Interview with Knorr Bremse Brake Systems CEO István Lepsényi

AP: You have recently handed over your newest plant. Have you successfully finished relocating?

I. L.: Relocating a plant is an extremely difficult task. I'm proud to say that the process was only difficult for us and not for our clients. Our customers did not even feel the change; we continued to be punctual and efficient in our deliveries. I can safely say that we are using the new plant to its fullest potential. Our main task now is to make the production process more efficient, improve logistics and increase circulation speed without decreasing our inventory. The relocation has improved the quality of our services. Our customer complaints are at 8 to 10 ppm, which is excellent.

There is only one area where we are not ready yet. Testing benches are still being delivered to our test centre but testing has already begun. Along with the test centre, Knorr-Bremse Fékrendszerek Kft., has taken over activities which were previously carried out by other plants. We are also testing products manufactured outside of Hungary. This includes the testing of compressors, shock absorbers and control units.

While previously, research and development only involved products made at the Kecskemét plant, the new plant has extended its activities to a much wider range of products. This is partly due to the fact that the product portfolio of the Kecskemét plant is also being expanded. In the future, we will take another step towards electronics and mechatronics.

Knorr-Bremse Fékrendszerek Kft. CEO István Lepsényi

How do the prolonged Russian-Ukrainian crisis and the resulting European embargo affect the performance of Knorr-Bremse?

The sanctions against Russia are limited to two areas. One of them is finances, i.e. limiting the financing of large Russian banks, while the other one is primarily related to oil production. We don't have any problems resulting from the sanctions against Russia.

However, we can see that Russia's financial situation has worsened. This affects us in two ways. On one hand, the payment moral of our customers has worsened. On the other hand, the Russian automotive industry has significantly declined due to the European sanctions. Economic confidence has decreased and the rouble has plummeted against the euro.

Car manufacturing in Russia now depends on imported parts, which is driving up car prices, which has led to the shrinkage of the market. I won't even talk about Ukraine, as where there are gunfights production practically halts. We have fewer orders from our customers than what they were planning for at the start of the year. The bigger issue is that this trend is likely to continue next year.

What can you do against it? Are you opening towards new markets? Where are you increasing your market presence?

We believe that the solution could be localization. If we manufacture locally – and we have two plants in Russia – it allows us to be immune to the fluctuations of currency rates. Of course, we are also planning to conquer new markets and increase our presence in existing markets with new products. If we look at our results in 2014, our sales fall short of last year's results due to the conflict in Eastern Europe.

In light of all this, how are you preparing for next year?

There is still some uncertainty regarding 2015. It's good news that this year we took over the manufacture of new products from other sites, which will continue next year as well. Our product range is expanding, which is resulting in higher revenues.

What we cannot estimate is how much the Eastern European and Russian markets are likely to decline owing to the economic uncertainty and the sanctions.

Politicians talk a lot about opening towards the east. Do you think it is likely to benefit Knorr-Bremse in any way?

The government's scheme to open towards the east mostly works on a political level. We already deliver products to most post-Soviet states. In some countries we are experiencing growing demands, including Azerbaijan, where we are expecting significant growth. Kazakhstan is also showing promising signs, but I, personally, am the most confident about Uzbekistan.

In Uzbekistan the government launched local car manufacturing, which holds great opportunities for us. All in all, the government's scheme in itself will not increase our markets, as we have already been present in these regions, but it can make business relations more comfortable.

You have formed strategic partnerships with regional public transport (Volán) companies. Does this mean that Hungarian bus manufacture will thrive again?

We have always had a good relationship with Volán companies, which were further enhanced by a strategic agreement. Besides supporting Volán, we also involve them early on in our R&D processes to receive more feedback during the development stage. What I see in Hungary's bus manufacture is that it's characterized by complete uncertainty.

The state has bought Rába and already sold some Volvo buses within the scope of the Rába-Volvo agreement. Certain components of the brake system in these Volvo buses are our products, which is a positive thing for us, but I can see a lot more potential here. Rába, Volvo and the government have to pay more attention to increasing the share of Hungarian products in these vehicles. We have seen several bus initiatives on bus manufacturing recently. These initiatives should team up.

Nearly all buses that are either finished or under development are outfitted with our brake systems. This provides an excellent opportunity both for us and manufacturers. With a more rational purchasing policy, research and development would be followed by manufacturing. As I have said before, the government should reconsider its purchasing policy.

There are Hungarian-made midi buses, yet we buy them from abroad. This is a serious conflict that needs to be addressed. These reliable, competitive and modern domestic buses should be favoured over foreign products.

Interview by Csongor Bíró