2010's high and lows in big business

These three companies are always in the news and are often held up as bellwethers of the Czech Republic's economy and politics, and 2010 was no different.

Škoda Auto, the automaker owned by Volkswagen, is a veritable engine of the domestic economy as its second-largest company by revenue. The company also produces nearly 7 percent of the country's total exports, which themselves make up 70 percent of gross domestic product.

ČEZ energy group is the largest company in the country and the eighth-biggest energy company in Europe. Its size and revenues are even more valuable than a private company's would be, as the state owns a 70 percent stake and profits from dividends.

Czech Airlines is nowhere near Škoda or ČEZ in terms of profitability, sustainability or size, but the government's actions concerning the state-owned company are an indicator of the government's dealings with private investors. The big privatization wave came and went, but loose ends like Czech Airlines can shed light on the state's progress on creating an open and appealing business environment for outsiders.

ŠKODA: Carmaker set for decade of growth 

Škoda Auto had a lot riding on 2010, but the carmaker ended the year with record sales and a business strategy that bets on a decade of strong growth. New CEO Winfried Vahland joined Sept. 1 after running Volkswagen's China operations. At the end of 2009, Škoda's domestic share had dropped to 29.46 percent, a 1.1 percent drop from the previous year, according to the Automotive Industry Association. As of November, the company reported its share was at 34.3 percent and sold 5.1 percent more units in the first 11 months of 2010, on the year.

The news at home is good, but the news abroad is even better in Škoda's growth markets of India, China and Russia, with all three markets posting double-digit sales growth. Škoda's sales in China are up 56.2 percent this year, with a total of 167,000 units compared with 106,900 sold in the first 11 months of 2009.

Škoda's growth means it will have to figure out its relationship with parent company Volkswagen, however, so that the two brands can co-exist without cannibalizing one another.

"[VW CEO Martin] Winterkorn and Vahland will have to both compromise and have some discussions about where Škoda should be in the VW portfolio. There is a paradox, as Škoda continues to be low-price and good-quality. It's good for Škoda, but it's bad if it gains in market share against Volkswagen," said Jan Roh, an analyst at Cyrrus brokerage firm.

ČEZ: Energy giant cuts investments

While not unfamiliar with bad press, energy company ČEZ was involved in an especially odd dispute at the beginning of 2010 when the Federated States of Micronesia filed a complaint with the Environment Ministry. The island nation, nearly 7,000 miles away, claimed it was being adversely affected by pollutants from the Prunéřov coal-fired plant.

The 70 percent state-owned energy giant continued to bring in big money for the government, however, paying out total dividends to shareholders of 28.5 billion Kč after a general meeting June 29. The government received 21.1 billion Kč of that, after taxes.

Third-quarter results for ČEZ beat out "pessimistic" analyst forecasts, with the company posting net income that was down 4.1 percent on the year, to 11.54 billion Kč.

Rising energy costs, which both the state and ČEZ pinned on solar subsidies, put a pinch on the company, which forced it to pull out of ambitious expansion plans abroad. On Nov. 9, it announced a "New Vision" plan, cutting 78 billion Kč, or 21 percent, from its 2010-14 year investment plan.

"To be honest, the company was kind of forced [to cut investments]," Next Finance analyst Ivona Hrušová told The Prague Post. "Ratings agencies were threatening to lower the ratings if ČEZ continued to do business in the way it has been. Debts were accumulating and were going to really increase in a couple of years because of the Temelín [nuclear power plant] project."

Czech Airlines: Turbulent times for state airline

Czech Airlines is in the midst of a massive restructuring plan finalized in late November 2009 after a failed attempt to privatize the state-owned airline. At the top of 2010, the airline began an asset sale that included selling its headquarters to Prague Airport for 607 million Kč, a deal facilitated by the fact that the companies share a single CEO, Miroslav Dvořák.

In June, the airline had to reckon with the ash-cloud disruption, courtesy of an Icelandic volcano that caused planes to be grounded for nearly two weeks in Europe. That interruption cost Czech Airlines 100 million Kč, according to the airline.

In May, Dvořák announced the airline would likely reduce both routes and its fleet 30 percent by the end of the restructuring period, in 2012, and in September the company unexpectedly canceled its UK routes. Analysts told The Prague Post it was likely done as a route-swap with another airline, a common practice that can provide an influx of cash.

"There is speculation it was for about 400 million Kč, which is quite an important amount," said Jan Procházka, an analyst at brokerage firm Cyrrus.

Finally, the most surprising news in a year of big moves came when the government announced Nov. 24 it would merge both the airport and airline into a single firm, Český Aeroholding (ČA).

ČA will be a joint-stock company that the state hopes will have an easier route to financing and have more stable results. The project will be self-financed, "without making any claims on the state budget," said Czech Airlines spokeswoman Hana Hejsková.

Claire Compton can be reached at
ccompton@praguepost.com