State support for renewable energy is destroying Czech industry. So claims the head and also co-owner of Ostrava-based global machinery and engineering company Vítkovice Holding Jan Světlík. If nothing is done, he adds, the sector faces rapid decline. “In essence, over the last three years, no old-style Czech industrial firm has made any kind of fundamental investment, or at least I have not noticed one,“ says Světlík.
E15: In Prague, it is sometimes said that this year will be the last for Světlík’s Vítkovice-based industrial empire. Is bankruptcy really on the cards?
Similar prophecies are made each year. The truth is that an entirely improper campaign is being waged against both me and Vítkovice in which it is claimed that within a year, six months or even a month we will go under. This kind of information is being disseminated by people with whom we are engaged in various legal cases, which are well known in the media. There are also news websites - though I don’t even know their names - which since 2005 have been regularly predicting the very same.
E15: The same sources have been talking of the long-term unsustainability of debt levels of companies that fall under Vítkovice Holding. What is, in your view, the real story?
Over the last two years, we have significantly decreased the sourcing of funds from foreign banks. In essence, we have reduced our credit exposure from a former CZK 5.5bn to last year’s CZK 3.9bn The group’s turnover stands at around CZK 27bn. We have succeeded in climbing to marginal levels, and that is why I don’t understand where these stories about our huge debts and impending bankruptcy are coming from. Today, with turnover of CZK 27bn our credit lines are somewhere under four billion. We also do business in the field of engineering and asides from bank credit, we also hold bank guarantees, for example for the building of an electricity station. The overall volume of guarantees is somewhere in the order of CZK 10bn Naturally, these are classed under so-called foreign sources. If someone lacks an understanding of these numbers, then without knowing the truth, they could write that Vítkovice owes CZK 14bn to the banks. But that would only be because the author in question was unable to understand our balance sheets. And it is from these kinds of details that reports of our certain demise are generated.
E15: Who exactly is spreading falsehoods among the cafés of Prague?
I cannot point to the name of a specific culprit, but mostly the sources are people who come from KKCG group and from Mister David Beran [one of the richest Czechs and owner of financial company Profireal Group -Ed.]. But you never find out the precise origin of such stories. We also know of several people collecting and disseminating information about me. Everyone deals with their disputes in a particular manner. We don’t act this way towards our trading partners.
E15: About a year ago, you announced that you were ceasing investments in the Czech Republic. Was that just a threat or did you really do that?
No, it was not just a threat. We aren’t investing, either in the further development of the Ostrava company, or anywhere else. It just isn’t possible. And it is not just a regional issue, but covers all of the Czech Republic. There may have been a lowering of subsidies for renewable electricity sources for wholesalers, but in terms of electric power, we are still paying 45 percent in actual costs and 55 percent in fees. This is the fundamental reason for the claim that we aren’t in the Czech Republic but in the “Fee Republic“. These fees are really beginning to stifle us. [Former provisional PM Jiří] Rusnok’s government understood the precarious situation, mainly in industry, and helped to implement the slight reduction of fees. Now we will see whether the new government understands the threat and what it will do about it.
„In this global economy everyone can theoretically build their own silicon valley, but not everyone will succeed; the number of people who fail in such endeavours is high“
E15: Where do you invest most now, if doing so in the Czech Republic is so difficult?
A great deal in Poland, as well as building foreign Vítkovice trade affiliates. But I want to return to the situation in the Czech Republic. We invested CZK 12bn into the renovation of Vítkovice and now the state is shaking us down for fees. The whole arrangement was presented to industrial companies as a fait accompli. If we consider the financial situation of Vítkovice, then each year as a group we spend CZK 500m on electricity fees alone with another CZK 2bn going on taxes. And in that climate we are supposed to invest? Under such conditions, no investment parameters make fiscal sense. Under normal conditions, we should not have to pay more than CZK 200-250m for fees.
E15: The word is that you have hired a law firm to launch a case against the Czech state. Is that true?
Yes, it is being discussed and we are trying to deal with this problem. So far, efforts to get the renewable energy subsidy fees appropriately reduced have failed. Among other things we have made presentations to MPs in parliament so that they have some idea of the law that they have approved. I have to say that their levels of understanding weren’t great.
E15: So will you be taking the Czech Republic to court over renewable energy subsidies?
We expect that fees for wholesale purchasers will be further reduced.
E15: By how much?
Presently, we are seeking a reduction of subsidies to below CZK 400 per megawatt-hour. But I consider a realistic sum for wholesalers that we would be willing to pay to be between CZK 150-200. Even CZK 150 is a crazy price. Either we pay taxes under a capitalistic system, or we pay fees as under a feudalistic one. You can’t have both, as that is absurd. Right now, I am interested to see what the capitalists in our government will do about this.
E15: Are high fees to subsidise renewable energy one of the reasons why in 2013 the Vítkovice group of companies did not perform as hoped?
Such a claim is nonsense. Last year, receipts for the whole group reached record levels, hovering somewhere between CZK 27-28bn. To achieve takings of more than a billion euro is, I think, a pretty good result.
E15: What about profitability?
That I will lay out one by one. Two companies from the group that I also manage made CZK 650m in profits last year - a result that exceeded expectations. Then there are companies in which I manage the board, two large companies called Vítkovice Machinery Group and Vítkovice Power Engineering. These did not achieve the results that we had hoped for, particularly in terms of sales of new technologies that we had developed. Insofar as Vítkovice Hammering is concerned, we anticipated a loss for 2013, despite many commercial endeavours such as gaining new orders for our titanium tube fittings. We still have yet to receive the necessary equipment from our suppliers, which is a fundamental reason for taking a loss. In terms of overall business performance, currency strength changes in the crown also played a role, but for me that is more of an accounting issue. The anticipation now is that CZK 27 to-the-euro will be a lasting ratio and that this will have a positive fiscal impact for us this year and the next. In our case, foreign trades of half a billion euro can achieve hundreds of millions in extra profits from the new currency reality. Simply put, last year was certainly not an excellent one in terms of fiscal performance, but this was mainly for accounting reasons that will, conversely, have a positive bearing on our results in 2014 and 2015.
E15: So your net profits will be in the red or somewhere around zero?
There will be profits in the hundreds of millions of crowns. This year, we will be completing some of our engineeringbased sales. The turnover of the group will be interesting, possibly similar to last year, or we will see slight growth. In terms of profits, however, we will see a sizeable increase. But overall we are in a steady state; our management and sales situations are good and we don’t expect the boat to be significantly rocked. This year should be one of stabilisation.
E15: You are still engaged in a legal dispute with former Vítkovice Holding shareholder David Beran and the owner of KKCG Karel Komárek Jr. over the company’s shares. What is the present state of this case?
Their attempts to gain shares in the company are obviously continuing, but my attention is no longer so strongly focused on this affair. In essence, we have been talking in circles about the same things since 2008 and I now find it embarrassing. I have in my hands a 2008 binding court verdict about the issuance of a 45 percent stake in Vítkovice Holding [today, after capital increases, the shares only represent 11.25 percent - Ed.]. I am a shareholder but still don’t have the shares in my hands.
Jan Světlík (55)
» Studied at the VŠB-Technical University of Ostrava; after graduating in 1982, Světlík joined the then state-owned Vítkovice, in which as a fresh graduate, he had to work in numerous posts - from blacksmith-mould-maker to technical assistant and finally worked his way up to manager.
» In 1992, he was appointed to the post of head of the loading centre Lahvárna; from 1994, Světlík served as the head of Vítkovice Lahvárna.
» In January 1995, this entity was transformed into a subsidiary company of Vítkovice and in 1999 the company was privatised. The joint-stock company Lahvárna Ostrava gained a 100 percent stake in Vítkovice Lahvárna. In 2003, this owner gained via a state tender a majority stake in the entire Vítkovice engineering operation. In 2004, Lahvárna Ostrava was renamed Vítkovice Holding.
» As of September 2003, Světlík became the Chairman of the Board and General Manager of Vítkovice. He also serves in the statutory bodies of a host of the holding company’s subsidiary operations. Světlík is also the Chairman of the Board and General Manager of the Vítkovice Holding umbrella group. The entire Vítkovice engineering group carries the title of Vítkovice Machinery Group.