"First of all, Mr. Sotak, we know that your company plays a very strategic role in its sector in the Czech Republic, so could you give us a brief historical background of the company, putting more emphasis on the last five years?"
"Well, Moravia Steel as such hasn't even got those five years of history but on the other hand, Trinecke Zelezarny, the company that we have under control has 160 years of history. That means that after "Vitkovice" it is the second oldest steel company in this country and has been in the business of steel making for a long time. Moravia represents the most recent history in the process of development of Trinecke Zelezarny and was established for the purpose of privatising the "controlling package" of TZ. It is also acting as a sole sales agent of all of TZ's products and being in charge of importing, let's say, vital raw materials for the company.
Moravia Steel currently employs around 200 employees and operates from Trinec.
To support the marketing and distribution it has five offshore subsidiaries that act as sales and distribution agents. These subsidiaries, based in Slovenia, Switzerland, Germany, Portugal and UK, are either 100% controlled or doing ventures with local partners. In the course of next two years we also intend to set up two more, one of them in Italy and one in USA. The sales of this group on a consolidated basis amount to about 20 Bil. CZK...."
"Are you talking now about the financial results for 1999?"
"No, this is rather an average for the past three years. The number fluctuates between 19 and 21 billion, depending on a number of factors such as the prices etc..."
"As we know, the economical situation in Ostrava region is not very good at the moment; so how do you deal with this ?
"One of the main differences between us and the other two mills in this region is the fact that we are a fully private company and Moravia Steel took number of steps to restructure the business of TZ immediately after the privatisation process was finished.
We were not waiting for any action on the government part or any crisis situation and begun focusing on increasing the company's efficiency, for example increasing its productivity, creating a more aggressive commercial strategy and improving its position on the market. The company also defined and started to focus upon core products so as to increase the market share of products with higher added value than, let's say, commercial grade. This strategy has been developing for the past five years and of course it was quite painful at times and required a lot of effort of the entire team of TZ and Moravia, but we are beginning to see some fruits of this effort now.
1999 was a very dramatic year for us because the crisis on the steel market was the strongest since the II.World War and we managed, I'm not saying that without any costs, to pull through this year thanks to the fact I think, that we were relatively prepared for a potential downside
And I would say that our main competitive advantage and the strongest feature compared with our competitors is our consistent commercial policy and strategy.
So we eliminated the middle men and begun aiming our focus towards the end users
immediately after taking over the business, therefore we strengthened our market position and have now much closer relationship with our customers than ....let's say...others in the industry.."
"So let's look at the privatisation more. Considering the Czech economy we could say that even if it was hard sometimes, your privatisation was a success at the end. "
"Yes, it was a success to a degree. We were pushed, because of the costs of the privatisation deal, to restructure the business immediately and couldn't postpone any difficult decision. We had to reduce the number of employees substantially, approximately by 50% in the course of four years, which was quite significant and therefore in terms of productivity per head we are now 30% more productive than Nova Hut or Vitkovice. So yes, in this respect, it was successful. But thanks to the radical restructuralization actions that were taken to by governments in many countries, steelworks are not a kind of business especially attractive or profitable not only in our country but all around Europe. And we have taken care of many costs ourselves but on the other hand our resources are not endless. And I think we should have the right to participate in the government's project considering restructuring steel industry, because we have proven that we are able to menage the business professionally. Also we have contributed to the government budget with 3 Bil. CZK and even if we can get back only some of that, we can prove that we are more competitive and able to menage better than state owned companies that didn't pay anything and are already getting money back."
"More on the subject, since you are like an engine of this industry, what is your own opinion about companies like Nova Hut or Vitkovice? Do you plan to help them or do you plan to buy out some of their activities or plans since you are in the same region?"
"First of all, our product portfolio is completely different. Of course there are number of similarities but the final product chain and product portfolio is different.
So we do not intend to acquire any of their essence since we are more focused on the product chains and we want to strengthen the ties with our customers to be able to increase added value and be less dependant on general economics, especially remove the volatility from prices.
It is not our ambition to increase the tonnage of our production, you see, we are now producing 2 Mil. tons a year and if we wanted to become a 5 Mil. tons producer, than we would be interested in Nova Hut and Vitkovice.
It is for sure though, that we would like to see other partners in the region and in the country that would behave in the same way we do .What I mean by that are common interests.
Also there is the condition that we must be all treated in the same way, all be fully private. Otherwise one cannot expect state owned company's behaviour to be the same as that one of a private company.
So from this point of view there is only one interest and that is the same conditions for everyone in our business.
And concerning the products, for example Nova Hut is going in a different direction than us. We are concentrating upon automotive industry, specialised steel products...
it is basically more stable business where we have tighter long term relationship with a consumer, which is mutually beneficial."
"So how were you able to form such reliable relationships?"
"Yes, in this, we were and still are making progress."
"Are we talking about a domestic customer?"
"We are talking about domestic one but also international customer because there is a number of clients, that are present globally already. They have their production facilities in the Czech Republic as well as in central Europe and amongst them we have many partners in many countries."
"Could you mention your main foreign markets..."
"Our main product is wire rod and we have a
very good co-operation, which is getting stronger
and deeper, with Bekaert - a Belgian wire rod drawing
company- that has an investment in Czech Republic
where we have been supplying them and we are close
to a contract about being their supplier for other
European facilities which they operate. |
We are co-operating with suppliers to the automotive industry, and we are also establishing alliances with partners which are not in competition with us so this is the strategy, and the entire costs of the restructuring of the company are almost entirely borne by us - there is no support from any side, from anybody - we are carrying the costs of the restructuring on our own. This is also, from our point of view, not completely fair, because if you look into the near history of the steel industry in Europe, in France, in Belgium, in Germany, in Spain, the government has spent a lot of money in this industry and of course you now have companies which are competitive, and which are a certain technological level, and which are in a market position etc. and still I don't think that they are profitable and efficient globally, and they cannot cope globally."
"So what is your secret?"
"The secret is that we are a very low-cost producer and we are managing the costs, and, let's say, the cost management is the strongest feature of our business and that's why we are able to maintain a competitive position."
"Returning to the question of foreign and domestic markets, where do you see the future growth of your company - do you see it more on the domestic market, or do you know at this stage that you are growing out of this market?"
"What has happened in a very short period of time, is that basically, because of the very unfortunate fate of a number of our customers in the Czech Republic, the sales on the domestic market have reduced by approx. 50%. This means that we have been under pressure to increase exports significantly, we are now at the level of 75%. Only 25% is placed on the domestic market. The reason being that a number of our customers were privatised in a very unfortunate way and they went bankrupt very quickly, and we basically stopped supplying them because of the significant credit risk we had been running, and we were forced to go to foreign markets, which is a little upsetting, but we are still very positive about the future and potential of the domestic market, which we hope will be revived in the next five years, so we hope that in 2005 we will back at a rational composition for sales, which means approx. 50% will again be placed on the domestic market, and only 50% or less will be exported."
"When did you really decide to look for foreign markets?"
"The first step was that in 1996, when the company was privatised, the Asian market was very good, so something like 20% was shipped to Asia, and prices were excellent. This market disappeared after the Asian crisis in 1997, which was the first hit we got - you can imagine, we lost 20% in three months. We replaced this in Europe in six months. Next, there was the Russian crisis a year later, and this was again reflected in the drop of steel prices, and this was very badly felt last year when prices dropped by 30%, so we've had a very difficult period. Now, however, we are feeling some growing market demand, and things are consolidating."
"What about markets like Africa, the Middle East or the USA?"
" We have a product portfolio where we have only one global product, which is rails, which we can supply almost globally because of added value, and the transport costs are not so significant - then we have special quality bars, which together with rails represent 20-25% of our product portfolio, these we can sell globally. Then we have commercial grades which we need to sell in a radius of maximally 1000-1500 km only, and there we are competing with major European players - our major markets are Germany, Czech Republic, Slovenia, Slovakia, Austria, Portugal and Italy. Recently we opened an office in the UK, which is a good market. It is a British Pound market, which is not, fortunately for us, a Euro-linked currency because the development of the Euro has also affected us negatively, because on one side we are sourcing in Dollars, especially iron ore, and selling in Euros. Now, however we are successfully selling in the UK, and because of this we have been able to diversify a little. Wire rod now represents 50% of our portfolio, and we are upgrading the rolling facility, and we will increase the added value so we will go with this product globally - we are planning for the US market."
"When do you plan to launch it on the US market?"
"Next year."
"Since the Czech Republic wants to join the EU, there are some environmental obligations, so what have you been doing to respect these?"
"We have done a lot, we've invested a lot of money in compliance with the European standard. Of course, it's not yet finished, and we want the government to carry the costs of liquidation - this is a fair request, and we are in discussion with the government concerning their policy on this. As regards technology, and standards, we are very close to EU standards, and we don't think this will be a problem for us."
"Do you think the Czech Republic is going to join the EU in 2003?"
" I'm not so close to all aspects of meeting the criteria for full membership, but I think this target is ambitious - I would say 2005-2006 is a more realistic target, there's a lot of work to be done on the corporate level."
" In which areas of your activities are you interested in outside investment?"
"We are looking for alliances, business partners to invest in the finishing level of our products. A number of our customers have failed, through bankruptcy etc., and I am actively looking for partners to join us in taking over and operating these, because we can supply very high quality steel products, and we expect investments, along with the trend of transferring manufacturing to central and eastern Europe because of the costs, to be focused on the automotive industry. Because this is a great market opportunity, we can be positive about the domestic market. Our strategy is to keep output at the present level or decrease it, not to financially keep the sales level at the current level, but to achieve that by higher added value or better prices, and by permanently improved profitability."
"Could we say that your main competitive advantage is the quality of your products?"
"Quality, technology, and tradition. We are relatively strong, like all Czech companies, in these areas, and what we have added is marketing and distribution which was previously missing in the commercial strategy. A lot of people ask whether we are afraid of the competition from the Ukraine and Russia, with all their resources, but we think the corporate culture, the quality of the management and staff, is our main competitive advantage over Russia and the Ukraine, and we think they will stay in commercial grades, lower added value products, and we will be moving into higher added value products. You can see in Europe, in Spain, the steel makers have taken over the business in Europe because of lower costs and higher added value products."
" Could you give us a brief background of your own professional experience?"
" I was in banking for twelve years, and through my experience and analysis of clients in the steel industry I got an offer, which was very attractive, and I simply accepted it."
"What is the achievement you're most proud of as chairman?"
"It's too early to ask that question. We are distinguishing ourselves from Vitkovice and Nova Hut, and the environment is starting to recognise that we are not giving up, despite a difficult period - but I can't take the credit for this, it's the achievement of the whole team."
"What would be your final message to our readers?"
"We hope the business community, society as a whole, recognises the differences between those businesses which are out only for a quick profit and those which are, shall I say, long-term players, with a commitment to the future, the industry, and the environment. I don't know whether this is a final message or a hope." |
