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Let’s not waste the opportunity to pat ourselves on the back

Škoda Group

3/10/2022 | 9 minutes to read

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Until taking over Škoda factories in Pilsen, PPF Group for a long time had no major industrial operations in its portfolio.

“It’s impressive, isn’t it?” asks Stanislav Kuba rhetorically, pointing to the sprawling factory compound ahead. And it really is, because the area where we are standing is hard to fully take in. When you look from the ground, there is no end in sight. The best thing to do is to climb to the headquarters roof of the Škoda Group near the entry gates of its main factory in Pilsen to get a view of what was once synonymous with the success of Czech, or rather Austro-Hungarian, manufacturing. The Pilsen works’ foundations were laid by Emil Škoda, the 19th century founder of the steel forges and machinery and cannon maker in this western Czech town near the German border. Today, Stanislav Kuba, a Czech investment manager of PPF Group, is in charge of the investment company’s industrial pride which still stands on the grounds of the original forges. Mr. Kuba, in the position of Supervisory Board Chairman, runs Škoda Group, which also operates other factories in Finland and in the northeast of Czechia, alongside Didier Pfleger. The French-born manager is the CEO of Škoda Group. Together, the Kuba-Pfleger tandem is responsible for returning the industrial holding to its former glory.

 And it is working. In 2021, Škoda Group, known primarily for tram, locomotive and trolleybus production, increased its sales by 40% year-on-year to more than 15 billion koruna, generating an operating profit before interest, taxes, depreciation and amortization (EBITDA) of over 1 billion koruna, up 178% from the year earlier. The Group is currently working through its order book of contracted projects worth more than 81 billion koruna. “We have to deliver on time and in top quality. That’s what our business is about – you have to rely on us one hundred percent. Our industrial B2G business is specific in this – there is absolutely no marketing or any pipe dreams,” laughs Pfleger, who joined Škoda Group last February when PPF lured him at the end of 2021 from Alstom, one of the biggest competitors of the investment company’s industry jewel. Just to give an idea – Alstom’s sales last year exceeded 380 billion koruna, which only proves that Škoda Group has a lot of room for growth. Mr. Pfleger’s appointment was a major personnel achievement of PPF, but it didn’t stop there. Skoda Group has snatched a new sales director from Bombardier and a number of other top Czech and foreign managers. Mr. Pfleger was tasked by the former PPF Group chief executive, Ladislav Bartoníček, to leverage his Škoda Group start management team to get the company into the top league of European manufacturers, expanding its geographic reach.

 So why did he accept the position in Pilsen? “PPF is an extremely interesting company. They are involved in private equity, but in many ways, they operate as a family business and have a long-term outlook. Although I’m French, I’ve never worked in France, so moving to the Czech Republic wasn’t really a problem. The major challenge is actually the language. I’ve always spoken either English or German at work, but here, unfortunately, I can’t even read a newspaper, let alone speak to people in Czech,” shrugs the smiling Pfleger. However, the head of Škoda Transportation has a number of challenges ahead of him. And he doesn’t have enough spare time to study Czech. “Škoda Group has to become a more international company. So far, it has largely focused on business in Czechia, but in this industry, you have to have to be where your customers are. They want to see you locally, in their own environment, so you need to have certain production capacities, engineering capacities and project management in those areas,” says Pfleger. During the conversation with Forbes, the French manager is so clearly in sync with Kuba, making one thing the two have been working together forever. They do not interrupt each other, merely nodding in agreement when the other speaks.

“All our efforts are directed towards making Škoda Group a stable business. For that, you need the three pillars of diversity. The first is the geographical diversity that Didier just mentioned. The second is project variety, because if you only have a few big projects, missing one can put you behind very quickly. Finally, you need product diversity, which is why our portfolio has variety – from buses to trains,” adds Kuba.

 If you, like this article’s writer, know about the details of transport equipment manufacturing as little as you do about the plants and flowers of Central Africa, a walk with Didier Pfleger and Stanislav Kuba on Škoda’s precincts is an extraordinary experience. In these extensive halls, an uninitiated soul might only recognize the bodies of trams known from European cities, understandably mainly from Prague. Large gearboxes and railway wheels make their backdrop, while the smell of enamel wafts from the paint shop. For the uninitiated, the giant tunnel where rolling stock can unusually move sideways is also fascinating. That technical marvel alone represents investments worth hundreds of millions of koruna. Here again, on the testing track, a vehicle is checked whether it satisfies the quality parameters Pfleger just talked about.

 In this environment lined with thousands of components, we naturally wonder about the extent to which Škoda Group’s supply chain is still affected by the pandemic. Don’t be alarmed – the Group’s key advantage is that it does not outsource production in China or India, it manufactures nearly all of its own components in factories in the Czech Republic or Finland. “This clearly shows the difference between our company and the car makers, supplying end-users, since many of them have suspended their operations because of a lack of components. We can’t afford that. Our customers are governments and municipalities – and they don’t like to wait,” emphasizes Kuba. This is also why a business that appears cumbersome at first glance can also be adventurous.

 “Of course, every now and then, problems occur with a component, because a supplier might go bankrupt. But we can live with that. Right now, for example, we are dealing with a large and high-profile order by the Latvian rail company. We had planned to deliver the train systems via Ukraine, using the same wide gauge tracks as in Latvia. Then the war started, so putting our trains on the Ukrainian tracks was out of the game. Ultimately, we stacked the sets onto trucks piece by piece, drove them overland via Poland to Latvia, and then assembled them on site. That’s how serious deadlines are in our business,” laughs Pfleger. “Sitting idly and waiting isn’t an option. It’s simple as that. Getting up and doing is the only way to move forward,” adds Kuba.

 As already mentioned, Škoda Group’s customers are mainly governments and municipalities, and public tenders are therefore absolutely essential to Škoda’s business. “Of course, tenders are different,” explains Pfleger. “Somewhere, the only important aspect is the price, elsewhere they look beyond it. But generally, we can say that eastern markets care more about the first aspect and western ones are more concerned about others. Either way, our business is a business of reputation. If you want to succeed, you have to be synonymous with reliability. I’m knocking on wood here, because once Škoda delivers, we see virtually no problems. In other words, any complaints we deal with are minimal.”

It is clear from the business definition of Škoda Group that the name itself is not as important as its near namesake passenger car maker Škoda Auto. It was the name, or rather the trademark and logo, which was the subject of a legal dispute between the owners of Škoda of Pilsen and Škoda of Mladá Boleslav, where Škoda-badged passenger cars are made, for many years. The dispute was finally resolved for good this July. “Škoda Group may use the Škoda name and winged arrow logo until 2029,” PPF said in the summer. It is not certain yet what the Škoda Group works in Pilsen will be called or what the company’s new logo will be post-2029. What is certain, however, is that PPF collected billions of koruna from the sale of rights, although it does not want to talk about the exact amount. But billions in proceeds for PPF Group certainly prove that the Škoda brand is much more important to Volkswagen, the parent of Škoda Auto.

 “Very simply described, Škoda Auto is in a retail business with millions of customers and the brand has a lot of weight here. Škoda Group is a project business with a few dozen key customers, where it isn’t your name but meeting the requirements of a public tender that wins. This is an important cause and effect sequence of the development that led to the brand’s sale,” explains Kuba, who led the negotiations on  PPF’s side. But for PPF, this will also end the absurd situation that Kuba describes as: “The further we are from Pilsen, the more we have to explain that we are not Volkswagen.”

 However, just as Volkswagen, Škoda Group is looking into the future of urban mobility. Development is following the same course as passenger cars. “We are mainly looking at the transition to clean energy. More than ten years ago, we proved that we could manufacture and operate a hydrogen-powered bus. As for locomotives, they went, to put it simply, straight from steam to electricity,” explains Pfleger. Autonomous driving is also an integral part of the future of transportation. There, the often-smiling Frenchman remains more grounded than some automotive visionaries. “For me personally, autonomous mobility is a matter of the next ten rather than twenty years. Of course, software is moving forward incredibly quickly, and we too are developing, for example, automated collision prevention systems. Overall, the risk of transition to autonomous operation is still too high. The existing infrastructure also needs to be completely rebuilt. And I’m not even delving into the required legislative changes.”

Whether the largest Czech capital powerhouse still owns Škoda Group when the era of autonomous systems arrives, of course, remains to be seen. Even after our discussion though, it is clear that the PPF doesn’t seek to flip the Škoda Group assets to any highest bidder in the foreseeable future. Škoda Group currently accounts for nearly 5% of PPF Group equity, and the Czech-French pair believes that this share will continue growing. “Škoda Group is different from other PPF assets, that’s for sure. Taking over Škoda Group was an attractive transaction for PPF that might be described adequately as opportunistic. This is all true. Nevertheless, the industrial division has an important position in diversifying PPF’s business portfolio,” says Kuba.

Škoda Group

PPF entered the industry sector in 2017 by taking Škoda Transportation. At the time, it paid 8.3 billion koruna to a group of the company’s then owners, led by Tomáš Krsek, Michal Korecký and Marek Čmejla. Today, Škoda Transportation is part of the Škoda Group, which includes several companies – bus maker Škoda Electric, rolling stock repair company Škoda Pars, railcar maker Škoda Vagonka and the Finland-based train and streetcar maker Škoda Transtech. The entire group employs over 6,200 people.

Source (Czech only):

Text: Zdravko Krstanov
Photo: Michael Tomeš

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