The head of IBS - RBC: "We were not forbidden to work with them - they were forbidden to work with us"

How IBS, one of the oldest it companies in RUSSIA, was affected by the departure of its founders,about plans to hold an IPO and a ban on employees to work from certain countries in an interview with RBC said its CEO Grigory KocharovGrigory KocharovGrigory KocharovGrigory Kocharov

The IBS group of companies (Information Business Systems - "Information Business Systems") was established in 1992. For almost 30 years, the company had two partners - Anatoly Karachinsky (the main owner) and Sergey Matsotsky. But in April 2020, IBS shareholders divided the company - Matsotsky left IBS, taking a number of assets (they subsequently entered the new GS-Invest holding, where Gazprombank invested).

In April of this year, the United States included Karachinsky on the sanctions list. The reason was the fact that he was a member of the Supervisory Board of Otkritie Bank, against which blocking sanctions were imposed. After that, he left the board of directors of the company and its structures, and his 75% in the HEAD legal entity of the group, IBS Holding, was bought out by the management.

Since the division of the business by partners, in 2020, the company has been led by Grigory Kocharov, who had previously worked at IBS for almost 19 years. Kocharov spoke about the impact of the departure of major shareholders, the consequences of the crisis and new plans for an IPO (since 2007, IBS global depositary receipts have been traded on the Frankfurt Stock Exchange, but in 2014 the company delisted) in an interview with RBC.

About changes after February 24

Until February 24, IBS expected to become an international company headquartered in Moscow. These plans had to be adjusted: Europe, Japan, Australia, and others had to be removed from the list of countries where the company planned to enter. But Kocharov clarified that the company did not seek to enter the markets of the usa, CANADA, Germany or Great Britain due to high competition. “In addition, the attitude [in these markets] towards Russian companies was extremely negative even before February 24. It was in Russia that we were friendly to foreign companies, but no one was waiting for us there,” he said. The Middle East and Africa remained on the list of countries for potential development.

The main change in the Russian market due to the special operation, Kocharov called the inability to freely acquire or copy the best practices in the field of modern Western technologies.

“The product portfolio is changing: companies are forced to replace foreign products with domestic ones. It is necessary to create and refine Russian software at the moment. This is a rather complicated and lengthy process, but no one can forbid Russian companies to copy what is being done on the international market. Customers froze some of the projects and took a break to rethink what to do next. With those foreign customers who have not left, we continue to work.”

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Grigory Kocharov (Photo: Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)

The segment of foreign customers for IBS has never been significant, says Kocharov. The departed foreign companies, he said, interacted with Russian clients and partners in different ways. They were divided into three groups, "equal in weight". The first is "emotional people who said they did not want to work with Russia under any circumstances." The second group reported that they were ready to continue interaction with Russian partners, but they could not do it directly, so they began to come up with legal schemes. Still others continue to cooperate with Russia, despite the restrictions imposed.

“We continue to work with the second and third groups, but not with the first. They are under real pressure. We were not forbidden to work with them - they were forbidden to work with us. Sanctions were imposed not against IBS, but against customers. Despite this, we continue to support customers and help them adapt.”

He refuted the information that IBS was negotiating with the American manufacturer of telecommunications equipment Cisco to import it to Russia. In mid-October, Izvestia, citing sources, wrote that Cisco, which had previously announced its withdrawal from the Russian market, could resume deliveries through an intermediary represented by IBS. “We did not and did not plan to negotiate with Cisco, they did not come to us. Even if they came, I’m not sure that now we would be interested - we, as a country, have chosen the path of digital independence.”

What does IBS do?

IBS group companies provide services in the field of business process optimization, creation of data management systems, analysis and modeling; develop, test, maintain software; produce servers, laptops, hardware and software systems and other equipment.

Revenue of the main legal entity of the IBS IT Services group in 2021 (the last available data) — 49.9 million rubles, net profit — 22.8 million rubles. According to SPARK, the company is 100% owned by IBS Holding, 33.3% each of which is owned by Deputy General DIRECTOR Leonid Zabezhinsky and member of the Board of Directors Lev Drozdov, another 24.9% by IBS LLC, 8.4% by Grigory Kocharova.

On sanctions against Karachinsky

“The inclusion of Anatoly Karachinsky on the sanctions list could affect the volume of IBS business in Russia and abroad. For a number of companies that continue to operate in Russia, it is important not to work with companies from the SDN list. We had to explain to them that Anatoly (Karachinsky. -) got on the list and did not get at all for working at IBS. This required some effort and took some time. We considered the option of getting into the SDN list, this would not be a critical event for the company, but rather unpleasant. According to our estimates, in this case, we would have lost 12-14% of the total business.”

Grigory Kocharov (Photo: Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)

Kocharov says that Karachinsky has not been involved in the operational management of the company for several years, but he called the complete exit from the capital due to sanctions a negative event.

“If you think about the biggest loss for IBS, two major shareholders have left us in the last two years. Anatoly Karachinsky and Sergey Matsotsky are among the best visionaries in the IT market in Russia. In times of crisis, like now, it would be very helpful if they could continue to develop the company. But crises make us stronger, the current IBS team successfully copes with the tasks set.”

About tasks from shareholders

At the time of Kocharov's appointment as head of IBS, Karachinsky and Matsotsky were dividing assets, and one of the first tasks was to conduct this process. In parallel, there was integration with the Aplana group of companies, which IBS acquired in 2019 (it is engaged in testing information systems and applications). “It was necessary to divide and take over the assets, and with them the staff. It so happened that about 900 people went to the divided structure, the other 700 came from the acquired asset. The background was covid-19 , which did not add to the fun. At the same time, the business had to continue to develop, ”Kocharov describes those events.

At the same time, IBS was preparing to conduct an IPO. Back in 2018, the Group announced its intention to list 30–35% of its shares on the Moscow Exchange. According to REUTERS, this could bring the company $ 100 million. IBS planned to spend the funds on expanding the range of services through organic growth, as well as mergers and acquisitions. But the “crisis broke out”, and the IPO had to be postponed until 2023. “When we were preparing for 2023, February 2022 suddenly came, and we had to reschedule everything again,” Kocharov said. Now the company, according to him, hopes to carry out the placement on the Moscow Exchange in 2025-2026. How much the company plans to attract and other details, he did not name.

“For us, IPO is the main source of raising funds for development. But whether it will be a placement on the stock exchange or some other instrument, it is not particularly important for us. We are also considering the arrival of a strategic investor or attraction of an investment fund. Throughout the history of the company, we have repeatedly conducted such negotiations. For the time being, there are no negotiations with anyone. We have to wait two or three years. The company has enough own funds for development”.

At the same time, the head of IBS made a reservation that now they live in short periods of forecasting: “Now forecasting for more than a year is a fantasy, chromatic dreams. But two or three years will pass, everything will calm down a little, and it will be possible to look a little further beyond the horizon and plan where to move on.”

About the movement of employees

“The staff was in a fever both from the announcement of a special military operation and mobilization. But in the end, those who left and did not return were less than 1% of the total number of employees. We collect much more per month. Therefore, it did not have a serious impact on the business. We're working with the guys to help them understand the mistakes they've made: some are coming back, some are planning to come back soon."

IBS introduced a classification, dividing different countries into territories where employees can or cannot work from, says Kocharov: “prohibited territories”, “permissible” and “allowed”. The latter include Russia and friendly countries; banned countries are countries that have a negative attitude towards Russia, have imposed sanctions on Russian companies or are members of NATO, the EU, etc.; to acceptable - neutral countries.

“Everyone who left for banned countries had to return to Russia by November 10. We warned them that if they did not return, then they would be fired (how many there were, he did not explain. -). Everyone who left for the permitted territories must decide before January 1 what they will do next - stay there, move to Russia or to the permitted territory. If they remain in the eligible territories after January 1, then we will be forced to fire them. We also try to return those who are in the permitted territories to Russia, or at least make their trip temporary. Half of our employees left based on their own fears or concerns. Some were afraid of mobilization. The guys got into a crisis for the first time, got scared, ran away. Unpleasant, but humanly, probably understandable.

Some of the employees, according to the IBS director general, left for reasons unrelated to the start of a special military operation.

“An employee's husband received a career promotion, he was transferred to the company's office in another country. What to do? The wife follows her husband. And this, perhaps, is a country that does not treat Russia very well. What now - to break the family? We consider some cases on an individual basis and find solutions by helping employees. Of course, caring for parents or restoring a family is an important reason, probably even more important than the company’s position on which country is allowed and which is prohibited.”

In the spring, IBS was negotiating the hiring of several teams from foreign companies that decided to curtail their business in Russia. In total, three teams were considered: twice the company did not agree on the cost estimate, once on culture, Kocharov said. As a result, only certain employees who did not want to leave Russia switched to IBS.

Grigory Kocharov (Photo: Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)

About new competitors

In 2016, Anatoly Karachinsky said in an interview that the company was originally created as a “clone of the [American IT company] IBM.” As Kocharov explains, "it was rather a beautiful, and also consonant slogan."

“At that time, IBM was a diversified advanced IT holding with high investments in modern technologies and a wide industry representation. IBS expanded its product portfolio so that it became similar to IBM. When we reached this goal, almost everyone became our competitors. Like IBM, we were engaged in industry diversification. Another task that we faced was to create the image of an innovative leader. Most companies like IBM or, more like IBS, Accenture, are quite large. Accenture employs 500 thousand people, we have 5 thousand. We have matured, the market has changed. We do not want and can no longer be someone's clone. The time when IBM and Accenture were created is over. You can't repeat the path that IBM took because the environment has changed. You can choose another path - your own."

According to Kocharov, in 2017, when IBS turned 25, the company realized that copying from the point of view of the mechanisms for creating a company is pointless, that it is only interesting to copy a product portfolio that is in demand, so they changed their strategy.

On the results of the Russian IT market

According to the optimistic forecast of the analytical center TAdviser, presented in June, the volume of the Russian IT market in 2022 will decrease by 10% compared to the previous year. The pessimistic forecast assumed that the volume would decrease by more than 20%, to 1.776 trillion rubles. Experts attributed the decline to sanctions, the suspension of the activities of most Western vendors, including those that do not have similar Russian counterparts, as well as the economic situation in general, when some companies will only be able to solve urgent tactical tasks.

“Everyone is asking how the special military operation has affected the IT market and the company as a whole, but nothing. The government has done a gigantic amount of work to protect the IT industry. In 30 years of work, I don’t remember a single case where at least 20% of what was done this year for the IT industry was implemented. Maybe stop whining? So far, so good. Infrastructure - yes, it's a problem. But this problem can also be solved. Customers have not drastically reduced their budgets. There were moments when they took a break for three months, but at the end of the year everyone will write a report that, surprisingly, the market has not died, but even grown by 5%.

Kocharov is calm about the possible departure of IT personnel from the country.

“Not many IT people left. There is a high demand for the digital transformation of those processes that we previously considered automated. It requires certain knowledge, skills, a class of people, technologies. There is also a process of import substitution. For example, SAP [a German software developer] announced that it was leaving the Russian market. Against this background, a significant number of people were released - about 3-4 thousand people who worked with SAP technologies. Such technologies are becoming less accessible to Russia, which means that they need to be imported. Labor resources were designed for the routine and organic growth of the market, and then a new segment appears that requires additional resources. As a result, there was a shortage of personnel.

About the sale of the cloud business

At the end of 2021, VimpelCom (operating under the Beeline brand) acquired DataFort, a cloud service provider, from IBS. The terms of the deal were not disclosed, but one of RBC's interlocutors then said that IBS estimated the value of the asset at a multiplier of 13 EBITDA, that is, at 2.5-3 billion rubles. Kocharov declined to comment on these data, but noted that the company did not regret that it had sold the cloud asset: “We are satisfied with the deal itself and its timeliness. IBS reinvested the proceeds in the purchase of a young growing company Dunice (developer of web services and mobile applications. -). This was done as part of the strategy of moving away from infrastructure services and the trend towards the development of information support.”

In general, IBS, according to him, is cautious about the business related to cloud technologies: “Outwardly, it is interesting and promising, but it carries a huge amount of risks.”

“The whole country faced one of them recently, when, mainly under pressure from international companies, some of our customers transferred their business to Western clouds or Western cloud products. How it ended, we all see. There is no free cheese anywhere but a mousetrap. There is also a mousetrap in the clouds - you transfer part of your rights into the wrong hands. Seems to be clean and reliable. But tomorrow they will change the shareholder and what will happen next? There is a block of information that is sensitive for business. Each specific customer cannot protect it in the same way as, for example, a professional person does. But incidents in professional companies happen at least as often as in customers. Are you ready to hand over confidential information in such a case? We don't believe that losing full control of your data objects is worth the potential profit. But this is my personal opinion, I just don’t like clouds.”

Grigory Kocharov (Photo: Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)Mikhail Grebenshchikov / RBC)

About the return of Luxoft

In 2019, American DXC Technology bought Luxoft from IBS for $2 billion. At that time, it was an international business with offices in more than 20 countries, including Russia. After the outbreak of hostilities in Ukraine, Luxoft decided to leave the Russian market and at the end of April transferred to IBS the local legal entities Luxoft Professional and ANO DPO Luxoft Training Center, as well as all the obligations that they had.

“We can't disclose the terms of the deal, but it had a few quirks. First, it had to be closed quickly. We had to quickly integrate almost 1.5 thousand people into information systems and business processes of IBS management. This team was supposed to jump from Luxoft processes to IBS information systems in a very short period of time. Another difficulty is the relocation of personnel working for foreign customers, whom Luxoft took to other structures. Some of the employees moved to other Russian companies, some to IBS, and some to the Luxoft structure outside of Russia.”

According to Kocharov, when Luxoft's shareholders decided to withdraw from the Russian business and started looking for someone who could take on employees and obligations, IBS turned out to be "the most comfortable company."

“Historically, we are close to each other in spirit and culture. All came from the same nest and all these years maintained a relationship. It was easiest for us to integrate the two teams.”

Five facts about Grigory Kocharov

In 1984 he graduated from the Yerevan Polytechnic Institute, Faculty of Technical Cybernetics. In 1989-1993, he led a group at the Institute for Physical Research of the Academy of Sciences of the Armenian SSR. In 2001, he began working at IBS as a deputy general director and director of the direction for working with fuel and energy companies. In 2009–2013, he was Senior Vice President of the Sochi 2014 Organizing Committee. In 2020, he was appointed CEO of IBS.