Last 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.”