Golden Egg of ČD - Railway Research Institute. Are the privatizers dying to get it?

photo: VUZ press materials/Golden Egg of ČD - Railway Research Institute. Are the privatizers dying to get it?

The Railway Research Institute, better known under the abbreviation VÚŽ, is a unique company. There are only a dozen or so companies in the world that have a test circuit similar to the one near Velim. However, VÚŽ is primarily a subsidiary of ČD. Former Transport Minister Havlíček repeatedly warned against efforts to privatize the national carrier or some of its subsidiaries. Could this intention also be applied to this unique company?

According to former Transport Minister Havlíček, the personnel changes at the national carrier may mean an attempt to privatize it. The former minister has repeatedly warned against it. The current Finance Minister Zbyněk Stanjura (ODS) came up with the idea of privatizing the railways before the elections to the Chamber of Deputies. In an interview with E15, he said that the national carrier could become a highly-valued company, with the state retaining a controlling stake. However, he did not mention what part of the national carrier should be privatized. ČD has several subsidiaries, and VÚŽ is their imaginary "golden egg."

The uniqueness of VÚŽ is evidenced, for example, by the fact that its clients include top companies in rail technology, such as Alstom, Siemens, Bombardier Transportation, Škoda Transportation, and others. The wide range of tests carried out here includes, for example, drivability tests, traction, and energy tests, brake tests, environmental and human impact tests, vehicle/power system interaction, etc. Vehicles testing, equipped with the ETCS signaling system, is also a matter of course.

This year VÚŽ tested locomotives from Alstom, Stadler, and Siemens. Its Czech clients include, of course, Škoda Transportation and CZ LOKO. Although the number of domestic machines in testing this year has surpassed foreign ones, annual reports from 2018 to 2020 show that approximately 60-75% of VÚŽ's sales come from foreign companies.

As these research rail facilities are unique, they have no shortage of work, and with the constant flow of client interest, can be well managed. The annual reports between 2018 and 2020 show that VÚŽ is doing very well regarding economic figures. Net profit for these years is measured in the hundreds of millions and growing.

The company's equity is rising as well. In 2020, it amounted to CZK 769.3 million. Each year, the capital grows by approximately another CZK 90 million. At this rate, VÚŽ will reach a billion in less than three years. It's no surprise that test circuits account for the bulk of profits from the testing business, which is about 90%.

Among its most important suppliers in terms of turnover in 2019 and 2020, VÚŽ listed Chládek a Tintěra Pardubice, Elektrizace železnic Praha, ČD Cargo, Správa železnic, HPP measuring technology, ČD-Telematika, Prostav, CZ LOKO, VÚKV and DPOV.

From the data available to RAILTARGET, one can conclude that VÚŽ is a very desirable and capable company in its field. The company has qualified employees, a long tradition, a location in the middle of Europe, etc. And since VÚŽ can also test hydrogen and battery trains, no vital decline in client interest is expected in the future. Therefore, if privatization should happen within the national carrier, a profitable company with unique know-how, qualified staff, and an established infrastructure used by leading companies in the railway sector is one of those many investors would surely be excited about.

It is common in the business world that companies in the industry like to acquire companies that fall within their service remit. The reason could be, for example, to improve the quality of service or to eliminate competition. From this perspective, a logical bidder for VÚŽ would be, for instance, Škoda Transportation, which already owns a similar company - VÚKV, which uses the services and infrastructure of VÚŽ, as well as Škoda Transportation itself. Another possibility is offered in Poland, which has its test track under the auspices of the Kolejnictwa Institute in Warsaw, although it is a few kilometers shorter than the one in VÚŽ. The purchase of VÚŽ would give Poland an excellent market position in the rail vehicle testing field. But other large companies in the railway sector, such as Alstom, could also be potential bidders.