14 minute read
MTX Group → Group strategy and investments with Miroslav Záhorec and David Bečvář
Strategy and investment: Sustainability is everything
Text: Luděk Vokáč, photo: Barbora Mráčková
Whether it's investments, acquisitions, digitization, or recruitment, MTX Group may seem somewhat conservative. And, in a way, it is. The group doesn’t chase trends or fast acquisitions. It approaches almost everything with a great deal of consideration and looks for long-term benefits. “We’re not trying to be the biggest entity in any given field. We’re looking for ways to efficiently work as a whole and manage risks together,” says MTX Group CFO and COO, Miroslav Záhorec, adding: “We drive progress and develop industry.” This strategy has proven itself over the years and brings the group long-term stability and the ability to deal with unexpected fluctuations, which are very common in modern times. But the group is not short on innovation and interesting new developments: its member companies are leaders in their fields and all focus on permanent sustainability, which people nowadays associate with environmental protection. “We have always focused on sustainability, it’s in our DNA,” says the MTX Group CSO, David Bečvář. We place the highest demands not only on ourselves but also on our technology suppliers. This is the only way we can keep developing and stay competitive. We will continue to develop further; nothing can stop us.
What are the foundations of MTX Group?
Miroslav Záhorec [MZ]: The group developed out of METALIMEX, a trading company that has always worked on its commercial positions all over the world. Traditionally, METALIMEX trades non-ferrous metals and other commodities, which is why the group gradually expanded into production. David Bečvář [DB]: Simply put, the group started looking for synergies and new opportunities. We know how to buy aluminum because we sell aluminum products from other companies, so, logically, we started looking for companies we can supply aluminum to and then sell their products. The same goes for copper, brass, coal and other commodities. We seized the opportunity and started integrating companies into the group which had potential and were important for our portfolio.
How does MTX Group view its development?
[DB] I think we enjoy and are driven by the need to create. This shapes our investments: we want to create and move forward. We want every investment to reap long-term benefits and make sense in this regard. We never wanted to acquire every packaging company and become a packaging monopoly. It was never about having 50 companies in our portfolio. Our investments, both internal and external, have to be compatible with business, sales and risk management. In principle, we’re not interested in acquiring a company that produces the same product as our companies. There’s no room for synergy there. On the other hand, integrating a company that produces a different product in the same field, perhaps even for the same customer, is a completely different story. The group wants to establish a management system and find mutually beneficial solutions. It’s about sharing their experience and helping each other. In some cases, we don’t just share our experience. We also share services or resources. Sometimes, we compete a bit to push each other forward. MTX Group and METALIMEX help our companies navigate the market. It helps them to survive and prosper. Take current inflation rates, for example. We have all heard about companies failing to reflect high overheads in product prices. Thanks to the way we operate, we are fine. [MZ] I want to stress that our goal is not buying as many companies as possible. We are open to acquiring new companies for our portfolio, but we don’t do it often. Our main goal is creating the conditions for innovation and growth for our existing companies. We want each of our companies to have their own goals, strategy, development and investments. The key to successful investments is the long-term reasoning behind them. We are committed to long-term sustainability. And even though some people don’t want to hear it, the only parameter for long-term sustainability is profit. If you have long-term profit and are in good financial health, you have a future. If you don’t make a profit and your financial health isn’t good, you don’t have a future. It’s as simple as that. However, we are willing to heavily reinvest our profits. For example, in 2020, the group’s EBITDA was CZK 1.4 billion, of which we poured CZK 1.22 billion into investments. In 2021, our EBITDA reached CZK 2.586 billion and CZK 1 billion went into investments. This year, our EBITDA is forecast to exceed CZK 3 billion and we plan to invest over CZK 1 billion again. And these are true development investments, not just maintenance investments. A general rule of thumb for a company to be in the black is investing the same amount as its write-offs. Plus inflation. Only then you start investing in development. These development investments can go into individual companies, into external acquisitions, or towards new projects. We are always looking for ways to diversify our portfolio.
You said that the companies within the group should complement each other. What does that mean specifically?
[DB] It’s quite simple. Since METALIMEX trades aluminum, it makes sense to find a company that processes it. In our case, it’s Strojmetal Aluminium Forging and AL INVEST Břidličná. Both of these companies complement each other perfectly: they both work with aluminum and even supply the same industry – the automotive industry. Yet, they each produce something different. Strojmetal produces forgings and AL INVEST produces plates, sheets, and packaging. They have different production programs and processes. That being said, you can also find companies with the same processes which complement each other. In our case, it’s AL INVEST and Měď Povrly, recently renamed Povrly Copper Industries. One works with aluminum, the other with brass, but both focus on foundry and forming. These companies have a similar supplier base, experience, maintenance, and so on. We always look for similar synergies when acquiring new companies and investing internally.
Do you prefer to invest in new companies or in the development of your own?
[DB] It’s not about what we prefer, but what makes sense at that moment in time. Also, there are very few external acquisitions that are truly meaningful for us. There are certain areas, such as non-ferrous metals and flexible packaging, where we continually evaluate acquisition opportunities. We evaluate several opportunities each month, but only a few are the right fit. They need to meet a wide range of criteria: complementing our existing portfolio, fitting into our development strategy, having a good location, and being the right size. A company with a turnover of CZK 50 million is too small for us, and CZK 50 billion is too big. That is why we usually systematically invest within the group, developing our existing companies. We call this internal acquisition, and the goal is to gain market share, create new products, and enter new markets. [MZ] Acquiring an existing company seems easier, and maybe it is. But on the other hand, there are certain risks attached. It’s easy to acquire an overpriced company, which might put the group at risk. We are trying to be financially healthy when it comes to debt, which is something acquisitions inevitably create. It’s much more responsible to develop our existing companies, although it’s more complicated in terms of long-term management. But that’s what the group is for. To establish management systems in each company, to support them, and help them make investments which will reap long-term benefits for them. We can also invest into completely new projects, of course.
How much do the companies within MTX Group have a say in their own development?
[MZ] The member companies are completely free to establish their strategic plan. It's up to them, the group doesn’t dictate how they should grow and what to do. We don’t dictate our companies’ customer base. Instead, we create conditions for them to come up with an idea of how to convert a customer and the group then provides support based on its broad market knowledge. We may give our companies certain pieces of advice, but their development, productivity, and competitiveness is in their hands. When a member company needs investment and if it meets our rules for long-term sustainability and returns the investment, we don’t see any reason why we shouldn’t give it to them. Our companies already have a well-established mechanism for this. They have a three-year strategic plan, which also includes an annually updated investment plan, which they submit to the MTX Group Board of Directors for approval. Each year, they take into account their current operation, the market situation, and their financial health. Then, they gradually adjust the direction in which they’re headed.
Can you give an example of some recent investments that demonstrate this strategy?
[DB] There are many examples. In Povrly, we started producing brass cups that are used as the intermediate material in ammunition production. Before that, we had only supplied arms manufacturers with sheets and strips. Cups are more complex and difficult to make but it has added value and made sense for us. Since we produce this intermediate product ourselves, we don’t have to deal with a lot of unnecessary transport. We keep the production waste and can reuse it ourselves instead of getting it from a supplier. This philosophy also led us to introducing laser cutting in Břidličná. But we’re not stopping there. Again, in Břidličná, for example, we see potential in the production of foils for electric vehicles. We invest heavily in new ideas. Take ICE Industrial Services. We decided to allocate part of its resources and engineers to the generation and systematic preparation of new ideas for start-ups. This resulted in 3D printed concrete buildings. We will definitely develop this concept further. [MZ] Strojmetal is a similar story. We started producing forgings. Then, we added machining and later also the pressing of other stabilizing components, so instead of simple forgings, we are now producing a finished part that doesn’t have to travel all over Europe to be worked on. The important thing is that this helps us develop our expertise and learn something new. We have recently begun investing in energy commodities and data centers. We are planning to construct our own photovoltaic power plants. Yes, on the one hand, we are jumping on a trend, but on the other hand, it will help us achieve long-term sustainability for our business. And not just by generating our own electricity and becoming less dependent on external energy supplies and market prices, but also by expanding our scope and creating new synergies. The same goes for data centers. Our plants, or sometimes even the brownfields we rent, provide a great space for housing data centers.Plus, we will power them with our own electricity. Also, we need solid IT facilities.
Such development requires hiring new employees. How are you trying to attract them?
[MZ] I'll start broadly. People these days have become accustomed in many ways to the fact that life is quite simple. I don’t mean it in a bad way, but when we were young and we broke something, we couldn’t go to the store and buy another one. We had to fix it. But nobody would give us a manual, we had to figure it out on our own. In many ways, this helped us progress and gave us a lot of experience. Today, people are used to buying things and not knowing how they really work. We want to show what industry is based on and its background. We want to demonstrate our insatiable desire and devotion to developing it. This is how we try to motivate people. Yes, they will have to work hard, but they will also see the results of their work, which will make them happy. We are also moving forward thanks to our cutting-edge technology suppliers. We are very demanding of them so we can keep on growing and remain competitive. Our recruitment process starts at elementary schools. We want to show kids and their parents that working in industry is something they can enjoy. That it’s not just that image of “dirty” industry that we all know from the past. On the contrary, modern industry stands on tradition and basic physical principles, but also utilizes modern fields such as cybernetics, robotics, automation, digitization, and so on. We also attract recruits as a result of the experience we’ve amassed. As mentioned above, we have gained a lot of experience over our career, and we are willing to share it. There are no strings attached to this, because the more we give them, the better they will become and the more likely it is they will want to stay with us. But most importantly, people need to enjoy their job. Thanks to the size of the group, people can easily change jobs within the group. Not only in the Czech Republic, but also abroad. [DB] Yes, not many people in the most recent generation want to work just because they have to or because it’s something you’re supposed to do after you graduate. Our task is to create conditions in which they will enjoy their work. On the one hand, this means we have to work with modern technology because young people like it. But we can’t make their job into a video game. We need people who understand what’s under the hood, so to speak. That's why we want to promote industry from an early age. Someone still needs to physically cast aluminum or brass. The metal flows somewhere and someone needs to process it. These days, you can control this process almost like a videogame, but you also need to understand the underlying principles. And ideally, you need to enjoy them.
In addition to digitization, another trend is remote work. What’s your take on that?
[MZ] Even if we ignore the fact we are an industrial holding and can’t make anything without on-site workers, we are somewhat conservative in this regard. It’s based on our experience. Just like with digitalization, you shouldn’t go overboard with remote work. That has been the approach of the group’s management for the past two years or so. Despite all the Covid measures, or perhaps because of them, we were constantly driving to our factories. And you could see they were happy to be in this together. Everyone was working under tremendous pressure and having management on their side helped a lot. It seems to me that people who stayed working on-site are now more successful than those that didn’t. This doesn’t mean we don’t have any remote meetings, of course. However, we try to use this tool purposefully and reasonably. [DB] When you need creativity, working from home doesn’t cut it. Without interacting with your colleagues, you won’t grow and move forward. That’s something digital interactions can’t replace. Empty offices made sense in terms of social distancing. Now, it may make sense in terms of saving energy costs, but in the long run, this means companies losing ideas. When you divide people, you limit their potential for creativity. I don’t want people to think I am against remote work. I just like it when people create something. That is what our group is about.
