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CEO OF BEZ TRANSFORMERS MAKER KNEW FROM HIS STUDENT DAYS THAT FIRM COULD BECOME A WINNER

Juraj Šmatlík’s business edge: Patience

During Communism, Juraj Šmatlík worked for the Institute of Technical Cybernetics at the Slovak Academy of Sciences, where he and his colleagues copied Western silicon chips. In 1991 he started afresh in software and the IT sector. In the mid-1990s he submitted a privatization project for BEZ with several friends, which was approved. He took over the company in 1997.

During Communism, Juraj Šmatlík worked for the Institute of Technical Cybernetics at the Slovak Academy of Sciences, where he and his colleagues copied Western silicon chips. In 1991 he started afresh in software and the IT sector. In the mid-1990s he submitted a privatization project for BEZ with several friends, which was approved. He took over the company in 1997.

Why did you choose BEZ?
My father worked there for decades. During Communism, BEZ was a major enterprise with five factories – Factory No. 1 was Danubius Electric at Račianské mýto, where today there is a major construction site; Factory No. 2 was this transformer factory; Factory No. 3 was across the road, and ended up going bust; Factory No. 4 was in Leopoldovo at the prison, where they made substations. In the 1960s, my father was boss of BEZ 05, the Mlynské nivy factory, which was located where the Apollo Business Center stands today. But then they kicked him out of the Communist Party. He lost his job and had to work as a laborer. I used to work there part-time as a student. I knew the factory inside out, and I knew what state it was in.

Didn’t you have to know somebody to get your hands on a privatized company?
Slovakia is a small country. In the early 1990s I was in business and I knew people from the banks, I met people from the National Property Fund at various functions. They were normal friends, and over beer somewhere I mentioned that I had a project. I was never in any party, and my father was thrown out of the Party in 1969, I had a problem getting into university. I never gave a cent to anyone in bribes.

What shape was BEZ in when you took it over?
Its value at the time was virtually zero. In 1996, before it was sold, BEZ made a loss of Sk16 million with 650 employees. Following the disintegration of the Eastern Bloc and of Czechoslovakia, it lost its markets, and production plummeted. In the 1980s it made tens of thousands of transformers every year, while in 1996 it made only 900. So there wasn’t much interest in it, because it was a huge headache, and it meant looking after a lot of real estate, such as this building, a 12-hectare factory site and so on. There was a lot more interest in more lucrative companies like Slovnaft, SCP Ružomberok and so on.

What challenges did you face, and how did you overcome them?
The years 1999 and 2000 were the most difficult for us, and we came very close to having our banks put us in bankruptcy, because we were unable to cover our debts. Fortunately, we were able to convince them that we were a viable operation. Help arrived in 2002 in the form of the floods in Prague, and the shortage of transformers allowed us to win some good contracts and to gradually increase our turnover. The banks gradually began to trust us. We also decided in 2000 to cut our workforce from 450 to about 230 employees, but we managed to keep our output at about the same level. I always believed we would find a place on the market, and that was what kept us on the right track.

Do you suffer from the same problems as investors in Slovakia, such as the shortage of labor?
We have a huge problem, both in Bratislava and in Plzen, with finding qualified people. At first it was with young technical graduates, now it also concerns less-skilled labor. We are lacking a younger generation, and the average age of our laborers is about 50 years. We have tried using various headhunter firms, but they tell us that young people today would rather go into some kind of sales than put on work overalls and show up at the factory at 6 a.m. At the schools, everything is computers, law and commerce.

Across the road, in that tall building, there used to be a company trade school that turned out about 400 tradesmen a year. After the revolution it was transferred from the company to the Economy Ministry, and all of a sudden the close contact with the business was lost. We now ourselves approach these trade schools and try to get them to educate the people we need, but the continuity was lost. So far we are able to handle it, and our business plan this year calls for a 30 percent increase in turnover. But we feel it in the form of higher wages and so on. In Plzen it is much easier to get workers from Ukraine, Romania and such countries, but in Slovakia, we are more focused on getting people from eastern Slovakia to work in Bratislava. We have built a hostel in the neighboring building, and we offer non-Bratislava employees accommodation for a token fee.

How will the euro affect your business?
The euro will finally allow us to plan ahead. It takes about two months to make a single transformer, and the payment period is 60 days. Let’s say you buy material at 34 crowns to the euro, and receive payment at 30 crowns per euro. You lose four crowns per euro in pure profit. It will be better once the rate is fixed, because that will allow us to be more sure of how much we will earn. Margins in the machinery industry are a maximum of 10 percent around the world.

What is the personal advantage you bring to your business?
Patience. For many years we didn’t take a single crown in dividends. When I got into big business I didn’t do it with the idea of taking the profit from the first contract. I have more long-range goals. You have to reinvest. It’s better to be humble and invest all your assets in your future. Look at my office, look at the chairs in this room – all originals from the time of Communism. Behind me there used to be a picture of [Czechoslovak President Gústav] Husák. A lot of firms go out and buy new carpets as soon as they open up. The entire business success of the Anglo-Saxon culture, as opposed to the Spaniards, is based on the principle of deferred gratification. We did the same thing, and we’re still doing it.

(Please see also related articleGratification delayed

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