It seems the construction sector suffered a recession over the past four years but an annual growth rate of 10% in the first quarter of 2001 may indicate that the recession in the sector is nearly over. What is your evaluation of the economic climate in the Slovak construction industry?
I have to say that after 1989 employment fell rapidly, there are two reasons to explain this, one is the recession in industrial and residential building, the other is rather positive: using new advanced technology methods of running the business increases the productivity but requires fewer people. Doprastav was founded in 1953, tnext year we celebrate the 50th anniversary and it was mainly founded for infrastructure constructions that means roads, tunnels, highways, etc. Because Doprastav focuses mainly on building infrastructure facilities, recession hadn't touched our company so adversely, it mainly affected construction of flats and industrial facilities, two sectors that were previously taken care of by the state. The company was privatized in 1995, nowadays it is a privately owned joint-stock company and we employ approximately 3,000 people. This number did not changed much since the privatization.
Doprastav is one of the traditional companies in Slovakia as it was established in 1953. Can you tell us what have been Doprastav's major achievements since it got privatized in 1995?
When we privatized the company our yearly turnover was about 800milSKK, debts amounted to approximately 700milSKK, so the first step was to streamline the administrative part, there were around 400 administrative employees in these two buildings, now there are about 90 people in higher management having their seat in this building, the rest of the building is rented to the National Property Fund. The second main step was a machinery renewal, we either bought it using a loan facility or leasing, we also implemented new technologies, and we bought new concrete mixing machines and other equipment. Nowadays the equipment of the company is comparable with any other company in the world, we use mainly Caterpillar and Komatsu machinery. This was enabled by the fact that the turnover rose from 800milSKK in 1995 to 6.1bn in 2001. If you've ever traveled across Slovakia, the majority of roads and highways were built by Doprastav, except the Eastern region in the area of Kosice and Presov, and we also built a part of the highway Bratislava-Prague. Our company constructed the three major bridges over the Danube River and hundreds of smaller-sized bridges over other Slovak rivers. We also built the biggest water purification stations for wastewater on the left and right bank of the Danube in Bratislava, and in other major Slovak towns. Recently we have been diversifying our activities, we built the Tesco hypermarket in Zilina, some facilities for Ikea and we expect to start railway constructions. Railway reconstruction is becoming an activity of great interest to us because it is partly covered by ISPA projects, that means financially covered by the European Union. Nowadays the first tender is being completed, amounting to 40milEuro, of which ISPA provides 75%, two more projects are pending, totaling 100milEuro, with a 50% participation of ISPA. Without the ISPA financial assistance this reconstruction wouldn't be possible as regarding the financial standing of Slovak railways. At the end of 2000, we also succeeded in tunnel construction,.
What is today your market share in Slovakia and your development plan on the national market?
The Doprastav-Metrostav group achieved in 2001 a 21bnSKK turnover that means we are the second largest construction group after Skanska in the area of former Czechoslovakia. We have to admit that there is not only sunshine, there is a lot of hard work and fierce competition, a lot of big companies are in bankruptcy and new foreign companies are entering the market, the market is acquiring its shape. In spite of the fact that Slovakia has an unemployment rate of 20% it's hard to find young and qualified people because the starting salary in the construction sector is not as attractive as elsewhere but in my opinion young people have a bright future in the construction business. Their possibilities to climb up fast the professional ladder are huge. The construction market in Slovakia is not extensive, the estimated yearly turnover is 70-75bilSKK, what it comes down to is what market share are you able to seize.
Over the first nine months of 2001 you had a turnover of around 4.16bilSKK which is a 16% increase as compared to the same period in 2000. Are those results in line with your plans and what is your expectation for 2002?
Year 2001 in Slovakia has fulfilled our expectations, in the Czech republic we exceeded our plans by approximately 1bilCZK. In 2002 we aim at increasing both the Slovak and Czech turnover by 10%.
Doprastav has been involved in projects in European, Middle East and North African countries. What percentage of your services is exported and what is your development strategy in the European region?
Our activities in Iraq, South Yemen, Egypt and Germany ceased in 1993, except for Germany the projects in other countries weren't profit-oriented, they were more or less politically motivated and based on the agreements of former Czechoslovakia and the respective governments. These days such projects wouldn't be of much financial interest to us. Constructing abroad doesn't mean only that the company is able to construct something, what it comes down to be to provide a financial project, investment and profit. Construction companies from former communist countries are undercapitalized and unless a bank enters the venture they are not able to conduct a business abroad. Nowadays we have minor projects in Hungary, Poland and Germany, but in fact it's just selling labor force, it's almost impossible to obtain a substantial deal and all these opportunities are limited by obtaining the work permits.
You have cooperated with companies such as Tesco, VW. Which type of construction are you mainly targeting now?
We would like to further develop our activities on the field of railways because previously there was one major and successful firm that went bankrupt due to speculative businesses, Zeleznicne stavitelstvo Bratislava (Railway constructions, Bratislava). We would like to fill this gap but that requires huge investments into the machinery needed for building railways. | Earlier, you mentionned the results achieved by the Doprastav-Metrostav group in 2001. Can you tell us in more details how Doprastav has built its relationship with Metrostav?
In 2000, we privatized the company Metrostav, one of the major construction companies in Czech republic, these days we have a 80% stake in it, we first acquired 65% and later the rest. It was a wise step, the complementary cooperation is working well, Metrostav focuses on infrastructure and public constructions, it is in charge of building the subway, railway and road tunnels, they construct retail chains and are also in charge of flats and historical building reconstruction in Prague. Metrostav was founded 30 years ago with the aim of building up the subway system in Prague, later this activity was stopped. Thanks to diversification they were active also in other construction sectors and three years ago the subway construction share was just 2%. Last year a new subway line was opened, the 4C, Metrostav profit from this activity was 1,5bilCZK, total yearly turnover of Metrostav last year was 10,5bilCZK. We are proud that Metrostav was the only one among the major Czech construction companies, that witnessed a profit growth from 7,5bilCZK in 2000 to 10,5bilCZK in 2001, that means a growth ratio of 40%.
Within your strategy to expand in the underground system sector, do you plan to further invest in foreign companies in neighboring countries?
What we acquired in Metrostav is rather an exception because we do not have as much capital to do further acquisitions, but there are some projects as for example the construction of a tunnel in the western part of Bratislava where we are cooperating with a Japanese company called Nishimatsu.
In 2001, the German firm Clearstream Banking acquired a 24% stake in Doprastav. What was the reason for the institution to enter your company?
We have never owned 100% of Doprastav shares, the national Property Fund was in charge of selling these shares, in fact we owned a 63% stake and the rest was divided among other entities, 34% was purchased by a securities dealer and subsequently sold in Czech republic to Druzstevna zalozna, a pawning institution. The company that was in charge of these shares went bankrupt. Pentagroup, an entity known for speculating bought this 34% stake in January 2001and Clearstream Banking is a company owned by Pentagroup. It is a group that only tries to benefit from a company and does not bring any financial benefit to them firm they bought. My personal opinion is that it's surprising that the government does not see that such financial groups as Pentagroup, Istrocapital and others that are trying to buy up stakes in major Slovak companies such as VSZ, Transpetrol and will rule the Slovak economic and political life. They are only interested in making profit, there are a lot of companies that they entered in and the companies went bankrupt later, a lot of people were left without work.
Are you more looking for qualified partners with the necessary know-how to help you further develop?
Certainly, Doprastav is more interested in opening its capital to companies focusing on areas where we want to develop our activities. we have more cooperation projects slated, but a cooperation with a construction firm is not the most important aspect, what is of major importance is a cooperation with a bank.
How do you see your company in five years?
We have plans for Doprastav and Metrostav for the years 2002-2005, the easiest thing is to plan what will happen in five years and the hardest is what is going to happen tomorrow. Plans are prepared but the construction sector depends on overall economic situation in Slovakia. Our plans are based on long term macro economic estimates that the economic growth should range from 3 to 5% of GDP and another factor is what market share we will be able to obtain. If the market is for example 100bilSKK and you obtain only 5bilSKK you are not successful. But if there are 50bn on the market and you get 10bil than it is making sense. Our market share at present is about 9%, by the end of 2005 we would like to boost our business volume from 6bil to 10bnSKK, that represents a 60% increase, in the Czech republic we would like to see a growth from 10,5bn to 15bnCZK in 2005.
As a local businessman, how would you evaluate the current investment climate in Slovakia?
There are of course investment possibilities in Slovakia but the first step is to create an investor-friendly climate and to achieve this you have to start on the government level. Maybe you have heard of the business that is conducted at the moment, the purchase of VSZ shares. These were acquired by Pentagroup and Istrocapital under non-transparent conditions and that is something that doesn't create a trustworthy atmosphere and doesn't attract investors. Mr. Harach, the Economy minister is responsible for this deal and I think that if such thing would happen in United States, such official wouldn't maintain his position for a long time. Until such investor-friendly and safe climate is created, Slovakia will stagnate without foreign investments. So what we have to do is to work and learn more and this country will advance, there are a lot of hardworking people in Slovakia but what we have to bear in mind is to create a safe business environment to protect people that are trying to create values.
You are today Chairman of Doprastav. Can you give us a brief history of your professional experience?
All my life I have worked for Doprastav, I started here in 1965 so it's my 37th year with the firm. I began as a construction assistant, then construction manager, production vice-president and finally director general and my next step is to keep on working…
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