Source: Hospodářské noviny Date: 23.12.2024 Author: Petr Zenkner
Three years ago, Czech industrialists Jaroslav Strnad and René Matera acquired a majority stake in the Croatian wagon factory Đuro Đaković in Slavonski Brod. Its CEO, who manages a team of Czech and Croatian managers, is optimistic about the future of the company thanks to the restructuring. Since Strnad and Matera acquired the wagon factory from the state before the collapse, the number of wagons produced has increased threefold and EBITDA growth, operating profit before depreciation and amortisation, has been 20 per cent higher year-on-year. "We should attack the 1,000 wagons sold mark this year," Pavel Maroušek, CEO of Đuro Đaković, who has worked for Strnad's CE Industries group for over six years, told HN in an interview. The company is also looking to strengthen its armaments production, which has a long tradition in the Croatian company.
How is Đuro Đaković doing this year?
I would say we are doing well, we are fulfilling the restructuring plan and we should attack the 1,000 wagons sold mark this year. For comparison, when we took over the company in 2021, it was 260 wagons. Like the two previous years, we will have positive EBITDA this year as well, with growth estimated at around 20 percent (in 2023, EBITDA was CZK 234 million - editor's note).
How did you get the company into the black?
Thanks to a series of measures, significant investments and the know-how for chassis supply that we brought to the company. Đuro did not produce chassis before and bought them from suppliers in Germany and France. Since 2022, production has been able to supply chassis for all our manufactured cars. We have also combined well the composition of the management from Czech and Croatian managers. The investment in automation and robotization of production has also paid off, because labour costs in Croatia are not much different than in the Czech Republic. During 2023, we diversified the types of wagons we produce. Previously, Đuro mainly produced wagons for transporting steel coils. This has changed and now we can produce various other types. From grain wagons, of which we will produce over 600 this year, to container wagons and tank wagons. We can adapt better to the market because we don't just make large series.
From which series is it worth making wagons?
For a new type of wagon, where you have to do a complete development and approval of the wagon, which is costly, so that the production pays off, we are talking about 500 wagons. If it is a type of wagon that we have experience with, it is significantly cheaper. We know how to work with what our customers ask for, so we produce for them in different series. We have two design offices. One in Croatia, which has been strengthened significantly. The second one is in Louny, where we are preparing new cars for next year (Legios is based here - ed.).
How much did you invest in the company during the restructuring?
In the past three years it was almost CZK 400 million. Next year we are planning around CZK 125 million, which will mainly go into automating the surface treatment of the wagons and digitalization.
Who is driving the demand for rail freight wagons? Who buys them?
Our biggest customers are leasing companies such as Ermewa and GATX. What works in our favour is that the fleet of wagons in Europe is old and will be gradually renewed. At the same time, there is a will in the EU to promote rail transport in terms of environmental impact.
What is working against you?
I see a risk in the lack of rail infrastructure. If it is not good, trains can be late and carriers will not deliver goods on time. This would then lead to rail freight not growing as fast.
According to statistics, there are 700 000 rail wagons running in Europe. How many are produced in Europe each year?
Between 15 000 and 18 000.
So now, with thousands of units, you have about five per cent of the market. Who is the main competition?
We have become a major player and we are number three in the market in Europe in the number of wagons produced and with the portfolio we offer. The biggest is Tatravagonka in Slovakia, which produces 6,500 wagons a year. They also have a plant in Subotica, Serbia, and in Croatia they own a plant in Zagreb. Then there is the American Greenbrier, which has branches in Poland and Romania. And it's also looking at Turkey. Greenbrier produces about 25,000 railcars a year for the US rail freight market, which is the second largest in the world after China. In Europe, they make about 4,500 each year.
Railway wagons are mainly produced in Central and Eastern Europe.
Western manufacturers have mostly gone out of business. The main production is in this region. I would add Turkey, where production costs are lower.
Is it worth importing wagons or parts of wagons?
A wagon has a lifetime of over 30 years and needs servicing. The risk with Asian companies is lack of service. On the other hand, components for wagons can be manufactured outside Europe. I would probably mention Turkey again, where there are large capacities.
Where do you want to get to in Đuro in annual production of freight wagons?
We want to get to two thousand wagons a year. But we will not produce all of them in Croatia. We are looking at other locations in Europe. At the moment, we are not in the process of closing any particular acquisition, but we are considering building a new plant or an acquisition in the future.
So there is no capacity for such production in Đuro?
If we build a completely new hall for wagon production, yes. But we also want to increase the share of the so-called defence sector in the company's sales. It currently accounts for 10 percent of sales. But there is potential for growth there and we want to fulfil it. It is not a problem for us to build a production hall. But we also need to find people for it. The problem is not hiring top management or getting workers. The bottleneck is the key middle management. We'll be hiring next year. But it might not be enough to expand production of wagons and defences. That's why we are looking outside Croatia to expand railcar production.
What proportion of arms production do you want? And what kind, actually?
That depends if we're talking about new production or servicing. The moment an order for new production comes in, defence can get to wagon level in sales very quickly. We also have some new projects that are related to repairs. For example, the Bradley infantry fighting armoured vehicles are being realised in cooperation with the American company BAE.
Are you doing anything for CSG, which is owned by Jaroslav Strnad's son Michal?
In 2023 we did some contracts for Excalibur Army worth around CZK 30 million, this year CZK 10 million. Our biggest customer is of course the Croatian Ministry of Defence, for whom we do overhauls of M-84 tanks (the Yugoslav version of the Soviet T-72 tanks - ed.), but we can also do new production. The competence is there because these tanks were produced in Đuro.
And new production?
Under the Finnish licence, 126 Patria combat vehicles were previously produced in Đuro. The Croatian army bought them gradually between 2007 and 2013, and now we are dealing with the possibility of continuing, which should be decided probably next year.
We mentioned the Tatravagonka. Back when CSG was working with its owner Alexey Beljaev, there were mutual minority stakes in the companies. Is the relationship between CE Industries and Tatravagonka just competitive at the moment?
Yes, there is no cooperation.
Where do you beat Tatravagonka?
We can't say that we are beating it, but if you deliver quality and on time, you will find a place on the market. Tatravagonka's capacity was no longer sufficient, which was an opportunity for Đuro, which filled the gap. At the same time, leasing companies don't want to depend on one supplier either. But Tatravagonka is the leader and motivates us to catch up.
CE Industries has not only Croatian Đuro in the railway business. Even earlier, you started servicing wagons, because the group includes the company Vítkovické železniční opravny. What is the synergy there?
Actually, you could say that CE Industries has the whole railway chain apart from leasing railway wagons, which is something we don't want to do. We can design the car, we can manufacture it and we can service it. In addition to the Czech Republic, we can provide service in Slovakia, Hungary, parts of Poland and Croatia. We also have a company called Vítkovická doprava, where we can park wagons if leasing companies have no use for them. We can also dispose of the wagons ecologically through SPV Recycling.
Would it make sense to create some kind of integrated railway holding?
We are planning to do so.
Would it be interesting to have DAKO, which manufactures brakes, in such a group? It belongs to CSG, which is increasingly dominated by arms production.
We do the freight railcar segment. DAKO has a significant part of its revenues from deliveries for passenger cars and trams. So there is not that much penetration. But we are working with DAKO to develop new brakes for rail freight cars.
What about the Legios purchase you were pursuing. Is it still in play?
It's no secret that we have been in talks with the Šuška brothers about selling Legios. We were also interested in taking over their Ostrava repair and engineering plants. But it didn't work out. And not just because of the price.
Is it final?
I'd say so.
I'd be interested to know the position of the Croatian state, which sold the company to you. You hold a total of 82% of the shares. The rest is the state and former employees. How does that work? Would you like to take a 100% stake one day?
The state sees Đuro as an example of successful privatisation. I don't think he wants to sell his stake. In practice, the state has two members on the seven-member supervisory board and has a good overview of what is happening in the company.
The co-investor with a 35 percent stake in DD Acquisition, which owns the majority of Đuro Đaković, is the Matera family and their Promet group. In Tatra, which belongs to CSG, there was recently a conflict between Michal Strnad and Denisa Materova. What are the relations at the level of Promet and CE Industries, which belongs to his father Jaroslav Strnad?
There is close cooperation between the two shareholders. There is no problem. There are rules set from the beginning and they are followed. Martin Kamarád is the chairman of the supervisory board for Promet, and Denisa Materová is also a member of the supervisory board. Previously, Mr. Matera was also there. I am in close contact with both of them.
When will the investments in Đuro start to return? When do you expect dividends?
The restructuring plan envisages that by 2024, instead of dividends, the money will go to investments.