AVC Čadca is a leading Slovak supplier to the automobile industry and manufacturers of agricultural and construction machinery. Some 90 percent of its production is exported, 80 percent to EU member nations and the rest to the US. In this market segment contracts are signed for three to five years with the understanding that customers get a two to three percent year-on-year reduction in prices. AVC currently employs 512 people.
Since 2001, AVC Čadca has been in a difficult situation accompanied mainly by the following problems:
* the firm was a loss-maker, and in 2004 lost Sk155 million;
* its debt climbed as did its inability to repay its loans, leading to the firm's assets being repossessed in 2003;
* AVC was burdened by disadvantageous contracts signed in the past;
* the firm suffered from high costs, over-employment, low labour productivity, and a lack of investments into developing its product line and renewing its machinery.
The Penta private equity group entered AVC Čadca in 2004 at the request of the firm's majority shareholders. At that time, the company was in danger of collapsing due to a problematic receivable against AVC. In August 2003, the VÚB bank transferred a receivable of Sk248 million against AVC to Perseus Consulting. Perseus in turn passed it on to the Basimex Stiftung firm of Liechtenstein. Following a dispute over ownership relations between Perseus and Basimex, there was also an argument over who owned the receivable.
The majority owners of AVC came to Penta with an offer to enter their firm on the condition that Penta take care of the receivable and restructure the company. Penta entered AVC as a shareholder in 2004.
The private equity investor carried out the following main measures:
* it clarified ownership relations and financially revived the company, which had a positive impact on communications with customers and suppliers;
* it eliminated unfavourable contracts, and gradually reduced the number of employees in order to change the ratio between production and non-production staff. At the beginning of 2004, the firm had 659 employees, 55 percent of whom were involved in production. At the moment this ratio is 65 percent of 512 employees, which is an important change for the company;
* losses were reduced from Sk120 million in 2005 to Sk18 million in 2006;
* investments into new technology were increased. During the first two years of restructuring, about Sk100 million was invested, while in 2007 it is expected that investments into new machinery will reach Sk70 million;
* the private equity investor made changes to the basic fuel apparatus and built local furnaces in the Raková factory in combination with infra-red heating in the production hall in Čadca in order to save money on energy costs.
The goal of AVC is above al to expand its supplies to its current clients, as well as to break into new territory. The company's business results are currently being harmed by the strengthening Slovak currency, which is hurting its competitiveness. Despite the fact that 2006 was a very negative year in this regard, AVC managed to increase its turnover by Sk30 million from the year before. It also secured an ISO/TS 16949:2002 certificate, which is a good foundation for its successful development. This certificate is currently a pre-condition for winning new contracts and for supplying the initial assembly stage at auto factories.
From the point of view of the equity investor, the revitalization process at the company is finished. At the moment, Penta is looking for strategic investors for AVC.
Interview with Jozef Špirko, Penta Investments partner
What is causing the current crisis in the Slovak textile industry?
The impact of the recession had been noticeable for a long time, but 2006 was an extremely bad year for a number of reasons. The crown strengthened significantly against the euro, which hurt Ozeta's revenues. Employment in the sector not only in Slovakia but across the EU is being hurt by strong competition from Eastern Europe - Bulgaria, Romania, Ukraine and Belarus. In the first half of 2006 alone employment in the EU in the clothing sector fell by eight percent.
Trenčín is a town traditionally connected with the clothing and textile industry, and especially with the Ozeta firm. Why did you have to close the Trenčín factory down?
In the Trenčín factory we had a long-term problem with a shortage of piecework employees, which in this region with very low unemployment we were unable either to retain or replace. In 2006 we lost about 200. This fact strongly affected our labour productivity and the profitability of our production. The Trenčín factory was also built for large-capacity production, meaning that the decline in employees and the change in customer demands to small production series left us with high fixed costs, more than double those at the Ozeta plants in Topoľčany and Tornaľa. The final key factor was that we lost some customers, which prevented the Trenčín factory from working effectively.
26. Mar 2007 at 0:00