, 180 of them wholly-owned. The business had revenue of 59.4 billion rubles ($1.9 billion) in 2012, up 25 percent from the prior year, according to financial statements provided by Kolesnikov.
The company is valued at $2.8 billion, according to data compiled by Bloomberg, making the equal partners two of the youngest billionaires in Russia. Neither has appeared on an international wealth ranking.
“I always liked to solve puzzles, and to me business is a kind of puzzle,” Kolesnikov said. “Neither of us ever thought about earning money of such scale.”
The billionaires, both 41, had a well-timed entry into the market, catching the start of a wave of private homeownership and government upgrades to Soviet-era housing. The number of newly built private homes in Russia almost doubled to 205,000 from 2002 to 2012, according to data from the Federal State Statistics Service, and new apartment units increased more than two times during the past decade to 838,000.
In the past five years, the government has spent more than $7 billion improving the country’s housing, according to the State Fund for Assistance to Housing and Communal Services, and plans to spend an additional $3.3 billion on materials to upgrade 1.6 million apartment blocks that are still in need of repair.
Technonicol has a 30 percent share of Russia’s insulation market, according to Moscow-based Abarus Market Research. It derives 70 percent of its sales supplying repair work and the balance from new construction sales.
The company’s operating income rose 44 percent to 10.5 billion rubles, according to the financial statements. Kolesnikov said earnings before interest, taxes, depreciation and amortization was 12 billion rubles in 2012, and that Technonicol has doubled its output per worker since 2008.
The company is valued using the average enterprise value-to-Ebitda multiple of three publicly traded peers: Hedehusene, Denmark-based Rockwool International A/S (ROCKB), Courbevoie, France-based Cie. de Saint-Gobain SA and Baar, Switzerland-based Sika AG. (SIK) Enterprise value is defined as market capitalization plus total debt minus cash.
“Technonicol managed to generate an Ebitda margin of 20 percent, which is impressive,” said Daniel Patterson, an analyst with Skandinaviska Enskilda Banken in Copenhagen in an e-mail. “Most European building materials companies would envy that.”
In 1995, four years after the fall of the Soviet Union, Kolesnikov and Rybakov used $40,000 in savings and debt to buy their first plant, a roofing factory complex constructed in 1918 in Vyborg, a city 75 miles northwest of St. Petersburg. They spent $15 million modernizing the facility, and have since built 36 more plants -- 30 in Russia, three in Ukraine, and one in Belarus, Lithuania and the Czech Republic.
They expanded into insulation materials in 2003, acquiring a plant in the Chelyabinsk region of central Russia. Its main product is stone wool, a fiber made from melted volcanic rock that is used for insulation, fire protection, noise and vibration control. The insulation business is more profitable than the roofing division, Kolesnikov said.
“We expect that stone wool market will grow more dynamically in the mid-term than the construction market,” Evgeniya Sviridova, a spokeswoman for Rosizol, an insulation producers association, said in an e-mail.
The billionaires received a boost from the government in 2009, when it passed the Energy Saving and Increasing Energy Efficiency Act, a law that requires builders to use energy-saving materials in newly built homes.
Its industry dominance has rankled competitors. In 2008, Rockwool and St. Petersburg-based Penoplex sued Technonicol through Russia’s Federal Antimonopoly Service for violating Russia’s Competition Protection law.
FAS, the country’s antitrust agency, ruled in favor of Rockwool and Penoplex, finding Technonicol guilty of copying their branding imagery. Technonicol’s two appeals were rejected by arbitration courts.
In 2010, FAS also found Technonicol guilty of price fixing by forcing dealers to sell their products at the lowest cost or face penalties. Kolesnikov said FAS is hampering market growth through excessive government regulation.
“The regulatory function of the state has become too high,” he said, leaning over an empty desk that dominates a 300 square-foot office decorated only with a brown presentation board. “How will the economy progress if you damp entrepreneurs’ energy?”
Kolesnikov adheres to western and Japanese management philosophies and quotes management consultant William Edwards Deming, whose statistical theories are credited with inspiring the economic growth surge in Japan after World War II. When Kolesnikov visits Technonicol’s plants, he hands out copies of “The Toyota Way,” a book about the Tokyo-based carmaker’s principles for continuous improvement and respect for workers.
Rybakov, who declined to be interviewed for this story, uses a YouTube channel to post videos of his family on yachting and skiing excursions.
The company maintains an informal corporate culture. It publishes an annual swimsuit calendar featuring female workers. To celebrate the company’s 20th anniversary last December, the billionaires hired a heavy-metal band to record a rock song and created a music video starring Technonicol employees singing in the studio after a day of answering phones and eyeing the clock before grabbing their coats and dashing from the office.
“If your roof is blown away and your house is surrounded by snowdrifts, rest assured this is not a problem,” they sing. “We know the formula of victory.”
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