Source: Forbes Date: 06.01.2025 Author: Silvie Friedmannová
CE Industries is already heading towards eleven billion. In addition to being the third-largest producer of wagons in Europe, they have injected funds to support two plants at the bankrupt Liberty Ostrava steelworks.
Twenty companies, three thousand people. Adam Šotek has been managing the industrial holding CE Industries for five years. The manager with experience in major restructurings and crisis management has had a career at M.L. Moran or ZKL, and says of his "boss" Jaroslav Strnad that he appreciates his advice, approach to business, and the fact that he allows managers the space to realize themselves.
Adam Šotek is close to the Moravian-Silesian region. He lives with his family in Opava, has offices not only in Ostrava but also in Prague, and therefore spends a lot of time travelling. We meet at the Vítkovické železniční opravny facility, and so we start by comparing our experiences of travelling by train between Prague and Ostrava.
This factory is heavy industry at its best, including the flying sparks reflected in the workers' safety glasses. The tracks follow us around all day. The site, where the freight wagons of Europe's biggest shippers are repaired, is now gradually undergoing reconstruction, Adam Šotek shows us.
The industrial holding CE Industries is on track for a record year, with EBITDA of over eight hundred million and sales of around eleven billion. The business is not only in rail freight, but also in recycling and waste, energy engineering and this year it will also include a helicopter division under the Helicopter Alliance umbrella. They are spread across the globe and also have firm roots, which they showed when they financed the operation of two plants, a pipe mill and a rolling mill, at the bankrupt Liberty Ostrava smelter last autumn.
How do you evaluate the situation in Liberty Ostrava now?
It's a big colossus that has been standing for ten months. Fortunately, the 15 and 16 plants we are financing have 1,350 employees left. But I was pleasantly surprised by the fact that both plants were in good condition technologically and my colleagues from Liberty quickly managed to restart production without any major problems. When the opportunity came to go into tolling, we put together a five-person international team of managers who had worked in the steel industry, and thanks to them we were able to retain people in key occupations.
"I always say about tolling that it's a bypass for a company that's in trouble."
This is not the first time you have used the same model. Is it working well?
This is the third tolling for us. But there is one peculiarity here, Liberty Ostrava did not have a functional sales team, so the business is actively managed by people from our company Vítkovice Machinery Trade. Rourovna does not have many competitors in Europe and we believe that by spring it could be at a turning point and not generating a loss. As far as the sheet mill is concerned, it is difficult to evaluate yet because we started there later. It is an industry with more competition and also because of the price difference of five euros per tonne, customers are switching to competitors. We see this strongest in China, India, Vietnam and Indonesia.
And it makes business sense?
I always say about tolling that it's a bypass or a bridge for a company in trouble. A bridge between the past and a chance for rescue and success in the future. A struggling business either does some major restructuring to be able to generate positive cash flow or a strategic investor is found. There is no other way to maintain production.
But we have no control over the outcome in this particular case, that is in the hands of the insolvency administrator. What I see as a huge problem at Liberty, however, is that it does not now have a crisis manager at the top who can motivate employees and can change the company quickly from within, fight for every customer and deal with high costs.
No other races you're interested in at Liberty?
Together with the insolvency administrator, we are discussing the possibility of production at plant 14, which is the so-called rough mill. This is where long products of large dimensions, such as construction profiles or mining steel reinforcements, are produced. We see some demand in the market for around seven kilotonnes of these products per month.
Is there a possibility that parts of Liberty could become part of the CE Industries holding in the future?
I can't answer that right now. Primarily, we have to manage tolling, and that doesn't mean that only CE Industries will profit from it, but our ambition is that the management of the Liberty Ostrava plants, which we are financing today, will also get close to the turning point.
How long can tolling be done?
I think we can do it for two to three years, depending on how Liberty management can restructure the company and how successful they are in sales and margins. The key will be how quickly they can get the management to cash zero. We will help them with the operational financing so they can buy enough raw materials for their production. We'll also help them with the business.
The second aspect is whether there will be sufficient quantities of input materials available. We need billets (square steel bars, ed.) for the rourovina, and slabs (special material for sheet metal production, ed.) for the flat products.
Until recently, Liberty Ostrava used to make its own semi-finished products in blast furnaces, but we have calculated that if we buy the slabs and billets elsewhere, we will save two billion a year. So far, we have the option of buying from some European steel mills, but the slabs we buy from Asia and Saudi Arabia because of the price.
But your Vítkovické železniční opravny are a different story. Which is the road to success in heavy industry in general?
It is a different story already because we started to rebuild the Vitkovické železniční opravny in 2019 on the premises of Vitkovická doprava. There has never been a wagons repair facility there. Now we are working with the largest wagon leasing companies in Europe and we are always thinking about what added value we can bring to them. We have invested in mobile workshops in Europe, we are now in three countries and we plan to enter two more countries in 2025, because the industry is changing and we are following customer requirements.
In Ostrava you repair wagons, in Croatia in the company Đuro Đaković you build new ones. How has this division grown recently?
Since 2019, we have managed to create something unique in Europe in terms of size. We can actually provide the entire production cycle of a wagon. In two countries, the Czech Republic and Croatia, we now have the development and design, and in the latter country we also manufacture the wagons. When we came to Đuro Đaković, the company was producing 260 wagons a year, and three years later we are just under a thousand, and we are the third largest company in Europe. Our customer portfolio today includes, for example, freight wagon leasing companies.
Four of the top five. Their business is based on the fact that they lease their capacity, so they cannot afford to keep them in repair for long. That's why we have mobile workshops, which we plan to increase further. We want to operate in six countries. In addition to development, production and repair, we offer wagon parking, which we are also gradually expanding. We can also scrap the wagons in an environmentally friendly way at the end of their useful life and can save some newer parts for the customer to reuse.
And specific expansions this year?
We want to expand into two more countries in Europe. Today we are in the Czech Republic, Slovakia and Hungary. And we are also very close to an agreement to buy a site where we would like to have another repair facility.
Which division of CE Industries is the strongest?
I'm most proud of the Railway. In terms of EBITDA, it will generate around 406 million kroner in 2024, followed by the Opportunities division (Beohemija Serbia, Kávoviny, VMT) and third is Waste Recycling.
"I'm most proud of the railway."
So will the overall economic results be better?
Not counting the tolling of Vítkovice Steel, we should be one billion higher in revenues. The expectation is around eleven billion versus ten in 2023 and the EBITDA forecast is 857 million crowns. We have invested 320 million in 2024. Among the significant investments will definitely be the modernization of the technology of Czech Precision Forge in Pilsen and the investment in digitalization in Đuro Đaković. We are planning total investments of CZK 351 million for 2025.
What are the helicopters gonna do about it?
First of all, I have to say that Helicopter Alliance (a relatively new joint stock company based in Prague, comprising six companies from the Czech Republic, Slovakia and the USA and focusing on the modernisation of the well-known Black Hawk helicopters, also owned by Jaroslav Strnad, ed.) is yet to become part of the holding this year. Taking the year 2023, when Mr. Strnad started to gradually include the individual entities into Helicopter Alliance, they had an EBITDA of 5.6 million euros. A year later we expect between ten and eleven million euros and in 2025 we are heading for seventeen million.
You're back from America now. What was the impact of Ace Aeronautics on you?
I have to say that the company looked much better than its numbers. It's an extremely interesting company with strong engineering. I see a parallel in the business model here with our railroad business. We don't just build a railcar or repair a helicopter. We offer services for the whole life cycle. And this is where Mr Strnad is pushing us to make spare parts sales, service, pilot and mechanic training part of the business model. To sell other services in addition to the helicopter.
Who is the typical customer for refurbished Black Hawk helicopters now?
For example, Ace Aeronautics received two large orders from the Austrian army. These are not combat machines, but logistics helicopters. The second is from Portugal and is for helicopters for the local army.
How many companies belong to CE Industries?
Twenty companies today, over three thousand employees. We do business in the Czech Republic, Slovakia, Croatia, Serbia and Hungary. The holding already has its size and we don't want to inflate it in terms of administration or management, so we have defined what is the minimum size of company we want to have in the portfolio in terms of revenue and profitability.
And that is?
Our new CEI 2027 strategy talks about that the companies in our portfolio should have revenues of at least five hundred million crowns and within three years after our entry they must generate EBITDA of at least one hundred million crowns.
How active is Jaroslav Strnad in direct day-to-day management?
On the one hand, he is a shareholder who gives the management the space to realize itself. For me, this is one of the reasons why I went to him, because I was used to it at M.L. Moran or ZKL. We are in the industrial business, but we manage the companies as a financial holding. We have to have subject matter experts around us, specialists with whom we discuss and are open to their recommendations.
On the other hand, Mr Strnad is a very active person who enjoys business immensely. In real terms, this means, for example, that he personally helps the company across the board on large contracts and is present at our discussions when we are developing strategies. It has also been my experience that when a company has been very unsuccessful, he is very active in operations.
What have you personally had to learn in those five years?
That it's important to know the answer to the question of what you want to be the best at. How to put together a holding company structure to make it work well. How to finance distress projects when you're doing several at once. And to be vigilant about letting young talent slip through the fingers in the marketplace.