Daniel Kurucz: There’s no quick money in the railway business | E15.cz

Daniel Kurucz: There’s no quick money in the railway business

Daniel Kurucz: There’s no quick money in the railway business
Daniel Kurucz
• 
ZDROJ: ctk

Jan Šindelář

The new boss of Czech Railways [České dráhy, ČD] Daniel Kurucz has taken over a business riddled with problems. “Unfortunately it has been the opinion of our customers that we are not there to make a profit,” Kurucz says. But he remains optimistic enough to predict the company will remain stable.

What is the single most pressing problem for ČD?

Actually, there are several pressing issues, foremost of which is probably the high level of debt. ČD has invested heavily in recent years, mainly because there was virtually no investment previously. It is certainly commendable that my predecessors tried to catch up but that has resulted in a rapid increase in the level of indebtedness. Looking at the consolidated profit and loss statement created according to international standards it shows a debt of approximately CZK 33bn.

Czech Railways still needs to continue modernising its aged fleet, with no resources of its own. Does this riddle have a solution?

It is difficult to find one. First, we have to clarify the concept of our own resources. When all liabilities are paid off, our own resources are what remains of the retained profit. Plus you have depreciation. Czech Railways has not been creating profit in the long term, in other words the company has not been creating any of its own resources. Unfortunately, it has been the opinion of our customers that we are not there to make a profit. But we are still entitled to a five-percent profit margin. On average our clients give us 0.049 percent. It is difficult to create any resources from that. Of course, depreciation is reinvested in full. But when we generate a loss overall, we also suffer from interest costs. And we were certainly not helped by the Czech National Bank currency intervention which cost us about CZK 350m. These sums must be deducted from the depreciation and what remains is quite insufficient.

A national railway operator is a must. Not because I happen to be the current CEO. But because there are scores of regional and long-distance services that no private operator would be interested in

What is the solution to this?

We have already developed and approved a fleet renewal strategy until 2030, it will be implemented gradually in line with depreciation. We also have contracts for some past orders, such as the infamous Railjets for which we are still to pay approximately CZK 1.9bn. It is orders like these that will force us in 2014 and 2015 to increase the amount of borrowed resources.

Are you glad that ČD has the Railjets or do you consider them more of a ball and chain?

I can’t answer that unequivocally. In terms of quality and travel comfort they will certainly appeal to passengers. However where funding is concerned I do perceive the trains as your proverbial ball and chain. It is going to cost us two billion and it more or less involves non-traction units. We could have used the same money to acquire more railcars for long-distance travel or for regional services. On the other hand, the Railjets have helped us develop a good relationship with the Austrian operator ÖBB, which would have been much more difficult without the trains.

Can’t the Railjet and debt issues be alleviated by transferring railway stations to the Railway Infrastructure Administration

The money that should come from this transaction has in fact already been consumed by the Railjets. And it hasn’t even come yet which is a problem for us now. We have to borrow elsewhere to pay for the Railjets. So if and when any money comes in return for the stations it will not be used to pay a Railjet instalment since the first instalment is due in May. And the transaction – I’d rather not call it a transfer – will take place only at the end of this year or next year. The term transfer might evoke the absence of any payment, which is not possible. It is a sale of a part of a business operation to be precise.

The price is around seven billion, correct?

That figure was released by someone at some point in time [the previous ČD CEO Dalibor Zelený –Ed.] but an expert assessment has not been completed. So far, an authorised expert has been selected to evaluate the real estate. The assessment can only take place when we are authorised to do it by the transport ministry.

So the plan is that you will use loans to purchase the Railjets and repay the loans from the sale of the stations, right?

Yes. It is intended that we use the majority of the funds obtained from the sale of the stations to repay borrowed resources. The Railjet sum is not the only major sum to be paid this year. There is also a 10-year loan from Eurofima of CZK 1.23bn due this year. Nevertheless, the situation within Czech Railways is stable, we have bills of exchange and revolving credit programmes, and we have also issued euro bonds. So the company’s degree of cash stability is quite high.

Would that stability suffer if the railway stations were not sold? Could that cause ČD’s rating to be lowered?

Yes, the company’s rating would probably go down or at least face the risk of being lowered.

That would probably make all borrowed resources more expensive. Not necessarily, but it would be likely. Would that pose a significant risk to the stability of ČD?

It would pose a significant risk for the further development of ČD. The company is and will remain stable even without that money. But if we fail to realise it we will have to stop all investment in further development for a number of years. That number being five or more.

In addition to subsidised services you operate commercial ones, often criticised by competitors. How is your Pendolino faring? Will you keep the current concept?

We are planning no modifications, Pendolinos generate operating profit, the same as our EuroCity and InterCity services. We are waiting to see what our competitors do and what options they will employ in competing with us. We think they should first sweep before their own doors.

What do you mean?

I can accept competition if it is fair. But when you look for example at the usage of discounts prescribed by the state it is interesting to compare the volumes of money paid per kilometre travelled for individual operators who receive compensations from the state for these discounts.

Are you not afraid of the anti-trust office ruling against Czech Railways in the dispute with the private operators?

I can only repeat that our services generate operating profit. Plus I am not one to feel afraid.

What will ČD Group look like in 2020? Does the state really need a national railway operator?

We have set ourselves the task of developing a strategy for ČD Group, which has so far been lacking, by 30 June. This strategy should take us forward to the year 2020.

Isn’t it a bit difficult to create a strategy at a time when even the transport ministry does not have a public transport strategy? How can you have any idea about the future environment in which ČD will be operating?

Of course this makes it difficult. On the other hand I am of the opinion that a ČD strategy should be on hand and available for the ministry to consider. Where the national railway operator is concerned, I believe it should exist. Not because I happen to be the current CEO. But because there are scores of regional and long-distance services that no private operator would be interested in. It is very popular to refer to the Prague-Ostrava route where there is no comparable road link so it may seem that trains can be profitable there. But it could well be the only route that is commercially viable.

Yes, but private operators also want to get underneath the subsidy umbrella, they do not want to stick to commercial services only.

There is no umbrella that would keep the rain out entirely. As a private operator I would think long and hard before going into railway transport. It is not just the subsidies. Keep in mind that a state-of-the-art coach costs around CZK 9m while a regular railcar costs CZK 40m. As a private operator you invest huge sums of money in trains and wait some 30 years for a return on the investment. That is almost like building a power station. That can be undertaken only by someone capable of looking far into the future. There is no quick money in this.

Daniel Kurucz (46)
Daniel Kurucz graduated from the University of Economics in Prague and obtained his MBA from the Czech Technical University in Prague. He has worked in a management role for international companies including FujiFilm, Sandvik AB and Agrofert Holding in which he was head of the special chemistry division. He has managed companies in India, China, Canada and the USA. Kurucz came to Czech Railways in May 2013 to act as the Executive Director for Operations and Technology and became the company’s Chair of the Board and CEO in February 2014. He is keen on basketball which he played at the top level from the age of six to 36. He later worked as a coach and was a commentator on NBA matches.
 

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