The battle for each new order is very hard and challenging
The development of events associated with the spread of the Covid-19 pandemic has been highly dynamic. In an interview for Reportáže z průmyslu, CEO and statutory director Jan Rýdl Jr. explained how the company TOS VARNSDORF a.s., a traditional Czech machine tool manufacturer, had been dealing with this adverse situation. “At the start, the fundamental problem was the travel ban,” says Jan Rýdl Jr. “For our company, which exports more than 85 percent of its production, not being able to go abroad to our customers or invite them here was absolutely detrimental.”
How are you dealing with the consequences of the coronavirus pandemic? For example, have you had to stop manufacturing your machines or halt any other operations?
We experienced the impact of the Covid-19 pandemic very quickly, though we have been lucky that none of our employees have been infected by the virus so far and that we have not had to stop production or close the company. At the beginning, however, the travel ban was a fundamental problem. For our company, which exports more than 85 percent of its production, being unable to go abroad to our customers or invite them here was a huge disadvantage. Suddenly, we had to “ground” between 35 and 50 technicians who are normally constantly on the road installing, servicing or repairing our machines, in addition to the entire sales team. After the travel rules loosened up, the situation improved, but essentially only for the European area. For example, we still cannot travel to China, Saudi Arabia, Thailand, Australia, Canada, the USA, etc., where our customers are impatiently waiting for delivered machines to be installed. Unfortunately, the current circumstances regarding the spread of Covid-19 does not offer much hope that the travel situation will improve any time soon.
Can you place any figures on the potential losses?
We can produce numbers for the losses so far, but it is too early to evaluate the entire fiscal year since we do not know how the situation will develop. But something that is evident now is the drop in new orders. There was already a perceptible drop in the demand for machine tools at the end of 2019, and the arrival of the coronavirus crisis has intensified this drop. Fortunately, even during this complicated time, customers who need to invest in new machines are still appearing, and as a result, we are getting new orders. But in view of the current situation, the battle for each new order is very challenging. There is also a risk that even if a machine is manufactured, we may not be able to hand it over, either here at the company or with the end customer for the reasons I have explained. This makes estimating total revenues very complicated and uncertain. In any case, we are expecting a drop of at least 15 percent compared to 2019.
Have you used any state support? Do you feel that the support programmes are enough?
Yes, we have used it. Right at the beginning, we applied for the Antivirus Programme, which I see as the most effective tool that the government opened up to help companies maintain employment at the highest possible level despite the drop in volume of work for employees. I am happy that the programme is still operational, but it is clear that it will need to be transformed into conventional “kurzarbeit” (short-time working) as we see, for example, in Germany. I hope that ministers don’t dither too long with this and will soon come to parliament with a bill to amend the relevant laws. My evaluation of the other programmes such as Covid I, II, III and Covid Plus is that the intention was good, but implementation was poor. Instead of immediately supplying the liquidity absolutely necessary to businesses, a bureaucratic scrum developed that many businesses did not get through, and some of them had second thoughts about their requests. In my opinion, a far more effective form of support would be to forgo (not just defer) the levying of social and health insurance payments. The authorities commenced wide-ranging checks on the use of aid immediately after providing the first support, and I see this as a wholly incommensurate reaction on the part of the government. I am talking from personal experience here – we were under investigation by the regional labour office for more than a month because we made use of the Antivirus Programme for the period 16 to 31 March.
The crown has weakened noticeably since the start of the pandemic. Has this raised any problems for you? Would you like to see the introduction of the euro, or do you want to retain the Czech crown?
Because our company survives by exporting its products, it might seem that a weaker crown would be to our advantage. Politicians often use this argument too. But this isn’t quite true. Like many other exporters, we hedge against crown exchange rate movements in the long term and so have to cover exchange rate movements for many months or even years. In addition, many of the input items have to be imported from countries where the euro is used, so crown exchange rate fluctuations bring gains for the company on one hand and losses on the other. Exchange rate hedging is not free either and brings additional risk that would disappear with the adoption of the euro. Personally, I’m wholly in favour of adopting the euro, but this decision is down to the politicians alone. Unfortunately, there isn’t enough courage on our political scene to take this step because it would result in a loss of popularity with voters. As a result, many politicians prefer to hide by emphasising the alleged disadvantages, by obfuscating the issue and confusing people.
Last year you wanted to focus on developing technological accessories for your new products. How are you doing in this respect? What percentage of annual turnover are you investing in research and development?
This year has been all about the development of technological accessories for our machines. This is given by the fact that over the past two years we launched three prototypes of new machines on the market, and we are now at the stage of equipping these machines to expand their universality and allow the maximum use of all their technical parameters. These are primarily various types of milling heads and changes in technological accessories, workpieces and tools. Over the past eight months, we have manufactured four prototypes of new milling heads that are now undergoing operational testing before market launch. Every year, we invest between 30 and 60 million crowns in technical development and innovation.
In your field, the international exhibitions and trade fairs where you regularly participate play an important role. Some important events have been cancelled or deferred because of the pandemic. Is the situation changing now? Will any trade fairs be held this year?
This year, we had planned to join in at three large exhibitions – CCMT in Shanghai, Metalloobrabotce in Moscow, and MSV in Brno. Unfortunately, none of these trade fairs will be taking place now. It is a great loss since these trade fairs are important events for presenting developments and trends in the field and meeting business partners. Naturally, I understand why trade fairs have been cancelled, and I hope that next year the situation will return to normal and that we can once again attend trade fairs. In any case, no engineering trade fairs will be held until the end of this year. For this reason, I am very happy that this year we managed to at least have our regular TOSmeet meeting with our dealers and reps from around the world. At this meeting, we always present the latest output from our technical developments, and we jointly discuss the development trends on the individual markets. Because by chance this year we shifted this meeting from June to February, 53 representatives from 35 countries were able to participate.
This June, the final opposition procedure in the project Competence Centre – Engineering Manufacturing Equipment (which you were involved in) was held at TOS VARNSDORF. Could you tell us a little more about this project?
The project was carried out from 2012 to 2019. It was unique in that three research sites and seven leading manufacturers of metal working machines, who in some cases were direct competitors, participated in it. The project’s main aim was to increase competitiveness in the field of engineering production equipment by improving the six main user properties of machines and technology – accuracy, quality, productivity, reliability, economy and minimisation of environmental impact. The project was organised according to professional themes in eleven specialised working bundles. The companies were involved only in resolving those working bundles where they felt they had their own interests and future market applications for proposed solutions. Thanks to the cooperation between a research organisation and an industrial company, new and highly sophisticated solutions could be produced to allow the businesses involved to improve the technical level of their products and thereby ensure their competitiveness globally, which was the project’s main aim.
Personally, I feel that the professional development of personnel from the research sites and especially the companies was also highly beneficial. Thanks to their involvement in finding solutions to the challenging tasks of this project, they gained valuable expertise that they can apply to work on other tasks in the future. It’s also important to acknowledge that the involvement of the research sites and the results gained at the general level can be transferred to teaching, which can contribute to improving the quality of technical education in the Czech Republic and training new specialists.
With the onset of the pandemic, the theme of digitalisation has come to the fore. What’s the situation like for you in this regard?
Whether we refer to our steps as introducing components of digitalisation or Industry 4.0, we are adopting them on an ongoing basis, regardless of the pandemic. One example may be the development of our system TOS Control, which is an add-on to the machine control system and constitutes a platform for integrating many applications that expand the machine’s functions, improve its operability or allow connections to other systems, such as ERP, etc. With the onset of the pandemic, what changed dramatically for us was needing to introduce remote communication with our partners through teleconferencing and video conference calls. We have discovered that we can work in this way and have even been able to hand over our machines to customers on the other side of the planet. We have also significantly improved the use and functionality of remote machine diagnostics. But I should say that no video conference can replace personal contact with a customer.
Words such as decarbonisation, sustainability, smart and economical solutions are part of the so-called European Green Deal and part of the plan to support the revival of Europe. Over the next 10 years, the current economy and industry will see a change. Is it a threat or an opportunity for you as a company?
Each fundamental change brings threats and opportunities. Company managers alone need to know how to find the opportunities and avoid the threats or transform them into opportunities. The European Green Deal and plan to support the revival of Europe are without a doubt such changes. In the second case especially, there will be no lack of opportunities. Europe is planning to distribute massive financial support to all member states to aid their recovery from the impact of the crisis caused by the Covid-19 pandemic. But it remains to be seen how effectively we as the Czech Republic will be able to make use of these resources. From experience, we know that preparing programmes, designating the conditions for drawing on funds, and subsequent project administration have not always been the best. I hope that it’s different this time. To ensure this, thorough preparation will need to be done, and most importantly, consultation with all interested parties, such as representatives of industry. I believe that properly configured programme conditions will allow many companies to not only to prepare for a “green Europe” but maintain and strengthen their business activities and thus contribute to the growth of the Czech economy.