THE IRON REINS - Interview with Ing. Vladimir Sotak

THE IRON REINS

Železiarne Podbrezová with their 176 years of tradition has been “ruled” by Mr. Vladimir Soták for two decades. He has had an extraordinary year in which he sold a major Czech subsidiary. In addition, he has challenge ahead of him, which is how to resist further raids by Chinese exporters.

Low prices of metallurgical products, oil and energy prices, Ukraine, sanctions against Russia and the inability of Brussels to protect the European market. Co-owner and the head of the group of companies of Železiarne Podbrezová Mr. Vladimir Soták, lists what influences the most the management of the company this year. In his hand is irreplaceable cigar, sitting at its Bratislava office, in the building belonging to the group. From there he leads the Club 500, an association of major Slovak industrial employers.

The parent company Železiarne Podbrezová, which in central Slovakian town employs more than three thousand people, felt these effects in the past year in reduction of sales and profitability. Revenues were more than € 220 million, by nearly eight percent less than in the previous year. Operating income of Podbrezova was just a tad above zero. Overall profit was over four million euros mainly dividends from subsidiaries.

“On the European and world markets, the steel products are HISTORICALLY at their lowest prices right now. The main impact is the price of oil. All manufacturers of tubes over 189 mm, when they do not supply the tubes to petroleum mining companies, who because of the low prices stopped investing, they get into a smaller assortment", explains Mr. Soták.
They get into the territory, where Podbrezová is at home so to speak. Their main products are steel blocks, out of which they produce a rolled and drawn seamless tubes. One tenth of European production of such tubes comes From Podbrezová.

"The second problem is that Europe is helping Ukraine. Ukraine brings metallurgical products to Europe without customs duties. No one talks about it. Then there are sanctions against Russia. Company Tatravagónka Poprad had contracts there for several years. They lost their business, and they are also customers of our products, Mr. Soták says. A similar example according to Mr. Sotak is the Company Road and Construction Machinery in Tisovec. They have excellent production program, have no problem with the orders, but sanctions hurt them. "There are many companies like this in the EU. However, people in Brussels or Mrs. Merkel or Mr. Hollande act like if they do not know about it. On the other hand, America introduced 500 percent import duty for metallurgical products. Where might be over tens of thousands of tons of Chinese products is the question? In Europe we do not protect the market, in Brussels, they are not thinking about it”, Mr. Soták is angry.

Podbrezová is indirectly threaten by the Russian sanctions. In the years 1993 – 1994, they turned their production westward, when Mr. Soták began to manage the company.
Since then, they sold directly to Russia "just a few tubes”. Worldwide they are seeking customers for their production through their own network. Last year, nearly nine-tenths of the production went to foreign countries, their major customers are in the European Union.

Last year, the Spanish subsidiary Transmesa established a trading company in the USA. Železiarne deliver to the American market precision tubes with small diameters. US legislation has required that they need to have there a representative.

Železiarne Podbrezová have two factories in Spain, i.e. Transmesa and Tap. Last year they operated in partially restricted mode. They shifted production to a new production plant. Sales (last year 33 mil. Euros) should get this year to an anticipated growth of seven percent, back to the level of previous years.

Then there is China and its impact on the functioning of the European metallurgical companies. Last year Podbrezová felt it immediately twofold. On the one hand, just like all ironworks they see in their results consequences of the increasing low-cost competition coming from the east.

The buying appetite of Chinese brought up the second consequence. This year, Podbrezová owners headed by Mr. Soták agreed to the sale of the Czech company ŽĎAS and the subsidiaries TS Plzen and ŽĎAS SGS GmbH to the Chinese. Transaction was signed in late March by visiting Chinese President in Prague. According to information published by the Prague Castle, transaction had a value of 72 million euros.
The CEFC, China's financial and industrial group in recent months, for example, also entered into the shareholder structure of J & T Finance Group, especially in the Czech Republic has bought several properties and various companies.
Mr. Soták was not too eager to talk about the negotiations with the CEFC. When asked how the negotiations went, responded briefly: "It's a closed deal it is behind us. I would not like to get back and talk about the negotiations. In addition, if it was a difficult partner? I would not call it that way. It was a life experience ... a good life experience”.

According to him, Podbrezová steelmakers were buying Czech company ŽĎAS and TS Plzen on the verge of bankruptcy, but have made them the showcase of Czech heavy industry. "We sold the factory, which has a unique product range, great quality and a highly skilled workforce”. Transferred to numbers, last year ŽĎAS revenues were nearly 106 million euros, profit exceeded 2.1 million. The company employs over 2,300 people. It is now in the hands of Chinese owners. If Podbrezová would continue to consolidate their results into their own results, they would be getting to the rankings of the largest companies in Slovakia.

For months, there is a rumor in the Slovak iron and steel making industry about the possibility of further sales. The American company US Steel, supposedly because of the situation on the European market was considering leaving Kosice. Among the possible buyers have been mentioned, for example, Tomáš Chrenek and Moravia Steel (Třinecké železárny), as well as Chinese companies.

Mr. Soták does not want to comment it. "U. S. Steel bought VSZ Kosice because they made an incredibly good deal. They have negotiated good terms. They decided to sell it because they want to make money again. It is their decision as far as what they ultimately will do. Fortunately, up to now they maintain employment, company works well. I cannot guess how it all turns out”. If, according to him, the new owner would become the owner of Třinecké železárny, than for Košice it would be an absolute victory. Třinec has good managers, people who can come in and manage such a large metallurgical company, he says. Košice Company employs more than 10 thousand people.

The head of the group of Železiarne Podbrezová companies was willing to talk much more about how to improve the situation for entrepreneurs in Slovakia. The reason he gave was a draft of the Finance Ministry issued in August pertaining to retroactive taxation of dividends. It would affect only Slovak taxpayers who did not pay out profit sharing in previous years. The fifteen percent tax should be applied to unpaid dividends all the way since 2005.

Taxation proposal, which would affect a number of members of the 500 Club, was surprising. Mr. Soták is known to have long-term good relations with Prime Minister Robert Fico. "In the past two months, we at 500 Club communicated with the chairmen of the coalition parties. We met with them several times, with Messrs. Fico, Bugár and Danko, "says Soták (The interview took place in the second half of September).

According to him, they acknowledged the reasoning that the retroactivity should not stay in the proposal. ”And it will be much lower tax rate. Although personally I would be for zero”, reiterates, arguing, that the paid profit shares are already taxed at 22 percent by the income tax (as of next year it will be 21 percent).
(In a few days after the interview, the Ministry of Finance confirmed his words. They withdrew retroactivity from the proposal and they are proposing a tax of seven percent. The 14 percent health insurance contributions from dividend should also be stopped.)

The head of the Železiarne Podbrezová refuses the allegation that by this event communication with the government was disrupted: "It is not a question of the Prime Minister. During the first half of the year, a group of people made a number of proposals where they could take the money from. Apparently, they were people from the Ministry of Finance. Probably they tried to test us as to how we pay attention. Unfortunately enough they “hit” the dividends and came up with the fact that since 2005 they have not been taxed - so why not tax it? They did not think about the fact, that over the past 10 years some laws were existing here and companies behave accordingly, obligations to pay tax was in force even then."

The proposal, according to him, punished those, who have been putting aside a part of the retained earnings in order to have greater autonomy and less dependence on banks and thus enable them to make the necessary investments.
"Companies must think what to do to maintain our market position in the future. This will be saved only by quality and good service for worldwide customers - therefore timely delivery and without complaints. You will need to invest, innovate, and take care of people," lists Mr. Soták.

Mr. Soták and the business club that he represents criticizes the overall tax burden. This is according to a comparison of PricewaterhouseCoopers and the World Bank in Slovakia at 51.2 percent level.
"Let us talk about it, especially in a situation where Slovakia managed to increase tax collection and budget revenues. Let us get that number to the European average or even by one percent less. Do you know what that would mean? Businesses would have more money in their own pocket so to speak. For this, the State has to be better manager, to think about how much they spend," he emphasizes. The average figure for the European Union is 40.6 percent.

For a long time Mr. Soták meets with Prime Minister Fico, who is in this position for over 10 years. Is he in favor of further tax changes? Is this government doing enough to support Slovak businesses? "What is enough? By far, I would not dare to say that we have exhausted all possibilities how to improve the business environment. Even the administrations must function. For example, education, "the head of Železiarne starts his frequent subject.

He is angry on how the schools and the teachers are functioning. As he is saying, he has the right to talk about education. Železiarne Podbrezová operates two private schools that work. "We have teachers who are paid decently; I think very decently. The school is very well equipped. It is interconnected to offer hands on practice for students. This is our form of strike. If we cannot rely on the State, we did something that is different. We understood that our government officials do not provide high quality of young people," emphasizes Mr. Soták, who openly criticizes the striking teachers.

The economy is growing. In the last month, Finance Minister Peter Kazimir said that the next year 50 thousand jobs will be created. Moreover, even now, industrial companies and service companies are complaining that they have an acute shortage of quality people.

Železiarne are the main employer in the Horehronie Valley. There are few job opportunities here. In our company, we have people working and supporting their whole family. Even though while we educate and train people in our own school for a long time, we feel increasing shortage of skilled workers.

Soták admits that they have lost many young ones and one of the reasons was the fact that they do not have housing solved. "We will not wait until it turns out to be bad. Within one or two years, we will build some apartments”, he announces. Once the company had about 700 of them, but about 15 years ago, they were sold.
Mr. Soták, the 61-year-old manager who reigns over Podbrezová since the mid-90s, stops for a bit longer before he answers the question: “When he wants to slow down the pace of his work? He takes a puff from his cigar and slowly says, "I never even went on vacation. I am not going to take it easy."