VideoLast month, the executive team of Skoda gathered at the Czech carmaker's headquarters in Mladá Boleslav, about an hour's drive north-east of Prague, to unveil yet another batch of record-setting financial results. It was a wet, grey day that put the imposing concrete communist-era tower blocks which ring the factory in a particularly grim light. "While there is a storm outside, here at Skoda we have sunshine," CFO Holger Kintscher quips. "Sometimes I worry that we are growing too fast," he adds. "But for the time being, this is a good problem."
Many executives would relish Kintscher's problems. Since 1991, when it was bought by Volkswagen in one of the first privatisations in the former eastern block, Skoda has transformed itself into a global player with sales in 100 countries and a growing collection of awards for design, quality and customer satisfaction. Skoda is now a crucial source of growth for its German parent company, a remarkable turnaround from the days when the boxy, erratic cars that rattled out of plants in communist Czechoslovakia were the objects of widespread scorn in the West.
The Czech marque is also speeding ahead of Volkswagen's other brands. Last year, Skoda grew the fastest out of the passenger-car brands in its stable — VW, Seat, Audi and Bentley. The company delivered 630,000 cars, a 15% increase on the previous year, with nearly 90% shipped outside of the Czech Republic. At CZK222 billion (€8 billion), its 2007 revenue was up 9% from the previous year. Operating profit, at CZK19.8 billion, grew 35%. (See charts at the end of this article.) Skoda accounted for 8% of Volkswagen's group revenue and 14% of operating profit in 2007, despite the Czech crown's rapid appreciation against the euro. At 9%, Skoda's operating margin is three times that of the VW brand and even one percentage point higher than luxury brand, Audi. What's more, in a global quality ranking across Volkswagen's various factories, Skoda's plant in Vrchlabí, near the Polish border, ranked first last year.
How long will the good times last? With deliveries in January and February up nearly 18% on the year before — again setting the pace among Volkswagen's brands — "I cannot see the end," says Kintscher. The company plans to deliver at least 700,000 cars this year, with a "medium-term goal" — perhaps as early as 2010 — of 1m annual deliveries.
Despite Skoda's growing confidence and ambition, the outlook may not be as relentlessly sunny as executives suggest. While "Skoda owes its position today to Volkswagen," according to Karel Potmesil, an analyst at brokerage Cyrrus in Prague, in recent years the Czech carmaker has relied solely on its own cash flow to fund investments. As the brand gains followers and opens up new markets, will it get enough support from Volkswagen to fulfil its potential, or will the parent hold back the Czech marque in order to help its other brands?
Grow Without Growing
Before joining Skoda in 2005, Kintscher spent nearly 20 years in various group-level and business-unit finance roles at Volkswagen in Germany and Poland. After five years as head of controlling for Volkswagen's commercial vehicle unit in Hanover, he got a call from Hans Dieter Pötsch, Volkswagen's group finance chief. "Mr Pötsch asked me whether I'd go to the Czech Republic," Kintscher recalls. "The only possible answer was yes." Given Skoda's performance since he joined, he is quick to add that "it was a very good decision."
Since moving to Mladá Boleslav, the CFO has made it his mission to help the company "grow without growing" — that is, to drive higher sales and profits without succumbing to the bureaucracy and waste this often brings. And Kintscher wants finance to lead by example. He recently centralised the controlling function at headquarters, with one group managing domestic operations and another overseeing projects abroad. "Everybody is aware of the risks of expansion," he says. Like any good finance chief, he is now preparing "a plan B for every possible situation," he notes. "We can be profitable in the future without growth."
For now, though, the "good problems" that come with rapid expansion are higher on the CFO's list of concerns. For example, an unemployment rate of 2% in the region around Mladá Boleslav makes it difficult to attract and retain staff for the factory, finance and most other parts of the company. To help address this, Skoda Auto University, the country's only company-owned college, was recently expanded to accommodate 750 full-time students and provide training for 3,400 employees. And Kintscher himself spends a great deal of time in lecture halls at other universities throughout the country, talking up career prospects at Skoda. But those efforts, to date, aren't enough. "To be honest, I don't have a solution," Kintscher admits.
West Meets East
Under the strategy that Skoda's executives call "Go East," Kintscher could face more growth-related problems, both at home and abroad, as the company's expansion quickens. In addition to ramping up capacity at its Indian plant, the company opened factories in Russia and China last year. According to Kintscher, Volkswagen is putting Skoda at the forefront of the group's plans for these fast-growing markets, with plans this year to double the unit's sales in 2007 of 67,000 cars in the three countries.
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