Interview with Krystyna Baran, President of the Board at WIŚNIOWSKI.
Euler Hermes Consulting analysts alarm in their report published earlier this year that the building sector is struggling with record issues regarding the financial fluidity and insolvency of businesses. What is worse, these issues are mainly concentrated around companies from Lesser Poland. Have you also noticed this disturbing phenomenon in the building industry?
It is difficult to relate to raw statistics, but I can discuss the issues I am dealing with on a daily basis. Let me begin by saying that over 25 years ago our main business problems included delayed payments, financial issues of construction companies, and bankruptcies. And nothing has really changed until this very day. Obviously, after 1989, we woke up in a vastly different economic reality, companies mushroomed, many of them are tycoons now, but just as many of them collapsed. Why? It may be primarily due to the fact that people did not have the knowledge required in management, they were not experienced enough or simply became reckless in the budding business. This story repeats itself today. Indeed, young people frequently say that right now it is much more difficult to set up a company, as ideas are wearing thin and most of them have already been executed by someone. But this is simply not true, because young people continue to start their companies and they do manage somehow – but as usual in the market game – with varying success. I am under the impression that we are making a basic mistake at the stage of teaching business. What I will say might be rather trite, but I believe that it is important. People considered as successful in business today have already gathered experience as small entrepreneurs back when communism was in full swing. It was the best lesson in economics and the mechanisms of a competitive market, without looking for any shortcuts.
So the issues the building sector is dealing with today are caused by looking for shortcuts?
I would not put it this explicitly. But you have to know the specific nature of the industry. In the building sector, you can feel the chain of payments and interdependencies very strongly. And when one company starts getting into trouble – for example because of its dishonest practices – it pulls other companies with it, so they also start having problems, because they were not paid. Examples are plenty, but I will not mention any names. Now banks, that is another story altogether. Many of them line up to get to big clients, they basically fight over those they would like to have in their portfolio and boast about them. But whenever even the slightest risk comes into play, well, the best case scenario is that they jack up interest rates, but usually they do not want to provide credit for such companies. I must admit that I understand this, this is business. Since we are talking about issues with liquidity in the building sector, I can get you a list of our partners whose rating was reduced over the course of a month and their credit line was decreased at the same time. And this is where problems start, but I think that they already teach that in secondary school that companies go bankrupt not because of losses but because of issues with liquidity.
That or sometimes just heavily overdue invoices. I have no idea why the government fails to address this common issue. When I sell goods with an extended payment period – 60, 90, sometimes even 180 days – my customers will pay me, sure, but I have to pay the VAT amount the next month. Moreover, when a customer goes bankrupt, the VAT we have already paid is not even a cost to us. And this is appalling – to put it mildly. Because if somebody deducted the tax, perhaps the tax office even returned the amount, and we have properly paid the VAT amount due and cannot even classify it as a cost, it is hard to call it unfair only.
Are these the main causes of problems in the building sector?
I believe there is one more thing behind this, and I would like to discuss it even if somebody were to take offence. A lot of people who own a business suddenly start seeing more money in their account and mistake income with profit. These are two different matters, I am quite sure they teach this at school in the first lesson in entrepreneurship.
Are you talking about contemporary times or about the crawling free market from 25 years ago when fast financial success made people unreasonable?
I am definitely talking about what is happening right now. 25 years ago, there were not this many cases of somebody building a house or buying an expensive car whenever some money appeared in the account. But this money is not theirs. I really cannot understand why the owner of a company who is behind on payments has no restraints at all when it comes to splurging on their private needs.
Smaller businesses exist because they are credited by larger ones?
This is not even living on a credit, in fact it is living on someone else’s money. There is a fundamental difference between dealing with money loaned from the bank and with money that should have been paid to the supplier.
So problems arise on a mass scale, just like in the report you mentioned, because we are reckless with the supplier’s money without caring for the short-term and long-term effects of our actions?
I dare say this is one of the major causes. A lot of newly established companies purchase land or property – because they find a great deal – for money that does not belong to them, believing that tomorrow their business will be doing just as well or even better than now. But an old Jewish saying teaches us that it will not always be like this.
In a big company, like the one you manage, do you often have to consider such issues?
– Every day. At least I think about it every day. Cold planning is key. Keeping the established budget is the alphabet, which perhaps need not even be mentioned. About a dozen years ago, I feared that we, as a company, might overinvest, but this fear was unnecessary. It was investments that were the key to Andrzej Wiśniowski’s success. My role is to keep financial discipline in check, because let us imagine that a group of our major distributors gets into considerable trouble, for example because of new regulations. This will probably not sink us, but it can make us weaker. And we must operate to survive, to grow, and above all to compete effectively in the international market. We also have to remember that our competition – contrary to us – can count on the support of their governments. Additionally, business is tricky to run because of the regulations introduced in some countries of the European Union. Let me give you a simple example. Our drivers have to drive across Europe with their payrolls in French, Italian, and German. The world has truly gone mad!
So the Polish regulations do not favour running a business?
Quite recently, I have read in “Rzeczpospolita,” a reputable Polish newspaper, that the tax office will issue decisions and the treasury office will be able to overrule them or to sustain them, but the bonuses for the officials will be directly related to sustaining the previous decision. Excuse me, I have to ask, will these regulations not impact business owners? Or the question of the reversed VAT. Our telephones were red hot, because our customers, who have been running their businesses for many years, called to ask for our interpretation of this regulation. God save us from laws that everyone can interpret in their own way. Entrepreneurs have to manage somehow, but have you ever heard of an official who suffered the consequences of a bad decision?
Bad official, good entrepreneur?
Never! I can say this with full responsibility looking back on the previous years – state offices have undergone a revolution compared to the situation from some time ago. The Polish Social Insurance Institution in particular, they have shown a very kind approach to our needs. Some time ago, officials understood a simple fact: it is not that the fate of entrepreneurs depends on the officials, but rather the opposite, the officials can function because entrepreneurs run their businesses. Officials are increasingly becoming partners for entrepreneurs. An official does not audit a company to find infringements, but to show what needs to be improved. Of course, if the same mistake continues to reoccur, the official is forced to take action. This is the sort of approach I have only previously known from the stories of people who run accounting companies, for example in Ireland.
You have spoken out about the issues of working women and social issues many times. Do you support the Polish government’s 500+ programme for families with children?
We used to joke here that since the programme is increasing the standard of living for Polish families, then there will come a time when people will use this money to buy automatic garage doors and gates. But in all seriousness, I have been observing families where the 500+ programme has considerably helped to fix the home budget. The question that needs answering is how much of an impact it will have on the liquidity of the country’s finances. All in all, you cannot spend more than you have. But I cannot understand why we needed this sort of a law, because all that needed to be done was to amend the law on social benefits, and the money would be provided for those who need it most. Certainly, in such case the marketing effect would not have been as prominent as what the legislator was counting on.
The first time you heard about the 500+ programme, did you think: “now this is going to be a problem”?
No, I did not. I might be naive, or perhaps this is my innate optimism, but I am deeply convinced that the budget would be able to support many programmes if the tax system was tightened up. It was just reported in the news that the the amount of taxes paid by the biggest Polish companies will be announced publicly. And my question is, what sort of secret is this? Already some time ago, during a management meeting, I officially announced the amount that we – the entire WIŚNIOWSKI Group – paid in 2016. So we have already done what the government is promising. So let us trade places now and let me ask you a question, how much did our company pay in taxes in 2016?
And the tax can take the shape of various dues.
I am talking about all sorts of forms, such as VAT, Social Insurance Fund (ZUS), customs duties, the State Fund for the Rehabilitation of the Disabled (PFRON), from property tax to administrative bodies. I will also add that I am asking only about the tax that was transferred physically from our account.
Since I have half a minute to answer, then calculating using the simplest method, provided that your company has a yearly revenue of PLN 600 million, I would say that you paid about PLN 100 million.
Close. In 2016 alone, we transferred over PLN 82 million in various taxes to the country budget, but this year it will be around PLN 100 million. And I repeat, we are talking about cash transferred to various state offices.
This is about PLN 7 million of taxes each month. And now let us do a quick Internet search, what can you pay for with this amount?
What can you make out of this?
Well, we would have to get into more detail, but for example, the annual budget of the Powiat Headquarters of the State Fire Service is PLN 13 million.
Okay then, let us not calculate what you can pay for with this money, because we will get dizzy. We pay PLN 90,000 for PFRON alone, even though we do employ the disabled.
If I may ask about one more thing – how big will WIŚNIOWSKI be in two years’ time? Because even when you look at the scale of expansion from the main road, you get the impression that the company will be twice as big as it used to be.
Exactly. Right now, we have two large industrial halls and we are building two more, so to simplify this, the company will grow twofold. Another functional office building will also be added.
But then, what are you going to do with the office building in which we are having this conversation right now?
Ideas are plenty and they exceed our capability, but until the right time comes, please excuse me, but we would rather prefer to keep these ideas to ourselves.
And what are your plans for the new industrial halls?
We want to expand the scope of our current business activity: garage doors and fence systems. Today, our entire steel and aluminium joinery production has to fit in a very limited area. We have to change this. It is similar with the warehouses, they restrict us a little right now.
Will the scale of the company’s production increase?
Definitely. For people from outside the company, it might already be huge, but for example without starting a new line for powder coating that is going to offer a much higher capacity, we could not grow any more, because the production limitations forced us to intentionally withdraw from some contracts.
So the production capacity of WIŚNIOWSKI will be twice as high? A revolution?
Why a revolution? Gradual, consistent growth – an effect of long-term planning. We planned to reach PLN 1 billion in turnover in 2016-2017, but we missed the mark because of production limitations, among other factors. Simply speaking: we have things to do in order to be able do even more.
WIŚNIOWSKI in the Special Economic Zone
As part of its development process, the WIŚNIOWSKI company is looking for various options for the implementation of the plans involving the expansion of the manufacturing plant. Last year, WIŚNIOWSKI began working towards being included in the Special Economic Zone (SEZ) administered by the Kraków Technology Park.
The Special Economic Zone is an administratively separate part of the country where economic activity can be conducted on special, preferential conditions. Companies working within the Special Economic Zone can for example receive public assistance in the form of tax exemptions.
The efforts proved successful and pursuant to the Regulation of the Council of Ministers of 7 August 2017, the Kraków Technology Park issued a license for the operation in the Special Economic Zone for WIŚNIOWSKI Sp. z o.o. SKA.
As part of the project, WIŚNIOWSKI will invest at least PLN 140 million to expand its manufacturing plant and to furnish it with new production lines. The planned investments should be completed in December 2019. The investment will create at least 80 new jobs.
Interviewed by: Wojciech Molendowicz