KONČAR is a regional leader in the manufacturing of distribution, power and special transformers, as well as generators and motors. In addition to strengthening our revenue side, one of the four main strategic objectives of KONČAR Group 2020+ Integral Strategy is to boost investments in the development of products, technologies and manufacturing capacities, and thus enhance preconditions for the realization of sales plans. The green transition has propelled the advance of renewable energy sources and accelerated the development of power engineering, which has a strong impact on the technological development of transformers. In this segment of the industry, demand is growing for solutions that reduce environmental impacts while simultaneously upgrading product safety using biodegradable liquids that do not pollute the environment, as well as for transformers with reduced noise, losses and carbon footprint. Additionally, low-carbon steel is of high interest to many processing and end-use industries, particularly for customers who are committed to achieving higher proportion of recycled content, and are working towards circular economy.
In this direction, in 2022 we delivered the first medium-voltage transformer with a Product Carbon Footprint (Products Carbon Footprint - CFP) certificate according to ISO 14067. This allows KONČAR to make sustained contribution to the reduction of the carbon footprint, following similar earlier achievements in the distribution transformer segment in 2019. We have recently delivered the first medium-voltage transformer containing CO2-reduced Bluemint transformer steel - top quality transformer steel with allocated CO2 reductions that lead to reduced product-related carbon intensity of nearly 50% compared to traditional manufacturing. We have also successfully completed a full range of advanced tests on a high-voltage transformer filled with biodegradable insulating liquid. The product line, marketed under GREEN LINE name, is another acknowledgement of KONČAR’s global leadership in the application of eco-friendly fluids in the field of instrument transformers.
We have recently rolled out a new digital solution, PROZA Station, a cloud-based solution designed for secure management of distribution and transmission substations, and other critical infrastructure systems, such as access data centres.
In the power generation segment, alongside numerous references in the construction and revitalization of hydropower plants worldwide, we have recently launched our innovative submersible machine for small HPPs. The generator and the turbine are the result of an R&D project co-financed by the European Regional Development Fund which led to the development of new, eco-friendly products that can be recycled after the end of service life and their operation does not pollute the environment even in the event of an accident. The product is designed for the global low-head hydropower market, where there are no large dams or water reservoirs, eliminating any adverse environmental impacts, and it will be installed at Otočac SHPP, a project we contracted in October 2022. The plant is designed with 1.5 MW connection power and will comprise three independent 500 kW power generation units.
We have identified long-term investments in R&D as the cornerstone of profitable business, and we have therefore intensified our large-scale investment cycle. Such investment creates new competences, which we recognize as the key for the stability and further growth of KONČAR Group.
KONČAR has just reported an all-time-high order intake. Which are your key export markets?
Europe is committed to becoming the first climate-neutral continent, which is why our customers are primarily seeking products and solutions to help them achieve that goal. Power transmission and distribution segments have been delivering remarkable results, an achievement directly propelled by the European green transition, which has been driving up the demand for transformers. We are particularly delighted with the value of new order intake, which now exceeds EUR 1 billion, predominantly to be realized in foreign markets. The trust and reliability that we have been building up over decades have ensured a substantial influx of new orders, notably from the advanced markets of Germany, Sweden, and Austria. With many significant breakthroughs in these markets, we have positioned ourselves as a relevant European high-tech manufacturer of equipment and solutions that supports the green energy transition across the European Union, and this, in the long-run, contributes to the national competitiveness of the economy and boosts the international perception of Croatia.
In Q3 2023, export constitutes over 67% of our total sales revenue, with 70.2% of the total export delivered to EU countries. By the end of the year, we anticipate that our income will outperform the 2023 plan.
How does KONČAR Group respond to climate-related challenges, given the EU's ambitions to become climate-neutral by 2050? How does the company use its advanced solutions to adapt to emerging circumstances and contribute to global sustainability goals?
Our focus on the green transition predates the European green transition efforts. KONČAR is one of the leaders in the green transition, back in 2012 we were the first company to develop and build a Croatian wind farm - Pometeno brdo, with a total installed capacity of 20 MW. In the solar energy segment, KONČAR has also accumulated valuable references over the past three years. Since commissioning our first, and at the time the largest, solar power plant on the island of Vis in 2020, we have built four solar power plants with a total installed capacity of 30 MW for various partners, with agreements to construct two more solar power plants with a total capacity of 25 MW underway. Earlier this year, we contracted the construction of three new solar power plants, further reinforcing the role of a regional leader in the construction and revitalization of renewable energy plants.
In addition to working for partners, we have built integrated solar power plants on the rooftops of our own factories. We have installed four plants at our facilities in Jankomir and Fallerovo šetalište, with a total capacity of 3 MW. They secure our manufacturing facilities with self-supply and reduce their CO2 emissions.
The share of renewables in energy generation has been consistently growing and will be driven by efforts to reduce GHG emissions that have an adverse impact on long-term sustainability. However, this goes beyond replacing one type of energy source with another. Converting wind and solar power into electricity pushes us to make significant changes to the ways in which power systems have been operating for decades. In this sense, alongside our proven responsiveness and references in building renewable energy sources, we have been continuously working on improving energy efficiency and increasing the share of renewable energy sources.
A significant portion of KONČAR's product portfolio is based on products that either are, or will be aligned with the principles of sustainable development and circular economy. We develop products and incorporate those elements and solutions which can add the greatest value, with a focus on wind, solar, and hydro energy. In addition to developing and improving green products, in recent years KONČAR has been pivoting to smart technologies, including digital transformation of products and services and all other business processes.
KONČAR is Croatia’s top manufacturer of trams and electric trains for regional transport, and you have also delivered low-floor trams to Latvia, as part of a project financed by the EU Cohesion Fund. Are you planning to expand your operations in that segment?
To date, KONČAR has delivered a total of 142 low-floor trams to the City of Zagreb's public transit operator ZET, which constitute the backbone of urban public transport in Zagreb. We have leveraged strong domestic references established through the long-running collaboration with ZET, to secure the export of 14 trams to Latvia, proving our international competitiveness and quality. Following the example of numerous world cities, Zagreb has recognized the need to include the manufacturer in the maintenance of the low-floor trams, and we have been maintaining the fleet that has covered a total distance of over 120 million kilometres.
Over the last few years, Croatian railway sector has seen sweeping investments. The largest portion of these investments is channelled towards the construction and reconstruction of railway lines and related infrastructure, with a smaller part allocated for the procurement of rail vehicles. In the rail solution segment, KONČAR has won contracts for the delivery of 21 electric multiple units, the development and delivery of prototype battery-powered and hybrid-drive trains, as well as energy storage devices. These contracts also include the delivery of 20 trams in Zagreb and 30 trams in Osijek.
On the infrastructure side, KONČAR is involved in the delivery of equipment for traction substations, including railway-road crossings, while on the side of construction and reconstruction of overhead lines we have been able to participate with Dalekovod’s product portfolio. Investments in the railway sector are significant and present a major opportunity for KONČAR Group members. As a domestic industry leader and a regional leader in power engineering and rail solutions, we expect to harness these national initiatives, which hold strategic importance for the Republic of Croatia.
Our low-floor trains and trams are manufactured in accordance with environmental and economic standards, offering high-quality public transport that reduces harmful emissions produced by personal vehicles. Our new trains and trams significantly lower operational costs for customers, reduce environmental pollution, and save energy. We are currently intensifying the development and manufacturing of battery-powered trains, which have the potential to facilitate public transport in areas lacking power infrastructure or where developing such infrastructure is not cost-effective.
How are pension funds integrated into your ownership structure, and how does their presence affect the strategy and key operations of KONČAR Group?
A significant change in the ownership structure of KONČAR Group took place in 2016, when the Government sold its 22.8% share in the company. Currently, the state directly holds only 2.3 percent share in our ownership structure. The largest individual shareholders are pension funds, with Kapitalni Fond holding approximately 28% of the shares, followed by mandatory and voluntary pension funds, which collectively hold more than 50% of the ownership stake.
We consider the existing ownership structure, which includes all four domestic pension funds, to be exceptionally stable, primarily due to the nature and character of pension funds. They base their operations on a conservative investment strategy and a long-term investment horizon. The presence of all four pension funds in KONČAR's ownership structure is another recognition of their long-term interest, demonstrated by the support they have provided through their representatives on the Supervisory Board in approving all strategically important projects so far.
A stable ownership structure and the efficient cooperation of the management and shareholders have enabled us to carry out long-term planning and necessary restructuring. Pension funds are long-term investors, and the power sector needs such a long-term perspective on investment. Domestic mandatory and voluntary pension funds manage a total of EUR 18.5 billion, and it is expected that a portion of these funds will be redirected towards financing the energy transition, which is at the core of KONČAR's business strategy.