Munja: If it gets stuck with Fiat, it will succeed with real estate

By entering Fiat, Munja would gain its ‘first installation’ with an automobile manufacturer, which opens a significantly broader and safer space in the market and ensures references.

Written by: Matilda Bačelić
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Photo: Željko Jelenski

Under the hood of Fiat, Munja could soon find its place. Although the decision is not yet official, Zagreb’s Munja has entered the circle of ten suppliers that will be on Fiat’s list, as the only manufacturer of batteries and accumulators from the region. After entering Kragujevac’s Zastava, with which Munja has previously collaborated, Fiat began examining and verifying potential suppliers. The first round of verification is behind the Zagreb manufacturer, and the final decision, after a detailed audit, should be known in January. Unless the crisis cuts and stops everything in the automotive industry…

– We do not depend on Fiat nor do we build our strategy on it. If there is work, it will certainly mean a lot to us, but if there isn’t, we will live as we did before – says Ivan Miloloža, owner and CEO of Munja. By entering Fiat, Munja would gain, in automotive terms, its ‘first installation’ with an automobile manufacturer, which opens a significantly broader and safer space in the market and ensures references as the parts are on the manufacturer’s supply list. Contacts with the Volkswagen group, specifically Škoda, have been established previously, and recently there has been flirtation with Audi. The second installation represents a mass market where Munja is now fighting for a place in the sun, and a necessary condition for entering the European market is newly obtained quality certificates.

The biggest project and what Munja is building its strategy on is a new factory that could soon rise in the vicinity of Zagreb, more precisely in Brckovljani, where it will again be a neighbor to Elka. However, given the crisis that has halted almost all investments, the timeline could soon become very elastic. For now, Munja has purchased land, and the new factory is planned to be completed in the next two to three years. The value of the investment is estimated at approximately 10 million euros, and the capital for construction will be secured by selling some of Munja’s valuable real estate. By moving to a new modern factory, Munja expects to increase its capacity by one hundred percent and start competing with global players and, in the long term, consider acquisitions.

No exposure to banks

The greatest security and reason for the satisfaction of Munja’s owners are precisely the real estate whose value is constantly rising as the city expands. Thus, Munja will move for the third time in its 88-year history due to the expansion of Zagreb, and by repurposing the land in Žitnjak, where the factory is currently located, from industrial to business-residential zone and increasing the buildability of properties in Vrbanićeva and Heinzelova streets, due to the expansion of the business zone, the value of those properties has increased multiple times. How much it is at this moment is very difficult to assess, considering that it has not been revalued, but it is certainly much higher than the 30 million kuna stated in last year’s financial report. The owner’s decision not to accept numerous previous offers for the sale of those properties has proven to be more than ‘insightful’.

Numerous retail chains and builders have shown interest, as well as the City of Zagreb, which has not yet definitively stated whether it will enter this project or not.

– We do not care whether it is a private investor or the City. We are interested in any option that is profitable – says Miloloža.

On the Munja site in Žitnjak, which, along with the wider Kozari Bok zone, makes up 27 hectares, in addition to a school, kindergarten, and business skyscraper, as many as 1,835 new apartments should be built. Munja is marked as a city project, but the City of Zagreb has not managed to purchase 11 hectares on which the factory is located, where city fathers announced the construction of apartments according to the Zagreb model, but so far there is no concrete agreement. Miloloža did not reveal what the land price could be, although speculation has been around 500 euros per square meter, as, he says, they have never sought buyers nor formed a selling price.

– The market will decide what the value of those properties is – says Miloloža.

Although the global automotive industry has been almost devastated by the economic crisis, Munja is still standing firm. Miloloža estimates that due to reduced orders, revenue next year could decrease by 30 percent, but Munja’s main advantage is that it has restructured in time and raised operational efficiency as well as its very low indebtedness.

The investment cycle of seven million euros initiated in 2003 was mostly financed by a loan from HBOR, so Munja can boast that it is almost not exposed to commercial banks in these circumstances.
Munja has surprisingly few employees for a factory – only 59 compared to 293 employees in 2003, and a total of 120 people work in the group, which consists of three other companies co-owned by the Miloloža family (among which HE-TO trade owns 94 percent of Munja d.d. shares).

– With that number of people, we produce more batteries than we did with 500, and with 15 new people, we could increase production by one hundred percent – says Miloloža, adding that timely reduction of the workforce has increased work efficiency and reduced production costs. The unofficial survival threshold is 3,000 batteries per year per employee. Munja will finish this year with a profit and total revenue of around 100 million kuna at the group level.

Utilities have increased production costs

Under its brand, it exports to countries of the former Yugoslavia and to eastern markets, such as Ukraine, Russia, African countries, etc., while it sells unbranded goods to western markets. After obtaining the certificates, the situation should change in such a way that products under the Munja brand are also placed on the European market. A handicap for Munja and similar manufacturers, especially for the first installation, is that Croatia does not have a car manufacturer, given that local suppliers are preferred in the automotive industry.

After the Slovenian Vesna, once the largest battery manufacturer in the former Yugoslavia, went bankrupt, Munja remained the only serious manufacturer in the region. Topla, significantly smaller than Munja, factories in Sombor, a factory in Brčko, and in Macedonia still exist, or rather stagnate. This works in Munja’s favor as the demand for batteries is otherwise directed to the environment where it now has a ‘clean field’.

However, after the collapse of Vesna, which held 40 percent of the market in Croatia, Munja has not significantly increased its market share from 30 percent, which it had at that time. The strongest competitors in the domestic market are renowned brands such as Varta and Bosch, although there are no official data on market shares. Munja’s secure niche is only production for special purposes, namely the military.

The battle with import competition is still too heavy, and Miloloža considers the increase in administrative and utility costs as one of the main aggravating factors in that battle. For example, by increasing the price of utilities by 140 percent, the City of Zagreb directly influenced the increase of Munja’s prices by 19 percent and its exclusion from the game when it comes to public procurement where the lowest price criterion prevails.

The rise in raw material prices, which have recorded unprecedented jumps in the last two years, has affected all battery manufacturers. The relatively stable price of lead on world exchanges held for several years in the range of 400 to 500 dollars per ton, with fluctuations during periods of increased consumption or wars, given that lead is one of the main raw materials for the military industry, before rising to 1,200 dollars per ton in 2006. The reasons for such price surges were speculative in nature as there was no increased demand or disappearance of metal from the market.

– We have already survived the biggest crisis – says Miloloža. The cost of lead in Munja’s total costs is 65 percent, and it accounts for as much as 85 percent of direct costs.

The current price ranges from 900 to 1,000 euros per ton and is recording a slight but fluctuating decline. Despite such a price shock, manufacturers sold their products without major problems until this crisis as the automotive industry was booming. Now the situation is such that lead prices are still high, and there are no more orders.

– We felt the crisis at the beginning of this year, and it peaked in early November. All orders are now postponed to the first quarter of 2009, and Munja has so far lost 2.5 million euros due to canceled jobs – says Miloloža, who cites stimulating exports and protecting domestic production with measures such as lower excise rates for importing cars with Croatian components and prescribed quality levels for imported goods as necessary prerequisites for the survival and development of the domestic industry. Thanks to timely restructuring, Munja will survive unless the crisis dramatically deepens. If it deepens, there are always real estate.